Perrigo Company - Earnings Call - Q2 2019
August 8, 2019
Transcript
Speaker 0
Good day, and welcome to the Perrigo Second Quarter twenty nineteen Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Bradley Joseph, Vice President of Investor Relations.
Please go ahead.
Speaker 1
Good morning, everyone, and welcome to Perrigo's second quarter twenty nineteen earnings conference call. I hope you all had a chance to review the press release we issued earlier this morning. A copy of the release, along with a slide deck overview of the quarter and our guidance metrics, are available on our website at perigo.com. Joining today's call are Murray Kessler, Perrigo's President and CEO and Ray Silcock, Perrigo's CFO. I'd like to remind everyone that during this call, participants will make forward looking statements.
Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press release issued earlier this morning. In addition, in the appendix for today's call, we've provided reconciliations for all non GAAP financial measures. Now I'll turn the call over to Murray.
Speaker 2
Good morning, everyone. For the most part, I'm pleased with the second quarter results, and importantly, I like the direction Perrigo is heading. Since we shared our strategic direction at our May 9 Investor Day and even before then, we've been moving quickly to execute on the 40 major initiatives we discussed, initiatives that must happen if we are to successfully transform Perrigo from a healthcare company to a consumer self care company. While we are still in the early stages, significant progress was made during the second quarter. A few examples.
Strong customer service levels have been restored in our Americas and Rx businesses and are once again north of 90%. Our new products program is beginning to yield higher results, especially in Europe behind the launch of XLS Fortify and strong performance by the Opco brand. New products yielded $65,000,000 in consolidated net sales during the quarter. Third, we closed on the divestiture of the Animal Health business for $185,000,000 Fourth, we also closed on the acquisition of Ranir, the world's leading store brand oral self care company, and raised guidance to reflect the incremental business. Renear will have a very positive effect on our consolidated results in the second half of the year.
We also completed the roadmap of our $100,000,000 Project Momentum cost savings initiative. We'll share specific plans in the fall on this plan, which is crucial to offset the stranded costs resulting from the eventual separation of our Rx business. And finally, we've incrementally improved our forecast accuracy as evidenced by making this quarter's adjusted EPS results, marking our third consecutive quarter of meeting or exceeding analyst expectations. But most important is that I feel the excitement building among our employees throughout Perrigo. Like me, they believe that the company is getting back on track.
I'm delighted to see throughout the company a commitment to our new self care vision and to the priorities necessary to make that vision a reality. Transformations don't happen without commitment to a shared vision, and we have it. This excitement and energy is beginning to show itself in business results, which I will briefly discuss. Our CFO, Ray Silcock, will provide you the specific GAAP and adjusted results, which you can also see reconciled in the earnings release. But I will be speaking to the adjusted results.
Adjusted net sales grew 1% for Perrigo on a consolidated basis, excluding Animal Health, infant foods and currency. Consumer Self Care Americas adjusted net sales also increased almost 1% for the quarter, excluding Animal Health and Infant Foods, driven by a very strong quarter for our core OTC business. Perrigo OTC sales, which represents approximately 80% of The Americas business, increased a robust 4% for the quarter and volume increased nearly 6%, tracing to an increase in category demand associated with an extended coughcold season, a good start to the allergy season and strength in our smoking cessation and GI category. For perspective, OTC category growth, consumption that is, rate tripled during the quarter versus a year ago from 1.1% to 3.5%. Store brand outpaced that growth, increasing 3.8%, meaning store brands once again gained share from national brands.
I wasn't happy with the performance of our infant formula business for the quarter, which declined almost 15% versus a year ago. The vast majority of that decline was driven by our contract sales business, which suffered due to inventory issues among several of our branded customers that made the strategic decision to exit infant formula. The performance was also affected by a product recall at a leading customer. But importantly, consumer demand on our store brand business has returned to near pre recall levels. So the good news here is that as contract pack inventory is correct, we would expect this business and our total nutrition business to quickly stabilize in the second half.
Turning to Consumer Self Care International. Net sales excluding currency declined nearly 2% versus year ago, but the results there are better than they look. We had a short term hiccup in France associated with a sales force restructuring that was large enough to offset growth on the rest of the international business. That is excluding France and currency, CSCI was up 1%. And remember what I shared with you on Investor Day about our purposeful exit of certain non strategic brands representing about 4% of the business last year.
