Perrigo ( PRGO ) Q4 2025 Earnings Call Transcript

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<h2>DATE</h2>
<p>Thursday, Feb. 26, 2026 at 8:30 a.m. ET</p>
<h2>CALL PARTICIPANTS</h2>
<ul>
<li>Chief Executive Officer — Patrick Lockwood-Taylor</li>
<li>Chief Financial Officer — Eduardo Bezerra</li>
<li>Vice President, Investor Relations — Bradley Joseph</li>
</ul>
<h2>TAKEAWAYS</h2>
<ul>
<li>All-In operating income -- Increased by 2% for the full year through disciplined cost management, despite soft market conditions.</li>
<li>All-In EPS -- Rose by 7%, reaching $2.75, and matched revised company guidance.</li>
<li>CORE Perrigo operating income -- Advanced 7% for the year, reflecting operational rigor in the go-forward business.</li>
<li>CORE Perrigo EPS -- Increased by 14% year over year to $2.52.</li>
<li>Fourth quarter CORE organic net sales -- Fell 2%, reflecting weak consumer demand and a soft OTC market, despite share gains.</li>
<li>Fourth quarter CORE operating income -- Declined by $4 million, or 2%, resulting in CORE EPS of $0.76, a decrease of $0.02.</li>
<li>Infant formula net sales -- Dropped 25% in the quarter and 10% for the full year, primarily due to lower contract manufacturing and distribution of the Good Start brand.</li>
<li>Project Energize and supply chain reinvention -- Delivered $320 million in total benefits, substantially supporting margin and EPS growth.</li>
<li>2025 goodwill impairment -- Reported a noncash charge of $1.3 billion due to underperformance of certain acquired businesses versus original expectations.</li>
<li>Potential first quarter 2026 impairment -- Management disclosed possible additional noncash goodwill impairment charges up to $350 million linked to reporting unit reallocation.</li>
<li>Cash and leverage -- Ended the year with $532 million in cash and a net leverage ratio of 4x, above projections due to currency impacts and lower year-end cash.</li>
<li>2026 operational enhancement program -- Plans a global workforce reduction of around 7% and targets $80 million to $100 million in annualized pretax savings, with costs to achieve totaling $80 million to $90 million.</li>
<li>2026 CORE organic net sales guidance -- Company projects a range of minus 3.5% to plus 0.5% growth, reflecting ongoing category softness and retailer inventory adjustments.</li>
<li>2026 CORE EPS guidance -- Management expects $2.25 to $2.55, incorporating a $0.60 EPS drag from plant underabsorption.</li>
<li>2026 All-In net sales and EPS guidance -- All-In net sales projected at minus 5.5% to minus 1.5% growth, with EPS in the range of $2 to $2.30, assuming divestiture of Dermacosmetics in the second quarter.</li>
<li>Operating cash flow guidance -- Anticipated to remain in the mid-60% conversion range, balancing restructuring cash outflows and debt reduction priorities.</li>
<li>New segment reporting -- Will implement Self-care, Specialty Care, and Infant Formula as discrete segments, with Oral Care, Dermacosmetics, and smaller brands grouped in Other, starting first quarter.</li>
<li>Share gains -- Achieved over $100 million in new distribution and competitive takeaways, reversing multi-year declines in share in both U.S. and Europe.</li>
<li>Innovation pipeline -- Value tripled compared to prior year, with 60% of innovation impact expected in the second half of 2026.</li>
<li>Divestiture proceeds -- Dermacosmetics business expected to close in the second quarter, with proceeds earmarked for debt reduction.</li>
</ul>
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<h2>RISKS</h2>
<ul>
<li>Eduardo Bezerra stated, "may record additional noncash goodwill impairment charges of up to $350 million in the first quarter of 2026" due to the redistribution of goodwill to new reporting units.</li>
<li>Patrick Lockwood-Taylor stated that "OTC market consumption to remain negative in the first half of 2026" due to a "soft cough and cold season," leading to a current 5.1% decline in U.S. OTC sales over the last 13 weeks.</li>
<li>Management expects an unfavorable EPS impact of approximately $0.60 in 2026 from plant underabsorption related to lower sales volume in 2025 for both OTC and Infant Formula.</li>
<li>Bezerra noted, "from a free cash flow standpoint, a challenging year," with the impact viewed as "transitory" but persisting through 2026.</li>
</ul>
<h2>SUMMARY</h2>
<p>The earnings call revealed significant financial and operational restructuring as Perrigo (<a href="/quote/nyse/prgo/">PRGO</a> 6.17%) navigates persistent demand weakness in core OTC categories and the impact of inventory-driven plant underabsorption. New segment reporting and targeted divestitures are intended to clarify financials and support a transition to a focused consumer health portfolio. Extensive cost-cutting and a global workforce reduction are planned to offset revenue softness, while management expects a back-half recovery driven by new product launches, geographic expansion, and distribution wins. Additional impairment charges and continued negative cash flow effects from the infant formula business add near-term uncertainty, but the company conveyed confidence in normalization of growth and margin metrics beginning in late 2026 or 2027.</p>
