Perrigo Company plc. (NYSE:PRGO) Q1 2023 Earnings Conference Call May 9, 2023 8:30 AM ET Company Participants Brad Joseph - Vice President, Investor Relations Murray Kessler - President, Chief Executive Officer Eduardo Bezerra - Executive Vice President, Chief Financial Officer Conference Call Participants Susan Anderson - Canaccord Genuity Ethan Brown - JPMorgan Daniel Biolsi - Hedgeye Operator Good morning and welcome to the Perrigo First Quarter 2023 Financial Results Conference Call. All participants wi ...

Financial Performance - Perrigo Company reported net sales of $4,451.6 million for the year ended December 31, 2022, an increase of 7.5% compared to $4,138.7 million in 2021[333]. - The cost of sales for 2022 was $2,996.2 million, resulting in a gross profit of $1,455.4 million, which is a slight increase from $1,416.2 million in 2021[333]. - Operating income decreased significantly to $78.9 million in 2022 from $410.4 million in 2021, reflecting a decline of 80.8%[333]. - The company incurred a net loss of $140.6 million in 2022, compared to a net loss of $68.9 million in 2021[333]. - Comprehensive loss for the year was $203.1 million, compared to a loss of $428.4 million in 2021, showing an improvement in overall financial performance[337]. - Net cash from operating activities was $307.3 million for 2022, compared to $156.3 million in 2021, indicating a significant increase of about 96.5%[340]. - The net loss for the year ended December 31, 2022, was $140.6 million, compared to a net loss of $68.9 million in 2021, indicating a deterioration in profitability[337]. Assets and Liabilities - Total assets increased to $11,017.3 million as of December 31, 2022, up from $10,425.7 million in 2021, reflecting a growth of approximately 5.7%[335]. - Long-term debt rose to $4,070.4 million, up from $2,916.7 million in 2021, marking an increase of approximately 39.5%[335]. - Total current liabilities decreased to $1,113.6 million from $1,587.9 million in 2021, a decline of approximately 30%[335]. - As of December 31, 2022, the total equity was $4,842.1 million, with accumulated earnings showing a deficit of $2,067.6 million[346]. - Cash and cash equivalents decreased significantly to $600.7 million from $1,864.9 million in the previous year, representing a decline of about 67.8%[340]. Acquisitions and Divestitures - The acquisition of HRA Pharma was completed for €1.8 billion (approximately $1.9 billion), generating net sales of $193.6 million and a net operating loss of $59.4 million from April 29, 2022, to December 31, 2022[410][411]. - The acquisition of Nestlé's Gateway infant formula plant and GoodStart brand for $110.0 million generated net sales of $42.7 million and operating income of $11.5 million from November 1, 2022, to December 31, 2022[419][420]. - The company has divested its Rx segment, which was reported as discontinued operations in 2021[352]. - The sale of the Latin American businesses to Advent International was completed for $23.9 million, resulting in a pre-tax loss of $1.4 million[433]. - The sale of the U.K.-based Rosemont Pharmaceuticals business generated cash consideration of approximately $195.0 million, resulting in a pre-tax loss of $21.1 million[437]. Goodwill and Intangible Assets - As of December 31, 2022, the goodwill related to the Company's Consumer Self-Care International segment was $1,446.0 million[304]. - Goodwill balance as of December 31, 2022, was $3,490.4 million, an increase from $2,999.4 million in 2021, primarily due to business acquisitions of $559.5 million[450]. - Total intangible assets as of December 31, 2022, amounted to $5,007.6 million, up from $3,683.8 million in 2021, with definite-lived intangibles increasing to $4,949.0 million[454]. - The total assets acquired from HRA Pharma were valued at $2,220.4 million, with goodwill of $559.5 million attributed to anticipated growth and synergies[415][418]. Research and Development - Research and development expenses were $123.1 million in 2022, slightly up from $122.0 million in 2021[333]. - The company incurs all research and development costs as expenses, including payments related to products under development and clinical trials[392]. Foreign Exchange and Interest Rate Risks - The Company is exposed to foreign exchange risk primarily due to operations in North America, Europe, China, and Australia[290]. - A 1% increase in interest rates would result in approximately $3.9 million of additional annual interest expense in 2023[295]. - The company entered into two non-designated currency option contracts with a total notional amount of $1.1 billion in September 2021, which was later increased to $2.0 billion in April 2022 due to market conditions[471]. - The company recorded a loss of $16.2 million and $20.9 million for the years ended December 31, 2022 and 2021, respectively, related to foreign currency options[471]. Internal Controls and Compliance - The company’s internal control over financial reporting was assessed as effective as of December 31, 2022, based on the COSO criteria[323]. - The company has not provided assurance that the FDA will approve the sale of daily oral contraceptives without a prescription in the United States[8]. Other Financial Metrics - The company reported interest expense of $156.0 million for 2022, an increase from $125.0 million in 2021[333]. - Cash dividends paid increased to $142.4 million in 2022 from $129.6 million in 2021, reflecting a rise of about 9.6%[343]. - The company reported a provision for credit losses of $3.2 million for the year ended December 31, 2022[357].

