Perrigo Company plc

01 — Executive summaryA 6.5× multiple, an 8.29% yield, and a dividend that free cash flow does not cover

Perrigo Company plc reported net sales of $4,253 million for the fiscal year ended 31 December 2025, a decline of 2.8%. Organic net sales — the figure that excludes currency, acquisitions, divestitures and exited products — fell 2.4%. Reported operating income was a loss of $1,122 million, driven by a $1,363 million non-cash goodwill impairment. Reported diluted earnings per share were −$10.29. Adjusted diluted earnings per share, the measure the company and the sell side lead with, were $2.75, up 7% and the highest in the company's recent history.

Both sets of numbers are accurate and neither is sufficient. The gap between them — $1,744 million of operating income, $13.04 of earnings per share — is the subject of this report, because the equity's valuation depends entirely on which of the two a reader chooses to believe.

Our answer, compressed into a sentence: Perrigo is a genuinely dominant franchise in a structurally difficult business, priced at a discount that is large enough to be interesting and justified enough to persist. The company manufactures the store-brand over-the-counter medicines and infant formula that sit on the shelves of Walmart, Kroger, Boots and Carrefour — a business with real scale, real regulatory barriers and 60 basis points of volume share gain in 2025 — attached to a customer base that owns the brand, owns the consumer relationship, and captures the pricing power. Perrigo's revenue has fallen in four of the last five years. Its free cash flow has fallen in three consecutive years. Its dividend has not been covered by free cash flow since 2024.

The most important number in this report is not the multiple. It is this: over the twelve months to 27 June 2026, Perrigo generated $196 million of operating cash flow and spent $77 million on capital expenditure, producing $119 million of free cash flow. It paid approximately $161 million of dividends. Free cash flow covered 74% of the dividend. On the company's own guidance for 2026 — cash from operations in the mid-60% range as a percentage of adjusted net income, less capital expenditure — we estimate free cash flow of approximately $95 million against $162 million of dividends, a coverage ratio of 59%.

The gap has been funded from disposal proceeds, principally the €306 million received for the Dermacosmetics business in April 2026. Disposals are a finite resource. Perrigo had, at 27 June 2026, two businesses left under strategic review — Infant Formula and Oral Care — and no announced buyer for either.

Six findings follow from the primary record. Each is developed in full later in this report; each is stated here with the number that supports it.

1. The adjusted earnings the market is capitalising are a construct, and the company has just widened the construct

Beginning with its first-quarter 2026 results, Perrigo reports two versions of itself: "All In" and "Core". Core excludes the Infant Formula business — which Perrigo still owns, still operates and still consolidates — together with previously announced divestitures. For 2026 the company guides to All In adjusted EPS of $2.00 to $2.30 and Core adjusted EPS of $2.25 to $2.55, a midpoint gap of 11.6%. Core adjusted EPS in FY2025 was $2.52 against All In adjusted EPS of $2.75. The gap is not an error and it is not concealed; the company explains it precisely. But an investor who buys the equity at 6.5 times "adjusted EPS" is buying it at 5.8 times a number that excludes a business the company has not sold.

2. $1.72 billion of capital has been impaired in eight quarters, against a $1.94 billion market capitalisation

Perrigo has recorded goodwill and intangible impairment charges of $1,722 million since the beginning of 2024: $27.5 million in 2024, $1,363.1 million in 2025, and $331.8 million in the first half of 2026. The FY2025 charge was $917.1 million against Consumer Self-Care Americas alone. The Q1 2026 charge followed the reallocation of goodwill to the company's new reporting units, which is to say that the act of changing the segment disclosure was itself an impairment trigger.

Cumulative impairments now exceed the entire market capitalisation of the company. That is not a valuation observation; it is a statement about the reliability of the historical capital allocation that produced the carrying values in the first place. The company's tangible book value at 27 June 2026 was negative $1,372 million, or −$9.89 per share. There is no asset floor beneath the share price.

3. Leverage is four turns, the ratings are sub-investment grade, and the first refinancing date is April 2027

Net debt at 27 June 2026 was $2,895 million against company-guided net leverage of approximately 4.0× adjusted EBITDA. The issuer ratings are Ba3 from Moody's, BB− from S&P and BB from Fitch, all with stable outlooks. Moody's downgraded the company from Ba2 on 12 December 2025, and that downgrade automatically lifted the coupon on the $750 million of notes due 2030 from 4.900% to 5.150% for payments after 15 June 2026 — a contractual link between the credit rating and the cash cost of debt.

The maturity profile is front-loaded in the bank facilities. Term Loan A, $421.9 million, matures in April 2027; Term Loan B, $972.4 million, matures in April 2029. The revolver was undrawn at year-end 2025, which is the company's principal source of flexibility. A refinancing in 2027 at sub-investment-grade spreads is the single most concrete financial event on the horizon.

4. The Core business is not growing either

It is tempting to read the portfolio reviews as a growth story in which the weak assets are removed and the good ones compound. The Core disclosure does not support that reading. Core organic net sales fell 11.0% in the first quarter of 2026 and 3.5% in the second. Core adjusted EPS of $0.40 and $0.46 in those quarters was down 20.0% and 20.7% year over year. The company's full-year Core organic guidance is −3.5% to +0.5%. The Core business, on the company's own definition of it, is flat to down.

The second quarter of 2026 contained genuine good news — Specialty Care grew 4.0% and the Women's Health brands led by Opill and ellaOne continued to take share — and the market was right to note it. But the improvement in the consolidated rate from −7.2% to −3.2% between the first and second quarters was driven substantially by Infant Formula, a business the company is trying to sell, and by a favourable comparison base.

5. The discount is real, and so is the reason for it

At $14.00, Perrigo trades at 6.5× the midpoint of its own FY2026 adjusted EPS guidance, 7.1× FY2026 estimated adjusted EBITDA on an enterprise value of $4.84 billion, and yields 8.29%. Haleon trades at approximately 18–19 times forward earnings and 13–14 times EBITDA; Kenvue at 18–20 times earnings; Church & Dwight at approximately 25 times earnings. On any of those measures Perrigo is a third of the peer group.

Part of that gap is leverage: Perrigo carries 4.0× net debt to EBITDA where Haleon carries roughly half that. Part of it is growth: the peers are flat to modestly growing, and Perrigo is shrinking. Part of it is the dividend, which the market is pricing as though it will be reset — and an 8.29% yield on a stock with a 59% coverage ratio is not a yield, it is a probability-weighted distribution. And part of it is governance: the company has been without a permanent chief executive since 8 June 2026.

6. What would change our mind

We would move to a positive rating on any of three developments: evidence over two consecutive quarters that Core organic net sales growth has turned positive, which would signal that the category destocking is genuinely complete rather than deferred; a transaction for Infant Formula or Oral Care at a multiple that demonstrates the assets are worth more than their carrying value, with proceeds applied to debt such that net leverage falls below 3.0×; or the appointment of a permanent chief executive with a mandate and a track record in consumer health, which would remove the largest single piece of uncertainty in the equity.

We would move to a negative rating on any of three others: a dividend reset, which we would read not as a financial necessity but as an admission that the disposal programme will not close the free-cash-flow gap; a further goodwill impairment in the FY2026 annual test, which would call the remaining $1.70 billion of goodwill and indefinite-lived intangibles into question; or a refinancing of Term Loan A in 2027 at a spread that materially raises the interest burden above the $156 million the company has guided for 2026.

02 — Company & business modelA century of making other people's brands

Perrigo Company plc was incorporated under the laws of Ireland on 28 June 2013 and became the successor registrant of Perrigo Company, a Michigan corporation, on 18 December 2013 in connection with the acquisition of Elan Corporation. The operating business is considerably older: the company describes itself as having more than a century of experience in over-the-counter health and wellness, and it was one of the originators of the American store-brand OTC market.

The model is straightforward and it is worth stating plainly, because everything in the financial statements follows from it. Perrigo manufactures generic-equivalent versions of branded over-the-counter medicines — cough suppressants, antihistamines, antacids, pain relievers, nicotine replacement therapy, contraceptives — and sells them to retailers, who market them under their own names. Perrigo does not own the brand on the shelf. Walmart owns Equate. Kroger owns Kroger Health. Boots owns Boots. Perrigo owns the manufacturing capacity, the regulatory filings and the formulation science, and it collects a wholesale price from the retailer.

The economics of that arrangement are the central fact of the equity. Store-brand products must meet the same FDA requirements as national brands within the United States and the requirements of comparable regulators elsewhere. Perrigo's own disclosure is explicit that its products are "comparable in quality and effectiveness to national brands" and that "the cost of store brand products to retailers is significantly lower than that of comparable nationally advertised brand name products." The retailer, therefore, can price a store brand below the national brand "and realize a greater percentage and dollar profit." Perrigo sells the manufacturing margin. The retailer captures the retail margin and the consumer relationship.

Two segments by geography, four by category, and the transition between them

Through fiscal 2025 Perrigo reported two operating segments: Consumer Self-Care Americas ("CSCA"), comprising the consumer self-care business in the United States and Canada, and Consumer Self-Care International ("CSCI"), comprising everything else, primarily Europe and Australia. CSCA was 60.8% of FY2025 net sales at $2,585.3 million; CSCI was 39.2% at $1,667.7 million.

