Good afternoon, everyone. Welcome, and thank you for attending Oppenheimer's 20th Annual Consumer Conference. My name is Rupesh Parikh. I'm the Senior of Food, Grocery, and Consumer Products Analyst at Oppenheimer. I'm very pleased to introduce our next presenting company, Perrigo Holdings. We're excited to have joining us today Murray Kessler, President and CEO, and Ray Silcock, EVP and CFO. For those of you who are not as familiar with the Perrigo story, the company is currently undergoing a transformation from a healthcare company into a global consumer over-the-counter player. The company's worldwide consumer business currently makes up roughly 80% of sales. Before we begin, I'll just mention that today's format will be a presentation followed by Q&A. If you have any questions during today's event, please submit them through Zoom. I'll now turn it over to Perrigo to tell you more about the company's story.
Thank you, Rupesh. Okay. As we all do, I encourage you to read the forward-looking statement. With that, we will get right into the presentation. As Rupesh said, Perrigo's a little over $5 billion global self-care leader, and that transformation we were talking about was one from healthcare to self-care, which we define as our Consumer businesses, where we do 80% of our net sales. We're broken up into three divisions. Our Consumer Self-Care Americas division, we're the leading self-care provider in over-the-counter healthcare products, infant formula, and oral care. We make more than 1,900 products. Basically, every time you're going into any major retailer in the United States and buying a product, a Tylenol equivalent, or an Advil equivalent, or a Zyrtec equivalent. For the most part, you're buying a Perrigo product as we're 70% of the market. This is big business.
To put that in perspective, as we've gone through this crisis, when you think of things like acetaminophen, which was in high demand, we're more than half of the U.S. supply of acetaminophen and likewise on ibuprofen. As you'll see in a second, on the International Division, we've placed a large emphasis on growing our E-commerce business as part of this transformation that we began a little over a year ago. Our International Division is more of a branded business, where the U.S. was more of a store brand or private label business, and we're a conglomeration of leading regional OTC brands and vitamins, minerals, and supplements. We keep pace. We're basically a flat share. In the U.S., we're a growing share, but in a faster-growing marketplace in Europe. We have more than 200 brands sold in 25 countries or 95% of Europe.
We have our Generic Rx business, which is we're the leader in topical business, and it's 20% of our net sales. Throws off a ton of cash. We have stated publicly that at one point, we will exit this business, which we thought was last year. For valuation reasons, we have put that off for now. Our priority and our strategic focus is the consumer business, although it's quite a nice Rx generic pharmaceutical business in itself. Going back to the transformation, we launched this strategy just over a year ago, and it was designed broad in the categories we compete in to allow a company that had gotten stagnant on growth to resume growth and pursue additional avenues.
Think of it as not just a company that was mostly focused on treating illness to one that is now not only treating illness, but preventing illness and promoting wellness. Our vision that we put into place was to make lives better by bringing quality, affordable self-care products that consumers trust everywhere they are sold. We have gone through the first phase of a comprehensive transformation to make that vision a reality. We just completed year one. We launched it May 2019. In that one year, we follow what we call our virtuous circle for growth.
First thing we've done and we will continue to do is reconfigure the portfolio by launching that new vision and then executing against it, including we've done five acquisitions in the first year and one divestiture to improve the performance on our base plan through increased customer service levels, gaining market share, filling white space opportunities, ultimately increasing store brand penetration, and accelerating our key E-commerce business, which it has done dramatically. Invest in repeatable growth platforms, which I'm really primarily talking about innovation, where we put over $0.5 b illion into our innovation pipeline, which should be coming to market and start coming to market in a meaningful way next year. The acquisitions were bridging that gap.
Fourth was to build our leadership team and our capabilities, we've changed or promoted or put new in position 40% of our leadership team and have invested in business intelligence and centralized numerous global functions. We got to pay for this somehow. We identified $100 million primarily operating expense cost savings through what we call Project Momentum, which is well on track. Hopefully all of that generates a good amount of cash where we generally convert more than 100% of our cash. We've maintained over $0.5 billion in cash on our balance sheet. We just refinanced bonds coming due next year and a little bit more.
yesterday issued $750 million in bonds, and we've committed $150 million over the next couple of years in capacity investments because we are pushing our capacity running seven days a week, 24 hours a day to keep up with demand. One of the problems that Perrigo was having prior to me getting there was it was making a number of good promises but not competing, and it had frustrated investors. We've now met or beat six consecutive quarters of expectations. I've been selling our consumer story, and we've converted about 30% of our stock is now owned by consumer investors. As you'll see in a minute, we accomplished job one, which was returning the company to growth, which this slide shows.
