Kenvue Inc. Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Company Status: Kenvue formally separated from Johnson & Johnson, included in S&P 500 as world's largest pure-play consumer health company by revenue. Q3 organic growth 3.6% after 4.7% last year.
• Separation Progress: Teams executed separation plan successfully, building legal entities, policies, systems. Focus on consumer-focused operating infrastructure.
• Segment Details:
  • Self-care: Continued innovation and share gains in allergy, pain care, etc. Addressed U.S. acetaminophen litigation, noting FDA's stance on acetaminophen safety.
  • Skin health and beauty: Facing challenges from 2022 rationalization and China softness, but recovery plan in place with focus on sun, face, body, hair care.
  • Essential health: Strong performance with value realization and premiumization in oral, baby, women's health categories

Segment Performance

• Self-care: Organic growth of 6.7% this quarter. Driven by value realization and positive volumes across categories. Allergy: Adult Zyrtec has 77 consecutive weeks of No.1 branded share, Children's Zyrtec achieved No. 1 branded share; Benadryl in U.S. gained share with extra-strength formula. Pain care: Tylenol gained share via premiumization, Motrin Dual Action in U.S. drove share gain. Digestive health: Imodium and Pepcid outpaced market. Smoking cessation: Nicorette in U.K. secured new vaping cessation indication. Revenue contribution: Significant, as it's the largest segment.
• Skin health and beauty: Organic growth negative 0.4% this quarter. Volume decline due to 2022 portfolio rationalization and China market softness. However, Europe and Latin America showed mid-teens growth. Neutrogena in Europe and Latin America had strong performance. Revenue contribution: ~7% of global revenue.
• Essential health: Organic growth 3.8% this quarter. Driven by value realization and premiumization. Oral care: Listerine Gum Therapy successful. Baby care: Johnson's Baby and Aveeno Baby are global leaders. Women's health and wound care: Solid growth. Revenue contribution: Contributed to overall growth with distinct category performances

Guidance

• Full-Year Outlook: Net sales growth expected 4%-4.5%, organic growth 5.5%-6%. Adjusted diluted EPS range $1.26-$1.28.
• FX Impact: Strengthening dollar to negatively impact reported net sales growth by 1-2 points.
• Seasonal Impact: Cold and flu season soft start tightens outlook, lapping strong prior-year comps.

Risks

• Geopolitical/Macroeconomic: Impact on consumer behavior, affecting sales in certain segments.
• Inflation: Ongoing pressures in energy, labor, with FX devaluation (e.g., Russian ruble, Argentinian peso) adding to gross margin pressure.
• China Softness: Continued market softness affecting skin health and beauty segment performance

Question and Answer

• Q: Andrea Teixeira asked about underlying consumption and 2024 outlook.

A: Thibaut Mongon stated strong brand affinity, self-care innovation driving growth, and skin health recovery being gradual with a phased plan.

• Q: Steve Powers asked about skin health distribution recovery phasing and investment plans.

A: Thibaut Mongon said recovery is gradual, Paul Ruh mentioned focus on productivity to maintain investments in growth opportunities.

• Q: Jason English asked about cold and flu sell-in vs outlook.

A: Thibaut Mongon noted sell-in is good but season is soft, Paul Ruh mentioned expanded supply capacity to be competitive.

• Q: Anna Lizzul asked about self-care volume and skin health innovation.

A: Thibaut Mongon said self-care non-seasonal categories grow, skin health innovation helps brand activation in stores and online.

• Q: Filippo Falorni asked about China business sizing and outlook.

A: Thibaut Mongon said China represents ~7% of global revenue, long-term confidence in China despite current softness.

• Q: Susan Anderson asked about input cost inflation and skin health operating income.

A: Thibaut Mongon said inflation is diminishing, skin health margins phased but focused on gross margin improvement for future growth