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    KVUE
    Earnings call· Dec 2024(Q4 FY24)

    Kenvue Q4 FY24 earnings call KVUE

    Feb 6, 2025 Source

    Executive summary

    Kenvue Q4 FY24 — Organic Sales Miss Expectations Amidst Seasonal Headwinds, Strong Margin Expansion and Increased Brand Investment

    Kenvue's Q4 FY24 results were marked by disappointing organic sales growth, primarily due to a mild cough/cold/flu season and distribution challenges in China. Despite these top-line headwinds, the company significantly expanded adjusted gross margin and increased brand investments, driven by cost savings. Management outlined a 2025 outlook targeting 2-4% organic sales growth, volume-led, with an expected acceleration in the second half as initial destocking and strategic pricing impacts subside, aiming for profitable growth post-separation from J&J.

    Highlights

    5

    • Adjusted gross margin expanded by 200 bps YoY to 60.4% for FY24.

    • Delivered adjusted diluted EPS of $1.14 for FY24, squarely within guidance range.

    • Increased total brand investment by about 20% in FY24.

    • Self Care segment gained share globally by 70 bps in pediatric pain in Q4.

    • Skin Health and Beauty segment achieved volume-led double-digit organic sales growth in EMEA and Latin America in Q4.

    Concerns

    5

    • Organic sales growth for FY24 was 1.5%, below expectations.

    • Q4 organic sales growth was 1.7%, falling short of expectations.

    • Low incidence of cough, cold, and flu negatively impacted pediatric pain franchise, causing a double-digit decline in Q4.

    • Reduction in distributor orders in Asia Pacific, particularly China, due to liquidity issues and temporary disruption in Q4.

    • Q1 FY25 organic sales expected to decline low single digits due to destocking and strategic price investments.

    Guidance & targets

    12
    CategoryTargetConfidence
    Organic sales growth
    2% to 4%
    high materiality
    High
    Net sales
    down 1% to up 1%
    high materiality
    High
    Adjusted operating margin
    expand year-over-year
    high materiality
    High
    Adjusted effective tax rate
    25.5% to 26.5%
    medium materiality
    High
    Diluted weighted average shares outstanding
    about 1.93 billion
    medium materiality
    High
    Adjusted diluted EPS (constant currency)
    grow slightly ahead of organic sales growth
    high materiality
    High
    Adjusted diluted EPS
    flat to up 2%
    high materiality
    High
    Organic sales growth
    decline low single digits
    high materiality
    High
    Organic sales growth
    much stronger in the back half of the year relative to the front half
    high materiality
    High
    Category growth
    2% to 3%
    medium materiality
    Medium
    Currency headwind to top line
    approximately 3%
    medium materiality
    High
    Vue Forward savings
    $350 million
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Self Care
    Strong growth except for pediatric pain, which was a significant drag due to low flu season. Continued to gain share across categories globally for the quarter and full year.
    Volume growth: 1.7%Value realization: 1.2%Pediatric pain franchise growth: double-digit decline (Q4 YoY)Pediatric pain category contraction (China): >40% (Q4 YoY)Pediatric pain category contraction (U.S.): ~11% (Q4 YoY)Pediatric pain share gain: 70 bps globally (Q4 YoY)Nicorette growth: nearly 20%Digestive health growth: mid-teensAllergy growth: high single digits
    		—2.9%——
    Essential Health
    Faced a material headwind from decline in customer orders in Asia Pacific, particularly China. Outside Asia Pacific, the segment grew at a healthy mid-single-digit rate in Q4 with volume growth. Innovation continues to play an important role.
    Value realization: 1.2%Volume growth: -1.9%FY24 Organic sales growth: 4.1%Organic sales growth (ex-Asia Pacific): mid-single digits (Q4)Volume growth (ex-Asia Pacific): third consecutive quarter (Q4)
    		—-0.7%——
    Skin Health and Beauty
    Delivered volume-led growth on a soft base. EMEA and Latin America continue to be growth engines. North America showed improvements, with Neutrogena regaining its #1 position in face care.
    Volume growth: 2.1%Value realization: 0.5%Organic sales growth (EMEA & Latin America): double-digit (Q4)Organic sales growth (EMEA): 11th consecutive quarter (Q4)Organic sales growth (North America): mid-single-digit (Q4)Neutrogena face care brand position (U.S.): #1 across all channels (Q4)Neutrogena cleansing platform share: gained in brick-and-mortar channels (Q4)
    		—2.6%——

    Operational metrics

    22
    Adjusted gross margin
    60.4%+200 bps YoY
    FY24

    Driven by strong productivity enhancements. More than 400 bps ahead of pre-COVID levels.

