Perrigo Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 5, 2026

Key Takeaways

  • Positive Sentiment: Market share gains continued despite weak categories: U.S. store-brand OTC volumes grew 1.5% and gained 50 basis points of share, while European key brands grew 3.3% and also gained 50 basis points.
  • Positive Sentiment: Perrigo reaffirmed its full-year 2026 outlook, citing improving category trends, innovation and distribution gains, operational savings, and lower interest expense following debt repayment.
  • Negative Sentiment: Q2 core net sales fell 3.1% and core adjusted EPS declined to $0.46, while core adjusted gross margin dropped 250 basis points to 37%. Results benefited from approximately $10 million in tariff recoveries and a $6 million CEO-transition benefit, limiting the significance of the earnings beat.
  • Positive Sentiment: The company applied most of the $359 million Dermacosmetics sale proceeds to debt reduction, lowering its revolving credit balance, while its operational enhancement program remains on track to generate $80 million–$100 million in savings by 2027.
  • Neutral Sentiment: Strategic reviews of the infant formula and oral care businesses are progressing, with Perrigo considering optimization, partnerships, or divestitures; management said improved infant-formula performance provides greater optionality but does not alter the review process.
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Earnings Conference Call
Perrigo Q2 2026
00:00 / 00:00

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Operator

Good morning, ladies and gentlemen, and welcome to the Perrigo Q2 2026 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 5, 2026. I would now like to turn the conference over to Eric Jacobson, the Global Investor Relations. Please go ahead, sir.

Eric Jacobson
Eric Jacobson
VP of Global Investor Relations at Perrigo

Good morning, and good afternoon, everyone. Welcome to Perrigo's second quarter 2026 earnings conference call. A copy of the release we issued today and the accompanying presentation are available within the investors section of the perrigo.com website. Joining today's call are Perrigo's Interim President and CEO, Albert Manzone, and CFO, Eduardo Bezerra. During this presentation, participants will make certain forward-looking statements. Please refer to the slides for information regarding these statements, which are subject to important risks and uncertainties. We will reference adjusted financial measures that are non-GAAP in nature. See the appendix to the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Now to the agenda. First, Albert will discuss the leadership transition and his priorities. He will review our progress against the Three-S plan, provide a market overview, and discuss our second quarter performance.

Eric Jacobson
Eric Jacobson
VP of Global Investor Relations at Perrigo

Albert will close with an update on the key priorities expected to support improved execution and long-term value creation. Eduardo will provide a financial review and discuss our 2026 outlook. With that, I'll turn it over to Albert.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thanks, Eric. Good morning, good afternoon, and thank you for joining today's call. I'd like to start by stating that it is an honor and an enormous responsibility to serve as Perrigo's Interim President and CEO. I want to assure our customers, our investors, and my fellow Perrigo colleagues that I am 100% committed to our mission of being a world leader in affordable consumer self-care. We have important work ahead of us, and I am moving quickly to advance our key priorities. I have served on Perrigo's board since 2022, and I have spent more than three decades leading and transforming consumer businesses at critical inflection points, including in OTC health care. I know this company, and I have a clear view of what it takes to create value here. I spent my first months on the road listening. Three things stand out. First, our customers.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

