Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kenvue Inc (KVUE, Financial) reported Q1 results that exceeded expectations, indicating a solid start to the year.
- The company is making progress on its strategic priorities, including reaching more consumers, freeing up resources for brand investment, and fostering a culture of performance and impact.
- Kenvue Inc (KVUE) saw strong performance in its Self Care and Essential Health segments, with notable growth and market share gains in products like Tylenol and Listerine.
- The company is actively investing in innovation and brand activation, which is expected to drive future growth. This includes new product launches like Tylenol Easy to Swallow and the relaunch of Zyrtec Oral Dissolve Tablets.
- Kenvue Inc (KVUE) is successfully executing its plan to transform from a segment of Johnson & Johnson into an independent company, which includes exiting TSAs and optimizing its cost structure.
Negative Points
- Despite overall positive results, Kenvue Inc (KVUE) experienced a decline in the Skin Health and Beauty segment, with a 4.5% decrease and a 6.9% decline in volume.
- The company faces challenges in the U.S. market for its Skin Health and Beauty segment, requiring a focused effort on stabilizing the business and improving market performance.
- Kenvue Inc (KVUE) is still in the early stages of its transformation journey, indicating that significant changes and improvements may take time to fully realize.
- The company anticipates that inventory reductions by U.S. retailers will continue to impact volumes into Q2, potentially affecting short-term performance.
- There are ongoing macroeconomic uncertainties and competitive pressures that could impact consumer spending and market dynamics, posing risks to Kenvue Inc (KVUE)'s growth trajectory.
Q & A Highlights
Q: Thibaut and Paul, you both mentioned that the destocking in the Self Care business will likely continue in Q2, and you gave some color on what to expect in organic sales growth. But in terms of how we should be thinking across the divisions in terms of the Skin Health and Beauty, is that something we should -- I understand that there is still a job to be done and it takes time and you mentioned, Paul, a couple of quarters or several quarters, I think, was the language. But should we expect things to improve sequentially? How we should be thinking of Skin Health and Beauty as we progress?
A: Thibaut Mongon - Kenvue Inc. - CEO & Director: Regarding your question on the Skin Health segment and how -- what we should expect moving forward in Skin Health. Our diagnostic has not changed. I've always said that our recovery would not happen overnight, will not be linear. We have developed a thoughtful plan. It's a priority for us. Jan and his team in the U.S. are laser-focused on executing this plan, the objective to stabilize brand in 2024 with improving volumes as the year goes on and deliver growth from 2025 onwards.
Q: So I wanted to ask because we're hearing from some of your peers that they're seeing a step-up in promotional intensity and they're expecting this going forward. So could you talk about what you're seeing in your markets and some of your key categories and if that's consistent? And basically what your approach will be for the rest of the year. And then how do we think about this in the context of robust gross margin delivery in the quarter? And finally, how does that feed into your expectations for continued contribution from net price realization going forward?
A: Thibaut Mongon - Kenvue Inc. - CEO & Director: Yes. So what do we see in our categories? We see that our categories continue to be resilient and strong, that's probably unique to -- linked to the unique nature of the consumer health categories compared other stable categories you may be familiar with. In our categories, consumers are looking for efficacious solutions at a compelling value proposition, but it is exactly what we offer at Kenvue.
Q: Thibaut, I wanted to ask about Our Vue Forward program. It seems like it was really just approved by the Board yesterday. So maybe you could give some perspective on just initial reactions internally across the organization, and what steps you've taken to maybe help ensure that this is a program that's viewed as a program of acceleration that people can rally around versus maybe a potential source of disruption.
A: Thibaut Mongon - Kenvue Inc. - CEO & Director: Yes. So let me take the first part of your question, Steve, and I'll have Paul answer the second one on the reinvestment. Our Vue Forward has always been a key element of our plan. We see the opportunity of exiting TSAs to not only clone the way of working we had as a division of J&J, but as an opportunity to reinvent our ways of working to make Kenvue more competitive and a company focused on profitable growth. And that's what Our Vue Forward is all about.
Q: I just wanted to follow up on Bonnie's question. I wanted to ask how you plan to split some of the incremental investment in your brands, maybe between marketing and promotion. And how should we think about a potential increase of promotion or trade spend on price/mix as we move through the year?
A: Paul Ruh - Kenvue Inc. - CFO: Thank you for the question, Anna. Let me take the first part, and Thibaut will the second one. In terms of how we plan to spend our investments in our brands, remember, we always take a digital-first ROI-driven approach. We are on track to investing the $300 million more that we mentioned at our Q4 earnings. And we began Q1 with a focus on our 15 priority brands, considering what we call investable propositions, and those are the ones where we maximize the return on investment. We are increasing investment across a spectrum of activities, from in-store activation to media, digital influencers, and also HCP endorsement with a focus to amplify our innovation.
Q: Just a quick clarification in terms of how you overdeliver, just wanted to make sure I understood exactly what the source of the upside was.
A: Paul Ruh - Kenvue Inc. - CFO: Thank you, Nik. And let me take the first one, what drove the outperformance in Q1. Remember, we guided to about flat, and the outperformance was driven by price, a little bit by a little bit by volume as well. And from a regional perspective, Europe is doing very well, slightly ahead of our expectations, and Essential Health from a segment perspective is also performing very well both in EMEA and LatAm. The rest is performing in our expectations. So pockets of strength across the portfolio as we execute against our priorities.
Q: I'd like to touch a little bit more on the gross margin. It came in a little bit higher this quarter. I know you talked a little bit about some of the drivers there. Is there any way you can help us quantify the specific drivers and help us better understand which ones are going to be more sticky throughout the course of the year? And then any color on how to think about the cadence of the gross margin throughout the remainder of the year?
A: Paul Ruh - Kenvue Inc. - CFO: Yes. Korinne, thank you for the question. We're actually very, very proud of the work that team is doing. Gross margin is a strong muscle for Kenvue. And pricing, that is value realization, continues to be a component our gross margin enhancement along with continuous efficiencies in our operations. The impact of inflation is also moderating with agrochemicals becoming now a tailwind and is still offset by some headwinds in labor and energy. And we're mindful of the unique dynamics and the volatility that we still see in the commodity markets. But we're very confident that we will be reaching, as I said in my prepared remarks, our stated goal of 59% by -- that we had back in 2021 this year. So we're more optimistic about the gross margin enhancement that will help fuel the brand activation and getting closer to our consumers and customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