    Adjusted gross margin
    58.7%-80 bps YoY
    Q4 FY24

    Q4 FY23 included a nonrecurring benefit of approximately 50 basis points. Supply chain efficiencies and value realization helped offset inflationary headwinds.

    Adjusted operating margin
    21.5%
    FY24

    Landed at the midpoint of our 21% to 22% guidance range.

    Adjusted operating margin
    19.2%
    Q4 FY24

    null

    Net interest expense
    $378M
    FY24

    In line with our expectations.

    Net interest expense
    $95M
    Q4 FY24

    In line with our expectations.

    Adjusted effective tax rate
    25.5%
    FY24

    Slightly below our expectations due to the realization of discrete tax benefits.

    Adjusted effective tax rate
    17.7%
    Q4 FY24

    null

    Adjusted net income
    $2.2B
    FY24

    null

    Adjusted net income
    $499M
    Q4 FY24

    null

    Total company organic sales growth (ex-pediatric pain)
    2.5%+100 bps vs reported
    FY24

    Run rate exiting 2024, if pediatric pain impact is excluded.

    Total company organic sales growth (ex-pediatric pain)
    3.7%+200 bps vs reported
    Q4 FY24

    Reported Q4 organic sales growth was 1.7%.

    Total company volume growth
    0.7%YoY
    Q4 FY24

    null

    Total company volume growth
    -1.2%
    FY24

    null

    Total company value realization
    1.0%
    Q4 FY24

    Primarily driven by incremental pricing outside the U.S.

    Total company value realization
    2.7%
    FY24

    null

    Total brand investment
    +20%YoY
    FY24

    A significant step towards our plan to reinvest more competitively in the growth of our brands.

    Advertising budget as % of sales
    10.6%vs 8.7% prior year
    FY24

    Pivoted to social media influencer-led campaigns, expanding reach and fueling stronger brand health.

    Vue Forward savings
    $350M
    annualized by 2026

    More than halfway through realizing savings as of 2024 year-end. Initiative to become a more agile organization with a more efficient cost structure.

    TSA exits completed
    85%
    as of end of 2024

    Exited over 2,000 TSAs in more than 50 countries through the end of 2024 without business disruption.

    Innovation launch increase
    40%vs 2024
    FY25

    Will further strengthen portfolio through premiumization, extension into adjacencies and attractive entry price points.

    Free cash flow conversion
    closer to target
    FY25

    Not expected to reach 90-100% target in 2025 due to continued investments in Vue Forward and TSA exits, but clear line of sight to target after investment period.

    Industry KPIs

    8
    MetricValueDetails
    EPS$1.14USD
    Gross margin60.4%%
    Free cash flow$1.3BUSD
    Operating margin21.5%%
    Effective tax rate25.5%%
    Organic revenue growth1.5%%
    Advertising marketing investment10.6%% of sales
    Innovation new product contribution40%%

    Product announcements

    4
    ProductTypeDetails
    Neutrogena campaign with Dr. Shah and Tate McRaelaunch
    Aveeno launch in Central European marketsexpansion
    Revitalized Hydro Boost campaignupdate
    New cleanser lines and Collagen Bank line (Neutrogena)launch

    Deals & partnerships

    1
    Dr. ShahStrategic collaboration for Neutrogena brand.

    Collaboration for new Neutrogena campaign featuring Tate McRae, aiming to position Neutrogena as #1 face care brand in America.

    Capital programs

    1
    Our Vue Forward (cost-savings initiative)underway$350M
    Spent to date: more than halfway through realizing
    Start: 2024

    Benefit: annualized savings

    A 2-year initiative to become a more agile organization with a more efficient cost structure.

    Risks & headwinds

    5
    Lower-than-expected incidence of cough, cold, and fluQ4 FY24, lingering impact into Q1 FY25

    Pediatric pain franchise double-digit decline in Q4; category contracted >40% in China, ~11% in U.S.

    Mitigation: Expectation of a normal season in Q4 FY25, but no specific Q1 mitigation mentioned beyond acknowledging impact.

    Reduction in distributor orders in Asia Pacific (China)Q4 FY24, lingering impact into Q1 FY25

    Material headwind in Essential Health in Q4.

