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. 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-Taylor; and CFO, Eduardo Bezerra. 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 to the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. A few items before we start. 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 advanced key initiatives under our Three-S 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 influenced our year-to-date performance and our outlook going forward. Let's start with U.S. OTC, where Perrigo continued to outperform despite a challenging market. While total OTC volume consumption has recently declined versus the prior year, Perrigo store brand has delivered 6 consecutive months of share gains. These gains were driven by strong execution, consumer trade across from national brands, new distribution and 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 cessation, allergy and women's health. Sustained 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 euro consumption has also recently declined. Despite this, Perrigo's key brands have gained 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 ellaOne, Jungle Formula and our cough/cold products, Physiomer and…

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 $15 million. Full details can be found in the non-GAAP reconciliation tables 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, softer OTC category consumption in both the U.S. and Europe weighted meaningfully on top line performance this quarter. Since he already provided detail on those drivers, I will begin my commentary with gross profit. Third quarter gross profit of $417 million declined $30 million 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, stemming from infant formula recovery and accretive initiatives. I will discuss operating profit and earnings per share in just a moment. Turning to net sales performance by segment, starting with CSCI. 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…

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 wide spread between the sell-out data and your sell-in. Just curious, was that mainly destocking by retailers in the quarter? And I think 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 expectations?

Susan, Eduardo here. So a couple of comments here. So first of all, yes, we're seeing a pickup in our store brand share. It's been at a slower pace than we originally anticipated, right? So remember, we were expecting to be at the low 20s 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 meet the consumers on where they need. And 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 were 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're seeing 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 nail on the 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 its amount of shelf space given to Infant Formula store 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 the 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 VMS 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 VMS in international. Just curious if the consumer is kind of pulling back on 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 Health, 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 VMS, yes, the nutraceuticals portfolio is something that we have been deprioritizing overall versus some of our brands that we have, both in the Netherlands 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 of seasonality as well as we expect more taking place in Q4 versus what we saw in Q3 this year. That's why we're expecting an important growth sequentially in CSCI that's about 5% to 6% of net sales.

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. You guys have given a lot already, but I guess the volatile consumption we're seeing across a lot of categories in staples, 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 retailers have also evolved over the years.

Yes. 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, I remember this, we get this data like you retrospectively. Quarter 2, we started to see a slowdown then moving into slight decline with actually June appearing to be flat to a year ago and sort of past 3 average. That then continued and actually accelerated 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 velocities that we've seen have been below expectations. That's obviously affected revenue and that's affected our share build, but 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're 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 is some effect of that, but I don't think that, that is material and certainly not some. I think there is some speculation that people -- consumers are burning through pantry stock to a greater extent than they historically have done. I haven't seen data personally confirming that, but I have heard that hypothesis. And the cough/cold season is definitely down on a year ago through now, but we are still out looking an average season for cough/cold. 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 CSCI that we expect the Q4 is 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 positive on the CSCA 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 of, as I mentioned, lower contract volumes and also a slower pace of regaining our store brand share on the Infant Formula business.

Got it. That's very helpful. If I could squeeze in a follow-up, but 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, Keith, and then 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. You're 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 those, 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. Eduardo?

Nothing else to add here, Keith.

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 Formula 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 clear building blocks to continue growing that in '25 and into '26. 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.

And again, important there to mention is, as we announced this morning on our infant formula strategic review, right? So we're looking to multiple options of how we 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 shareholders.

Perfect. And then just 1 more question for 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 early stages on the planning process, right? So it's too soon to provide the 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 more 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 slightly 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're addressing the stranded cost impact of our Dermacosmetics divestiture, 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 Biolsi 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, been working on that, and we expect 1/3 of that coming from price and the remaining through 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 a significant portion on pricing and that also continuing 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? Or will that have any sort of share changes that you expect in '26?

Well, it's been a very dynamic scenario with the recent -- also, announcement 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 to that. So I don't know, Patrick, any comments there?

No.

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.

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 will 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 sharpen 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 concludes. As I've mentioned, we remain committed to deleveraging, targeting below 3.5x with the Dermacosmetics proceeds going to debt reduction. We have a significant growth opportunity ahead of us by expanding our unparalleled molecule asset base across 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 are fueling our 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. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.