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    KVUE
    Earnings call· Jun 2025(Q2 FY25)

    Kenvue Q2 FY25 earnings call KVUE

    Aug 7, 2025 Source

    Executive summary

    Kenvue Q2 FY25 — Revised Guidance and Operational Turnaround Focus

    Kenvue reported a challenging Q2 FY25 with organic sales declining 4.2%, leading to a downward revision of full-year guidance. Interim CEO Kirk Perry outlined a strategic review and immediate operational priorities focused on reducing self-induced complexity, improving execution, and strengthening leadership to accelerate profitable growth. The company aims to drive consistency and reliability in its financial performance while addressing market headwinds and internal inefficiencies.

    Highlights

    5

    • Zyrtec strengthened its leadership position and grew household penetration in the U.S. allergy category despite a soft season.

    • Tylenol continued its streak of 12 consecutive quarters of share improvement in the U.S. adult segment.

    • Global consumption of Skin Health and Beauty brands stabilized for the first time in over a year, driven by growth in EMEA, Latin America, and Asia Pacific.

    • The international Nicorette franchise achieved 7 consecutive quarters of share gains, driving top-line growth for the brand.

    • Johnson's Baby in Brazil realized its second consecutive quarter of year-over-year share growth, reclaiming the #1 prescribed brand position.

    Concerns

    5

    • Organic sales declined 4.2% in Q2, falling below expectations due to category deceleration, seasonal impacts, and inventory dynamics.

    • Full-year 2025 organic sales guidance was revised to 'down low single digits' from prior expectations.

    • Full-year 2025 adjusted diluted EPS guidance was lowered to a range of $1.00 to $1.05.

    • Adjusted gross margin contracted 70 basis points year-over-year to 60.9% due to input cost inflation, unfavorable mix, currency, and strategic price investments.

    • The Listerine mouthwash business is losing share across the total U.S. market, despite online gains and strong performance in its premium line.

    Guidance & targets

    6
    CategoryTargetConfidence
    Full-year 2025 Organic Sales Growth
    down low single digits
    high materiality
    High
    Full-year 2025 Currency Impact on Organic Sales
    about neutral impact
    medium materiality
    High
    Full-year 2025 Adjusted Operating Margin
    contract versus last year
    high materiality
    High
    Full-year 2025 Gross Annualized Tariff Impact
    around $150 million
    medium materiality
    High
    Full-year 2025 Adjusted Diluted EPS
    $1 to $1.05
    high materiality
    High
    Full-year 2025 Currency Impact on Adjusted Diluted EPS
    low single-digit drag
    medium materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Self Care
    Most significantly impacted by inventory and seasonal dynamics in North America and Asia Pacific. Largest gap between consumption and organic sales. Strong momentum in smoking cessation. Declines in allergy, cough/cold/flu, and pain care franchises due to lower seasonal incidences and lapping prior year inventory build in China. Zyrtec strengthened leadership and gained household penetration despite U.S. allergy incidence decline (adults -7.7%, children -16.9%). Rhinocort gained share in China.
    Consumption: grew year-over-yearU.S. business holding or gaining share: 83%Tylenol U.S. adult share improvement: 12th consecutive quarter
    		—-5.9%——
    Skin Health and Beauty
    Solid organic sales growth in EMEA and Latin America offset declines in North America and Asia Pacific. Overall U.S. consumption trends improved sequentially, benefiting from strategic price investments. Brand-building efforts for Neutrogena Face and OGX are resonating. Significant work remains for sustainable growth and share gains in the U.S.
    Value realization: -2.3%Volume: -1.4%Global consumption: stabilized for the first time since Q3 2023Neutrogena Face U.S. consumption: returned to year-over-year growthOGX Bond Protein Repair innovation: #1 performing innovation year-to-date
    		—-3.7%——
    Essential Health
    Cycled against a strong comparison (7.6% organic sales growth in prior year). Disconnect between consumption and top-line performance. Wound care is on good footing with BAND-AID growing share. Progress in addressing competitive pressures in women's health in Asia Pacific. Encouraging consumption for baby care brands. Mouthwash business performance in the U.S. is not satisfactory, with efforts underway to address share decline by targeting the mild alcohol-free segment.
    Volume: -1.8%Value realization: -0.6%BAND-AID brand adhesive bandages: grew shareListerine U.S. share: losing across total universe, gaining online
    		—-2.4%——
    EMEA
    Pleased with performance. Contributed to global consumption stabilization in Skin Health and Beauty. Nicorette franchise driving top line growth.
    		—Solid organic sales growth——
    Latin America
    Pleased with performance. Contributed to global consumption stabilization in Skin Health and Beauty. Essential Health performed well. Johnson's Baby in Brazil reclaimed #1 prescribed brand.
    		—Solid organic sales growth——
    North America
    Impacted Skin Health and Beauty declines. Most challenged region.
    		—Declines——
    Asia Pacific
    Impacted Skin Health and Beauty declines. Most challenged region. Addressing competitive pressures in women's health.
    		—Declines——

    Operational metrics

    19
    Adjusted Operating Margin
    22.7%contracted 10 bps versus last year
    Q2 FY25

    SG&A savings helped offset the impact of softer gross margins.