<ul>
<li>Management specified that 65% to 70% of forecasted CORE EPS is expected to occur in the second half of 2026, which is higher than the usual phasing.</li>
<li>Executives are "completing a growth algorithm for CORE Perrigo," citing encouraging early signals for growth, margin, and cash flow, with more disclosure expected later in the year.</li>
<li>Management plans to use proceeds from the Dermacosmetics sale to reduce debt.</li>
<li>Patrick Lockwood-Taylor stated, "we only serve 10% of the world consumers today," positioning geographic and category expansion as a key driver for future growth.</li>
<li>The innovation pipeline is substantially weighted toward the second half, as the company executes "that, almost 2/3 of that lands in the second half of this year as well."</li>
</ul>
<h2>INDUSTRY GLOSSARY</h2>
<ul>
<li>Plant underabsorption: The negative impact on unit cost and margins that occurs when production volumes are insufficient to absorb fixed manufacturing overhead.</li>
<li>CORE Perrigo: Perrigo's go-forward business, excluding Infant Formula and divested units, representing the segments aligned with its long-term consumer health strategy.</li>
<li>Project Energize: An internal Perrigo operational efficiency initiative focused on streamlining the supply chain, reducing costs, and improving productivity across segments.</li>
<li>Infant formula: The company’s formula manufacturing and marketing business considered for divestiture or strategic review due to cash flow and margin challenges.</li>
<li>Dermacosmetics: Perrigo’s skincare and cosmetic dermatology business, identified for divestiture in 2026.</li>
</ul>
<h2>Full Conference Call Transcript</h2>
<p>Patrick Lockwood-Taylor: Thanks, Brad. Good morning, good afternoon, and thank you for joining today's call. 2025 was a year of meaningful progress for Perrigo. We continue transforming the company into a world-class consumer health leader, and the results of that work are increasingly visible in the marketplace. We are winning with consumers and customers, and that momentum is reflected in the strong market share gains and incremental business we secured with key retailers. These wins are a clear sign that our strategy is embedded and delivering. Despite a soft market environment, we delivered EPS in line with our revised guidance, a solid improvement versus the prior year.</p>
<p>And we made strong progress on our Three-S Plan to simplify, streamline and strengthen the business even as the infant formula business continued to face structural challenges that affected both our financials and our outlook. Our outlook for 2026 reflects the realities of the current market and the work required to offset headwinds as we enter the year, which we believe are temporary. We expect the environment to improve in the second half, and we remain confident in our ability to build on our progress and position Perrigo for long-term growth and value creation. Even as the U.S. OTC market was challenged, we gained solid market share across most of the categories where we compete.</p>
<p>Importantly, our share gains accelerated throughout the year, reversing years of decline. As consumers traded into store brands, we strengthened our partnerships with retailers, gaining over $100 million in new distribution and competitive takeaways and improved in-store execution. This is significant. This speaks to the underlying health of our business and the fact that we are winning back with both consumers and customers. We are seeing the same positive momentum in Europe. Our key brands are gaining share despite a soft market environment and our brand building, innovation and go-to-market efforts are translating into stronger marketplace performance. The share gains we are seeing across both regions reinforce that our strategy is working.</p>
<p>We remain committed to making essential self-care accessible to everyone, leveraging more than 250 molecules and formulations across all price points and value tiers and the power of our scale, which is roughly 10x that of our nearest competitors. Turning to our financial results for the fourth quarter and full year 2025. As outlined in our press release this morning, we are providing results through 2 lenses: All-In and CORE Perrigo. All-In reflects our historical operations, while CORE Perrigo reflects our go-forward business, excluding infant formula and announced divestitures, primarily the Dermacosmetics business. To provide greater clarity into underlying performance, I will highlight results for All-In and CORE Perrigo.</p>
