Perrigo Company plc (PRGO) Q1 2025 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Perrigo Q1 2025 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday, May 7, 2025. I would now like to turn the conference over to Brad Joseph, VP Global Investor Relations. Please go ahead.

Good morning and good afternoon, everyone. Welcome to Perrigo's first quarter 2025 earnings conference call. I hope you all had a chance to review our press release issued today. A copy of the release 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 would 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 GAAP to non-GAAP financial measures presented. A few quick 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 product lines and foreign currency fluctuations in both comparable periods. And third, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted. And with that, I'm pleased to turn the call now over to Patrick.

Thank you, Brad. Good morning, good afternoon, everyone and thank you for joining today's call. I'd like to begin with an update on our progress against our Three-S Plan to Stabilize, Streamline and Strengthen Perrigo. Over the past 12 months, efforts to stabilize key parts of our business have yielded positive results. In our Americas business, store brand OTC, we've already secured new business awards and now largely offsetting the previously disclosed losses that began impacting our top line in the second half of 2024. We remain on track for these new awards to more than offset losses by the second quarter of this year. Additionally, consistent production of high-quality, reliable infant formula has led to continued recovery in store brand share. Notably, first quarter 2025 infant formula net sales increased by 19% compared to the same quarter last year. More on both of these topics when I discuss our Q1 results in a few minutes. Efforts to streamline our operations have yielded significant benefit. In the first quarter, these accretive initiatives continue to produce very positive results. The supply chain reinvention program delivered an additional $8 million in benefit and Project Energize achieved an additional $20 million in annual savings, bringing the program's total annual run rate to $159 million, the high end of our previously disclosed range for Energize. Actions taken to improve service levels are also paying dividends with global service levels now at 94%. I have to give recognition to our global operations team for their outstanding service achievement. We also remain excited about strengthening our foundation for growth. I'm pleased to share that the synergistic relationship between our store brand business and OTC brands is yielding positive results. Our store brands generate substantial cash flow, enabling us to invest further into our OTC brands. This strategy is already paying off as evidenced by our first quarter results. Excluding the prior year's benefit from Opill retailer stocking, our OTC brands achieved solid organic growth of 5.9% year-over-year. This impressive performance was driven by strong sales of ellaOne, Nasonex, NiQuitin and Compeed. These results reinforce our business model and our strategy. Lastly, to create a more efficient and effective new product pipeline, we have recently enhanced our stage gate process for new product development and we remain excited about our high-growth brands which we're expecting to begin delivering significant benefit in the second half of next year. At the same time, we are navigating through an uncertain macroeconomic landscape. So on the sales across the Self-Care categories we play in recently turned negative compared to the prior year and compared to their long-term growth rates of 3% or more, with contraction across most categories. This stems from more cautious consumer behavior due in part to inflation, tariffs, interest rates and overall reduced consumer confidence. Although we believe that we are well positioned in the broader environment to account for these macroeconomic uncertainties, we feel it is prudent to widen our 2025 net sales projections. However, with the opportunities afforded by a unique business model and clear actions to offset tariff-related cost increases, we are reaffirming our adjusted EPS range and net leverage targets. Furthermore, we are reaffirming our midterm 2027 targets provided recently at our Investor Day. Stepping back, Perrigo is the largest U.S. manufacturer of OTC self-care solutions by volume. We operate 11 manufacturing facilities across the U.S., enabling 85% of our OTC finished goods to be produced locally by sourcing the majority of materials and components domestically. Most importantly, all this work is performed by our highly agile and productive team of 5,000-plus dedicated U.S. employees. We will continue to look for opportunities to drive value from this large domestic asset base. Even though most of the products we sell in the U.S. are sourced domestically, given the global nature of consumer health supply chains, there are certain inputs for our business that are exposed to tariffs. As you know, the tariff landscape has been extremely fluid and our team has spent considerable time building mitigation plans for multiple scenarios. Based on what we know today, in 2025, we expect roughly 1% gross increase to our global cost of goods sold. On a full year basis, this rises to approximately 5.5% of global COGS, all impacting our Americas segment. Approximately 80% of the expected increase will impact our U.S. oral care category as many of its inputs are currently sourced from China. The remaining 20% is expected to increase costs in our U.S. OTC business. We plan to offset these cost increases through strategic price actions, in-sourcing more manufacturing to our U.S. facilities where possible and other actions, including identifying new supply routes. We're committed to protecting our P&L and also our balance sheet in this dynamic environment which Eduardo will provide further details of. The uncertain macroeconomic environment also presents several opportunities for Perrigo. Our unique business model with 100-plus molecules across 100% price point coverage, coupled with our significant U.S.