    Adjusted Diluted EPS
    $0.29versus $0.32 in the year-ago period
    Q2 FY25

    Includes about a $0.01 headwind from foreign exchange.

    Adjusted Net Income
    $560 milliondeclined 8.3%
    Q2 FY25

    Below-the-line items were unfavorable year-over-year.

    Value Realization
    -0.9%
    Q2 FY25

    Unfavorable in Q2, partly due to strategic price investments.

    Volumes
    -3.3%
    Q2 FY25

    Unfavorable in Q2.

    Net Interest Expense
    $94 millionup about $2 million
    Q2 FY25

    Year-over-year increase.

    Adjusted Effective Tax Rate
    26.9%increased to 26.9% from 25.7%
    Q2 FY25

    Lapped a discrete tax benefit in the year-ago period.

    FX Headwind on EPS
    ~$0.01
    Q2 FY25

    Impact on adjusted diluted EPS.

    U.S. Allergy Incidence (Adults)
    -7.7%
    Q2 FY25

    Second lowest on record.

    U.S. Allergy Incidence (Children)
    -16.9%
    Q2 FY25

    Second lowest on record.

    Listerine User-Generated Content Growth
    245%
    Q2 FY25

    For Listerine Total Care initiative.

    Listerine Share of Voice
    highest in the category
    Q2 FY25

    For Listerine Total Care initiative.

    Listerine Dentist and Hygienist Ranking
    #1
    Q2 FY25

    For Listerine Total Care initiative.

    SG&A Leverage
    —
    Q2 FY25

    Contributed by a significant step-up in brand support in the year-ago period and adjusted accruals for incentive compensation.

    Trade Inventory Fluctuations
    negative impact
    Q2 FY25

    Impacted top line performance.

    China Shipment Timing Changes
    negative impact
    Q2 FY25

    Impacted top line performance.

    E-commerce Development
    significantly underdeveloped
    Q2 FY25

    Compared to brick-and-mortar, where the company is overdeveloped.

    Media ROI Efficiency
    way better
    Q2 FY25

    Due to investments in CTMs for scale benefit.

    Media ROI Effectiveness
    not as strong as it can be
    Q2 FY25

    Overall effectiveness could be improved.

    Industry KPIs

    12
    MetricValueDetails
    Channel mix—
    Portfolio rotation—
    Category concentration41 brands
    Underlying sales growth-4.2%%
    Power brands contribution41 brands
    Brand marketing investment—
    Market volume growth benchmarkpositive
    Brand health superiority scores—
    Market value share by geography—
    Productivity cost savings program—
    Developed vs emerging market split—
    Underlying operating margin bridge22.7%%

    Product announcements

    4
    ProductTypeDetails
    Tylenol Precise Nighttimelaunch
    Children's Tylenol Natural Apple Flavorlaunch
    Listerine 'Wash Your Mouth' campaignlaunch
    BAND-AID waterproof and tie-dyelaunch

    Deals & partnerships

    1
    Kenvue BoardComprehensive review of strategic alternatives

    The Board has initiated a comprehensive review of strategic alternatives, including optimizing the company's brand portfolio, with a strategic review committee in place. Management is working closely with the Board on this process, moving with rigor and urgency to deliver the best outcome for shareholders.

    Risks & headwinds

    13
    Category DecelerationQ2 FY25

    categories decelerated sequentially versus quarter 1 and year-over-year

    Mitigation: Focus on demand creation and improving execution.

    Soft Seasonal BusinessesQ2 FY25

    soft allergy and sun care seasons in our largest markets weighed on replenishment orders

    Mitigation: Incorporated into revised guidance; Zyrtec strengthened leadership despite headwinds.

    Trade Inventory FluctuationsQ2 FY25

    negative impact on top line from both trade inventory fluctuations at certain customers in the U.S. across all segments

    Mitigation: Improving overall integrated business planning with a focus on consumption-driven demand forecasting.

    China Shipment Timing ChangesQ2 FY25

    negative impact on top line from changes in shipment timing versus last year in China

    Mitigation: Improving overall integrated business planning with a focus on consumption-driven demand forecasting.

    Strategic Price InvestmentsQ2 FY25

    weighed on value realization

    Mitigation: Strengthening revenue growth management capability and driving margin-enhancing innovation.

    Input Cost InflationQ2 FY25

    offset by the headwinds from input cost inflation

    Mitigation: Continuing to drive strong productivity across the supply chain through procurement, network optimization, planning, and digitization initiatives.

    Unfavorable MixQ2 FY25

    offset by the headwinds from...unfavorable mix

    Mitigation: Driving margin-enhancing innovation.

