Perrigo(PRGO) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales in fiscal 2023 grew nearly 5%, driven by international and core US OTC businesses, with organic net sales increasing 2% [7][29] - Gross margin expanded 260 basis points to 38.8%, and operating margin expanded 130 basis points to 12.3% for the full year [7][30] - Full-year EPS was $2.58, an increase of 25% compared to the prior year, with strong cash flow conversion of 115% [7][31] Business Line Data and Key Metrics Changes - Significant growth was realized in skincare, nutrition, and women's health categories, partially fueled by HRA and Gateway acquisitions [8] - Healthy Lifestyle contributed strong growth, particularly in US smoking cessation products, while cough cold sales in the US grew mid-single digits [8][9] - The infant formula business faced challenges due to evolving regulatory guidelines, impacting overall performance [6][11] Market Data and Key Metrics Changes - Store brand dollar share of US OTC increased by 70 basis points, indicating a shift towards value offerings among consumers [9] - The US OTC business is performing well amid a normalizing consumer environment, with store brands gaining market share from national brands [5][6] Company Strategy and Development Direction - The company is focused on augmenting and strengthening its infant formula business while executing Project Energize to enhance operational efficiency [10][15] - The launch of Opill is seen as a key pillar for growth in women's healthcare, with plans for a comprehensive marketing strategy [20][23] - The company aims to centralize capital allocation decisions and streamline operations to enhance decision-making and simplify commercial operations [22][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in stabilizing the infant formula business despite current challenges, with expectations for recovery in the second half of 2024 [14][22] - The company anticipates mid-teens EPS growth in 2024, excluding the impact of the infant formula business, which is expected to be flat compared to 2023 [21][33] - Management emphasized the importance of executing remediation plans and enhancing brand-building capabilities to drive future growth [39][41] Other Important Information - The company reported a GAAP net loss of$ 4 million for 2023, with adjusted net income of $352 million [27] - Cash on the balance sheet increased to$ 751 million, with expectations for healthy cash flow conversion in 2024 [34][35] - The company plans to pay down $400 million in debt and increase capital investments in the infant formula business [35][36] Q&A Session Summary Question: Expectations for infant formula top line recovery - Management expects the first quarter to be the worst for infant formula, with gradual improvement anticipated throughout the year [46][47] Question: Long-term profitability of the infant formula business - The goal is to return to historical profit levels, with an ambition to achieve around$ 140 million in operating income [48][49] Question: Rollout plans for Opill - Opill is set for a nationwide rollout with strong retail and online activation plans, expected to generate significant initial revenue [50][51] Question: Confidence in resolving nutritional issues - Management expressed confidence in the remediation efforts, citing previous successful interventions in similar regulated industries [55][56] Question: Competitive landscape and share loss concerns - Management is working closely with retailers to minimize disruption and retain partnerships, emphasizing the importance of quality assurance [59][60] Question: 2025 targets and growth perspectives - Management plans to provide clearer growth perspectives during the Investor Day in the fall, focusing on executing current priorities [61][62]