-based manufacturing provides us an advantage to deliver our essential self-care solutions to more customers and consumers. Firstly, consumer confidence in the U.S. is at a 12-year low. And in Europe, it's at the lowest level in 18 months. These weakening consumer expectations present significant opportunities for share gains for our mid-tier and store brands due to their value advantage in the marketplace. For example, total U.S. OTC store brand volume gained 50 basis points over the last 4 weeks as consumers are quickly adjusting their buying patterns. We will continue to closely monitor changes in consumer behavior and leverage demand generation activities to further capitalize on this trend. And secondly, with our vast U.S. manufacturing footprint across OTC, infant formula and oral care, we have ample opportunity to win additional new volumes through contract manufacturing efforts. Now turning to our first quarter financial highlights. Organic net sales declined 0.4% which included higher net sales in the nutrition category, driven by the recovery in infant formula in addition to the upper respiratory category. Offset by the impact of previously disclosed lost distribution of lower-margin products in U.S. Store Brand which is not expected to be a sales headwind going forward and the prior year Opill retail stocking of approximately $15 million. Importantly, excluding the lost distribution and prior year Opill sell-in, organic net sales grew 1.8% versus prior year period. Gross margin expanded 440 basis points year-over-year to 41%, driven by business recovery in infant formula. Operating margin for the quarter meaningfully expanded by 550 basis points, driven by gross margin flow-through and benefits from Project Energize. First quarter EPS grew by a robust 107% year-over-year to $0.60 per share. Digging a bit further into organic net sales, both brand and store brand offerings and Upper Respiratory category performed well despite the impact of known loss distribution in the U.S. Store Brand business. This category benefited from higher incidences of cough/coal in the U.S. compared to the prior year and improved supply of the Physiomer brand in Europe. Pain and Sleep-aids was also impacted by known lost U.S. distribution, partially offset by higher incidences of cough/coal in the U.S. and improved supply of the Physiomer brand in Europe. Digestive Health was impacted by lower category consumption for proton pump inhibitors used mainly for heartburn which more than offset U.S. Store Brand share gains. And an expected decline in VMS where we de-prioritized several SKUs in Europe. Lastly, as I just mentioned, our OTC brands grew solidly year-over-year. One year ago, we made a strategic pivot in U.S. Store Brand which was highlighted at our February Investor Day. This pivot focused on improving forecast accuracy and customer service levels in addition to share gain from Store Brand competitors, primarily through new business awards. I'm pleased to report that we're making significant progress with these efforts. Our service levels have improved, as I mentioned earlier and new business awards remain on track for a positive contribution this year. Over the last 3 quarters, net business awards and losses have been a headwind to top line growth as we executed with pivot. We expect this trend to reverse in Q2 this year as already secured new business wins ramp up, expecting to improve Americas [ph] net sales growth in the second half of the year. Turning now to infant formula. Our quality production metrics across the network have dramatically improved key customer SKUs at shelf have been fully restored. The factors enabled first quarter infant formula net sales growth of plus 19% year-over-year. Infant formula industry dynamics continue to evolve, however, due to flat to declining U.S. birth rates, currently available manufacturing capacity and foreign manufacturers gaining share. These factors have caused many domestic brands to recently increase marketing and promotions as they compete for volume share. These short-term pricing actions have temporarily reduced the price gap between national brands and store brands, slowing the pace of our store brand share recovery. We believe maintaining appropriate price gaps in this business is essential to store brand value proposition with consumers and customers. So with this backdrop, we're engaging customers to close this short-term price gap. Additionally, spring shelf resets across several retail customers are expected to enhance our shelf placement and the number of store brand formula facings. At the same time, we are also reintroducing nearly 60 national brand equivalent SKUs in the second half of this year. We believe these actions will continue to accelerate store brand share gains in 2025. However, we are tempering our expectations for the year. In closing, we are steadfast on advancing our 3-year plan to stabilize, streamline and strengthen Perrigo to provide the best self-care to everyone. We delivered strong first quarter results, led by recovery in the infant formula business and solid organic growth in our global OTC brands. While we are operating in an uncertain macro environment with consumer, customer, industry and geopolitical risks. We're taking appropriate measures to mitigate these factors. Encouragingly, we believe Perrigo's unique business model provides opportunities for growth in this uncertain environment as we continue to advance our vision to provide the best self-care for everyone. Let me now turn the call over to Perrigo's CFO, Eduardo Bezerra. Eduardo?