<p>For the full year, despite soft market conditions that impacted consumption and net sales, we delivered strong operating income and EPS growth through operational rigor and disciplined cost management. Our All-In business grew operating income by 2% and EPS by 7%, finishing at $2.75, right in line with our revised guidance. CORE Perrigo operating income was up 7%, with core EPS up 14%. In the fourth quarter, market weakness continued to weigh on results. CORE Organic net sales declined 2% in the quarter despite strong share gains. And CORE operating income declined by $4 million or 2%, resulting in CORE EPS of $0.76, a decline of $0.02. Importantly, we made significant progress on our Three-S Plan in 2025.</p>
<p>First, we stabilized our store brand business, evidenced by solid share and distribution gaps. We also stabilized supply in infant formula, recovering service levels above 90% even as demand recovery slowed and competition intensified. Second, we streamlined the business, focusing our portfolio through actions such as the announced sale of the Dermacosmetics business, which is expected to close in the second quarter of this year, pending final antitrust clearance and continuing to assess the role of Infant Formula and Oral Care. We also executed major efficiency initiatives, including Project Energize and supply chain reinvention, totaling $320 million in benefits, which drove improvements in operating income and EPS. This cost discipline will continue in 2026, which Eduardo will detail shortly.</p>
<p>Third, we strengthened our portfolio and capabilities. Our key brands gained share, our innovation pipeline tripled in value versus the prior year, and we deepened retailer partnerships with next level demand generation capabilities. With our new category model now embedded and our executive team fully in place, we believe we are well positioned to drive end-to-end enterprise performance and to continue executing our Three-S Plan. Beginning with our first quarter 2026 results, we will introduce new reporting segments: Self-care, Specialty Care and Infant Formula. Oral Care, Dermacosmetics and other smaller distribution brands will be reported in Other. This new segmentation aligns with our global operating model and enhances transparency across our categories.</p>
<p>It also provides a clear view of CORE Perrigo, business that will power our future. Now turning to our 2026 outlook, which reflects challenging market conditions and the actions necessary to combat temporary headwinds. As mentioned, we expect OTC market consumption to remain negative in the first half of 2026 as consumption so far in 2026 has further weakened in the markets we operate due in part to a soft cough and cold season compared to the prior year. So, the sales in the U.S. OTC market are down 5.1% over the last 13 weeks versus a year ago compared with a 4.3% decline in the fourth quarter and a 1.2% decline for full year 2025.</p>
<p>Due to this slow consumption, retailers are also adjusting their inventory levels to current demand. This will be particularly noticeable in our first quarter results given this number and the scale of challenges we face. Amid these slow market conditions, however, we expect to grow share ahead of the market. Building on our 2025 momentum, 2026 performance will be driven by consumer-centric innovation, amplified demand generation with top customers, targeted and opportunistic geographic expansion for our priority brands and continued distribution gains. We also anticipate temporary but significant impact from plant under absorption stemming from lower sales volumes in 2025 for both OTC and Infant Formula.</p>
<p>This translates into an unfavorable EPS impact to all CORE Perrigo in 2026 of approximately $0.60. For CORE Perrigo, we expect organic net sales growth in 2026 to range from negative 3.5% to positive 0.5% compared to 2025, with CORE EPS in the range of $2.25 to $2.55. We view 2026 as a transition year as we work through near-term headwinds and impacts from temporary underabsorption and market softness. We remain confident that our differentiated strategy, the stronger consumer base we built in 2025 and a more focused portfolio will position us for healthier top line growth as conditions normalize.</p>
<p>I would also like to note that we are completing a growth algorithm for CORE Perrigo and the early indicators are encouraging across growth, cash flow and margin expansion. We look forward to sharing more on this later in the year. In closing, our focus for 2026 is clear: Grow share in our key brands and deliver our innovation pipeline, continue driving U.S. store brand demand generation in partnership with retailers, deliver operational and cost-saving programs, continue our portfolio assessment efforts and drive