8-K: Perrigo Q3 2025: Infant Formula Review, Outlook Cut

Perrigo reports a 4.1% net sales decline in Q3 2025, initiates a strategic review of its infant formula business, and updates its full-year outlook due to soft market consumption.

Summary

• Net sales for Q3 2025 were $1.04 billion, a decrease of 4.1% year-over-year, with organic net sales declining 4.4%.
• Adjusted operating income for Q3 2025 was $173 million, down 4.9% year-over-year.
• Adjusted diluted EPS for Q3 2025 was $0.80, a slight decrease from $0.81 in the prior year.
• Year-to-date 2025 net sales were $3.14 billion, down 2.8% year-over-year, with organic net sales declining 1.7%.
• Year-to-date 2025 adjusted operating income increased 9.8% to $455 million, driven by Project Energize and Supply Chain Reinvention.
• Year-to-date 2025 adjusted diluted EPS rose 20.9% to $1.97, or 27.0% organically.
• Perrigo is initiating a strategic review of its infant formula business, which is estimated to generate approximately $360 million in net sales in 2025, representing less than 10% of annual net sales.
• The company is updating its full-year 2025 outlook, now expecting net sales growth of -2.5% to -3.0%, organic net sales growth of -2.0% to -2.5%, and adjusted EPS of $2.70 to $2.80 (5% to 9% growth year-over-year).
• The previously announced sale of the Dermacosmetics business is on track to close in Q1 2026, and the strategic review of the Oral Care business continues.
• Project Energize has achieved gross annual savings of approximately $163 million, with $32 million reinvested and $133 million in restructuring charges incurred to date.

Sentiment

Score: 4

Explanation: While the company demonstrates resilience with market share gains and year-to-date EPS growth, the downward revision of the full-year outlook and the strategic review of a significant business segment (infant formula) due to external challenges indicate a cautious sentiment. The overall market conditions are described as 'soft,' suggesting ongoing headwinds.

Positives

• Achieved dollar, unit, and volume share gains in 5 of 7 Over-The-Counter (OTC) store brand categories in Q3 2025.
• Gained dollar share in key brands despite marketplace challenges.
• Achieved six consecutive months of OTC store brand volume share gains.
• Delivered meaningful year-to-date 2025 adjusted EPS growth of 20.9% (27.0% organically).
• Expanded gross and operating margins year-to-date 2025.
• Adjusted operating income year-to-date increased 9.8%, benefiting from Project Energize, Supply Chain Reinvention, infant formula manufacturing recovery, and favorable foreign exchange.
• Organic operating income year-to-date increased 13.2%.
• Reported EPS improved from a net loss in the prior year periods for both Q3 and year-to-date.
• Project Energize is expected to deliver annualized pre-tax savings in the range of $140 million to $170 million by the end of 2026.
• Infant formula operations have stabilized and are producing quality assured formula.

Negatives

• Net sales for Q3 2025 decreased 4.1% year-over-year to $1.04 billion.
• Organic net sales for Q3 2025 declined 4.4%, impacted by -2.8% from businesses under strategic review (Infant Formula and Oral Care) and -1.6% from global OTC businesses due to soft consumption.
• Adjusted operating income for Q3 2025 decreased 4.9% year-over-year to $173 million.
• Adjusted diluted EPS for Q3 2025 decreased 1.2% year-over-year to $0.80.
• Consumer Self-Care Americas (CSCA) net sales declined 3.8% in Q3, with Infant Formula and Oral Care contributing -4.4% to the decline.
• Consumer Self-Care International (CSCI) net sales declined 4.5% in Q3, with organic net sales down 5.3% due to lower sales in Upper Respiratory, VMS, and Women's Health.
• Infant Formula performance in Q3 was negatively impacted by a strong prior-year quarter (due to inventory refilling and pantry loading) and previously disclosed lost distribution of the Good Start brand.
• Oral Care performance was impacted by previously disclosed lost distribution of lower-margin products.
• The full-year 2025 outlook for net sales and organic net sales growth has been revised downwards due to infant formula industry dynamics and soft OTC market consumption trends.
• Estimated gross increase to global cost of goods sold in 2025 beginning in Q4 of approximately $10 million to $20 million, and approximately $40 million to $50 million on a full-year basis, due to potential tariffs.

