Perrigo(US:PRGO)2023-11-07 17:21Financial Data and Key Metrics Changes - The company reported net sales growth of 2.2% year-over-year, while organic net sales declined by 1.2% due to the impact of discontinued lower margin SKUs [6][20] - Gross margin expanded by 300 basis points to 39.5%, and operating margin increased by 130 basis points to 13.4% [6][22] - Adjusted diluted earnings per share (EPS) was $0.64, up from $0.56 in the prior quarter, reflecting a year-over-year growth of 14.3% [20][22] Business Line Data and Key Metrics Changes - In the global cough, cold, and pain products segment, net sales increased by 7% year-over-year, driven by strong seasonal selling, particularly in Europe [7] - CSCI (Consumer Self-Care International) saw organic net sales grow by 6.2%, while CSCA (Consumer Self-Care Americas) experienced a decline of 5.1% due to various factors including the discontinuation of low margin SKUs [7][8] - The infant formula segment faced challenges due to updated FDA guidelines, impacting production and safety stock levels [9][25] Market Data and Key Metrics Changes - Store-brand OTC dollar, volume, and value share grew over the last 13 weeks, indicating a consumer shift towards high-quality, value products [8] - The company anticipates continued market share gains in the Americas while focusing on rebuilding safety stock in the infant formula category [17] Company Strategy and Development Direction - The company aims to build a sustainable and value-accretive growth engine through four key pillars: consumerization and digitization, category growth partnerships, leveraging global supply chain, and optimizing a global operating model [12][14] - The anticipated launch of Opill is expected to create a new OTC category in the U.S., with a focus on innovative marketing strategies to drive consumer engagement [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and highlighted the unique market position with a $400 billion addressable market in the global self-care segment [12][13] - The company expects to normalize operations in the infant formula segment by mid-2024 and recapture most of the EPS impact from lower sales [30][25] Other Important Information - The company is working to address the impact of recent FDA guidelines on production and inventory management, which has led to lower customer in-stocks and lost sales [9][25] - The company reaffirmed its commitment to reducing net leverage, targeting around three times net debt to adjusted EBITDA by the end of 2025 [24] Q&A Session Summary Question: Impact of lower infant formula sales on 2023 guidance - Management indicated a $0.35 EPS impact from lower infant formula sales, with expectations to recapture this by mid-2024 as production normalizes [30] Question: Expected gross margin progression - Management expects to exceed the previously mentioned 200 basis points improvement in gross margin due to strategic pricing and portfolio optimization [32] Question: Store brand versus national brand share gains - Management confirmed a 0.7% volume share gain for store brands across categories, with positive trends continuing into October [36] Question: Price increases and consumer response - The company implemented nearly a 5% price increase, primarily in the infant formula segment, without significant pushback from retailers [41] Question: Production changes for phenylephrine products - Management noted that phenylephrine products account for only 2% of total net sales, with minimal impact expected from recent FDA discussions [45] Question: Response to SKU rationalization efforts - Management reported positive feedback from retailers regarding SKU rationalization, which has simplified operations and improved value creation [49][50] Question: Launch of Opill and its financial impact - The launch of Opill is expected to be dilutive in 2024, but management remains optimistic about maintaining EPS growth in the range of $2.90 to $3 [55]