Good morning, ladies and gentlemen, and welcome to Perrigo Q4 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to turn the conference over to Bradley Joseph. Please go ahead.

Good morning, and good afternoon, everyone. Welcome to Perrigo's Fourth Quarter and Full Year 2025 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are Perrigo's President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra. I'd 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 for the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Finally, Patrick's discussion will address only non-GAAP financial measures. Now to the agenda. We have several topics to cover today. Patrick will first walk through a market overview and summarize fourth quarter and full year 2025 results. We will then cover our continued progress on the Three-S Plan and our transition to new reporting segments, which will begin in the first quarter of 2026. Finally, to walk through our 2026 outlook, after which Eduardo will cover 2025 segment highlights, balance sheet and capital allocation, our operational enhancement program and close out with further details of our '26 outlook. And with that, I'll turn it over to Patrick.

Thanks, Brad. Good morning, good afternoon, and thank you for joining today's call. 2025 was a year of meaningful progress for Perrigo. We continue transforming the company into a world-class consumer health leader, and the results of that work are increasingly visible in the marketplace. We are winning with consumers and customers, and that momentum is reflected in the strong market share gains and incremental business we secured with key retailers. These wins are a clear sign that our strategy is embedded and delivering. Despite a soft market environment, we delivered EPS in line with our revised guidance, a solid improvement versus the prior year. And we made strong progress on our Three-S Plan to simplify, streamline and strengthen the business even as the infant formula business continued to face structural challenges that affected both our financials and our outlook. Our outlook for 2026 reflects the realities of the current market and the work required to offset headwinds as we enter the year, which we believe are temporary. We expect the environment to improve in the second half, and we remain confident in our ability to build on our progress and position Perrigo for long-term growth and value creation. Even as the U.S. OTC market was challenged, we gained solid market share across most of the categories where we compete. Importantly, our share gains accelerated throughout the year, reversing years of decline. As consumers traded into store brands, we strengthened our partnerships with retailers, gaining over $100 million in new distribution and competitive takeaways and improved in-store execution. This is significant. This speaks to the underlying health of our business and the fact that we are winning back with both consumers and customers. We are seeing the same positive momentum in Europe. Our key brands are gaining share despite a…

Thank you, Patrick. I appreciate everyone joining us today. Before getting to the details of our financials, I want to note that our 2025 GAAP results include noncash accounting impacts, including a goodwill impairment charge of $1.3 billion. Impairment is a nuanced issue, which merits both historic acquisition costs of businesses purchased over time with the realities of the current stock price. Certain historically acquired business have not performed as initially expected when acquired. Management must now address these realities and plan for the future. This impairment does not impact our strategy, cash flows or ability to execute. In addition, looking ahead to the first quarter, we need to reallocate goodwill from our existing to our new reporting units, which Patrick highlighted. While the aggregate fair and carrying values are unchanged from December 31, 2025, the redistribution of goodwill across our new reporting units may present a different outcome with surpluses in many and shortages in a few. As a result, the company may record additional noncash goodwill impairment charges of up to $350 million in the first quarter of 2026. In contrast to impairment, which reflects historical business performance, our decision to place business under strategic review is a reaction to external events informed by growth options and priorities for Perrigo in the future. Now to our results. As highlighted, we're introducing a new concept of CORE Perrigo results or just CORE, which excludes different formula and announced divestitures, primarily the Dermacosmetics business. From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. Turning to results to our business units, starting with CSCI. Full year CORE organic net sales decreased 0.2% as growth from new products, share gains across most of our key brands and increased supply of Pain & Sleep Aids products were…

Thanks, Eduardo. Operator, will you please open the line for questions.

[Operator Instructions] And your first question comes from the line of Keith Devas with Jefferies.

A lot to get through, so I'll try to keep it brief. But maybe just going to your outlook for 2026. I think you mentioned some of the pressures in the first half in terms of cough/cold and overall consumption as well, and you're expecting kind of second half improvement. So maybe just some more color or context on what's driving that second half improvement? And then maybe longer term what's needed for the categories, particularly in OTC, both in the U.S. and abroad to get it back to stable and then hopefully growth?

