Before we dive in, a quick reminder that today's presentation includes forward-looking statements. This is the bit Investor Relations asked me to read. These reflect our current views and expectations, and we encourage you to review our filings for a full understanding of the risks and the assumptions. Let me start with the key headline. Our strategy is on track. We're continuing to execute with discipline and focus in what is a very dynamic consumer environment, particularly in the U.S. We're advancing our 3S plan that we've talked about extensively, stabilizing the business, streamlining and strengthening one Perrigo with early traction and clear momentum. We're seeing good early results for new business awards. U.S. store brand is gaining share, and our category-led growth model is encouraging and the results meaningful. Infant formula, which is about 10% of our revenue, only remains a strategic priority.
We're calibrating investment to balance resilience whilst maximizing returns. Just last week, we reaffirmed our 3S plan, and we are on track to deliver our fiscal year 2025 financial outlook. We've made meaningful progress across all three pillars of our 3S strategy. Under stabilize, new business wins in our U.S. store brand business are offsetting prior distribution losses. Our store brand business and store brands generally are gaining share, and infant formula is recovering well. We continue to streamline our business. Project Energize and the supply chain reinvention are delivering very tangible benefits. The sale of our derma cosmetic business supports our net leverage goals and is on track. Strengthening our category-led market activation model is unlocking portfolio value, and our brand building investments are paying off. We are delivering early results, giving us proof points and confidence in our strategy and our business model and our growth potential.
Opill is double consumption this year, and we're seeing almost 60% repeat rates, which is amongst the highest in CPG. Jungle Formula, our insect repellent, has now achieved number one market share position in Italy and is growing rapidly in a number of markets. Hello One is driving market share gains and delivering very healthy net sales growth, and our store brand allergy program at major retailers grew 19% year-to-date versus a category that was declining. As we start to get our execution more targeted, this is what good execution looks like in Perrigo. We're also standardizing our marketing and our category focus globally, and this is also unlocking improved results and demonstrates future potential. We operate in a quality-assured environment that gives us confidence in the foundation that we've built in our infant formula business.
Our team is aggressively focused on growing household penetration, and we are regaining share in the infant formula category. This business is building back, and though we recognize the recovery won't be perfectly linear, we're navigating with a disciplined and long-term view and feel confident in our 2025, 2026, and 2027 assumptions on this business. It's important to note that the fastest growing portion of the market currently lacks a store brand equivalent. Let me say that again, the fastest growing part of infant formula today does not have a store brand equivalent. Infant formula remains an attractive category, and we remain confident in our long-term outlook. We expect to deliver organic net sales towards the lower end of our target range of 1.5% and 4.5% organic for fiscal year 2025. We note many other companies have actually reduced or are seeing negative revenue.
This talks to the health and the resilience of our business model. Our growth is weighted to the Americas business. The international business will be flat compared to the first half in the second half. This growth is being driven by a combination of strategic initiatives and improving operational execution. As we move from the first to the second half, we expect to see stronger momentum supported by more promotional activity, demand generation, and continued share gains. To get into the details, we expect organic growth of about $200 million in the second half versus the first half. 75% of that is coming from our OTC business with net new business wins of $70 million or $80 million, about the same again from demand generation and cough cold sell-in, and the benefit of a relatively weak prior year sell-in in quarter four.
About 25% of this growth bump is coming from nutrition as we roll out more SKUs and ramp up consumption growth. We have a portfolio and a growth engine that's diversified, resilient, and increasingly repeatable, and it's allowing us to grow share of about 70 basis points and to outgrow the market by about 6:1 on volume growth. These are some of the best results that Perrigo has ever achieved. We're on track to deliver our adjusted gross margin target of 40%. First half was in line with plan, including notwithstanding the increase in infant formula scrap costs, which reduced margin by 90 basis points. Both of these impacts are not expected to repeat in the second half, the second impact being the absorbency costs that we saw that were fully planned in the first half. Net, our gross margin is on track.