Thank you, Patrick. Hello, everyone. Looking at the first 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; two, restructuring charges of $29 million, primarily related to the nutrition network optimization we announced during our Investor Day and Project Energize; and three, unusual litigation of $9 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. Moving to our first quarter's gross profit results. Gross profit of $428 million grew 8.1% or 13.8% organically compared to the prior year, driven by business recovery in infant formula in addition to benefits from our supply chain reinvention program. Operating income of $147 million grew almost 58% or 71% organically, driven by gross profit flow-through and Project Energize cost savings which more than funded higher infant formula and OTC brand investments. This operating income growth in addition to lower interest expense, led to a 107% increase in adjusted earnings per share which included unfavorable impacts of $0.03 from a higher tax rate and $0.04 from divested businesses, exited product lines and currency translation. Gross margin expanded 440 basis points, including a 50-basis point headwind from divested businesses and exited product lines, while operating margin expanded 550 basis points, including a 30-basis point headwind from these same factors. As expected, sequential gross margin expansion outpaced operating margin expansion as we invested in infant formula and OTC brands to drive top line growth for the year. Looking at net sales performance by segment, starting with CSCI. Reported net sales were impacted by prior year divestitures, exited product lines and currency translation. Organic net sales growth in the quarter remained strong at 4.5%, driven by supply recovery of key products, favorable sell-in and slightly higher incidence of cough and cold in certain countries and strong sales of nicotine in the health lifestyles category. In CSCI, net sales declined 3.6%, driven by impact of lost distribution in store brand and the prior year benefit from OP retailer stocking. The rest of the business was flat year-over-year. First quarter operating income in both segments delivered double-digit organic growth versus prior year. In CSCI, operating income of $86 million grew 10% organically as gross profit flow through and benefits from Project Energize were partially offset by divested businesses, exited product lines and the impact of currency translation. CSCI operating income of $100 million grew 90%, driven by infant formula business recovery and benefits from accretive initiatives. These factors more than offset higher advertising and promotion investments, primarily in the Opill brand and infant formula business. First quarter earnings per share of $0.60 increased $0.31 or 107% versus prior year, driven by business performance, primarily infant formula recovery and accretive initiatives. A higher effective tax rate this year was offset by lower interest expense as well. Cash on the balance sheet at the end of the first quarter was $410 million. As a reminder, first quarter typically generates the lowest cash flow in the year. Q1 operating cash was an outflow of $65 million as cash generation was more than offset by one, higher inventory levels of $63 million, reflecting the rebuild of infant formula inventories, including safety stock; two, $43 million related to a securities litigation settlement; and three, restructuring costs of $17 million. During the quarter, we also invested $26 million in capital expenditures and returned $41 million to shareholders through dividends. Looking at the balance of the year; let me provide a bit of color on actions we're taking to mitigate the impacts from tariffs and optimize capital allocation in the current environment. First, in Oral Care, we have temporarily paused ordering inputs from China. We have enough oral care inventory on hand to prevent short-term supply disruptions to customers as we are in process of implementing strategic price actions, in-sourcing more production to our U.S. oral care manufacturing facility where feasible and assessing alternative supply countries of origin. Second, we paused major capital investments in our nutrition network optimization until we have more clarity on the macro environment. This decision has no impact on our ability to continue delivering our affordable infant formula to consumers and customers. And third, we identified further working capital improvements across the enterprise. In total, we expect these actions to mitigate estimated cash impacts from tariffs and we are reaffirming our net leverage target of 3.5x by the end of 2025. Lastly, we remain confident in our cash flow trajectory and net leverage expectations through 2027 which we detailed at our Investor Day. Turning to our outlook for 2025. As we know, the macro environment has become more uncertain. As such, we're taking a more prudent approach to our targets by widening net sales growth expectations to between 0% and 3% for reported and 1.5% and 4.5% for organic growth. We believe these adjustments reflect the right balance of risks and opportunities in the current environment at the current level of global tariffs. These range now include assumptions for strategic price actions and potential elasticities of demand, slower consumption in the categories where we play and a more tempered outlook in infant formula. These ranges also now include upgraded assumptions for positive volume trends that are emerging in our OTC store and value brands as consumers shift to value-oriented offerings. A few other noteworthy items. We expect approximately a 5.5% or between $145 million to $155 million gross increase to global COGS from tariffs on a full year basis which we anticipate offsetting with actions we just discussed. In 2025, the gross increase of roughly 1% or approximately between $30 million to $40 million will likely not impact the P&L until the fourth quarter due to the timing of tariff implementation; inventory on hand, sales velocities and inventory purchases. We are reaffirming the rest of our 2025 outlook, including constant currency adjusted earnings per share target of $2.90 to $3.10 per share equated to strong double-digit growth. Lastly, as infant formula recovers store brand share and CSCA store brand new business wins ramp up, we expect phasing of earnings in 2025 aligned with historical trends of approximately 40% in the first half of the year and the remaining 60% in the second half. In summary, our first quarter results reflect the continued execution of our Three-S Plan. We have been proactive in our approach to tariffs and believe we have appropriate actions in place to offset known impact while our business model is well positioned to provide consumers and customers the self-care solutions they need at a great event. Let me now turn the call back to Brad. Brad?

