GRAND RAPIDS — Perrigo Co. plc would add capacity to produce infant formula through a $170 million deal to acquire a plant in Eau Claire, Wis. along with investments in existing facilities.
The deal with Nestlé SA for the Gateway infant formula facility includes acquiring the U.S. and Canada rights for the Gerber Good Start infant formula brand. Perrigo also will invest $60 million to expand production capacity at the plant within 18 months. The company aims to increase the facility’s production by 7 million pounds annually, or the equivalent of 100 million eight-ounce bottles.
The investments announced today will add 36 million pounds to Perrigo’s annual capacity to produce infant formula. The company said it was already looking to expand capacity even before problems at an Abbott Nutrition facility in Sturgis worsened a nationwide shortage for infant formula since the start of the COVID-19 pandemic in early 2020.
Despite running existing facilities in Ohio and Vermont at capacity, Perrigo has been unable to meet consumer demand for its 17 store-brand infant formulas and contract manufacturing customers that include new market entrants and growing premium national brands.
“Long before this year’s infant formula shortage, we had been pursuing options to increase capacity to meet growing demand for our infant formula in the U.S.,” Perrigo President and CEO Murray Kessler said in a statement. “But this year’s industry shortage galvanized our commitment to not only invest to meet the demand for our store brand and contract customers, but also to help prevent future infant formula shortages.”
The acquisition from Nestlé “solidifies our long-term manufacturing supply of infant formula in the U.S., increases the availability of lower priced, high-quality infant formula to consumers, and delivers value to Perrigo shareholders,” Kessler said. The deal is the first major initiative under Perrigo’s “supply chain reinvention” program, he added.
Infant formula is part of Perrigo’s Nutrition division that reported a 30.6-percent increase in net sales in the second quarter to $125 million. The company said in August that the increase was primarily related to strong growth in infant formula sales that resulted from market share gains, new product launches, third-party contract sales and the Abott product recall.
Kessler told brokerage analysts in an August conference call that the “unusual circumstance” with the Abbott recall had “given many families the opportunity to try a private-label infant formula for the first time, a good portion of which we believe will be sticky.”
“Latest survey results show that more than one in three pediatricians are recommending store-brand formula to parents, up from one in five in October of a year ago. These results illustrate that our physician-directed marketing efforts are making significant progress, and this is an important trend as the parent or caregiver who purchases infant formula typically turns over every 12 months,” Kessler said at the time.
Perrigo reports sales for the third quarter next week.