Perrigo (PRGO) Q3 2026 earnings review
Perrigo exits infant formula, but weak demand forces outlook cut
Perrigo, the maker of store-brand over-the-counter medicines, agreed to sell its troubled infant formula unit but had to cut its full-year outlook for the remaining business. Core sales from businesses owned a year ago fell 1%, as cautious ordering by US pharmacies ahead of the winter cough season and weak European demand outweighed market-share gains. Core profit per share excluding one-offs dropped 9% to $0.61, and would have fallen 24% by our math without a lower tax rate.
| Core sales from businesses owned a year ago | -1.1% -3.5% last quarter |
|---|---|
| Core profit per share, excluding one-offs | $0.61 -9% from a year ago (helped by $0.10 tax benefit) |
| Infant Formula sale price | Up to $175M $40M upfront cash; $275–$375M Q4 write-down |
| Full-year Core profit per share outlook | Cut $0.15 new range: $2.15–$2.35 |
⚖️ Verdict: 🔴 Bearish
The story got worse because the hoped-for second-half recovery in the main self-care business was pushed back, forcing interim chief executive Albert Manzone to cut the full-year Core sales and margin plan. In addition, the Infant Formula exit brings only $40 million in upfront cash along with a $275 million to $375 million write-down, leaving year-end debt stuck near 4 times cash profit. On the positive side, third-quarter free cash flow improved to $78 million as the company drew down inventory.
The question now is whether Perrigo can hit its lowered full-year margin target during the fourth-quarter cough and cold season. Hitting the middle of the new plan requires the Core operating margin excluding one-offs to jump to 17.5% in the fourth quarter by our math, while weak consumer demand or retailer restocking delays would force another miss. Fourth-quarter results will settle it.
🐂 Bull Case
Store Brands Keep Gaining Share
Perrigo makes over-the-counter (OTC) store-brand medicines for US retailers and branded treatments in Europe. Interim chief executive Albert Manzone said the company gained market share again in US store-brand OTC and in key European brands. Shoppers traded into store-brand nicotine replacement and laxative products, while the Women's Health line grew on higher sales of ellaOne and Opill, its over-the-counter birth control pill.
Sales from businesses owned a year ago in the All Other segment, which holds Oral Care, rose 14.0% to $114.5 million. That helped narrow the underlying sales drop in the Core business (Perrigo excluding Infant Formula and prior divestitures) to 1.1%, compared with declines of 11.0% in the first quarter and 3.5% in the second.
What to watch: exact US store-brand volume share figures in the quarterly filing or conference call. Continued share gains would show that Perrigo's customer losses are coming from cautious retailer ordering rather than shoppers switching to rival brands.
Inventory Cuts and Tariff Refunds Lifted Cash
Operating cash flow was negative $31.0 million in the first half of the year, raising questions about how Perrigo would fund its $40 million quarterly dividend. In the third quarter, the company generated $96 million in operating cash flow and $78 million in free cash flow, up from $52 million and $30 million a year ago by our math.
Two items drove the cash improvement and cushioned the margin drop. Over the first nine months, Perrigo reduced inventories to $1,013.8 million from $1,149.0 million at year-end, releasing $116.4 million in cash. Profit also benefited from the "net recognition of a recovery of a portion of previously paid tariffs", which helped lift All Other operating profit excluding one-offs by 18.4% to $27 million.
What to watch: fourth-quarter operating cash flow against the full-year target of converting a low-to-mid-60% share of profit into cash. Hitting that target requires roughly $140 million in fourth-quarter operating cash flow by our math.
🐻 Bear Case
Weak Demand Forced a Full-Year Plan Cut
"Our Three-S plan is delivering continued progress in the areas of the business within our control," interim chief executive Albert Manzone said. The Three-S plan is Perrigo's programme to stabilise, streamline and strengthen its operations. Yet after holding its full-year targets in the first two quarters, Perrigo cut its Core outlook across sales, margins and profit per share.
Manzone blamed "more measured retailer inventory positioning ahead of the cough and cold season" and weaker demand in Self Care, its largest segment, where sales fell 3.2% to $613 million and operating profit excluding one-offs dropped 19.4% to $105 million. Even in the Core business, gross margin excluding one-offs fell 1.4 percentage points to 37.9% on lower volumes, while advertising and staff bonus costs pushed operating expenses up 0.7 percentage points of sales by our math.
