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01/10 15:51
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A indicate a positive outlook. Despite a decline in gross profit and operating income, the company is optimistic about the second half, expecting a 25% revenue increase and high single-digit organic sales growth. The strategic pricing and retailer discussions are productive, and consumer trends favor private label products. While there are challenges, such as infant formula market volatility, the company's proactive measures and confidence in achieving its EPS target suggest a positive stock price movement.
Infant Formula Business Net Sales Grew 9% year-over-year, led by store brand formula. Growth was partially offset by a significant decline in the Good Start brand due to lost distribution.
Organic Net Sales Growth Flat year-over-year, including OTC brand growth of 3.6%. Decline in total category consumption in the U.S. and decelerating consumption in the EU limited top-line growth.
Gross Margin Declined 250 basis points year-over-year, driven by divested businesses, isolated production variability in infant formula, and lower plant overhead absorption in OTC.
Organic Operating Income Growth (Year-to-Date) 28.3% growth year-over-year, driven by infant formula recovery and accretive initiatives like Project Energize and Supply Chain Reinvention.
Earnings Per Share (EPS) Grew 7.5% in the quarter and 12.5% organically year-over-year. Year-to-date EPS grew 41% or 53.3% organically, driven by infant formula recovery, accretive initiatives, and lower interest expense.
Pain and Sleep-Aids Category Grew 8% year-over-year, driven by restored supply of Solpadeine in Ireland and the U.K.
Nutrition Category Added nearly 1 percentage point of growth, reflecting continued recovery in the infant formula business.
Upper Respiratory Category Added 0.7 percentage points of growth, primarily from new distribution and share gains in the U.S. store brand allergy amid softer seasonality.
Jungle Formula (Insect Repellent) Grew 14% year-over-year and achieved record market share in the U.K. due to full brand activation during the summer season.
Compeed (Blister and Wound Care) Grew 6% year-over-year and achieved record share in France, Spain, and Italy, reflecting upgraded brand-building capabilities.
Digestive Health Category Impacted by continued lower consumption of proton pump inhibitors. Store brand volume share has steadily increased despite the total PPI market decline.
Oral Care Category Declined due to lost distribution of lower-margin products, tariff impacts, and a competitive landscape.
Project Energize Savings Generated $159 million in annual run rate gross savings, an increase of $30 million during the first half of the year.
Supply Chain Reinvention Program On track to deliver $150 million to $200 million in benefits by the end of the year.
Second Quarter Gross Profit $403 million, declined $30 million year-over-year, primarily due to an $18 million impact from divestitures and exited businesses.
Second Quarter Operating Income $135 million, decreased $4 million year-over-year, including a $9 million impact from divested businesses and exited products.
Second Quarter Operating Cash Flow $76 million, bringing year-to-date operating cash flow to $11 million. First quarter cash outflow included rebuilding infant formula inventories and a securities litigation settlement.
Infant Formula Business: Net sales grew 9%, driven by store brand formula and contract business, collectively up more than 30%. However, the Good Start brand saw a significant decline due to lost distribution.
OTC Brands: Organic net sales grew 3.6% year-over-year. Jungle Formula insect repellent grew 14%, achieving record market share in the U.K. Compeed blister and wound care grew 6%, achieving record share in France, Spain, and Italy.
New Product Launches: Broncho 8in1 launched in Spain, outperforming the market by 30 share points. ellaOne emergency contraceptive brand gained share due to a new marketing campaign.
Market Share Gains: Store brands gained volume and unit share in the U.S. amidst uncertain macro environment. Perrigo allergy product sales at a top retailer increased by 19% year-to-date, while the category declined by over 2%.
Geographic Expansion: Jungle Formula achieved market leadership in Italy for the first time, reaching record seasonal market share.
Project Energize: Annual run rate gross savings reached $159 million, an increase of $30 million in the first half of the year.
Supply Chain Reinvention: On track to deliver $150 million to $200 million in benefits by the end of the year.
Portfolio Simplification: Announced sale of Dermacosmetics business for up to EUR 327 million, with EUR 300 million in cash upfront. Proceeds will be used to strengthen the balance sheet and accelerate net leverage goals.
Category-Led Growth Model: Scaling a category-led market activation growth model to improve execution, innovation, and marketing.
Infant Formula Business: The recovery in the infant formula business is slower than anticipated, with net sales projected to be below prior year levels. Production variability led to $11 million in inventory scrapping, and there is a need for further work to stabilize this segment.