Well, that's down to 3% this year already. So when you look at our core branded consumer products portfolio, it grew 3% for the quarter, driven by nearly $30,000,000 in new product launches. We believe the CSCI transformation is well underway and are working to resolve the short term issues in France during the second half of the year. And importantly, in markets with attractive growth, we continue to maintain our market share across Europe led by our core product. Our non core Rx segment continued to also perform well and outperform most generic Rx companies, posting another quarter of top line net sales growth of more than 3%.
We continue to see a moderation of downward pricing pressure and the business benefited like Consumer Americas from improved customer service levels. The Rx separation continues to be a strategic priority and we continue to work on effecting a separation. But uncertainty in the market and generic pharmaceutical industry generally right now requires us to reevaluate timing so as to optimize value for our shareholders. Be clear, our Rx business remains strong and we believe has relatively modest exposure to the factors affecting the industry right now. We have returned this business to growth and we expect it will deliver attractive cash flow as we work towards separation.
We will keep you posted, but again, to be clear, we remain committed to the separation and to transforming Perrigo into a pure play consumer company. Looking forward, we have a lot to do. And as I have said before, the transformation will take several years. We are making good progress, and I expect that progress to be more visible through accelerated net sales growth in the second half of the year as we integrate Ranir and we see more of our initiatives come to market. I remain excited about what we as a team are doing at Perrigo and I am confident we will recapture the Perrigo advantage.
I know we will make lives better by bringing quality affordable self care products that consumers trust everywhere they are sold. And with that, I'll turn the call over to Ray.
Speaker 3
Thank you, Murray, and good morning, everyone. I would now like to walk through the details of the Q2 P and L and balance sheet attached to this morning's press release. I should note that there are also some explanatory financial charts on our website for additional clarity. Moving now to our second quarter results. Consolidated reported net sales were $1,150,000,000 in Q2, 3% lower than for the same quarter last year.
Consolidated adjusted net sales were 1% higher in Q2 than in the same quarter last year after excluding adverse foreign currency movements, the Animal Health business held for sale in Q2 and then divested at the beginning of Q3, and the infant foods business that we exited at the end of last year. Consolidated reported net income for the quarter was $9,000,000 and reported EPS was $07 a share. Adjusted net income for the quarter was $117,000,000 and adjusted EPS was $0.86 a share. Total adjustments in the quarter amounted to $108,000,000 We had $74,000,000 of amortization expense, primarily related to previously acquired intangible assets and a $28,000,000 impairment charge of a certain definite lived asset in our Rx business. We also incurred $12,000,000 in restructuring charges primarily due to the reorganization of our sales force in France, as well as an $8,000,000 adjustment for a combination of accounting and operational expenses, primarily related to the planned separation of the Rx business, plus $3,000,000 of other smaller adjustments, all partially offset by a $17,000,000 non GAAP tax adjustment.
These adjustments can be found delineated in more detail in the non GAAP reconciliation table attached to this morning's press release. Our reported effective tax rate was unusually high for this quarter at 67%, driven by the RX impairment charge of $28,000,000 in the quarter that was not tax deductible. Adding this impairment charge back to our adjusted pretax income increased the denominator of the adjusted tax rate formula with no change to tax expense. This was the primary reason for the reduction in our adjusted effective tax rate to 23.1%. In Q2, Worldwide Consumer reported net sales of $910,000,000 5% lower than for the same quarter last year.
Worldwide Consumer adjusted net sales were flat as compared to the same quarter last year, excluding the impacts of adverse foreign currency movements, the held for sale Animal Health business and the Infant Foods business that we exited at the end of last year. Total new product sales of $38,000,000 and strong volume in our core U. S. OTC business were more than offset by lower sales volumes in our International segment. CSCA reported net sales of $582,000,000 in Q2, down 2.5% from the prior year.
Adjusted net sales for Q2 were $559,000,000 1% higher than for the same period last year when the held for sale Animal Health business and the Infant Foods business that we exited are excluded. Net sales from our market leading U. S. OTC business increased by more than 4% compared to the same quarter prior year, but these increases were partially offset by lower sales of infant formula. International reported net sales of $328,000,000 in the quarter, 8.5% lower than for the same quarter last year.