- Core sales growth plan: cut to a drop of 3.6% to 2.5%, from a prior range of minus 3.0% to plus 1.0%
- Core gross margin plan, excluding one-offs: cut by 1.5 percentage points to 37.5%–38.5%
- Core operating margin plan, excluding one-offs: cut by 1.0 percentage point to 14.0%–15.0%
- Core profit per share plan, excluding one-offs: cut by $0.15 at the middle of the range to $2.15–$2.35
What to watch: fourth-quarter Core operating margin, which by our math must reach 17.5% to hit the middle of the new full-year plan, up from 14.3% this quarter. A shortfall would mean cost savings from the Operational Enhancement Program are not enough to offset weak store-brand pricing and volume.
Formula Sale Brings Little Cash, High Debt
"The sale of Infant Formula is an important step in evolving Perrigo into a more focused consumer self-care company," Manzone said, adding that the exit will "materially reduce expected future capital expenditures". Supporters view portfolio simplification and debt reduction as a reason to own the company, and Infant Formula lost $1 million in third-quarter operating profit excluding one-offs as sales fell 9.6% to $81 million.
However, the sale terms show how much value the unit lost. Perrigo agreed to sell the business for up to $175 million, but receives only $40 million in upfront cash at closing. The remaining $135 million is "contingent on the achievement of net sales milestones through 2030", and Perrigo will book an impairment loss of $275 million to $375 million in the fourth quarter.
Because upfront cash is only $40 million and losing the unit's earnings reduces cash profit, Perrigo slightly weakened its year-end debt target from at or slightly below 4.0 times cash profit (adjusted EBITDA) to approximately 4.0 times. Total debt stands at $3.3 billion against $437 million in cash, while nine-month dividends of $120.3 million exceeded the $65.2 million of operating cash flow by $55.1 million by our math.
What to watch: the outcome and upfront cash terms of the ongoing Oral Care strategic review. Another sale with small upfront proceeds would leave debt near 4 times cash profit and keep pressure on the dividend.
Tax Rate and One-Offs Cushion Profit
Perrigo reported that Core profit per share excluding one-offs fell 9.0% from a year ago to $0.61, while All In profit per share excluding one-offs fell 25.0% to $0.60. Under standard accounting (GAAP), continuing operations swung to a loss of $0.10 per share from a $0.09 profit a year earlier, as general and administrative costs rose 3.6 percentage points of revenue to 12.6% by our math.
Two items made the headline Core profit look stronger than the underlying operations. First, the tax rate excluding one-offs dropped to 3.5% from 15.9% a year ago on shifts in where profits were earned, which added $0.10 to per-share profit; without that tax help, Core profit per share fell 24% to $0.51 by our math. Second, Perrigo excluded $41.0 million ($0.29 per share) of unusual litigation costs from its non-GAAP results, up from $15.0 million a year ago.
What to watch: the note on legal proceedings in the upcoming third-quarter filing. It will show which lawsuits drove the $41.0 million charge and when Perrigo must pay the cash.
Risks this quarter didn't answer
Several standing risks in Perrigo's business got no new resolution in the third-quarter release and depend on the full quarterly filing or future announcements.
- Permanent chief executive search: Albert Manzone remains interim chief executive with no timeline given for a permanent appointment.
- Oral Care strategic review: the review remains ongoing with no announced buyer, timeline or valuation.
- Goodwill impairment risk in Women's Health and Skin Health: the release booked a $4.1 million impairment on Medgenix, while headroom on the larger units awaits the quarterly filing.
- Multi-year 2027 profit targets: the release made no mention of the February 2025 Investor Day margin and sales targets.
👓 Other Themes
European Consumer Softness Weighs on Sales
Alongside cautious ordering by US pharmacies ahead of the winter illness season, Manzone pointed to "continued softness in Europe" as a key reason for lowering the full-year revenue plan. Weaker European consumer spending held back category volumes even where Perrigo's brands gained market share. Currency movements also reduced third-quarter reported sales by $5.1 million, or 0.5%, and the full-year plan now embeds a 0.2% currency drag.
💲 Other KPIs
Uncollected bills from customers rose 11.9% from $612.8 million at year-end 2025 by our math, even though nine-month revenue fell 5.2%. The increase absorbed $83.5 million of operating cash flow over the first nine months, down slightly from $709.9 million in the second quarter.
