Perrigo(PRGO) - 2022 Q3 - Earnings Call Transcript

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]