Patrick Lockwood Taylor
President and Chief Executive Officer at Perrigo
Thank you for the warm welcome, Brad. And thank you, everybody, for joining us this morning. I'm nearly 40 days into my Perrigo tenure, and I greatly appreciate the warm welcome I have received from my Perrigo colleagues. Their pride and excitement for our business comes through in every interaction. And I'm very energized to join them in the next phase of Perrigo's growth. I also want to recognize and thank Murray Kessler, outgoing CEO, for his leadership in positioning Perrigo as a major player in global self-care.
I'd like to start the call today by sharing what excites me most about the opportunities at Perrigo, and also provide thoughts on our framework for building long-term sustainable growth. I've actually followed Perrigo for several years now and have always believed this is a truly unique business. It's well-positioned in the right industry with numerous strengths, and let me highlight a few of those.
It has tremendous manufacturing scale in the US, the ability to produce over 50 billion doses every year across a wide range of formats, including tablets, liquids, sprays, lozenge and creams, to name but a few.
This manufacturing capability translates into nearly 1,600 doses produced every second of every day, that's incredible consumer reach. As a global company, Perrigo has strong customer relationships with the top US retailers in addition to strong pharmacy relationships across Europe with over 100, 000 direct pharmacists partners.
Perrigo embodies a solid focus on cash and cash flow mindset, which helps generate an annual cash conversion ratio of approximately 100%, driven by several actions, including prioritization, simplification, standardization and pricing.
Finally, Perrigo has a strong innovation engine and ability to fast follow across nearly every major OTC category. In fact, Perrigo has more approved OTC ANDAs than any other company.
Our fast follow-up indices is exemplified by the launches of store brand equivalent to Voltaren pain relief gel and Advil dual action tablet, both of which were launched the day after the national brand exclusivity expired. This innovation and speed to market enables our retail partners to truly differentiate their brands on the shelf.
Another exciting example of our innovation is Opill, which I will discuss further in a few minutes. There's been a lot of work accomplished over the past five years to position Perrigo as a leading company in the Consumer Self-Care space, but there is still an awful lot of work to do to consistently win and to fully capitalize on our assets and our opportunities.
There are a few thoughts on the building blocks that will drive sustainable growth. First is to continue to refine where we're going to play. Perrigo has made great progress to finding where to play within branded Self-Care. Yes, store brands are indeed branded Self-Care, but this will continue to evolve.
Within Consumer Self-Care, Perrigo participates in attractive segments, that is set to benefit from favorable tailwinds, aging world populations, a heightened focus on self-care treatment, and ever more cost burden shifting to consumers is set to drive attractive category growth.
Next is to define how we're going to win. It is early in my tenure, but I can tell you, Perrigo has a lot of tools to differentiate from competition and to win with consumers, including e-commerce leadership and an extensive portfolio with deep category insights and world-class manufacturing, innovation and scale.
It is our job to better leverage these tools to win consistently with consumers in a differentiated and impactful way. They understanding how we can further leverage our existing capabilities in addition to new capabilities that we might need in order to sharpen our approach to drive further differentiation.
Our Supply Chain Reinvention project is a good example of this, and this is on track to drive down costs, to increase efficiencies and to better leverage our manufacturing scale. Going forward, we will look to accelerate additional capabilities, including brand building and more meaningful consumer-driven innovation, so that we might differentiate our products at shelf.
Finally, to optimize the Perrigo operating model and to perform better as one Perrigo, while there has already been a lot of progress here, for example, our Supply Chain Reinvention Program, we have more to do to harmonize our global operating model. We will seek to one operational drumbeat become systems, structures and KPIs that we can deliver our products to consumers in the most efficient, value-creating way.
Now a brief update on our accretive initiatives versus the progress we continue to make on our Supply Chain Reinvention Program. The Perrigo work system is being rolled out across our manufacturing footprint.
This foundational technology is enabling the work systems, that have already been installed and 35% of our line and are generating very meaningful actionable data. And as part of our winning portfolio focus, we optimize production of higher-margin SKUs, which drove 40 of the 260 basis point year-over-year gross margin uplift within our Americas business.
We also continued to realize synergies from acquisitions, which are tracking slightly ahead of actuation through the second quarter. The HRA distributor transitions are already providing meaningful cost savings and margin expansion. As you know, the 2023 unfavorable EPS impact of $0.16 to $0.18 from the distributor transitions is not expected to repeat in 2024.