Excluding adverse currency movements, sales were down 1.8% from Q2 last year. Strong new product sales of $30,000,000 were more than offset by the impact of discontinued products, lower sales in certain categories and in France. Lower sales in France were primarily due to a lack of sales coverage there as a realignment of the sales force, part of a number of business optimization initiatives underway in CSCI as we seek to increase productivity and achieve better profitability resulted in temporary business disruption. In realigning the sales force, we offered early retirement packages to help us condense three sales forces into one to improve efficiency and effectiveness. More French sales employees took early retirement than have been anticipated, resulting in a reduction of sales effectiveness in the quarter.
We expect this disruption to be remedied by year end as we hire, train and deploy new salespeople. When the year over year decrease in net sales in France is excluded, in addition to the effect of currency movements, CSCI net sales would have grown 1% in the quarter. Moving on to gross profit. In Q2, Worldwide Consumer had adjusted gross profit of $366,000,000 down $42,000,000 from the same quarter last year. Excluding businesses held for sale and adjusting for the impact of currency, second quarter adjusted gross profit was down 3% from Q2 last year.
In the Americas segment, adjusted gross profit was $190,000,000 down 10.7% compared to the same quarter last year. This decline was principally due to lower infant formula contract manufacturing as well as operational inefficiencies resulting from higher scrap and some raw material price inflation. These were partially offset by improved business performance within The U. S. OTC business and by new product introductions.
Sequentially, compared to our first quarter, Americas adjusted gross profit margin increased 150 basis points to 34%, primarily due to favorable product mix and higher volumes in our OTC category. In the International segment, adjusted gross profit was $179,000,000 down 10.1% compared to the same quarter last year. On a constant currency basis, adjusted gross profit was down 3.7% compared to prior year, primarily as a result of adverse product mix and the impact from that sales force realignment in France, partially offset by successful new products as we continue to reap the benefits of a healthy new product pipeline. Continuing on down the P and L, Worldwide Consumer adjusted operating expenses were flat to last year. Excluding the impact of currency and held for sale business, adjusted operating expenses were up 8% as a result of one, a 13.5 increase in R and D investments compared to prior year two, performance based compensation plan accruals being returned to one hundred percent and three, the absence of a one time insurance recovery that benefited the second quarter last year.
Moving on to adjusted operating margin. Worldwide Consumer adjusted operating income in Q2 amounted to $118,000,000 down from $161,000,000 last year and adjusted operating margin of 13.3% versus 16.8% in the prior year. CSCA's adjusted margin of 20.3% was down 130 basis points from Q2 last year, with lower SG and A expenses being partially offset by increased R and D spending when the $50,000,000 upfront license fee for Nasonex, which was charged to R and D in Q2 last year is excluded. Sequentially, The Americas adjusted operating margin was up 200 basis points from prior quarter due to gross profit flow through and lower SG and A expenses. In the International segment, adjusted operating margin was stable at 15.3% versus 15.6% last year and 15.4 in this year's first quarter.
Turning now to the Rx segment. Net sales for the quarter were $239,000,000 3.4% higher as compared to prior year. New product sales of $27,000,000 and improved customer service were partially offset by continued although moderating downward pricing pressure and by the impact of discontinued products. Adjusted gross profit of $100,000,000 in the quarter was $16,000,000 lower than in Q2 last year, primarily due to the continued downward pricing pressure and a less favorable product mix, including higher volumes this year of relatively lower margin authorized generic products. Rx adjusted operating income of $66,000,000 was down $13,000,000 compared to last year as the gross margin shortfall was partially offset by lower administrative expenses as compared to the prior year.
R and D expenses were at a similar level to that of last year. In summary, Perrigo consolidated adjusted earnings per share in Q2 were $0.86 better than we had expected, primarily due to improved business performance by both our Americas OTC business and the RX segment and also as a result of timing differences versus our expectation in R and D and A and P expenditures that we now anticipate incurring in the second half of the year. A quick comment on the balance sheet. Our working capital levels were up in the second quarter as we built inventories in order to address some customer service issues and in anticipation of plant maintenance and other needs. As a result, cash flow from operations was significantly lower than normal in Q2 with cash flow as a percent cash flow conversion that is as a percent of adjusted net income at 60% for the quarter.
