Perrigo Company plc

Hello. Welcome to your conference call. Please continue to stand by. Your conference will begin shortly. Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to Perigo First Quarter 2024 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 Tuesday, May 7, 2024. I would now like to turn the conference over to Brad Joseph, VP Global Investor Relations. Please go ahead.

Good morning and good afternoon, everyone. Welcome to Parago's first quarter 2024 rings conference call. I hope you all had a chance to review our press releases issued this morning. A copy of the releases and presentation for today's discussion are available within the investor section of the Parago.com website. Joining today's call, our president and CEO, Patrick Lockwood-Taylor, and CFO Eduardo Bezerra. I'd like to remind everyone that during this call, participants will make certain forward-looking statements. Please refer to the important information for shareholders and investors and safe harbor language regarding these statements in our releases issued earlier today. A few items before we start. First, unless stated, all financial results discussed and presented are on a continuing operations basis. Continuing operations for the quarter include the HRA rare diseases business, which was classified as held for sale after the quarter end and does not include any contributions from the divested RX business, which was accounted for as discontinued operations prior to its sale. Second, organic growth excludes acquisitions, divestitures, exited product lines, and currency in both comparable periods. All comments related to constant currency, Remove the impact of currency translation versus the prior year by applying the exchange rates used in the comparable measurement in the prior year's financial statements. And third, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted. See the appendix for additional details and reconciliations of all non-GAAP financial measures presented. And with that, I'm pleased to turn the call to Patrick.