Financial Data and Key Metrics Changes - Perrigo reported a constant currency net sales increase of 12% in Q3 2022 and 14% year-to-date, with organic net sales growth of 8% in the quarter and 11% year-to-date, exceeding the long-term target of 3% [8][9] - Constant currency diluted EPS for the quarter was $0.65, up 44% year-over-year, despite higher interest expenses and a slightly increased share count [9][24] - Gross margin increased by 210 basis points year-over-year, contributing to a constant currency adjusted operating income growth of 32% [9][25] Business Line Data and Key Metrics Changes - Women's health sales grew 100% due to the addition of HRA brands, driven by increased demand for emergency contraception [10] - Skincare sales increased by 28%, while upper respiratory sales grew by 19% due to higher instances of cough and cold in Europe [11] - Nutrition business saw an 18% increase, driven by heightened infant formula demand amid a national brand shortage [12] Market Data and Key Metrics Changes - Perrigo gained market share across all US business units and major categories, with significant gains in e-commerce and store brands [8][14] - The total US OTC market growth slowed to 2.3% in the latest 13 weeks, while Perrigo's retail growth was up 5.8% [15] - The company expects unfavorable currency translation to impact full-year 2022 net sales by approximately $230 million [16] Company Strategy and Development Direction - The integration of HRA remains a cornerstone of Perrigo's growth strategy, with total synergy estimates raised to €50 million by the end of 2024 [17][31] - The company is focused on reducing leverage, aiming for around 3x net leverage by the end of 2024, while continuing to invest in supply chain initiatives [67][69] - Strategic pricing actions and cost-saving measures are being implemented to offset inflationary pressures [16][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by inflation and macroeconomic factors but expressed confidence in achieving 2023 financial goals [7][22] - The company remains optimistic about its fundamentals, with expectations for gross margin expansion and market share growth [22][73] - Management indicated that the supply chain reinvention program is expected to deliver significant incremental operating income in 2023 [19] Other Important Information - Perrigo's cash on the balance sheet was $469 million at the end of Q3, down from $485 million at the end of Q2 [29] - The company invested $70 million in capital expenditures and returned $107 million to shareholders through dividends in the first nine months of the year [30] Q&A Session Summary Question: Can you provide details on the Gateway acquisition's revenue run rate and its impact on capacity? - Management indicated that the Gateway acquisition will significantly enhance capacity and is expected to contribute to operating income [35][39] Question: How did the HRA business perform relative to expectations? - The HRA business is performing as planned, with a gross margin impact of over 200 basis points in the quarter [41][42] Question: What is the outlook for gross margins in 2023? - Management expects gross margins to improve, with recovery from previous freight cost increases and ongoing supply chain initiatives [50][52] Question: How will operating expenses trend going forward? - A slight increase in operating expenses is anticipated in Q4 due to seasonal factors and increased promotional activities [46] Question: What are the capital allocation priorities moving forward? - The primary focus is on reducing leverage while continuing to invest in strategic initiatives that yield significant operating income returns [67][69]

Financial Data and Key Metrics Changes - The company reported a consolidated GAAP loss from continuing operations of $65 million for Q2 2022, translating to a loss of $0.48 per diluted share. Adjusted net income from continuing operations was $59 million, with adjusted diluted EPS at $0.43, or $0.49 on a constant currency basis, compared to $0.50 in the prior year quarter [28][29] - Net sales increased by 14.3%, with organic net sales growing by 17.2%, driven by strong consumer demand [30] - Gross profits grew by 8.7%, or 17% on a constant currency basis, despite inflationary pressures [30] Business Line Data and Key Metrics Changes - Consumer Self Care Americas (CSCA) net sales increased by 17%, driven by strong demand for cough and cold products and nutrition [32] - The Consumer Self Care International (CSCI) segment saw net sales increase by 25.8% on a constant currency basis, with organic net sales growing by 10.6% [33] - The women's health business grew by 77%, primarily due to the addition of HRA businesses and increased demand related to recent judicial decisions in the U.S. [14] Market Data and Key Metrics Changes - The upper