Perrigo Company Stock

Good morning, ladies and gentlemen, and welcome to the Perrigo Q2 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 5, 2026. I would now like to turn the conference over to Eric Jacobson, VO (sic) [ VP ] Global Investor Relations. Please go ahead, sir.

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 then review our progress against the Three-S plan, provide a market overview and discuss our second quarter performance. Albert will close with an update on the key priorities expected to support improved execution and long-term value creation. Eduardo will then provide a financial review and discuss our 2026 outlook. With that, I'll turn it over to Albert.

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 Healthcare. I know this company, and I have a clear view of what it takes to create value here. I spent my first month on the road, listening. Three things stand out. First, our customers. 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. Our sales are roughly half store brand 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 towards the second half and supported by clear tangible drivers. 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 costs out. Since 2024, divestitures have generated approximately $600 million in 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 to $100 million of savings by 2027. We are also advancing the strategic reviews of Infant Formula and Oral Care, examining whether to optimize, partner or divest each.

Our approach is disciplined. 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 brand OTC and key European brands. 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 4 weeks ended July 19.

Softness has been concentrated in seasonal categories within the self-care segment, including cough, cold, pain and allergy, reflecting lower seasonal incidence 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 comparisons ease through the year. Our purpose is to expand access to quality, affordable self-care and that purpose has never been more relevant than it is today with consumers 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 health 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 output 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. This 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 retail sales. It shows what brand investment plus commercial execution can do. And 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 de-stocking. 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 onetime 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 move 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 a clear sign our strategy is working and that we will benefit when demand normalizes. And 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. 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. 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 health-care company. Third, we will strengthen the balance sheet and continue de-leveraging, 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.

But let me be clear. Our priority is to deliver our '26 commitments while positioning Perrigo for sustainable long-term growth. Underlying all of this are two things I will focus on: strategy and execution. 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.

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 continue 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. This softness was most pronounced in Europe, where delayed allergy and sun seasons pressured demand across seasonal categories.

Despite these headwinds, we continue 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 health care 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. 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. 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 stemming from lower prior year sales volumes. In Infant Formula, operating income improved by approximately $60 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. 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 onetime benefit related to the second quarter CEO transition of $6 million. Turning to margins. Drivers of both Core and all-in margin 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. These factors were partially offset by strong performance in the 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 the onetime 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 onetime benefit from the CEO transition.

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 $40 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.

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 are 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 estimate for diluted shares outstanding in full year 2026 to 139.3 million (sic) [ 139.6 million ] shares. All other guidance assumptions remain unchanged. 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 strengthened through the first half of the year; and third, growth of our base business and the normalization of seasonal trends compared to weaker prior year seasonal performance.

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 and 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. 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 environment.

As Albert outlined, the Three-S plan is driving tangible improvements, and we're confident that we are 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 remainder of the year. Eric?

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

[Operator Instructions] Your first question comes from Chris Schott with JPMorgan.

This is Ethan on for Chris. 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?

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 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.

Great. And then 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? And maybe as part of that, where do you have more confidence in the business' performance and maybe what remains just more uncertain in your eyes?

Looking, 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're driving operational enhancement. We're staying the course, which is very important as I came in. The strategy is the right one. And as you look at the second half and we look forward, we remain obviously conscious from a consumer demand standpoint, but we are doubling down essentially on our platform approach, be it on the innovation, and I'm very happy to tell you, as I say, that we are growing this one threefold across our platforms.

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 customer. But 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, you will see some of that in the second half.

So what I will tell you when we 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.

Great. And then just last question for me is how large of an impact did the reversal of tariffs and any of the other onetime costs have on the quarter?

I will let -- Yes, thank you, Chris. I will let Eduardo answer that question.

Yes. So for Q2, let's say, the benefit that we had related to tariffs was around $10 million. And as I talked in my opening remarks, the benefit on the OpEx related to the CEO transition was about $6 million.

The next question comes from Susan Anderson with Canaccord.

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. So just curious if you've seen a similar response from consumers and within other categories.

Yes. Susan, great question. So -- we are doing this across all our categories, yes, that's the answer. But what I'm happy to tell you is that this is absolutely what we're at and doing. And 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 have, as of the last 4 weeks in July, gained another 60 basis points. So we're happy with that. But 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, and we're working to do this across different -- all the categories we are in retailers. And 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. And so again, our objective is to execute and out-execute on this and on this strategy and looking forward to more quarters like this.

Okay. Great. And then I guess maybe just on the Infant Formula, I guess, 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? And then 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?

Let me -- and 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. So that's always good.

Some of it is driven by timing of shipments. So some of it is driven by store brands. But essentially, no, that doesn't change the strategic review, and I'll let Eduardo comment more on some of the other aspects of your question.

Yes. Susan, so a couple of comments in addition to what Albert said. So remember that we talk about we're going to be looking to optimizing the business, partnerships and potential divestments, right? So 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.

And the good news is we have a very recent audit from the FDA, and there were no observations. So a lot of the stabilization work that we have 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. So I think that those are right choices that we did.

There are significant impacts on our performance and our results, but that will pay back on the long term. So from an optimization standpoint, it's really good. On a quality standpoint, our program to have right the first time it's going very well. So you mentioned -- you saw that I mentioned in the call that we have a significant reduction in obsolescence or scrap. That's mainly because as you're doing things right the first time, you have much better absorption and lower throw rates.

And so 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. But we're seeing a store brand picking up on the non-WIC market, we're seeing some positive share gains of store brand that gives us confidence on that side.

And also the important thing is we are seeing very positive early signs of innovation. So we launched an equivalent format to one of the largest imported competitors in the marketplace, and the early signs are very positive.

Okay. Great. And then 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 detoc -- destocking in the OTC space. Just curious if that's impacting your products at all.

Yes. And we did mention this across our opening remarks. We had some of the same impact in Q1 and Q2. That was driven obviously by seasonality that was below the norm. And 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, but we expect a normalization of seasonality on our core, even if we won't return to the levels of 2 years ago, but we are cautiously optimistic in terms of the trends.

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

The next question comes from Keith Devas with Jefferies.

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. But 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. So any context you can give on just maybe what's driving that, why the consumer is returning, might be helpful for us to think about the trajectory from here.

Good. Hi, Keith. Nice to talk to you. So Ethan, with regard to the category, it has 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 and 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. So as we said, we are planning for a more normal seasonality going forward even COVID won't return at the levels of 2 or 3 years ago. The second thing is there is a certain amount of innovation that we're bringing to the market in this second half.

There is also -- and so that's on the innovation side. And as I said, we are really working across platforms. So you can expect the platform, which is really not what we have been doing in the past, to continue forward. And for next year, we start to have more than 50% of our innovation coming on platform. Therefore, things that we are going to see across Europe, U.S. store brand, branded and different price points. So that's one. And 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.

So 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're very happy. It's really across our retailers, and we are going to work the second half to really push that product in terms of consumer demand, and we're very excited about it. If you take Compeed in Europe, today, the same way that you use Kleenex for your nose, you use a Compeed for whatever you need across Europe.

We have become #1 in France, #1 in Italy. We were #1 in the U.K., #1 in Spain. So we are really getting strong. We're very excited about the innovation we have launched. It's doing very well. So 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. And I think that's what is going to take us forward.

We remain, of course, very mindful of the consumer in the second half in terms of inflation, affordability, et cetera. So we are cautious. But we are focusing on what we can control, and 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 relationship with the retailers, and we have the brands in Europe to do that.

Great. 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 towards -- away from in-person brick-and-mortar retail and more towards e-commerce.

This is something that we're seeing also, and I'm very happy to tell you that this is something we're very much -- and this is -- the portfolio we have is a good portfolio for e-commerce first and foremost. So we are very excited about the progress we're making in e-commerce in the U.S., and this is growing very fast. And I would tell you that in Europe, it's moving exactly in the same direction. So we are on it. This is leading for us, and we have a very strong relationship.

We have some of those e-commerce big groups that are -- come visited with us, sat down with us, visited our plants, share the best practices. And as you know, when you talk about e-commerce, seeing a human is always a very good sign, and we have seen a lot of humans lately coming to us and co-developing with us. So we're very excited about the opportunity, and we are all over it.

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

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

Thank you, Angeline. And I want to thank everybody for joining the call for your questions, which were very insightful. And what I can tell you is that in my first weeks, I have been focused on listening to our stakeholders and 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. And 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.

My priorities for the remainder of the year are straightforward: sustain our market share gains by executing on our key growth building blocks, deliver our cost savings 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 our shareholders. And I'm confident that we're taking the right steps and building momentum across the business. So thank you all for your interest in Perrigo.

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

Good morning, ladies and gentlemen, and welcome to Perrigo Q1 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026.

I would now like to turn the conference over to Mr. Eric Jacobson, VP, Global Investor Relations.

Good morning, and good afternoon, everyone. Welcome to Perrigo's First Quarter 2026 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are Perrigo's President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra.

As a reminder, beginning this quarter, we are reporting segments aligned with our new commercial operating model. We have recast historical results under the new structure for comparability as provided in our 8-K filing, and this change had no impact on our consolidated financials or cash flows. Along with our new reporting segments, we have changed our main profitability measure to adjusted operating income.

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. Finally, Patrick's discussion will address only non-GAAP financial measures.

Now to the agenda. We have several topics to cover today. First, Patrick will walk through the progress we are making with our Three-S plan and how first quarter results compare to our expectations. He will then provide the market overview and explain how our growth initiatives are expected to drive improved results. After which Eduardo will cover first quarter segment results, balance sheet and capital allocation and close with further details of our 2026 outlook.

With that, I'll turn it over to Patrick.

Thanks, Eric. Good morning, good afternoon, and thank you for joining today's call. We are making steady progress in building a more focused, disciplined and consistent Perrigo. Challenging market environment impacted first quarter results. However, our Three-S plan to stabilize, streamline and strengthen the company is helping us navigate these conditions and positioning the company for long-term growth. The strategy is working as clearly demonstrated by our market share gains even in what we have highlighted as a transition year.

Given these factors, we are reaffirming our 2026 outlook. Consistent with our prior commentary, results are expected to be weighted to the second half, supported by clear quantifiable factors, including stabilizing category consumption, the lapping of prior year manufacturing volume headwinds, benefits from cost-saving initiatives and delivery of our growth drivers.

With those takeaways as a backdrop, I'll walk through how the Three-S plan is driving positive change. Our stabilization efforts have turned share losses in U.S. store brand OTC into a 100 basis point improvement in volume share during the quarter, six of seven categories gaining share. To further dimensionalize our performance, we have gained 270 basis points of U.S. store brand OTC volume share in the first quarter alone. Key brands in Europe also improved, gaining 20 basis points of value share in a challenging consumption environment. We have also stabilized results in Infant Formula with improved service levels and supply reliability.

To streamline our business, we completed the divestiture of the Dermacosmetics business in April, an important milestone in further simplifying our operations and enabling debt reduction. Strategic reviews of our Infant Formula and Oral Care business are ongoing. Efficiencies are an important part of our streamlined pillar and our operational enhancement program generated more than $7 million of cost savings in the quarter and is on track for approximately $60 million to $80 million in savings for the year, with an additional $20 million to $40 million expected in 2027.

To strengthen our business, we implemented a new category-led operating model and enhanced our commercial and category leadership, adding experienced talent with the capabilities and perspectives required for the next phase of Perrigo's evolution. These changes reflect a fundamental shift in how we operate. Our new structure aligns our decision-making, investment priorities and performance goals, enabling us to better leverage one of our most important competitive advantages, our scale.

With more than 250 molecules, our deep retailer partnerships, a robust supply chain and our extensive regulatory capability, Perrigo is well positioned to be a leader in this category. And our new structure focuses our investments on fewer, bigger brands to target faster-growing categories where we have the greatest right to win. These changes are working as demonstrated by our strong market share performance. However, many of the benefits from these initiatives are not yet fully realized and are being somewhat obscured by the headwinds that we expect to ease in the second half of the year.

Among those headwinds are softer cough and cold incidence and retailer inventory destocking. Those impacts, along with a $0.26 EPS headwind related to the carryover of prior year manufacturing volume headwinds weighed on first quarter results. As indicated last quarter, prior year manufacturing volume headwinds are expected to result in an unfavorable All In EPS impact of approximately $0.60 in 2026. Again, we believe those headwinds are largely transitory, resulting in 2026 itself being a transition year. As conditions evolve, consistent with our Three-S plan, we are focused on driving improvement in the areas within our control, streamlining our cost base while strengthening our top line growth. With that in mind, let's turn to the assumptions underlying our view of 2026 as a transition year, which largely played out as expected in the first quarter.

Coming into the year, we anticipated market softness to carry over into the first half, followed by sequential improvement in the second half. In the first quarter, reduced cough and cold incidence and the impact of macroeconomic pressures, particularly in Europe, led to lower-than-expected consumption levels. We estimate soft cough and cold incidence was approximately a 3.5% headwind to CORE sales. In response to lower consumption, retailers in the U.S. and Europe reduced inventory levels, hampering sales further, resulting in an additional 3 points of CORE sales headwind.

However, we, in line with other industry commentary, continue to expect sequential improvement in demand, led by stabilizing seasonal incidence of cough and cold. We also expect retailer inventory levels to positively adjust over time, in line with improved consumption.