You can see what it looked like the year and a half before the transformation with declining and driven a fair amount by Rx, but a stagnant consumer business, a declining Rx business. We launched in the beginning of Q2 2019. Immediately the business started responding through a combination of both organic growth, which has ramped up each quarter now for a full year up to 11%. I'll detail that. It benefited by the COVID-19 surge, as well as another seven points of growth through incremental bolt-on acquisitions. I only want to point this out because I don't want people to think we just had a good first quarter, which we did, only because of COVID-related demand. The improvement and the turnaround and the transformation we saw has been occurring since May of last year. We did have a good first quarter.
We were having a good first quarter before the COVID-19 surge. We were up about 8% in organic growth in the first two months of fiscal 2020. We were up in the Consumer Americas division, and we were up 5% for our total consumer organic net sales growth. Then in March, you can see it ramped up both internationally and total consumer. Americas and total consumer, Americas went from 8%-28% growth in March, and total consumer went from 5%-27%. We clearly were making products that were deemed essential by the world, and we prioritized making the ones that society needed the most to help get through this crisis and dealt with that with a nervous employee base that was watching most of the world lock down and stay at home and shelter in place.
They were coming and being truly heroic in getting our products out the door with demand levels that were, in some cases, on some products, 300 and 400% above normal. If you break out sort of the ramp-up of growth of organic and what drove that growth versus non-organic, you can see that the inorganic drivers in Q3, we were growing it on our consumer business, our total business, about 0.5% Q1 2019, Q2 2019. Q3 ramps up to 10% through a combination of inorganic as we did the first of our acquisitions with Ranir, the leader in private label oral care products, a perfect tuck-in for us. Our organic business began to respond with good, robust category growth. We gained store brand, launched a number of new items that filled in gaps we had in our portfolio. We won share from competitors.
We were innovating, launching new products, especially last year at the end of the second half of the year in International. We made a significant investment in our E-commerce business, and our E-commerce business started to take off. In Q1, as I just showed you, we had sort of that level of growth coming in, and then add on top of it in March, a very strong surge in Q1, which we acknowledged in our conference call for the first quarter that there was probably, on the consumer side, some $70 million of sales we attributed to COVID-related demand, and that it would take us months to assess how much of that stuck to the business or how much was pantry loading. To be clear, if people get sick more, they consume more, so that doesn't give back.
If we win share because some of the shelves were empty on national brands and national brand buyers buy our product, that sticks. We're assessing that as we go, how much of that will hold. We had a 3% organic growth target for the year. Based on the strong growth, the incrementality of it, the trends we had, we are very confident in probably delivering the 3% on the base business and then adding some level of what COVID-19 volume sticks on top of that through the year. E-commerce, as I said, was a big piece of it. Our E-commerce business has gotten to be more and more important and has right now grown to about 5% of our total business and is up about 75% over a year ago.
In my estimation, is probably two years accelerated by what's happened over the last quarter. People don't always understand what the investment and what the manufacturer, especially the manufacturer of a private label company, does in terms of servicing its customers in e-commerce. They're like, "Well, don't you just ship it to the customer, and the customer is the one that does the marketing?" In fact, we do a ton of the content management, most of the content management on our categories for our customers on their very big and significant brands. We do the content, the imagery creation and syndication, the search engine optimization, all the video and interactive content and social programs, the digital merchandising and marketing. We do pilot tests, bundle promotions, special packs, subscriptions, test those, and then recommend them back to the customer, and then they can roll those out.
We review management, consumer response, the reviews that are on the sites and help them address those. We do the digital analytics and provide actionable insights. That required a lot of software investment by us, a lot of people investment, a lot of training in order to do that. We believe we're one of the few private label manufacturers, and probably the only one in our space, that has this capability fully built out, which provides us a very unique selling proposition, again, relative to our competitors. Going forward, we feel great about our growth. We've identified five global growth platforms which we crystallized over the first quarter, that we believe represent opportunity for the future in the billions over time. Let's put some of those in perspective. We are already a high penetration category of core OTC of 33%, less so in CSCI with a 9%.