Beginning with the first quarter of 2026 the company transitioned to a category-based view: Self Care, Specialty Care, Infant Formula, and All Other. The change is presented as an alignment of disclosure with "the way our chief operating decision maker intends to make future operating decisions," and the company states that it has no impact on historical consolidated financial position, results of operations or cash flows. That is true of the totals. It is not true of the comparability, and it is not neutral in its consequences: the reallocation of goodwill to the new reporting units was the trigger for the $330.8 million first-quarter impairment.

In H1 2026, on the new basis, Self Care was 56.2% of net sales, Specialty Care 21.8%, Infant Formula 9.6% and All Other 12.4%. Self Care is the store-brand OTC business in the United States and Europe and is the cash engine. Specialty Care is the higher-margin branded portfolio — Compeed for cold sores, ellaOne for emergency contraception, Opill, Jungle Formula, Solpadeine, NiQuitin — and it is the part of the company that behaves like a branded consumer-health business. Infant Formula is the store-brand and contract infant formula operation in the United States. All Other contains the Oral Care business, which is under strategic review, and smaller distribution arrangements.

The product portfolio, and the fact that nothing is big enough to matter on its own

Perrigo sells across nine disclosed categories: upper respiratory, nutrition, digestive health, pain and sleep-aids, oral care, healthy lifestyle, skin care, women's health, and vitamins, minerals and supplements. The company states that no single product represents more than 5% of total revenue. That is a genuine diversification benefit in a portfolio of commodity-like products, and it is also the reason the company has limited ability to respond to a category-specific shock. When cough-and-cold incidence falls, as it did in the first quarter of 2026, the effect is a 3.5 percentage point net sales headwind that cannot be offset anywhere else.

The company's own framing of the portfolio is that the businesses are complementary: store brands generate cash which funds investment behind the higher-margin, higher-growth brands; branding and innovation capability then generate demand that strengthens retailer relationships. It is a coherent strategy and it is the logic behind the 'Three-S' plan — Stabilise the Americas store-brand and infant formula businesses, Streamline the portfolio and the international business, Strengthen investment behind key brands. The problem with the framing is arithmetic: the cash-generating half is shrinking, and the brand half is smaller than the hole the shrinking half leaves.

Where the company is and where it sells

Perrigo employed approximately 8,100 people at the most recent count. It sells into more than 30 countries, predominantly in Europe, through an established pharmacy sales force, and across the United States and Canada through mass merchandise, supermarket, drug and e-commerce channels. Manufacturing is concentrated: the company operates a network of plants whose utilisation is the single largest swing factor in its gross margin, which is why the planned under-absorption of manufacturing costs against lower prior-year production volumes is worth approximately $0.60 of 2026 adjusted EPS on the company's own estimate.

That is the structure. It is a real business with real scale, and it is the largest supplier of store-brand self-care products in North America in many of the categories in which it competes. The question for the remainder of this report is what that position is worth when the category is not growing, the customer holds the pricing power, and the balance sheet carries four turns of leverage.

03 — The financial recordFive years in which the reported numbers stopped describing the business

Perrigo's revenue grew from $4,139 million in FY2021 to $4,656 million in FY2023 and has fallen in each of the two years since, to $4,253 million in FY2025. The company has guided to a further decline of between 1.5% and 5.5% in FY2026. Over the five-year period the compound annual growth rate of net sales is 0.7% — approximately the rate of inflation in the markets where it operates, and less than that in real terms.

Reported net income tells a more dramatic story and a less useful one. Perrigo has reported a net loss in each of the last five fiscal years: −$68.9 million in 2021, −$140.6 million in 2022, −$12.7 million in 2023, −$171.8 million in 2024, and −$1,425.4 million in 2025. The losses in 2021 through 2024 are driven principally by amortisation of intangible assets recognised in acquisitions and by restructuring. The loss in 2025 is driven by the $1,363 million goodwill impairment. The first half of 2026 produced a further net loss of $324.1 million.

The quarterly record shows the inflection more clearly than the annual one, and it also shows how much of the reported volatility is accounting rather than trading.

Q3 2025 figures are derived by subtraction from the reported nine-month and first-half totals and are therefore Farstar calculations; the Q3 2025 impairment and restructuring lines are likewise derived and are shown as "—" where the derivation is not meaningful. Q1 and Q2 2025 are as reported on the then-current basis; the company did not report a Core measure before 2026, so Q1 and Q2 2025 Core adjusted EPS are Farstar estimates derived from the FY2025 full-year Core figure and the disclosed quarterly All In adjustments. All other figures are as reported by the company.

Three observations from this table deserve emphasis.

Adjusted operating income has been flat for two years while revenue has fallen 8%. Adjusted operating income was $147 million in Q1 2025 and $113 million in Q1 2026; $135 million in Q2 2025 and $125 million in Q2 2026. On a full-year basis FY2024 adjusted operating income was $608 million and FY2025 was $622 million, up 2.3% on revenue that fell 2.8%. Margin expansion against falling revenue is the correct outcome of a cost programme, and Perrigo has run three of them. The question is how much more there is to take.

The reported numbers are dominated by two non-recurring items that recur. Impairment and restructuring together account for $1,363 million and $138 million in FY2025, and $331.8 million and $89.5 million in H1 2026. Neither is a cash cost. Both have appeared in every year of the last five. An analyst who treats them as genuinely non-recurring is making an assumption about the future that the past five years do not support.

The cash flow statement is the only statement that has behaved consistently. Operating cash flow has fallen from $405.5 million in FY2023 to $362.9 million in FY2024 to $238.5 million in FY2025, and was an outflow of $31.0 million in H1 2026. This is the sequence that matters, because it is the sequence that determines whether the dividend survives. We return to it in Section 16.

One framing observation governs everything that follows. Perrigo is not a company whose reported earnings are temporarily depressed by a single bad decision. It is a company whose capital structure was assembled through acquisition at valuations that have since been written down by $1.72 billion, whose revenue base is contracting, and whose cash generation is now insufficient to fund its stated distribution policy. The adjusted numbers that the market is capitalising are not wrong; they are simply a description of a business that has been stripped of its history. What they cannot tell you is whether the next five years look different from the last five, and that is the only question that matters at 6.5 times earnings.

04 — Segment: Self CareThe cash engine is shrinking faster than the market

Self Care is the store-brand over-the-counter business in the United States and Europe, and it is the largest thing Perrigo owns. On the new reporting basis it produced $543 million of net sales in the first quarter of 2026 and $577 million in the second, or $1,120 million for the half — 56.2% of the consolidated total. Segment operating income was $68 million and $79 million respectively, a margin of 12.5% in Q1 rising to 13.7% in Q2.

The revenue trend is the problem. Self Care net sales fell 11.5% year over year in Q1 2026 and 3.7% in Q2, of which 2.8 and 0.5 percentage points respectively were favourable currency translation. On an organic basis the declines were 14.0% and 3.9%. The company's explanation for Q1 is specific and, on the evidence, credible: lower seasonal incidence of cough and cold versus a prior year that had been unusually severe, which reduced Upper Respiratory and Pain & Sleep sales and led retailers to cut inventory. The company quantified the two effects at approximately 3.5 percentage points from reduced seasonal incidence and a further 3.0 percentage points from retailer destocking. Together that is 6.5 points of an 11.0-point organic decline in the Core business. The residual is genuine category softness in Digestive Health and Healthy Lifestyles.

The FY2025 category data, which is the last full-year view on the legacy basis, is the more useful evidence because it is not distorted by a single weather season. Six of the nine disclosed categories in the Americas business declined. The two largest declines were Digestive Health, down 11.1% to $442.1 million, and Nutrition, down 9.1% to $408.5 million. Upper Respiratory — the largest category at $529.5 million — grew 5.8%, but the company attributes that to a favourable prior-year comparison and to sell-in timing in the fourth quarter rather than to underlying consumption. Healthy Lifestyle, the fifth-largest category, grew 3.1%.

The Digestive Health decline is the most instructive. Perrigo attributes it primarily to lower consumption of proton pump inhibitors for heartburn. This is a category in which the store-brand proposition is at its most powerful — omeprazole is omeprazole — and in which Perrigo should be gaining as consumers trade down. That it is instead declining by double digits tells you that the issue is category consumption, not competitive position. When the underlying molecule is in decline, share gains do not help.

Share is being won, and it is not enough

Perrigo's disclosure on share is unusually generous and it deserves to be taken at face value. According to Circana data cited by the company, Perrigo's United States store-brand OTC volume share increased 100 basis points in the thirteen weeks to 29 March 2026, and gained 60 basis points over the 52 weeks of 2025, with a 120-basis-point gain in the fourth quarter alone. The company gained dollar share on key brands. By any measure of competitive position, Perrigo is winning.

The reconciliation is arithmetic. If the category is shrinking faster than Perrigo is gaining share, revenue falls. A 100-basis-point share gain on a market that is declining 8% produces a decline of approximately 7%. Perrigo's Self Care organic revenue fell 3.9% in Q2 2026 and 14.0% in Q1. The share data and the revenue data are not in conflict; they are two descriptions of a market that is contracting and a supplier that is consolidating it.

The strategic implication is uncomfortable. Perrigo's principal competitive advantage — scale in low-cost manufacturing of commoditised molecules — is worth the most in exactly the categories where consumers are most price-sensitive, which is exactly where store-brand penetration is already highest and where the incremental opportunity is smallest. The company's own framing is that it sells "hundreds of molecules at multiple price points." That is a description of a business that competes on cost in markets where the customer sets the price.

