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    Kenvue Inc (KVUE)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$20.52Last close (Feb 7, 2024)
    Post-Earnings Price$19.85Open (Feb 8, 2024)
    Price Change
    $-0.67(-3.27%)

    What went well

    • Kenvue plans to increase marketing investment by approximately 15% (about $300 million) in 2024 to fuel growth and support their brands.
    • The company expects adjusted gross profit margin to improve to levels closer to 2021, driven by value realization, mix management, premiumization, and efficiencies as they exit Transition Service Agreements with Johnson & Johnson.
    • Management is confident in delivering 2024 growth plans, expecting categories to grow 3% to 4%, and plans to improve performance through heightened focus, increased precision in execution, and investment in their key brands.

    What went wrong

    • Underperformance in the Skin Health and Beauty segment, especially in the U.S., due to missteps in in-store execution and insufficient marketing investments, may hinder growth prospects. , ,
    • Persistent softness in China and potential consumer demand weakness could continue to pressure overall sales growth in key markets. , ,
    • Increased marketing investments, including a planned 15% increase in advertising spend (approximately $300 million), may pressure operating margins, with benefits not expected until the second half of 2024, potentially impacting near-term profitability. , ,

    Q&A Summary

    1. Organic Growth Guidance
      Q: How reliable is your organic growth forecast for 2024?
      A: Management confidently expects category growth of 3% to 4% in 2024 and beyond. The guidance reflects a range of scenarios, including sequential improvement throughout the year as they lap unusual 2023 comparisons and increased investments generate impact, especially in the second half.

    2. Margin Outlook and Advertising Spend
      Q: What's driving the margin forecast and advertising plans?
      A: The company anticipates a positive gross margin trajectory, with continued enhancements expected. They plan to increase advertising spending by 15%, approximately $300 million more, starting immediately to fuel progressive growth. Advertising was slightly down in 2023, primarily due to reductions in Asia Pacific where there were no investable propositions.

    3. Skin Health and Beauty Performance
      Q: How are you addressing underperformance in Skin Health and Beauty?
      A: The company is focusing on improving execution in China and the U.S.. In China, they are monitoring consumer sentiment and expect gradual recovery in 2024 but are not counting on a strong rebound in the first half. In the U.S., they aim to enhance in-store execution, increase displays, update packaging to simplify shopping, and amplify innovation.

    4. Gross Margin Recovery
      Q: What's driving gross margin improvements to 2021 levels?
      A: Gross margin improvements are led by value realization, mix management, premiumization, and efficiencies throughout the value chain. The company is also starting to see tailwinds from reduced inflation pressures and continues to manage foreign exchange impacts.

    5. Impact of Transition Service Agreements (TSAs)
      Q: How does exiting TSAs affect margins and investments?
      A: Exiting TSAs with Johnson & Johnson is expected to generate savings spread throughout the year, contributing to gross margin enhancement and operating income. These savings will fund increased investments in marketing and brand building, supporting growth initiatives.

    6. Acetaminophen Litigation Update
      Q: Any updates on the Acetaminophen lawsuit?
      A: There is no significant update; the company is proceeding through the process to dismiss the multidistrict litigation following the court's favorable ruling to exclude expert testimony.

    7. First Quarter and Half Outlook
      Q: What is the expected organic growth in Q1 and first half?
      A: The company anticipates flat to slightly negative organic growth in Q1 due to challenging comparisons and continued lower cold and flu incidences similar to Q4 2023. Improvement is expected as the year progresses, particularly in the second half, driven by execution of plans and investments.

    8. Self Care Segment Beyond Cold and Flu
      Q: How did Self Care perform outside of cold, cough, and flu?
      A: The company saw continued strong performance in areas like smoking cessation, digestive health, and allergy. Products like Zyrtec Chewables performed well despite lower allergy incidences, contributing to broad-based strength in Self Care.

    9. Marketing Investments and ROI
      Q: How are you increasing marketing investments and ensuring ROI?
      A: The company plans to invest more in brand activation with both consumers and healthcare professionals, focusing on their 15 priority brands. They employ a disciplined approach to maximize ROI, utilizing industry-leading analytics and capabilities.

    10. Litigation Process on Other Fronts
      Q: What's the status of other litigations?
      A: There is no significant update; the company continues to go through the legal processes, including efforts to dismiss cases as appropriate.

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