For the balance of the year, we anticipate that cash flow conversion including from Ranir will return to between 9097% of adjusted net income. Following the Ranir acquisition, we are planning to refinance our existing term loan with a new $600,000,000 facility, the proceeds of which we will use to repay our existing term loan and reduce the balance on our revolving credit facility. We expect that the refinancing will close by the end of this month, will be leverage neutral and will lower our interest expense by 2,500,000 for the balance of 2019. Turning now to guidance for the balance of the current year. Our consolidated adjusted EPS guidance is unchanged for the year in the range of $3.75 to $4.05 a share with net sales in the range of $4,750,000,000 to $4,850,000,000 Adjusted worldwide consumer net sales on a constant currency basis for 2019, excluding exited businesses are expected to grow by about 5% versus last year.
We anticipate this sales growth being driven primarily by the acquisition of Ranir by better performance in our core U. S. OTC business and from a strong pipeline of new product launches in international. The Rx business continues to perform well in spite of the challenging generic marketplace. We continue to anticipate net sales growth this year as a result of a strong new product pipeline and moderation of the downward pricing pressure on this business.
Please bear in mind, this guidance does not include any impact in 2019 from generic ProAir. Potential upsides for the balance of 2019 are the launch of generic ProAir, which if achieved, could add as much as $0.10 per share per quarter and incremental cost savings from Project Momentum of up to $05 a share. With that, I'd like to turn the call back to Murray.
Speaker 2
Thank you, Ray. One last thing before we move into the Q and A. Last night, we announced that Jeff Smith has resigned from the Perrigo Board. I want to thank him and for his insight and passion to put Perrigo back on track. Perrigo is a better company because of his and Starboard's involvement.
And as you know, I would not be at Perrigo if not for Jeff. I believe, as he said himself, his leaving is to allow him to focus on other opportunities and reflects the competence he has in the Board, leadership team and all our employees to execute on our strategic plan and build shareholder value. Operator, we'll now take questions.
Speaker 0
The first question comes from Randall Stanicky with RBC Capital Markets. Please go ahead.
Speaker 4
Thanks guys for the question. Murray, The U. S. Consumer business is the value driver for Perrigo. And when you look at the opportunity to drive new launch revenue higher going forward, what are the plans to do that?
Or should we think about the current level, is run rating at just north of $30,000,000 as the new level? And then secondly, I don't wanna focus on the Rx business, but just you said if you couldn't sell it, you would spin it. Is spin still on the table? Thanks.
Speaker 2
Okay. Well, first off, I mean, we're just starting on the plans on the new product and the innovation plans on CSCA. So, you're gonna see great growth out of CSCA largely in the second half of the year and the beginning of next year from the bolt on of Ranir, which is exactly what I told you. It would take some time to ramp up the new product programs. So everything's on track.
I like what I see in the pipeline and and the development of bigger initiatives, and that'll ramp over time, and we'll continue to do bolt ons to do that. It plays to a total number that I've given you that I think I get 1% to 2% organic growth from the core business, and then bolt ons get me up to the 3% in my three five seven algorithm that I'm working towards to meet the results of consumer peers. As it relates to spin is still an option on the table. We're just as committed as we always are, but is a business that's a good business, that's differentiated, that doesn't have the same exposure as others, and this is a challenging time to be separating. So we need to do it because it's the right thing to do.
And I believe we have a little bit of time as the business has stabilized, and I need to get the consumer business performing to where it deserves the re rate anyway, and I'm going to maximize shareholder value. So we're still committed to it. I think we spent north of $5,000,000 in the quarter in getting ready and continuing the activities. So we're not backed off, but I have to be aware of what's going on in the marketplace.
Speaker 4
The
Speaker 0
next question comes from Louise Chen with Cantor Fitzgerald. Please go ahead.
Speaker 5
Hi, congratulations on the quarter and thanks for taking my questions. My first question here is on your CBD strategy. Just curious where you are with this and what type of expertise Perrigo's management brings to this opportunity? Second one is how important e commerce is to Perrigo and how is your Amazon business growing? And then last question here is just any color you can provide on the generic gross margin progression between first quarter and second quarter?
Thank you.
Speaker 2
Okay. Let me make sure I have all through you had the e commerce question. CBD management expertise. And Ray, you can after I do that, you do the gross margin progression. CBD management.