Our second assumption was our ability to build off our strong market share gains in 2025. We delivered on that expectation with solid market share performance in both store brand and branded products. Third, we expected to grow net sales through four key revenue building blocks: consumer-centric innovation, targeted geographic expansion, continued distribution gains and amplified demand generation. We've made progress across each of these areas in the first quarter, reaffirming our confidence in second half improvement.

Turning to our financial results. The first quarter reflects category softness, partially offset by progress in our execution of the Three-S plan. CORE net sales declined 8.3%, driven primarily by softer category consumption in the Self Care segment due to reduced cough and cold incident and retailer inventory destocking. These impacts accounted for nearly 2/3 of the net sales decline. These impacts were partially offset by share-driven gains in the Specialty Care segment, particularly in the women's health category. All In net sales declined 7.2 points, reflecting similar pressures, partially offset by improved Infant Formula performance.

Adjusted CORE EPS of $0.40 was impacted by prior year manufacturing volume headwinds and lower net sales volumes, primarily within our Self Care segment. Adjusted EPS results outperformed our expectations, benefiting from the net recognition of recovery of a portion of previously paid tariffs, a lower effective tax rate and benefits from our operational enhancement program. All In adjusted EPS for the quarter was $0.43.

Turning to the market environment. Conditions remain challenging in the first quarter as expected. In the U.S., the OTC market declined 4.1 points in value, 2.1 points in volume, largely consistent with fourth quarter levels. European markets turned more negative, declining 3.7% in value and 4.4% in volume. Trends in both the U.S. and Europe were driven primarily by softer consumption demand in the cough, cold and pain categories within the Self Care segment. That weakness appears transitory, driven largely by challenging year-over-year comparisons and lower-than-normal illness levels as well as macroeconomic pressures, particularly in Europe. We expect the category to stabilize throughout the year as comparisons ease and more typical seasonal incidence patterns return in the second half of 2026.

To mitigate category pressures, we are focusing on areas within our control. As I noted earlier, in the U.S., Perrigo grew volume share in six of seven OTC categories, and our store brand portfolio extended its streak to 12 consecutive periods of share improvement. Our priority brands gained value share in Europe, driven by strong performance from ellaOne up 200 basis points, Jungle Formula up 140 basis points and Physiomer up 50 basis points. Other areas of strength include Mederma Cold Sore and Opill, which increased 180 basis points and 40 basis points, respectively.

Importantly, as we enter the summer period, momentum is building across our seasonal brands in several key European markets. Compeed is strengthening into peak season with impressive share gains and sellout trends supported by earlier activation and excellent in-store execution. For example, in Italy, Compeed achieved market share growth of 550 basis points to 35%. While in France, it is growing well ahead of the category, with Compeed up 160 basis points and our share approaching 36%. This was led by focused investment, improved activation, stronger retailer execution. And this strong performance gives us confidence in our ability to drive growth as demand builds through the summer. As category demand normalizes, we expect the increasing earnings power enabled by this brand strength to become increasingly visible.

As we've discussed, we are driving share gains by scaling our CORE capabilities consistently across the portfolio. Nicotine replacement therapy is an excellent illustration of our approach to 360-degree innovation. Our process now develops claims, formulations and regulatory platforms once at the category level, then deploys them holistically across national brands and store brands across formats, geographies and price points. Importantly, this innovation expands the addressable market beyond traditional quitters to include vapers and dual users, allowing us to scale faster and unlock incremental demand without adding complexity.

Store brand demand generation is another scalable differentiator for Perrigo. We are the only large-scale store brand supplier bringing national brand demand generation capabilities to retailers, allowing us to partner with retailers and elevate conversations beyond just the procurement price. Retailers are drawn to this program because it builds awareness for their business, it reinforces the perception of quality and equivalents, it drives household penetration and improved retailer profits. Retailers and more and more retailers are asking us to expand these programs across even more OTC categories.

Demand generation is highly impactful for Perrigo. When we combine it with strong retail execution, we improve competitive takeaway and share gains. And these gains can be meaningful with a 1 point increase in U.S. store brand household penetration, representing incremental sales of more than $100 million of store brand OTC at retail. Targeted geographic expansion allows us to extend our existing successful initiatives into new areas. By selectively expanding priority brands into new markets, we can drive incremental growth with lower risk, achieve faster payback and higher returns. As a reminder, this is a long growth runway for Perrigo as today, we only serve approximately 5% of global households.

Together, these capabilities form a repeatable and scalable growth model. 360-degree innovation expands our opportunity set. Store brand demand generation converts that opportunity into sustained consumption and targeted geographic expansion amplifies the impact, allowing us to scale performance across categories and regions. This is translating into early but significant in-market gains. This really is the outcome of what we have been working towards over the past 3 years, Perrigo sustainable growth model based upon a more focused portfolio that better leverages our core strengths, better leverages our unique asset base, underpinned by a much more effective commercial operating model.

In summary, results in the first quarter reflect a very challenging market, but also demonstrates the effectiveness of our strategy. As we move forward, we are focused on building a more focused, disciplined and consistent business. By executing on our Three-S plan, we expect to mitigate current category challenges and drive long-term growth. We are reaffirming our full year 2026 guidance, which we expect to be weighted to the second half. That phasing is supported by clear quantifiable factors already underway. Our strategy is working. We are seeing market share gains. We've achieved a more focused portfolio. We have a more effective and scalable commercial model. I recognize that quarter 1 revenue and adjusted EPS are being driven by external factors that will need to be carefully managed.

I'll now turn it over to Eduardo to walk through the financials in more detail.

Thank you, Patrick. Appreciate everyone joining us today. Before turning to the details of our first quarter financial performance, I want to provide an update on the goodwill impairment. As we discussed last quarter, the reallocation of goodwill following our move to the new reporting units was expected to result in an additional noncash impairment in the first quarter of 2026. And as expected, we recorded a noncash goodwill impairment charge of $331 million based on our goodwill impairment test as of January 1, 2026, which utilized the same underlying aggregate fair value of the business as the 2025 year-end goodwill test. This charge does not impact cash flows, liquidity or the ability to execute our strategy.

From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. As Eric said, beginning this quarter, we're reporting segments aligned with our new commercial operating model, and our new reporting segments include Self Care, Specialty Care and Infant Formula.

Turning to our results, starting with the top line. CORE net sales declined 8.3% year-over-year, driven by softer consumption, primarily in cough and cold and retailer inventory destocking in the Self Care segment. Higher Specialty Care net sales partially offset that weakness driven by performance in our women's health category. On an organic basis, CORE net sales declined 11%. All In net sales declined 7.2%, reflecting the same factors impacting CORE results in addition to modest contributions from Infant Formula and Dermacosmetics business. Currency translation benefited both CORE and All In net sales in the quarter.

Looking at adjusted operating income by segment, Self Care was the largest driver of decline due to lower net sales volumes, the carryover impact of prior year manufacturing volume headwinds and unfavorable mix. These factors were partially offset by the net recognition of recovery of a portion of previously paid tariffs and favorable currency translation. Specialty Care benefited from the lapping prior year Opill investments as well as favorable foreign currency, which more than offset the carryover impact of prior year manufacturing volume headwinds.

All In adjusted operating income was primarily driven by the same factors as CORE, along with an $18 million impact from Infant Formula due to the carryover of prior year manufacturing volume headwind. These impacts were partially offset by operating income growth in all other segments.

Turning to margins. Drivers of both CORE and All In margin changes were consistent with the segment results just discussed. CORE adjusted gross margin declined 160 basis points to 39.2%, primarily due to lower sales volumes, manufacturing volume headwinds and mix. These pressures were partially offset by the net recognition of tariff recovery and favorable foreign exchange. All In adjusted gross margin declined 340 basis points to 37.6% due to the same factors impacting CORE gross margin in addition to the manufacturing volume headwinds in Infant Formula we just mentioned.

CORE adjusted operating margin decreased 110 basis points to 12.8%, reflecting gross margin flow-through, partially mitigated by lower advertising promotion spend, benefits from the operational enhancement program we announced in Q4 and favorable currency. All In adjusted operating margin decreased 240 basis points to 11.6% due to the same factors as CORE operating margin in addition to the impact from Infant Formula.

First quarter CORE adjusted earnings per share was $0.40, coming in above our expectations primarily to the net recognition of recovery of a portion of previously paid tariffs and a lower effective tax rate. All In adjusted diluted earnings per share declined $0.17 to $0.43 due to the impact of lower sales volumes and the carryover impact of prior year manufacturing volumes in U.S. OTC and Infant Formula.

Turning to cash flow. First quarter 2026 cash from operating activities decreased $49 million to an outflow of $114 million due to lower earnings and higher working capital in line with our previous expectations. As a reminder, the first quarter is typically our highest cash usage period amongst the year. Capital expenditures totaled $14 million, and we returned $40 million to shareholders through dividends.

Turning to the balance sheet. Cash and cash equivalents were $357 million and total debt was $3.6 billion. During the quarter, we amended our $1 billion revolving credit facility, extending the maturity to 2031. Borrowings under the revolver were used to repay our $421 million Term Loan A, extending our maturity profile with no significant maturities until 2029. We expect to continue to actively manage and optimize our maturity debt profile going forward. After quarter end, we completed the sale of our Dermacosmetics business for upfront cash proceeds of approximately EUR 306 million, which we expect to use to support debt reduction. We remain focused on our disciplined capital allocation, balancing growth investments, deleveraging and shareholder returns.

Looking ahead, although category dynamics were softer than expected in the first quarter, our guidance incorporates a wide range of outcomes and gives us comfort in reaffirming our 2026 outlook. We're closely monitoring retailer inventory changes, particularly the destocking activity observed in the first quarter, which we believe is largely related to the current consumption environment. As consumption levels improve, we expect inventory trends to stabilize.

We're also actively managing the inflationary pressures related to the geopolitical developments in the Middle East and their impact on consumers and our cost base. To mitigate the estimated incremental in-year impact of $10 million on our cost base, we have implemented sourcing and cost management initiatives, and we will also evaluate pricing actions. As Patrick noted, we continue to expect results to be weighted to the second half of the year with approximately 30% to 35% of CORE adjusted earnings per share in the first half and 65% to 70% in the second half of 2026. This phasing is supported by clear quantifiable drivers, the majority of which are concentrated in the back half.

The single largest sales growth contributor in 2026 is expected to be consumer-centric innovation. Approximately 60% of the benefit from innovation is expected in the second half, including the expansion of our Compeed portfolio and the introduction of new Infant Formula offerings. Several of our other 2026 drivers, including distribution gains amplified by demand generation activity with top retailers, targeted geographic expansion and benefits from our operational enhancement program are all expected to be back half weighted. In addition, we anticipate lower interest expense in the second half as we apply the Dermacosmetics proceeds towards debt reduction.

In conjunction with those drivers, two of the most meaningful first half headwinds, the carryover impact of prior year manufacturing volume headwinds and a softer cough and cold season are transitory and expected to lap in the second half. As indicated last quarter, prior year manufacturing volume headwinds are expected to result in an unfavorable all-in earnings per share impact of approximately $0.60 EPS in 2026. We experienced roughly $0.26 of that impact in the first quarter.

In summary, our outlook is based on clear drivers supporting our second half expectations, many of which are already underway while acknowledging the dynamic macro environment. As Patrick outlined, the Three-S plan is driving tangible improvements, and we're confident that we are positioning Perrigo to generate sustained growth of shareholder value over time.

With that, I will turn the call back to Eric.

Thank you, operator. We're now ready for questions.

[Operator Instructions] And I see our first question is from Chris Schott with JPMorgan.

This is Ethan on for Chris Schott. Just to start off, and you touched on this during the call, but as we think about the operating margin recovery for the CORE kind of non-Infant Formula business in the back half of this year and into 2027, can you help level set how much of this is driven by working through higher cost inventory in the near term versus how much will require OTC volumes to rebound and normalize? And then my second question is just any updates you can offer on the Infant Formula strategic review and kind of latest thoughts on the timing more broadly?

This is Eduardo here. Thank you for your question. So as we highlighted, our operating margin in the first quarter, then as we provided our guidance in the first half of the year would be significantly impacted by the carryover volume variance that's impacting this first half. But also in the second half, we expect to see significant uptake on the market, right, in terms of the recovery of consumption that we're watching very closely, given some of the dynamics going on. And so we expect margin improvement because of the different activities we have.

So innovation, continued distribution gains that we have there, also amplified demand generation as well as the opportunistic geographic expansion, and also the ramp-up of the operational enhancement program that will benefit our OpEx and operating margin. So overall, as we look into how we're going to see between the first half and the second half, we're going to see a very meaningful improvement on operating margin expansion because of these different factors.

To your second question on the Infant Formula, right? So just giving a little bit of perspective, right? So the business, as we saw today, we had a very -- relatively good performance in the quarter with net sales growing about 2%, driven by higher contract manufacturing and also the store brand and branded formula were a little bit impacted by prior year comparisons, right? So from a market standpoint, we're seeing consumption to be in store brands is slightly improving versus what we had before. So the first thing to your specific question is we're keeping track of the business. And remember, we anticipated that margins would be significantly impacted by the carryover of manufacturing variances.

From the overall strategic review that we're carrying and that we started, so the review continues. We're working with our advisers to assess all available options that we talked before between optimizing our network. And to that purpose, we've recently announced a rationalization of our capacity in one of our facilities that will help streamline the business and reduce our costs. But also, we're looking to the other options in terms of partnership and divestments. There's nothing more to share at this stage, and we continue with that, and we expect to provide further updates as we progress through the year.