Thanks, Eduardo. Operator, can you please open the call for questions?

[Operator Instructions] First question comes from Chris Schott of JPMorgan.

This is Ethan [ph] on for Chris. Just to start off, I appreciate all the commentary on tariffs today. But as we look to 2026 and consider the impact of tariffs, how should we think about the potential impact to EPS with where we sit today and given the actions discussed to mitigate tariff exposure? And then, one more question after that.

Well, thank you, Ethan. So as we laid out today, all the actions that were put in place to mitigate that between pricing actions, increasing sourcing of potential oral care operations as well as looking to other alternative sources. We expect that to mitigate 100% of the impact that we see, not only this year but also as we look into 2026 as well. So we do not anticipate any major change in our projections for -- that we laid out either for '25 on the bottom line as well as for '26 and '27.

Very helpful. And then just given the updates on infant formula today, how should we think about sales ramping as we go through the year at this point? And then maybe just remind us on what a normalized level of sales looks like?

Yes. So as you saw, we had a significant recovery on infant formula in the first quarter, right? So about 19%. So we are at about $105 million. So we expect that similar trajectory in the second quarter and then ramping up significantly in the second half as we have benefits from the introduction of new -- the 60 new SKUs on the store brand portfolio that we really believe is what consumers are looking for. And also, we're watching closely on the nutrition business as well, the dynamics of pricing in the marketplace and potential promotions of national brands and how could that impact that. But at this stage, we expect similar sales in the first half between Q1 and Q2, that growing almost 50% in the second half of the year.

Your next question comes from Susan Anderson of Canaccord Genuity.

Nice job on the quarter. Thanks for the additional details there on the infant formula. I guess maybe just one follow-up. You mentioned the potential to win some contract manufacturing. I guess I'm curious, are you already seeing brands come back to you to manufacture? And then do you have any updated thoughts just on the government guidelines for international manufacturing potentially getting walked back in the back half of the year?

Susan, this is Patrick. Hope you're well. Thank you for the question. Yes, we are seeing an increase in activity for contract manufacturing, obviously, our competitors will be looking at a domestic supply route and we continue to negotiate through those. As it relates to infant formula specifically, just to add to the question, we are very encouraged by the FDA Commissioner's most recent comments where the FDA has committed to stepping up foreign inspections on terms similar to how they run inspections on U.S. manufacturing facilities, i.e., no free notification. We continue to work with the FDA as they consider formulation and regulatory changes. We're encouraged by the comments that the commissioner will follow good science and reliability. That's absolutely the correct approach here as far as we're concerned. And we continue to want to ensure in an industry which is a matter of national security that we are fully utilizing all the capacity of world-class manufacturing that's available in the U.S. whilst adhering to the highest efficacy and safety standards in the world on infant formula.