I I feel like we have a good group of people that are working on it, led by somebody who, you know, I brought into the company, who I don't know if you I I haven't you haven't met him yet, but is the person who worked with me at Laurelard who basically did the same thing in breakthrough technology and something very different in the tobacco industry with vapor products and was the the inventor of blue e cigs and that we eventually bought and went national with first and is a very innovative type person, and he is leading the charge in identifying a way to get into CBD in a Perrigo like way. I don't wanna be the same as everybody else. It's progressing. We have you know, I just don't wanna prematurely talk about it, but I'm not gonna get in it to be one of, you know, 200 people that are just launching a lotion and a cream. So it it has to be make sense when you hear about it afterwards, and and we you know, we'll keep you posted as we go on it.
But the management expertise is there for for sure because I've set that up as sort of a skunk works new product innovation group that doesn't even sit here, at in Allegan or Dublin. From an e commerce standpoint, our business continues to grow. We continue to put more resources against it. Our businesses, we like our relationship with Amazon. We have good margins with them and a good relationship.
And as you saw at the May nine Investor Day, we have strong double digit growth in those areas, and we have the same thing internationally. It remains an area of focus. If there's an area I'd like to do better on is to see it more than just e commerce, but I'd like digital is more than e commerce. So we're I'm pushing from a consumer perspective that we grow that even further. And then Ray, you want to handle the progression on gross margin on Rx?
Speaker 3
Yes. Hi, Louise. So the margin in Q1 in Rx was 48.6% and our margin in Q2 was 41.7%. And that decline was principally driven by downward pricing pressure plus a mix issue where we had increased sales in the authorized generics business. And these authorized generics products have lower margins, but they do represent incremental sales and incremental dollar margin to the business.
Speaker 1
Great. Next question please.
Speaker 0
The next question comes from Gregg Gilbert with SunTrust. Please go ahead.
Speaker 2
Good morning, Gregg. Thank you.
Speaker 6
It's actually Gregg Fraser on for Gregg Gilbert. Good morning, folks. On the Americas business, are you considering options for the non core OTC products? Or does it make more sense to keep those in the portfolio? And then the second question is, has there been any progress behind the scenes on the Ireland and U.
S. Tax issues that you can comment on?
Speaker 2
Okay. I'm not sure what you're referring to as noncore within
Speaker 1
the Did you mean international, Greg?
Speaker 6
No. The the 20% of sales
Speaker 2
nutrition as core to our business. I was this business has started as an OTC business, and that's the heart and soul of what we do. We had a bolt on a number of years back in nutrition. I like nutrition. I've highlighted it as a strategic area globally for growth.
I don't like having to come back a month and a half later after highlighting it as a strategic area for growth, and it had a tough quarter, but it was a recall and some contract patch issues. It's not the core business or the core underlying consumption. So no, I'm not looking at any pruning. I've said I'll continue to look at the total portfolio worldwide to keep refining it to get to self care, we have some work to do in that area. The only new news I have on the tax front is that a we there has been filings with the courts on the judicial review, and I believe a date has been set for late April of twenty twenty.
So that is sort of the first time there'll be any real, potential progress on that if that date holds, they tend to sometimes get pushed back even further. But that would be sort of the next milestone in the case and then however long it would take them to decide it. So I guess that would be the new news in the quarter. Thank
Speaker 1
you. Next question please.
Speaker 0
The next question comes from David Maurice with Wells Fargo. Please go ahead.
Speaker 2
Good morning, David. Good morning, Maurice.
Speaker 4
How are you? I hope you're good. Questions. So first on the generic business, just assuming that the environment for a spin out doesn't get any better just because things are so bad, are you just going to plan to keep it in house and run it as it is? Or are there other options that you're considering?
The second is one of the first things that you mentioned that you saw that concerned you were the customer service levels. Can you tell us about how you've addressed that so far, where you stand on it, and any metrics you can provide around the progress of that would be great? Thank you.
Speaker 2
Okay. The first one on Rx, it's not an either or. It's the answer to that is yes to both of those. I I am evaluating options that are creative, and and and remember, what for this spin, I need to create as much value as I possibly can and send off a very healthy Rx business if it's a spin or a sale. But if it was to be a spin, it has to be very healthy and so does Remain Code, and it has to be able to execute on the strategic plans.
