Q4 2023 Kenvue Inc Earnings Call

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Operator: Hello, and welcome to the Kenvue fourth quarter and four year 2023 earnings conference call. All lines have been placed on me to prevent any background noise.

Hello, and welcome to the Kennedy fourth quarter and full year 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star, star 1 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tina Romani, Head of Investor Relations for Kenvue. Good morning, everyone.

After the Speakers' remarks, there will be a question and answer session.

He forgot to ask a question during this time simply press the star.

Start wandering answer thank you Pat as a reminder, this conference is being recorded.

It's now my pleasure to introduce your host Tina Romani head of Investor Relations. So it can be.

Okay.

Good morning, everyone I'm pleased to be joined today by cheap among gon, Chief Executive Officer, and Paul Rubin, Chief Financial Officer.

Tina Romani: I'm pleased to be joined today by Thibaut Mangan, Chief Executive Officer, and Paul Roux, Chief Financial Officer. Before we get started, I'd like to remind you that today's call includes forward-looking statements regarding, among other things, our operating and financial performance, market opportunities, and growth. These statements represent our current beliefs or expectations about future events and are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially. For information regarding these risks and uncertainties, please refer to our earnings materials related to this call posted on our website and our filings with the SEC. During this call, we've also referenced certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures should be viewed in conjunction with the most comparable GAAP financial measure.

Before we get started I'd like to remind you that today's call includes forward looking statements regarding among other things, our operating and financial performance market opportunities and growth.

These statements represent our current beliefs or expectations about future events and are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially for information.

Regarding these risks and uncertainties. Please refer to our earnings materials related to this call posted on our website and our filings with the SEC.

During this call. We will also reference certain non-GAAP financial information and the presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with U S. GAAP.

These non-GAAP financial measures should be viewed in conjunction with the most comparable GAAP financial measure a reconciliation of these items to the nearest U S. GAAP measure can be found in this morning's press release and a presentation available on the IR website with that I'll turn it over to Tivo.

Tina Romani: A reconciliation of these items to the nearest U.S. GAAP measure can be found in this morning's press release and our presentation available on the IR website. With that, I'll turn it over to Thibault. Thank you, Tina, and thank you to everyone for joining us today. 2023 was a year of transformational change for our company and for 22,000 Kenvuers around the world. Our teams accomplished a tremendous amount, successfully standing up Kenvue as an independent public company while continuing to drive profitable growth. While we accomplished a lot in 2023, we know we have areas where we need to increase our focus and improve. So, as we enter 2024, we have identified three key priorities that will enable our continued transition as an independent company while continuing to grow the business.

Thank you Tina and thank you to everyone for joining US today 2023 was a year of transformational change for our company and for 'twenty 2000 can view as around the world.

Accomplished a tremendous amount successfully standing up can do as an independent public company, while continuing to drive profitable growth.

While we accomplished a lot in 2023, we know we have areas, where we need to increase our focus and improve so as we enter 2024, we have identified three key priorities that will enable our continued transition as an independent company, while continuing to grow their business.

Tina Romani: This year, we will reach more consumers with a stronger focus on our 15 priority brands, free up resources to invest behind our brands, and foster a culture that rewards performance and impact. In 2023, we delivered on our long-term value creation algorithm centered around profitable growth, durable cash flow generation, and disciplined capital allocation. Our 5% organic growth was broad-based across all three segments, all four regions, and all eight product categories.

Here, we will reach more consumers with a stronger focus on 15 priority brands free up resources to invest behind our brands and foster a culture that see what's about four months and in fact.

In 2023, we delivered on our long term value creation algorithm centered around profitable growth durable cash flow generation and disciplined capital allocation.

5% organic growth was broad based across all three segments, all four regions and all product categories.

Thibaut Mangan: Self-care delivered another banner year of 8.4% organic growth, sustaining the momentum we have built over the past several years, resulting once again in strong revenue growth and share gains. Essential Health grew ahead of our long-term expectations with 3.6% organic growth, while continuing to execute our strategy to drive gross margin enhancement through successful value realization and premiumization initiatives. And in Skin Health and Beauty, organic growth was 1.8%, less than we expected, mostly due to specific missteps around in-store execution in the U.S., which we are actively addressing. And I'll give you more details about that in just a moment.