    Currency ImpactQ2 FY25

    offset by the headwinds from...currency

    Mitigation: Not explicitly stated, but FX impact is factored into guidance.

    Fixed Cost DeleverageFY25

    fixed cost deleverage

    Mitigation: Accelerating productivity measures and identifying additional sources of cost savings.

    Tariff ExposureFY25

    gross annualized impact to be around $150 million and below that in 2025

    Mitigation: Not explicitly stated, but impact is factored into guidance.

    Listerine Market Share DeclineQ2 FY25

    losing share across the total universe

    Mitigation: Urgently working through plans, including 'Wash Your Mouth' campaign and new product launches, to be more competitive in the mild alcohol-free segment.

    Self-Induced ComplexityOngoing

    significant amount of complexity across the organization, whether it comes to SKUs, brands or even countries

    Mitigation: Focusing on fewer, bigger, and better ideas; being more choiceful on where to play and how to win; optimizing structure and operating model.

    Dynamic Macro BackdropOngoing

    dynamic macro backdrop

    Mitigation: Focusing on controllable factors like demand creation and execution excellence.

    What to watch in Q3 FY25

    5

    Strategic Alternatives Review Progress

    next quarter
    CurrentUnderway
    TargetFurther updates on potential alternatives or brand portfolio optimization

    Why it matters

    The strategic review is a key initiative to unlock shareholder value and could lead to significant portfolio changes.

    We're moving with rigor and urgency to deliver the best outcome for our shareholders, and we'll update everyone as the review progresses.

    Q&A highlights

    7

    How does the immediate focus on reducing complexity (biggest brands, countries, innovations) relate to the broader strategic review, especially concerning tail brands and smaller businesses?

    Management confirmed that focusing on core brands and markets, and reducing complexity, is an immediate operational priority. The strategic review, which includes evaluating the brand portfolio, is a parallel 'and' process, not an 'or'. They aim to improve execution quickly, citing examples like e-commerce penetration, core brand strength, and media ROI.

    “So at a high level, what you said is absolutely true. We need to focus, and as I mentioned, in terms of the number of brands as an example, that contribute 3/4 -- 3 course of our sales, the long tail of SKUs that make up less than 1% of our sales, great innovation pipeline, but just too many initiatives.”

    asked by Lauren Lieberman · answered by Kirk Perry

    2 min read6 chapters

    Detailed Narrative

    01

    Leadership Transition and Strategic Review

    Kenvue announced Kirk Perry as Interim CEO and Amit Banati as CFO, both bringing extensive CPG and finance experience. The Board has initiated a comprehensive review of strategic alternatives, including optimizing the brand portfolio, with a dedicated committee overseeing the process. Management emphasized that operational improvements will proceed concurrently with the strategic review, aiming for rigor and urgency to unlock shareholder value.

    02

    Immediate Operational Priorities

    Interim CEO Kirk Perry outlined four immediate priorities: strengthening leadership and capabilities (including new hires like Andy Dasgupta for APAC and Mike Wondrasch as CTO/CDO), taking a fresh look at the operating strategy to reduce complexity, improving flawless execution across all consumer touchpoints, and optimizing the organizational structure for agility and impact. The goal is to refocus on fundamentals and make bold choices to drive market share growth.

    03

    Q2 Performance Drivers and Headwinds

    Organic sales declined 4.2% in Q2, attributed to several factors: sequential deceleration in categories, soft allergy and sun care seasons impacting replenishment orders, negative impact from trade inventory fluctuations in the U.S. and shipment timing changes in China, and strategic price investments weighing on value realization. Global consumption outpaced organic sales across all segments, indicating a disconnect between sell-in and sell-through.

    04

    Focus on Margin Expansion and Efficiency

    CFO Amit Banati highlighted priorities to enhance operating rigor and drive efficiencies. This includes improving integrated business planning, focusing on consumption-driven demand forecasting, and achieving peer benchmark levels across the P&L. Efforts are underway to realize further gross margin improvements through productivity, network optimization, and digitizing the supply chain, as well as identifying SG&A cost savings post-separation.

    05

    Brand-Specific Performance and Initiatives

    Despite overall softness, several brands showed strength: Tylenol achieved its 12th consecutive quarter of U.S. adult share gains, and Zyrtec strengthened its leadership in allergy. Neutrogena Face and OGX saw sequential consumption improvement in the U.S., with OGX Bond Protein Repair being the #1 innovation year-to-date. Listerine is addressing U.S. share declines with the new 'Wash Your Mouth' campaign and planned product launches, targeting the mild alcohol-free segment.

    06

    Complexity as an Inhibitor to Growth

    Management identified 'self-induced complexity' as a significant inhibitor, citing 115 brands with only 41 contributing over 75% of sales, a long tail of SKUs accounting for 1% of sales, and too many innovation initiatives. The strategy involves being more choiceful on where to play and how to win, focusing on bigger, fewer, and better ideas to improve execution and efficiency.

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