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    Kenvue Inc (KVUE)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$18.19Last close (Aug 5, 2024)
    Post-Earnings Price$20.15Open (Aug 6, 2024)
    Price Change
    $1.96(+10.78%)

    What went well

    • Expecting Positive Growth in Skin Health and Beauty Segment: The company anticipates sequential improvement in volume in the second half of the year for the Skin Health and Beauty segment, expecting volumes to turn positive towards the fourth quarter, leading to positive growth.
    • Stabilization of Retail Destocking and Strong Essential Health Performance: Retail destocking impacts have stabilized in the U.S., and the company does not expect further impact in the back half of the year. Additionally, the Essential Health segment showed strong performance with broad-based growth across all regions and categories, with balanced growth between value and volume.
    • Increased Investment Behind Brands Demonstrates Confidence: The company has increased its marketing spend by up to $100 million, bringing the year-over-year increase to 20%. This decision reflects confidence in the strength of their back-half plans and bolsters their ability to deliver long-term value creation.

    What went wrong

    • Underperformance in the Skin Health and Beauty Segment: Kenvue's Skin Health and Beauty division is under a recovery plan due to sales declines. Executives have indicated that while there are early signs of improvement, the turnaround will not happen overnight, raising concerns about the pace of recovery.
    • Impact of Retail Destocking in the U.S.: The company experienced retail destocking in the U.S. during the first half of the year, impacting both Q1 and Q2 sales. While they do not expect further impact in the back half, this has contributed to sales volatility and may pose risks if demand does not stabilize as expected.
    • Leadership Vacancies and Need for Brand Streamlining: There is currently a vacancy in the leadership position for the Skin Health and Beauty segment, with the role being filled on an interim basis. Additionally, there are concerns about the complexity of the brand architecture and the need for SKU rationalization, suggesting that the product lineup may be confusing to consumers and could hinder the company's ability to turn around the segment's performance.

    Q&A Summary

    1. Return to Growth in Skin Health and Beauty
      Q: Will Skin Health and Beauty return to growth in H2?
      A: We expect sequential improvement in volumes in the second half, turning positive towards Q4 in terms of both volume and growth.

    2. Increased Marketing Spend
      Q: How much of the 20% marketing spend increase is deployed?
      A: We started the year with a 15% increase ($300 million) and added another $100 million starting in Q2. We'll continue to invest as we see efficiencies, preparing for '25 and beyond.

    3. Destocking Impact and Outlook
      Q: Any update on retail destocking impact?
      A: We saw destocking in the U.S. during H1, impacting Q1 and Q2. Levels have stabilized, and we don't expect further impact in the back half. Outside the U.S., inventories are healthy.

    4. China Sales and Outlook
      Q: How did China perform, and outlook for H2?
      A: China was a positive contributor in Q2, expected to continue in 2024. Strong in self-care categories; in Skin Health, we see a soft category but strong demand for local brand Dabao.

    5. Promotional Environment and Gross Margins
      Q: Is there pressure from U.S. retailers lowering prices?
      A: Consumers prioritize health and are willing to pay a premium for trusted brands. We haven't increased promotional intensity beyond peers in 2024. Q2 gross margin was strong; expect it to decrease from Q2, with Q4 expected to be lowest due to factors like plant maintenance.

    6. Leadership Update in Skin Health and Beauty
      Q: Any progress on filling leadership in Skin Health?
      A: We're making progress filling the segment leadership position. Our Chief Growth Officer is leading it interim, and the team is executing with precision globally.

    7. Essential Health Performance
      Q: What's driving strength in Essential Health?
      A: Essential Health had strong growth in Q2 and H1, with balanced value and volume growth across regions and categories. Listerine grew double digits, and innovations like Bonded Pro Hill and Aveeno Kids are performing well.

    8. Seasonal Business Expectations
      Q: Expectations for suncare and cold/flu season?
      A: Suncare season shipments are done by end of Q2; no replenishment expected in Q3. For cough, cold, and flu season, we're planning for a normal season, with retailers reverting to historical ordering patterns, ordering more in Q4 than Q3.

    9. Pricing Actions Impact
      Q: Elaborate on new pricing actions and volume expectations.
      A: Value realization comes from carryover pricing, new pricing, and mix. We'll see less impact from carryover pricing and more from mix and new pricing actions. In Skin Health, volumes are improving sequentially; strong building blocks for the back half.

    10. U.S. Skincare Market Trends
      Q: Are you seeing slowdown in U.S. skincare?
      A: In Q2, units are about flat. Softness in moisturizers is offset by growth in acne. We saw a positive shift in consumption in June and are focused on executing our plan.

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