Risks

• Ability to complete the proposed divestment of the Dermacosmetics branded business, including receipt of works council and regulatory approval.
• Performance by counterparties to the Dermacosmetics transaction and the likelihood of satisfying deferred payment milestones.
• Supply chain impacts on the business, including those caused or exacerbated by armed conflict, trade and other economic sanctions, and/or disease.
• General economic, credit, and market conditions.
• Increased or new tariffs by the U.S. or foreign governments (and any retaliatory or reciprocal tariffs) and changes in global trade relations.
• The impact of the war in Ukraine and any escalation thereof, including the effects of economic and political sanctions.
• The outbreak or escalation of conflict in other regions where the company does business, including the Middle East.
• Current and future impairment charges if the carrying amount of specific assets may not be recoverable from expected future cash flows.
• Customer acceptance of new products.
• Competition from other industry participants, some of whom have greater marketing resources or larger market shares.
• Pricing pressures from customers and consumers.
• Resolution of uncertain tax positions and any litigation relating thereto.
• Ongoing or future government investigations and regulatory initiatives.
• Uncertainty regarding the ability to obtain and maintain regulatory approvals.
• Potential costs and reputational impact of product recalls or sales halts.
• Potential adverse changes to U.S. and foreign tax, healthcare, and other government policy.
• The effect of epidemic or pandemic disease.
• The timing, amount, and cost of any share repurchases and/or any refinancing of outstanding debt at or prior to maturity.
• Fluctuations in currency exchange rates and interest rates.
• Receipt of potential earnout payments in connection with the sale of the HRA Rare Diseases Business and the Hospital and Specialty Business.
• The risk that potential costs or liabilities incurred or retained in connection with the sale of the Rx business may exceed estimates or adversely affect business or operations.
• The consummation and success of other announced and unannounced acquisitions or dispositions, and the ability to realize the desired benefits thereof.
• The ability to execute and achieve the desired benefits of announced cost-reduction efforts and other strategic initiatives and investments, including ongoing restructuring programs.
• Adverse results with respect to pending litigation could have a material adverse impact on operating results, cash flows, and liquidity.
• There is no assurance that the strategic review of the infant formula business will result in any changes or a transaction.

Future Outlook

Perrigo is revising its fiscal year 2025 outlook, primarily due to infant formula industry dynamics and soft OTC market consumption trends. The company now expects reported net sales growth of -2.5% to -3.0%, organic net sales growth of -2.0% to -2.5%, and adjusted diluted EPS in the range of $2.70 to $2.80, representing 5% to 9% year-over-year growth. Adjusted gross margin is anticipated to be approximately 39%, and adjusted operating margin around 15%. The company aims to reduce leverage, sustain its dividend policy, and sharpen focus on its high-potential OTC portfolio.

Management Comments

• "While OTC consumption was increasingly soft in the third quarter, the Perrigo team delivered strong in-market performance. We gained dollar, unit and volume share in five of seven store brand categories and grew share in our key brands, a clear sign that consumers are choosing Perrigo products at the shelf." Patrick Lockwood-Taylor, President and CEO.
• "This performance, despite a challenging backdrop, reflects the strength of our Three-S plan (Stabilize, Streamline, Strengthen) and our commitment to delivering trusted, accessible health solutions across multiple price points." Patrick Lockwood-Taylor, President and CEO.
• "As we look ahead, were adjusting our full-year 2025 outlook to reflect infant formula industry dynamics and soft OTC consumption trends. We are, however, managing through these with discipline by leveraging share gains and accretive initiatives to support expected mid-to-high single-digit adjusted EPS growth for the year." Patrick Lockwood-Taylor, President and CEO.
• "To drive a more consistent and focused growth profile, we continue to evaluate and action our portfolio, including the previously announced agreement to divest our Dermacosmetics business, the previously disclosed strategic review of our Oral Care business, and today's announcement to proactively conduct a strategic review of our Infant Formula business." Patrick Lockwood-Taylor, President and CEO.
• "In a tough environment, Perrigo is winning with consumers and customers." Patrick Lockwood-Taylor, President and CEO.
• "This proactive review is about discipline and ensuring the Company’s portfolio is best positioned for sustainable growth and free cash flow generation. While our infant formula operations have stabilized, the external environment has quickly changed, making a fit with our consumer health OTC businesses less strategic." Patrick Lockwood-Taylor, President and CEO.
• "Whatever path we choose, our corporate priorities are clear: reduce leverage, sustain our dividend policy, continue to deliver on customer partnerships and sharpen focus on our high-potential OTC portfolio to reach more consumers and drive household penetration." Patrick Lockwood-Taylor, President and CEO.