We have our next question from Susan Anderson with Canaccord Genuity.

It's nice to see the volume share gains in the store brand in the U.S. I guess maybe if you could give some color on what's driving that share gain? What are you doing differently with retailers than you were doing before? And then also, I think maybe you said it was across most categories, but if you could talk about which categories you're seeing those gains across the portfolio?

Susan, this is Patrick. What's driving those share gains? So we're winning more contracts. So as you know, in 2025, I think it was about $100 million of net contract wins. Some of those are rolling out now. So we're taking a greater share of store brand contract volume. That's number one.

Number two is not only do we want a greater share, we want to grow store brand share of the overall category. This basically is where we start to drive equivalents and the value proposition with end consumers, frankly, using brand-building marketing capability that we apply to our national brands. That grows consumer awareness and it grows household penetration of store brand. There's two critical things. You want a greater share of store brand and you want store brand to have greater share of the marketplace. That provides a double win for us. So that's really what's growing.

In terms of -- I think I understood your question of which categories are growing. We compete in seven OTC categories. And I think in the presentation deck, we actually outlined which are growing. And I think -- so we're growing share in all of them with the exception of skin where there was some temporary supply disruption, but it's a very small business for us. The rest, which are the major categories, we're growing our share of store brands. So allergy is up 180 basis points, pain 110 basis points, digestive health is up 30 basis points, and probably the standout performance is in nicotine replacement therapy. And I heard this referred to by a competitor, where we're actually seeing a 540-point volume share growth this calendar year-to-date. So it's broad-based and it's substantial.

Okay. Great. That sounds good. And then maybe if you could talk about how you're planning for cold/cough in the back half of the year. I guess, should we expect that to finally return to growth, particularly as we kind of lap some easier compares from last year calendar year? Or are you kind of thinking about it being more flattish? And then I guess final question, just are you thinking about any pricing for the back half of the year, particularly as we're seeing maybe some more inflationary pressures now?

Thank you. On cough/cold, I've been trying to predict cough/cold season for a quarter of a century, and I get it wrong as many times as I get it right. This was an abnormally weak cough/cold season, both in the U.S. and many countries throughout Europe and therefore, in totality. The rational forecast is always to take an average season. If we take an average season for '26, '27, that's going to be materially stronger than the season we've just been through. I think that's an entirely logical outlook and forecast. And the second part of your question was?

Just on pricing, I guess, yes.

Pricing. We are -- so firstly, the inflationary pressures that we've seen from the Middle East have been very moderate for us, and we will just manage those through sort of normal operations. But we are starting to look at pricing depending on what happens with other commodity prices, et cetera. So yes, I would say we're in active consideration of that, both in the international branded business and our store branded business across both regions, yes.

I think the important thing as well, just to add to that point, Susan, is in times of inflation, et cetera, what we're going to be watching closely is the potential for pickup on store brands, consumption, right? So it's something that has been erratic over the past years, right, mainly because of the still strong, let's say, household wallet. Only the low-income consumers have been suffering the most. And usually, they are the ones that tend to have a direct correlation with store brand. But if that starts to impact further, the trade down could accelerate. And that's an opportunity that takes place, we're ready to take advantage of that.

And we have our next question from Keith Devas with Jefferies.

Maybe just zooming out a little bit and just returning back to the macro picture as it pertains to consumer health. I know you called out some expectations for the second half to be better. Just hoping you can add more context on exactly what's driving that. I think we're seeing across branded and store brand consumption be a little softer than anticipated for longer than we would have thought. And so kind of just want to double-click on what's embedded in your expectations for the second half to be better? And is it maybe better visibility into the contract wins or the destocking easing. But just kind of unpacking that a little bit, I think, would be helpful.

Yes. Thanks, Keith. So remember, as we highlighted during our guidance, right, so incorporate a wide range of outcomes there. So as we look into that piece, so there are four key areas that we are driving a lot of consumption opportunities. So from the innovation side, right? So we mentioned a little bit about Compeed portfolio as well as on the Infant Formula side, bringing new offerings, including one focused a lot on the key competitor in the market right now with an organic formulation.

Continued distribution gains. So we continue to focus a lot on that in the marketplace with further competitive take rate, and also the demand generation, right? So remember, we talked last year some of the examples like what we did on the [ Lifix ] in cough and cold and allergy. So we are seeing more and more retailers wanting to amplify that across their portfolio. And so we believe that's going to be a good opportunity to attract more consumers into our specific categories on store brand as well as the geographical expansion on our priority brands, right?

But again, we acknowledge the recent developments, right? So we acknowledge some retailer destocking that took place in the first quarter. We believe that is mainly related to the soft cough and cold that they wanted to be more pragmatic on managing their cash in that sense and adjusted their inventory levels, but that's something we need to track closely. And the other thing as well is to what extent the Middle East geopolitical situation could further evolve into inflation and how could that impact consumption in the second half. So we still believe there will be a recovery because of the comparison last year was a significant decline, but we're watching that closely.

I don't know, Patrick, anything you wanted to add as well?

Yes. I think that's right. I mean, fundamentally, there's not been a big shift in incidence across categories. Household penetration is quite stable from one -- for us, one small segment in an area of pain, but consumers are moving to alternate forms in pain from solid pill to creams, et cetera. So no radical change in incidence or household penetration. Plus, as we explained, the effects last year started to be seen in quarter 2. So we're very soon lapping the beginning of that category contraction. And therefore, just as a function of the math, it just stabilizes itself. There hasn't been a dramatic extraction of value that we can see that's going to continue into the remainder of the year.

So again, the critical point, this is always going to be quite an unpredictable range this year. So we constructed guidance with a broad range of outcomes. You've seen what our sales guidance is for the year. And you heard last quarter how much of our demand generation activity and cost-saving activity is weighted into the second half. That helps insulate our outlook. So at the moment, we're confidently reaffirming our '26 guidance.

We have our next question from Daniel Biolsi with Hedgeye.

I was wondering if you could speak to the consumers' purchasing behavior in-store versus online for branded versus store label products in Self Care categories. Do you think there's like a notable difference with your largest customers? Are they doing a good job of highlighting store label alternatives in their searches? Because like when I look at the largest retailers, there's quite a big difference between them when I search for Advil versus ibuprofen, for example.

Good question. Some of our higher shares in store brand do tend to be on e-commerce interestingly. I think collectively, we can do a better job on store brand representation on e-commerce with some of our big traditional retailers in terms of landing pages, as you've just said, but also on some of the advertising. As you know, they buy equivalent and they can be a much better value at a time when more and more consumers are seeking value. I think that execution can be stronger. But -- so yes, I think the traditional e-commerce players playing -- doing it better, enjoy higher shares, actually seeing more and more competitive takeaway within that channel as well.

Yes. And Daniel, just to give you an important example like in women's health and Opill, right, in Q1, e-commerce grew like almost 30%. So that's an area where it's going very, very well. So we're seeing a very good uptake, while the sales on Opill were double-digit growth of plus 12%. So you see how e-commerce is taking a very important piece of that growth.

And then can you share what the Board's thoughts are on the dividend currently?

Sorry, could you repeat that?

The Board's dividend.

Yes. So as we talked in the last quarter, we continue with our capital allocation plans, right, continue to invest into our base business as well as focusing a lot on debt reduction as well in keeping our shareholders' return, right? So we're going to keep that same focus going forward. And the Board will continue to assess that on a quarterly basis, what's our position to make sure we optimize our capital allocation and that they decided to keep that, and we're going to continue to have those discussions for the remaining of the year.

There are no further questions at this time. I will now turn the call over to Patrick Lockwood-Taylor for closing remarks.

Thank you very much. And again, thank you, everyone, for joining us. So to close, I want to put this quarter into clear perspective. The work we've done over the past several years is driving meaningful change at Perrigo. We are a more focused, disciplined and consistent business, and that stronger foundation is enabling us to manage through a challenging environment more effectively than we could have done in the past. We are delivering on our promises. We completed the Dermacosmetics divestiture and applying those proceeds towards debt reduction. We are executing our cost-saving program in line with to slightly ahead of the expectation. We are simplifying our portfolio. We're strengthening our operations, including continued progress in Infant Formula.

At the same time, we are delivering material share gains, reinforcing that our commercial strategy is working. But this was not a perfect quarter. Softer cough and cold demand, inventory destocking and European consumption pressures weighed on results. But importantly, our improved operating capabilities enabled us to mitigate those pressures and capitalize on opportunities where they emerge as demonstrated by the fact that both EPS and our share gains were ahead of our expectation.

As we have moved into the second quarter, we're also encouraged by the continued momentum in market share and in-market execution that we are seeing across the portfolio. That progress gives us growing confidence as we move through the year and reinforces our conviction in our 2026 outlook and long-term trajectory. We remain focused on disciplined execution, controlling what we can and building enduring value over time.

Thank you very much for your continued interest and support.

Thank you, ladies and gentlemen. This concludes today's conference. We thank you for your participation. You may now disconnect.

Good afternoon, everyone, and welcome to the UBS Global Consumer and Retail Conference here in New York City. My name is [indiscernible] , part of the UBS Consumer team. And we are very excited to have Patrick Taylor, CEO of Perrigo, joining us today.

For those that may not be aware, Perrigo is a leading provider of over-the-counter health and wellness solutions as well as self-care products for consumers. The company was founded in 1887 and is headquartered in Dublin, Ireland. Clearly, the global health and wellness industry remains very dynamic, and we hope to learn today how Perrigo sees the path forward for both the company, as well as the broader industry.

In terms of format today, I'm going to go through a series of questions with Patrick. We also have a slide deck that the company will be sharing to help facilitate the conversation. If during this time, today, you have any questions or anything else, please feel free to submit them, and they will show up here on the iPad, and I'll be more than happy to ask your questions.

So before we start, I am required to read a legal disclaimer. As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS, with any company on which I express a view on this call today. These disclosures are available at www.ubs/disclosures. Alternatively, please reach out to me, and I can provide them to you after the call. So with that, why don't we go ahead?

Okay. Let me give a brief presentation, okay? All right. Very good. Good morning, everybody. Thank you for joining us. I have to give a standard reminder here. We will make forward-looking statements, which are, of course, subject to risks and uncertainties. If you could all read that and ask me any quick questions, okay?

So who is Perrigo? Perrigo is a scaled consumer health leader, ranked #1 in terms of volume in the U.S. and a top 10 player by dollar sales across the EU. So sensibly a U.S. and EU business. Our portfolio, as some of you will know, is highly diversified across 9 different categories with no single product contributing more than 5% of total net sales. So it's a fairly risk-insulated model. We operate in about 30 countries with our commercial footprint, as I mentioned, centered in the U.S. and in Europe.

We deliver meaningful savings for consumers. The majority of our business, about 60% is in store brand offerings. And we offer a broad range of OTC offerings that really reduce the burden on health care systems. 2,000 Perrigo doses are produced every second of the day, so a very meaningful volume scale player. We deliver about $30 billion a year in savings to the U.S. and the EU health care system, a product for people using our OTC solutions as opposed to burning the health care infrastructures. Two out of three U.S. households purchased a Perrigo product, by far and away, the leader in household penetration in OTC in the U.S. And in the U.K., we actually achieved about 80% all household penetration, again, extremely competitive. We are operating in a very challenging market today, but we've made meaningful progress in building the foundation that will drive us forward and deliver long-term value, which I'll expand upon.

So the fundamental differentiator we have is our scale. We produce 250 molecules and dosage form combinations, and we compete at every price point. So we reach low-income consumers and, of course, upper middle class and above consumers as well. This, stated simply, allows us to serve more consumers and create more revenue streams.

The core strength of the company is the breadth and scale of our innovation, the fact that we have very meaningful strategic customer relationships, the scale of our global regulatory interface. We have hundreds of regulators, which allows us to shape the regulatory environment in the markets we compete, and the scale of manufacturing supply base where we produce 64 billion unit doses a year.

Our unique model combines cash-generating store brands, which is about 60% to 70% of our free cash flow with high potential high-margin brands, supported by a low-cost, scalable supply chain. Its 250 molecules and dosage gives us unmatched breadth and consumer reach. And our innovation and demand generation capabilities scales both across our brands and our store brand offering. It's a highly efficient expandable model. This structure enables us to expand household penetration and consumer access. The -- as you heard, the company when it was founded, the mission of the company was really quite simple, to make essential everyday medicines available to everyone, and that is what we stay true to today.

So our dual engine portfolio, which is high-growth brands and leading store brands, these anchor our scale whilst driving our financial structure. Our leading store brand business is the cash furnace fueling our branded growth. It's the brands that drive top line growth and margin expansion. So together, store brands and brands give us reach across every price point. It allows us to operate a strong category positions and creates a resilient, balanced growth model.

So Perrigo's fundamental strength has enabled us to win with consumers and with customers. This is reflected in the sustained market share gains that we're seeing across U.S. OTC and EU brands. I think this year-to-date, we've put on about 100 basis of store brand growth, seeing growth in all of our core growth brands in the EU. And within store brand, on the latest read, we're up 300 basis points versus a year ago, okay? This is some of the most competitive performance you'll see in all OTC players in Europe and the U.S. So the model is working. We're executing better, and it's a very resilient model, because we compete on all price points when consumers are experiencing economic hardship.

