Perrigo Co PLC (PRGO) (Q3 2026) Earnings Call Highlights: Margin Gains and Share Growth Offset ...

Negative Points

• Core net sales declined 1.7% year-over-year in Q3, with organic sales down 1.1%, reflecting continued top-line pressure.

• Retailers are taking a more measured approach to inventory ahead of the cough and cold season, leading to lower-than-expected inventory build and a roughly 2% headwind to growth.

• The European consumer environment remains soft and is tracking below prior expectations, contributing to continued weakness in the region.

• Adjusted gross margin declined 140 basis points to 37.9% in Q3, driven by lower sales volumes and unfavorable mix, particularly from lower higher-margin European business.

• The 2026 outlook was updated downward, with core net sales now expected to decline 2.5-3.6% and adjusted EPS of $2.15-$2.35, reflecting retailer inventory positioning and European softness.

Q & A Highlights

Q: With the infant formula divestiture complete, how is Perrigo thinking about its broader strategy? Is oral care still planned to be sold, and are there other areas that could make sense to divest? A: Interim CEO Albert Manzone said the oral care process is ongoing and that infant formula and oral care are the two assets currently under review. The strategic aim is to focus and simplify the company, drive growth, improve margins and allocate capital with discipline. He flagged innovation, e-commerce (already about 20% of US sales with above-market share) and demand generation as key priorities going forward.

Q: Where specifically are you gaining market share in the quarter, both in store brands and in the branded business? A: Manzone said Perrigo is doing well across most US categories, helped by improved service levels (95%+ with key retailers) that enable co-innovation and demand-generation tests. Growth is a bit softer in oral electrolytes and skin health, largely due to one brand (Minoxidil). New opportunities include bundling digestive health products for GLP-1 consumers across several retailers. In Europe, share gains are concentrated in the larger brands, and management is focused on fixing "leaky bucket" brands that have potential with modest support.

Q: As you look toward 2027, what are the key pushes and pulls, and can you quantify the tariff reversal benefit this quarter? A: Manzone pointed to positives for 2027: improving OTC absorption after a negative first half of 2026, continued operational enhancement savings, and margin improvement from the infant formula divestiture. Watch-outs include the Derma Cosmetics divestiture, normalization of the tax rate, the loss of one-time tariff benefits and continued inflation. CFO Eduardo Bezerra quantified the Q3 tariff benefit at about $4.5 million.

Q: Following the infant formula divestiture, how are you thinking about cash flow and the magnitude of the CapEx impact? A: Bezerra said infant formula had been consuming cash this year, so the divestment removes that uncertainty. He noted Perrigo had previously flagged potentially $240 million of network and footprint investment, only a small portion of which was spent over the past two years. The divestiture significantly reduces future capital requirements, allowing focus to shift to the core OTC business and higher-return opportunities.

Q: On the more cautious retailer inventory positioning ahead of cough and cold season, are retailers actively reducing inventories or simply not rebuilding? A: Manzone said retailers did not load in for the season in Q3 as they have in the past, rather than actively destocking. The season appears to be shifting later in the calendar due to climate change. He expects the season to be better than last year but perhaps not as strong as originally estimated, noting encouraging October trends from the Southwest US and the cold season beginning in Europe.

Q: Do you see an opportunity for restocking to be a sales tailwind, or will retailers maintain lower inventory levels going forward? A: Manzone said that if the season picks up, replenishment should follow, but it is still to be determined whether that replenishment lands more in Q4 or shifts into Q1 of next year given the season's calendar shift.

Q: What is the key takeaway from the third quarter results? A: Manzone said the areas Perrigo controls are improving even as external headwinds weigh on reported results. Core net sales declines moderated sequentially from 8.3% in Q1 to 3.1% in Q2 to 1.7% in Q3, while core adjusted operating margin rose from 12.8% to 13.4% to 14.3% over the same quarters.

Q: How did the 3S plan perform in the quarter, and what savings has it generated? A: Manzone said the operational enhancement program generated $42 million of savings year-to-date and remains on track to deliver approximately $60 million to $80 million in 2026. Under Streamline, Perrigo sold Derma Cosmetics, announced the infant formula divestiture and continues the oral care strategic review. Under Strengthen, investment behind innovation and demand generation is translating into share gains.

Q: What drove the third quarter top-line and margin performance? A: Bezerra said core net sales fell 1.7% and core organic net sales fell 1.1%. Softer consumption, particularly in Europe, and more measured retailer inventory positioning were a roughly 2-point headwind, with lower contract manufacturing volumes adding about 1 point. Innovation and share gains contributed about 1.5 points of growth. Core adjusted gross margin declined 140 basis points to 37.9%, and core adjusted operating margin fell 110 basis points to 14.3%.

Q: What is the updated 2026 outlook and what is driving the change? A: Bezerra guided core reported net sales down 2.5% to 3.6%, core adjusted operating margin of 14% to 15% and core adjusted diluted EPS of $2.15 to $2.35. All-in adjusted diluted EPS is expected at $2.25 to $2.45. The revision reflects more measured retailer inventory positioning ahead of cough and cold season and continued softness in the European consumer environment, partly offset by share gains, innovation and productivity savings.

Q: How is Perrigo positioned in e-commerce, and why does it matter? A: Manzone said e-commerce is growing faster than the broader category and Perrigo's share online is higher than its total market share. US e-commerce total category volume is up nearly 15% year-to-date, and e-commerce now represents 22% of US volume, up from approximately 13% in 2022. He also suggested AI shopping agents could favor lower-cost store brand products with identical FDA ingredients, an opportunity for Perrigo.

Q: What is management's closing message on the company's position and priorities? A: Manzone said Perrigo holds a hard-to-replicate position as the US store brand OTC leader with leading European brands, gaining share on both sides of the Atlantic. He argued complexity, not the assets, has held the company back, and that simplifying Perrigo quarter by quarter is the path to more consistent execution

For the complete transcript of the earnings call, please refer to the full earnings call transcript .