Murray S. Kessler
President & Chief Executive Officer at Perrigo
Thank you, Brad, and thank you, everyone, for joining us this morning. Many of you likely attended the virtual Investor Day we hosted at the end of February, where we provided details of the next phase of our strategy, what we are calling, optimize and accelerate. This was my second Investor Day since joining Perrigo, and I believe this was a critically important event for our company. My team shared specifics on how we expect to generate a significant amount of value for shareholders, and the feedback we've received has been overwhelmingly positive. Now after four years of transforming Perrigo into a consumer self-care company, the management team has focused squarely on operational execution and consistent delivery of results. To that end, we've made meaningful progress on many of the initiatives discussed at Investor Day during the first quarter of '23. We're on track with the integration for the HRA and Gateway, Good Start brand acquisitions and are already realizing significant benefits from both.
We are progressing faster than I expected on supply chain reinvention and have seen some exciting results in the early stages, more on this in just a moment. And I'm proud to say that Perrigo's Women's Health team has started its presentation to the FDA Advisory Committee today for a potential first-in-class Rx to OTC switch of the Opill oral contraceptive. Underpinning the progress across our strategic initiatives are strong financial results and business fundamentals. To echo comments from my general managers at our quarterly business reviews, after two years of unprecedented volatility, we are seeing our business become more consistent and predictable again. That predictability manifested itself in the first quarter where Perrigo achieved double-digit growth on top and bottom line, meaningful gross margin expansion driven by both the base business and acquisitions, and retained to grow market share as the global consumer demand and fundamentals remain strong. We also announced within the last two weeks, the successful elimination of the largest remaining tax overhang on the company by resolving the entire April 2019 Athena tax assessment of $843 million.
No payment was required, and this assessment is now completely dismissed. We also just settled the interest rate tax assessment with the IRS and have now cleared the debt and dramatically reduced uncertainty in the Perrigo investment. As I just touched on, benefits from recent acquisitions are not only turbocharging our financial results but are also creating greater leverage across the Perrigo portfolio. In HRA, we're delivering on our revised higher synergy targets. We remain on track with the HRA distributor conversion into Perrigo's direct sales model, which will deliver significant ongoing cost savings once complete. As I discussed on previous conference calls, there's an approximate $32 million onetime impact to operating income in 2023 associated with returning inventory from distributors. Of this annual estimate, $12 million top line and $0.05 in EPS impacted the first quarter as expected. Importantly, we're realizing greater leverage on our legacy CSCI business as our sales force is now able to combine strong pan-European brands, such as Compeed and ellaOne with the Perrigo's existing more regional European brand portfolio.
The integration of the Gateway infant formula facility and the Good Start brand also are on track. We are progressing on insourcing transition services currently provided by Nestle. And despite a voluntary recall in the quarter, we're continuing to leverage increased capacity from this facility to provide much needed supply of value-based infant formulas. More on infant formula in a few minutes. Within our supply chain reinvention initiative, we are on track to remove complexity from our operations through our winning portfolio strategy, which will result in the optimization or standardization of nearly 1,000 SKUs by the beginning of 2024. We had positive conversations with customers at last week National Association of Chain Drug Stores, NACDS conference and look forward to partnering with them to increase customer service levels through increased operating efficiencies that will free up much needed capacity in the Perrigo manufacturing system.
We also completed the pilot program using a system called --, which will be an integral part of our enhanced Perrigo Work System. -- is a cost-effective software solution to provide real-time overall equipment effectiveness, OEE. It provides management and monitoring information at the line operating level. We've highlighted the system on three manufacturing lines across the globe in Q1. All three achieved increased productivity above our expectations at a lower-than-expected cost. These are truly exciting results, and we have begun the process of rolling RedZone out across all our global manufacturing sites. As I mentioned earlier, the FDA Advisory Committee meeting begins today to discuss the potential switch of Opill. This is an important day for all women and people in the U.S., and it optinomizes our commitment to the women's health space. The FDA's approval of Opill OTC would increase access to safe and effective birth control, while allowing women to take control of their contraceptive needs on their terms.