Making strong progress on our Three-S Plan. This is basically how we stabilize our business, streamlining our business and strengthen our business. This centers on restoring consistency in our core businesses where we're now growing share, simplifying the portfolio, streamlining our cost structure and building capabilities that support scalable long-term growth. Our 2026 outlook is realistic about our headwinds, especially market softness and the temporary absorption impacts we had as a result of market softness in 2025. But we remain confident our long-term opportunity is very strong.

On the next slide. Despite the challenged OTC market, Perrigo gained share in most U.S. categories in 2025. This is one of the strongest performances I've seen in an OTC, or a CPG company, that operates in so many different divisions. Our share gains are accelerated through the year and indeed are accelerating in 2026 as well. This is meaningful because that's after years of decline in share performance for Perrigo.

Our retailer partnerships are strengthening. We took $100 million in new distribution and competitive takeaways in 2025, which is being executed continuously in '26. This reinforces our value propositioning is resonating in a value-oriented consumer environment. As I mentioned, our EU critical brands are also gaining share despite soft consumption across the region. We're seeing stronger brand activation, improved supply and our new advertising campaigns are driving continued performance. This demonstrates the strength of our brand-building capabilities and the scalability of our playbook across the different markets we compete in.

Turning more to the Three-S Plan. So we've stabilized U.S. store brand share and actually, we are now strengthening our U.S. store brand share. Infant Formula service levels are now back over 90% with a quality assured operation. The business is stabilizing in the IF category. We're building share, and we're outlooking modest revenue growth there, despite a very challenging Infant Formula macro environment.

We're streamlining our portfolio. We exited the rare disease business, the Australian hospital business, about 60 brands in Europe and the derma sale hopefully will be fully executed early in quarter 2. The Infant Formula and Oral Care strategic reviews are progressing. Cumulatively, we've achieved $320 million of cost savings from the Energize project and the supply chain reinvention. We're strengthening our business. Our innovation pipeline has tripled in value versus a year ago. We're seeing much stronger EU brand performance, which will continue, and we are enjoying enhanced retailer partnerships with next level demand generation.

We just announced a new 2-year program, which addresses current market conditions and will further strengthen our Three-S Plan. This improves productivity work, streamlined operations, which in turn will enhance our competitiveness. We just announced a global workforce reduction of about 7% and targeted supply chain and distribution efficiencies. These will yield annualized savings between $80 million and $100 million, 80% of which will be realized during 2026. The market is difficult. That requires us to address that in terms of cost competitiveness, which we're doing, and we're executing at speed.

We do expect market consumption to remain soft in early 2026, then stabilizing in the second half. Many of these effects were transitory, and we're just anniversarying those now -- starting now. We have not seen a fundamental change in the human health, or human health habits over the last 9 months. They're just transitory effects.

Consumption did weaken further in early 2026 in January and February, somewhat stabilized in March. And this, of course, has been worsened by the Middle East conflict and gas prices. We expect Perrigo consumption to outperform the market because of our innovation, demand generation efforts with retailers, the geographic expansion we're now undertaking and distribution gains.

Perrigo's share of U.S. store brand, as I mentioned earlier, is plus 260 basis points in the last 13 weeks, plus 310 basis points in the last 4 weeks, okay. This is best in Perrigo history performance, and is certainly way ahead of any of our competitors. We're focused on building on our progress in 2026, navigating these near-term market pressures and the temporary manufacturing impacts that we had, which was about $0.60 of EPS based upon '25 market softness, which we see as a onetime effect. So our strategy and portfolio focus sets us up for growth as conditions normalize. About 95% of consumers when they switch to store brand stay with store brand. So that's an annuity for us going forward.

As many of you know, we recently broke out our business into CORE Perrigo and other categories. CORE Perrigo is the business we are truly building for the long term. That is our go-forward portfolio. The categories where we have seen and established durable advantages, and this is where we are focusing our capital and our capability. Defining CORE removed the noise from Infant Formula and other divestitures, giving investors a clear comparable view of the earnings engine that matters. This is our CORE go-forward expandable business.

The details on sales, margins and EPS are shown on the page, but the headline is that CORE performance reflects temporary headwinds that we are actively offsetting with cost actions and continued share gains. For 2025, CORE baseline EPS was $2.52. As we add absorption, A&P investments and the incentives that we've built back into '26, we see those largely offset by savings and base business performance. We do see additional modest headwind from interest, taxes, FX and share count.

Based on continuing challenges in end markets driven by consumer confidence and conflict in the Middle East, we now expect CORE EPS range being 30% in the first half, 70% in the second half, driven by seasonal categories and the timing for when our cost savings will land. So really, we've made very meaningful progress on the Three-S Plan in '25, and it's clear the strategy is working for us. It's durable and it's expandable. We're growing share consistently again after several years of decline in both U.S. OTC and key EU categories. We're expanding in the right categories with strong retailer partnerships and a more focused portfolio.

Our financial structure and operational discipline continues to strengthen, supported by proven cost-saving programs. We also now believe we have in place the leadership, capabilities and a scalable growth model needed to drive long-term value, with 2027 positioned as a key year of acceleration. Thank you.

All right. Now a few questions.

Yes. Well, insightful presentation, Patrick. So you've now been CEO for nearly 3 years. What changes have you made to both the organization strategy? And how much more do you [indiscernible]

Yes. Is it only 3 years? So this is a fundamentally different company. We've really almost got back to who we are, which is an essential medicines company made available to everyone. So we've really refocused ourselves as a simpler, more focused health care CPG player. Significantly simplified the portfolio, got to a much more efficient customer service-orientated supply chain, that's delivering record case fill rates at much lower cost, significantly streamlined the organization. I think over the last 3 years, about 17% reduction.

The -- as you heard me say, obviously, the portfolio is much more focused now on essential everyday medicine. We -- about 80% of the executive lead team is new to position and really world-class in CPG and OTC health care. We brought in dozens of CPG, Senior Vice President, Vice President. So a leaner, more focused, more cost competitive organization. Yes, I think a lot of the work of transforming Perrigo to a competitive OTC-focused company being done. And now the agenda moves to scalable, sustainable revenue.

Okay. That's quite helpful. Maybe staying on strategy. You still have ongoing strategic reviews for Infant Formula and Oral Care. Where are you in that process? And when you think about what you expect to final decisions? And is there any early indication. I can repeat the first one?

No, I got it. Yes, both of those businesses are in strategic review. So Infant Formula, growing share, modest revenue growth outlook for '26, very difficult trading environment and an evolving regulatory environment. We've made great progress in getting to excellent customer service and excellent quality assurance as we took on the change in government regulations probably about 3 years ago.

There are 3 headlines to the strategic review for Infant Formula, okay? We will either optimize the current business, which will look at manufacturing consolidation. We will look at partnership opportunities, or we'll look at divestiture. We're early in the process of exploring, obviously, it's a very complex piece of work, and we'll make announcements as we finalize that work probably later in the year.

Oral Care, we've done a great job driving the profitability of that business. It's a very diversified Oral Care business, but there are 3 or 4 just major players. And we just feel that we are subscaled in that business. And others essential business is Oral Care, this may be better suited for them. The profitability has improved year-on-year, and we do see a good share opportunity. It's just for us, CORE business is faster growth, higher margin and more scalable. And again, I hope that we complete that work over the near term and as we do, obviously, will.

That was actually going to be my follow-up. Well, that's helpful. Maybe shifting over to capital allocation. Since capital discipline underpins your strategy, how do you allocate capital to CORE brands and let's say, store brands and other areas of your business?

We're increasingly disciplined about this. Store brands and national brands both respond well to investments. We're clear of what that investment looks like and the relative payout. So really, we go through an annual process of what demand generation activity can we do with store brands in order to grow its share and our share of it, and more money is going towards that as we get better at that type of work.

National brands really a bit of a shark tank, which brands have the most growth opportunity with the highest yields, as you'd expect in any CPG brand company. And that's a function of the quality of its brand building, its innovation, its distribution opportunity and more and more the geo expansion of those as well.

In terms of corporate projects, again, which are maintenance capital sort of investments, and then what are those other corporate projects for what strategic purpose with what financial returns. So we're getting more and more disciplined with capital allocation within brands, within store brands and certainly within corporate priority projects.

And actually, sorry, including innovation. The innovation returns that this company had were quite good. But over the last year, we've tripled the value of our innovation. Revenue return of last year saw about $40 million coming from innovation, that will almost double this year on a go-forward basis, will also improve as well. So more consumer meaningful innovation scaled across more brands and geographies, giving us a much better revenue.

And then how would you classify those?

A multitude. So some of it is geo expansion. Some of it is new form. Some of it is addition to form, be it flavors, et cetera. Some of it is new technology. So increasingly, more consumer meaningful, more differentiated and more scalable.

Okay. That makes sense. Sticking with capital allocation for a moment. Very quickly on the dividend, your yield is now north of about roughly 10%. What are you -- like what are your thoughts on this allocation?

Yes. We've had a lot of questions on our dividend policy. Our priorities in terms of capital allocation, obviously, invest in the business. We continue to pursue a leverage ratio 3 or below, take us another 2 to 3 years, and then to maintain our dividend policy. The Board recently approved with me the maintenance of our dividend as we saw. Frankly, those are our capital allocation priorities. We review them as all companies do periodically. But at the moment, that's our position.

That's helpful. Maybe taking a step back to the broader environment. I think you highlighted that in your presentation. But we have seen weakness across total store in the U.S. and slow consumption in the EU as well. What do you think are the drivers? And second, the weakness in total store and soft consumption in your consumer health categories?

Yes. So I think a lot of companies, us included, were surprised by the market. The rate of market slowdown last year. No one really anticipated that, and I think there are a number of contributory reasons. The -- most of the issues that we see are transitory, and we're starting to anniversary them now, which is why we believe we will see stabilization in the second half.

So what happened last year? Probably the single biggest impact is we've had years of quite high price inflation in this [indiscernible] A lot of big brands took a lot of pricing on an annual basis. Cumulatively, that was driving market value growth. They stopped taking those large price increases really at the end of quarter 1.

Secondly, consumers faced with increasingly tough economic outlook traded down. They traded down in terms of unit size. You also saw a lot of big brands and retailers doing temporary rollbacks, so more volume was sold on promotion. So that took a lot of money, a lot of value out of the market, and so the market did contract. We then had a very weak cough/cold season, which we then saw late in quarter 4 and in January and February. So in January and February, approximately, the U.S. OTC market was about 5% down. I'm about right with that. That's pretty unprecedented.

Now we are starting to anniversary some of those effects. We will continue through the year. So our expectation is you'll see stabilization of that. There are only 1 or 2 categories, predominantly pain solid dose that have seen year-on-year decline in household penetration. Most other categories actually saw increases in household penetration and indeed, volumes did grow last year. So there's not been a fundamental change in the health condition or in habits and attitudes of [indiscernible], okay.

In the EU, market slowdown was much less pronounced than it was in the U.S. The value of the market did actually increase last year. And indeed, the market is still growing in January and February of this year. So this seems to have been a particularly strong U.S. effect, which again, we believe is transitory. Anything to add?

No. Thank you, no.

And I think you mentioned innovation being a driver. What are some of the things that you're going to like reinvigorate growth back [indiscernible]

Yes, innovation, driving store brand share of category, okay? That allows us to access probably underserved lower-income consumers who tend to have more -- less molecules on hand than higher income consumers. That's a terrific expandable opportunity. We are looking at additional distribution gains for us, geo expansion. So some of these impact market, some of these obviously impact our performance within the [indiscernible] We do expect, and we are certainly accelerating share gain, and we do expect to grow faster than the market through the rest of [indiscernible]

That's interesting. So I have a few more questions left, but I wanted to take a second to pause and remind everyone that if they have any questions, please feel free to submit them, or you can [indiscernible] later.

I don't have any questions yet. So with that, now let's get back to it. So as we look to your 2026 outlook, can you speak to what drivers -- what drives performance in this year at the top, middle and bottom of your outlook?

Sure. Thanks, [indiscernible]. And thanks, CBS. Thank you guys for allowing us the opportunity here to present the Perrigo story to everybody. We appreciate that.

When we look at our midpoint of the guidance, maybe that's the way to first start. It's everything Patrick was just articulating, which is second half stabilization within the U.S. and a pickup within the European marketplace from a consumption standpoint. What that translates into is still down for the year within the U.S. and slightly up for Europe.

And those share gains that were shown in the slide deck and discussed here, we do expect to continue regardless. So the midpoint really takes into account all of those factors in addition to the innovation, the competitive takeaway, the demand generation, the geographic expansion, which is expected to happen more prevalent in the second half. So about 2/3 of those drivers are expected to come through in H2 versus H1.

Then when we look at where -- what could get Perrigo to the higher end of the range is. Well, the higher end would incorporate predominantly market coming back faster than expected. We do see a bigger pickup here, more seasonality. As you know, seasonality resets every single year. So 1 year does not have an impact on the next year's seasonality rate. And also if some consumer confidence starts to settle down. So we do see those macro factors start to occur, we could see ourselves at the higher end of the range. In addition, that would really help through some of the throughput and the volume within the plants, which could overtake some of the headwinds that we are seeing from under absorption that's left over from 2025.

And then I'll close out just on the low end, if we continue to see markets decline, deteriorate, consumption not start to stabilize in the second half, we've taken into account a number of different factors. I think Patrick walked through some of the expense savings that we're looking at and the cost savings program. So there's a lot of levers within that framework, but that would most likely put us more towards the lower end of our range.