Margin, and the under-absorption problem

Self Care segment operating income fell 39.3% year over year in Q1 2026 and 16.2% in Q2, materially worse than the revenue declines in the same periods. The reason is operating leverage in reverse: Perrigo's manufacturing network is sized for a higher volume than it is currently producing, and the unabsorbed fixed cost lands in cost of sales. The company quantifies this as approximately $0.60 of 2026 adjusted EPS, of which $0.26 was recognised in Q1 and $0.18 in Q2.

This is the single most important swing factor in the 2026 numbers, and it is worth being precise about what it is and is not. It is not a cash cost that can be avoided by restructuring; the plants exist and depreciate regardless. It is the accounting consequence of producing less than planned capacity. It reverses automatically if volumes recover, which is why management describes 2026 as a transition year and points to the second half. It does not reverse if volumes do not recover, in which case the network has to be resized — a decision the company has not yet taken, and one that would require a further restructuring charge.

We note one asymmetry. The tariff recovery of approximately $21 million recognised in Q1 2026 and a further recovery in Q2 2026 — booked as a credit against cost of sales — is a genuine cash benefit but a non-recurring one. It flatters the year-over-year margin comparison in the same period that under-absorption damages it. Stripping both out, the underlying Self Care gross margin is roughly stable rather than deteriorating, which is a more benign reading than the headline. We would not, however, build a valuation on a tariff refund.

05 — Segment: Specialty CareThe only segment growing, and the only one that lost margin

Specialty Care is Perrigo's branded portfolio and it is the part of the company that behaves like a conventional consumer-health business. It produced $207 million of net sales in Q1 2026 and $227 million in Q2 — growth of 4.0% and a decline of 2.8% respectively on the reported basis, with the Q1 growth flattered by a 4.8% favourable currency effect. On an organic basis Q1 was −0.8% and Q2 was −2.9%.

The brands inside the segment are the company's best assets. Opill is the first over-the-counter daily oral contraceptive approved in the United States and remains the category's only meaningful branded entrant. ellaOne is the European emergency contraceptive leader. Compeed is the leading cold-sore and blister plaster brand in Europe. Jungle Formula, Solpadeine, NiQuitin, Coldrex, Physiomer and Mederma are category leaders or strong number twos in their geographies. Together they constitute a portfolio that a strategic buyer would find genuinely attractive, which is relevant to the valuation discussion later in this report.

The margin went the wrong way, and the reason matters

Specialty Care segment operating income was $55 million in Q1 2026, up 31.4% year over year, and $48 million in Q2, down 27.9%. The Q1 improvement was driven less by revenue than by lower advertising and promotional spend — including planned lower investment behind Opill — plus favourable currency and the tariff recovery. The Q2 decline was driven by the reverse: higher advertising and promotional investment ahead of second-half growth initiatives, unfavourable mix, and the carry-over of prior-year manufacturing under-absorption.

This is worth stating carefully because it is the most easily misread data point in the report. A branded consumer-health segment that grows revenue and shrinks profit is not necessarily in trouble; it may be investing ahead of a launch or a seasonal window. But the two quarters together tell a consistent story: Specialty Care is not yet generating the incremental profit that its revenue growth should support, and the company is choosing to spend to defend the growth. For a segment that is 21.8% of revenue and carries roughly 21–27% operating margins — three to four times the store-brand business — that is the right strategic choice and a poor near-term earnings outcome.

Opill: the most interesting asset and the least quantified

Opill launched at retail in March 2024. The FY2025 disclosure notes that Women's Health net sales in the Americas declined 10.7% to $72.4 million "due primarily to the prior year reflecting the strong initial retailer stocking of Opill, which launched in March 2024, of $15.0 million." In other words, the FY2024 comparison includes $15 million of one-time pipeline fill, and the FY2025 decline is substantially the absence of it.

By 2026 Opill has become a positive contributor. Q1 2026 Women's Health growth was led by Opill and ellaOne; Q2 2026 Specialty Care growth was likewise attributed to Women's Health, led by the same two brands. The company simultaneously reduced its Opill investment in Q1 2026 — a decision that flattered Q1 segment operating income — and then increased promotional investment in Q2.

The analytical problem is that Perrigo does not disclose Opill revenue. It is inside a Women's Health line that is itself inside a segment that was reorganised in 2026. An investor is therefore asked to believe a growth narrative without a number attached to it. Our estimate, derived from the disclosed $15 million of launch stocking, the subsequent Women's Health trajectory, and the segment commentary, is that Opill is a low-double-digit-million-dollar brand growing at a healthy rate. That is a genuinely differentiated asset in a portfolio of undifferentiated ones, and it is too small to move a $4.2 billion revenue base. We flag it because it is the kind of asset that could be worth more to a strategic buyer than to Perrigo, and because the absence of disclosure makes it impossible to verify.

06 — Segment: Infant FormulaUnder review, and a $0.60 drag on 2026

Infant Formula produced $90 million of net sales in Q1 2026 and $101 million in Q2, growth of 2.1% and 23.1% respectively. It is the only segment to grow in both quarters. Segment operating income was a loss of $7 million in Q1 and a profit of $4 million in Q2.

On 5 November 2025 Perrigo announced a strategic review of the infant formula business, described as assessing "a full range of alternatives" and focused on "a combination of accelerating cash flows and reassessing the previously announced investment in this business, while optimizing portfolio impact and management focus." That review is ongoing. No transaction has been announced. The company continues to consolidate the business, to report it as a segment, and — for the All In measures — to include it in earnings.

The history here is important because it explains why the business is for sale. Perrigo was the largest supplier of store-brand infant formula in the United States and was a material beneficiary of the 2022 Abbott recall, which removed a competitor's capacity from the market and forced the federal government to invoke the Defense Production Act and permit imports. The company invested behind that opportunity — the FY2025 disclosure describes a "Nutrition Network Optimization" project to upgrade packaging, harmonise quality processes and enhance R&D capability. Then the market normalised. The company's own language in the FY2025 Form 10-K is candid: increased supply of imported formula and "the previously disclosed lost distribution of the Good Start brand have hindered our efforts to recover our previous market share."

The 2026 drag, and why the growth rate is misleading

Infant Formula is the principal source of the under-absorption problem described in Section 4. The company attributes approximately $0.60 of unfavourable 2026 adjusted EPS to planned under-absorption of manufacturing costs arising from lower prior-year production volumes, and the infant formula network is the largest single contributor. In Q1 2026 the segment generated an operating loss of $7 million; in Q2 it generated $4 million of operating income, which the company attributes to lapping prior-year isolated production variability and higher product scrap.

The 23.1% Q2 revenue growth should therefore be read with care. The company attributes it "primarily [to] timing of contract infant formula shipments, in addition to increased net sales of store brand formula," partially offset by lower branded sales. Contract manufacturing is a lower-margin, lower-visibility business in which a shipment moving between quarters can swing the reported growth rate by twenty points. The full-year Core organic guidance of −3.5% to +0.5% is the more reliable indicator, and it does not include Infant Formula at all.

Our assessment is that Infant Formula is a reasonable asset with an unremarkable future, that the strategic review is the correct decision, and that the segment's 2026 revenue growth tells the reader almost nothing about its value. A sale at a multiple of sales or EBITDA would be a genuine positive catalyst, both because it removes a source of volatility and because it would allow a reader to see the Core business without the drag. It would also remove a business that is currently producing roughly 9.6% of revenue and a negligible share of profit, so the earnings impact of a sale at a sensible price should be small. The cash impact would be large and would go to debt.

07 — Segment: All OtherOral Care, and the quiet cost of being second

"All Other" is the segment that contains what is left after the three named categories: principally the Oral Care business, which is also under strategic review, together with smaller distribution arrangements and the residues of businesses that have been sold. It produced $129 million of net sales in Q1 2026 and $119 million in Q2, declines of 9.5% and 16.9% respectively, and it earned $32 million and $26 million of segment operating income.

The reported revenue decline is heavily affected by divestitures. On an organic basis the Q1 decline was 11.8% and the Q2 decline was 2.4%. The company attributes the Q1 decline partly to "reduced distribution of lower-margin products," which is a deliberate decision rather than a loss of business. The Q2 operating income improvement is attributed to "favourable mix in the Oral Care category" and lower operating expenses.

Oral Care is the smaller of the two businesses under strategic review and, in our view, the more interesting one. Perrigo's oral care portfolio includes REACH toothbrushes, Plackers dental flossers, Rembrandt whitening products, Dr. Fresh and Firefly children's oral care, and Steripod toothbrush covers. In the Americas, Oral Care net sales fell 6.7% in FY2025 to $256.9 million, which the company attributes to "previously disclosed lost distribution of lower-margin products as the business focused on enhancing margin while balancing the unfavourable impacts of tariffs."

That sentence is doing a lot of work. It says that Perrigo lost distribution, that the lost distribution was in low-margin products, that the company chose not to defend it, and that tariffs were a factor. All four of those things can be true simultaneously, and the combination is a fair description of a business in managed decline. Oral care is a category in which the store-brand share is structurally high, in which the branded incumbents are large and well capitalised, and in which Perrigo is neither the largest supplier nor the owner of the leading brand in most sub-categories. REACH is a strong number two or three; Plackers is a niche leader; the rest are small.

A reader should treat the two strategic reviews as the single largest source of optionality in the equity. They are also, at this stage, entirely unquantified. Perrigo has disclosed neither the standalone financials of the two businesses nor a timetable. Until it does, any valuation of the sum of the parts is a guess, and we treat it as such.

08 — The Core constructThe company's preferred EPS measure removes a business it still owns

From the first quarter of 2026 Perrigo reports two versions of its results. "All In" reflects "the entirety of our business." "Core Perrigo" represents "our go-forward business and excludes Infant Formula and previously announced divestitures."