Okay, great. That's exciting. I guess maybe just a couple of follow-ups here. So just on the organic sales and kind of how it played out in the quarter, it looked like some areas such as cold cough were a bit better than expected and then it sounded like there was some -- a little bit lighter sales in the Digestive Health category. I guess maybe if you could talk a little bit about kind of what drove that? And then also, were there other areas that kind of played out a little bit different than you expected in the quarter?

Yes, I'll add a comment and then Eduardo. There were no major surprises. The digestive wellness reflects distribution effects as we exited certain businesses last year and that just flowed through into fairly predictable sort of sales patterns in the quarter. Yes, indeed, in the Americas, Upper Respiratory was stronger but that was actually somewhat offset by somewhat weaker incidents in Europe, okay? So, I think the net effect of the two for the total company is quite balancing. We -- and I'm going to talk more about this later on. We often don't focus in these discussions on the international business. And actually, the international business had a double-digit profit growth quarter, approximately 5% sales growth quarter which is extremely encouraging. And we are performing better than some key competitors. We saw almost 6% global OTC brand growth but in Europe, very, very strong share growth on our key focus brands that I talked about at the Investor Day. So net-net, the organic sales were broadly in line with our expectation in terms of contribution. And we expect to see, particularly in Q2, as we see recovery in the U.S. Store Brand business, acceleration of Americas revenue as well. So for us, largely on track and a very encouraging OTC brand performance as well which remember, operates at approximately 50% to 60% higher gross margin than the balance of the business. So growth on that is disproportionately positive.

Yes. And Susan, just to add a little bit color. So specifically on CSCA, right? So remember, we have been flagging since last year that we would see a transition year, where we would see benefits of the contracts that we're winning versus losses to start flipping in the second quarter and have a significant benefit in the second half of the year. So Q1 still reflected some of that. And so if you exclude the impact of that lost distribution and remember, Q1 last year, we did the first positioning of product on Opill with many retailers. So if you exclude that onetime effect, our organic net sales grew almost 2%. So pretty in line with what we were originally expecting. So -- specifically on what you said, Digestive Health, we saw a little bit shift on consumption between PPI versus embeds [ph]. And that's something that happened through the subcategory per se but nothing significantly concerning for the rest of the year.

Perfect. That sounds great. And international sounds really strong. Really quick, Eduardo, if I could just ask on the gross margin. I know that was greater than expected in the first quarter, a lot of that driven by the infant formula business. I think you guys had said around 40% for the year previously. So I guess, should we expect it to be a little bit better now because of the infant formula? Or how should we think about the gross margin in the rest of the year?

We're still expecting 40% for the full year, Susan. A couple of things there, right? So, in Q1, we had a better performance in our manufacturing operations than we originally anticipated which is very positive. So -- and that's connected with what Patrick mentioned, operating in a much more reliable sense that provides significant benefits in terms of lower impact of obsolescence stoppage, et cetera. So that turns into a much more efficient operations there. So that was one of the key drivers for that. And that's what we're watching closely. We do not expect to see the same level of high efficiency but we're tracking that closely.

Your next question comes from Keith Devas of Jefferies.

I'd love to dig in a little bit more into the widening range for the net sales for the year. I guess on one hand, you called out the consumer uncertainty which is fair. But you're also talking about how that may lead to store brand share gains, some of the distribution wins as well as lowered expectations for infant formula, just given what some of your competitors are doing. So it'd be great if you could, I guess, highlight some of the puts and takes on what's really driving or the biggest driver of widening that range for the year, just given -- I guess, you called out some wins and things that should be tailwinds for you guys. And so I'm a bit curious if you could just unpack it a little bit.