Sales in the Specialty Care division fell 4.6% from a year ago, or 3.5% excluding currency effects, after dropping 2.8% in the second quarter. Growth in ellaOne, Opill and Compeed was outweighed by lower sales of Mederma scar treatments and store-brand Minoxidil hair-regrowth products.
The share count used to calculate profit per share excluding one-offs rose 1.1% from 138.9 million a year ago, and moved up from 139.0 million in the first quarter and 139.6 million in the second. Perrigo did not buy back shares and raised its full-year share count assumption to 140 million.
🔮 Guidance
Cut. The consumer health group lowered the middle of its Core sales growth plan by 2.05 percentage points to a 3.05% decline, after holding it unchanged for two quarters. Underlying Core sales are planned to fall 3.8% to 2.7% (prior: -3.5% to +0.5%). By our math, the middle of the range implies fourth-quarter Core sales rising 0.9% from a year ago.
Cut. Because Infant Formula moves to discontinued operations in the fourth quarter, All In now excludes it while keeping earlier divestitures. The middle of the range sits at a 5.15% drop, down from 3.5% under the old perimeter, with divested businesses creating a 2.1 percentage point drag.
Cut. Management lowered the range by 1.5 percentage points on lower sales volumes and product mix. By our math, the 38.0% midpoint implies a fourth-quarter Core gross margin of 38.0%, in line with the third quarter's 37.9%.
Raised. The 1.3 percentage point increase reflects removing the lower-margin Infant Formula unit from All In reporting rather than an improvement in the remaining operations.
Cut. The Dublin-based group reduced the range by 1.0 percentage point. By our math, reaching the 14.5% middle of the range still requires a fourth-quarter Core operating margin of 17.5%, up from 14.3% in the third quarter.
Raised. Removing Infant Formula lifted the All In operating margin plan by 1.8 percentage points at the middle of the range, even as the Core operating margin plan fell.
Cut. The middle of the range fell by $0.15 to $2.25, which means a 10.7% drop from last year's $2.52 by our math. After earning $1.47 across the first three quarters, the middle of the plan leaves $0.78 for the fourth quarter, up 2.6% from $0.76 a year ago.
Raised. Moving Infant Formula and its factory under-utilization losses into discontinued operations lifted the All In profit per share range by $0.20 at the middle to $2.35, which sits $0.10 above the Core range due to earlier divested units.
Raised. Expected net interest cost increased by $6 million. After $117.1 million of net interest expense in the first nine months, the plan implies about $44.9 million in the fourth quarter by our math.
Cut. Management lowered the expected full-year tax rate for a second straight quarter, from 20.0% in the first quarter to 18.0% in the second and 14.0% now, following the 3.5% rate in the third quarter.
Raised. The full-year share count assumption moved up by 0.7 million shares, matching the 140.4 million count recorded in the third quarter.
Raised. The company dropped the "or slightly lower" qualifier from its year-end debt ratio target, as the Infant Formula exit brings only $40 million in upfront cash.
Cut. The share of profit excluding one-offs expected to turn into operating cash flow was trimmed from the mid-60% range to the low-to-mid-60% range.
❓ Key Questions
What drove the $41 million litigation charge in Q3?
Perrigo excluded $41.0 million of unusual litigation expense from its third-quarter profit, nearly triple the $15.0 million a year ago. The release did not say whether this stems from the revived acetaminophen lawsuits, talc claims or price-fixing cases, or when the cash leaves.
What sales milestones govern the $135 million formula earnout?
More than three-quarters of the up to $175 million Infant Formula sale price depends on net sales milestones through 2030. Investors need to know what sales levels the buyer must hit and what Perrigo estimates the fair value of those payments to be.
Are the 2027 Investor Day margin targets still active?
With Infant Formula sold and the 2026 Core operating margin plan cut to 14.0%–15.0%, management has not explained whether the February 2025 Investor Day targets for 2027 margin expansion and High-Grow brand sales still stand.
How much tariff refund cash remains to be collected?
Gross margin in both the second and third quarters benefited from recognizing recoveries of previously paid tariffs. Management has not disclosed the exact third-quarter dollar benefit or whether any further tariff credits remain for the fourth quarter.