PRGO Q3 2024: Strong Infant Formula Recovery, Confirms $3 EPS Target
- Infant Formula Recovery & Store Brand Consolidation: Executives emphasized a solid recovery in infant formula—with increased store brand share and improved production efficiencies—which supports future revenue and margin growth.
- Opill Growth Momentum: The Q&A highlighted that Opill is gaining traction, with strong consumer trial numbers and repeat rates above 40%, positioning it well for continued market expansion.
- Margin Expansion and Cost Efficiencies: Management’s focus on exiting low-margin relationships and advancing cost-saving initiatives, such as Project Energize and supply chain efficiencies, is expected to drive operating margin improvements and enhance overall profitability.
- Dependence on infant formula recovery and contract business uncertainties – While the infant formula rebound is on track, there is significant uncertainty around the contract business, which remains a key question mark for margins and overall performance.
- Opill's early-stage performance – Although gaining momentum in market share, Opill is not yet accretive to EPS and continues to require heavy investment in marketing and product optimization, casting doubt on its near-term contribution.
- Competitive pricing pressures – National brands are increasingly using promotions to narrow the price gap with Perrigo’s store brands, potentially compressing margins and undermining sales growth.
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EPS Outlook
Q: What are the 2025 EPS drivers?
A: Management expects 2025 EPS will be supported by a recovering infant formula business, a stabilized U.S. store brand, and wins on contract business. They remain focused on the $3 EPS target, despite competitive and pricing headwinds. -
Infant Formula Ramp
Q: How is infant formula ramping in Q4?
A: They noted a strong recovery in infant formula with improved quality, service levels, and volume, expecting a robust ramp into Q4 and a return to normal run rates in 2025. -
Infant Formula Feedback
Q: Any early feedback on infant formula demand?
A: Early results show that store brand formula is meeting recovery expectations with proper volume and quality metrics, even as FDA guidelines and competition play their roles. -
Opill Growth
Q: How is Opill performing and growing?
A: Opill is gaining momentum with sequential growth, over 40% repeat rates, and rising awareness. While not yet EPS accretive, its contribution to gross margin improvement is promising. -
Margin Impact
Q: How will exiting low-margin customers affect margins?
A: Exiting certain low-margin customer segments has already improved margins, and management expects higher margin wins to offset top-line impacts by mid-2025. -
Restructuring Savings
Q: How do restructuring savings affect investments?
A: The restructuring programs have delivered lower cash outflows than projected, allowing capital to be reallocated to key areas like R&D and A&P while enhancing operational efficiency. -
Selling Expense Trend
Q: What is the new run rate for selling expenses?
A: Selling expenses declined in Q3 due to Project Energize benefits, though they are expected to rise as A&P and R&D investments resume in 2025. -
OTC Seasonality
Q: How will seasonal OTC trends impact sales?
A: The cough/cold segment, which makes up 10%-15% of the business, is experiencing a normal season with channel shifts that are largely neutral and may even provide a slight tailwind. -
Pricing Dynamics
Q: Is the pricing gap narrowing between brands?
A: The gap is starting to narrow as national brands step up promotions, although management continues to monitor the competitive landscape and its impact on overall margins. -
Innovation Pipeline
Q: What is the state of the innovation pipeline?
A: Innovation has shifted toward fewer but larger, higher quality initiatives with strong NPVs, signaling a return to more robust innovation after a pandemic-induced slowdown.
Research analysts covering PERRIGO Co.