Okay. No, that's helpful. Then maybe just building on that, as we think about the path ahead, can you speak to the key revenue growth drivers beyond 2023?

Yes. Yes. Hopefully, it's becoming clearer and clearer what our portfolio will be, why it's attractive and how we're going to scale it. And that will be -- involve the following. Better brand building, driving share of our brands through more consumer impact in terms of our communication, in terms of our innovation, in terms of distribution and local brand activation. So more of our brands going into more geographies, better executed more consumer engaging way.

Next is the scale of our innovation, right? It's getting bigger, more differentiated, more scalable. We're able to apply it to more brands and more geographies, and that will drive revenue harder. We will continue to focus on what's called competitive takeaway, winning contracts to supply more retailers in the U.S. and in more countries in the EU as well.

And the next one, just tends to grab more headlines than it's probably worth nearer term, the geographic expansion. We only compete in 30 countries. In the America, we have 70% household penetration, as I mentioned, and in the U.K., 80%. So when we unleash our model, we win with more households than anyone else. We only have 5% global household penetration. Our opportunity to expand into more molecules in existing countries, and into more countries is a fantastic long-term revenue opportunity for us. So really, it's not a question of do we have great growth opportunity. It's how do we sequence them in a balanced risk-appropriate way for the long term.

That makes sense. Maybe touching on one last topic here. Are there any impact on geopolitical dynamics on sourcing, logistics or pricing?

Yes, we can probably break that down into two things. So tariffs. On again, off again, on again, off again. Largely the recent Supreme Court ruling and the administration's reaction to that is largely a wash for us, okay? So no impact.

On the Middle East, highly manageable for us. We do not have a business in the Middle East, have very limited sourcing from the Middle East and even the oil price movements are very manageable for us at this stage. Now who knows how that will expand and how long this will be in place for. But at the moment, very, very minimal.

All right. Well, why don't we leave it there? Patrick -- Please. Sorry.

Do you tend to see volume shifts towards store branded products during these periods of time? And how much is the retention to in periods of [indiscernible] are there other things that tend to trigger volume shift as well?

Yes. One of the benefits of Perrigo is we compete at every price point. So certainly in a softer economic environment, people do trade down into -- or trade across, I should say, into store brands. It's very sticky. About 90%, 95% of consumers once they use the store brand, realize it's identical and a much better value [indiscernible] very little switching back into brand. So as we mentioned, our share gains -- volume share gains are significant and accelerating 310 basis points this year -- sorry, the most recent read. 90% to 95% of that will stay in place going forward.

The -- an opportunity we haven't really talked today is to continue driving store brand OTC market share, okay? That is very profitable for retailers. It offers great value for consumers, and it is underdeveloped. And it's probably given how few molecules, lower-income consumers tend to have on hand versus higher income, it's probably one of the biggest market expansion opportunities there is. So we continue to partner with the major retailers, how do we drive awareness and trust and household penetration of store brand OTC.

Thank you. Please.

Certain number of people recently lost their health care as a result of changes in The Affordable Care Act. Did people start to [indiscernible] under the Affordable Care Act, they could have access to -- not branded, Ethical Pharmaceuticals. Is there any shift during that period of time when people saying, look, I cannot get to an Ethical pharmaceutical, so I'll use some sort of alternative care through OTC products.

It's a great question. I haven't seen a marked shift if we look at household penetration of store brand. I'd also challenge ourselves and our retailers to probably show up better to make that more obvious to those affected consumers as well. We should take that away as an action step. So thank you for that. Because one would expect it, but I think we can make it easier.

Any more questions? Go ahead.

So one question. I know kind of your strategy around M&A seems to be very much kind of focus, focus, focus. And sorry if I missed this at the beginning, but would love to have any more color on how you're thinking about M&A and portfolio expansion alongside the divestment strategy?

Thank you. Okay. So you store brand Infant Formula? Okay. You'd save $1,000 a year, if you use it anyway. M&A. Number one value destructor in OTC is large-scale M&A, okay? So I'm very wary of it. Two, number 1 value driver is OTC switch. So we're very focused on that. We have simplified, streamlined or made more strategic portfolio, as you rightly mentioned. We are very interested in geographic expansion because we're only in 30 countries with 5% household penetration. And we are very interested in certain subcategories, which could look like something we either develop organically or bolt-on, okay? And we're very interested in partnerships that enable those two things. I think the chances of us doing large-scale M&A is very remote for the reasons that I've just said. So we are focused on sequential growth, but just being very, very disciplined about how we do it.

Do we have another?

I remember speaking with Murray years ago and one of the things that surfaced was that as you talked about, there's a lot of innovation. There was always an inherent complexity in the portfolio as well, too. And as you're sitting here trying to simplify the -- or have simplified the business actually, coming on the tail of it is all the innovation. So how do you manage that so you don't, sort of, refill the complexity bucket again in a way that isn't positive for the business?

Yes. Great question. Having spent a vast amount of time simplifying, as you can imagine, I'm somewhat allergic to recomplexifying. So our innovation was hundreds of initiatives, highly localized, with very little incremental value because it lacks scale. So what we've done now is innovation that's meaningful to consumers that can be scaled across different brands in different markets. So we have 4, 5, 6 cough/cold brands. As opposed to innovating to each one of those and the geographies they're in, we want innovation that can be scaled across each of those and taken to new geographies. Sort of call it the Perrigo chassis concept. We innovate to create a chassis that we then scale across as many aspects of Perrigo as we can. That's a much better payout. It allows us to invest in more consumer meaningful innovation that's differentiated and superior to competition.

Now back to the shark tank, every category has to compete for the innovation dollars. And they do that by being more consumer meaningful and a better payout because they find a better way to scale it. I don't care where the innovation goes as long as it's best for the company and best for shareholders. So the more financially attractive categories, NRT, very attractive margin, very attractive cash, very underdeveloped geographically, competes very well for innovation, for example. So it sort of self-contained itself in terms of complexity given those thresholds that we put in place. Good question.

Are there any more questions? I don't have any on my iPad either. Well, on behalf of UBS and those in the room and those listening online, we want to thank you for taking the time to be with us today. And we wish you nothing but the best of luck moving forward and hope you will join us.

Thank you very much. Thank you, everybody.

Thank you.

Good morning, ladies and gentlemen, and welcome to Perrigo Q4 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026.

I would now like to turn the conference over to Bradley Joseph. Please go ahead.

Good morning, and good afternoon, everyone. Welcome to Perrigo's Fourth Quarter and Full Year 2025 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's session are available within the Investors section of the perrigo.com website. Joining today's call are Carlos President and CEO; Patrick Lockwood Taylor; and CFO, Agoro Bazar. I'd like to remind everyone that 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 for the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Finally, Patrick's discussion will address only non-GAAP financial measures.

Now to the agenda. We have several topics to cover today. Patrick will first walk through a market overview and summarize fourth quarter and full year 2025 results. We will then cover our continued progress on the Three-S Plan and our transition to new reporting segments, which will begin in the first quarter of 2026. Finally, to walk through our 2026 outlook, after which Eduardo will cover 2025 segment highlights balance sheet and capital allocation, our operational enhancement program and close out with further details of our 2016 outlook.

And with that, I'll turn it over to Patrick.

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 in key retailers.

These winter a clear sign that our strategy is embedded and deliberate. Despite the soft market environment, we delivered EPS in line with our revised guidance, a solid improvement versus the prior year. 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 temp. 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. 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. We remain committed to making a central self-care accessible to over leveraging more than 250 molecules and formulations across all price points and value sets and the power of our scale, which is roughly 10x that of our nearest competes.

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, providing great in parity to underlying performance, I will highlight results for all-in and CORE Perrigo.

For the full year, despite soft market conditions that impacted consumptions 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. I First, we stabilized our store brand business, evidenced by solid share and distribution gaps. We also stabilized supply and a formula, recovering service level and 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 a cap.

We also executed major efficiency initiatives, including Project Energize and supply chain ran venture, 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. 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 Motoman embedded at our executive team fully in place, we believe we are well positioned to drive end-to-end edge growth performance and to continue executing our Three-S plan. Beginning with our first quarter 2026 results, we will introduce new reporting segments: Health 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. 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 convert 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, do in part to a soft 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 to the 4.3% decline in the fourth quarter and a 1.2% decline for full year 2024.

Due to this slow consumption, retailers are also adjusting their inventory levels to current demand. This will be particularly noticeable on 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 and continued distribution gains.

We also anticipate temporary the significant impact from plant under absorption stemming from lower sales volumes in 2024 for both OTC and Infonforma. This translates into an unfavorable EPS impact to all Perrigo in 2026 of approximately $0.60. For CORE Perrigo, we expect organic net sales growth in 2026 and to range from negative 3.5% to positive 0.5% compared to 2025. The 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 impact from temporary under-absorption and market softness.

We remain confident that our differentiated strategy, the stronger consumer base we've built in 2025 and a more focused portfolio will position us for healthier top line growth as conditions normalize. 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: growing share in our key brands and deliver our innovation product line, continued driving U.S. store brand demand generation in partnership with retailers, deliver operational and cost-saving programs, continue our portfolio assessment efforts and drive our category model and performance culture. We made clear progress winning with consumers and customers in 2025, and we are excited about the possibilities ahead. We believe we are very well positioned to create long-term value.

And with that, I'll turn over to Eduardo.

Thank you, Patrick. I appreciate everyone joining us today. Before getting to the details of our financials, I want to note that our 2025 GAAP results includes noncash accounting impact, including a goodwill impairment charge of $1.3 billion. Environment is a way issue which marries both historic acquisition cost of businesses purchase over time with the realities of the current stock price. Some historically acquired business have not performed as initially expected when acquired. Management must now address these realities and plan for the future. This impairment does not impact our strategy, cash flows, our ability to execute.

In addition, looking ahead to the first quarter, we need to reallocate goodwill from our existing to our new reporting units, which Patrick highlighted. While the aggregate fair and carry values are unchanged from December 31, 2025 the redistribution of goodwill across our new reporting units may present a different outcome with some lenses in many and shortages in the field. As a result, the company may record additional noncash goodwill impairment charges of up to $350 million in the first quarter of 2022.

In contrast to impairment, which reflects historical business performance, our decision to place business under strategic review a reaction to externally advance informed by growth options and priorities for Perrigo in the future. Now to our results. I highlighted, we're introducing a new concept of CORE Perrigo results or just CORE, which excludes different formula and announced divestitures, primarily the Dermacosmetics piece.

From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. Turning to results to our business units, starting with CS. Full year core organic net sales decreased 0.2% as growth from new products, share gains across most of our key brands and increased supply of pendency trade products were more than offset by lower consumption. Fourth quarter core organic net sales decreased 1.4% compared to the prior year due to continued consumer softness in the OTC category, combined with a softer cough and cold season compared to last year.

For core operating income grew 11.6% as savings from Project Energize and lower variable expenses more than offset unfavorable impact from gross profit flow-through. Fourth quarter core overall income increased 10.3% due to favorable foreign terms. All-in net sales and operating income growth for both fourth quarter and full year included the impact of divestitures. Turning to Full year core organic net sales decreased 3% due to lower contract manufacturing revenue, some category consumption and the prior year OP loan stocking benefit, partially offset by share gains.

Core organic net sales for the quarter decreased 2.4%, also driven by contract manufacturing and OTC category consumption, partially offset by share gains. All-in net sales for the quarter and full year, including declines in internet sales of roughly 25% and 10%, respectively, as growth in store brand was more than offset by lower contract manufacturing and lower distribution of the Bluestar brand. Core operating income for the full year and fourth quarter decreased to 2.4% and 6.2%, respectively, both driven by the impact from lower net sales volumes and price investments, partially offset by benefits from project energized savings and lower variable operating expenses.

Fourth quarter all-in operating income declined $29 million, including a negative impact of $21 million from into form. Moving now to cash. In 2025, we had $532 million of cash on the balance sheet and fourth quarter operating cash flow was $175 million EBITDA net leverage ratio of 4x, slightly above our updated projection due to currency translation on gross debt and lower cash balances at year-end. Our capital allocation priorities remain unchanged. Business growth, reducing total debt and net leverage and returning value to shareholders through our dividend.

As a reminder, we expect proceeds from Dermacosmetics to contribute to that reduction in the second quarter. As highlighted, we start with our first quarter 2026 earnings report, we will align our segments reporting to our commercial operating model in this. To adding comparability, we will recast select historical financial results based on the new reporting segments, which we expect to furnish on an 8-K in.

This reporting segment change will have no impact on the company's historical consolidated financial position, results of operations or cash flows. Given the external dynamics we project in 2026, we will remain disciplined in managing our costs. We're implementing a new 2-year operational enhancement program to further improve productivity, streamline operations and enhance competitiveness. We are focused on evolving our structure to improve agility, accelerate decision-making and better leverage technology.

As part of these efforts, we expect a global workforce reduction of approximately 7%, and we will also target operational cost reductions, mainly in our supply chain and distribution network. These efforts are expected to deliver annualized pretax savings of $80 million to $100 million, with approximately 80% of the savings expected in 2026. Total cost to these savings are expected to be approximately $80 million to $90 million. Now a bit more color on our 2026 outlook. We expect core bearing organic net sales growth of minus 3.5% to plus 0.5% year-over-year.

