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    KVUE
    Earnings call· Mar 2025(Q1 FY25)

    Kenvue Q1 FY25 earnings call KVUE

    May 8, 2025 Source

    Executive summary

    Kenvue Q1 FY25 — Strategic Investments and Tariff Headwinds Impact Q1, Full-Year Outlook Maintained

    Kenvue navigated a dynamic Q1 FY25 with organic sales declining as anticipated due to strategic price investments and China destocking. The company maintained its full-year organic sales growth outlook, expecting acceleration in the back half as headwinds dissipate and commercial plans gain traction. However, increased tariff costs led to a revised outlook for adjusted operating margin (slight contraction) and adjusted diluted EPS (flat YoY), despite ongoing productivity initiatives and brand investments.

    Highlights

    5

    • Maintained full-year 2025 organic sales growth outlook in the 2% to 4% range.

    • Achieved an adjusted gross margin of 60%, reflecting successful productivity initiatives.

    • Tylenol strengthened its #1 position, gaining share for the 11th consecutive quarter.

    • Neutrogena Face maintained its #1 share position in America for the second quarter in a row, with Gen Z household penetration growing 30 basis points.

    • Completed the transition services agreement (TSA) program in April, finalizing the exit of over 2,300 TSAs without disruption.

    Concerns

    5

    • Organic sales declined 1.2% in Q1 FY25, consistent with anticipated first-half headwinds.

    • Adjusted operating margin contracted 220 basis points year-over-year to 19.8% due to increased brand support.

    • Adjusted diluted EPS was $0.24, including a $0.02 headwind from currency.

    • Estimated gross impact of tariffs for 2025 is nearly $150 million, leading to a revised outlook of slight contraction in full-year adjusted operating margin and flat adjusted diluted EPS.

    • Skin Health and Beauty organic sales declined 4.8% due to China destocking, a soft Latin America sun season, and strategic price investments in the U.S.

    Guidance & targets

    8
    CategoryTargetConfidence
    Organic sales growth
    2% to 4%
    high materiality
    High
    Net sales growth
    1% to 3%
    high materiality
    Medium
    Adjusted operating margin
    contract slightly
    high materiality
    Medium
    Adjusted diluted EPS
    about flat versus last year
    high materiality
    Medium
    Adjusted diluted EPS (constant currency)
    up low single digit
    medium materiality
    Medium
    Currency drag on top line
    approximately 1%
    medium materiality
    High
    Currency headwind to EPS
    low single digit
    medium materiality
    High
    Tariffs gross impact
    nearly $150 million
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Self Care
    Organic sales growth driven by allergy, digestive health, and smoking cessation franchises, offsetting a decline in cough, cold, and flu. Asia Pacific pediatric business was softer than anticipated, prolonging trade inventory digestion.
    Nearly 80% of the business expanding or maintaining market shareTylenol gained share for the 11th straight quarterZyrtec growing both value and volume share
    		—0.3%——
    Skin Health and Beauty
    Organic sales declined amidst a decelerating category backdrop, impacted by China destocking, a soft sun season in Latin America, strategic price investments in the U.S., and loss of club channel rotations. Consumption outpaced organic sales, with sequential improvement in the U.S.
    Neutrogena's household penetration with Gen Z consumers grew 30 basis pointsNeutrogena Face maintaining its #1 share position in America in both value and volume for the second quarter in a rowEMEA organic sales growing year-over-year for the 12th consecutive quarterAveeno brand double-digit growth in U.K. and Central Europe
    		—-4.8%——
    Essential Health
    Organic sales were flat, with growth in wound care offset by declines in women's health and oral care. Performance was negatively affected by competitive pressures in certain geographies and Asia destocking, though positive global consumption was observed.
    Listerine Total Care and Listerine Clinical Solutions grew double digits in Q1Listerine is the fastest-growing brand in dollars and in units on AmazonAveeno grew double digits in Q1, growing 4x faster than competition and is the fastest-growing brand in the category
    		—flat——

    Operational metrics

    15
    Net interest expense
    $94Mdown slightly versus last year
    Q1 FY25

    Net interest expense came down slightly versus last year.

    Adjusted net income
    $465M
    Q1 FY25

    Adjusted net income of $465 million.