<unk> care delivered another banner year of eight 4% organic growth sustaining the momentum we have built over the past several years, resulting once again in strong revenue growth and share gains.

Central has grew ahead of our long term expectations with three 6% organic growth, while continuing to execute our strategy to drive gross margin enhancements through successful value realization and premium amortization initiatives.

And in skin health and beauty organic growth was one 8% less than we expected mostly due to specific missteps around the in store execution in the U S, which we are actively addressing and I'll give you more details about that in just a moment.

Thibaut Mangan: We continued our successful multi-year program to expand gross margins in 2023 with 30 basis points of expansion through thoughtful revenue management initiatives and relentless supply chain optimization. This further demonstrates that we have the capabilities and the strategies in place to drive profitable growth even in a dynamic and certain macro backdrop. And finally, we utilize our strong free cash flow to initiate our dividend program, delivering on our commitment to returning cash to shareholders.

We continued our successful multiyear program to expand gross margins in 2023 with 30 basis points of expansion for thoughtful revenue management initiatives and relentless supply chain optimization.

This further demonstrates that we have the capabilities and the strategies in place to drive profitable growth, even in a dynamic and uncertain macro backdrop.

And finally, we utilize our strong free cash flow to initiate a dividend program delivering on our commitment of returning cash to shareholders.

Thibaut Mangan: Pivoting to Q4 specifically, let's now have a look at the performance of each one of our segments. And I'll start with skin health and beauty, as our disappointing fourth quarter performance on the top line clearly fell short of expectations, both yours and ours. Looking by region, it is evident where we have strength to leverage and where we need to improve. EMEA and Latin America ended the year strong. In EMEA, organic growth improved sequentially quarter over quarter on positive consumer response to innovation launches earlier in the year. In Germany, for example, nitrogen and hydro boost growth ahead of the category.

People into Q4, specifically, let's now have a look at the performance of each one of those segments and I'll start with skin health and beauty, although disappointing fourth quarter's performance on top line clearly fell short of expectations, both fuels and ours.

Looking by region. It is evident where we have strengths to leverage and where we need to improve.

EMEA and Latin America, and either you're a stroke in EMEA organic growth improved sequentially quarter over quarter and positive consumer response to innovation launch earlier in the year.

In Germany for example can you towards in our hydro boost that's fueled growth ahead of the category.

Thibaut Mangan: In Latin America, where we continue to grow double digits, Neutrogena faced double cells in the quarter, supported by the successful launch of Hydrobus refilled. In China, however, weaker consumer demand continues to pressure the overall category and our skincare brands. However, it is our performance in the U.S. that did not meet our expectations.

In Latin America, where we continue to grow double digits neutrogena face doubled sales in the quarter supported by the successful launch of hydro boost refills.

In China weaker consumer demand continue to pressure the overall category and all skincare brands. However, it is our performance in the U S that did not meet our expectations as we have talked with you about we had an ambitious fourth quarter recovery plan for the U S. But frankly the execution of this plan was disappointing.

Thibaut Mangan: As we have talked with you about, we had an ambitious fourth quarter recovery plan for the U.S., but frankly, the execution of this plan was disappointing. Restoring Neutrogena to the level of growth we know the brand is capable of is a priority for me and for the team. So over the past several months, I spent significant time with our team in the U.S. and engaged with our customers, and the diagnosis is clear. We know our brand equities are healthy, and our products resonate with consumers in the category. However, we must improve our in-store execution capabilities to drive stronger demand for our brands, better communicate our value proposition to consumers, launch innovation successfully, and finally, support our brands with a robust level of marketing investment. In early December, we shared that Jan Muir, previously our Chief Gross Officer, would assume the position of Head of North America.

Restoring it would really not to the level of growth. We know that Brian is capable of he is a priority for me and for the team. So over the past several months I spent significant time without opinions the U S and engaged with our customers.