It's in line with our plan and is showing good year-on-year growth. This margin performance reflects our ability to manage complexity, drive efficiency, and protect profitability even in a very dynamic environment. We're reaffirming our 2025 adjusted EPS guidance at a time when others are taking it down, of between $2.90 and $3.10. This represents between a 13%- 21% growth year-over-year. In the first half, we delivered, as expected, $1.17 adjusted EPS, which was a 41% year-on-year increase driven by infant formula recovery, share gains, operating leverage, and disciplined cost control. We continue to expect 60% of our full-year EPS to be generated in the second half.
This is not unusual given the salience of our cough cold business, but it's driven by higher operating income from net sales growth and gross margin expansion, lower operating expenses with Q3 expecting to be higher than Q4, and an effective tax rate of approximately 19%. This phasing reflects our confidence in the back half of the year where our strategic initiatives and seasonal tailwinds converge. This is what gives us the confidence to hold our full-year EPS guidance, so we're executing with more precision. We've upgraded our team and our operating discipline, and our financial performance is validating the strength of our strategy, and our financial performance is strengthening itself. In total, we did not make any adjustments to our full-year outlook and are reaffirming that outlook. As you can see here, executional discipline and portfolio resilience is expected to drive our performance.
In summary, we want to communicate very clearly to our shareholders and future owners. It's a company executing with intensity, we're scaling with purpose, and we're moving with urgency. Each decision is grounded in increasing discipline and driven by a commitment to long-term value creation, fully aware of where improvement is needed, and we're on track to deliver that. Increasingly, we believe we do have the right strategy, a differentiated and globally applicable strategy. We've upgraded the quality and execution of our leadership, and we're applying the right focus to every part of the business. Execution really is our mandate now, and while we've made significant progress, we're really at the beginning of what this company can achieve. Thank you for your continued trust and partnership. I hope that explains who we are, how we're performing, why we're performing so well, and why we're so confident about our outlook.
Great. Thank you, Patrick. Maybe just continuing on the current results and looking into the back half. Consumption has been a little weak, and we've seen it really across the board. The majority of companies have reported now, but your brands have held up pretty well in your portfolio. Maybe if you could talk about in a little bit more detail the shift into the back half and the drivers of the growth.
Yeah, I'll give some general points, and then Eduardo will give some more details. About 45% now is this, okay, this microphone?
Yeah.
About 45% of our sales now from branded and about 45% of our sales are now from our international business. The benefit of that international is growing faster and the brands have a more attractive mix. That is helping us. As those brands accelerate, we're seeing the benefit of that playing out obviously in the second half, but into 2026, 2027. Mix and performance is number one. Two, it was a relatively mild cough cold season, allowing for an average that helps. Infant formula will be about 25% bigger in terms of consumption the second half versus the first half. In combination, then that's driving a couple of hundred million dollars of growth second half compared to first. These plans largely in execution and it's just math now.
Okay, great. I think, looking out to the back half as well, you talked about some new SKUs potentially for the infant formula business. Maybe if you could talk about what you're rolling out. Some of the SKUs have already come out. Have you seen the consumer react to those SKUs and how you see the growth of that business playing out even into next year?
Yeah, there's always opportunity. We are growing share of new mothers at the point of market change, which is about three months. That's the fundamental driver of consumption for us. The focus on regaining the share we had of new mom conversion is improving. Yes, the SKUs are rolling out. There's opportunity. Store brand infant formula share of shelf is not at the historical norm. That's further growth opportunity. There's opportunity to invest in demand generation and we will do that. New mom share and SKU velocity are the two key focuses for us.
Okay, great. There's been a lot of talk around just destocking at retail, particularly in the first half. It sounds like most companies believe that's kind of behind them. Maybe if you could talk about if you've seen any impact on your business and how you're thinking about that for the back half.
Yeah, we heard a lot of our c ompetition mentioned that we did not see a change in our days on hand with retailers, and if anything, OTC store brand has grown share and our share of it. You'll start to see that eventually playing through in an inventory uplift for us. That actually becomes a help just as a function of days on hand formula, starting to see that.