There's lots of options to do that. And one of those options is simply to slow down a little bit and collect a very stable cash flow. And I feel good about the way that business has stabilized and the new product pipeline that's come to fruition. That was a little dry a year ago, and I think you felt it. The company was banking on generic ProAir.
That didn't happen. But it expected it to happen a year ago and has now I'm getting the benefit of the pipeline that was supposed to come behind it, is now coming to the marketplace, and there's more behind that. So I don't see a gap in the company's ability to compete. And the pricing, at least for now, feels like it has the downward pricing pressure is not nearly to the extent it was on our business, which admittedly is pretty differentiated versus others. On the customer service, I tried to give some metrics in there.
We are I'm really pleased with the work that's going, although it's a bit manual. So we have strategically built inventories, which cost us some working capital during the quarter as Ray referred to and got ourselves back up to good customer service levels in the 90s, which was we were in the mid 70s when I joined the company. So the important part there is the conversations in our customers' offices are no longer just what's going on with service, what's going on with service. We're back to having conversations on building the business and new products and incremental opportunities and partnerships and all the things we're supposed to be doing instead of covering for and explaining why we're not doing the most basic thing we're supposed to do well. So I like that.
I'd like to not have that increased inventory be permanent. So there's a lot of work underway to systematize and with systems and process that we're making great progress on to be more nimble and be able to keep those service levels without the extra working capital. Great. Thank you very much.
Speaker 0
The next question comes from David Risinger with Morgan Stanley. Please go ahead.
Speaker 2
Good morning, David. Yes.
Speaker 7
Good morning. Congrats on the performance. I have questions regarding the organic revenue growth expectations. So could you just comment on, I guess, what we should expect for second half twenty nineteen organic sales growth momentum ex Ranir? And then second, Murray, I believe you mentioned the longer term target is for 1% to 2% organic revenue growth.
I don't specifically recall that mentioned at the Analyst Day, I may be wrong because it's been a bit of a whirlwind of news flow in the last couple of weeks with respect to quarterly results. But is that 1% to 2% organic revenue growth the same as you indicated at the Analyst Day? Thank you.
Speaker 2
Yes. It definitely is the same, as we said. And so I would expect Ranir, after the incremental, just putting it pro form a into the business, it's growing at a faster rate to be an example of help accelerating the ongoing rate to 2% to 3%. So that'll improve our organic performance. But that's exactly what I said in the way frankly, the way if you sort of take out all these distractions of animal health, plastic and other, the way the business has been performing.
In the second half of the year, we're looking for a little stronger organically even without Ranir. But you're we're looking at five plus percent growth in the second half of the year when you count Ranir in there and a stronger performance. And by the way, we had it in the first half too. It's just it's a complex business. I'm getting my hands around it, but infant formula deplete like, we would have had a gangbuster quarter if infant formula was just flat.
I mean, the category tripling and an extended cost of cold season, 4% is and 6% volume is big numbers for us in the store brand core business.
Speaker 1
Thanks. Next question.
Speaker 8
Thank you.
Speaker 0
The next question comes from Amai Fadia with SVB Leerink. Please go ahead.
Speaker 9
Hi, good morning. This is Ami. Can you give us some color around the Ranir business? Maybe some color around the composition of the $300,000,000 plus annual revenue run rate? And what's really going to drive growth?
Do you expect it to grow high single digits this year on a year over year basis? And what's really going to drive that growth? And secondly, you talked about several new areas of self care at the Analyst Day. What are some of the areas that you're exploring that could add growth over the next twelve to eighteen months? Thanks.
Speaker 2
Yes, that's a big question. I covered a lot of those in the Investor Day, the second part of the question. I don't really want to use this call, but I hear the question of giving more detail on the future on Ranir. But Ranir as their historic algorithm, they've been growing in high single digit, low double digit growth for years. And that's been a combination of both organic and smaller bolt on acquisitions for those.
They're kind of the same formula that we are. And I the percent that comes from each, I expect that business to continue to grow this year. We've given you that within our guidance and that's from both a combination of continuing to grow at existing customers, broadening their new product portfolio, expanding internationally. About 30% of that business is international. They continue to have a robust program that, again, I talked about it on Investor Day that I love the way they're focused on not just national brand equivalent, but national brand better and national brand different.