Core gross margin is expected between 39% and 4%, with core operating margin expected between 15% and 16%. See within core, we expect higher costs from temporary OTC plants under absorption to dissipate over the next 12 months with the pace of returning to normalized levels, depending upon timing and levels of sales and production volumes. These cost pressures in addition to higher advertisement promotion and the reset of variable incentive plans will be mostly offset to 2 levers.

First, the benefits from our new operational enhancement program. And in addition, targeted savings, primarily performance efficiencies driven in part by lower expected production volumes, along with the deferral of certain projects that are non-essential to our 2026 strategic objectives.

Turning to our holding outlook, which includes infant formula and assumes we divested Dermacosmetics business during the second quarter of the year. We expect all-in net sales growth of minus 5.5% and to minus 1.5%. Gross margin of 36.5% to 37.5%, operating margin between 12.5% and 13.5% and EPS in the range of $2 to $2.30. Finally, on operating cash flow. As we advance our Three-S Plan, we're taking on temporary cash costs to drive productivity, streamline operations and improve our risk profile balanced with our commitment to reducing net leverage.

For 2026, we expect operating cash flow conversion to remain in the mean 60 percentage range and net leverage to end the year roughly in line with or slightly better than 2025. As we are providing outlooks for Olin and core variable or either comparison will include the 2025 actuals for both in the appendix of this presentation. Let me quickly walk through our 2026 EPS reach.

Removing perform and divestitures yields 2025 core baseline of $2.52. From there, other absorption, investments in advertising, promotion and incentive normalization are largely offset by base business performance and cost savings actions. This, combined with the year-over-year net effect from interest, taxes and share count and FX result in our core EPS range of $2.25 to $2.55. The EPS range of $2.30 reflects the expected impacts from infant formula and divestiture.

Core EPS saving is approximately 30% to 35% in the first half and 65% to 70% in the second half, which is modestly above our typical center. This reflects the expected timing of net sales, including impact from the current soft cough and cold season versus the prior year, the evolution of our savings program and impact from under absorption. In closing, we remain disciplined, realistic and focused on the elements we control. The strategic actions underway as part of our Three-S Plan are strengthening our foundation for long-term penetration, we were confident that CORE Perrigo can deliver steady growth, resilient margins and consistent cash generation. The steps we're taking now will continue strengthening our consumer health business to deliver for consumers, customers and shareholders.

Now I will turn the call back to Brad. Brad?

Thanks, Eduardo. Operator, will you please open the line for questions.

[Operator Instructions] And your first question comes from the line of Keith Davis with Jefferies.

A lot to get through, so I'll try to keep it brief. But maybe just going to your outlook for 2026. I think you mentioned some of the pressures in the first half in terms of cough cold than overall consumption as well and you're expecting kind of second half improvement. So maybe just some more color or context on what's driving that second half improvement? And then maybe longer term, what's needed for the categories, particularly in OTC, both in the U.S. and abroad to get it back to stable and then hopefully growth.

Keith, thank you for the question. As you can imagine, we put a significant amount of analysis on this as have a lot of our competitors. There several components to answer in this. Firstly, is what's causing the decline. We see the great majority of that as being transitory in nature. That has been household -- long-term household reduction in certain subcategories, but they are a small part of our overall business. So what do I mean by transitory, we saw some trade down. We saw consumers trading down into smaller units.

We saw rollbacks from national brands and the biggest effect is we didn't see price increases to the scale that we've historically seen, that temporarily took a lot of value out of the market. And we need to think of that as about 90% of the calls. We start to catch up with those effects in the latter part of the quarter 2 and increasingly through the second half. So what the effect of that is it just normalizes. Unless you see additional value erosion versus that base then, by definition, it stabilizes, that is the effect that we see and increasingly in the second half.

To get more down to the specifics of what building our confidence: One, we expect to continue growing share; two, we expect store brand OTC to continue growing share. Second, about 60% of the value of our innovation is in the second half of this year, about 65% of our opportunistic geographic expansion is in the second half of this year. Our competitive takeaway, this is our distribution gains, more than half is in the second half. And then this work you've heard us describing this demand generation, which is driving key retailers store growing category and their share of it and our share of that, almost 2/3 of that lands in the second half of this year as well. So as we combine all of those factors, that leads us to a more favorable second half outlook.

Got it. That's very helpful. Maybe just as a follow-up, just an update on kind of the liquidity and the leverage position. You're doing a new restructuring program, there's some cash charges there. And in terms of the overall outlook for the business units it sounds like it's a little bit pressure, at least in the first half. So just as you think about the guide and keeping net leverage flat year-over-year, just if you think that gives you enough flex to reinvesting the business appropriately to try to get some of the changes that you're hoping for. And then just your other commitments in terms of the dividend and kind of putting it all together, how you feel in terms of update on liquidity and leverage would be helpful.

Thank you, Keith. Our capital allocation priorities remain unchanged, right? So we will continue to invest in the business, right, through investing in innovation as well as technology to continue to accelerate the collection with our announced new enhancement program. We continue to focus on reducing the leverage, right? So we expect that the closure of the Dermocosmetics sale in early second quarter.

And we're going to use those proceeds as we mentioned before, to reduce our debt, right, and also continue to return value to our shareholders through dividends, right? So we held our dividend. We continue to assess that as we always have done that. I think the important thing is we see 2026 as a transitory year, right? So it's very important to highlight we see significant impact on under absorption that we talked a little bit on the call about $0.60, and we expect a significant portion of that to be recovered into 2027.

And also, these operational enhancement programs, they should sustain over time. So despite we see, let's say, from a free cash flow standpoint, a challenging year, we expect that to be a transitory and that things should improve as we look into 2021.

And your next question comes from the line of Chris Shaw with JPMorgan.

This is Ethan on for Chris. Maybe just to start off, a lot of helpful color on the OTC business today. Just wanted to get some color on how you're thinking about the recovery of margins there. And if that will start to be recovered kind of through the second half of this year or if that's March 2027 plus?

Well, thank you for the question. So a couple of comments there, right? So we're seeing an underabsorption impacting our margins in 2026, right? And that's one of the key reasons why we're pushing for the operational enhancement program, right, that we're implementing this year. We believe though that's a transitory in nature. And that mainly reflects the impact of softening that happened in the second half of last year. So, despite our significant share gain that we have in the OTC store brand business in the U.S. as well as in our key brands in international we still carried a strong inventory.

And of course, the cost of that inventory has increased and we see the transitory impact into 2026. But as I mentioned, this should be transitory in nature as we see the market normalize more in the second half of the year and into 2027 that should dissipate and we should see an improvement in our margins on OTC going forward.

Super helpful. And maybe just one other question from me is looking to the infant formula business, how are you thinking about the path to kind of normalizing operations and margins going forward and the different actions you can take? And more broadly on the strategic review, just how are you thinking about the different options available, what any kind of sale might look like and if that isn't available, what other actions you could take there?

Okay. Yes. So the popular review remains ongoing, right? So we're working with other serves to assess all available options, right? So how can we optimize our operations, any potential partnerships and/or potential investments, right? So it's too early to comment on much progress on that side because that's -- there is a to be completed at this time, and we're going to provide more details in the coming calls as it progressed.

And your next question comes from the line of Susan Anderson with Canaccord Genuity.

I was curious, just looking at the sales categories. I guess, which categories are you seeing kind of with the most negative growth that's driving that guide towards the lower end for this year? And I guess what categories are doing better than those?

All right, Susan, thank you for that. So off the top of my head, I don't have the data in front of me, but the more preventative categories are typically doing better. So VMS, some of the subcategories of digestive wellness. The category is doing poorer on a very short-term basis, as you know, are cold and particular subsegments of pain, mainly pill dosing is where we're seeing systemic household decline.

That's a small part of our business, but other parts of pain in particular, topical creams are actually performing very well. Allergy, interestingly, is so performing well in the early part of this year. As we try to map out the recovery of each of those subsegments, we see growth strengthening in some of those prevention categories. Allergy and cough-cold are obviously seasonally dependent but of quite weak seasons, we see quite favorable -- we expect average season, which follow is better than '25. We don't see anything that's going to change paying household penetration data. But that is a very small effect for us over the next 3 years.

Okay. Great. That's really helpful. And then maybe just a follow-up on the capital allocation question. I guess, are you guys comfortable with the dividend level where it's at? Is that still a priority? And then I guess, with the plan for deleveraging with the Derma proceeds -- I guess, what are your long-term leverage goals as well?

Thank you for that I'll take and then let Eduardo as it is an important question that both of us should respond to. So our capital allocation priorities are clear, and they are unchanged. We invest in the business, reduce leverage and return value to shareholders through dividends. We held our dividend, as you know, but we will continue to assess our capital allocation and priorities according to what's best for the business and will deliver best sustainable shareholder return.

Yes. And just on top of that, in terms of leverage, right? So 2026, as we highlighted, we expect that to be in line or slightly better than 2025, so that's mainly because of the onetime impacts that we're seeing the business impacting our adjusted EBITDA. And so as we look into -- we previously expected to be below 3x in 2027, but because these transitory effects in the marketplace, we're now anticipating to achieve that level over the next 2 to 3 years as the new organizational enhancement program completes our strategic reviews on both infant formula and oral care advance and consumption covers over time. So more precise timing will depend on all these factors, Susan.

Okay. Great. And then maybe if I could just add one more on the input Nutrition business. I think it's alluded to earnings now. I guess they ever get back to positive earnings and then did it turn negative? And I guess if you guys end up keeping it, what will it take to kind of get that back to accretive to earnings expense?

Well, as I mentioned, we continue to assess the strategic review, right? So we're working on now the available options. And of course, we're going to look into which is the one that optimize not only the P&L, but also the cash flow as well. This is an important thing that we have been commenting that over several years, infant formula has consumed cash and so we're looking at comprehensive of what's going to be the best option for shareholders development on both prospects, right?

So because at the end of the day, we need to be committed to improve our cash flow generation going forward.

Yes. Just to add a bit more sort of partial perspective on that. We expect to continue growing share. I know the data that you see is total market, including Wick. We obviously look excluding Wick because we don't participate in that. Within that analysis, we see good store brand growth. We are confident as retailers reset their shelves later on this year that will be favorable for us as we have innovation and launching the targets, some of the foreign brands that we're seeing in the U.S. that will be positive for us.

So we actually expect low to mid-single-digit revenue growth on infant formula this year. That allows us to clear this lower-margin inventory, which has been a big factor for us in our EPS guidance. In doing that starts to restore to '24, '25 levels gross profit. So that's how this model will play through this year from a commercial standpoint.

Now to Eduardo's point, there is no doubt we need to look at plant optimization capacity in line with long-term volume and optimize cost and cash accordingly those are material margin and cash flow and expansion opportunities for us, should we go that route.

Okay. Great. That's really helpful. Good luck the rest of the year.

And your last question comes from Daniel Biolsi with edge.

Just following up on the last question. How much working capital like on average or whatever you can share is associated with the infant formula business?

Well, so it's significant because of the inventory levels that we have built in the prior year, expecting a significant share gain in the second half of the year, given the dynamics that we have explored and shared in past both further government intervention and also continued inverted products come into the country significantly. That has impacted our ability to recover the share the way we had planned and shared in Investor Day last year, right?

So that led to higher inventories, right? So at the end of 2025. And as Patrick mentioned, slot to mid-single-digit net sales plan should help deplete that inventory this year, right? So that should bring working capital to more normalized levels versus versus we faced in the past.

Okay. And then I'm encouraged by the gross margins close to flat, excluding the infant formula business. And you mentioned in the prepared comments that there was a price investment in CSCI. What did you see? Like what kind of response do you see from those price investments in CSCI?

Yes. I mean this is an annual effect. We compete across a broad range of molecules. There is capacity available either in the U.S. or from low cost overseas manufacturers. And just as, frankly, because of supplier substitution, that squeezes margin. That has just been a reality in some of our molecules for 20 years, okay? And that is just an annual cost of participation. We have a systemic program now that addresses that, which is productivity, mix, innovation, expanding into more profitable adjacencies and of course, driving more volume into our plants every point of utilization as well as about $10 million to us.

We have got much better at master planning those activities just recognizing that cost of commoditization. That allows us to hold or improve gross profit year-on-year, but it is an important element of where we play, okay? I think historically, we've probably undervalued to that, and that has introduced risk into our P&L. But I feel we have much more visibility and control of that going forward.

As we also drive the sales of our branded business, by focusing more on brand by focusing more branded growth and share growth. That obviously also has a very positive impact on not just GP but OI margin as well. obviously, branded tends to be higher on those. And really, it's being much better at managing the gross profit profile of our store brand business whilst driving the savings of our branded business. That allows us to protect and enhance both OI and GP.

Thank you. And that concludes our question-and-answer session. I would like to hand it back to Patrick Lockwood-Taylor for closing remarks.

Yes. Thank you very much, and thank you for joining us today and for those good questions. This is a tough market environment, and we have to lead what we control, management excellence, what we can't control. We are fixing the fundamentals of this business, and we believe we're positioning the business for quality growth, growing share now consistently after many years of decline. We're expanding category since in partnership with our key retailers. Storebrand OTC in the U.S. is growing share, and we're growing share of that growing category.

We're improving our financial structure. OI margin has expanded by 230 basis points over the past 2.5 years. Our net leverage is down from 5.5 to 4, and we will continue to deleverage. Our operations are more effective, more consistent and more compliant. We have 30-plus inspections in '25 with no critical or major observations and no recalls. We lead in quality assurance.