U.S. OTC Store Brand: While new business awards outpaced lost distribution for the first time since 2024, the stabilization efforts are still ongoing. The company faces challenges in maintaining competitiveness and growing market share in a soft consumer environment.
Gross Margin Decline: Gross margin declined by 250 basis points in the quarter, driven by divested businesses, production issues in infant formula, and lower plant overhead absorption in OTC and Oral Care.
Soft Consumer Environment: Declining category consumption in the U.S. and EU, coupled with waning consumer confidence and soft seasonal trends, are limiting top-line growth.
Digestive Health and Oral Care: Digestive Health was impacted by lower consumption of proton pump inhibitors, and Oral Care faced challenges due to lost distribution of lower-margin products and tariff impacts.
European Market Stock Levels: Stock in trade ticked higher in certain European markets due to lower consumption trends, which the company is actively monitoring.
Tariff Impacts: Tariffs on pharmaceutical ingredients are expected to increase global cost of goods sold by $50 million to $60 million annually, equating to approximately 2% of global COGS. The company plans to offset these impacts through pricing and supply chain actions.
Infant Formula Business: Net sales grew 9% in Q2 2025, driven by store brand and contract business up more than 30%. However, the Good Start brand saw a significant decline due to lost distribution. Recovery efforts include promotional activities, refreshed labels, enhanced marketing, and launching the remaining 20% of the planned 2025 assortment. Recovery is slower than anticipated, but steady progress is being made.
U.S. OTC Store Brand: New business awards outpaced lost distribution for the first time since 2024. Growth is expected in the second half of 2025, supported by tailored demand generation campaigns and strengthened retail partnerships. Volume growth is six times faster than the total OTC market, with a share gain of 70 basis points over the last 13 weeks.
Dermacosmetics Business Sale: The sale is expected to close in Q1 2026, with proceeds prioritized towards strengthening the balance sheet and accelerating net leverage goals. The transaction sharpens the strategic focus on high-growth brands expected to deliver $100 million to $200 million in incremental net sales by 2027.
Project Energize and Supply Chain Reinvention: Project Energize is generating $159 million in annual run rate gross savings, and the Supply Chain Reinvention program is on track to deliver $150 million to $200 million in benefits by the end of 2025.
2025 Financial Outlook: Full-year EPS target range reaffirmed at $2.90 to $3.10 per share, equating to strong double-digit growth. Gross and operating margins are expected to remain on track. Reported and organic net sales growth are expected towards the lower end of previously communicated ranges due to slower infant formula recovery and OTC market consumption trends.
Tariffs Impact: Estimated gross increase to global cost of goods sold in Q4 2025 is $10 million to $20 million, and $50 million to $60 million on a full-year basis. These impacts are expected to be offset through strategic pricing actions, in-sourcing, and other supply chain measures.
Dividends paid: Year-to-date, the company returned $80 million to shareholders through dividends.
Share repurchase: No mention of a share repurchase program was made in the transcript.
The earnings call reveals mixed signals. Basic financial performance shows some decline in gross profit and margin, but EPS grew slightly. Product development is hindered by slower-than-expected recovery in Infant Formula. Market strategy shows potential with new SKUs, though facing execution challenges. Expenses are managed well, but tariffs are a concern. The shareholder return plan remains stable. Q&A highlights management's unclear responses on critical issues, adding uncertainty. Overall, the sentiment is neutral, with no significant catalysts or detractors to drive the stock price significantly in either direction.
The earnings call summary and Q&A indicate a positive outlook. Despite a decline in gross profit and operating income, the company is optimistic about the second half, expecting a 25% revenue increase and high single-digit organic sales growth. The strategic pricing and retailer discussions are productive, and consumer trends favor private label products. While there are challenges, such as infant formula market volatility, the company's proactive measures and confidence in achieving its EPS target suggest a positive stock price movement.
The earnings call presents several challenges: increased tariffs impacting COGS, supply chain issues, and declining consumer confidence. Despite strong financial metrics like EPS and margin growth, the cautious consumer behavior and regulatory uncertainties weigh heavily. The Q&A reveals concerns about tariff impacts and unclear management responses. With no share buyback plan and a negative sentiment from analysts, the stock is likely to see a negative reaction. The lack of a clear market cap makes it difficult to assess volatility, but overall sentiment suggests a -2% to -8% movement.
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