Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kenvue Inc (KVUE, Financial) achieved year-over-year organic growth of 1.5% on top of 7.7% organic growth last year.
- Adjusted gross profit margin increased by 410 basis points to 61.6%.
- The company is on track to deliver its financial goals for 2024, including an expected 150 basis points of adjusted gross profit margin expansion.
- Significant progress in productivity and cost reduction efforts, providing strategic flexibility.
- Increased investment in brands by approximately 20% compared to last year, focusing on high-yield strategies.
Negative Points
- Skin health and beauty segment saw a 2.4% decline in organic growth year-over-year.
- Volume was down 0.6% year-over-year, with low single-digit volume declines in both self-care and skin health and beauty segments.
- The company incurred a non-cash after-tax charge of $337 million due to impairment of assets related to the Dr.Ci:Labo business.
- Retail destocking in the US impacted the first half of the year.
- The company expects lower gross margins in the back half of the year due to annual plant maintenance and lower commodity inflation benefits.
Q & A Highlights
Q: Could you elaborate on the new pricing actions and the sequential improvement in skin health volumes?
A: (Thibaut Mongon, CEO) The new pricing actions are a combination of carryover pricing, new pricing, and mix. We take these actions in markets and categories where we still see inflation and FX impact. For skin health, we are pleased with the early signs of our recovery plan, seeing sequential improvement from Q1 to Q2. We are reaching more consumers and healthcare professionals successfully, with strong building blocks for the back half.
Q: Regarding the 20% increase in spending behind your brands, how much has been deployed and what is the optimal level of brand support?
A: (Paul Ruh, CFO) We started the year with a 15% increase and have now added another $100 million, starting to deploy as of Q2. We are getting closer to industry standards faster than anticipated and will continue to invest as long as we see strong returns on our investments.
Q: Can you provide more detail on the expectations for skin health and beauty in the back half of the year?
A: (Thibaut Mongon, CEO) We are on track to stabilize the business in 2024, with volumes expected to improve sequentially. We are increasing our presence and prominence in-store and engaging more with dermatologists and consumers, especially on social media with influencers.
Q: Any updates on the retail destocking in self-care and the performance in international markets?
A: (Thibaut Mongon, CEO) We saw some destocking in the US in the first half, but levels have stabilized, and we don't expect further impact in the back half. Outside the US, we see healthy inventory levels and no major movements expected.
Q: Can you comment on the leadership progress in the skin health and beauty segment and any brand architecture changes?
A: (Thibaut Mongon, CEO) We are making progress in filling the segment's leadership position. Our Chief Growth Officer, Charmaine England, is leading the segment in the interim. We are focused on making our brands more relevant and reaching more consumers through social media, influencers, and innovation.
Q: What drove the strength in the essential health business this quarter, and what are the expectations for the second half?
A: (Thibaut Mongon, CEO) Essential health saw broad-based growth across every region and category, with balanced growth between value and volume. Strong performance from Listerine and new innovations like BAND-AID Pro Heal and Aveeno Kids contributed to this. We expect to continue driving category growth and bringing new users into the category.
Q: Can you provide more color on the promotional environment in the US and its impact on gross margins?
A: (Thibaut Mongon, CEO) Consumers are prioritizing health and are willing to pay a premium for science-backed, trusted brands. We have not increased promotional intensity above our peers and manage it with an ROI-based approach. Gross margins are expected to decline from the high watermark of Q2, with Q4 being the lowest due to plant maintenance.
Q: Are you seeing a slowdown in US skincare, particularly on the dermatological side, and what are the trends in sun care and cold and flu season?
A: (Thibaut Mongon, CEO) We see units in skincare about flat in Q2, with differences between body, sun, hair, and face. Sun care saw a positive shift in June, and we expect a normal cough, cold, and flu season this year, with retailers reverting to historical ordering patterns.
Q: Do you anticipate returning to growth in skin health and beauty in the back half of the year?
A: (Thibaut Mongon, CEO) We expect sequential improvement in volume and growth in skin health and beauty, particularly in Q4, considering the comps versus last year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