Our leadership team and our senior management is in place, their experience, world-class their performance driven and they're cost competitive. We now have in place an expandable growth model that will drive TSR.

We have a differentiated and clear purpose. We exist to provide a central everyday self-care for everyone. We streamlined our portfolio playing in markets and increasing in categories where we have the right to win and is an attractive size of profit. These categories reinforce and are driven by the core strength of this company. We have more molecules. We cover more price points. Ultimately, that allows us to reach more consumers. We're developing even deeper and more strategic customer partnerships.

We win through scaled, high-quality regionalized supply checks. We have extensive regulatory interface, and that allows us to shape the regulatory environment for these categories going forward. We're now set to go after geographic and category opportunities where we can operationalize these strengths in order to drive advantage. Recall, we only serve 10% of the world consumers today. This provides us with a tremendous growth runway. We've divested businesses where we can't leverage our growth model, Dermacosmetics, rare diseases, et cetera.

In conclusion, we increasingly believe in our model and the path forward. 2027 shaping up is a meaningful growth year. Again, thanks for joining us.

Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Perrigo Q3 2025 Financial Results Conference Call.

[Operator Instructions] This call is being recorded on Wednesday, November 5, 2025.

The I would now like to turn the conference over to Bradley Joseph, Vice President, Global Investor Relations. Please go ahead, sir.

Good morning, and good afternoon, everyone. Welcome to Perrigo's Third Quarter 2025 Earnings Conference Call. I hope you all had a chance to review our 2 press releases issued today. A copy of both releases and presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are President and CEO, Patrick Lockwood Tower; and CFO, Eduardo Bezar.

I'd like to remind everyone that 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 in the appendix to the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented.

[indiscernible] you Mr. Forestar. First, unless stated, all financial results discussed and presented are on a continuing operations basis. Second, organic growth excludes acquisitions, divestitures, exited products and foreign currency fluctuations in both comparable periods. Third, regarding the strategy reviews discussed today, we will not provide further updates unless and until the company determines further disclosure is appropriate or required. And finally, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted.

And with that, I'm pleased to turn the call to Patrick.

Thank you, Brad. Good morning, good afternoon, and thank you for joining today's call. I'd like to begin by addressing recent category consumption trends across consumer health, which remains soft, reflecting broad short-term market pressures. Against this backdrop, Perrigo has delivered sustained share gains and advance key initiatives under our 3-year plan, to stabilize, streamline and to strengthen. These efforts are enabling us to navigate the challenging landscape while making steady progress on our strategic priorities and reinforcing our long-term value proposition.

With that context, let's turn to how these trends influence our year-to-date performance and our outlook going forward. Let's start with [indiscernible] but Perrigo continued to outperform despite a challenging market. While total OTC volume consumption has recently declined versus the prior year, Perrigo store brands delivered 6 consecutive months of share gains. These gains were driven by strong execution consumer trade across from national brands, new distribution of business wins against key store brand competitors.

Diving in a bit deeper, you can see on the right-hand side of the slide that over the last 13 weeks, Perrigo gained volume share of 90 basis points and across nearly every OTC category we compete, most notably, smoking ization allergy and women's health. The stated volume share gains in this environment underscores our winning OTC strategy and validates the strength of our value proposition to retailers and consumers.

In the EU, total OTC Europe consumption has also recently declined. Despite this, Perrigo's key brands are gaining dollar share for 5 consecutive months, driven by our strong brands with unique value propositions. Our highly focused A&P investments in innovation and targeted activation strategies. These durable gains highlight the strength of our category-led approach and the resilience of our key brands, including L1 Global formula and our coal products, [indiscernible]. Though our remaining brands in the EU have been impacted by similar trends to the broader market, our key brands illustrate the strength of our portfolio, where we have concentrated our resources.

In total, Perrigo share gains across the U.S. and Europe, particularly in the current challenging environment, underscores the strength of our execution and the relevance of our unique multi-price point OTC portfolio. Building on our share gains in both the U.S. and Europe, let's turn to the progress we've made against our 3-year plan, stabilizing, streamlining and strengthening, which continues to guide our actions and priorities. We have stabilized our U.S. OTC store brand business and are outperforming the market in the categories we compete.

As I just mentioned, we have gained volume share for 6 consecutive months. This success in consistently growing share in a challenging market results directly from disciplined execution and is clear evidence that this business is winning in the market. In Infant formula, store brand has also gained share and operationally, we are consistently delivering safe, affordable formula to parents and caregivers. We also continued to streamline our organization, delivering at 1 Perrigo.

Initiated in 2022, our supply chain reinventure remains on track to deliver between $150 million and $200 million in benefits by the end of this year. Project Energize, which has generated $163 million in gross annual savings above the midpoint of our $140 million to $170 million range. Also as part of our streamlining, we have been positioning our portfolio to become a more strategically scalable TSR attractive portfolio. These efforts are leading Perrigo back to our core strength, which is consumer health.

The sale of our Dermacosmetics business remains on track to close in the first quarter of 2026. As announced this morning, we are now actively reviewing the Infant Formula business, and I'll give more on this in a moment. We also continue to strategically review our all care business, which we announced at our February Investor Day. We have made meaningful strides to strengthen the organization. Our new leadership team is in place. We are scaling new brand-building capabilities, and we have an improved and highly focused innovation process.

Implementation of our commercial growth model is expected to unlock the full potential of our portfolio, enabling teams to scale more molecules, more efficiently to more consumers across more markets. So I mean, we are leveraging consumer insights and deepening our retail partnerships in ways that differentiate Perrigo versus competition. This is a new way of operating, and the team is energized about the possibilities ahead. And as to our quarter 3 and year-to-date results, where our diversified portfolio continued to demonstrate resiliency in a challenging environment.

For the third quarter, organic net sales declined 4.4%, impacted by 1.6% from our global OTC business due primarily to soft OTC category consumption and 2.8% from businesses under review, both Oral Care and Infant Formula. Gross profit and margin were down year-over-year, reflecting net sales performance. Operating profit and margin were partially offset by prudent cost management. And as projected, the in performance scrap expense experienced in quarter 2 did not repeat which drove meaningful sequential gross and operating margin expansion of 180 and 318 basis points, respectively. Collectively, these factors led to a third quarter EPS of $0.80 a of $0.01 versus the prior year.

Year-to-date, organic net sales declined 1.7%, primarily driven by 0.8% from the businesses under review that I just mentioned. In addition to 0.5% from the absence of last year's [indiscernible] launch stocking benefits. Our remaining OTC business accounted for the balance. Despite marketplace challenges, year-to-date gross and operating margins expanded and organic operating income grew 13%, driven by continued execution of our accretive initiatives, recovery in Infant Formula and prudent cost management. Year-to-date EPS grew 21% or 27% organically, $1.97. Year-to-date consumption across consumer health has been dynamic and unpredictable. Quarter 1 saw a year-over-year growth or 2 move from growth to decline in June and this decline significantly accelerated in the third quarter. The drivers appear transitory and do not look structural in nature. Combined with updated assumptions for our conformer business, these factors have led us to revise our 2025 outlook. This is the right decision for the long-term stewardship of Perrigo and our shareholders.

The U.S. store brand OTC, Perrigo increased dollar unit and volume share to 5 of the 7 categories where we complete. In Europe, our key brands, including Lon, juggle former coming our cotton coal franchise also outperformed expectations. To capitalize on this momentum, we reallocated additional A&P investments in both regions, generating approximately $30 million in sales over and above our initial forecast and delivering a solid return on investment. At the same time, market consumption trends have been softer than they anticipated.

Over the latest 13-week period, U.S. OTC volume as a total category declined 3.2%, while Europe grew just 0.6%. And or in short of our original assumption by roughly 700 and 500 basis points, respectively. This represents an estimated $150 million to $170 million impact to our 2025 net sales outlook. Lastly, whilst in perform has stabilized operationally, store growing the share recovery will take longer than expected, which, in addition to lost good stock grow distribution is contributing an additional $100 million impact.

Continuing within performance. Today, we announced a strategic review of this business as we assess its long-term role within the Perrigo portfolio. While we have stabilized this business, the external environment has quickly shifted which will require sustained investment and disproportionate management focus, making its long-term fit alongside our faster growing, higher cash yielding consumer health OTC portfolio less strategic. As a result, the team will consider a full range of options in addition to causing our previously announced investment of $240 million.

No matter the outcome of this review, our corporate priorities are unchanged, reduce leverage, sustain our dividend, deliver for customers and shareholders and focus on our high potential OTC portfolio to expand consumer access and household penetration. During this review, the business will continue to operate as normal, ensuring consistent and reliable supply of high-quality formula to customers and consumers.

And so -- we are executing our 3-year planning discipline, growing share in U.S. store brands and gaining share in our key European brands. These results showed resilience of our unique business model and validate our value proposition even in the stock consumption environment. At the same time, we are delivering benefits from the supply chain reinvention and from Project Energize. We're also sharpening our focus on consumer health with the announced sale of Dermacosmetics and are actively reviewing both Infant Formula and Oral Care.

While soft OTC consumption and infant formula are prompting a revision to our 2025 outlook, the momentum from our 3 plan and our share gains reinforce our confidence in Perrigo's ability to capture the durable demand for trusted consumer health solutions.

With that, I'll now turn the call over to Eduardo to walk through the financials.

Thank you, Patrick, and hello, everyone. Looking at the third quarter financials, starting with the GAAP to non-GAAP summary. Primary adjustments to our non-GAAP financial results were: first, amortization expense of $56 million, second, restructuring charge of $21 million, primarily related to project Energize and supply chain reinvention and third, unusual litigation of $50 million. Full details can be found in the non-GAAP reconsider attached to today's press release. From this point forward, all financial results discussed will be on an adjusted basis unless otherwise noted.

As Patrick noted earlier, software OTC category consumption in both the U.S. and Europe weighted meaningfully on top line performance this quarter. Since we already provided detail on those drivers, I will begin my commentary with gross profit. Third quarter gross profit of $417 million declined year-over-year, primarily due to the impact from lower net sales and divestitures and exited products. These factors partially offset benefits from our supply chain reinvention and favorable currency translation.

Gross margin for the quarter declined 110 basis points due to the same factors and included higher sales from relatively lower margin store brands versus our branded product portfolio. Year-to-date, gross profit of $1.2 billion decreased $27 million year-over-year, including a $40 million impact from divestitures and exited products. Organic gross profit was flat to prior year, while organic gross margin was up 60 basis points coming from infant formula recovery and accretive initiatives. I will discuss operating profit and margins per share in just a moment.

Turning to net sales performance by segment, starting with CSI. Third quarter organic net sales decreased 5.3%, impacted primarily by soft OTC category consumption trends, partially offset by share gains in key brands and new products. Year-to-date, CSCI organic net sales grew 0.7%, driven by restored product supply in the pain and fleet category, in addition to growth in healthy lifestyle, driven by key brands including Jungo Formula and equity. These drivers were partially offset by decelerating category consumption beginning in the second quarter.

CSCI FDA third quarter net sales declined 3.8% with U.S. OTC growth of 0.6%, driven by sustained share gains across 5 of 7 store brand categories and growth in our contract business. Growth was led by upper respiratory skin care and women's sales which were partially offset by digestive health and healthy lifestyle.

Third quarter growth in OTC was more than offset by a 4.4% decline from business under strategic review from symphoma and 0.6% from WorldCare. Year-to-date, CSCI net sales declined 3.1% due to an impact of 1.1% on from business under strategic review and the absence of the prior year OP launch stocking benefit of 0.8%. The remaining OTC business was down 1.2% and as continued soft market consumption was partially offset by store brand share gains.

Third quarter operating income of $173 million decreased $9 million Operating income was down 4.9% due primarily to lower net sales flow-through and higher operating expenses in Infant Formula. This impact was partially offset by growth from the rest of the business including benefits from Project Energize and prudent cost management. Adventures and exited products were fully offset by favorable currency translation. Year-to-date, operating income of $455 million increased $41 million driven by global OTC benefits from accretive initiatives Infant Formula and favorable currency translation, partly offset by divestitures and exited products.

Organic operating income grew 13.2% in the period. Despite clear marketplace challenges, third quarter 2025 EPS was $0.80 compared to $0.81 in the prior year. Year-to-date earnings per share of $1.97 was up almost 21% or 27% organically. Turning to balance sheet and cash flow. Third quarter operating cash flow was $52 million bringing year-to-date operating cash flow to $63 million. Year-to-date, we invested $67 million in capital expenditures and returned $19 million to shareholders through the year. In cash on the balance sheet at the end of the third quarter was $432 million. Given our updated outlook, which I will detail in a few minutes, we now expect year-end net debt to adjusted EBITDA of approximately 3.8x versus our prior target of 3.5x due primarily to our updated net sales expectations. We remain on track to close the Derma Cosmetics divestiture in the first quarter of 2026 and expect to use the net proceeds to advance our deleveraging goal.

As part of our announced the strategic review of the Infant Formula business, we have paused the previously announced $240 million investment until we determine the best path forward for the business. As a brief update, our oral care business is still undergoing a strategic review. Taking all of these into account, as outlined by Patrick, we are updating our fiscal 2025 outlook from the low end of our previous organic net sales outlook range to minus 2 to minus 2.5% in organic net sales growth due to softer-than-expected OTC category consumption in both the U.S. and Europe as well as lower-than-anticipated so formula share growth.