The company is transparent about this, provides a full reconciliation, and has a defensible rationale: an investor who wants to value the business Perrigo will be after the portfolio reviews conclude needs a view of that business, and Core provides it. We have no complaint about the disclosure. We do have a complaint about the use of the number.

For FY2026 the company guides to All In adjusted EPS of $2.00 to $2.30 and Core adjusted EPS of $2.25 to $2.55. The midpoints are $2.15 and $2.40 — a gap of $0.25, or 11.6%. The company's own walk attributes approximately $0.30 per share to excluding Infant Formula and approximately negative $0.05 to excluding divestitures. For FY2025, Core adjusted EPS was $2.52 against All In adjusted EPS of $2.75, a gap of 8.4%.

Three things follow.

First, Core is not a forecast of the future company. It is a pro-forma restatement that assumes the Infant Formula business disappears at no cost and with no redeployment of the capital it currently consumes. If Perrigo sells Infant Formula, it will receive cash and lose earnings; the cash reduces net debt and therefore interest expense. The company's $0.30 per share adjustment makes no allowance for that. A reader who takes Core adjusted EPS as the earnings power of the post-transaction company is overstating it, modestly.

Second, Core is the number that will be quoted. The sell-side consensus of $16.50 per share is anchored on estimates that in most cases reference Core. The company's own guidance range, presented side by side, leads with Core. The FY2025 Core adjusted EPS of $2.52 is now the comparative base for FY2026, which means the reported growth rate of Core adjusted EPS is being measured against a number that itself excludes a business. This is not deception; it is how adjusted reporting works across the sector. It is a reason to look at both.

Third, the Core business is not growing. Core organic net sales fell 11.0% in Q1 2026 and 3.5% in Q2. Core adjusted EPS fell 20.0% and 20.7%. Core adjusted gross margin fell 160 basis points in Q1 and 250 basis points in Q2. The FY2026 Core organic guidance is −3.5% to +0.5%, and Core adjusted EPS guidance of $2.25 to $2.55 compares with FY2025 Core adjusted EPS of $2.52 — a range that straddles zero growth. On the company's own preferred definition of its go-forward business, that business is flat at best.

09 — Quality of earnings$1.72 billion of impaired capital in eight quarters

The most consequential fact about Perrigo's reported results over the last two years is not the level of earnings. It is the reliability of the carrying values that produced them.

Perrigo has recorded goodwill and intangible impairment charges of $1,722 million since the beginning of 2024. The sequence is: $27.5 million in FY2024, comprising $22.1 million against the now-divested Rare Disease reporting unit and $5.4 million against Consumer Self-Care International; $1,363.1 million in FY2025, of which $917.1 million was booked against Consumer Self-Care Americas in the fourth quarter; and $331.8 million in the first half of 2026, comprising $330.8 million in Q1 and $1.0 million in Q2.

The Q1 2026 charge deserves particular attention because of its cause. Perrigo reallocated goodwill to its new reporting units as part of the segment change, and the reallocation produced an impairment. The company had warned that this was possible: its FY2025 release disclosed that "additional non-cash goodwill impairment charges of up to $350 million" were possible in Q1 2026 "due to goodwill reallocation to new reporting units." The charge came in at $330.8 million, within the disclosed range.

That is a well-telegraphed and honestly disclosed outcome, and it is still a remarkable statement. It means that the act of looking at the business through a different lens — the same assets, the same cash flows, a different grouping — was sufficient to demonstrate that $331 million of recorded value did not exist. The most likely explanation is that the new category-based units exposed the store-brand Self Care business to a standalone valuation test for the first time, and it failed.

What is left, and what a further impairment would mean

At 27 June 2026 Perrigo carried $1,697.6 million of goodwill and indefinite-lived intangible assets and $2,190.2 million of definite-lived intangible assets, against total assets of $7,609.5 million and shareholders' equity of $2,515.8 million. Intangible assets are therefore 51.1% of total assets and 155% of book equity.

The consequence is that Perrigo's tangible book value is negative $1,372 million, or −$9.89 per share. There is no asset floor beneath the equity. An investor buying Perrigo at $14.00 is buying a claim on future cash flows with no liquidation support, in a company whose recorded intangible value has been written down by an amount exceeding its entire market capitalisation in eight quarters.

The company itself acknowledges the fragility. Its FY2025 Form 10-K discloses that "further decreases in our market capitalisation in the next twelve months could represent a potential impairment indicator requiring further impairment analysis." That is a standard disclosure, and it is also a live one: Perrigo's market capitalisation has fallen approximately 37% over the past twelve months, from roughly $3.1 billion to $1.94 billion.

We would not forecast a further impairment — the FY2025 and Q1 2026 charges have removed a substantial amount of the excess carrying value, and the FY2026 annual test may well pass. But we note three things. First, an impairment is a non-cash charge and does not affect liquidity, the dividend, or the debt covenants. Second, it does affect the tangible book value, which is already negative, and it affects the optics of any equity issuance. Third, and most importantly, it is a signal about the quality of the acquisition decisions that created the carrying values. Perrigo's growth strategy for a decade was acquisition — Omega Pharma, Elan, HRA Pharma, and a series of smaller deals — and the $1.72 billion of write-downs is the market's verdict on how much of that value has survived.

Two further quality-of-earnings observations

Cash conversion is deteriorating. Perrigo converts operating cash flow at a rate well below adjusted net income, and the rate is falling. FY2025 operating cash flow of $238.5 million was 62.5% of adjusted net income of $382 million, down from 102% in FY2024. The company guides to a mid-60% range for 2026, which is a stabilisation rather than an improvement. A consumer-health company with a manufacturing base and relatively stable working capital should convert at 90–100%. The gap is explained by restructuring cash costs, the Q1 2026 working capital build, and the cash cost of the under-absorption. None of those is permanent; none of them has gone away.

Restructuring is recurring. Perrigo has run the Supply Chain Reinvention Program (2022–2025, $286 million of total cost, $157 million of annual run-rate benefit), Project Energize (concluding, approximately $138 million of restructuring charges, $167 million of gross annualised savings), and now the Operational Enhancement Program (two years, approximately 7% of the workforce, $80–100 million of gross annualised savings by end-2027, $80–90 million of cash costs to achieve). H1 2026 restructuring charges were $89.5 million against $38.1 million in H1 2025. When a company has been restructuring continuously for four years, the restructuring cost is not a one-off; it is an operating expense that the adjusted measures exclude.

10 — Volume, price, and categoryThe revenue decline is a volume story, and volume is the hard part

Perrigo's revenue decline has a decomposition, and the decomposition tells you whether the problem is fixable. Price is fixable — you can raise it, and if you cannot, you learn something about your pricing power. Volume is harder: it depends on category consumption, distribution, and whether the consumer chooses the store brand.

In FY2025 reported net sales fell 2.8%, of which currency added 1.1 percentage points and divested businesses and exited product lines subtracted 1.5 points, leaving organic growth of −2.4%. Within that organic number, net pricing contributed −0.5% and volume/mix contributed −1.9%.

In the first quarter of 2026 the pattern changed materially. Core organic net sales fell 11.0%, comprising net pricing of +0.2% and volume/mix of −11.0%. In the second quarter, Core organic net sales fell 3.5%, comprising pricing of −0.7% and volume/mix of −2.4%.

Read across the three periods and the story is unambiguous. Perrigo's revenue decline is almost entirely a volume story, and price is not offsetting it. In FY2025 the company gave away half a point of price. In Q1 2026 it took essentially no price at all while volume collapsed by 11 points. In Q2 2026 it gave away 0.7 points of price to hold volume at −2.4%.

That last data point is the most important. In a category with falling consumption, a supplier whose only lever is price will use price. Perrigo used it — a 0.7% price decline to improve the volume trend from −11.0% to −2.4% — and the volume improvement was partly seasonal. The evidence is consistent with a company that does not have pricing power in its largest segment, which is the correct conclusion for a supplier of store-brand commodities to a customer base that owns the shelf.

Why the category is shrinking

Perrigo's own language in FY2025 and H1 2026 is "soft OTC category consumption," "continued softness in category consumption across both the U.S. and Europe," and "lower seasonal incidence of cough and cold versus the prior year." Three distinct forces are at work.

Seasonality. Upper respiratory categories are weather-dependent. The company's largest Americas category is Upper Respiratory at $529.5 million, and its Q1 2026 decline was attributed in significant part to a milder cough-and-cold season than the prior year. This is a genuine swing factor and it is not a permanent condition; a severe season restores it. It is also not something the company can manage.

Category maturity. Several of Perrigo's categories are structurally mature. Proton pump inhibitors for heartburn — the principal driver of the 11.1% Digestive Health decline — are a category where the branded product has been genericised, store-brand share is already high, and consumption is not growing. The same is true of analgesics, antacids and much of the VMS portfolio. Perrigo's VMS net sales fell 50.3% in the Americas in FY2025, to $7.2 million, which is a rounding error but a directionally informative one.

Retailer inventory management. Perrigo identifies retailer destocking as a 3.0 percentage point headwind in Q1 2026 and refers to "continued reduction of retail inventory levels, most notably in Europe" in Q2. This is the one force that is unambiguously temporary, and it is the reason the company expects a second-half improvement. It is also the one force that a reader should be most sceptical about, because retailer destocking is typically the first phase of a longer adjustment: the retailer reduces inventory because consumption is falling, and once inventory is right-sized the consumption decline continues. Destocking is a level effect, not a growth effect. When it ends, the reported growth rate improves by three points and the underlying trend does not change.

