Executive Summary / Key Takeaways

• Strategic Transformation Underway: Perrigo is executing its "Three-S Plan" (Stabilize, Streamline, Strengthen) to evolve into a more focused, agile, and scalable self-care organization, leveraging its diversified portfolio and U.S. manufacturing base to capitalize on shifting consumer preferences towards value.
• Q2 2025 EPS Reaffirmed Amidst Top-Line Headwinds: Despite a 0.9% reported net sales decline in Q2 2025 and a tempered full-year sales outlook, Perrigo reaffirmed its 2025 adjusted EPS target of $2.90 to $3.10, driven by improved gross margins, accretive efficiency initiatives, and lower variable expenses.
• Infant Formula Recovery and Strategic Divestitures: The infant formula business is recovering, with production volumes returning to prior-year levels, though sales recovery is slower than anticipated. The recent agreement to divest the Dermacosmetics business for up to €327 million further sharpens portfolio focus and aims to accelerate deleveraging.
• Tech-Enabled Operational Agility and Consumer Insights: Perrigo is differentiating itself through advanced operational technology, including real-time data analytics for brand optimization (e.g., Opill) and sophisticated supply chain planning, enhancing efficiency and market responsiveness.
• Competitive Edge in Value and Accessibility: Positioned as a strong value alternative to larger branded players like Johnson & Johnson (JNJ) and Procter & Gamble (PG), Perrigo is gaining market share in store brands and key OTC categories, demonstrating resilience in a challenging macroeconomic environment.

The Enduring Value of Self-Care: Perrigo's Strategic Evolution

Perrigo Company plc, a venerable institution founded in 1887, has long been a pioneer in the over-the-counter (OTC) self-care market. Its journey, marked by strategic shifts like the 2013 acquisition of Elan Corporation and the 2021 divestiture of its Rx segment, has culminated in its current identity as a pure-play self-care company. This evolution underscores a clear vision: "To Provide The Best Self-Care For Everyone" and "Make Lives Better Through Trusted Health and Wellness Solutions, Accessible To All."

The company's strategic goal is to achieve sustainable, value-accretive growth, built on consumer-preferred brands, strong customer partnerships, a world-class supply chain, and a cohesive global operating model. Perrigo's diversified portfolio, spanning hundreds of molecules across all price points, and its significant U.S.-based manufacturing footprint, are foundational strengths. These assets position it uniquely to cater to evolving consumer needs, particularly in a macroeconomic climate characterized by waning consumer confidence and a discernible shift towards value-oriented offerings.

Perrigo's competitive landscape is robust, featuring global giants like Johnson & Johnson, Procter & Gamble, Haleon (HLN), and Bayer (BAYRY). Against these formidable rivals, Perrigo carves out its niche primarily as a leader in store brands and a strong contender in specific branded OTC categories. While larger competitors often boast superior R&D budgets and premium brand recognition, Perrigo excels in cost leadership and broad accessibility. For instance, Perrigo's TTM Gross Profit Margin of 35.73% and Operating Profit Margin of 6.63% are notably lower than JNJ's (69% GPM, 25% OPM) or PG's (51% GPM, 24% OPM), reflecting its value-driven model. However, this positioning allows Perrigo to capture market share from national brands, especially as consumers prioritize affordability. The company's strategic focus on operational efficiency and targeted innovation is crucial for competing effectively against the scale and marketing prowess of its larger peers.

Tech-Enabled Agility: The Unseen Differentiator

While Perrigo may not be a traditional "tech company," its operational and market intelligence technology is a critical differentiator, enabling enhanced agility and consumer responsiveness. The company leverages "real-time technology stacks" to monitor and analyze consumer awareness, trial conversion, and repeat usage for key brands like Opill. This capability provides instantaneous insights, allowing for rapid optimization of marketing strategies and product positioning. For example, the Opill team has refined its media targeting to specific user cohorts, demonstrating the tangible benefit of data-driven execution.