This is clear we know our brand equities are healthy and our products resonate with consumers in the category. However, we must improve our in store execution capabilities to drive stronger demand for all brands.

Better communicate our value proposition to consumers launched innovation successfully and finally support our brands with a robust level of marketing investment.

In early December we shared that Humira previously our chief growth officer will assume the position of head of North America.

Thibaut Mangan: With Jan's deep knowledge of our portfolio and our growth strategy, he has already outlined with his team the focus roadmap that they are executing to strengthen their capabilities and stabilize the business. Specifically, the recently redesigned North America Skin Health and Beauty leadership team is taking action in three areas. First, we are strengthening in-store presence and prominence through better planning with customers, enhanced packaging that clearly articulates dermatological benefits, and more prominent in-store brand activation. Second, we are enhancing consumer engagement through distinct and consistent brand experiences delivered with the appropriate level of reach and frequency and supported by a revamped marketing effort. And third, we are amplifying innovations through bolstered demand generation activities with consumers and healthcare professionals. So this will not be an overnight shift.

With the anthem deep knowledge of our portfolio and our growth strategy. He has already outlined with his team is focused roadmap that they are executing to strengthen their capabilities and stabilize the business.

Specifically, the recently redesigned North America skin health and beauty leadership team is taking action in three areas.

First we are strengthening in store presence and prominence through better planning with customers enhanced packaging is that clearly articulate dermatological benefits and more prominent in store brand activation.

Second we are enhancing consumer engagement two distinct and consistent brand experience is delivered with the appropriate level of French and frequency and supported by a revamped marketing efforts.

And third we are amplifying innovations will bolster demand generation activities with consumers and healthcare professionals.

So this will not be an overnight shifts it will take time for these actions to generate impact on our results, which we expect to occur in the second half of the year, but we are confident we have correctly diagnosed all weaknesses and I'm, making the necessary changes.

Thibaut Mangan: It will take time for these actions to generate an impact on our results, which we expect to occur in the second half of the year, but we are confident we have correctly diagnosed our weaknesses and are making the necessary changes. Additionally, we believe our strong partnerships with retailers, coupled with increased investment and a higher level of precision in our execution, will enable us to stabilize the business in the U.S. and deliver stronger growth in 2024. Now, turning to the rest of the portfolio, in self-care, our largest segment, it is a very different picture. We ended the year in line with our expectations, delivering organic growth of 8.4% in 2023, on top of 10.9% growth in 2022. We continue to demonstrate our leadership in the fourth quarter, reading the season accurately and activating our brands with precision. Adult Tylenol continued to gain share in the U.S. with 78 consecutive weeks of share growth, even as category volumes declined as expected, with roughly 15% lower incidence levels in this cold and flu season compared to 2022.

Additionally, we believe our strong partnerships with retailers, coupled with increased investment and a higher level of precision execution will enable us to stabilize the business in the U S and deliver a stronger growth in 2024.

So now turning to the rest of the portfolio in self care. Our largest segment is a very different picture. We ended the year in line with our expectations delivering organic growth of eight 4% in 2023 on top of 10, 9% growth in 2022.

We continue to demonstrate our leadership in the fourth quarter readings of season accurately and activating our brands with precision.

Adult Tylenol continue to gain share in the U S with 78 consecutive weeks of share growth, even if category volumes declined as expected with roughly 15% lower incidence level since it's cold and flu season compared to 2022 and.

And again this quarter, we strengthened our leadership positions with relevant innovation premium amortization and leading health care professional endorsement. So looking to 2024, we intend to continue to deploy this winning formula around the world.

And finally in Central Health performance was led by our oral care and women's health, while baby care shipments were less robust this quarter all care grew 8% with organic growth in all regions, including the U S where LISTERINE despite being around five times bigger than our next competitor remains the most productive Iranians category.