The comparisons that matter for 2027

Perrigo's 2026 guidance rests on a second-half recovery, and the company has been specific about the mechanism: moderating under-absorption, more favourable category comparisons, lower interest expense, continued benefits from the Operational Enhancement Program, and progress on innovation, distribution and demand generation.

Of those five, only one is a genuine operating improvement: the innovation, distribution and demand-generation initiatives. The other four are either the absence of a cost that was present last year, or a lower number in a different line of the income statement. A recovery composed mostly of lapsing headwinds is a recovery that tells you nothing about the forward trajectory, and it is why we focus in the valuation section on 2027 rather than 2026.

11 — The store-brand modelWhy the customer, not Perrigo, owns the economics

The store-brand business model is frequently described as counter-cyclical, on the theory that consumers trade down in a downturn and store-brand penetration rises. That theory is correct at the level of the category and it is not correct at the level of the supplier. The distinction is the single most important thing to understand about Perrigo, and it deserves its own section.

When a consumer switches from a national brand to a store brand, three things happen. The retailer's gross margin on that unit rises, because the retailer's cost of goods falls by more than its shelf price does. The retailer's control over the consumer relationship strengthens, because the consumer is now loyal to the retailer's label rather than to a manufacturer's. And Perrigo's revenue rises, because it manufactures the product.

Two of those three accrue to the retailer. Perrigo captures the manufacturing margin, which in a commoditised category is a function of its cost position and is not a function of consumer preference. The company's own disclosure is explicit that it does not advertise store-brand products in the United States — the retailer does that, using the price gap that Perrigo's low cost makes possible. Perrigo is, in the most literal sense, the supplier of an input.

The consequence is a business with three characteristics. First, revenue is driven by category consumption and retailer shelf-space decisions rather than by consumer demand for anything Perrigo owns. Second, gross margin is driven by manufacturing utilisation, which is why the under-absorption of fixed costs is worth $0.60 of EPS in a single year. Third, capital intensity is high relative to the margin, because the model requires owned manufacturing capacity at a scale that no single customer will commit to.

The trade-down thesis has been tested, and it did not rescue the company

The strongest version of the bull case for Perrigo is that a stressed consumer trades down, and Perrigo is the largest beneficiary. The evidence from 2024 and 2025 is that Perrigo gained share — 60 basis points of United States store-brand OTC volume share over 52 weeks in 2025, 120 basis points in the fourth quarter, 100 basis points in the thirteen weeks to March 2026 — and that revenue fell anyway. The trade-down happened. It was not large enough to offset the category decline.

This is not a failure of the thesis; it is a statement about magnitudes. Store-brand penetration gains of one to two points a year on a category that is declining mid-single digits produce negative revenue. For Perrigo's share gains to produce growth, the category would have to stabilise. The company's own FY2026 guidance for Core organic growth of −3.5% to +0.5% implies it does not expect that to happen this year.

Where the model does work

There are two places in Perrigo's portfolio where the store-brand model produces above-average economics, and they are worth identifying because they are the parts of the business that could justify a higher multiple.

The first is regulatory complexity. Categories where the switch from prescription to over-the-counter status is recent or where the formulation and packaging requirements are demanding have fewer qualified suppliers. Perrigo's pipeline is explicitly oriented toward Rx-to-OTC switches and first-to-market store-brand launches, and the FY2025 disclosure lists Phenylephrine No Drip Nasal Spray, IBU/APAP Dual Active and the Trios program as notable launches. In those windows, Perrigo earns a genuine scarcity margin for the eighteen to twenty-four months before competitors file.

The second is the branded portfolio, which is Specialty Care. Opill, Compeed and ellaOne are brands Perrigo owns, prices and markets. They carry operating margins in the 21–27% range against 12–14% in Self Care, and they are the reason the Core business has a 39–40% adjusted gross margin while the All In business has 36.5–37.5%. A reader who wants a reason to own Perrigo should own it for Specialty Care, and should recognise that Specialty Care is 21.8% of revenue.

12 — Customers & concentrationOne retailer is 12.9% of revenue

Perrigo's customers are the largest retailers in the world, and the concentration is disclosed. Sales to Walmart represented 12.9% of consolidated net sales in 2025 and 11.9% in 2024. No other individual customer exceeds 10%. The top ten customers accounted for 47% of total consolidated net sales in both 2025 and 2024.

Two facts about this disclosure are worth more than the numbers themselves. The first is that Walmart's share is rising — from 11.9% to 12.9% — in a year in which Perrigo's total revenue fell 2.8%. The largest customer is growing its share of a shrinking pie, which is what you would expect in a consolidating retail market and which increases Perrigo's exposure to a single counterparty's terms.

The second is that the top-ten concentration is stable at 47% while the Walmart line moves. That implies the rest of the customer base is fragmenting slightly as Walmart takes share. For a supplier with high fixed costs and a customer base that consolidates, that is the wrong direction.

The commercial consequence of this structure is straightforward and it is the reason Perrigo's pricing is negative. A customer that is 12.9% of your revenue, that owns the brand on the shelf, that can substitute your product with another supplier's within a season, and that is itself under margin pressure, has substantial leverage in a negotiation. Perrigo's response, as disclosed, has been to accept lost distribution in low-margin products rather than defend it on price — a rational decision that reduces revenue and protects margin, and that is visible in the Oral Care line.

We do not regard the concentration as a fatal flaw. Store-brand manufacturing is structurally a concentrated-customer business, and Perrigo's 47% top-ten figure is unremarkable for a private-label supplier. We do regard it as a reason to discount the terminal margin. A supplier in this position has limited ability to expand margin beyond its cost position, because the customer captures the surplus.

13 — Cost programmesThree restructurings in five years

Perrigo's response to a shrinking revenue base has been to shrink its cost base, and it has done so three times in five years. The programmes overlap, the savings are disclosed in different currencies of measurement, and the aggregate is worth examining carefully because it is the principal support for the bull case on margin.

Supply Chain Reinvention benefits are stated as cumulative annual run-rate benefits at Q4 2025; total costs came in below the original $300–$350 million estimate. Project Energize gross annualised pre-tax savings of approximately $167 million are net of $35 million of reinvestment; restructuring charges of approximately $138 million are disclosed on a cumulative basis, with less than $10 million expected through FY2026. The Operational Enhancement Program is a two-year enterprise-wide programme involving approximately 7% of the workforce; gross pre-tax annualised run-rate savings of $80–100 million are expected by the end of FY2027, with the majority realised in FY2026, against cash costs to achieve of $80–90 million. Source: Perrigo FY2025 Form 10-K and FY2025 fourth-quarter release.

The aggregate is impressive on its face: something in the order of $250 million of annualised gross savings from the first two programmes, plus a further $80–100 million to come. Against an FY2025 cost of sales and operating expense base of roughly $5.4 billion, that is a meaningful reduction in the cost structure.

Three qualifications are necessary.

The benefits are gross. Project Energize's $167 million is stated net of $35 million of reinvestment, which is helpful, but the Operational Enhancement Program's $80–100 million is gross and the company has not disclosed a reinvestment figure. The programme's cash cost to achieve of $80–90 million over two years is a substantial fraction of the benefit, and if any of the savings are reinvested in demand generation the net contribution to earnings is smaller than the headline.

The savings have been absorbed by the revenue decline, not converted into margin. Adjusted operating income was $608 million in FY2024 and $622 million in FY2025 — up 2.3% on revenue that fell 2.8%. In H1 2026 adjusted operating income was $238 million against $282 million in H1 2025, down 15.6%. The company has taken a quarter of a billion dollars of cost out and reported operating income is essentially unchanged over two years. That is the arithmetic of a business running hard to stand still, and it is the most important reason to be sceptical of the argument that the Operational Enhancement Program will produce a step change in earnings.

The third programme is the tell. A company that needs a new restructuring programme in 2026 to produce savings by 2027, having completed one in 2025 and another in 2022, is telling you that the cost structure is not converging on a steady state. The Operational Enhancement Program involves approximately 7% of the workforce — roughly 570 roles against the disclosed headcount — which is a substantial reduction for an organisation that has already been restructured twice.

Our view is that the cost programmes are real, competently executed, and insufficient to change the trajectory on their own. They are the reason adjusted operating margin expanded 70 basis points in FY2025 despite a revenue decline. They are not the reason to buy the equity.

14 — Balance sheet & leverageFour turns of leverage and a negative tangible book

At 27 June 2026 Perrigo reported cash and cash equivalents of $399.7 million and total borrowings of $3,294.8 million, comprising $3,283.4 million of long-term debt and $11.4 million of current indebtedness. Net debt was therefore $2,895 million, down from $3,109 million at 31 December 2025.

The company guides to net leverage of, or slightly lower than, approximately 4.0× adjusted EBITDA for FY2026. Reconciling that to reported figures: FY2025 adjusted operating income was $622 million; adding approximately $150 million of depreciation and non-acquired-intangible amortisation gives an adjusted EBITDA estimate of roughly $770 million; $3,109 million of net debt at year-end 2025 divided by $770 million is 4.04×. Our estimate is therefore consistent with the company's disclosure, and we use the company's framework rather than substituting our own.

Three points about that number.

