Kenvue Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• 2024 Performance: Organic sales growth was 1.5%, below expectations due to lower cold/flu incidences and Asia Pacific distributor issues. Adjusted gross margin expanded by 200 basis points to 60.4%, and adjusted diluted EPS was $1.14.
• Priorities in 2024: Reached more consumers across segments, freed resources for brand investment, and fostered a new performance-oriented culture. Progress made in each priority, including strengthening in-store/online presence, cost reduction to invest in brands, and cultural shifts.
• Q4 Results: Organic sales growth 1.7%, adjusted diluted EPS $0.26, impacted by low flu season and Asia Pacific distributor disruptions. Excluding pediatric pain, organic sales growth would have been higher.
• 2025 Outlook: Expect 2-4% organic sales growth, launch 40% more innovation, aim for net distribution gains, and leverage stronger brand support and operating model for acceleration.

Segment Performance:

• Self-care: Organic sales grew 2.9% in Q4. In 2024, nearly 80% of the segment gained share, with key brands like Tylenol, Zyrtec, and Nicorette strengthening leadership positions.
• Essential health: Organic sales decreased 0.7% in Q4 due to reduced customer orders in Asia Pacific, particularly China, but grew mid-single digits for the full year with volume growth in North America, EMEA, and Latin America.
• Skin health and beauty: Delivered volume-led 2.6% organic sales growth in Q4. EMEA and Latin America were growth engines with double-digit organic sales growth, and the US saw volume growth in the year.

Guidance:

• 2025 organic sales growth expected in the range of 2% to 4%, volume-led. First half impacted by destocking from weak pediatric pain season, China disruptions, and strategic price investments, with low single-digit organic sales decline in Q1. Second half expected to be stronger as headwinds moderate. Adjusted operating margin expected to expand year-over-year.

Risks:

• Lower-than-expected incidences of cold, cough, and flu negatively impacting pediatric pain franchise.
• Reduction in distributor orders in Asia Pacific, particularly China.
• Economic uncertainty, geopolitical tensions, and a stronger dollar posing challenges.
• Potential impact of tariffs, though not factored into current guidance.

Q: Filippo Falorni asked about the contribution of drag in Q1 and impact of Asia Pacific inventory issues.

A: Thibaut Mongon and Paul Ruh responded that Q1 has a drag from low pediatric pain incidences, China distribution disruptions, and trade investments, with improvement expected in the second half.

Q: Peter Grom inquired about category growth assumptions and phasing in 2025.

A: Thibaut Mongon and Paul Ruh stated categories expected to grow 2%-3%, with Q1 muted, second quarter accelerating, and fourth quarter showing normal season and full impact of plans.

Q: Anna Lizzul asked about skin health and beauty innovation pipeline and shelf space gains.

A: Thibaut Mongon replied on strong innovation plans, distribution efforts, and campaigns in skin health and beauty for 2025.

Q: Andrea Teixeira asked about temporary trade investments and operating margin guidance.

A: Thibaut Mongon and Paul Ruh explained strategic pricing investments in select areas and plans to expand operating margin through efficiencies and brand investments.

Q: Bonnie Herzog inquired about self-care segment margins.

A: Thibaut Mongon noted segment margin fluidity due to mix and temporary impacts, with expectation of margin acceleration in 2025.

Q: Korinne Wolfmeyer asked about margin trajectory and tariff risk.

A: Thibaut Mongon discussed margin cadence and readiness to activate tariff mitigation plans.

Q: Nik Modi asked about incentive compensation and FX impact.

A: Thibaut Mongon explained holistic compensation approach factoring in FX and hedging programs.

Q: Lauren Lieberman asked about go-to-market in Asia and route to market.

A: Thibaut Mongon detailed distribution channels in China and efforts to improve route to market.

Q: Steve Powers asked about cash flow and free cash flow target.

A: Paul Ruh discussed free cash flow trends and line of sight to improving cash conversion after investment in separation and growth initiatives.