Perrigo (PRGO) Q2 EPS Rises 7.5%

Perrigo (PRGO -11.31%), a major supplier of over-the-counter (OTC) self-care products across North America and Europe, released its Q2 FY2025 financial results on August 6, 2025. The company posted adjusted earnings per share of $0.57, missing the consensus non-GAAP EPS estimate of $0.59. Net sales (GAAP) came in at $1.06 billion, falling short of the $1,082.73 million analyst target (GAAP revenue) and dropping 0.9% year-over-year on a GAAP basis. Gross margin and operating margin saw notable declines, particularly driven by operational challenges in infant formula and lower absorption in select product lines. Despite the revenue and earnings misses, management reaffirmed full-year FY2025 adjusted EPS guidance of $2.90 to $3.10, cautioning that reported and organic net sales growth would likely be at the lower end of previous ranges for FY2025.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

Perrigo is a global consumer self-care company, mainly known for its wide range of OTC health and wellness products. Its portfolio spans segments including nutrition, women's health, pain relief, oral care, digestive health, and skin care. The company's diverse lineup covers both store brands and several international branded products, making it one of North America's leading store-brand suppliers and a strong name in Europe with brands like Compeed (wound care patches) and ellaOne (emergency contraception pill).

Perrigo's recent strategy has centered on strengthening its core categories and building scale in self-care, while working to streamline operations. Initiatives such as Project Energize and the Supply Chain Reinvention program aim to lower costs and increase supply chain flexibility. Innovation and new product launches have been a focus, as seen with products like Opill, the first over-the-counter birth control pill. The company's key success factors include operational efficiency, successful new product launches, and maintaining strong positions in both store and branded offerings across markets.

Quarter Highlights and Performance Drivers

Total revenue (GAAP) declined 0.9% compared to the prior year, with a near-flat organic sales result (organic basis). Currency translations provided a slight uplift, but this was outweighed by divestitures and the exit of certain product lines, shaving 2.5% off net sales. Segment results reveal a mixed picture: the Americas division saw net sales decline 1.9%, while the International division posted 0.7% growth. The main source of softness was in areas like Digestive Health (down 12.9%) and Oral Care (down 18.1%), reflecting declines in specific molecules such as proton pump inhibitors and market contraction.

Despite the drop in sales, adjusted earnings per share rose 7.5%, primarily due to lower interest expenses. Adjusted operating income fell 2.9%, affected by isolated production issues in infant formula and lower plant absorption in the Oral Care and OTC categories. Management highlighted that its Project Energize initiative has delivered approximately $159 million in cumulative gross savings since inception (beginning of 2024), though only $27 million has been reinvested into the business since the beginning of Project Energize in FY2024. Supply chain programs and reduced advertising spend cushioned the impact of lower sales volumes and helped defend margins.

Perrigo's innovation and brand strength are visible in several categories. For example, its store-brand OTC lines reported share gains in volume and units. In the International segment, core brands such as Solpadeine (pain relief tablets), Physiomer (nasal sprays), and ellaOne are leading both sales and profitability, with International adjusted operating margin up 260 basis points to 23.6%. The Nutrition and Women's Health categories saw double-digit net sales increases. However, sustained consumption declines in the U.S. Oral Care and Digestive Health categories remain a concern, and lost distribution continued to negatively affect some performance areas.

This period also featured an important portfolio action: Perrigo announced the sale of its Dermacosmetics business, expected to close in the first quarter of 2026. Proceeds are earmarked to reduce company debt. The impact of such exits, along with other divestitures, was visible not just in reported revenue but also as a drag on adjusted operating margin, accounting for a 2.5% hit to net sales and a 0.5% margin reduction. No new environmental, social, and governance (ESG) data was provided this quarter, though the company is managing risks such as tariffs, in-sourcing, and alternative sourcing options to contain input costs prompted by new trade policies.

Balance Sheet, Cash Flow, and Capital Returns

Operating cash flow (GAAP) for the first half of FY2025 was $11 million. Cash outflow in Q1 FY2025 was offset by a Q2 FY2025 inflow, resulting in relatively modest year-to-date operating cash flow generation. Year-to-date capital expenditures were $45 million for the first half of FY2025, while $80 million was returned to shareholders through dividends during the first half of FY2025. The company ended the quarter with $454 million in cash and equivalents, down from $558.8 million as of December 31, 2024. Inventory levels ended higher, reflecting working capital build, and net leverage reduction is a stated priority for FY2025, to be supported by the upcoming Dermacosmetics divestiture.

Outlook and What to Watch

Perrigo reaffirmed its FY2025 adjusted diluted earnings per share guidance of $2.90 to $3.10, implying growth of 13–21% over the prior year. The company maintained its adjusted gross margin goal of approximately 40% for FY2025 and its adjusted operating margin target of 15% for FY2025. However, management now expects both reported and organic net sales growth to finish near the lower ends of prior guidance ranges for FY2025, pointing to ongoing softness in the infant formula category and general market consumption trends as the causes.

Looking ahead, management signaled that earnings will be weighted toward the second half of FY2025, driven by new product launches (more than 60 new infant formula SKUs), store-brand share recapture efforts, and expanded shelf presence at retailers. Investors should keep an eye on revenue trends in the Digestive Health and Oral Care categories, the pace of production recovery in Nutrition, and the company's ability to offset higher costs from tariffs and supply chain adjustments. Success in executing the announced divestiture and further progress on cost containment will be key to Perrigo’s near-term performance.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.