It is falling, but slowly, and the decline is not organic. Net debt fell $214 million in the first half of 2026. Gross borrowings fell $345 million and cash fell $132 million. The reduction was funded by the €306 million of upfront Dermacosmetics proceeds, the substantial majority of which the company states were applied to debt reduction. Operating cash flow in the half was an outflow of $31 million. Absent the disposal, net debt would have risen.

Four turns is a lot for a consumer-health business, and the market prices it. Haleon, the closest listed comparable by business mix, carries net debt to EBITDA of roughly half that. Kenvue carries materially less. The credit ratings — Ba3 from Moody's, BB− from S&P, BB from Fitch — are all below investment grade, and Perrigo is the only large-cap consumer-health company in the peer group with that profile. An equity investor in Perrigo is taking credit risk that an equity investor in Haleon or Kenvue is not.

The covenant structure is the constraint that matters. Perrigo is subject to financial covenants in its revolver and credit agreement and disclosed compliance at 31 December 2025. The revolver was undrawn at both year-ends 2024 and 2025. The $1.0 billion facility is the company's principal source of liquidity, and a revolver that is undrawn is a revolver that is available. That is the strongest single argument that the balance sheet is manageable: Perrigo has $1.0 billion of committed, unused capacity plus $400 million of cash against a business that generates positive operating cash flow over a full year.

The intangible problem, restated

The balance sheet's most striking feature is not the debt; it is the asset side. Goodwill and indefinite-lived intangibles of $1,697.6 million plus definite-lived intangibles of $2,190.2 million total $3,887.8 million against shareholders' equity of $2,515.8 million. Book equity fell from $2,935.5 million at 31 December 2025 to $2,515.8 million at 27 June 2026, a decline of $419.7 million driven by the H1 net loss of $324.1 million plus dividends and currency.

A debt-to-equity ratio computed on book equity is therefore meaningless, because the equity is itself mostly an accounting residual of past acquisitions. Total liabilities of $5,093.7 million against $7,609.5 million of assets is 66.9% — but $3,887.8 million of those assets are intangibles whose value has already been written down once. The honest statement is that Perrigo has $3.29 billion of financial debt supported by a business with $849.0 million of net property, plant and equipment, $1,064.5 million of inventory and a negative tangible book value.

That is not a solvency concern — the cash flows cover the interest, and the revolver is available. It is a statement about what an equity holder owns. In a stress scenario, there is no residual asset value beneath the debt.

15 — Debt and refinancingTerm Loan A matures in April 2027

Perrigo's debt structure is a legacy of the April 2022 financing that accompanied the HRA Pharma acquisition, and its shape is unusual: a large bank term-loan component with near-term maturities, layered under a long-dated public bond stack.

The 4.900% senior notes due 2030 carry a coupon step-up mechanism: following the Moody's downgrade to Ba3 on 12 December 2025, the rate increased from 4.900% to 5.150% for payments made after 15 June 2026, subject to a 2.0% cap above the original 3.150% reference rate. The 2032 notes comprise a $411.1 million euro-denominated tranche and a $715.0 million dollar-denominated tranche. Source: Perrigo FY2025 Form 10-K, Note 13.

The critical dates are 2027 and 2029. $421.9 million of Term Loan A matures in April 2027 and $972.4 million of Term Loan B in April 2029 — together $1,394 million, or 38% of total borrowings, in two bank facilities that will have to be refinanced or repaid. The public notes do not begin to mature until 2030, and the weighted average maturity of the bond stack is long.

This is a structure that reflects the company's history. The 2022 financing was arranged when Perrigo was investment-grade adjacent and when the HRA Pharma acquisition was expected to deliver growth. The term loans were the flexible, prepayable component; the bonds were the long-dated fixed component. Two years of declining revenue and a downgrade later, the prepayable component is the one that has to be refinanced first, in a market that has repriced the credit.

The company has guided to net interest expense of approximately $156 million for 2026, down from the run rate implied by the first half. Reported net interest expense in H1 2026 was $79.3 million, which annualises to approximately $159 million, consistent with guidance. For context, $156 million of interest against FY2026 estimated adjusted operating income of approximately $533 million is a coverage ratio of 3.4×, and interest is 38% of pre-tax adjusted income.

We regard the refinancing as a manageable event rather than a crisis, for three reasons. The revolver is undrawn and provides $1.0 billion of capacity. The company has demonstrated an ability to raise secured financing — the 2022 facilities are senior secured — and its asset base, while short on tangible book value, includes a substantial inventory and receivables position that supports borrowing capacity. And the term loan balances are amortising, so the 2027 requirement will be smaller than the $421.9 million shown at year-end 2025.

But it is a real event with a real cost. If Perrigo refinances $1.4 billion of floating-rate bank debt in 2027 and 2029 at spreads appropriate to a Ba3/BB− credit, the interest burden rises, and the increment comes directly out of the free cash flow that is already insufficient to cover the dividend. A reader who believes the dividend survives should model a higher interest expense from 2028.

16 — Free cash flow & the dividendThe dividend is funded by disposals

This is the section that determines the rating. Perrigo pays a quarterly dividend of $0.29 per share, or $1.16 annualised, which at $14.00 is a yield of 8.29%. It has raised the dividend in each of the last five years, from $0.96 in 2021 to $1.16 in 2026. The board declared the most recent quarterly dividend on 30 July 2026, payable 15 September 2026, with no indication of a change in policy.

The question is whether the cash exists to pay it.

Over the twelve months to 27 June 2026 Perrigo generated $196.1 million of net cash from operating activities and spent $76.8 million on property, plant and equipment, producing free cash flow of $119.3 million. Dividends over the same period were approximately $161 million, based on $1.16 per share and approximately 138.8 million shares. Free cash flow covered 74% of the distribution.

On a full-year FY2025 basis the arithmetic is similar. Operating cash flow was $238.5 million, capital expenditure $94.9 million, free cash flow $143.6 million. The company states it returned $159 million to shareholders through dividends. Coverage was 90%. In FY2024, free cash flow of $231.3 million comfortably covered dividends of approximately $152 million. In FY2023, free cash flow of $303.8 million covered approximately $151 million with room to spare.

The trajectory is therefore: comfortable coverage in 2023, adequate coverage in 2024, marginal coverage in 2025, and a shortfall in the trailing twelve months. On the company's own FY2026 guidance, the shortfall widens.

The 2026 arithmetic

Perrigo guides to cash from operating activities in the mid-60% range as a percentage of adjusted net income. Taking the midpoint of the FY2026 adjusted EPS guidance of $2.00 to $2.30 — $2.15 — and the guided adjusted weighted-average share count of approximately 139.3 million, adjusted net income is approximately $300 million. At 65% conversion, operating cash flow is approximately $195 million. Capital expenditure has run at roughly $90–100 million a year and the company has not guided to a change, so free cash flow is approximately $95 million.

Dividends at $1.16 on 139.3 million shares are $162 million. Coverage is 59%. The shortfall is approximately $67 million.

It is worth being explicit that this is our calculation from the company's guidance, not a company disclosure. Perrigo does not publish a free cash flow forecast and does not publish a dividend coverage target. The company's stated capital allocation priorities are "funding attractive growth opportunities, reducing leverage and supporting our dividend" — in that order, and the ordering is itself informative.

How the gap has been funded

The shortfall is not a crisis because Perrigo has been selling businesses. The Dermacosmetics divestiture completed on 30 April 2026 for total consideration of up to €332.6 million, comprising €305.6 million of upfront cash — including €5.6 million of net working capital adjustments — and up to €27.0 million contingent on net sales milestones over three years. The company recognised a gain of approximately $129.5 million in the second quarter and stated that "the substantial majority of the approximately $359 million of cash proceeds were applied toward debt reduction."

That is a sensible use of proceeds and it is not a dividend funding mechanism. Cash and cash equivalents nonetheless fell from $531.6 million at 31 December 2025 to $399.7 million at 27 June 2026, a decline of $131.9 million, in a half in which the company paid approximately $80 million of dividends, generated an operating cash outflow of $31 million, and received $362.9 million of net disposal proceeds. The disposal proceeds went to debt; the dividend came out of the cash balance and operating cash flow.

So the honest statement is this: Perrigo is paying a dividend that its free cash flow does not cover, funding the difference from its cash balance and from a business it has sold. The cash balance is finite and the disposal programme has two assets left, neither of which has a buyer.

What a cut would look like, and what it would signal

A dividend reset to $0.60 per share — a 48% reduction, roughly in line with free cash flow coverage at the FY2026 estimate — would save approximately $78 million a year and bring the distribution within free cash flow immediately. It would reduce the yield on the current price to 4.3%, and would almost certainly cause a re-rating of the shares in the short term: income funds that hold Perrigo for the yield would sell.

We do not forecast a cut. The company has the cash, the revolver is undrawn, and management has reaffirmed its guidance twice since the chief executive's departure. But the board's options are narrowing, and a reader should understand that the dividend is a policy choice rather than an obligation. The most likely sequence, in our view, is that the dividend is maintained through 2026 and that the decision is deferred to the incoming permanent chief executive — who will have no attachment to a policy set by a predecessor who resigned for cause.

17 — Capital allocationA business that does not earn its cost of capital

Perrigo's capital allocation over the last five years has been dominated by three activities: paying down the debt incurred for the HRA Pharma acquisition, paying a rising dividend, and selling businesses.

Capital expenditure has been modest and falling: $222.7 million in FY2021, $96.4 million in FY2022, $101.7 million in FY2023, $131.6 million in FY2024, $94.9 million in FY2025, and $28.1 million in H1 2026. Against a revenue base of roughly $4.2 billion, that is capital intensity of 2–3%. It is a genuinely asset-light profile for a manufacturer, and it is the reason free cash flow has been positive in four of the last five years despite modest operating cash generation.