And in the future, as it goes forward, this opens up a whole leg of growth for us, both organically and inorganically with additional bolt ons there as well, which is all part of the idea. As it relates to our core business, I gave you opportunities of despite the tougher quarter, I believe nutrition is a big opportunity for this company and we're too narrow in our focus. I think nicotine cessation has been too focused and too tiny and that's why I said that we had signed a technology agreement and co development agreement on how we could use sort of the responsibility of Aperigo to work with the FDA to solve some of the problems in tobacco or bring solutions to, smokers wanting to quit in a form that they like that the FDA can get behind. That'll take work. Those aren't easy things to do, but I believe that nicotine cessation is less than a couple percent of a total tobacco industry number with the entire consumer base wanting to quit.
So it's got to be an opportunity for us. And international, the weight loss, e commerce. There's just I think we illustrated a half a billion dollars of new products that we had put into the pipeline. So we'll keep you posted as we go forward, and I think I left out naturals as another area. But there there's no lacking of opportunities.
There has to be strong discipline. And I continue. I'm a process guy, and I push the organization hard. And as an example at, you know, this board meeting, we had done the Ranir, but we I got approval to a comprehensive M and A strategy going forward that laid out the priorities and the funnels that we could go out and do these kinds of bolt ons, but with real discipline that create shareholder value. Excellent.
Next
Speaker 0
next question comes from Patrick Trucchio with Berenberg Capital Markets. Please go ahead.
Speaker 8
Hi, good morning. Quick one on Can Generic you tell us when we could expect an update on a potential approval on Generic ProAir? And what sales assumptions are in that $0.10 per quarter estimate? And then on Project Momentum savings of $100,000,000 can you tell us if any of the drivers of the savings have changed since the Investor Day? How much of the savings are expected to be achieved in 2019?
And is it possible that incremental savings beyond what you've identified over the next three years could be achieved from additional levers or additional learnings as in, for instance, with the consolidation of the supply chain in Europe and improved inventory systems in Europe?
Speaker 2
Well, let me do the second half, and then Ray, you talk to the ProAir, although we're not gonna talk to the speculate on the regulatory approval. The regulatory teams, you can talk to the numbers in a minute, We believe we have an approvable product right now, and there's hopefully, it could be tomorrow. I mean, we believe we're close. As it relates to Project Momentum, the first phase of Project Momentum, when I stood up at May 9, I had confidence that a first cut at it to believe from an overhead reduction that that I could get to the $100,000,000 number. Now I have complete line of sight and probably to a little bit more recognizing you don't get everything, Kim.
But I'm comfortable with that number. I'm not really expecting much of any of it in 2019. We'll come in fall and lay out the actual plan as we're laying out the execution now, but I expect it to affect 2020 numbers and 2021 numbers. And the difference in the short term versus the long term is some of them require systems to be put into place. As for an example, you'd started already to talk about CSCI, but you have literally an Omega, there were multi 35 something plus operating systems across there.
So there's a whole lot of manual labor to consolidate all of that, and it'll take systems work and investment to accomplish that, and that takes a bit longer. What I really liked is the back half of your question, is that it? And the answer is no. This first phase was that we're focused on in the next year and a half was overhead related. So operating expenses, not cost of products sold or manufacturing, etcetera.
So phase two for us, which we're just entering, and I have no idea the size of that number as I sit here today, is to begin to do the work in that area. And I believe there should be meaningful opportunities. This is, you know, a very complex organization with 14,000 SKUs and all that. So we'll begin the work on SKU optimization and manufacturing configuration and distribution configuration, but that wasn't part of the initial phase. Ray, you want to answer the sort of the economics of the
Speaker 3
Yes. I mean, we're expecting point $10 a quarter, as we said. And we don't normally get into the details of what that revenue would be, but obviously it's a fairly modest amount.
Speaker 1
Great. Next question.
Speaker 0
Again, if you have a question, please press then 1.
Speaker 1
Last question, please.
Speaker 0
This concludes our question and answer session. I would like to turn the conference back over to Murray Kessler for any closing remarks. Please go ahead.
Speaker 2
I'll just leave it at thank you for your interest in Perrigo. Know the team is working hard and is excited about our future to convert the company and transform the company to a consumer self care company. And we'll be back to you next quarter. Bye.
Speaker 0
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.