Perrigo(US:PRGO)2023-05-09 16:32Financial Data and Key Metrics Changes - In Q1 2023, Perrigo achieved constant currency net sales growth of 13% and organic net sales growth of 6.4% despite challenges from voluntary recalls and portfolio optimization initiatives [14][22] - Adjusted diluted EPS grew by 36% year-over-year, or 47% on a constant currency basis, reaching $0.45 per share [22][24] - Gross margin improved by 400 basis points, driven by both the legacy business and higher margin acquisitions [14][25] Business Line Data and Key Metrics Changes - The CSCA Nutrition business saw net sales grow by 10%, driven by strong growth in the Contract Infant Formula business and an additional $36 million from the GoodStart acquisition [18][19] - The OTC business grew by 9% in total, with U.S. OTC organic growth at 7.3% [16][18] - The CSCI business grew 24% in constant currency, with 11% organic growth, benefiting from strong EU consumption and strategic price increases [16][18] Market Data and Key Metrics Changes - European consumption is at a four-year high, driven by a strong cold season, with the Compeed brand seeing a 19% increase in consumer takeaway [14][15] - U.S. oral care consumption grew by 20%, with Perrigo regaining the number two share position in the categories it competes in [15][16] - The company reported strong demand in anti-parasite and insect repellent categories, contributing positively to CSCI growth [15] Company Strategy and Development Direction - The management is focused on operational execution and consistent delivery of results, with a strategy termed "optimize and accelerate" [6][7] - The integration of recent acquisitions, such as HRA and GoodStart, is on track, with expected significant benefits [7][10] - The company is investing in supply chain reinvention to optimize operations and standardize nearly 1,000 SKUs by early 2024 [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate challenges, including inflation and supply chain issues, while maintaining strong financial performance [30][31] - The elimination of a significant tax overhang has reduced uncertainty in the investment thesis [9][30] - The FDA's potential approval of the Opill oral contraceptive is seen as a significant opportunity for growth in the women's health space [13][51] Other Important Information - The company has successfully resolved a major tax assessment of $843 million without any payment required [9] - Operating cash flow for the quarter was $19 million, with cash on hand at $553 million [27][28] - The company is reaffirming its 2023 guidance, anticipating higher costs in the CSCA infant formula business but planning pricing actions to offset these costs [28][29] Q&A Session Summary Question: Can you provide more details on the gross margin improvement? - Management noted that the gross margin increased by 400 basis points, with contributions from various business segments, despite impacts from recalls and distribution transitions [37][39] Question: What is the expected impact of FDA changes on the infant formula business? - Management indicated that while there will be some negative impact on sales and margins due to new regulatory requirements, pricing actions will help offset these costs [42][44] Question: How is the company managing inventory levels? - Management stated that they are making progress in inventory management, but some categories still face challenges in returning to normal stock levels [46][48] Question: What are the expectations for the Opill product launch? - The potential launch of Opill is not included in current financial models, but management estimates it could generate approximately $100 million in revenue once approved [50][51] Question: How does the company view the competitive landscape between private label and national brands? - Management observed that private label volumes are growing while national brand volumes are declining, indicating a shift in consumer preferences [61][62]