As a result of the top line updates, we now expect gross margin of approximately 39% for the year. We are, however, reaffirming operating margin for the year of approximately 15% and as benefits from operative initiatives and prudent cost management offset the gross margin adjustment. We also expect a slight improvement to our full year tax rate to approximately 18.5%. These updates translates to a 2025 earnings per share range outlook of $2.70 to $2.80 equating to 5% to 9% growth versus 2024.

A few comments on our year-over-year Q4 expectations before I close my remarks. On the top line, we expect organic growth in our global OTC business of approximately flat to 1% and while sales in our nutrition category are expected to be down year-over-year due to lower contract volumes and the comparison against restocking activity in the prior year quarter. Q4 margins are expected below prior year levels due to the impact of lower volumes and tariff-related costs. Operating expenses for the total company are expected to be relatively flat year-over-year. Finally, we are lapping a prior year Q4 tax rate of 14.9% and versus our expectation of approximately 18.5% on a full year basis for 2025.

In closing, this quarter reflected both the resilience and the pressures in our business. Softer OTC consumption and lower infant formula recovery weighted on sales, but we still delivered year-to-date earnings per share growth of more than 20% and double-digit organic operating income growth. Margins are holding through disciplined cost management and the benefits of our efficiency programs. We remain committed to returning cash to shareholders while reducing leverage supported by the pending Derma cosmetics divestiture. We adjusted our 2025 outlook to reflect current reality but our actions to streamline the portfolio managed costs and focused investments on high-performing brands give us confidence that Perrigo is positioned to navigate the near-term challenges and deliver stronger, more durable performance over time.

Thank you. And I will now turn the call back to Brad. Brad?

Thanks, Eduardo. Operator, can we please open the call for questions.

[Operator Instructions] With that our first question comes from the line of Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on the Infant Formula. There seems to be, I guess, a pretty widespread between the sellout data and your sell-in. Just curious -- was that mainly destocking by retailers in the quarter? And I think you said -- you did say that your share was up in the quarter. And then I was curious how the new SKUs that you introduced, how those were doing. And then just in general, what kind of drove the miss versus your original expectation?

So a couple of comments -- couple of comments here. So first of all, yes, we're seeing a pickup in our store brands in our share -- it's been at a lower pace than we originally anticipated, right? So remember, we were expecting to be at the low at the end of the year, given the competitive environment, we still continue to see significant imported formulas coming to the marketplace we're seeing a growth in our store brand share. So in Q3, we did several actions in terms of rollbacks and promotions to make sure that we need the consumers on where they need so that has evolved, and we're seeing significant. We've seen an improvement in our share but below our original expectations.

And then to that point, because of that, we are revisiting our net sales guidance. Remember, we said in Q2, we're expecting about 25% growth in the second half of the year. because of that competitive pressure and also we're seeing a slower market development there, we see a reduction on that side in terms of the overall market that's impacting our share.

Another important component, as you may remember, Q4 last year, we had a significant contract volume sales. And then as originally expected, those are not materializing as well because of the new imports, the imports that are getting to the marketplace today.

Susan, you also asked about SKU velocity. You actually hit the new head, the distribution buildup of our new SKUs has been per plan. The velocity we're seeing on those SKUs is below expectation. The reasons are clear and being fixed, its position on shelf and it's a matter of shelf space given to imperator brand. is below what it historically was. That's impacting business for retailers and, of course, for us and is being addressed.

Okay. Great. I guess maybe just a follow-up on the CSCI business on a couple of those segments. I think in women's health, you talked about some supply constraints. I guess -- just curious what drove that there, and I think it's been resolved now. And then also in BMS there, I think you mentioned deprioritization of nutraceuticals. So curious kind of what's driving that. And then I think you also said consumption was a little weaker in BMS and international. Just curious if the consumer is kind of pulling back in that category.

Yes. So a couple of things there. As we compare to last year, right? So last year, we had a stronger Q3. There was also some early signs of cough and cold last year different than what we're seeing this year. So we expect a shift between Q3 and Q4 in CSCI. Specifically to your question regarding women's sales that were some supply issues on our L1, which is the key brand that we have there in Europe, but those have been resolved and we expect that to pick up back in Q4.

Also, in BMS, yes, the nutritious portfolio, it's something that we have been departing overall versus some of our brands that we have both in the Neverland and Germany that are performing relatively good. And then the last piece on the soft OTC consumption, that's something that we're seeing more broadly but as we look into Q4, when we highlight our expectation to be flat to 1%, we expect a significant pickup in CSCI as compared to what we saw in Q3. So again, last year, we saw a stronger Q3 versus Q4.

This year, we expect a shift because also seasonality as well as expect more taking place in Q4 versus what you saw in Q3 this year. That's why we're expecting an important growth sequentially in CSCI, that's about 5% to 6% on net sales. SP1 Okay. Great. That's very helpful. .

Thanks, Susan. Next question, please.

And your next question comes from the line of Keith Devas with Jefferies.

I'm curious if you guys can just provide maybe a little bit more color on what changed intra-quarter on both OTC and infant formula versus the original plans that you guys have given a lot already, but I guess the volatile consumption we're seeing across a lot of categories in Capriles, and it doesn't feel normal. So I'm curious what you think is driving it, whether it's added consumer pressure or maybe mitigating to lower pack sizes and maybe how your conversations with the retailers have also evolved over the years.

Keith, on OTC consumption, we're back reviewing this data yesterday. In quarter 1, we saw consumption growth actually ahead of expectation between 3 and 3.5 points. Quarter 2, remember this, we get this data like you retrospectively. Quarter 2, we started to see a slowdown there moving into a slight decline with actually June appearing to be flat to a year ago and sort of past 3 average. That then continue and actually accelerate it really from August onwards and October consumption was weak as well. Okay. So this has been dynamic and highly unpredictable, and obviously softer than we and many others had anticipated.

ON Infant Formula, and I just talked to this with Susan, the new velocities that we've seen have been below expectations. That's obviously affected revenue and that's affected our share build that we believe is addressable. To your question on drivers, there is a multitude of tactical drivers, be it future levels, display levels, some changes in distribution some changes in pricing effect we've seen over the last 2 to 3 years, very strong price inflation in this category, which was building category value. that seemed to come to an end in quarter 1.

You have seen though trade across into store brand, you are aware that store brand OTC is growing share and we're growing our share within that as well. This doesn't appear to be structural. There is no real change in incidence levels across these treatment categories. changes in consumption habits across different generations. There was some effect of that, but I don't think that, that is material and is certainly not sudden.

I think there is some speculation that people -- consumers are burning through country stock to a greater extent than they historically have done. I haven't seen data personally confirming that but I have heard a hypothesis. And in a cold season is definitely down on a year ago through now but we are still out looking an average season for coop. So again, a multitude of tactical factors no evidence that we've seen that this is a structural change, and we would expect, therefore, normalization of the market as I think you've heard some of our competitors say .

And also, Keith, just to complement what Patrick said, right? So different than what I mentioned about CSI that we expect stronger than Q3, right? So as compared to what happened last year, we expect to see some trends continue in U.S. OTC. So we expect a normal season in cough and cold. But as compared to last year, we expect Q4 to be down. So the net effect of being 0 to 1, it's a positive on the CSCI side of about 5% to 6% and negative on the U.S. despite all the share gains and distribution that we're seeing on that side in the U.S.

Also, the important thing is the reduction that we're seeing in Infant Formula that helps contribute significantly with that because as I mentioned, lower contract volumes and also a lower pace of regain our store brand share on the fanfare business.

Got it. That's very helpful. If I could squeeze in a follow-up. I'm curious how you guys are also just thinking about reinvestment plans, just given the pullback in consumption on OTC and now pausing the infant formula investment. Are there any areas where you're looking to increase spending? There's obviously some green shoots with new business wins and then obviously international. So interested in how you're thinking about maybe potentially reallocating spend going forward?

Yes. I'll comment first, Daves, it's Eduardo. As you heard me say in my comments, our priorities remain the same: Deleverage, maintain our dividend. But we will revisit investment in organic growth, okay? We see increasing evidence of performing businesses, U.S. store brand right to mention the acceleration of share growth we're seeing in our key international branded business and our brands in the U.S. there is opportunity probably to accelerate the revenue on loans, okay? But we need to look across all business cases and all our priorities and determine what's best obviously for the asset long term but also for shareholders.

So yes, we will be undertaking another look at capital allocation given that decision we've made on infant formula. But the priorities won't change. We just may increase the level of some of those allocations on?

Thanks for the question.

And the next question comes from the line of Chris Schott with JPMorgan.

This is Ethan on for Chris Schott. Just to start off, maybe following up on some of the previous questions. I was just wondering where infant poles share now sits and then as we look ahead to 2026, maybe how you're thinking about the business' ability to recapture share and just priorities for that.

Yes. Thanks for the question. My view is we have seen -- we're at about a 16% share -- we have 3 building blocks to continue growing that in 25 and into 26 million. And I would expect over the next 12 months with those building blocks that we have, you're getting to the sort of 18% to 20% area in terms of share.

An again, important there to mention it as we announced this morning on our Infant Formula strategic review, right? So we're looking to multiple options on how they want to look into that business to make sure we optimize that and both on our near term but also long term and make sure this is going to be the best result also for our shareholders.

Perfect. And then just 1 more question from me. Just overall, looking to 2026. I appreciate that it's still early but I was just hoping you can maybe provide how you're thinking about the different pushes and pulls in the business as well as maybe the ability to grow EBITDA looking ahead to next year?

Yes. So a couple of comments here. So we're still worry United States on the planning process, right? So it's too soon to provide the deep details but there are some headwinds and tailwinds that we're looking at right now, right? So again, as Patrick highlighted, we do not believe the OTC market has been impaired structurally. We're seeing it's basically a short-term consumption impact there. So we believe there is a stabilization expected for 2026. So we're expecting to be like a flat to a small percentage growth.

With that said, we continue to expect our share gains to continue there and also translate into growth is likely ahead of the market. On the Infant Formula side, foreign manufacturers have grown U.S. share. And so we're looking at that to make sure we continue our plans to recover our share but at the same time, acknowledging there will be more idle domestic capacity in the U.S. impacting absorption for domestic players. And also, we are addressing this trended cost impact of our Dermacosmetics divesture, right? So we expect to close that by end of Q1.

And so we expect about 9 months of inorganic headwind of approximately $100 million on our top line. And depending on the timing of the close, that will have some net EPS impact on our bottom line.

The other is tailwind. We have a strengthening innovation pipeline versus this year fairly significantly. We also have improving brand programs in terms of new advertising, packaging and rollouts to more markets. So what has been driving that share growth for us, we see accelerating across more categories, brands and geographies with even more innovation.

And the next question comes from the line of Daniel Bilski with Hedgeye.

So regarding the 110 basis points of gross margin pressure in the quarter, it sounds like it was mostly sales deleverage and mix, and it doesn't sound like it was related to input costs or competitive price changes. Is that right?

Yes, that's correct. .

And then the margin impact that you're expecting from tariffs of $40 million to $50 million. Is that and that's before mitigation efforts, but will there be a lag in terms of like when you're taking higher prices and when you're going to incur those costs. .

Well, so -- we do not expect a lag. So as we highlighted, we have already, since the beginning of the year being working on that, and we expect 1/3 of that coming from price and the remaining through the different manufacturing actions that we're doing either in sourcing or looking for other suppliers there. So that has been in flight already. So we already see some impact on the margin taking place in Q4, but offset the serious comport on pricing and that also continue into 2026.

Okay. And do you think that there's going to be any changes in that competitively where certain manufacturers imported or source it domestically? Will that have any sort of share changes that you expect in '26?

Well, it's been a very dynamic scenario with the recent Oslo announcement with -- on the China tariffs, right? So we continue to evaluate that. But as we continue to see our strong position and significant U.S. manufacturing, you can see that translating into our share gains, right? So because of our strong position that we have in the marketplace, we continue to expect that to accelerate into 2026 as we drive more strategic partnerships and joint business plans with our key retailers because they want us to help them grow in a moment like that where consumers are trading down, they want to make sure there is enough optionality with store brand, and that's where we believe we can really add a lot of value into that. I don't know, Patrick, any comments there.

And that is all the questions that we have at this time. I would like to turn it back to Patrick Lockwood-Taylor for closing remarks.

SP261516747 Thank you very much, and thank you for those questions, and again, for joining us today. So just a few closing remarks from me. Obviously, first of all, this is a very difficult market condition with much softer consumption than anyone could have reasonably predicted. We've had to pivot within that. Within that context though, we're starting to win. This is the first time in many years that we're growing share, and we're growing it at a rate that's ahead of our expectation. But our financial performance in the context of soft market conditions and our infant formula position and performance is frankly not where we want it to be.

We'll continue to make adjustments to address that and set up a successful 2026. We've launched and announced today a strategic review of our infant formula business. This is to show up and focus on our scalable OTC platform and of course, any impact to our 2027 outlook given that strategic review will be shared once the review includes.

As I've mentioned, we remain committed to deleveraging, targeting below 3.5x with the derma cosmetic proceeds going to debt reduction. We have a significant growth opportunity ahead of us by expanding our unparalleled molecule asset base for more price points, brands and markets. We are further deepening our strategic retail partnerships to drive mutual demand and our investments in brand building, innovation, digital and analytics or fueling are increasingly winning formula.

Our aim is to continue to grow share through superior consumer propositions and brand experiences and disciplined execution, focused on driving cash flow and total shareholder return. Again, many thanks for joining us today.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.