But low capital expenditure is only a virtue if the business earning the return is worth the capital already invested in it, and that is where the arithmetic becomes uncomfortable.

Our estimate of Perrigo's return on invested capital — adjusted operating income net of tax, divided by average invested capital where invested capital is total debt plus shareholders' equity less cash — is approximately 4.6% for FY2025 and 4.4% on an annualised first-half 2026 basis. Our estimate of the weighted average cost of capital is approximately 7.6%, comprising a cost of debt of roughly 6% pre-tax on a Ba3/BB− credit and a cost of equity in the 11–12% range, weighted at the company's debt-to-capital ratio of approximately 57%.

The gap is roughly 300 basis points, and it is persistent. Perrigo is not currently earning its cost of capital. That is not a controversial statement — it is the arithmetic consequence of a business whose invested capital was assembled at valuations that have since been written down by $1.72 billion while its operating income has been flat.

We should be clear about what this measure does and does not say. It uses adjusted operating income, which excludes the impairment and restructuring charges, so it is generous to the company. Using GAAP operating income the return would be negative and the measure would be meaningless. The 4.4–4.6% figure is the most favourable defensible reading, and it is still below the cost of capital.

The implication for the equity

A business earning less than its cost of capital should not be retaining capital, and Perrigo is not retaining much: capital expenditure is 2–3% of revenue, and the company returns more than 100% of free cash flow to shareholders. That is the correct policy for a value-destroying investment opportunity set, and it is the reason the dividend has survived as long as it has.

The problem is that the dividend is being paid out of a free cash flow stream that does not cover it, which means the company is effectively returning capital as well as earnings. Cash and equivalents have fallen from $744.4 million at the end of FY2023 to $399.7 million at 27 June 2026. Disposals have funded debt reduction rather than the distribution. Over time, a policy of distributing more than you generate is a policy of shrinking the balance sheet, and Perrigo's balance sheet has limited room to shrink.

The share repurchase authorisation is a footnote worth noting. Perrigo's board authorised up to $1.0 billion of repurchases in October 2018, with no expiration date. The company repurchased no shares in FY2025 or FY2024. At a share price of $14.00 and a market capitalisation of $1.94 billion, a repurchase would be materially accretive to earnings per share and would be a defensible use of disposal proceeds. The company has chosen debt reduction instead, which is the more conservative and, given the 4.0× leverage, the more defensible choice. But it is worth noting that a board with conviction in the equity's value has an unused $1.0 billion authorisation and has not touched it in two years.

18 — GovernanceA chief executive who resigned for cause, and an interim successor

On 8 June 2026 Perrigo announced that Patrick Lockwood-Taylor had resigned as President and Chief Executive Officer and as a member of the board, effective immediately, and that Albert A. Manzone, a director since 2022, had been appointed Interim President and Chief Executive Officer. The board initiated a search for a permanent successor.

The reason given in the company's release is specific and should be quoted exactly. The resignation "follows a determination by the Board of Directors that certain personal conduct by Mr. Lockwood-Taylor was not consistent with the Company's Code of Conduct and core values. The conduct did not involve the Company's business, strategy, operations, financial reporting, or results of operations."

The board's chair, Orlando D. Ashford, said that "Perrigo's core values are foundational to how we operate, and the Board expects all colleagues — especially our senior leaders — to uphold those standards at all times. The Board acted decisively." Mr Manzone said his priority was "continuity: to keep that strategy on course."

What this does and does not tell an investor

The company has been clear that the departure was not related to the business, the strategy, the operations, the financial reporting or the results. There is no allegation of financial impropriety and no restatement. A reader should not infer that the reported numbers are unreliable.

What it does tell an investor is that the company is executing a portfolio transformation and a cost programme, at a moment when it is not earning its cost of capital and its dividend is uncovered, without a permanent chief executive. That is a genuine execution risk and it is not priced anywhere in the financial statements. The interim chief executive, Mr Manzone, has more than thirty years of leadership experience across consumer goods and consumer health — including Novartis Consumer Health, Wm. Wrigley and PepsiCo — and has served on Perrigo's board since 2022. He is a credible operator rather than a caretaker.

The board has also acted on its own composition, appointing two new independent directors on 30 June 2026. A board that refreshes itself and appoints an experienced operator as interim chief executive in the same month as a conduct-related resignation is behaving the way a well-run board should. We regard the governance response as competent and the governance situation as unresolved.

The strategic consequence is the part that matters for valuation. A new chief executive will review the portfolio, the cost programmes and the capital allocation policy. The two businesses under strategic review may be sold, retained or wound down. The dividend may be reset. None of those decisions can be predicted, and all of them are material. This is the single largest source of both risk and optionality in the equity, and it is why our scenario range is as wide as it is.

We note one further governance observation that bears on capital allocation. The board authorised up to $1.0 billion of share repurchases in 2018 and has not used the authorisation in either of the last two fiscal years. The company has also been through three restructuring programmes and three chief financial officers in a period of five years, with associated senior departures disclosed in the FY2025 exhibit index. Organisational stability is not a strength of this company, and instability has a cost that does not appear on the income statement.

19 — Regulation & tariffsRefunds today, exposure tomorrow

Perrigo operates in one of the most heavily regulated corners of consumer products. Its products are over-the-counter medicines and infant formula, which means the FDA and its international equivalents, plus consumer product safety regimes, plus advertising regulation, plus — in infant formula — one of the most intrusive quality and inspection frameworks in American manufacturing.

The regulatory position is, on balance, a competitive advantage. Store-brand products must meet the same FDA requirements as national brands, and the cost of maintaining the filings, facilities and quality systems is a barrier to entry that favours incumbents. Perrigo's pipeline strategy is explicitly built on Rx-to-OTC switches, which require regulatory capability that few private-label manufacturers possess. The company's disclosure that it holds "experienced research and development, innovation and regulatory capabilities" is not marketing; it is the moat.

The two live regulatory exposures are tariffs and the infant formula supply regime.

Tariffs: a credit in 2026, an exposure thereafter

Perrigo recognised a net recovery of a portion of previously paid tariffs of approximately $21 million in the first quarter of 2026, credited against cost of sales, and a further recovery in the second quarter. The company's disclosure of the FY2025 environment is that "the U.S government imposed new and additional tariffs on a significant number of countries and threatened to further increase the scope and amount of tariffs," including tariffs "specifically targeting pharmaceuticals, under which many of our U.S. OTC self-care products may be classified."

This is a two-sided exposure and the net effect on 2026 is favourable, which is a reason to be careful about extrapolating the 2026 margin. A refund is a one-time credit. A new tariff on pharmaceutical inputs is a recurring cost increase. Perrigo's manufacturing is substantially American for the Americas business, which limits the direct exposure on finished goods, but the company sources raw materials and packaging internationally and its FY2025 risk factors explicitly identify "single-source" dependencies and note that "certain raw materials may experience rapid cost increases due to increased labor, relevant commodities, tariffs and other trade restrictions."

The relevant asymmetry is this: in a private-label business, input cost inflation cannot be passed to the customer in full, because the customer's entire proposition is a price gap against the national brand. Perrigo's ability to pass through tariffs is weaker than a branded manufacturer's, which is why the company lost distribution of low-margin Oral Care products rather than absorb the cost.

Infant formula: the regulatory regime that created the opportunity

The 2022 Abbott recall and the subsequent invocation of the Defense Production Act and temporary import authorisation transformed the United States infant formula market. Perrigo was a beneficiary of the shortage and has been a casualty of its resolution: the company's own FY2025 disclosure states that "increased supply of infant formula in the United States, including from imported products, and the previously disclosed lost distribution of the Good Start brand have hindered our efforts to recover our previous market share."

We treat the infant formula regulatory regime as a source of uncertainty rather than a source of value. The market is effectively an oligopoly with an intrusive regulator, and Perrigo is the smaller participant with a store-brand position. The strategic review announced on 5 November 2025 is the correct response. Until it concludes, the reader should assume the regulatory regime is neutral to modestly negative for the segment's value.

20 — Competition & peersThe peer set trades at three times the multiple

Perrigo competes on two fronts, and it faces a different opponent on each.

In store-brand manufacturing, its competitors are other private-label producers: Dr. Reddy's Laboratories, LNK International, PL Developments, Aurobindo and Sun Pharmaceuticals, among others. This is a cost-competition business in which Perrigo's advantage is scale across hundreds of molecules and dosage forms, a broad manufacturing footprint, and the regulatory capability to file and maintain the products. The company describes its competitive position as "the leading store brand private label provider of self-care products in many categories" in North America. We accept that description; the share data supports it.

In the branded categories where Specialty Care competes, the opponents are the consumer-health majors: Haleon, Kenvue, Procter & Gamble, Reckitt Benckiser, Bayer, Opella, Philips, Teva, Viatris and Stada, plus Abbott Nutrition in infant formula. In these categories Perrigo is the small participant with a few strong brands and no meaningful scale advantage.

The structural feature that matters most is that Perrigo's two businesses compete in opposite directions. The store-brand business benefits when national brands raise prices, because the value gap widens. The branded business benefits when national-brand pricing holds and marketing investment works. A strategy that tries to do both is a strategy that hedges its own position, which is a fair description of Perrigo.