    Currency headwind to adjusted diluted EPS
    $0.02
    Q1 FY25

    Adjusted diluted EPS of $0.24, including about a $0.02 headwind from currency.

    China imports as percentage of annualized foreign sources
    ~10%
    FY25

    China represents only about 10% of our annualized exposure to foreign sources.

    Tariff rate from China
    145%
    current

    The largest impact [from tariffs] is from China, at the current rate of 145%.

    Tariff impact from China (as % of total)
    ~2/3
    FY25

    China's tariff impact is about 2/3 of the annualized impact.

    Tariff impact from Canada (as % of total)
    <10%
    FY25

    Canada into the U.S. ... nets out to a small proportion of the total impact, less than 10%.

    Private label penetration change
    down 50 bps
    most recent period

    Penetration of private label in our categories is down overall by another 50 basis points in the last period.

    Psychological price thresholds
    $4.99, $9.99, $14.99
    current

    Management aims to hit psychological price thresholds like $4.99, $9.99, $14.99 to make products easier to shop.

    Self Care organic sales growth (value realization)
    0.3%YoY
    Q1 FY25

    In Self Care, value realization drove 0.3% growth in organic sales.

    Self Care organic sales growth (volumes)
    flatYoY
    Q1 FY25

    In Self Care, organic sales growth was driven by flat volumes.

    Skin Health and Beauty organic sales growth (volumes)
    -2.9%YoY
    Q1 FY25

    In Skin Health and Beauty, volumes were down 2.9% year-over-year.

    Skin Health and Beauty organic sales growth (value realization)
    -1.9%YoY
    Q1 FY25

    In Skin Health and Beauty, value realization was down 1.9% year-over-year.

    Essential Health organic sales growth (price/mix)
    0.1%YoY
    Q1 FY25

    In Essential Health, a 0.1% contribution from price/mix.

    Essential Health organic sales growth (volumes)
    -0.1%YoY
    Q1 FY25

    In Essential Health, a 0.1% decline in volumes.

    Industry KPIs

    7
    MetricValueDetails
    EPS$0.24USD
    Gross margin60%%
    Operating margin19.8%%
    Effective tax rate27.5%%
    Organic revenue growth-1.2%%
    Advertising marketing investment—
    Innovation new product contribution—

    Product announcements

    4
    ProductTypeDetails
    Neutrogena new brand positioninglaunch
    Listerine Clinical Solutionsexpansion
    BAND-AID Waterproofexpansion
    Aveeno Kids for curly hairexpansion

    Capital programs

    1
    Our Vue Forward initiativesunderway$350M gross annualized

    Benefit: Cost savings

    Kenvue is pacing well towards realizing $350 million in gross annualized savings from Our Vue Forward initiatives by 2026, aimed at taking out infrastructure costs and reducing SG&A spend to fuel brand investments.

    Risks & headwinds

    10
    China destockingQ1 FY25, expected to be largely behind by end of Q2

    3% to 4% headwind to organic sales in Q1 FY25

    Mitigation: Strengthening and streamlining distributor network.

    Strategic price and trade spend investments in U.S.Q1 FY25, expected to lap in H2

    3% to 4% headwind to organic sales in Q1 FY25

    Mitigation: Targeting specific categories and SKUs to enhance brand competitiveness, seeing improved consumption as a result.

    TariffsFY25

    Nearly $150 million gross impact for 2025

    Mitigation: Accelerating productivity initiatives, activating alternate sourcing, optimizing supply chain, leveraging revenue growth management. Working with retail partners to minimize consumer impact.

    Foreign exchange ratesFY25

    Approximately 1% drag on top line, low single digit headwind to EPS for FY25

    Soft sun season in Latin AmericaQ1 FY25

    Impacted Skin Health and Beauty organic sales decline of 4.8%

    Loss of rotations in club channelsQ1 FY25

    Impacted Skin Health and Beauty organic sales decline of 4.8%

    Category decelerationQ1 FY25

    Impacted Skin Health and Beauty and Essential Health segments

    Mitigation: Driving premium innovation and bringing to market additional entry price point offerings.

    Competitive pressures in certain geographiesQ1 FY25

    Negatively affected Essential Health organic sales

    Mitigation: Addressing these pressures.