Keith, thank you for the question. As you can imagine, we put a significant amount of analysis on this as have a lot of our competitors. There are several components to answering this. First thing is what's causing the decline. We see the great majority of that as being transitory in nature. There has been household -- long-term household reduction in certain subcategories, but they are a small part of our overall business. So what do I mean by transitory, we saw some trade down. We saw consumers trading down into smaller units. We saw rollbacks from national brands. And the biggest effect is we didn't see price increases to the scale that we've historically seen. That temporarily took a lot of value out of the market. And we need to think of that as about 90% of the calls. We start to catch up with those effects in the latter part of quarter 2 and increasingly through the second half. So what the effect of that is it just normalizes. Unless you see additional value erosion versus that base, then by definition, it stabilizes. That is the effect that we see and increasingly in the second half. To get more down to the specifics of what's building our confidence: one, we expect to continue growing share; two, we expect store brand OTC to continue growing share. Second, about 60% of the value of our innovation is in the second half of this year, about 65% of our opportunistic geographic expansion is in the second half of this year. Our competitive takeaway, this is our distribution gains, more than half is in the second half. And then this work you've heard us describing this demand generation, which is driving key retailers' store brand category and their share of it and our share of that, almost 2/3 of that lands in the second half of this year as well. So as we combine all of those factors, that leads us to a more favorable second half outlook.

Got it. That's very helpful. Maybe just as a follow-up, just an update on kind of the liquidity and the leverage position. You're doing a new restructuring program. There's some cash charges there. And just in terms of the overall outlook for the business units, it sounds like it's a little bit pressured at least in the first half. So just as you think about the guide and keeping net leverage flat year-over-year, just if you think that gives you enough flex to reinvest in the business appropriately to try to get some of the changes that you're hoping for? And then just your other commitments in terms of the dividend and kind of putting it all together, how you feel in terms of update on liquidity and leverage would be helpful.

Thank you, Keith. Our capital allocation priorities remain unchanged, right? So we will continue to invest in the business, right, through investing in innovation as well as technology to continue to accelerate and in connection with our announced new enhancement program. We continue to focus on reducing leverage, right? So we expect the closure of the Dermacosmetics sale in early second quarter. And we're going to use those proceeds, as we mentioned before, to reduce our debt, right? And also continue to return value to our shareholders through dividends, right? So we held our dividend and we continue to assess that as we always have done. I think the important thing is we see 2026 as a transitory year, right? So it's very important to highlight, we see significant impact on under absorption that we talked a little bit on the call about $0.60, and we expect a significant portion of that to be recovered into 2027. And also these operational enhancement programs, they should sustain over time. So despite we see, let's say, from a free cash flow standpoint, a challenging year, we expect that to be a transitory and that things should improve as we look into 2027.

And your next question comes from the line of Chris Schott with JPMorgan.

This is Ethan on for Chris. Maybe just to start off, a lot of helpful color on the OTC business today. Just wanted to get some color on how you're thinking about the recovery of margins there and if that will start to be recovered kind of through the second half of this year or if that's more 2027 plus?

Well, thank you for the question. So a couple of comments there, right? So we're seeing an under-absorption impacting our margins in 2026, right? So -- and that's one of the key reasons why we're pushing for the operational enhancement program, right, that we're implementing this year. We believe though that's transitory in nature. And that mainly reflects the impact of softening that happened in the second half of last year. So despite our significant share gain that we have in the OTC store brand business in the U.S. as well as in our key brands in international, we still carried a strong inventory. And of course, the cost of that inventory has increased, and we see that transitory impact into 2026. But as I mentioned, this should be transitory in nature as we see the market normalize more in the second half of the year and into 2027, that should dissipate and we should see an improvement in our margins on OTC going forward.

Super helpful. And maybe just one other question from me is looking to the Infant Formula business, how are you thinking about the path to kind of normalizing operations and margins going forward and the different actions you can take? And more broadly on the strategic review, just how are you thinking about the different options available, what any kind of sale might look like? And if that isn't available, what other actions you could take there?