The valuation gap, and how much of it is justified

The peer comparison is stark. Perrigo trades at 6.5 times forward adjusted earnings and 7.1 times forward adjusted EBITDA. Haleon trades at approximately 18–19 times forward earnings and 13–14 times EBITDA; Kenvue at 18–20 times earnings; Church & Dwight at approximately 25 times earnings. On enterprise value to EBITDA, Perrigo is at roughly half the level of its closest comparable.

We think four factors explain the discount, and that they explain most of it.

Leverage. Four turns of net debt to EBITDA against roughly two at Haleon and under two at Kenvue. In a rising-rate environment and at a Ba3 rating, that is a direct discount to the equity multiple, because a larger share of enterprise value sits with the creditors.

Growth. Perrigo's revenue has fallen in four of five years and is guided to fall again. Haleon and Kenvue are flat to modestly growing. A discount for negative organic growth is not a mispricing; it is arithmetic. Applying a peer multiple to a declining revenue stream would be a modelling error.

Dividend coverage. Haleon and Kenvue both cover their dividends from free cash flow. Perrigo does not. An 8.29% yield with 59% coverage is a different instrument from a 2% yield with 100% coverage, and it should be valued differently.

Governance and execution. An interim chief executive, two businesses under strategic review with no announced outcome, a fresh goodwill impairment triggered by a disclosure change, and three restructuring programmes in five years. Perrigo has not demonstrated the operational consistency that the peer group has.

Our judgement is that the discount is largely justified and that the residual mispricing is modest — perhaps one turn of EBITDA, or two turns of earnings. That residual is what our bull case captures. A reader who believes the discount should close entirely to the peer group is implicitly assuming that the growth, leverage and coverage gaps close too, and none of them closes without a transaction or a change in the category trend.

21 — ValuationThe multiple depends on a number the company defines

Perrigo's valuation is unusually sensitive to a definitional choice, and the choice is not a matter of preference. The company reports at least three earnings numbers — GAAP, All In adjusted, and Core adjusted — and at $14.00 they produce multiples that differ by a factor of more than three when compared with the trailing GAAP result.

On adjusted earnings the shares look extremely cheap. On GAAP earnings the multiple is not meaningful. On the dividend the yield looks extraordinary and, on our analysis, is not sustainable at the current level without either a recovery in free cash flow or a further disposal.

Our position is that the All In adjusted figure is the right denominator, because it is the business the company owns and earns from today, and that the Core figure should be treated as a pro-forma illustration rather than a valuation base. We therefore value the company on All In adjusted earnings and adjust the target for the probability that the dividend is reset.

Cross-checks

The cross-checks frame the question rather than resolving it. On enterprise value to revenue and to EBITDA the shares look cheap by any consumer-health standard. On price to free cash flow they look unremarkable. On free cash flow yield — 6.1% against a dividend yield of 8.29% — they look expensive relative to the distribution they support. All three readings are correct; they are measuring different things, and the reason they diverge is that EBITDA does not capture the interest burden, the restructuring cash costs, or the working capital that a shrinking business releases only once.

Scenario valuation

The table below sets out our three cases in full. Every input is stated so that a reader can disagree with a specific assumption rather than with the conclusion.

Weighting the three cases at 25/50/25 produces a scenario value of $15.44 per share. We then apply a discount for the width of the outcome distribution and for the risk that the dividend is reset, arriving at a 12-month target of $15.00, approximately 7% above the current price before the dividend. Including the dividend at its current rate, the total return to target is approximately 15%.

Against a consensus 12-month target of $16.50 across five covering analysts, our $15.00 sits slightly below. We are comfortable with the divergence. The consensus rating is Buy, and the dispersion of estimates on a company with this degree of accounting complexity and this much pending corporate action is narrower than we would expect — which is itself a signal that the covering analysts are anchored on the Core measure rather than the All In one.

22 — The bull caseSix arguments we take seriously

We present the bull case at full strength, not as a straw man. If we cannot state the strongest version of the opposing argument, our own position is not worth publishing.

23 — The bear caseSix arguments we cannot dismiss

24 — Risk matrixRanked by probability times impact

The matrix below scores each identified risk on a 1–5 scale for probability and impact. The score is the product. Risks scoring 12 or above are the ones we would expect to drive a material re-rating in either direction.

Cells read left to right as impact rises from 1 to 5, top to bottom as probability rises from 1 to 5. Superscripts identify risks from the register above.

25 — CatalystsWhat we are watching, and when

26 — ConclusionNeutral at $15, on a franchise that is real and a cash flow that is not sufficient

Perrigo is a genuinely dominant business. It is the leading supplier of store-brand self-care products in North America, it manufactures hundreds of molecules at multiple price points for the largest retailers in the world, it gained 60 basis points of volume share in 2025, and it owns a portfolio of European and American brands — Opill, Compeed, ellaOne, Mederma, Jungle Formula — that a strategic buyer would pay a real price for. None of that is in dispute.

Perrigo is also a business whose revenue has fallen in four of the last five years, which has impaired $1.72 billion of capital in eight quarters, whose tangible book value is negative $1,372 million, which carries four turns of leverage at a Ba3 rating, whose Core organic revenue fell 11.0% and 3.5% in the first two quarters of 2026, and whose dividend has not been covered by free cash flow since 2024. None of that is in dispute either.

The tension between those two paragraphs is the investment case, and at $14.00 the market has chosen a side. A 6.5 times earnings multiple and an 8.29% dividend yield are not the market's assessment that Perrigo is a good business available cheaply; they are the market's assessment that the cash flows supporting the distribution are not secure. Our analysis supports that assessment on the numbers as reported and offers a path to a different conclusion: the under-absorption reverses, the disposal programme delivers, and the Core business is worth more than the consolidated multiple implies.

Our scenario-weighted value is $15.44 per share, and our 12-month target is $15.00, approximately 7% above the current price before the dividend. We rate the shares Neutral.

27 — AppendixFinancial summary tables

A. Annual income statement, $ millions

FY2022 and FY2023 operating income and restructuring lines are shown where disclosed and left blank where the source does not permit a reliable restatement; FY2022–FY2023 adjusted EPS is not presented because the company's adjusted definition changed with the 2024 restructuring programmes. H1 2026 adjusted EPS is the sum of the two reported quarters.

B. Segment detail, FY2025 legacy basis, $ millions

FY2024 adjusted segment operating income is derived by applying the disclosed FY2025 year-over-year percentage changes to the reported FY2025 figures and is a Farstar calculation; reported GAAP segment operating income in FY2025 was a loss of $669.0 million in the Americas and $228.8 million internationally, both driven by goodwill impairment.

C. Segment detail, FY2026 new basis, $ millions

D. Key operating and quality-of-earnings metrics

Net debt / adjusted EBITDA for the trailing twelve months uses net debt of $2,895 million at 27 June 2026 and an annualised adjusted EBITDA estimate of $770 million. Return on invested capital is adjusted operating income net of tax over average invested capital; the FY2023–FY2024 figures use reported adjusted operating income where available and are Farstar estimates. Adjusted effective tax rate is the FY2026 company guidance figure.

E. Valuation summary

28 — SourcesPrimary and secondary references

Company filings and releases

• Perrigo Company plc, Form 10-K for the fiscal year ended 31 December 2025, filed with the SEC, including Item 1 Business, Item 1A Risk Factors, Item 7 Management's Discussion and Analysis, and Notes 12, 13 and 21.
• Perrigo Company plc, Form 10-Q for the quarter ended 28 March 2026.
• Perrigo Company plc, Form 10-Q for the quarter ended 27 June 2026.
• Perrigo Company plc, 2025 Annual Report to Shareholders, March 2026.
• Perrigo Company plc, Fourth Quarter and Fiscal Year 2025 Financial Results From Continuing Operations, 26 February 2026.
• Perrigo Company plc, First Quarter 2026 Financial Results From Continuing Operations, 6 May 2026, and accompanying earnings presentation.
• Perrigo Company plc, Second Quarter 2026 Financial Results From Continuing Operations, 5 August 2026, and accompanying earnings presentation.
• Perrigo Company plc, Perrigo Announces Leadership Transition, 8 June 2026.
• Perrigo Company plc, Perrigo Announces Appointment of Two New Independent Directors to Board, 30 June 2026.
• Perrigo Company plc, Perrigo Completes Divestiture of Dermacosmetics Business, 30 April 2026.
• Perrigo Company plc, Perrigo Announces Quarterly Dividend, 30 July 2026.
• Perrigo Company plc, quarterly earnings call transcripts, Q4 2025 through Q2 2026.

Third-party research and industry data

• Circana store-brand share data for the categories in which Perrigo participates, as cited in Perrigo quarterly earnings releases: 52 weeks to December 2025, 13 weeks to 29 March 2026.
• Moody's Investors Service, issuer credit rating action of 12 December 2025 (downgrade to Ba3 from Ba2, outlook stable), as disclosed in Perrigo's FY2025 Form 10-K.
• S&P Global Ratings and Fitch Ratings issuer credit ratings as disclosed at 31 December 2025 (BB− and BB respectively, both stable).
• Third-party market data aggregators for consensus price targets, coverage counts, valuation multiples and balance-sheet aggregation, September–October 2026.
• Third-party peer valuation estimates for Haleon, Kenvue and Church & Dwight, September 2026.

Market data

• Share price, market capitalisation, share count, dividend and 52-week range as of the close on 6 October 2026.
• Consensus price targets and coverage counts as compiled by third-party market data aggregators, October 2026.
• Ten-year US Treasury yield and S&P Consumer Staples index dividend yield, October 2026.

29 — DisclosureConflicts, limitations, and revision policy