Perrigo Q2 2026 earnings: Core sales softness weighs on margins

Perrigo (NYSE: PRGO) reported fiscal Q2 2026 net sales of $1.023 billion, down 3.2% year over year, while diluted EPS from continuing operations increased to $0.63 from approximately $0.00. The EPS improvement was driven by the Dermacosmetics divestiture gain rather than stronger underlying operations: All In adjusted EPS declined 12.3% to $0.50, and Core adjusted EPS fell 20.7% to $0.46. Infant Formula growth provided a partial offset to weaker Self Care and Specialty Care results.

Core earnings data

Perrigo now presents both “All In” and “Core” results. All In includes the entire continuing business, while Core represents the intended go-forward portfolio and excludes Infant Formula and previously announced divestitures.

The quarter’s reported earnings benefited from the business-sale gain, but lower sales volumes, production under-absorption and unfavorable mix reduced operating profitability.

Core net sales were $906.7 million, down 3.1%, while Core organic sales declined 3.5% to $903.0 million. Within Core, pricing decreased 0.7% and volume/mix fell 2.4%, reflecting soft category consumption and lower retailer inventory levels. Management said consumption trends improved as the quarter progressed and that Perrigo gained market share in key categories.

Business and segment performance

Infant Formula was the only major segment to report sales growth and also moved from an operating loss to a profit. That improvement helped narrow the decline in All In adjusted EPS relative to Core adjusted EPS, because Infant Formula is excluded from Core results.

Self Care: Sales were affected by soft category consumption in the U.S. and Europe, a slower start to summer seasonal categories and continued retailer inventory reductions, particularly in Europe. Innovation and distribution gains supported market-share growth, but lower volume, unfavorable mix and production under-absorption reduced operating income.

Specialty Care: Skin Health faced slower seasonal demand, lower store-brand Minoxidil sales and a difficult comparison for Mederma caused by the timing of prior-year inventory restocking. Growth in Women’s Health, led by Opill and ellaOne, provided a partial offset. Operating income also absorbed higher advertising and promotional spending intended to support second-half initiatives.

Infant Formula: Sales increased primarily because of the timing of contract formula shipments and higher store-brand sales. Profitability improved as Perrigo lapped prior-year production variability that had caused elevated product scrap, although branded formula sales remained lower.

All Other: The 16.9% reported sales decline mainly reflected divestitures; organic sales fell only 2.4%. Tariff recoveries, improved productivity and lower Oral Care operating expenses helped keep segment operating income approximately stable.

Profitability, cash flow and the balance sheet

Reported gross margin contracted 370 basis points to 30.7%. Lower Self Care volume, unfavorable mix and the carryover effect of planned production under-absorption were the main pressures. Improved Infant Formula productivity and recognition of a recovery for part of previously paid tariffs provided offsets.

Core adjusted gross margin fell 250 basis points to 37.0%, while Core adjusted operating margin declined 160 basis points to 13.0%. Savings from the Operational Enhancement Program reduced operating expenses, but they did not fully offset weaker gross profit flow-through.

Perrigo generated $83 million of operating cash flow during Q2 and spent $14 million on capital expenditures. It also paid $40 million in dividends. The quarterly inflow was not enough to make the first half cash-flow positive: operating cash flow for the six months ended June 27 was negative $31 million.

Cash and cash equivalents totaled approximately $400 million at quarter-end, compared with $531.6 million at the end of 2025. Total debt was approximately $3.3 billion. Perrigo applied the substantial majority of roughly $359 million in cash proceeds from the Dermacosmetics sale to debt reduction, primarily by reducing revolving-credit borrowings.

Dermacosmetics gain lifted GAAP EPS while core profitability weakened

The gap between reported and adjusted earnings is the central issue in this quarter. Perrigo recorded a $129.4 million gain related to the Dermacosmetics divestiture, contributing to reported diluted EPS of $0.63 compared with approximately zero a year earlier. After excluding the gain and other adjustments, All In adjusted EPS fell to $0.50.

Core adjusted EPS declined more sharply, falling 20.7% to $0.46. This measure excludes Infant Formula, whose 23.1% sales growth and shift from a $12 million operating loss to a $4 million profit provided an important offset in the All In results. Consequently, the reported EPS increase should be separated from the decline in recurring operating performance.

Fiscal 2026 guidance

Perrigo reaffirmed its full-year 2026 outlook and expects sequentially stronger second-half results. The company cited moderating production under-absorption, easier category comparisons, lower interest expense, cost-program benefits and progress in innovation and distribution as the expected drivers.

The quantitative ranges were maintained across both All In and Core reporting bases.

Planned under-absorption from lower prior-year production volumes is expected to reduce 2026 All In EPS by approximately $0.60. Perrigo recognized $0.26 of that effect in Q1 and another $0.18 in Q2. Other assumptions include approximately $156 million of net interest expense, an adjusted tax rate of about 18% and net leverage at or slightly below approximately four times adjusted EBITDA.

Recent insider transactions

The supplied insider data showed no open-market purchases or sales during the preceding six months. The latest entries with complete transaction values were derivative-security conversion or exercise records, which are distinct from ordinary open-market trades.

These records do not by themselves establish a positive or negative view of Perrigo’s outlook.

Risks investors should monitor

• Consumer and category softness: Continued weak consumption or additional retailer inventory reductions could keep Core sales under pressure, particularly in Self Care and seasonal categories.
• Production under-absorption: The company expects a meaningful full-year EPS impact from lower production volumes. A slower-than-expected moderation would make the projected second-half improvement more difficult to achieve.
• Margin pressure from volume and mix: Cost savings reduced operating expenses, but lower sales volumes and unfavorable product mix still drove substantial gross- and operating-margin contraction.
• Reliance on Infant Formula as an offset: Infant Formula improved materially, but it remains under strategic review and part of its Q2 growth came from contract shipment timing.
• Leverage and interest costs: Debt declined after the Dermacosmetics sale, but total borrowings remained approximately $3.3 billion and full-year net interest expense is still expected to be about $156 million.

Summary

Perrigo’s Q2 2026 headline EPS improvement came from the Dermacosmetics divestiture gain, while the operating picture remained pressured by lower volumes, production under-absorption and unfavorable mix. Infant Formula and cost-program benefits provided offsets, but Core sales, margins and adjusted EPS all declined. The main follow-up issue is whether improving consumption, easier comparisons and lower under-absorption can produce the sequentially stronger second half embedded in Perrigo’s reaffirmed outlook.