They value what Perrigo brings to the market, and they want to do more business with us. We have a great deal to offer and a clear right to win. Second, our investors. I have heard from them directly. The confidence of the investment community must be re-earned, and I take this personally. Third, our team. This is an experienced team with the capabilities needed to achieve our goals. During the quarter, we also strengthened the board with two accomplished new directors, Salman Amin and Omer Gajial, whose consumer, operational, and strategic experience will help guide our value creation agenda. My message today is simple. The board, the management team, and I are confident in Perrigo's future. Let me start with who we are. We are the leader in store brand OTC in the U.S., and our portfolio of OTC brands in Europe includes several that lead their respective categories.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Our sales are roughly half store brands and half branded, although that mix is geographically concentrated. In the U.S., we're almost entirely store brand, and in Europe, we're almost entirely branded. This combination is unique within our industry. Through our category-led operating model and One Perrigo approach, we serve consumers across brands, store brands, categories, and price points, which is increasingly important as consumers focus more on value. In the second quarter, those capabilities translated into market share gains across our portfolio, even as the categories we compete in remain challenged. Results in the U.S. were particularly strong as we grew dollar, unit, and volume consumption. Category trends improved as the quarter progressed, and that momentum is carrying into the third quarter. We're also reaffirming our full-year 2026 outlook, weighted toward the second half and supported by clear tangible drivers.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We remain mindful of an uncertain consumer and economic environment, but we are executing on what we control, gaining share, streamlining the portfolio, and reducing debt. Our progress runs through the Three-S plan: stabilize, streamline, and strengthen. On stabilize, we have improved the consistency of our operations, our service levels, and our execution across key categories. Since 2023, U.S. service levels are up 1,600 basis points to 91%, and international service levels are up 1,000 basis points to 95%. Better service has strengthened customer relationship and directly supported our share gains. On streamline, we have simplified the portfolio, strengthened the balance sheet, and taken cost out. Since 2024, divestitures have generated approximately $600 million on upfront proceeds, mainly applied to debt reduction, including this quarter's sale of Dermacosmetics for $359 million. Our operational enhancement program is on track to deliver $80 million-$100 million of savings by 2027.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We are also advancing the strategic reviews of infant formula and oral care, examining whether to optimize, partner, or divest each. Our approach is discipline. Any outcome must enhance shareholder value and sharpen the focus of the portfolio. In the meantime, we have improved the infant formula business through capacity rationalization, greater efficiency, and innovation. Those actions have improved stability, increased visibility, and strengthened the business regardless of the outcome of those reviews. On strengthen, we have built the capabilities that drive future growth. A new category-led operating model, a substantially larger innovation pipeline, deeper retailer partnerships, and stronger demand generation. The value of our innovation pipeline has more than tripled since 2024, with over 55% of projects now leveraging shared platforms. That makes our investment more efficient and more scalable, driving share gains across U.S. store brands, OTC, and key European brands.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Taken together, the Three-S plan has created a more focused company and a foundation for growth. While we have more work ahead of us, the momentum in the business is encouraging and the path is clear. A quick word on the market. Consumption is still below historical averages, but it is improving. U.S. value and volume trends improved sequentially through the quarter, and Europe improved as well. The improvement has continued into the third quarter. U.S. OTC volumes in the categories where we compete turned positive in the four weeks ended July 19th. Softness has been concentrated in seasonal categories within the self-care segment, including cough, cold, pain, and allergy, reflecting lower seasonal incidents and tough year-over-year comparisons. We view this softness as temporary, and it does not change our view of long-term demand. We expect category trends to keep improving as comparison ease through the year.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Our purpose is to expand access to quality, affordable self-care, and that purpose has never been more relevant than it is today with consumer focused on value. That alignment, plus better execution and a differentiated model, is producing measurable share gains. In the U.S., the categories we compete in declined 1.1% in volume. Yet, we grew our store brand OTC volumes across self-care and specialty care by a combined 1.5%, taking 50 basis points of market share. In Europe, category value declined 0.6%, while our key brands grew 3.3%, again, taking 50 basis points of market share. Those share gains are the outputs of our growth building blocks, and a few examples show the model in action. Opill continues to build in its second year with rising velocities across major retailers, strong repeat rates, and consumers trading up to larger packs.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