While the FDA will be scrutinizing this application, there are over 35 independent organizations voicing support of Opill. In the year 2023, women should have ready access to oral contraception. As a reminder, the FDA advisory panel vote is nonbinding, we expect the agency to render a decision on approval later this year. Looking at our Q1 financial results. We had a tremendous quarter as constant currency net sales grew 13%. Organic net sales grew 6.4% despite unfavorable impacts of 2.7 and 1.3 percentage points from two voluntary recalls and portfolio optimization initiatives in CSCA, respectively. Pricing in the quarter was 5.5% and importantly, volume grew 1%. Gross margin improved by 400 basis points with nearly half driven by the legacy Perrigo business, and the other half attributed to higher-margin acquisitions. Year-over-year adjusted diluted EPS grew an impressive 36% or plus 47% on a constant currency basis. Success in the quarter was broad-based. While global consumer demand remains solid, European consumption is robust and is at a four-year high, driven in part by a very strong cough/cold season. Our Compeed brand continues to see strong demand and share gains with consumer takeaway up 19% versus a year ago in the quarter.
Other areas such as anti-parasites and insect repellents are gaining market share in growing categories and were positive drivers of CSCI growth. In the U.S., our oral care business is continuing to recover from the logistics and supply chain dynamics experienced last year as sales and consumption trends are very positive. Oral care consumption grew a robust 20% in the quarter, and Perrigo recaptured the number two share position in the categories we compete in. And in U.S. OTC, we gained share in higher-margin Digestive Health and NRT categories, driven by new products and distribution gains. Of note, U.S. OTC organic growth in the quarter was up 7.3% versus a year ago and U.S. OTC gross margin was 30%, up 415 basis points. Looking at our top line in a bit more detail. We achieved strong growth in both segments and nearly every product category. Many of our investors are U.S.-based, so they gravitate toward the U.S. business with CSI, which is nearly 40% of revenues is really hitting its stride.
The business grew 24% constant currency in the quarter 11% organically. The strong EU consumption I just noted was due to high incidences of cough, cold and flu, strong brands, share gains, the stickiness of our strategic price increases and the greater leverage from the HRA pan-European brands. The CSCI business has really come together beautifully. We also once again experienced solid consumer demand in the U.S., especially when you adjust for purposely discontinued low-margin product from our SKU rationalization program and from divestitures. Our OTC business grew 9% in the quarter in total, including a 200 basis point unfavorable impact from SKU rationalization. It's worth noting shipments to customers were greater than consumption during Q1 in the U.S. as customers replenished inventories, that were reduced below normal levels as they exited 2022, and that's something we see often in the fourth quarter, and it's not unusual. Other notable category movement in the quarter included women's health which benefited from the addition of ellaOne and other brands from the acquisition of HRA. Skin care, which benefited from the addition of the Compeed and Mederma brands and increased manufacturing capacity for our minoxidil hair regrowth products in the U.S. and oral care, which I just discussed.
Let's spend a minute on our CSCA nutrition business. Net sales grew 10% in the quarter, driven by strong growth in the contract infant formula business and an additional $36 million in sales from the Good Start acquisition. As a reminder, this growth is compared against a very strong year ago period that benefited from the infant formula shortage, the $36 million sales benefited from the Good Start acquisition includes an unfavorable impact of $9 million due to the voluntary recall of certain loss of the Good Start infant formula. Let me go into a little more detail here. In March 2023, FDA released a national strategy and issued a letter to members of the infant formula industry to assist in improving the microbiological safety of powdered infant formula. This letter has a significant impact on our manufacturing and cost to produce infant formula. Of course, Perrigo supports FDA and its mission to ensure food safety and promote nutrition for babies. So in response to FDA's new strategy and evolving regulatory expectations, we are, one, making significant investments to further modernize our infant formula --; and two, modifying and evaluating further adjustments to our manufacturing processes and procedures including refinements to sanitation procedures, quality hold times and more.
As I said, these actions will negatively impact supply and significantly raise the cost of producing infant formula. The substantial cost of these new regulatory requirements will be offset with a price increase. But even after the price increase, we anticipate that Perrigo store brand products will deliver consumers an approximate 40% savings per ounce as compared to the national brands. Let me pull this all together. I can't say enough how much Perrigo has transformed over the past few years and how excited I am about our future. Our fundamentals are strong and getting stronger as we continue to win market share, our strategic acquisitions are having a big accretive impact, our gross margin is expanding, and we continue to optimize our operations and accelerate our strategic investments to drive outsized growth over the next three years.
With that, I'll turn the call over to our CFO, to discuss financials in more detail, and I'll come back at the end to wrap up before Q&A. Eduardo?