Okay. Yes. So this formula review remains ongoing, right? So we're working with the advisers to assess all available options, right? So how do we -- can we optimize our operations, any potential partnerships and/or potential divestments, right? So it's too early to comment on much progress on that side because that -- there's a lot to be completed at this time, and we're going to provide more details in the coming calls as it progress.

And your next question comes from the line of Susan Anderson with Canaccord Genuity.

I was curious, just looking at the CORE sales categories, I guess, which categories are you seeing kind of with the most negative growth that's driving that guide towards the lower end for this year? And I guess, what categories are doing better than those?

Susan, thank you for that. So off the top of my head, I don't have the data in front of me, but the more preventative categories are typically doing better. So VMS, some of the subcategories of digestive wellness. The categories doing poorer on a very short-term basis, as you know, are cough/cold, and particular subsegments of pain, mainly pill dosing is where we're seeing systemic household decline. That's a small part of our business, but other parts of pain, in particular, topical creams are actually performing very well. Allergy, interestingly, also performing well in the early part of this year. As we try to map out the recovery of each of those subsegments, we see growth strengthening in some of those prevention categories. Allergy and cough/cold, obviously seasonally dependent, but of quite weak seasons, we see quite favorable -- we expect average season, which it follows is better than '25. We don't see anything that's going to change pain pill household penetration data, but that is a very small effect for us over the next 3 years.

Okay. Great. That's really helpful. And then maybe just a follow-up on the capital allocation question. I guess, are you guys comfortable with the dividend level where it's at? Is that still a priority? And then I guess, with the plans for deleveraging with the Derma proceeds, I guess, what are your long-term leverage goals as well?

I'll take and then Eduardo because this is an important question that both of us should respond to. So our capital allocation priorities are clear, and they are unchanged. We invest in the business, reduce leverage and return value to shareholders through dividends. We held our dividend, as you know, but we will continue to assess our capital allocation priorities according to what's best for the business and what delivers the best sustainable shareholder return.

Yes. And just on top of that, in terms of leverage, right, so for '26, as we highlighted, we expect that to be in line or slightly better than 2025. So that's mainly because of the onetime impacts that we're seeing in the business impacting our adjusted EBITDA. And so as we look into -- as we previously expected to be below 3x in 2027, but because these transitory effects in the marketplace, we're now anticipating to achieve that level over the next 2 to 3 years as the new organizational enhancement program completes, our strategic reviews on both Infant Formula and Oral Care advance and consumption recovers over time. So more precise, timing will depend on all these factors, Susan.

Okay. Great. And then maybe if I could just add one more on the infant nutrition business. I think it's dilutive to earnings now. I guess, did it ever get back to positive earnings? And then did it turn negative? And I guess if you guys end up keeping it, what will it take to kind of get that back to accretive to earnings?

Well, as I mentioned, we continue to assess the strategic review, right? So we're working on all the available options. And of course, we're going to look into which is the one that optimize not only the P&L, but also the cash flow as well. This is an important thing that we have been commenting that over several years, Infant Formula has consumed cash and so we're looking at that comprehensive of what's going to be the best option for shareholders on both aspects, right? So because at the end of the day, we need to be committed to improve our cash flow generation going forward.

Yes. Just to add a bit more sort of commercial perspective on that. We expect to continue growing share. I know the data that you see is total market, including VIC. We obviously look -- excluding VIC because we don't participate in that. Within that analysis, we see good store brand growth. We are confident as retailers reset their shelves later on this year, that will be favorable for us as we have innovation and launching that targets some of the foreign brands that we're seeing in the U.S. that will be positive for us. So we actually expect low to mid-single-digit revenue growth on Infant Formula this year. That allows us to clear this lower margin inventory, which has been a big factor for us in our EPS guidance. In doing, that starts to restore to '24, '25 levels gross profit. So that's how this model will play through this year from a commercial standpoint. Now to Eduardo's point, there is no doubt we need to look at plant optimization, set capacity in line with long-term volume and optimize cost and cash accordingly. Those are material margin and cash flow expansion opportunities for us should we go that route.