It is proof that focused innovation paired with targeted demand generation can grow a category. Compeed accelerated through the quarter on earlier seasonal activation and better in-store execution across Europe, delivering share gains and record recent sales. It shows what brand investment plus commercial execution can do. Our store brand allergy business kept gaining share on the back of innovation, distribution wins, and demand generation that is lifting household penetration. The common thread is a more integrated, more scalable engine. One category-led model, one innovation pipeline deployed across categories, markets, and price points. Turning briefly to the numbers before Eduardo takes you through the detail. Core net sales declined 3.1% year-over-year, and all-in net sales declined 3.2%. Driven by continued category softness against a strong prior year, a slow start to summer categories, and retailer destocking.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Within all-in, infant formula grew 23%, more than offset by the Dermacosmetics divestiture. Core adjusted EPS was $0.46, and all-in adjusted EPS was $0.50. Earnings came ahead of our expectation, driven largely by one-time cost benefits, which is why we're maintaining, not raising our outlook. The indicators we care most about, market share, execution, cost savings, debt reduction, and portfolio actions all moved in the right direction. We called 2026 a transition year, with softer reported results in the first half masking real operational progress. That is how it has played out. We continue to gain share, which is the clearest sign our strategy is working, and that we will benefit when demand normalizes. Our growth building blocks, innovation, demand generation, and distribution are building toward a sequentially stronger second half. Let me close with where we're going, because that is what will define Perrigo.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

First, we will sustain market share growth by expanding access to quality, affordable self-care products. In the U.S., our goal is not only to gain share within store brand OTC, but to grow the category. Store brands are under-penetrated, and we're uniquely positioned to expand the category by partnering with our retail customers to bring more consumers quality self-care at a better value. In Europe, we have strong brands like Compeed and Jungle Formula that lead their categories. We're investing behind those winners and focusing our resources where we have the strongest opportunities to win. This approach allows us to be nimble and competitive in the areas where we choose to play. Second, we will continue to simplify and strengthen our portfolio to sharpen focus, discipline, and consistency.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

The actions we have taken over the past several years, including portfolio transformation and ongoing strategic reviews, are helping create a more focused and consistent consumer self-care company. Third, we will strengthen the balance sheet and continue deleveraging, which gives us the flexibility to invest and to create value. Our plan is built to drive improvement in key metrics, including better sales growth, stronger margins, and lower leverage. To ensure our capital allocation framework remains aligned with our strategy and market opportunities, we regularly review the most effective uses of capital across growth investments, debt reduction, and shareholder returns, including assessing the dividend on a quarterly basis. Let me be clear. Our priority is to deliver our 2026 commitments while positioning Perrigo for sustainable long-term growth. Underlying all of this are two things I will focus on: strategy and execution.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Perrigo is becoming a more focused consumer self-care company, and I am confident we are building real, durable shareholder value. With that, I'll turn it over to Eduardo to walk through the financial results in more detail.

Eduardo Bezerra
CFO at Perrigo

Thank you, Albert. I appreciate everyone joining us today. Other than for references to net sales, my comments will focus on adjusted non-GAAP results unless otherwise noted. Turning to our results, starting with the top line. Core net sales declined 3.1% year-over-year, while core organic net sales declined 3.5%. Results were impacted by approximately 1.2% due to continued softness in category consumption compared to the strong prior year period, particularly in cough, cold, and certain summer seasonal categories. We also continued to see retailer inventory reductions, most notably in Europe, which impacted sales by approximately 1.8%. While these dynamics pressured reported results, category trends improved as the quarter progressed, supporting our confidence in the underlying trajectory of the business. Within self-care, performance was impacted by continued category softness and a slower start to the summer season.

Eduardo Bezerra
CFO at Perrigo

This softness was most pronounced in Europe, where delayed allergy and sun seasons pressured demand across seasonal categories. Despite these headwinds, we continued to gain market share across key categories, supported by innovation and distribution gains, including strong performance in our store brand allergy business, driven by distribution wins in the U.S. Specialty care net sales declined modestly. Strong growth in women's health was driven by continued momentum from Opill and ellaOne supported by strong consumer engagement, encouraging repeat purchase trends, and ongoing healthcare professional outreach and expanded distribution in Europe. Skin health results were impacted by a slower start to key summer seasonal categories, lower sales of store-brand minoxidil, and a difficult prior year comparison in Mederma due to the timing of inventory restocking. Encouragingly, trends improved throughout the quarter, with leading brands such as Compeed accelerating as seasonal demand strengthened in Europe.