    Retailer tightening order managementApril (Q2 FY25)

    May shift volumes from one quarter to the next

    Mitigation: Remaining agile, ensuring sufficient offerings across pricing spectrum, reframing communication to highlight value.

    Prolonged winter delaying seasonal categoriesEarly Q2 FY25

    Pushed allergy and sun seasons out, leading to a soft start to the season for both categories

    Mitigation: Remaining agile, monitoring actual category dynamics.

    What to watch in Q2 FY25

    5

    China Destocking Resolution

    by the end of Q2
    Current3-4% headwind to organic sales in Q1
    Targetlargely behind us

    Why it matters

    Resolution of this headwind is key for H2 organic sales acceleration and overall business performance.

    As we have discussed, the destocking in China is driven by both the lingering impact of the weak pediatric pain and fever season, and actions we are taking to improve distributor execution. We are on track with our plans to strengthen and streamline our distributor network and expect to have these two factors behind us by the end of Q2.

    Q&A highlights

    7

    How have innovation plans evolved given the current environment and consumer pressures, especially regarding timing of launches and merchandising support?

    Innovation plans are broadly unchanged, focusing on efficacy, trust, value, and convenience. Kenvue is tweaking plans to ensure the right price architecture (e.g., hitting psychological thresholds like $4.99, $9.99, $14.99) and channel presence, noting positive consumption impact from strategic price investments.

    “We continue to believe that innovation and giving reasons for consumers to enter our categories that, remember, are all underdiagnosed, undertreated, underpenetrated is more important than ever.”

    asked by Bonnie Herzog · answered by Thibaut Mongon

    2 min read6 chapters

    Detailed Narrative

    01

    Operating Model and Strategic Priorities

    Kenvue has fully activated its new operating model, leveraging its 'five extraordinary powers' (superior science, insight-led innovation, HCP presence, breakthrough marketing, seamless commerce) to unleash brand potential. The company completed its transition services agreement (TSA) program in April, exiting over 2,300 TSAs without disruption, which has streamlined systems and processes. This operational efficiency is part of optimizing the cost structure and strengthening performance culture.

    02

    Q1 Performance Overview and Consumption Trends

    Organic sales declined 1.2% in Q1 FY25, consistent with expectations, including a 3-4% headwind from China destocking and U.S. strategic price/trade investments. Despite this, consumption outpaced organic sales growth across all three segments, indicating an improvement in the underlying health of the business. Management expects top-line performance to accelerate in the back half of the year as structural changes and investments yield compounding benefits.

    03

    Skin Health and Beauty Segment Initiatives

    Amidst a 4.8% organic sales decline in Q1, the Skin Health and Beauty segment saw sequential consumption improvement in the U.S. This was driven by breakthrough brand-building campaigns and strategic value pricing adjustments. Neutrogena's new 'beauty to a science' brand positioning, launched in February, generated over 8 billion earned media impressions and increased Gen Z household penetration by 30 basis points, signaling positive engagement with a critical demographic.

    04

    Essential Health Strategy and Innovation

    The Essential Health segment reported flat organic sales in Q1 within a decelerating global category. Kenvue is employing a two-pronged approach to capture consumers across the price spectrum. This includes driving premium innovation, such as rolling out Listerine Clinical Solutions globally and expanding BAND-AID Waterproof and Aveeno Kids for curly hair, while also introducing additional entry-price-point offerings.

    05

    CFO Transition and Leadership

    Paul Ruh will transition from his role as CFO, with Amit Banati joining Kenvue as the new Chief Financial Officer on May 12. Banati brings 30 years of experience from global consumer product companies, with a proven track record in both financial and operational roles. His expertise is expected to contribute to accelerating profitable growth and delivering shareholder value by overseeing finance and strategy functions.

    06

    Tariff Impact and Mitigation Efforts

    New tariffs implemented by the U.S. and retaliatory measures are estimated to result in a gross impact of nearly $150 million for 2025. Kenvue is actively implementing mitigation actions, including accelerating productivity initiatives, activating alternate sourcing, optimizing its supply chain, and leveraging revenue growth management. However, the company anticipates facing higher-than-previously-anticipated costs for imported products and components this calendar year.

    AI-generated summary of the company’s earnings call. Not investment advice.