Every 1 share point we can increase is worth $100 million or $96 million to Perrigo. Remember that the retailer marks it up and there's margins, et cetera. We're about 30% of what you see in IRI growth, which means every share point is worth more like $300 million in consumer purchasing. We have consistently been growing 0.5 share point or more. In recessionary times, like we all, I think, believe we're going into, we tend to double that rate or even more. Growth opportunity number one. Number two, we bought our way into the Oral Care business, a nicely growing business. That only has 10% penetration compared to the success we've had with CSCA. 22 million, but we would see 20 points of opportunity is $400 million or $500 million of opportunity over the long term as we build penetration in that category.
Same methodology for nutrition, $45 million of point to Perrigo. You're looking at 17, 18 points of penetration opportunity. In NRT, we don't have the same penetration opportunity the way Perrigo defined it before I got there, because we are a 63 share. We're much bigger than the national brand in nicotine replacement therapy. Each point of growth, which is harder to come by or share growth, is $8 million. I don't look at it that way. I ran tobacco companies before coming here. To me, the fact that NRT is less than 1 share of total tobacco, with 70% of smokers wanting to quit, you saw what happened in vaping when something that was more familiar was made available, how quickly that category developed.
By providing the right forms, we think there is a much bigger opportunity, and there every share point is worth $1 billion . Finally, in science-based naturals, where we're a 12 share in Europe, and we basically have nothing in the U.S. until this morning, is a big opportunity. We do about $300 million of sales of science-based naturals in Europe, and there's lots of opportunity to bring things like cholesterol treatment with a natural product, not a statin. We sell that product very well in Europe. Weight loss products, natural, not a pill or prescription, and many other categories as well that we market, decongestants, et cetera, and bringing those kind of lines to market.
We are excited about an announcement we made this morning that in that world of U.S. science-based naturals, we've made a long-term bet by making a $50 million investment in CBD, buying a 20% stake with Kazmira. If you don't know the CBD category, CBD category is projected to be, depending on who is covering it, $10 billion-$20 billion in the next five years. It's been exploding in growth, but it is fraught with regulatory issues. We think that's Perrigo's way in. That we bring the regulatory expertise, how to work with the FDA, how to get good manufacturing process, as well as financial investment. We went through a rigorous process and interviewed and evaluated many companies, and we came upon about a year ago and have been working on this partnership since with a company called Kazmira.
In my opinion, they are the innovation trailblazer in the CBD industry in terms of delivering clean, THC-free, and everything else free, pesticide-free, heavy metal-free CBD with a proprietary-based technology they have. They don't have the resources to scale it, and they don't have the expertise to work with the regulatory bodies to clean up what we call or what many call the Wild Wild West of the so many CBD suppliers. Phase I for us is scale Kazmira and meet CGMP and work with regulatory bodies. Part of this deal is we have exclusive rights to the store brand market in the United States. We would launch brands into that, and our customers are all asking for it, but they all demand that before we do that there is a clean and reliable and trusted source.
Finally, on the growth side, is that one of the things I didn't count on and said would be worth nothing a year ago, when we were talking about growth in core OTC. Perrigo always grew through our Rx-to-OTC switches, there were none on the horizon. Boy, has that changed in a year. We are in the process of launching shortly Voltaren, which is a $1 billion brand globally. It's $300 million or $400 million in the U.S. It's on the television now and has been launched in the branded form. We're a few months behind that, we'll be out by the fall. We've already received all the approvals. We bought the rights to switch Nasonex, so we would have both the branded and the private label version of that. There's also been the announcements on Tamiflu, Advil Dual Action, and Cialis.
The pipeline is reopened to help stimulate further growth on our core OTC business. That got us through year one of the transformation. With confidence in revenue growth, I will tell you now we are very focused on sort of finishing the job, which is focus on margins, infrastructure, and capacity. As I said, we have the $100 million cost savings from Project Momentum, but we think there's significantly more in productivity improvements and that's sort of to come in the future and SKU rationalization and all kinds of opportunities for growth in margins and technology investments. We are centralizing finance, rolling out SAP, raising the game and giving ourselves one source of data globally to increase our ability to do quality business intelligence in line with other world-class CPG companies.