Eduardo Bezerra
CFO at Perrigo

On an all-in basis, net sales declined 3.2%, driven by the same category dynamics in addition to the impact of the Dermacosmetics divestiture. This decline was partially offset by the strong performance in infant formula, which grew 23% year-over-year, driven by timing of contract sales and growth in store brand formula. Currency translation provided a modest benefit to both core and all-in net sales during the quarter. Now to adjusted operating income. Looking first at self-care, all-in operating income declined $15 million, or 16.2%, driven primarily by lower net sales volumes, planned under absorption stemming from lower prior year sales volumes in U.S. OTC, and unfavorable mix. We also saw pressure from continued retailer inventory reductions in Europe and a slower start to the summer season, which weighed on several higher-margin seasonal categories. These headwinds were partially offset by benefits from our operational enhancement program.

Eduardo Bezerra
CFO at Perrigo

Specialty care operating income decreased $18 million, or around 28%, driven primarily by lower profitability in skin health, reflecting a slower start to key summer seasonal categories, retailer inventory reductions, and lower contract manufacturing sales of store-brand minoxidil. The segment's performance also reflected higher advertising and promotional investment to support second-half growth initiatives, including a refreshed Opill marketing campaign, as well as the impact of planned under absorption stemmed from lower prior year sales volumes. In infant formula, operating income improved by approximately $16 million year-over-year, as actions to rationalize capacity, improve efficiency, and stabilize the business continued to gain traction. In addition, the business benefited from lapping isolated production variability in the prior year period that had resulted in elevated product scrap and pressured profitability. These factors more than offset planned under absorption stemming from lower prior year sales volumes.

Eduardo Bezerra
CFO at Perrigo

Within all other, operating income was consistent with the prior year, driven by the net recognition of a recovery of a portion of previously paid tariffs, in addition to improved profitability in oral care. These factors offset the impact of the Dermacosmetics divestiture. Corporate operating expenses declined year-over-year, driven by operational enhancement program savings and a one-time benefit related to the second quarter CEO transition of $6 million. Turning to margins, drivers of both core and all-in margins changes were consistent with the segment results just discussed. Core adjusted gross margin declined 250 basis points to 37%, primarily due to lower sales volumes, planned under absorption stemming from lower prior year sales volumes, and unfavorable mix. All-in adjusted gross margin declined 250 basis points to 35.6% due to the same factors impacting core gross margin, in addition to the impact of divestitures.

Eduardo Bezerra
CFO at Perrigo

These factors were partially offset by strong performance in infant formula category. Core adjusted operating margin decreased 160 basis points to 13%, reflecting gross margin flow-through, partially mitigated by benefits from the operational enhancement program and a one-time benefit from the CEO transition. All-in adjusted operating margin decreased 60 basis points to 12.2% due to the same factors as core operating margin, in addition to infant formula performance, which more than offset the impact of divestitures. Second quarter core adjusted earnings per share was $0.46, a $0.12 decline from the prior year period, but above our expectations, primarily due to lower operating expenses in the quarter, driven by the accelerated implementation of our operational enhancement program, in addition to a one-time benefit from the CEO transition.

Eduardo Bezerra
CFO at Perrigo

All-in adjusted diluted earnings per share declined $0.07 to $0.50 due to the impact of lower sales volumes and the carryover impact of prior year manufacturing volumes Partly offset by the timing of infant formula contract business. Turning to cash flow, second quarter 2026 cash from operating activities was $83 million, in line with our expectations. Capital expenditures totaled $14 million, and we returned $14 million to shareholders through dividends. Turning to balance sheet, cash and cash equivalents were $400 million, and total debt was $3.3 billion. During the quarter, we applied the majority of the $359 million cash proceeds from the Dermacosmetics sale towards debt reduction, significantly reducing the balance withdrawn on our revolving credit facility. We remain focused on disciplined capital allocation, balancing capital expenditures for growth, de-leveraging our balance sheet, and shareholder returns.

