Perrigo (PRGO) Q4 2025 earnings review
Massive Impairment and Weak Guidance Mask Share Gains
Perrigo's Q4 was defined by a massive $1.3 billion goodwill impairment charge, primarily wiping out the remaining structural thesis for its struggling Infant Formula business. This drove a reported EPS loss of $(10.20). While adjusted EPS of $0.77 technically missed prior-year highs, it allowed FY25 adjusted EPS to reach $2.75 (up 7% YoY). However, FY26 guidance paints a sobering picture: top-line contraction is accelerating, with 'All In' revenue projected to fall up to 5.5% and adjusted earnings plunging 21% to a midpoint of $2.15. To weather soft consumer demand, management is cutting 7% of the workforce and officially isolating Infant Formula from its 'CORE' go-forward business metrics.
🐂 Bull Case
Despite weak overall category consumption, Perrigo's U.S. store brands gained 120 basis points of volume share in Q4. Consumers seeking value are shifting away from national brands, creating a persistent annuity for Perrigo.
The company is finally drawing a hard line on its dragging assets. By placing Infant Formula under strategic review and putting the Dermacosmetics divestiture on track for a Q2 2026 close, Perrigo is isolating its core, cash-generative OTC operations.
🐻 Bear Case
After years of promising a turnaround and investing heavily, the $1.3B impairment charge and strategic review signals total defeat in Infant Formula, which dragged Q4 organic growth down by an outsized 2.9%.
FY26 'All In' adjusted EPS guidance of $2.00-$2.30 implies a massive ~21% YoY decline. Even excluding formula and divestitures, 'CORE' business sales and earnings are projected to shrink, indicating the base business cannot outrun soft consumer trends.
⚖️ Verdict: 🔴
Bearish. The core OTC business is winning market share, but it operates in a shrinking market. The staggering impairment, a newly announced 7% workforce reduction, and guidance for steep EPS deceleration show a company playing aggressive defense rather than finding sustainable growth.
Key Themes
Infant Formula Complete Reversal & Impairment
The Infant Formula segment went from a 2024 turnaround story (where management pledged a $240M investment) to a $1.3B goodwill write-down catalyst. Placed under strategic review in Q3, the segment decimated Q4 results, driving a 2.9% drag on total organic sales and a 100 bps headwind to adjusted gross margin. It is now explicitly excluded from the newly introduced 'CORE' operating metrics.
Endless Restructuring Loop Highlights Top-Line Weakness
Fresh off concluding 'Project Energize' ($167M savings) and its 'Supply Chain Reinvention' program ($157M benefits), Perrigo immediately announced a new Operational Enhancement Program. The plan will cut 7% of the global workforce to target $80M-$100M in savings. This signals that existing cost cuts are insufficient to protect margins against continuously softening consumer OTC consumption.
U.S. Store Brand Volume Gains Accelerating
A bright spot in a dark report: U.S. Store Brands are winning. Volume share gains accelerated to 120 basis points in Q4, up from 90 bps in Q3 and 60 bps earlier in the year. The company's 'Stabilize' strategy is successfully capitalizing on financially strained consumers trading down from more expensive national brands.
Transition to 'CORE' and New Reporting Structure
Starting Q1 2026, Perrigo will abandon its geographic reporting (CSCA/CSCI) in favor of commercial alignment: Self Care, Specialty Care, and Infant Formula. In tandem, management introduced 'CORE' guidance that completely strips out Infant Formula and the divested Dermacosmetics brand. This framing is designed to force investors to value the healthy OTC assets separately from the troubled legacy units.
European OTC Market Softening
Despite a massive 6.8% FX tailwind that pushed International (CSCI) reported revenue up 4.7%, underlying organic growth was negative (-1.0%). Management blamed a softer cough/cold season in Europe compared to the prior year, as well as a strategic reduction in the nutraceuticals (VMS) category. Growth relied heavily on price investments to drive brand promotions in Compeed and ellaOne.
Other KPIs
Decelerating. Down 110 basis points YoY from 37.2%. The drop was driven almost entirely by the Infant Formula business (-100 bps impact) and lower factory throughput across the rest of the network due to soft consumer consumption.
Decelerating significantly from $362.9M in FY24 and $405.5M in FY23. Cash conversion deteriorated to 62.5% of adjusted net income, heavily impacted by working capital demands, litigation settlements early in the year, and restructuring charges.
Reversing. Dropped 20.1% YoY from $145.8M. Margin contracted severely by 290 basis points to 16.7%, driven heavily by a $21 million unfavorable impact from Infant Formula alongside weak gross profit flow-through on the broader portfolio.
Guidance
Decelerating. A step down from FY25's -2.8% decline. The drop reflects incoming impacts from the Dermacosmetics divestiture, the continuation of structural Infant Formula declines, and broader OTC market softness.
Reversing. The midpoint of $2.15 implies a steep ~21% contraction compared to FY25's $2.75. This highlights a significant lack of operating leverage as volume declines overwhelm previous cost-cutting measures.
Decelerating. Even when entirely excluding the troubled Infant Formula unit and divested brands, the go-forward base business is essentially guided for a contraction, proving that macroeconomic and category pressures are a primary headwind.
Stable to slightly decelerating compared to FY25's CORE EPS of $2.52. This is the metric management wants investors to value the company on, demonstrating that the new 7% workforce reduction is aimed strictly at keeping base profitability flat amidst falling volumes.
Key Questions
Timeline for Infant Formula Resolution
With the $1.3B impairment charge officially recorded and the asset completely stripped from 'CORE' guidance, what is the definitive timeline to conclude the strategic review, and is a sale or shutdown the preferred avenue?
Diminishing Returns on Restructuring
The new Operational Enhancement Program to cut 7% of the workforce comes immediately after wrapping up Project Energize. At what point do structural cuts begin impacting your ability to service customers and fulfill the accelerating U.S. store brand volumes?
CORE Growth Drivers
The FY26 'CORE' organic top-line guidance is heavily skewed negative (-3.5% to +0.5%). Does this assume consumer category consumption worsens from current levels, or is this factoring in known losses of lower-margin contracts?