respiratory revenues grew by 44% globally, attributed to a rebound in cough-cold sales compared to the previous year [13] - The nutrition business saw a 31% increase, primarily driven by infant formula demand due to a competitor's recall [14] - E-commerce sales grew more than 25% in the first half of the year, now accounting for over 12% of global sales [17] Company Strategy and Development Direction - The company is focused on optimizing and accelerating its self-care strategy, with plans to integrate the HRA portfolio and achieve related cost synergies [24] - A global supply chain initiative is underway, aiming for $100 million to $300 million in net cost savings over five years [20][22] - The company is expanding its product categories to include women's health and skin care, with skin care now being the second largest global category [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing challenges from inflation and labor shortages but expressed confidence in achieving gross margin recovery [19][43] - The company anticipates continued strong demand for its products, particularly in the context of the upcoming cough-cold season [48] - Management remains optimistic about the future, highlighting a strong pipeline of innovation and the successful execution of their self-care strategy [64] Other Important Information - The company closed on a $2.6 billion senior secured credit facility, locking in favorable rates [8] - The FDA approved the first-ever branded Rx to OTC switch for Nasonex, marking a significant regulatory achievement [18] - The company is committed to maintaining its dividend growth, with a strong track record of 18 consecutive years of increases [35] Q&A Session Summary Question: Update on trade inventory levels and growth outlook - Management confirmed that inventory levels are appropriate, with no significant influence on business going forward [39][40] Question: Comments on gross margin expectations - Management indicated that costs have continued to rise, but they remain on track to achieve their gross margin recovery goals [45] Question: Impact of recession on business - Management noted a more balanced portfolio now, with a shift towards store brands benefiting from potential downtrading during a recession [60] Question: Update on HRA deal accretion - Management confirmed that the $150 million operating profit impact from the HRA acquisition remains on track, though currency adjustments may affect it [62]

Perrigo Company plc (NYSE:PRGO) Q1 2022 Earnings Conference Call May 11, 2022 8:30 AM ET Company Participants Bradley Joseph - Vice President of Investor Relations Murray Kessler - President and Chief Executive Officer Raymond Silcock - Chief Financial Officer Conference Call Participants Chris Schott - JPMorgan Elliot Wilbur - Raymond James Operator Good day and welcome to the Perrigo First Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instruction ...

Financial Data and Key Metrics Changes - For the full year 2021, adjusted EPS was $2.06, down 12% from the previous year due to a weak cough/cold season and supply chain disruptions [10][21] - Fourth quarter net sales grew 5%, adjusted operating income increased 12%, and adjusted diluted EPS rose 28% compared to the previous year [11][20] - Full year net sales increased 1.2%, while organic net sales declined 0.7% primarily due to lower cough/cold product sales [25][26] Business Line Data and Key Metrics Changes - Consumer Self-Care Americas (CSCA) net sales grew 5% in Q4, driven by a rebound in cough/cold products [27] - Consumer Self-Care International (CSCI) net sales increased 4.6% in Q4, with a strong performance in cough/cold products and skincare [29] - Full year net sales for CSCI increased 3.6%, while organic sales were flat due to a weak cough and flu season [30] Market Data and Key Metrics Changes - In the U.S., cough/cold product sales grew 28% in Q4, reflecting a return to strong demand [11][12] - The U.S. OTC market grew 17.5%, Nutrition grew 24.7%, and Oral Care grew 9.1% in Q4 [12] - European demand for essential products increased by 33%, while self-care products grew by 2% [12] Company Strategy and Development Direction - The company aims to focus solely on consumer self-care following the divestiture of its Rx business for $1.6 billion [7] - Plans to acquire HRA Pharma for €1.8 billion, expected to add €400 million in revenue and €150 million in operating income by 2023 [7] - The company is focused on executing its self-care strategy, integrating HRA, and stabilizing gross margins through supply chain redesign [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about entering 2022 with strong top-line momentum and consumer demand [12][14] - Gross margin pressure is expected to continue in the first half of 2022, with improvements anticipated in the second half [15] - The