Eduardo Bezerra
CFO at Perrigo

Looking ahead, while first half earnings results were ahead of our expectations, given the dynamic external environment and timing of infant formula contract sales, we are taking a measured approach for the balance of the year. As such, we're maintaining our full year outlook for core and all-in net sales, margin, and earnings per share metrics. The underlying assumptions supporting our outlook remain intact, including continued progress on our growth initiatives, benefits from the operational enhancement program, and improving category trends as we move through the balance of the year. Based on our year-to-date performance, we are adjusting our estimated full-year effective tax rate from approximately 20% to approximately 18%. We're also updating our estimates for diluted shares outstanding in full year 2026 to 139.3 million shares. All other guidance assumptions remain unchanged.

Eduardo Bezerra
CFO at Perrigo

As Albert noted, we continue to expect results to be weighted toward the second half of the year. Turning now to our sales outlook. As we have highlighted, underlying category trends improved as the second quarter progressed, and our first half net sales performance was broadly consistent with our expectations. As a result, we are maintaining our full year outlook for both core and all-in net sales. Our expectations for second half sequential performance are supported by three factors. First, the increasing contribution from our growth building blocks, including innovation, distribution gains, and demand generation, which are already underway and expected to build momentum as the year progresses. Second, continued sequential improvement in category trends, which has strengthened through the first half of the year. Third, growth of our base business and the normalization of seasonal trends compared to weaker prior year seasonal performance.

Eduardo Bezerra
CFO at Perrigo

Looking at 2026 adjusted earnings per share guidance, we're taking a measured approach for the balance of the year. We remain mindful of continued consumer weakness and macroeconomic pressures, particularly in Europe. Second half sequential earnings improvement is supported by clear, quantifiable drivers, including the revenue building blocks, the partial reduction of under absorption stemming from lower prior year sales volumes, benefits from our operational enhancement program, and lower interest expense from the second quarter debt paydown. Offsetting the sequential benefits in the second half are higher expected advertising promotion investments to support our demand generation and innovation launches, and the normalization of incentive compensation versus the prior year. First half results also included benefits related to the second quarter CEO transition and the recovery of tariffs.

Eduardo Bezerra
CFO at Perrigo

As indicated previously, planned under absorption stemming from lower prior year sales volumes is expected to result in an unfavorable all-in earnings per share impact of approximately $0.60 in 2026. Roughly $0.26 of that impact was recognized in the first quarter, and $0.18 was recognized in the second quarter. In summary, our outlook is based on clear drivers supporting our second half expectations, many of which are well underway, while acknowledging the dynamic macro environments. As Albert outlined, the 3S plan is driving tangible improvements, and we're confident that we're positioning Perrigo to generate sustainable growth of shareholder value. Before I turn the call back to Eric, I want to thank our 8,000 employees for their commitment, focus, and resilience in delivering our first half results, and I look forward to continuing our progress for the remaining of the year. Eric?

Eric Jacobson
Eric Jacobson
VP of Global Investor Relations at Perrigo

Thank you, Eduardo. Operator, we're now ready for questions.

Operator

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please Press the star key followed by one on your touchtone phone. You will hear a one tone prompt acknowledging your request. Your questions will be called in the order they are received. If you would like to decline from the calling process, please press the pound key. Please ensure you leave the handset if you are using a speakerphone before pressing any keys. One moment please, for your first question. Your first question comes from Chris Schott with JPMorgan. Please go ahead.

Analyst at JPMorgan

Hi, this is Ethan on for Chris. Thanks for taking our questions. Just starting off, can you provide any updates on the infant formula strategic review, the progress that you're making there, and latest thoughts on timing more broadly for further updates?

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Yes. Hi, Chris. This is Albert Manzone. Nice to talk to you. Thank you for the question. With regard to our reviews that are going on, they are all proceeding well, and we will update you as soon as we have something there to say. We're looking at different options. As I said in my opening remarks, the process is proceeding well, and we will update you as soon as we have information.