Furthermore, Perrigo's "advanced planning capabilities" are integral to its Supply Chain Reinvention Program, aimed at streamlining and simplifying global operations. This technological enhancement contributes to improved service levels, reduced structural costs, and strengthened resiliency. The "enhanced stage gate process for new product development" ensures that innovation investments are focused on consumer-preferred solutions with higher potential returns, moving away from smaller, less scalable projects. These technological applications, though not always visible to the end-consumer, are vital to Perrigo's competitive moat, contributing to lower operational costs, better margins, and a more responsive market positioning against rivals who may rely more on traditional R&D or marketing spend.

Performance with Purpose: Q2 2025 Highlights and Operational Momentum

Perrigo's Q2 2025 financial results underscore a company in active transformation, balancing strategic adjustments with operational execution. Reported net sales for the quarter were $1,056.3 million, a 0.9% decrease year-over-year. This decline was primarily attributed to prior-year divestitures, the sale of branded products within the CSCI segment, and lower consumption in Digestive Health and Oral Care due to lost distribution of lower-margin products. However, this was partially offset by growth in Pain and Sleep-Aids (driven by improved Solpadeine supply), Nutrition (infant formula recovery), and Upper Respiratory (U.S. store brand allergy share gains and restored Physiomer supply), alongside a favorable foreign currency translation of $18.1 million.

Operating income saw a significant increase of 271.3% to $45.4 million, reflecting the impact of strategic initiatives. While gross profit declined by $31.8 million, influenced by divestitures, an isolated infant formula production variability event (resulting in $11 million of scrapped inventory), and lower manufacturing efficiencies, this was more than offset by favorable foreign currency translation of $11.0 million and Project Energize savings. The gross profit margin decreased by 260 basis points to 34.4%, with divested businesses and exited products unfavorably impacting it by 70 basis points. Operating expenses decreased substantially by $103.7 million, largely due to the absence of prior-year impairment charges, reduced restructuring costs from Project Energize, and lower selling and administrative costs. Diluted EPS for the quarter was $0.06.

Year-to-date (YTD) Q2 2025, net sales decreased 2.2% to $2,100.2 million. Operating income, however, surged by 213.0% to $92.3 million, driven by Supply Chain Reinvention benefits, Project Energize savings, and a reduction in infant formula remediation costs. YTD diluted EPS was $0.10.

Segmental Deep Dive

Consumer Self-Care Americas (CSCA):
CSCA reported Q2 2025 net sales of $622.0 million, a 1.9% decline. This was primarily due to lower consumption of proton pump inhibitors in Digestive Health and lost distribution in Oral Care. Encouragingly, infant formula net sales grew 9%, led by store brand formula, and new business awards in store brand OTC outpaced lost distribution for the first time since the 2024 reset. The segment's operating income for Q2 2025 was $45.1 million, a 34.9% decrease, impacted by the infant formula production variability and lower U.S. OTC sales volumes, partially offset by Project Energize savings.

Consumer Self-Care International (CSCI):
CSCI delivered Q2 2025 net sales of $434.3 million, a 0.7% increase, with organic net sales growing 2.7%. This growth was fueled by supply recovery of key products like Solpadeine and Physiomer, and strong share gains in ellaOne. Brands like Jungle Formula and Compeed also demonstrated robust growth and achieved record market shares in various European markets. CSCI's operating income dramatically increased by 674.8% to $59.2 million in Q2 2025, benefiting from favorable currency translation, strategic pricing, and improved supply of key products, despite the impact of prior-year divestitures.

Strategic Initiatives and a Confident Outlook

Perrigo's "Three-S Plan" is not merely a slogan; it is a meticulously executed strategy driving tangible results.

Stabilize: The infant formula business, a critical component of CSCA, has seen extensive remediation efforts, with approximately $22.6 million in cash costs to date. All large-scale manufacturing plant resets are complete, and quality enhancements are fully implemented. Production volumes returned to 90% of prior-year levels in May-June 2024 and are on track to fully recover by July 2024. While the pace of infant formula sales recovery is slightly slower than initially anticipated for the full year 2025, management expects a 25% increase in sales in the second half of 2025 compared to the first half, driven by targeted promotions and new SKU introductions. In U.S. store brand OTC, new business awards are expected to fully offset prior-year losses in 2025, with a positive contribution to growth in the second half of 2025.