Keith, this is Patrick. I trust you're well. Thanks for joining us this morning. A very fair question and I think implicit in some of the language that you've used is exactly what we face which is this dynamic real-time shifts. We are working on a large number and an increasing number of opportunities in the U.S. on competitive takeaway. We're working with retailers on implications of consumers trading down and what that means in terms of distribution, shelf promotional activity. The key concern, obviously, with the erosion of consumer confidence is maintaining household penetration in consumer goods categories. We're well positioned to do that. We operate across all price tiers and can offer superior value as consumers are evaluating their discretionary income choices. So that is active current work but it's absolutely not a forecast grade yet; it's current work. Why, therefore, soften just as we work through implications of discretionary income impacts. What does that mean? Whilst we have a broad range of hypotheses, these need to be converted into plans and forecasts and we're just not at the stage of doing that. So frankly, we thought it was prudent to just widen the range but provide commentary that we're managing risk and aggressively pursuing opportunity as well. On infant formula, in particular, the store brand share recovery has been very good. It's been impacted in the very short term, frankly, by some surprising promotional activity in what is an extremely inelastic category, okay? These don't tend to lead to long-term share gains. They tend to be value erosive but we have to respond to that in order to maintain the gain on store brand. That's very important to consumers, obviously, very important to Perrigo. And we're committed to do that and we'll support store brand accordingly and are holding our end of year exit share target. That's just extremely important structurally to the health of this business for us in the midterm. So -- summary, the range reflects the broad range of work and the dynamic nature of the situation and the fact that you have consumer patterns in flux at the moment.

Great. That's very helpful. And then maybe just a quick follow-up. As the margin has come back on the gross margin side, you guys are slowly choosing to reinvest with SG&A up. It'd be great if you could add some context on where specifically you're choosing to reinvest and what parts of the business, I guess you're prioritizing first? And then I'll pass it on.

Yes. So Keith, as we talked a little bit, infant formula is a Q1. So as we talked about, we're working with all the retailers. We're adding back about 60 new SKUs. So we want to make sure that consumers see that on shelf and understand that they have option at the time. A critical time right now that consumer confidence and economics are being stretched, having more store brand number of SKUs to choose is critical. So making sure that we have that full visibility at the consumer level, it's one. Second, Opill as well. Remember, this is the second year that we launched these new brands and we continue to see significant progress there. So we expect consumption this year to more than -- to almost double what we saw last year. And so we want to make sure that we will continue in the right trajectory.

The next question comes from Korinne Wolfmeyer of Piper Sandler.

This is Sarah [ph] on for Korinne. First, had talked about taking some pricing. Any color around when that will come in which products it would be on? And then how that compares to past price actions?

So you say specifically on the Oral Care business, Korinne?

Yes.

Yes. So we're working right now with all the major retailers on that, right? So first of all, it's really explaining the impact of tariffs across their portfolio and what are the actions that we could do jointly between looking to alternative sources. So we have a manufacturing facility in Michigan for oral care that has available capacity. So that's a key opportunity that we work with the retailers to see how much can we bring in-house versus China. But there will be an adjustment on price even by doing that. So we're working with them on these opportunities. And we expect some of those actions to take place in the next 3 months that we're going to start seeing that in the marketplace.

Okay, very helpful. And then just on the brand divestitures and exits that you laid out at the Investor Day, any color around what kind of progress has been made so far? And then how much we can expect for the remainder of the year? And then if there are any impact from the current market conditions that have altered plans here?

Well, so specifically to those 2 categories that we're assessing, we continue to do the work there. Of course, specifically on the U.S. market, there's been a little bit pause on looking to some of those investments but we're watching that closely and we are continuing to assess any further opportunity there. On the brand side, we continue to look into opportunities, mainly on our international portfolio. Nothing significant to share at this stage.

Your next question comes from Daniel Biolsi of Hedgeye.

Patrick and Eduardo, I really appreciate all the details around tariffs. I'm wondering, should we anticipate any lower sales from the upper respiratory products in the fall because of the late cold season orders that we had?

Thank you for the question and for joining us this morning. I've not seen any data that suggest that. We were checking yesterday; I've not seen any inventory destocking impacts for us. Obviously, it's way too early to predict incidents at this stage. We tend to just work from a normal season base assumption and then provide guidelines in terms of should it be stronger? How does that flow through to production? And then should it be weaker than normal implications, of course, for production spend, et cetera. It's just really about real-time cash flow management but having the agility to respond downside and upside. In terms of are we seeing material impact from tariffs in Upper Respiratory -- as we talked about earlier, 85% to 90% of our production of U.S. sold product is in the U.S. We have available capacity should there be a strengthening in the season? And should we -- other brands manufacturers look to utilize our domestic capacity to minimize the impact of tariffs to them. We continue to pursue both of those. Net-net, no, not anticipating any significant impact.