Analyst at JPMorgan

Great. Overall, as you look at the business today and looking ahead to 2027, understanding it's still early, how are you thinking about the different pushes and pulls within the business on earnings as you're seeing them? Maybe as part of that, where do you have more confidence in the business's performance, and maybe what remains just more uncertain in your eyes?

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Listen, what I can tell you is that we are working on a strategy that is working as we speak. We are gaining share, as we reported and as you can see. We are driving operational enhancements. We're staying the course, which is very important as I came in. The Three-S strategy is the right one. As we look at the second half and we look forward, we remain obviously cautious from a consumer demand standpoint. We are doubling down essentially on our platform approach, be on the innovation. I'm very happy to tell you, as I say, that we are growing the Swan threefold across our platforms.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

What is important with the platforms is that you are able, out of an innovation and a platform, to then deliver it both on a store brand as well as a branded across different price points, which, if you think about it from a return on investment, that's a much more focused approach and a much smarter approach vis-a-vis who Perrigo is and the unique advantages of Perrigo. We are also working on consumer demand generation and partnering with our retailers. Our service levels are up. As you know, we're very happy with 95% in Europe, 91% in the U.S., and that varies per customers. Essentially, that gives us now the opportunity to sit down, partner with them, both in developing innovation and growing not only share, but also the category in the U.S., and then delivering demand generation.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

You will see some of that in the second half. What I will tell you when you look forward is our objective is to have a sound strategy and to out execute, and that is what we're going to do quarter after quarter.

Analyst at JPMorgan

Great. Just last question from me is, how large of an impact did the reversal of tariffs and any of the other one-time costs have on the quarter? Thank you for the questions.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thank you, Chris. I will let Eduardo answer that question.

Eduardo Bezerra
CFO at Perrigo

Yeah. For Q2, let's say the benefit that we had related to tariffs was around $10 million. As I talked in my opening remarks, the benefit on the Opex related to the CEO transition was about $6 million.

Analyst at JPMorgan

Thank you so much.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thank you. Thank you, Chris.

Operator

Thank you. The next question comes from Susan Anderson with Canaccord. Please go ahead.

Susan Anderson
Susan Anderson
Analyst at Canaccord

Hi. Good morning. Thanks for taking my questions. I guess maybe I wanted to follow up just on the private label, the new kind of store brand strategy where you guys are adding more demand generation, more marketing, et cetera, around the brands. I'm curious if that's rolled out yet to other retailers and other categories. I believe allergy was kind of the first one. Just curious if you've seen a similar response from consumers and within other categories. Thanks.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Yeah. Hi, Susan. Great question. We are doing this across all our categories. Yes, that's the answer. What I'm happy to tell you is that this is absolutely what we're at and doing. This demand generation is possible with partnering with the retailers because our objective, you can see that we're gaining share. We gained 50 basis points, in the U.S. We, as of the last four weeks in July, gained another 60 basis points. We're happy with that. Our objective is also to grow the category with the retailers, and for that, we need to do exactly the things that you talked about. We're working to do this across all the categories we are in with those retailers.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We see a lot of enthusiasm from the retailers, and that as you know, when it works with one or two or three, it tends to expand, and there is more demand. Again, our objective is to execute and out-execute on this creation and this strategy, and looking forward to more quarters like this.

Susan Anderson
Susan Anderson
Analyst at Canaccord

Okay, great. I guess maybe just on the infant formula, how are you thinking about the profitability there as sales kind of recover? Should we expect it to go towards historical profitable levels or is it not going to reach that point again? I guess, as the business does improve, I know it's still under review, but is there a thought process that potentially you'll just end up keeping it? Thanks.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

I will pass it on to Eduardo, but I would say that doesn't change our strategic reviews on the categories that we have announced. If anything, the good news is that it gives you more optionality, of course. That's always good. Some of it is driven by timing of shipments, so some of it is driven by store brands. Essentially, no, that doesn't change the strategic review. I let Eduardo comment more on some of the other aspects of your question.