Okay, great. I guess just maybe looking at the private label business, maybe if you could talk about if you feel that the consumer is trading down a little bit more to private label in the U.S., if that has been benefiting your business and the opportunity going forward.
Yeah, of course we call it trading across, not trading down. As the consumer trades across, which is happening, we have actually seen a sort of strengthening store brand OTC share. Our share of that will accelerate in the second half because of these net business wins. We won all store brand OTC business. Yes, there is trade into store brand. Yes, that is benefiting us. We're growing volume share and now unit share as well. These are bioequivalent medications. They're all monograph. They're identical. We're at a significant value and about 70%- 80% of consumers, when they do move into store brand, see that they get exactly the same benefit, the significant value enhancement state. That conversion just becomes an annuity.
Yeah, okay, great.
The interesting thing is, as Patrick was alluding. Right. The work of the new operating model focus on demand generation. Right. The example he gave on allergies, I think it's such amazing because in a category that's declining, you're able to really put a program together to really get with the millennials to get into the category and see the benefit early on on trading across into store brand. That's a population that we hope they're going to continue with that going forward. That’s a great opportunity we see not only for the short term, for the long- term. Also, how do you take the same approach, cross categories. Right.
As we work across multiple molecules and different categories, as we're approaching, you know, there is the new allergy season approach now and then the cough cold season. The benefit is use the same branding capabilities that use into all these brands that are making significant success. How do you take that into store brand and make sure that at a time where consumers are really stretched, how do you gain the confidence that store brand is the same? Same product.
Yeah.
Bring the same benefit, but at a much more important value.
Yeah, right. I was going to bring up the 100 molecule portfolio that you guys have, which is amazing. You know, really the only company out there that has 100 molecules to utilize. Maybe if you could talk about just the opportunity there, you know, how you could potentially cross use that across brands and geographies.
Yeah, 100 molecules, 250 molecule and combination of molecules and 2,500 formulations. That is X number of times bigger than our closest competition either in branded. Firstly, a lot of our retailers work with us because we're really molecule agnostic. It's about driving total category. All of our retailers want to drive store brand household penetration in a flat to declining category. One of the best ways for them to drive profitability is conversion to store brand. We have multiple demand generation activities now going on with the biggest retailers in the U.S. and in the international business. This is a new thing for us, but it is exactly the same capability required to drive brands. That is very positive, very encouraging, and will have quite a material impact on 2026.
We've used this expression Perrigo chassis, which is how do you take those molecules, those manufacturing platforms, and maximize the number of revenue streams. If I look at just the brands you've got, let's say Coldrex, that's a major brand in a lot of Central and Eastern Europe countries. We take the same formulation, we put on Bronco Stop and other cough cold brands, apply it to that brand, roll it out in multiple countries simultaneously. We're getting the same molecule innovation now to three or four brands, 20 countries, one rollout, and we're just starting to do that. If you take the UK, the UK, we have 80% household penetration. 80% of the households in the U.K. have a Perrigo product in them. That's unbelievable.
That's great.
As we look at what the U.K. has done, it takes the same molecule, it executes so that the store brand pricing, mid tier pricing, and then as branded. It's basically taking one molecule and getting three revenue streams from that one molecule according to what the consumer wants. By doing it across so many molecules, it maximizes the revenue potential and it maximizes household penetration, the opportunities in the international business. Our average household penetration is between 10% and 15%.
Wow.
As we execute that model, you can see the pathway to growth. Our global household penetration is 5%.
Oh, wow.
You start to see as you execute more molecules across more brands, more store brands, more price points, just this incredible revenue opportunity.
Yeah, that's amazing. Maybe if we could just touch on Opill a little bit, which we haven't talked about, and where that's at right now and where you see the opportunity longer term.