    Mitigation: Replacing underperforming distributors and reclaiming direct responsibility for activation with key local retailers.

    Strategic price reductions and trade spend in U.S.H1 FY25

    3-4 point headwind to Q1 organic sales growth (combined with destocking). Leads to negative value realization in U.S. in Q1/Q2.

    Mitigation: Aimed at improving competitiveness and driving volume growth in the mid- to long-term.

    Stronger dollar / Currency headwindFY25

    Approximately 3% headwind to top line for FY25. Mid-single-digit headwind to adjusted diluted EPS for FY25.

    Mitigation: Utilizing hedging programs for predictability and taking complexity and non-value-added costs out of P&L to protect investments.

    Economic uncertainty and geopolitical tensionsFY25

    Expected weighted categories to grow 2-3% in 2025 (below historical average).

    Mitigation: Focus on high-quality, differentiated health solutions; consumers are not compromising on their health.

    What to watch in Q1 FY25

    5

    Organic sales growth (Q1 FY25)

    Q1 FY25
    CurrentQ4 FY24: 1.7%
    TargetDecline low single digits

    Why it matters

    Indicates the immediate impact of destocking and strategic price investments, and the underlying health of the business.

    As a result, we expect organic sales to decline low single digits in Q1.

    Q&A highlights

    6

    Clarification on 2025 organic sales guidance, specifically the contribution of Q4 negative impacts (cold/flu, China distribution) to Q1 drag, and assumptions for restocking/fix timelines.

    Management expects Q1 to be impacted by lingering pediatric pain effects (no restocking assumed due to erratic season in U.S. and destocking in China) and China distribution issues. These factors, plus strategic trade investments, create a 3-4 point headwind in Q1, leading to low single-digit organic sales decline. H2 acceleration is expected as these impacts cycle through.

    “In a market like the U.S., while we see -- when we saw an uptick at the beginning of January, then a decline in the middle of January, and we see a slight uptick again recently, it has been pretty erratic, and I think it's too soon to call for an upside in the U.S. In China, the go-to-market is different. Distributors and stores tend to stock up ahead of the season. They had a low season in Q4 as we talked about. And so even if the incidence goes up in Q1, we would expect them to destock and to bleed the inventory in Q1 with no impact on our shipments.”

    asked by Filippo Falorni · answered by Thibaut Mongon

    2 min read6 chapters

    Detailed Narrative

    01

    2024 Performance Review

    Kenvue's organic sales growth for 2024 was 1.5%, falling short of expectations due to lower-than-expected incidence of cough, cold, and flu, and reduced distributor orders in Asia Pacific. Despite these top-line challenges, the company successfully expanded adjusted gross margin by 200 basis points to 60.4% and delivered adjusted diluted EPS of $1.14, aligning with its guidance range.

    02

    Strategic Priorities and Progress

    In 2024, Kenvue focused on three key priorities: expanding consumer reach, optimizing resources for brand investment, and cultivating a performance-driven culture. Significant progress was noted, with 80% of the Self Care segment gaining market share, Essential Health achieving mid-single-digit growth, and Skin Health and Beauty showing volume growth in EMEA and Latin America.

    03

    Cost Savings and Brand Investment

    The 'Our Vue Forward' initiative is ahead of schedule, targeting $350 million in annualized savings by 2026. These savings enabled a 20% increase in total brand investment for 2024, including raising the advertising budget to 10.6% of sales (from 8.7% in the prior year) and strengthening engagement with healthcare professionals.

    04

    Q4 Specific Headwinds

    Q4 organic sales growth of 1.7% was significantly impacted by a mild cough/cold/flu season, leading to a double-digit decline in the pediatric pain franchise (category contracted over 40% in China and nearly 11% in the U.S.). Additionally, temporary disruptions in China's Essential Health and Skin Health distribution network, caused by distributor liquidity issues, further weighed on results.

    05

    2025 Outlook and Strategy

    Kenvue projects 2-4% organic sales growth for 2025, primarily volume-led, with an anticipated acceleration in the second half. The first half will face headwinds from destocking and strategic price investments. The company plans to launch 40% more innovation than in 2024, secure net distribution gains, and enhance trade and marketing investments to drive profitable growth post-J&J separation.

    06

    Operational Enhancements

    To improve agility and forecasting, Kenvue is implementing a global center of excellence for revenue growth management, deploying new trade spend management technology, and completing the rollout of integrated business planning with AI-driven tools. These initiatives aim to enhance decision-making and responsiveness to market trends.

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