Financial Data and Key Metrics Changes - Organic net sales declined by 0.4%, but excluding lost distribution and prior year effects, organic net sales grew by 1.8% year over year [16][17] - Gross margin expanded by 440 basis points year over year to 41%, driven by business recovery in infant formula [16][26] - Operating margin expanded by 550 basis points, supported by gross margin flow through and benefits from Project Energize [17][26] - First quarter EPS increased by 107% year over year to $0.60 per share [17][29] Business Line Data and Key Metrics Changes - In the Americas business, store brand OTC saw new business awards that largely offset previous losses, with infant formula net sales increasing by 19% year over year [5][20] - OTC brands achieved solid organic growth of 5.9% year over year, driven by strong sales of key products [8] - CSCI segment reported organic net sales growth of 4.5%, while CSCA segment net sales declined by 3.6% due to lost distribution [27] Market Data and Key Metrics Changes - Dollar sales across self-care categories turned negative compared to the prior year, reflecting cautious consumer behavior due to inflation and reduced consumer confidence [10][14] - Total US OTC store brand volume gained 50 basis points over the last four weeks, indicating a shift in consumer buying patterns towards value-oriented products [15] Company Strategy and Development Direction - The company is focused on its 3S plan to stabilize, streamline, and strengthen operations, with significant progress reported in the Americas business [5][22] - The synergistic relationship between store brand and OTC brands is being leveraged to drive growth, with investments in high-growth brands expected to yield benefits in the second half of the year [8][9] - The company is navigating macroeconomic uncertainties while reaffirming its adjusted EPS range and net leverage targets [11][33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertain macroeconomic environment but expressed confidence in the company's unique business model to capitalize on growth opportunities [14][23] - The company expects to mitigate tariff-related cost increases through strategic pricing actions and sourcing adjustments [13][31] - Future sales growth projections have been widened to account for macroeconomic risks, with expectations of 3% to 4.5% organic growth [31][32] Other Important Information - The company reported a cash balance of $410 million at the end of the first quarter, with typical cash outflow patterns observed [29] - The international business showed strong performance, with mid-single-digit sales growth and double-digit profit growth [88][90] Q&A Session Summary Question: Impact of tariffs on EPS for 2026 - Management expects actions taken to mitigate tariff impacts will offset any significant changes in EPS projections for 2025 and 2026 [36][37] Question: Sales ramp for infant formula - Management anticipates a similar sales trajectory in Q2, with significant growth expected in the second half due to new SKU introductions [38][39] Question: Contract manufacturing activity - There is an increase in activity for contract manufacturing, with competitors seeking domestic supply routes [42][43] Question: Organic sales performance - Organic sales were broadly in line with expectations, with upper respiratory products performing well despite some regional variances [46][48] Question: Gross margin expectations - Management maintains a full-year gross margin expectation of around 40%, despite better-than-expected Q1 performance [51][52] Question: Widening net sales range - The widening range reflects dynamic consumer patterns and ongoing work to capture market opportunities [56][62] Question: Pricing actions and brand divestitures - Pricing adjustments are being discussed with retailers, and progress on brand divestitures is ongoing, with a focus on international opportunities [70][73] Question: Impact of pharma-specific tariffs - Management anticipates potential impacts from pharma tariffs but has a mitigation plan in place [84][85]

Summary of the China Infant Milk Formula Conference Call Industry Overview - The report focuses on the **China Infant Milk Formula (IMF)** industry and its outlook in light of changing birth rates and government policies regarding fertility subsidies [1][4][11]. Key Insights 1. **Birth Rate Projections**: - A moderate decline in birth rates is expected in **2025** after the Year of the Dragon in **2024**. The anticipated year-on-year changes in birth rates for **2026-2028** are projected as follows: - Bull case: **1%** increase - Base case: **-3%** decrease - Bear case: **-5%** decrease [1][2]. 2. **Infant Population Trends**: - The decline in the infant population (ages 0-3) is expected to narrow in **2025** and **2026** compared to a **-4%** decline in **2024**. Projections for **2027** and **2028** indicate stabilization in the bull case, a **-3%** decline in the base case, and a **-5%** decline in the bear case [3]. 3. **IMF Market Dynamics**: - The IMF market is experiencing a trend of **premiumization**, with ultra-premium product sales growing despite a weak macroeconomic environment. The sales value decline narrowed from **-10%** in **2023** to **-7%** in **2024**. The average selling price (ASP) has remained stable, indicating a better product mix that offsets price competition [4][5]. 4. **Sales Forecasts**: - Sales decline in the IMF market is expected to further narrow in the following scenarios: - Base case: **-1% to -4%** - Bear case: **-2% to -6%** - Bull case: stabilization [4]. 5. **Stock Implications**: - Companies like **Feihe** and **A2 Milk** are expected to gain market share due to their strong positioning in lower-tier markets and effective execution strategies. Feihe is particularly well-positioned to benefit from the birth subsidy in lower-tier cities [5][14][18]. Additional Considerations - **Demographic Challenges**: - The female population of childbearing age (20-39 years) is projected to decline by **2-3%** annually from **2025-2028**, which poses a long-term challenge for birth rates and, consequently, the IMF market [2][8]. - **Risks**: - Key risks affecting the IMF industry include potential food safety issues, lower-than-expected gross profit margins, and a decline in the infant population size. These factors could impede stock performance and market recovery [15][21]. - **Valuation Metrics**: - Target prices for Feihe and Health and Happiness (H&H) are set based on P/E ratios and sum-of-the-parts (SOTP) approaches, reflecting the expected recovery in the market [14][16]. This summary encapsulates the critical insights and projections regarding the China Infant Milk Formula industry, highlighting both opportunities and risks for investors.