company is committed to achieving its original financial objectives and expects adjusted EPS in the range of $2.10 to $2.30 for 2022 [15][32] Other Important Information - The company settled a significant Irish tax issue for €266 million, reducing financial overhangs [7][8] - Cash on the balance sheet at year-end was $1.9 billion, down from $2.1 billion at the end of Q3 [31] Q&A Session Summary Question: Gross margin dynamics and second half margin improvement - Management discussed factors affecting margin improvement, including the impact of Rx divestiture and pricing actions [34][36] Question: 2023 EPS range and recovery from 2021 impacts - Management maintained a mid-$3 EPS target for 2023, driven by cough/cold recovery and HRA contributions [39][40] Question: G&A management and R&D sustainability - Management indicated ongoing opportunities for G&A management and confirmed R&D levels remain stable [44][47] Question: New product flow and Rx-OTC switches - Management highlighted ongoing opportunities in Rx-OTC switches and a robust pipeline of new products [50][52] Question: Growth outlook for CSCA vs. CSCI - Management noted that both segments are expected to have similar growth rates, with a focus on cough/cold recovery [55][58] Question: Cough/cold inventory and forecast conservatism - Management acknowledged potential conservatism in forecasts regarding inventory replenishment [61][62] Question: Addressing manufacturing inefficiencies - Management outlined plans for improving manufacturing efficiencies without significant facility rationalization [64][66]

Financial Data and Key Metrics Changes - The company reported a GAAP loss from continuing operations of $54 million for Q3 2021, translating to a loss of $0.40 per diluted share, while adjusted net income was $61 million, with adjusted diluted EPS at $0.45, reflecting a 25% decline year-over-year [26][24][25] - Consolidated net sales increased by 4% year-over-year, despite a $43 million impact from supply chain disruptions, with organic net sales growing by 2.6% [10][29] - Gross margin for the quarter was 34.4%, down 480 basis points from the previous year, primarily due to lower operating efficiencies and higher material and freight costs [30][29] Business Line Data and Key Metrics Changes - In the Consumer Self-Care Americas segment, net sales increased by 4.6%, driven by e-commerce and improved cough/cold sales, with organic net sales growing by 4.2% [32] - The Consumer Self-Care International segment saw net sales grow by 2.8%, aided by favorable currency and acquisitions, although organic net sales decreased by 0.6% [33] - The cough/cold sales in the U.S. experienced a 21% year-over-year growth, while global e-commerce sales grew by 36% [9][10] Market Data and Key Metrics Changes - The total OTC category in the U.S. grew by 18.1% year-over-year, with total nutrition (infant formula and electrolytes) up 29.9% and oral care up 9.7% [11] - The company lost approximately 1.5 share points in the store brand OTC market, attributed to increased consumption of national brands rather than a switch from store brands [11] - Consumer takeaway in the CSCI division was up nearly 10% year-over-year, indicating strong market demand [12] Company Strategy and Development Direction - The company completed its transformation to a consumer self-care focus by divesting its generic Rx business for $1.6 billion and announcing the acquisition of HRA Pharma for €1.8 billion, expected to add $400 million in revenue and $150 million in operating income by 2023 [6][7] - The management emphasized a commitment to long-term profitable growth and plans to recover from temporary adverse impacts caused by supply chain disruptions and higher input costs [22][24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged significant challenges due to global supply chain disruptions, which impacted the ability to meet consumer demand and led to higher costs [6][9] - The company expects strong consumer demand to continue in Q4, but also anticipates ongoing challenges from higher input costs and supply chain issues [14][20] - Management remains confident in achieving long-term growth targets, despite short-term setbacks, and believes that the negative impacts from the current environment will be recaptured over the next two years [22][23] Other Important Information - The company settled a significant Irish tax liability for €297 million, which was a major overhang for the business, and this settlement was funded by a €355 million arbitration award received during the quarter [8][7] - Operating cash flow for the quarter was $350 million, bolstered by the Belgian arbitration award [35] Q&A Session Summary Question: Concerns about gross margins and their volatility - Management acknowledged the complexity of gross margin performance, attributing significant