Daniel Biolsi

Daniel Biolsi asked about the average working capital associated with the infant formula business. He also inquired about the response Perrigo observed from its price investments in the CSCI segment.

Answer

Eduardo Bezerra, CFO, explained that working capital for infant formula is significant due to high inventory levels built in the prior year, which were impacted by market dynamics. He expects low to mid-single-digit net sales growth this year to help deplete inventory and normalize working capital. Patrick Lockwood-Taylor, President and CEO, described price investments as an annual effect in competitive molecules, managed through productivity, mix, innovation, and volume driving into farms, allowing Perrigo to maintain or improve gross profit and enhance operating income margins by balancing store brand management with branded business salience.

Daniel Biolsi asked about the working capital associated with Perrigo's infant formula business and the impact of price investments in the CSCI segment. He sought to understand the response to these price investments and how Perrigo manages its gross profit profile in a competitive market.

Answer

CFO Eduardo Bezerra explained that working capital for infant formula is significant due to high inventory levels built in the prior year, which were impacted by government intervention and imported products. He expects low to mid-single digit net sales in 2026 to help deplete this inventory and normalize working capital. President and CEO Patrick Lockwood-Taylor described price investment in CSCI as an annual effect driven by competition and capacity. He detailed a systemic program to address this through productivity, mix, innovation, expansion into more profitable adjacencies, and driving volume into farms, which helps hold or improve gross profit year-on-year. He also noted that driving the salience of their branded business positively impacts both gross profit and operating income margins.

Daniel Biolsi asked about the risk of lower fall sales for upper respiratory products after a late cold season and inquired about the status of the inventory rebuild and on-shelf availability for the nutrition category.

Answer

CEO Patrick Lockwood-Taylor saw no data suggesting a destocking risk in upper respiratory, highlighting that Perrigo's domestic manufacturing provides agility. He confirmed that nutrition on-shelf availability is at 'going levels' and will be further strengthened by a 'second big distribution surge' from the introduction of 60 new SKUs in the coming months.

Daniel Biolsi asked about the price gap between national and store brands and whether the innovation pipeline is returning to normal levels post-pandemic.

Answer

CFO Eduardo Bezerra noted that while the price gap had widened, national brands are now using more promotions, potentially narrowing it. CEO Patrick Lockwood-Taylor added that store brand volume share is growing and retailers are investing more in demand creation. He also explained that Perrigo is revamping its innovation strategy to focus on fewer, larger, and more scalable projects with higher NPVs, which will be detailed further in February.

Daniel Biolsi from Hedgeye asked about the infant formula business, specifically regarding any loss of shelf space and the timeline for rebuilding safety stock. He also questioned the company's inventory strategy for phenylephrine products given potential FDA action, and whether lower retailer inventories for cough/cold products require Perrigo to hold more stock.

Answer

CFO Eduardo Bezerra stated that rebuilding infant formula safety stock is challenging due to high demand and is more likely to occur in the first half of 2025. CEO Patrick Lockwood-Taylor addressed phenylephrine, stating there are no plans to reduce inventory as demand continues and a shift to other formulations could be positive. Bezerra characterized the retailer inventory destocking for cough/cold as a one-time normalization, suggesting a potential need for replenishment in H2.

Daniel Biolsi of Hedgeye Risk Management, LLC asked for the price versus volume breakdown of the 14% wholesale growth. He also inquired about the biggest swing factors expected to drive the significant adjusted EBITDA increase from the first half to the second half of the year.

Answer

CFO Matthew Amigh clarified that the 14% wholesale growth was 100% driven by volume, as pricing actions did not take effect until Q3. For the back-half EBITDA ramp, Amigh detailed several drivers: sequential revenue step-ups from distribution gains and seasonality, the impact of Q3/Q4 pricing actions, lower slotting fees, maturing operational efficiencies, and a modest decrease in marketing spend.

Daniel Biolsi sought to clarify the components of the gross margin impact, asking how much of the trade and price investment was due to energy drink slotting fees and about the lag time for tariffs to affect the cost of goods sold.

Answer

CFO Steve Kadenacy confirmed that the trade and slotting fee impact was almost entirely related to the energy drink launch. He also clarified that the 90-day figure mentioned earlier referred to competitors' hedging positions, not BRCC's inventory lag, and that tariffs are expected to primarily impact COGS starting in the third quarter.

Daniel Biolsi questioned the company's plans for price increases on bagged coffee in light of green coffee inflation, and asked about the volume of energy drinks shipped in Q4 and the timing of associated slotting fees.

Answer

Head of IR Matt McGinley stated that Black Rifle is a price follower and is monitoring competitor price hikes. He confirmed no price increases are currently factored into 2025 guidance, meaning any future increases would represent upside. CEO Chris Mondzelewski noted that some energy drinks were shipped in Q4, but the volume and associated costs were all anticipated and built into the 2025 plan. McGinley added that trade promotion costs are expected to be more weighted to the first half of the year.

Daniel Biolsi inquired about the outlook for raw material costs and pricing for the year, and also asked about the strategy behind the new share repurchase authorization, questioning if it was opportunistic.

Answer

Executive Greg Gaba stated that excluding tariffs, he expects no major changes in raw material costs, with pricing impact likely remaining in a low single-digit range similar to Q1. Executive Brian Kocher confirmed the share repurchase plan is opportunistic. The top priority remains deleveraging to under 2.5x, but with no growth CapEx needed in 2025, the authorization provides a tool to return capital if the company is ahead of its deleveraging plan.

Daniel Biolsi asked how long the company can meet demand in its capacity-constrained fruit snacks business before needing new capital, and what to expect for inflation and pricing in the plant-based segment for 2025.

Answer

CEO Brian Kocher acknowledged that the fruit snacks business is tighter on capacity than plant-based, but they are still finding efficiencies to increase output. CFO Greg Gaba stated that while some commodity costs have risen, contract structures allow for pass-throughs, and he does not expect a material impact to the bottom line, confirming the 7-11% revenue growth is volume-driven.

Daniel Biolsi from Hedgeye Risk Management inquired about the growth trends across different types of plant-based milks and asked about the company's capital allocation priorities, specifically comparing CapEx versus share repurchases, after reaching its leverage target.

Answer

Executive Brian Kocher stated that the secular trends across different plant-based milk types remain consistent and that the company's strength lies in offering a full spectrum of options to its customers. Regarding capital allocation, Kocher stressed that the immediate focus is on execution and deleveraging to under 3x. Once that goal is achieved, returning capital to shareholders will be a top consideration, alongside other relative investment opportunities, but he declined to commit to a specific strategy at this time.