And can I do a follow-up on the Nutrition category in terms of the inventory rebuild across all customers, not just your largest chains? Just where your on-shelf availability is and then the in-stock for the smaller SKUs?

Yes, very good. Good question. We are rebuilding that rapidly. I'd probably characterize it as we are at going levels of on-shelf availability. Probably the second big distribution surge that you're going to see across the rest of this year is we're introducing 60 SKUs. Those shelf resets will be happening any day now through the next couple of months. That will also increase our share of distribution. That will be a positive impact on store brand share trajectory. So on track and strengthening the fundamentals of that infant nutrition go-to-market over the next few weeks.

The last question comes from Chris Schott of JPMorgan.

This is Ethan [ph] on for Chris. Just one more follow-up question from us. As you think about the potential impact of pharma-specific tariffs, to what extent could that have an impact on the business? And then maybe any commentary on how quickly you could offset that impact as well?

Chris, good to hear from you. I'll start and then Eduardo gives some more detail. This has been fairly fluid for us trying to understand tariffs as it has for multiple industries. We continue to see evolution in what tariffs, what level of tariffs, what specific country impacts, et cetera. Based upon our current assumptions, we could see up to about $100 million impact. How we will mitigate that is through pricing. It's through onshoring -- is looking at alternative supply routes, including where we source API. And it is that latter that is probably quite meaningful for us. So basically, whatever we've done on oral care is what we would look to execute across pharma. 40%, 45% of our business is in Europe, as you know and that's not impacted. So this is U.S. We have a playbook now and that's what we would execute here. We're in close liaison with the administration providing input to how they're thinking about pharma and the implications for pharma industry given the administration's stated aim of reducing cost burden to patients and consumers. This needs to be thought through extremely carefully. But we have the playbook ready. We're just awaiting what these decisions and impacts are. And it seems to be a case of whatever is announced could potentially then change as it's further executed. Eduardo?

No, nothing else to add at this stage.

Thank you, ladies and gentlemen. That concludes our question-and-answer session. I will now turn the conference back over to Patrick Lockwood-Taylor, CEO.

Thank you very much and thank you to everyone for joining today. As you heard today, we're making great progress in our stabilized initiatives, really benefiting our Americas business. We're also maintaining our EPS guidance whilst broadening the range on revenue which we feel is prudent. As you heard me mention earlier, we often don't spend enough time on the contribution and the importance and the growth of our international business which has really turbocharged growth over the past few years and now accounts for well over 40% of our global sales and that's accelerating. In Q1, net sales in the international business were mid-single digit, plus 5%. And organic adjusted OI grew plus 10%. Just for comparison purposes, the adjusted OI of the international business was over $85 million in Q1, nearly as much as the Americas business OI of $100 million and that gap is narrowing. That's very important. For perspective, that business is now almost 4.5x larger in terms of revenue than our entire infant formula business and is approaching the same size as our U.S. OTC business. It is a large and accelerating part of Perrigo Enterprise. This business and why it's important to really understand it also embodies the potential of our Three-S Plan on a global basis. We're driving benefits from streamlining as we've consolidated brands, as we've consolidated categories, as we consolidate the organizational structure and the supply strategy. It's also benefited enormously from strengthened initiatives. We're seeing disproportionate share growth in our highest potential brands that we talked about at our February Investor Day. We are, as you heard, disproportionately driving investment and focus on those most accretive categories of brands and geographical operations. And as you heard me talk to, we're moving to regional clusters passing those savings to bottom line. So in closing, we're advancing our Three-S Plan to Stabilize, Streamline and Strengthen Perrigo and we have clearer initiatives being executed well across each of those verticals. With our 100-plus molecules and an additional 150 actives across 100% of price point coverage, Perrigo's unique business model provides significant opportunities for growth, especially in this uncertain environment. And as we convert those opportunities, you will hear those being reflected in our earnings announcement and our future book. Thank you very much for joining us today.

This concludes today's conference. Thank you for attending. You may now disconnect your lines.