impacts to supply chain disruptions and inflation, with expectations for recovery as conditions normalize [37][39] Question: Clarification on absorption issues and inventory management - Management explained that unabsorbed overhead costs were due to lower production levels during a weak cough/cold season, which would gradually reverse as demand increases [44][45] Question: Market share dynamics in the OTC space - Management indicated that while there were short-term share losses in certain categories, recent management changes have led to significant customer wins, and they are optimistic about regaining market share [48][49] Question: Bridging current EPS guidance to 2023 targets - Management outlined that recovering cough/cold sales and the impact of the HRA acquisition would be key drivers in achieving the 2023 EPS targets, with expectations for gradual improvement in gross margins [52][53] Question: Update on tax issues and potential new products - Management provided insights into ongoing tax matters, including the IRS case linked to previous acquisitions, and discussed the potential for new RX to OTC switches that could enhance future growth [64][71]

Summary of Perrigo Company plc Conference Call on HRA Pharma Acquisition Company Overview - **Company**: Perrigo Company plc (NYSE: PRGO) - **Event**: Conference Call regarding the acquisition of HRA Pharma - **Date**: September 8, 2021 Key Points on the Acquisition - **Acquisition Announcement**: Perrigo announced a binding offer to acquire HRA Pharma, a leading global consumer self-care company [4][10] - **Strategic Importance**: The acquisition is seen as a significant step in Perrigo's transformation from a healthcare company to a consumer self-care company, aiming for sustainable growth [6][10] - **Financial Impact**: The acquisition is projected to add approximately €400 million in net sales by 2023, with expected mid-teen percentage growth [20][21] - **Purchase Price**: The acquisition is valued at $1.8 billion, approximately $2.1 billion in today's conversion rate, with an enterprise value to expected 2022 adjusted EBITDA of 18 times [21][22] HRA Pharma Overview - **Brand Portfolio**: HRA's brands are category leaders globally, including Compeed (70% market share in EU), ellaOne (50% market share in EU), and Mederma [12][15][16] - **Growth Potential**: HRA is expected to drive Perrigo's growth beyond CPG averages, with significant potential for expansion into adjacent categories and geographies [12][14] - **Operating Margins**: HRA's operating margins are projected to approach 30%, contributing positively to Perrigo's overall financial profile [21] Financial Projections and Synergies - **Cost Synergies**: Expected operating synergies of over $30 million by 2023, primarily through leveraging Perrigo's existing sales force and distribution capabilities [19][43] - **EPS Impact**: The acquisition is expected to be immediately accretive, adding around $1 to adjusted EPS in the first full year [21][28] - **Leverage**: Post-acquisition leverage is expected to be around four times EBITDA in 2022, decreasing to below three by 2024 [39] Strategic Vision and Future Outlook - **Transformation Journey**: Perrigo has undergone significant transformation since May 2019, focusing on divesting non-core businesses and enhancing its consumer self-care portfolio [6][24] - **Market Positioning**: The acquisition positions Perrigo as a major player in Europe, enhancing credibility and revenue synergies [18][29] - **Long-term Growth**: The company aims for double-digit revenue growth and improved margins, with a focus on continuous improvement and reducing uncertainty [29][28] Additional Insights - **Management Team**: The existing HRA management team will remain post-acquisition, ensuring continuity and expertise [17] - **Regulatory Approvals**: The acquisition is subject to regulatory approvals, expected to be completed in the first half of 2022 [22] - **Market Dynamics**: The acquisition is seen as a strategic move to capitalize on self-care trends and enhance Perrigo's growth trajectory [10][11] This summary encapsulates the key points discussed during the conference call regarding Perrigo's acquisition of HRA Pharma, highlighting the strategic importance, financial implications, and future growth potential of the deal.

Perrigo Company plc (NYSE:PRGO) Q2 2021 Results Conference Call August 11, 2021 8:00 AM ET Company Participants Murray Kessler – President and Chief Executive Officer Bradley Joseph – Vice President-Global Investor Relations Ray Silcock – Chief Financial Officer Conference Call Participants Elliot Wilbur – Raymond James Chris Schott – JPMorgan David Steinberg – Jefferies Operator Good morning, ladies and gentlemen, and welcome to the Perrigo Second Quarter 2021 financial results Conference Call. All partic ...