Streamline: The company's accretive initiatives are delivering significant benefits. Project Energize has generated $159 million in annual run-rate gross savings by H1 2025, with cash outflows projected $5 million below original estimates. The Supply Chain Reinvention Program is on track to deliver $150 million to $200 million in benefits by the end of 2025, with cash costs now expected to be $30 million less than originally projected. These savings are being reinvested in innovation and brand-building capabilities, enhancing the company's competitive posture.

Strengthen: Perrigo is sharpening its portfolio focus. The agreement to sell the Dermacosmetics business for up to €327 million (with €300 million upfront cash) is a key move, expected to close in Q1 2026. This divestiture, valued at a 20% to 30% premium to Perrigo's enterprise value to adjusted EBITDA multiple, will accelerate net leverage goals and allow for greater investment in "high-grow" brands, which are projected to deliver $100 million to $200 million in incremental net sales by 2027. The company is also scaling its "One Perrigo growth model," a category-led market activation strategy, exemplified by the strong performance of brands like Opill (55% repeat rate), NiQuitin (fastest-growing smoking cessation brand), and ellaOne (leading category growth). A significant opportunity lies in the GLP-1 medication market, projected to reach 30 million users by 2030, where Perrigo plans to offer OTC solutions for common side effects, with retail activation beginning in late Q4 2024.

Financial Outlook: Despite the tempered net sales outlook (expected towards the lower end of previously communicated ranges for 2025), Perrigo reaffirmed its full-year 2025 adjusted EPS target of $2.90 to $3.10, representing strong double-digit growth. This confidence is rooted in improved gross and operating margins, driven by the faster-than-expected recovery of infant formula profitability, improved product mix, and lower variable expenses. The company targets approximately 100% operating cash flow conversion to adjusted net income and aims for a net leverage ratio of approximately 3.5x by year-end 2025. The full-year 2024 EPS outlook of $2.50 to $2.65 was also reaffirmed, with second-half earnings expected to more than double the first half.

Risks and Challenges

While Perrigo's strategic direction is clear, several risks warrant investor attention. Macroeconomic uncertainty, including inflation, interest rate volatility, and fluctuating foreign currency exchange rates, continues to impact consumer confidence and spending, potentially affecting sales and operating margins. Geopolitical conflicts, particularly in the Middle East, pose risks to supply chains, especially for Active Pharmaceutical Ingredients (API) sourced from Israel, though Perrigo has engaged alternate suppliers.

Tariffs remain a concern, with an estimated gross increase to global cost of goods sold of $50 million to $60 million for the full year 2025 (approximately 2% of global COGS), with $10 million to $20 million impacting Q4. Perrigo plans to mitigate these through strategic pricing, insourcing, and alternative sourcing. Litigation contingencies, including ongoing securities litigation opt-out cases, still carry a loss accrual of $77.4 million as of June 28, 2025, though a recovery receivable of $17.9 million has been recorded. The infant formula market, while recovering, remains fluid with intense promotional activity from competitors and new foreign entrants, which could impact Perrigo's market share recovery and profitability. The company's credit ratings (Ba2 negative, BB- stable, BB negative) also highlight the importance of continued deleveraging.

Conclusion

Perrigo is undergoing a profound transformation, shedding its legacy as a generics manufacturer to emerge as a focused, agile, and tech-enabled self-care powerhouse. The "Three-S Plan" is not merely a strategic framework but a blueprint for operational excellence and value creation. By stabilizing core businesses like infant formula and U.S. store brands, streamlining operations through aggressive efficiency programs, and strengthening its portfolio with high-growth brands and strategic divestitures, Perrigo is building a more resilient and profitable enterprise.

The reaffirmation of its 2025 EPS target, despite a challenging top-line environment, speaks volumes about management's ability to drive margin expansion and control costs. Perrigo's competitive advantage in offering accessible, value-driven self-care solutions, coupled with its increasing reliance on data-driven insights and operational technology, positions it well to capture market share in a consumer landscape increasingly prioritizing affordability. Investors should recognize Perrigo's strategic clarity, disciplined execution, and the long-term potential of its focused portfolio, even as it navigates a dynamic external environment. The company's commitment to deleveraging and enhancing free cash flow generation further solidifies its investment thesis for sustainable value creation.