Industry Context

The company operates in a challenging environment characterized by increasingly soft OTC market consumption trends globally. Despite these headwinds, Perrigo's store brand offerings are gaining market share, indicating a consumer shift towards value-tier products. The infant formula business, while stabilized operationally, faces external dynamics that make it less strategically aligned with the core consumer health OTC businesses, prompting a strategic review. The company's focus on cost management through Project Energize and Supply Chain Reinvention reflects a common industry response to market pressures and a drive for efficiency.

Comparison to Industry Standards

• Management believes that adjusted gross margin and adjusted operating margin are useful for comparing and analyzing trends in the company's peer business group and assessing overall performance against competitors.
• No specific comparable companies, projects, or results are listed in the filing for direct comparison.

Legal Proceedings

• Unusual litigation is excluded from non-GAAP financial measures, indicating ongoing or past legal matters.
• Adverse results with respect to pending litigation could have a material adverse impact on operating results, cash flows, and liquidity.
• Resolution of uncertain tax positions and any litigation relating thereto is identified as a risk.
• Ongoing or future government investigations and regulatory initiatives are noted as potential risks.

Stakeholder Impact

• Shareholders: Potential impact from strategic reviews, divestitures, and revised financial outlook. The company prioritizes sustaining its dividend policy.
• Customers: The company continues to focus on delivering on customer partnerships, with store brand offerings gaining market share.
• Employees: Restructuring charges and termination benefits are mentioned in relation to Project Energize, indicating potential workforce adjustments.
• Consumers: The company aims to deliver trusted, accessible health solutions across multiple price points, and consumers are reportedly choosing Perrigo products.
• Creditors: A corporate priority is to reduce leverage, with total debt on the balance sheet at $3.64 billion as of September 27, 2025.

Next Steps

• Continue the strategic review of the infant formula business to assess a full range of alternatives.
• Continue the strategic review of the Oral Care business.
• Close the previously announced sale of the Dermacosmetics business in Q1 2026.
• Continue to execute Project Energize to achieve annualized pre-tax savings of $140 million to $170 million by the end of 2026.
• Mitigate potential tariff impacts through strategic pricing actions, insourcing to U.S.-based manufacturing facilities, and other supply chain actions.
• Focus on corporate priorities: reduce leverage, sustain the dividend policy, deliver on customer partnerships, and sharpen focus on the high-potential OTC portfolio.

Key Dates

Recommendation

The company faces significant headwinds from soft market consumption and is undertaking strategic reviews of key business segments, leading to a downward revision of its full-year outlook. While there are positives like market share gains and cost management initiatives (Project Energize) contributing to year-to-date EPS growth, the immediate future presents uncertainty. The strategic review of the infant formula business, while aimed at optimizing the portfolio, introduces a period of potential disruption. Investors should hold to observe the outcome of these strategic initiatives and the company's ability to navigate the challenging market conditions and execute its revised outlook.

Keywords

Perrigo, PRGO, Q3 2025 earnings, financial results, infant formula, strategic review, OTC, consumer health, self-care, market share, adjusted EPS, net sales, operating income, Project Energize, divestiture, Dermacosmetics, Oral Care, tariffs, supply chain