Yeah. We expected significant conversion from the RX market to Opill that went OTC. That didn't happen. We then started to see which consumers was this most relevant for. There were four cohorts. For competitive reasons, I'm not going to say who they are, but we identified very strong appeal amongst four very large consumer groups. What we've got much better at is targeting those consumers, converting them. As I mentioned earlier, 60% of them repeating, the lifetime value of each of those consumers is very attractive. As we're getting better at that, we're double consumption this year, which is great. We would continue to see good growth of Opill. That shows us a couple of things. We can successfully switch on complex categories.
What we're starting to do now is take the O brand, of which daily oral contraception is just part of the proposition, and expand that into a bigger architecture. For competitive reasons, I'm not going to say what they are, but we have three or four major innovations that will be launched in 2026 and 2027 as we now build out the O brand architecture for women's health.
Okay, great.
I think it's important to mention about Delaware 1. Right. Mergent contraception brand in Europe is one that we're expanding across the whole region. We talk about some numbers and we see how sales are picking up more and more. That's very important, the ability that we have to manage our portfolio, not only in the U.S. but the significant growth in international. As Patrick mentioned, 45% of business now is branded. We continue to see opportunity to get more of these brands that you see here across more countries where we have already our structure in place. You have sales, you have the marketing, so you can have the operational leverage. That's a key component. As we think about how we bridge 2025- 2027, how do you drive your operating margin to increase?
It's more of taking these brands that we have today into more countries that we already have our structure and get the operational leverage on top of our key streamline initiatives like supply chain reinvention and Project Energize.
Okay, great. Maybe we could talk about tariffs. I guess we can't leave here without talking about that. Maybe if you could just talk about the impact that you guys are going to see and if pricing is going to play a part in helping to offset that impact.
Yeah. For this year and up to Friday last week, maybe there was some new announcements during this meeting that we're not aware, but we track that very closely. We expect, based on information available, $10 billion- $20 billion of potential impact to our COGS this year and on an annual basis about $50 billion- $60 billion. It's between 50% on OTC and 50% on oral care.
Okay.
Oral care, we have been working on that for a while already on pricing and driving price increase there. We expect overall two thirds of this impact to be offset by pricing and one third through either new sources of more. How can we bring in source volumes into our facilities? We still have volume opportunities in our facilities in the U.S. Okay, great.
Patrick, maybe just to sum up, if you could talk about where you see the biggest opportunity throughout the company in the business as we look forward, whether it's in growing the top line, utilizing your portfolio, and then also potentially opportunity within the margins.
Yeah. Infant formula recovery is a refining builder for us. Growing store brand OTC household penetration is a major building block for us. We have about 50%, 51% share of U.S. OTC store brand. There might be some opportunity for partial growth in that, but growing store brand share of the pie is a much bigger opportunity focused on that. We have a portfolio of very good brands which enjoy number one or two position in very fast growing categories which are quite fragmented. Growing or accelerating the size of those categories and building our share of it across more countries is a very attractive opportunity. As I look more on the demand side, really using store brand to improve absorbency and cash will enhance margin. Secondly, improving salience of branded sales is another significant mix enhancement as well. Again, we only compete in 30 countries.
Yeah.
We have to at some point start to explore how to logically expand to that incredible consumption opportunity, which tends to be lower income consumers, which our model is designed to win with as we think about future growth as well. For me, they're the three big stages of growth through 2027 and beyond, 2027.
Okay.
Other margin enhancement, I'll let Eduardo
Yeah. Again, we expect the margins naturally to pick up because a lot of the streamlining of portfolio, our operations, that should enable us to not only reduce our administrative costs, but also how can you repurpose that to support our end investments to support more brands and innovation there, as well as the amp required to support these brands. Also, the last piece, just to add what Patrick said, that we're very, very focused is how do we improve our free cash flow over net sales? Right. In connection with that, how do we bring our net leverage to a level that will give more opportunities for investors to invest in Perrigo? Right. We know that at the current level of leverage that we have, there are certain limitations. That's why we're so keen to bring that down, to enable a larger pool of investors to join us.
Yeah, that's very helpful. Thank you so much, Patrick and Eduardo, for joining us.