We are investing in infant formula capacity where we are maxed out and can't meet demand. Same thing for our tablet manufacturing. If you also follow the story, one negative part of the story has been kind of the one part people ask me what was the surprise coming in. We got surprised by a very large tax bill from Irish Revenue that was frankly shocking to the company. That trial just occurred in the last couple of weeks. It's now completed, ended last week, and there are two trials that would need to occur. The first one is one we brought forward is that Irish Revenue didn't have the right to do this assessment.
If we were to fail on that, then we would go through the traditional process and challenge and show why their calculations were wrong and why they are incorrect in the way they were treated it. They basically said that on a company that Perrigo bought on a sale right before Perrigo bought it, that the sale should have been treated as a capital sale and a capital gain and taxed at 33%, not 12.5% for disposal of IP. We believe they do not have the right, and they violated our legitimate expectations and part of the basis of inverting to Ireland was that the company that we bought, Elan, had been granted a Shannon Certificate. I can talk this detail now, Rupesh, because the case is now over and all the documents, everything is public.
Our case is based on the fact that there was a process to get certified for disposal of IP, and Elan went through it, and it was a five-year rigorous process, and they were certified that disposal of IP was considered a trading operation by Perrigo and was to be taxed as such. In 2005, the Irish government decided to sunset that Shannon Certificate process, but they issued a tax briefing that holders of the Shannon Certificate would continue to be regarded as trading and be charged 12.5% corporate tax in respect of the previously granted certifications.
From us, you add that plus 20 years of this company trading IP and disposing of IP in the same way as this one, with Irish Revenue not having a single problem with it, and all of a sudden to change the rules retrospectively after 20 years of audit, the Shannon Certificate, and the tax briefing. It was our legitimate expectation to be able to rely on 20 years of audit, the Shannon Certificate, and the tax briefing. It is our argument that Revenue cannot go back retrospectively without warning and recharacterize Perrigo's trade to exclude disposals going all the way back to 1997. The case is done. We've made our argument. Hopefully, and I believe we made very strong arguments, within the next six months, we'll know whether we win it outright or not, and it goes away.
If not, then it goes through a traditional process over the next years through the tax appeals court. You heard my story. It was growth, now focusing on margins, and processes, and capacity, et cetera, over the next two years. Ultimately, getting to our long-term algorithm of 3% revenue growth, 5% operating income growth, and 7% EPS growth. I will tell you, no matter how good it feels as people are starting to get out of their houses, we are not out of the COVID-19 pandemic yet, and our focus remains right now on employee safety and business continuity until we are truly through the pandemic. It is that focus that kept us running and allowed us to report great results in the first quarter.
Put in perspective of everybody listening, our heroic employees kept 27 global plants running 24 hours a day, seven days a week, through the worst of the crisis, through three months, without losing a single shift. We are really proud of our teams for doing that. Bottom line, Perrigo's transformation is working and has positioned the company well for a new normal world. Ask yourself three questions like I do. We went into all of this before the pandemic and a new normal world, but is self-care going to be more important or less important in a new normal world? I answer that question, more important. Is e-commerce, where we've invested heavily, going to be more important or less important in a new normal world? I answer that question, more important.
Is value going into a recessionary period with high unemployment going to be more important or less important in a new normal world? I answer that question, more important. Because of that, we believe Perrigo is a compelling long-term investment, and that we will make lives better by bringing quality, affordable self-care products that consumers trust everywhere they are sold. With that, I'm done.
Thanks, Murray, for that presentation. Congrats on the progress so far to your team. I'll dive into a few questions that I have, and then we'll open up to the audience if time allows. First, on your CBD partnership, it's actually a space I've been now following for more than a year. Today, you announced an exciting partnership with Kazmira to enter the CBD market. Can you share a little more detail about the short-term and long-term expectations of this partnership?
Well, it's a long-term initiative. Kazmira itself, if we do this right, and you have to meet the scientists, Pulak and Priyanka, that run this company and are the principals of the company. They are so passionate. Their technology is so good, and with our help and going through the right regulatory input, so that you no longer have to worry about buying a product, or consumers don't have to worry about buying a product that claims it's THC-free, then going to work, getting tested and getting fired for testing positive for marijuana or a number of the other variabilities. Thinking they're getting a level of CBD, and it's not actually in the product. Not understanding the difference of a CBD isolate versus a full- spectrum oil, which has all the benefits of the full spectrum of cannabinoids.