Thank you, Brad. Good morning. Good afternoon, everyone. I'd like to begin our call today by emphasizing the important strides we have made to further our One Perigo strategy and deliver on our purpose to make lives better through trusted health and wellness solutions accessible to all. Let's start by recapping our quarter one results against the expectations that we discussed in our fourth quarter 2023 earnings call. First, we plan the actions to augment and strengthen our infant formula business would have an impact on our first quarter EPS, and they did. While infant formula actions drove an EPS headwind of 30 cents versus the prior year, first quarter EPS was approximately six cents ahead of our projection due to timing of infant formula shipments to customers. Actions taken in infant formula were impactful but necessary. The significant progress we have made sets us up well to achieve a quality-controlled, reliable manufacturing environment, though there is much more work to be done. I believe that the quality and compliance actions and investments we have taken will strengthen our competitive position in the industry over the long term. Also, as expected, SKU prioritization actions in CSCA weighed on quarter one organic net sales and EPS growth. However, these actions had multiple benefits, including gross margin expansion of 50 basis points across the enterprise in quarter one, greater focus on more profitable areas of our portfolio, and provides additional production capacity as we build out our blended branded business. Next, as highlighted in our last earnings call, USOTC retail inventories were above average entering quarter one. As expected, retailer inventory destocking led to lower shipments of product to customers compared to prior year. Encouragingly, consumption across Perigo's USOTC business remained healthy at plus 1.9% over the last 13 weeks, ending March 24th. Based on current consumption trends, we believe that retail inventory levels should normalize during quarter two. Finally, CSCI continues to fire on all cylinders. Organic net sales in the quarter grew 7% and operating margin expanded 290 basis points versus last year to 19.7%. Collectively, the first quarter was a good start to the year as we delivered against our commitments and we remain on track to achieve our goals in 2024. Turning to our first quarter financial highlights. As just discussed, first quarter net sales were heavily impacted by infant formula, in addition to skew prioritization actions to enhance margins as part of our supply chain reinvention program. These factors caused a decline in reported net sales of more than 8%. Organic net sales declined 7%, which comprised three major components. an impact of minus 4.3 percentage points from infant formula, an impact of minus 3.6 percentage points from skew prioritization actions, and organic net sales growth of plus one point from the rest of our business, driven by strong performance in CSCI and the launch of Opel. Border one gross margin declined 90 basis points to 36.5%. which comprised an unfavorable 280 basis points impact from infant formula, 50 basis points benefit from skew prioritization actions, and a 140 basis points benefit from the rest of the business, led by gross margin expansion in USOTC and oral care. As I said, first quarter EPS was ahead of projection, but was down 16 cents from a year ago to 29 cents per share. Infant Formula had an unfavorable $0.30 per share impact, and SKU prioritization actions had an additional $0.06 impact. These headwinds more than offset EPS growth of $0.20 per share from the rest of the business. Digging a bit deeper into net sales, we delivered solid performance in women's health, which was led by the US launch of OPIL. and in skincare, which benefited from robust growth in our Compede and Moderma brands. Compede achieved net sales growth of 56%, not incorporating distributive transitions that impacted sales in the prior year, driven by market share gains and the successful product line extension of Compede spots. Moderma net sales grew 51% in the quarter, driven by Moderma Cold Sore, which added incremental sales to the brand, and strong growth in e-commerce. Net sales across most global categories was impacted by skew prioritization actions in CSCA, which weighed most heavily on skin care, pain and sleep aids, and digestive health. Inventory destocking at US retail customers also affected growth, as I just discussed. This impact was most notable in cough coal due to a lighter season than prior year and industry-wide supply chain recoveries. A quick note on the U.S. allergy season. There has been a recent uptick in incidence levels and consumption over the past 13 weeks. A strong and prolonged allergy season could drive the need for customer replenishment even as U.S. retail inventories normalize. If a strong season does materialize, we're in a very good position to take advantage. Looking at our 2024 operational priorities, I'm pleased to say we remain well on track. First, we are making good progress augmenting and strengthening our infant formula business and are working to recover manufacturing volumes. We also executed the nationwide launch of Opel in the US. More details on both of those in a few moments. We also continue to benefit from accretive priorities. First, we are on track to deliver a total of $25 million in incremental HRA synergies as we complete integration activities. Second, our supply chain reinvention program drove gross savings of $12 million in the quarter and gross margin expansion of 50 basis points from skewed prioritization actions. And third, Project Energize attained $17 million of cost savings in the quarter, and we remain on target to deliver $140 to $170 million in pre-tax annualized savings by 2026. Turning to infant formula. As the leading US manufacturer of store brand formula, Perigo plays a critical role in the health and wellness of hundreds of thousands of babies every year. Over the past few months, we have made significant progress to augment and strengthen our infant formula manufacturing network. This included, in some instances, pausing production for comprehensive cleaning and infrastructure improvements, in addition to enhancements of quality protocols and manufacturing processes. At this point, any planned large-scale plant resets have been completed, and we are progressing to the next phase of our quality and operational enhancements. This next phase includes further policy and procedural enhancements at the site level. In addition, we are making further investments in infrastructure and people as appropriate. Importantly, we do not expect this continuing body of work to result in extended shutdowns beyond normal maintenance activities. The recovery of manufacturing volumes is expected to continue to build throughout 2024 stemming from longer quality hold times and faster, shorter campaign-style production runs. Sales volumes are expected to improve during the second half of this year, followed by market share recovery. All of this is in line with our original outlook. Stabilization of infant formula will remain a journey, and I'm pleased with the progress we have made. Maintaining quality compliance is core to Perigo's business and culture. We will continue to invest in quality, capacity, and other enhancements as we bolster quality-controlled, reliable manufacturing across our network. With the launch of Opil, Perigo has taken a historic step for women's health by creating an entirely new OTC category for oral contraceptives in the U.S. During the quarter, the Opil team executed the most revolutionary and holistic product launch in the history of Perigo. The launch was broad, and Opial can now be found at more than 65,000 retail locations across the US, in addition to major e-commerce retailers. The response to this launch has been truly amazing, from customers to academics and now consumers. The Opial launch program encompasses a 360-degree approach to drive awareness. This began with a coordinated pre-launch campaign that drove highly positive sentiment. This resulted in high awareness for OPIL even before our full media campaign ramps up over the coming weeks. Through activation plans, strategic partnerships, including a newly announced partnership with the WNBA, and the increasing support of public and private health care plans, OPIL is revolutionizing the landscape for women's health. Early OPIL consumption and conversion metrics are encouraging. Through the first few weeks of activation, Consumer time to conversion on opil.com has been impressive, with limited touch points. This time to conversion demonstrates that our team has the right strategy in place to guide consumers through their decision journey and promote repeat usage, which will ultimately determine the long-term success of Opil. I'd like to congratulate our team, partners, and supporters who've played a vital role in the early success of Opil. Perigo is committed to advancing women's health and will look to further innovate and provide accessible solutions that empower women to take charge of their own self-care journey. Now I would like to share an update on our blueprint for OnePerigo. The work we have conducted to identify our winning portfolio is clarifying how we will leverage our core competencies and strengths within our respective categories. Strategies within each category will depend on the long-term value creation potential and our right to win. These factors will shape various category management objectives, including top-line growth, profitability, and cash generation. To fuel growth across our portfolio, we must continue to invest in innovation, sourcing, and new avenues of differentiation to deliver consumer-preferred offerings. Work to bolster our innovation pipeline is underway and will take time to fully develop, but we are approaching this objective from a position of strength and will work with our retail partners to lead category growth in the self-care aisle. Our U.S. store brand business remains a cornerstone of the Perigo portfolio, and is the furnace that will fuel our blended branded business. Given the continuous evolution of the self-care landscape, we are conducting a thorough analysis regarding the position of this business, including network design, capacity utilization, and category penetration. Our priorities through fiscal 2025 include relentless execution in our core business to maximize free cash flow generation and de-lever. Key milestones are delivering margin expansion from Project Energize, returning our infant formula business to stable, profitable operations, and driving favorable outcomes with key customers in our U.S. store brand business. Parallel, we will continue to implement OnePerigo operating model enhancements, to build a leaner, more efficient, and agile global organization to enable our strategy. Our longer-term objective for 2026 and beyond is to have realized our blended branded strategy, a model that delivers sustainable, value-accretive innovation. We'll have made targeted investments in our highest potential growth opportunities in the most attractive categories and built consumer good capabilities. This will enable a global branded growth with an eye towards accreted margins, cash flow, and returns. We look forward to further articulating this strategy at our investor day later this year. As you may already see, Sven Andersson, president of CSCI, will retire from Perigo later this year. During his seven years leading this business, Sven has played a pivotal role in the success of CSCI by focusing the portfolio, concentrating on innovation and brand extensions, all while making significant contributions to Perigo's overall growth and development. On behalf of the board of directors, management team and everyone at Perigo, we appreciate all that you have given Sven and all that you've done for Perigo. Ben is handing over a business that has performed very well, and I am confident that Roberto will continue to drive success. Roberto Cori is joining Perigo later this month and will officially lead CSCI in August. He joins Perigo from Chemview and has more than 20 years of experience in branded consumer products, including leadership of pan-European brands, accelerating digital and e-commerce capabilities, reducing portfolio complexity, and improving integrated planning accuracy. I'm confident in Roberto and his ability to further our One Perigo strategy. In summary, we remain highly focused on our priorities, including our One Perigo strategy. We reported a good first quarter and will continue executing against our 2024 operational priorities. We are making great progress in strengthening and augmenting our infant formula network. Opio is off to a fast start, and we're on track to deliver our accretive initiatives. We will do this while progressing our blueprint for OnePerego to consumerize, simplify, and scale our business, all while focusing on cash, returns, and deleveraging. With that, I will now turn the call over to our CFO, Eduardo, to cover the financials.