And your last question comes from Daniel Biolsi with Hedgeye.

Just following up on the last question. How much working capital like on average or whatever you can share is associated with the Infant Formula business?

Well, so it's significant because of the inventory levels that we have built in the prior year, expecting a significant share gain in the second half of the year, given the dynamics that we have explored and shared in the past, both further government intervention and also continued import products coming into the country significantly, that has impacted our ability to recover the share the way we had planned and shared in Investor Day last year, right? So that led to higher inventories, right, so at the end of 2025. And as Patrick mentioned, this low to mid-single-digit net sales plan should help deplete that inventory this year, right? So -- and that should bring working capital to more normalized levels versus what we faced in the past.

Okay. And then I'm encouraged by the gross margins close to flat, excluding the Infant Formula business. And you mentioned in the prepared comments that there was a price investment in CSCI. What did you see? Like what kind of response did you see from those price investments in CSCI?

Yes. I mean this is an annual effect. We compete across a broad range of molecules. There is capacity available either in the U.S. or from low-cost overseas manufacturers. And just as frankly, because of supplier substitution, that squeezes margin. That has just been a reality in some of our molecules 20 years, okay? And that is just an annual cost of participation. We have a systemic program now that addresses that, which is productivity, mix, innovation, expanding into more profitable adjacencies and of course, driving more volume into our plants. Every point of utilization is worth about $10 million for us. We have got much better at master planning those activities just recognizing that cost of commoditization. That allows us to hold or improve gross profit year-on-year, but it is an important element of where we play, okay? I think historically, we've probably undervalued that and that has introduced risk into our P&L. But I feel we have much more visibility and control of that going forward. As we also drive the salience of our branded business by focusing more on brand, by focusing more on branded growth and share growth, that obviously also has a very positive impact on not just GP but OI margin as well. Obviously, branded tends to be higher. So really, it's being much better at managing the gross profit profile of our store brand business whilst driving the salience of our branded business. That allows us to protect and enhance both OI and GP.

And that concludes our question-and-answer session. I would like to hand it back to Patrick Lockwood-Taylor for closing remarks.

Yes. Thank you very much, and thank you for joining us today and for those good questions. This is a tough market environment, and we have to lead what we control and manage with excellence, what we can't control. We're fixing the fundamentals of this business, and we believe we're positioning the business for quality growth, growing share now consistently after many years of decline. We're expanding category size in partnership with our key retailers. Store brand OTC in the U.S. is growing share, and we're growing share of that growing category. We're improving our financial structure. OI margin has expanded by 230 basis points over the past 2.5 years. Our net leverage is down from 5.5 to 4, and we will continue to deleverage. Our operations are more effective, more consistent and more compliant. We have 30-plus inspections in '25 with no critical or major observations and no recalls. We lead in quality assurance. Our leadership team and our senior management is in place. They're experienced, world-class, they're performance-driven and they're cost competitive. We now have in place an expandable growth model that will drive TSR. We have a differentiated and clear purpose. We exist to provide essential everyday self-care for everyone. We streamlined our portfolio, playing in the markets and increasingly in categories where we have the right to win and is an attractive size of profit. These categories reinforce and are driven by the core strengths of this company. We have more molecules. We cover more price points. Ultimately, that allows us to reach more consumers. We're developing even deeper and more strategic customer partnerships. We win through scaled, high-quality regionalized supply chains. We have extensive regulatory interface, and that allows us to shape the regulatory environment for these categories going forward. We're now set to go after geographic and category opportunities where we can operationalize these strengths in order to drive advantage. Recall, we only serve 10% of the world consumers today. This provides us with a tremendous growth runway. We've divested businesses where we can't leverage our growth model, e.g. Dermacosmetics, rare diseases, et cetera. In conclusion, we increasingly believe in our model and the path forward. 2027 is shaping up as a meaningful growth year. Again, thanks for joining us.

Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.