Murray S. Kessler
President & Chief Executive Officer at Perrigo
Thank you, Brad, and good morning, everyone. With our three-year transformation to a consumer self-care company now complete, Perrigo is moving into a new phase, which we are calling optimizing and accelerating.
The Perrigo team is hyper-focused on optimizing and accelerating our self-care platform through: One, supply chain reinvention to improve efficiency, productivity and customer service; two, successful integration of our scale HRA Pharma acquisition; and three, gross margin recovery via pricing and portfolio consolidation.
I will also note that this will be accomplished as we also continually strengthen our organization and culture and contribute to the world we live in by making our products and facilities more sustainable. With that in mind, I'd like to share a few words on the organizational announcement we issued this morning.
First, I'd like to thank Todd Kingma, our General Counsel for the last 19 years, who just announced his retirement, and Ray Silcock, who I've worked with on and off for the last 30 years and who previously announced his retirement, for their incredible contributions to the Company and our self-care transformation. While they will be missed, I'm very excited to share who will be filling their roles. First, Kyle Hanson has been hired from Wolverine Worldwide and will serve as our EVP, General Counsel and Corporate Secretary. And second, Eduardo Bezerra, most recently from Fresh Del Monte Produce, has been hired as EVP and Chief Financial Officer. They represent the next generation of Perrigo leaders who will help drive the newly transformed Perrigo organization. They both have the passion and seasoned relevant experience that embodies the Perrigo Advantage. And I'm confident that their diverse perspectives and deep experience will make valuable and immediate contribution to Perrigo's success.
Turning to HRA. I'm also pleased to say that we closed the HRA acquisition nearly two months ahead of schedule and are extremely excited to welcome their team into the Perrigo family. The final purchase price was approximately $1.9 billion, nearly $200 million lower than originally anticipated, tracing to the recent strength of the U.S. dollar, a good outcome for shareholders. More importantly, the Company we bought is performing beautifully.
HRA results for 2021 were stellar. This is a business that is growing rapidly, finishing up 26% in 2021 versus a year ago and achieved a robust gross margin north of 70%. HRA's strong growth continued in the first quarter of 2022, with net sales up versus a year ago, on top of double-digit growth versus the prior year. EBITDA was up an impressive 77% versus a year ago in the first quarter.
Strong top line growth, strong margins and a number of budgeted expense decreases, including onetime investments included in 2021 operating income that are not expected to repeat in 2022, supports our estimates of HRA achieving approximately EUR90 million in operating profit in 2022. Since we closed the acquisition early and HRA earnings are historically much stronger in the second half due mainly to the seasonality of Compeed, Perrigo is expecting operating income accretion of around EUR55 million to EUR65 million in 2022.
Beyond 2022, HRA business growth is expected to continue through geographic expansion and new product adjacencies that along with cost synergies from the deal that are now estimated at EUR40 million versus our original EUR30 million estimate leads us to reiterate our expectations for HRA to add about EUR150 million in operating income in 2023, and that excludes any potential short-term impacts associated with capturing the synergies.
Turning to Slide 11. First quarter results for Perrigo were generally in line with our expectations, despite another wave of cost headwinds resulting from the war in Ukraine. Net sales increased 6% versus a year ago, with organic net sales up a very strong 10%. We attribute this strength to a global rebound in cough/cold and U.S. nutrition infant formula sales. Price also had a positive impact.
Gross profit margin was down 140 basis points sequentially versus Q4 due to onetime items we don't expect to repeat. Note additional cost pressure was offset by price increases and higher volume in the quarter resulting in our EPS finishing at $0.33 per diluted share in line with our expectations. Currency neutral EPS for the quarter was $0.37 including a $0.02 per share negative impact from the war in Ukraine. While Perrigo's top line continued to accelerate sequentially, what is more important is that our net sales in Q1 '22 are substantially higher than they were back in 2019 before the ups and downs of COVID. On a three-year basis, our first quarter net sales compound annual growth rate is plus 5.6%, and our organic growth rate on a compounded basis is 2.9%. There can be no doubt that the transformation has returned Perrigo to revenue growth.
Looking at our categories in more detail. Strong total net sales growth was driven by strong performance across both CSCA and CSCI, with cough/cold and contract pack sales leading the way. Infant formula was also a big driver in the U.S.A. Strong shipments are aligned with robust global consumer demand for self-care products. After two years of disconnects between shipments and consumption, the system appears to be back in balance.
I think it's worth spending a minute on infant formula. This business has turned around nicely. Top line growth in our nutrition business was up 38% in the quarter, driven by infant formula. Importantly, Perrigo gained more than 5 share points compared to a year ago. These gains came from the launch of new hypoallergenic formula offerings, continued growth in our organic products and the roll-off of COVID-enhanced benefit programs for formula.
Our business also benefited slightly at quarter end from the recall of a competitor's infant formula. While this didn't benefit us in the quarter much, we are now seeing higher demand. And Perrigo is doing everything it can to run as much infant formula as possible to help build the shortages created by the recall.
Also during the quarter, I'm proud to say the Perrigo team received U.S. Food and Drug Administration approval for over-the-counter Nasonex, the Company's first-ever branded Rx-to-OTC switch. The NDA was a first-cycle approval, and we expect the brand to be on shelves at leading retailers in the U.S. this fall, a big win for the Perrigo regulatory team.
Turning back to gross margin for the quarter. We are laser-focused on recapturing the margin loss due to supply chain disruptions and cost and freight inflation, and we still see a clear path to gross margin expansion in the second half of the year, consistent with the phasing discussed on our last earnings call. Manufacturing productivity, elimination of onetime costs, price increases and 90% of expected benefits from price this year are still to come. The sale of the Latin American businesses and now the addition of 70% gross margin HRA products should allow us to recover 400 to 500 basis points of gross margin by year-end.
Now on to guidance. We are increasing our organic net sales growth guidance to 8% to 9% compared to prior year, up from 7% to 8%, driven by expected strong performance for the rest of the year, partially offset by a 0.5 percentage point from expected loss business in Ukraine and Russia. We are also increasing our all-in net sales guidance to growth of 8.5% to 9.5%, up from 3.5% to 4.5% versus the prior year. The primary driver is the addition of HRA, which is expected to contribute approximately 5.5 percentage points of growth for this year. This will be partially offset by the impact of unfavorable foreign exchange.
We are also increasing our full year adjusted diluted EPS guidance to $2.30 to $2.40 per share. This range includes approximately $0.35 accretion from HRA and a $0.20 headwind stemming from Russia/Ukraine-related macro volatility, which led to unfavorable foreign exchange and higher-than-anticipated refinancing costs.
Putting the year together, we are now expecting outsized growth on both the top and bottom line with near double-digit top line growth and approximately 14% diluted EPS growth.
In closing, our focus going forward is to optimize and accelerate the business through supply chain reinvention, through successful integration of HRA and through gross margin enhancement and by continually improving our organization and culture. We are focused on controlling what we can and what remains a very dynamic environment. We have inflation-related pricing actions in place to cover rising costs and expect them to fully take hold in the second half of this year. We are also uniquely positioned in the U.S. consumer self-care market to benefit from an inflationary cycle as evidenced by store brand share gains during the last recession.
And with that, I will turn the call over to Ray one last time to discuss the financials in more detail. Ray?