Kenvue Inc. Q2 FY2024 earnings call

• Made good progress against strategy, driving 1.5% year-over-year organic growth and increasing adjusted gross profit margin by 410 basis points to 61.6%.
• Working on improving productivity and reducing cost, expecting ~150 basis points of adjusted gross profit margin expansion in 2024.
• Actively reducing cost structure through Vue Forward program to become leaner and more agile.
• Investing ~20% more behind brands this year than last year, targeting high-yield strategies like healthcare professional engagement.
• Segment highlights: Self Care outperforming market, Tylenol with eighth consecutive quarter of share growth in U.S., Allergy segment growth with Zyrtec and Benadryl gaining share, Essential Health with broad-based growth including 10% global growth for Listerine, Skin Health and Beauty in recovery plan with Europe performing well and US working on stabilization.

Self Care: Year-over-year organic growth was essentially flat after 7.7% organic growth last year. Value realization contributed 1.1% to growth, offset by volume down 1.3% due to shorter cough, cold, and flu season. Skin Health and Beauty: Organic growth decreased 2.4% year-over-year, with 3.9% volume decline, partially offset by 1.5% positive value realization. Europe performing well, China category soft, US working on stabilizing. Essential Health: Organic growth of 7.6%, with 4.1% value realization and 3.5% volume growth. Listerine grew approximately 10% globally.

• Expect full year 2024 gross margin to be ~60% or expand ~150 basis points.
• Adjusted operating margin expected to be in the range of 21% to 22% for full year 2024.
• Organic growth expectations in the 2% to 4% range and adjusted EPS of $1.10 to $1.20.
• Foreign exchange expected to be a 1% headwind, unchanged from prior guidance.

• Volatile environment could cause actual results to differ materially from forward-looking statements.
• Impairment of $337 million to adjust carrying value of long-lived assets related to Dr.Ci:Labo business due to evolving market dynamics in China, including shifts in consumer sentiment and shopping patterns.

Q: Could you elaborate on new pricing actions and expectations for the back half and innovation pipeline?

A: Value realization is a combination of carryover pricing, new pricing, and mix. Expect less carryover pricing impact and more mix/new pricing. Sequential improvement in Skin Health volume seen, with strong building blocks for back half.

Q: On the 20% aggregate increase in spending behind brands, how much has been deployed and where relative to optimized level?

A: Started with 15% year-over-year increase, now deploying 20% more. Getting closer to industry standard, will continue to invest as efficiencies and Vue Forward benefits are seen.

Q: Update on Skin Health and Beauty leadership and brand architecture?

A: Making progress on filling segment leadership position, Chief Growth Officer leading in interim. Focus on making brands relevant through social media, dermatologist engagement, and innovation.

Q: On Essential Health business and China portion of Skin Health and Beauty?

A: Essential Health had strong growth with broad-based performance. China is a positive contributor to growth in Self Care, with Dr.Ci:Labo facing soft category and local brand Dabao growing.

Q: Color on promotional environment and gross margin for back half?

A: Promotional intensity is ROI-based, not about discounting. Gross margin in back half expected to be lower than Q2 due to seasonal factors and maintenance, but preparing building blocks for future.