Kenvue Inc. (KVUE) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Organic Growth and Margin Expansion

  Achieved 1.5% year-over-year organic growth and increased adjusted gross profit margin by 410 basis points to 61.6%.

• Strategic Investments in Brands

  Invested approximately 20% more behind brands than the previous year, focusing on high-yield strategies like healthcare professional engagement and direct consumer engagement.

• Positive Shift in US Consumption

  Observed a positive shift in US consumption in June, particularly in allergy and sun care categories, leading to immediate translation to shipments.

• Leadership in Key Categories

  Tylenol maintained its position as the number one brand in pain relief globally, and Kenvue became the number one and fastest-growing manufacturer in the US Allergy category.

• Essential Health Segment Growth

  Essential Health continued strong performance with organic growth of 7.6%, driven by balanced growth between value realization and volume.

Pessimistic Highlights

• Challenges in Skin Health and Beauty Segment

  Organic growth declined 2.4% year-over-year in the Skin Health and Beauty segment, although it showed sequential improvement.

• Impairment of Assets

  Incurred a noncash after-tax charge of $337 million to adjust the carrying value of long-lived assets related to the Dr.Ci:Labo business due to evolving market dynamics in China.

Company Outlook

• Confidence in Meeting Financial Goals

  On track to deliver financial goals for 2024, with expectations to operate in a volatile environment but confident in delivering on long-term value creation algorithm.

• Increased Marketing Spend

  Made the strategic decision to further increase marketing spend, strengthening positions to deliver long-term value creation without impacting EPS guidance for 2024.

• Focus on Skin Health and Beauty Recovery

  On track to stabilize the Skin Health and Beauty business, with expectations to resume consumption growth next year.

Q & A Highlights

• Q: Can you elaborate on the new pricing actions and expectations for volume improvements in the back half? (Anna Lizzul, from Bank of America)

  A: Value realization continues with a focus on offsetting inflation and FX conditions. Expect value realization to be part of the value creation algorithm, with less impact from carryover pricing and more from mix and new pricing actions. Encouraged by early signs of recovery in Skin Health and Beauty, expecting sequential improvement in volumes. (Thibaut Mongon)

• Q: How much of the 20% increase in spending behind your brands has already been deployed, and where does this bring you relative to the optimized level of aggregate brand support? (Steve Powers, from Deutsche Bank)

  A: Started the year with a 15% increase, now investing 20% more. This additional investment is being deployed from Q2 onwards, getting closer to industry standard faster than anticipated. Will continue to invest with discipline, focusing on strong return on investment. (Paul Ruh and Thibaut Mongon)

• Q: Can you provide an update on leadership in the Skin Health and Beauty business and elaborate on brand architecture and SKU rationalization? (Nik Modi, from RBC Capital Markets)

  A: Making progress on filling the leadership position, focusing on executing plans with precision. Brands are focused on relevance and reaching more consumers, with innovation playing a key role in demonstrating brand superiority. (Thibaut Mongon)

• Q: Could you elaborate on the Essential Health business's performance and expectations for the second half, particularly regarding the China portion of the business? (Filippo Falorni, from Citi)

  A: Essential Health showed strong performance, with broad-based growth. China contributed positively to growth, with a focus on science-based efficacious solutions in Self Care. Expect China to continue being a positive contributor. (Thibaut Mongon)

• Q: Can you provide more color on the promotional environment in the U.S. and how much you've put into the gross margin for the back half of the year? (Susan Anderson, from Canaccord Genuity)

  A: Promotional intensity is part of the strategy, not necessarily about product discounting. Gross profit margin in Q2 was driven by value realization, mix, and supply chain efficiencies, with Q4 expected to be the lowest due to factory maintenance. (Thibaut Mongon and Paul Ruh)

• Q: Are you seeing a slowdown in U.S. skincare, particularly on the dermatological side, and what are the trends for seasonal businesses like sun care and the setup for the cold and flu season? (Jeremy Fialko, from HSBC)

  A: Units about flat in Q2 for Skin Health, with some softness in moisturizers offset by growth in acne. Sun season saw a positive shift in consumption in June, with expectations for a normal cough, cold, and flu season. (Thibaut Mongon)

• Q: Do you anticipate returning to growth in the back half of the year for Skin Health and Beauty? (Peter Grom, from UBS)

  A: Expect sequential improvement in volume in the second half, turning positive towards the fourth quarter, both in terms of volume and growth. (Thibaut Mongon)