Summary of Conference Call Company Overview - The company discussed its ongoing strategy, emphasizing that it is on track with its 3S plan: stabilizing the business, streamlining operations, and strengthening the brand [1][2] - The company operates in a dynamic consumer environment, particularly in the U.S. market [2] Key Industry Insights - The U.S. store brand is gaining market share, with a category-led growth model showing meaningful results [3][4] - Infant formula, which constitutes about 10% of revenue, remains a strategic priority, with investments calibrated to balance resilience and maximize returns [3][7] - The fastest-growing segment of the infant formula market currently lacks a store brand equivalent, presenting a significant opportunity [8] Financial Performance - The company reaffirmed its fiscal year 2025 financial outlook, expecting organic net sales growth towards the lower end of the target range of 1.5% to 4.5% [8] - The Americas business is expected to drive growth, with a projected organic growth of approximately $200 million in the second half compared to the first half [9] - The OTC business is anticipated to contribute 75% of the growth, with net new business wins of $70 to $80 million [10] - The company is on track to deliver an adjusted gross margin target of 40% [11] Strategic Initiatives - Project Energize and supply chain reinvention are yielding tangible benefits, with brand-building investments showing early results [5] - The company is focusing on regaining share among new mothers in the infant formula category, with new SKUs being rolled out [22][24] - The company has seen a strengthening of store brand OTC share, benefiting from consumer trading down to private label products [28] Market Dynamics - The company did not experience significant destocking at retail, and its OTC store brand has grown share [26] - The company is leveraging its extensive portfolio of 100 molecules to drive growth across multiple brands and geographies [35][38] - The UK market has achieved 80% household penetration, indicating strong brand presence [40] Future Outlook - The company expects significant revenue growth from the recovery of the infant formula segment and increasing store brand OTC household penetration [66] - There is a focus on improving operational leverage and expanding into new markets to enhance margins [71] - The company aims to improve free cash flow over net sales and reduce net leverage to attract more investors [76] Additional Considerations - The company anticipates a potential impact of $10 to $20 million on COGS due to tariffs, with plans to offset this through pricing strategies [61][63] - The company is committed to long-term value creation and is focused on executing its strategy with discipline [15][16]

Financial Data and Key Metrics Changes - Perrigo's organic net sales growth in Q2 was flat compared to the prior year, with OTC brand growth of 3.6% [9] - Year-to-date organic growth was also flat, but up nearly 1% excluding prior year benefits and lost distribution [9] - Gross margin declined due to divested businesses and isolated production variability in infant formula, with organic operating income growth at 28.3% year-to-date [11][30] - EPS in Q2 grew 7.5% or 12.5% organically, and year-to-date EPS increased by over 50% organically [12][35] Business Line Data and Key Metrics Changes - The infant formula business net sales grew 9%, driven by store brand formula, while the Good Start brand experienced a significant decline due to lost distribution [6][16] - Pain and sleep aids grew 8%, contributing to total growth, while upper respiratory products added 0.7 points primarily from new distribution [12][13] - OTC brands delivered organic net sales growth of 3.6% year-over-year, with Jungle Formula growing 14% and Compie achieving record share in several European markets [13][14] Market Data and Key Metrics Changes - Declining total category consumption in the U.S. and decelerating consumption in the EU limited top-line growth, but store brands gained share as consumers sought value [10] - Store brand OTC is gaining share, with Perrigo's allergy product sales up almost 19% at a key retailer despite overall category decline [20][64] - The company is seeing an acceleration in consumers trading down to private label products, with store brand OTC gaining volume and unit share [64] Company Strategy and Development Direction - The company is focused on its 3S plan: stabilize, streamline, and strengthen, with significant steps taken to enhance its self-care organization [5][8] - The sale of the derma cosmetics business for up to EUR 327 million is aimed at sharpening strategic focus on core high-growth brands [6][21] - The company is scaling its category-led market activation growth model to unlock portfolio potential and enhance brand building activities [7][23] Management's Comments on Operating Environment and Future Outlook - Management described the market as fluid and volatile, with heavy promotions from competitors impacting share growth expectations [44] - Despite challenges, the company remains confident in achieving its EPS target, needing only a 3% increase in the second half compared to the previous year [48][49] - The company reaffirmed its full-year EPS outlook, expecting strong double-digit growth despite anticipated lower net sales growth [38][90] Other Important Information - The company is on track to achieve its 2025 operating cash flow conversion target of approximately 100% to adjusted net income [36] - Net leverage to adjusted EBITDA is currently at 3.9x, with a target of approximately 3.5x by year-end [36][37] - The company plans to offset tariff impacts through strategic pricing actions and supply chain adjustments [40][63] Q&A Session Summary Question: Insights on the infant formula market and competitor responses - Management noted that the market is fluid with heavy promotions from brands, and while store brand volume continues to grow, share growth has been dampened by new entrants [44][45] Question: Building blocks for achieving guidance in the second half - Management confirmed that the EPS requirement for the second half aligns with guidance, with significant growth expected from new OTC store brand contracts and improved demand generation activities [51][53] Question: Strategic pricing actions and retailer conversations - Management indicated that discussions with retailers are positive, with expectations to offset tariff impacts through pricing actions across both branded and private label OTC [62][63] Question: Changes in expectations for Opill and marketing plans - Management expressed satisfaction with Opill's performance, noting double consumption and plans to continue targeted marketing to specific consumer cohorts [74][75] Question: Confidence in addressing increased product scrap in infant formula - Management reassured that the increased scrap was an isolated incident caught by quality systems, and confidence is high that it will not continue to impact margins [82][84] Question: Long-term guidance implications from updated expectations on infant formula - Management stated that while the ramp-up has been slower than expected, there is no change to long-term outlook, and efforts to rebuild market share continue [86][87]