Eduardo Bezerra
CFO at Perrigo

Yeah. Hi, Susan. A couple of comments in addition to what Albert said. Remember that we talked about we're going to be looking to optimizing the business, partnerships, and potential divestments, right? In terms of optimization, you saw that in the second quarter, we took some hard, tough decisions on reducing significantly our drying capacity in Vermont. The good news is we have a very recent audit from the FDA, and there were no observations. A lot of the stabilization work that we had started years ago, showing that we did the right work. Also, we had recently the Secretary of HHS visiting our Wisconsin facility, and he was very impressed with the standard and mentioned this was a state-of-the-art facility for the industry. I think that those are right choices that we did.

Eduardo Bezerra
CFO at Perrigo

There are significant impacts on our performance and our results, but that will pay back on the long term. From optimization standpoint, it's really good. On a quality standpoint, our program to have right at first time, it's going very well. You saw that I mentioned in the call that we have a significant reduction of rejects or scrap. That's mainly because as you're doing things right the first time, you have much better absorption and lower throw rates. This has not only improved our margin, but also improved the efficiency of how we're managing the business going forward. Also, we had a benefit that was timing related regarding contract sales that we do not expect that to translate into increase in the full year. We're seeing our store brand picking up on the non-WIC market.

Eduardo Bezerra
CFO at Perrigo

We're seeing some positive share gains of store brand that gives us confidence on that side. Also the important thing is we are seeing very positive early signs of innovation. We launched an equivalent format to one of the largest imported competitors in the marketplace, and the early signs are very positive.

Susan Anderson
Susan Anderson
Analyst at Canaccord

Okay, great. One last question, if I could add. Just curious, any comments around how your inventory is at retailer competitors as well? I think some of your competitors on the branded side have talked about some destocking in the OTC space. I am just curious if that is impacting your products at all. Thanks.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We did mention this across our opening remarks. We had some of the same impacts in Q1 and Q2. That was driven obviously by seasonality that was below the norms. The good news is, as we get into second half, that has subsided, and we are remaining cautious, as we said, on the consumer side, we expect a normalization of seasonality in our cohort, even if we won't return to the levels of two years ago. We are cautiously optimistic in terms of the trends.

Eduardo Bezerra
CFO at Perrigo

Susan, just to add, we mentioned that out of the around 3% decline in core net sales, 1.8 was related to retailer inventory destocking, most notably in Europe.

Susan Anderson
Susan Anderson
Analyst at Canaccord

Okay, great. That is really helpful. Thanks so much, you guys. Good luck the rest of the year.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thank you, Susan.

Eduardo Bezerra
CFO at Perrigo

Thank you, Susan.

Operator

Thank you. The next question comes from Keith Devas with Jefferies. Please go ahead.

Keith Devas
Keith Devas
Analyst at Jefferies

Hey, guys. Good morning. Thanks for taking the question. Maybe I'll just zoom out a bit back to the overall category performance. It sounds like you're noting outside of some of the seasonal segments, that category performance is improving. I'd love to just get your context on what you think is driving that. Obviously, your execution is improving and that's resulting in some share gains. I think for a long period of time, we've been surprised seeing the category being kind of stagnant, and I think your commentary suggests that it's starting to improve and maybe turn a corner. Any context you can give on just maybe what's driving that, why the consumer's returning, might be helpful for us to think about the trajectory from here.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Good. Hi, Keith. Nice to talk to you. Keith, with regard to the category that's been declining, as you know, some of it has been due to the seasonality and we had a low cough, cold season. We had also on the allergy side, also there the seasonality was not great this year. What you start to see in the end of the second quarter, then you start to see it in the beginning of Q3, you start to see a recovery of the category. Some of it is due to the fact that we are off of that seasonality. As we say, we are planning for a more normal seasonality going forward, even COVID won't return at the levels of two or three years ago. The second thing is, there is a certain amount of innovation that we're bringing to the market in this second half.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