We believe that with our help, that Kazmira can become synonymous with the API supply, basically, of CBD. It will be the go-to, and people will want to use the Kazmira name as a proof of quality. That's job one, and that'll take some time, as well as scaling up their manufacturing. The big payoff for us, because like in every category, generally private label in our categories are bigger than the branded products by far. We have exclusivity, and we can very quickly roll. It's not hard to develop the actual products with the CBD, but you have to have the great product to start with. People project it to be a massive $15 billion-$20 billion category, and we have a chance to be a market leader in that category. Part of that is in ingredients and food, et cetera, and all that.
For that, we would get our 20% share that would come back from Kazmira. Opportunities on both sides. It's a great partnership. I'm super excited about it.
Okay. Good luck. I guess switching to pantry loading. During your last earnings call, you mentioned that you expected to give back some of the gains you saw in Q1 due to pantry loading. Has the channel inventory normalized, and how are you monitoring consumer pull-through versus retailer restocking?
It's what you'd expect. I'm not going to give you specific numbers. It's what you'd expect. April, as I said on the call, was very robust. The numbers were very big as retailers were restocking their inventory. There was some from early April of still surge. You've got some give back since then. We're well ahead of where we would need to deliver cumulatively through six months of the 3%. I can't answer fully because it's not only what happens now. It's also what happens in the fall when consumers would normally go back, some of them to stock up for cold/cough season, et cetera, that I'll fully know how much of it came from national brands or used.
Make it even more complicated, if there's a second wave in the fall, you could get another surge all over again. I do have enough confidence at this point to say, we've had no interruption. Knock on wood, we won't have any more. We won't have any interruption. Because of it, we should beat our original plan numbers coming into this year, meaning we expect to hang on to some portion. I just can't tell you whether that's we're going to hang on to 30% of it, 50% of it, or 80% of it at this point in time, if that makes sense. To be fair, we had some categories, as I said, internationally, sun care and things like that had nothing to do with the surge. They actually got hurt by reduced store traffic.
Okay, great. I guess, in your presentation, you had a slide just showing the strong organic sales growth, which is impressive. I've seen all the progress your team has made the last few quarters. It's very clear that you have been able to get revenue growing again. Some say that's come at the expense of your margins. Can you provide some insight into the drivers behind the margin deterioration and when you expect this to normalize, even potentially return to previous levels?
Yeah, there was some gross margin deterioration for sure. Operating margins actually improved in the last quarter because our Project Momentum savings for the time being, for the next year or two, are focused on reducing operating expenses and efficiencies and savings. We needed to make more investments and more technology investments than I thought. If you look at the gross margin line, so there was more investment. I said originally $25 million, basically, that raised up another incremental $25 million more than I thought for some of the technology issues, et cetera. They should be one and done. Once those are put into place, you shouldn't have to repeat a good portion of those investments, so we should get that back.
On the gross margin line, Rx has been a driver of some of that deterioration, especially with last year, we launched a product, Testosterone 1.62%, which had exclusivity in the beginning, so it was at a much higher price than it is today. We're feeling the impact of that, but we'll shortly be out of that year-over-year comparison. We launched and got approval for a big new product in Rx with albuterol. albuterol then is all incremental profit. It has a lower margin than the average, so it lowers the average, but it's 100% incremental profits to us. That goes away when you lap those launches. We bought Oral Care.
Another example, when you buy Oral Care on a business that in general, we had higher gross margins on them, but similar and equal operating margins. There was no deterioration on the operating margin line. Again, 100% incremental. When you lap all those, then the final compounding factor, that was my choice, my team's recommendation. We prioritized making things like acetaminophen and ibuprofen, which are lower margin and didn't run products. The simple example, it's not a big one, but minoxidil, which is a much higher margin, but I couldn't look an employee in the face virtually or any other way and say, "Come in what you perceive as risking your life to make hair growth restore when the world is needing acetaminophen for treatment." We prioritized those products because it was the right thing to do for society.
Theoretically, next year, you should lap them. Plus, we're focused on gross margin initiatives and cost initiatives. I would say next year, we should see a meaningful swing in that. First job was to get the revenues growing, which we did, and make the right investments for this to be a world-class company. Everything we've said we would do, we've done so far, and we'll do this too, but it's a step process. The world being what it is, the street's always ahead of us. What's next, or what about this? We're working our way through them, but I like the bet personally.
Okay, great. Well, we're out of time. Thank you very much, Murray and Ray, for joining us. Best of luck for the balance of the year.
Thanks, you guys.
Thank you.