All these initiatives contributed to another quarter of consistent year-over-year results with total Perrigo net sales growth of more than 6%, gross margin expansion of 220 basis points and 18% operating income growth of 47% EPS growth. Importantly, we ended the quarter with a very solid position.
Other notable highlights from quarter two include strong organic net sales growth of 7% in our international business, where we continue to hold share in growing markets and categories. This growth was broad-based, which included Cough Cold, Anti-Parasites, Insect Repellent and Skin Care offerings.
In the US, more consumers are choosing store brands, as compared to national brands, evidenced by store brand volume share growth of 70 basis points over the last 13 weeks. As expected, Perrigo's share of total store brand was lower over the same 13 weeks due to planned SKU prioritization actions during the quarter, which again enhance gross margin.
Excitingly, last month, the FDA approved Opill, the first-ever daily oral contraceptive available OTC in the US. It was a momentous day for our organization and one that comes at a pivotal time in the women's health space. I'd like to once again congratulate the entire women's healthcare team who has worked for nearly a decade to achieve this milestone.
This approval highlights Perrigo's strong innovation, that I just mentioned, and Opill will be an important part of the building blocks of our long-term sustainable growth. This switch will define a new category within women's health, a break down traditional barriers for the 64 million women that make up the total addressable market in the U.S.
Uptake has the potential to be broad across consumers, who are not insured or new to the category using less effective methods or choose to switch from the prescription to the OTC product. I've worked on a number of prescriptions-to-OTC switches in my career, and this is the most exciting one.
Switches can be a very effective pathway to brand building, as they typically go on a strong retailer support, drive net new growth and in the case of Opill, opened up an entirely new category in the OTC space. Retailers are also excited about this upcoming product launch.
As you may have seen from news reports, two leading drug chain stores have disclosed that they expect to offer Opill. We have made this decision to fund pre-launch investments for Opill, coinciding with an expected retailer channel fill, late this year. We continue to expect Opill on retailer shelves in early 2024.
This is a meaningful opportunity for our US OTC business and we plan to invest judiciously and with intent to smartly maximize reach of the Opill brand. As with any branded launch, we do not expect the product to be accretive to earnings for the first 12 to 24 months.
In addition to Opill, I also want to provide early thoughts on our infant formula business. We recently completed the Gateway facility and Good Start brand acquisition, and that integration remains on track. In the second quarter, this acquisition contributed $44 million of net sales in our nutrition category, which was partly offset by $5 million from a discontinued product line of $5 million of lower net sales from pediatric drinks.
Within the Nutrition business, net sales of our legacy infant formula products were up $6 million or 6% and despite lapping a strong comparison in the prior year due to a national brand supply issue. More on that in a moment. Second quarter gross margin in Nutrition expanded 730 basis points compared to the prior year and nearly 1,200 basis points sequentially. This is a solid business.
As for the prior year, national brand supply issue that I just mentioned, Perrigo stepped up to supply as much infant formula to parents as possible by running our facilities 24/7 and prioritizing our highest volume SKUs to reduce production complexity, therefore, achieving more than 115% infant formula output, a truly heroic effort by the team.
Looking at the current landscape for infant formula, the market is normalizing as the impacted national brand has returned with many of its SKUs. Additionally, recent changes to FDA guidelines are impacting the entire industry, resulting in lower manufacturing volumes, higher production costs and higher risk of scrap. Reassuringly, there is more demand for our store brand formula than we can supply.
We have not lost any distribution and we've used pricing actions to offset higher costs. We are now working to reintroduce SKUs that we deprioritized last year and to restock all customer shelfs. But given the impact of the new regulations, this will take time. The healthy growth of our youngest consumer is our utmost priority. Our team is working relentlessly to ensure families have the nutritionally equivalent store brand formula that they need at the lowest price on shelf.
I'd like to conclude by reinforcing a few essential points achieving Perrigo's full potential. Perrigo is well positioned in the self-care industry and has a number of tools to differentiate against competition. I know how hard my colleagues have worked to make that happen. Our job now is to put these pieces together and to continuously innovate in everything we do to better serve consumers. People at Perrigo are very talented and very driven. They're focused on the right priorities, including cash flow generation and deleveraging.
Our 2025 growth algorithm shared in February, remains on track and I'm focused on plans to optimize and unlock our full potential and accelerate and sustain top performance. As you may expect, I'm working with our global businesses to assess our market positioning and our long-term plans and work is already underway on winning initiatives. I look forward to sharpening my thinking that I continue getting to know the organization and team and then sharing more details in due course.
With that, I'd like to thank you all. I will now turn it over to our CFO, Eduardo.