That's on the innovation side, as I said, we are really working across platforms. You can expect the platform, which is really not what we've been doing in the past, to continue forward. For next year, we start to have more than 50% of our innovation coming on platforms, therefore things that you are going to see across Europe, U.S., store brands, branded and different price points. That's one. The second one is that we have strong brands, be it Opill, be it Compeed in Europe or Opill in the U.S. that are really getting stronger. If I take those two examples, Opill in the U.S. is doing better and better, growing. We have repeat rates which are above 60%, which we are very happy.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

It's really across all retailers. We are going to work the second half to really push that product in terms of consumer demand. We are very excited about it. If you take Compeed in Europe today, the same way that you use a Kleenex for your nose, you use a Compeed for whatever you need across Europe. We have become number one in France, number one in Italy. We were number one in the U.K., number 1 in Spain. We are really getting strong. We are very excited about the innovation we have launched. It's doing very well. Essentially we keep focusing on what we do on the execution behind the strategy. That's really, for me, very important. It's not only about strategy, but it's also about execution. I think that's what is going to take us forward.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We remain, of course, very mindful of the consumer in the second half in terms of inflation, affordability, et cetera. We are cautious, but we are focusing on what we can control, that is working with the retailers to co-innovate and co-promote the brands, working on the innovation, working on demand generation. Those are the things we control. We have the relationships with the retailers, we have the brands in Europe to do that.

Keith Devas
Keith Devas
Analyst at Jefferies

Great. Thank you. Maybe just a very quick follow-up. I think some competitors across consumer health plus personal care are seeing this dynamic of channel shifting occurring. I'm curious how you see that phenomenon impacting your business and how you guys feel you're positioned as demand starts to shift more away from in-person brick and mortar retail and more towards e-commerce. Thanks.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

This is something that we're seeing also, and I'm very happy to tell you that this is something we're very much. The portfolio we have is a good portfolio for e-commerce, first and foremost. We are very excited about the progress we're making in e-commerce in the U.S., and this is growing very fast. I will tell you that in Europe it's moving exactly the same direction. We are on it. This is leading for us. We have very strong relationship. We have some of those e-commerce big groups that come visited with us, sat down with us, visited our clients, shared best practices. As you know, when you talk about e-commerce, seeing a human is always a very good sign. We have seen a lot of humans lately coming to us and co-developing with us.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

We're very excited about the opportunity, and we are all over it.

Eduardo Bezerra
CFO at Perrigo

Keith, just to reinforce the messages, our growth in share is accelerating in e-commerce much ahead of brick and mortar as well.

Keith Devas
Keith Devas
Analyst at Jefferies

Thanks. I'll pass it on.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thank you.

Operator

Thank you. At this time, there are no further questions. I will now transfer the conference over to Mr. Albert Manzone. Please go ahead, sir.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

Thank you, Angeline. I want to thank everybody for joining the call, for your questions, which were very insightful. What I can tell you is that in my first weeks, I have been focused on listening to our stakeholders, what I have heard has strengthened my confidence in the future of Perrigo. Our customer base is engaged and wants to do more business with us, which represents a meaningful opportunity. Our passionate and capable team, who I want to thank, is committed to our mission of providing affordable self-care to consumers. We have a clear path to rebuilding trust with investors through consistent execution. Earning that trust will be the result of delivering on our commitments quarter by quarter.

Albert Manzone
Albert Manzone
Interim President and CEO at Perrigo

My priorities for the remaining of the year are straightforward: sustain our market share gains by executing on our key growth building blocks, deliver our cost-saving plan, advance our strategic reviews to further simplify our business, and achieve our 2026 financial outlook. I am focused on ensuring Perrigo is positioned to capitalize on our long-term opportunities and create sustainable value for shareholders. I'm confident that we're taking the right steps and building momentum across the business. Thank you all for your interest in Perrigo.

Operator

Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your line.

Executives
    • Eric Jacobson
      Eric Jacobson
      VP of Global Investor Relations
    • Albert Manzone
      Albert Manzone
      Interim President and CEO
Analysts
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