Thibaut Mangan: And again this quarter, we strengthened our leadership positions with relevant innovation, premiumization, and leading healthcare professional endorsements. So looking to 2024, we intend to continue to deploy this winning formula around the world. And finally, in essential health, performance was led by oral care and women's health, while baby care shipments were less robust this quarter. Oral care grew 8% with organic growth in all regions, including the U.S., where Listerine, despite being around five times bigger than our next competitor, remains the most productive brand in the category and has now delivered 21 weeks of double-digit consumption growth. The launch of Listerine Gum Therapy did extremely well as the largest innovation in the U.S. mouthwash category in 2023, reaching one point of share in under 12 months just for this code, and we have more great innovations planned in 2024.

And has now delivered 21 weeks of double digit consumption growth.

The launch of LISTERINE gun therapy has done extremely well as the largest innovation in the U S. Mouthwash category in 2023, reaching one point of share in under 12 months just falls this code and who have more great innovation planning 2024.

Which brings me to our priorities for this year 2024 will be our first full year as an independent company and you will see us starting to operate differently than what we have in the past, which will enable us to unleash the full potential of our portfolio.

As I shared earlier, we have three priorities.

First we are going to reach more consumers with a strong focus on our 15 priority brands, while strengthening our plans to build attractive consistent Brian expanses fall 15 priority brands, which represent two thirds of our growth.

With strong retailer partnership we will bring to market relevant innovation across all segments, driving mental availability, but also ensuring physical availability, where and when our consumers need us.

We are also raising our bar in terms of activation of excellence in our focus markets starting with the U S. So you are going to see our top brands with a higher level of activation in 2024, as we fuel growth.

Thibaut Mangan: Which brings me to our priorities for this year. 2024 will be our first full year as an independent company, and you will see us starting to operate differently than we have in the past, which will enable us to unleash the full potential of our portfolio. As I shared earlier, we have three priorities. First, we are going to reach more consumers with a strong focus on our 15 priority brands. We are strengthening our plans to build attractive, consistent brand experiences for 15 priority brands, which represent two-thirds of our growth. With strong retailer partnership, we will bring relevant innovation across our segments, driving mental availability but also ensuring physical availability where and when our consumers need us.

In self care, we have strong plans to bring forward science space category, leading innovations to meet the needs of consumers maintain category, leading health care professional recommendation.

Ultimately drive continued share gains.

And in skin health, we will stabilize the business in the U S with the plan I outlined today outside the U S. In China, we will monitor consumer sentiment and thoughtfully calibrate our investment accordingly.

In the rest of the World, where we continue to fuel our growth in Europe and Latin America.

This required investment and we have plans to invest more in brand activation in 2024, both with consumers and with health care professionals.

Continued margin expansion and efficiencies across the business with fewer seats and divestment, which brings me to our second priority, which is to free up resources and invest in all brands.

Thibaut Mangan: We are also raising the bar in terms of activation excellence in our focus markets, starting with the U.S., so you are going to see our top brands with a higher level of activation in 2024 as we fuel growth. In self-care, we have strong plans to bring forward science-based, category-leading innovations to meet the needs of consumers, maintain category-leading healthcare professional recommendations, and ultimately drive continued share gains.

We expect gross margins to expand at an accelerated pace compared to 2023, which will fund increased investment in our brands.

You've heard me say that over the past several years, we have been going to the gym on gross margin and some of this work we will continue to strengthen this muscle driving efficiency across our supply chain, managing our mix and implementing thoughtful revenue management initiatives.

Thibaut Mangan: And in skin health, we will stabilize a business in the U.S. with a plan I outlined today. Outside the U.S., in China, we will monitor consumer sentiment and thoughtfully calibrate our investment accordingly, while in the rest of the world, we will continue to fuel our growth in Europe and Latin America. This requires investment, and we have plans to invest more in brand activation in 2024, both with consumers and with healthcare professionals. Continued margin expansion and efficiencies across the business will fuel this investment, which brings me to our second priority, which is to free up resources and invest in our brands. We expect gross margins to expand at an accelerated pace compared to 2023, which will fund increased investment in our brands.

In addition, as we exit our transition services agreements with Johnson <unk> Johnson, we are not simply replicating legacy processes, but rather intentionally reinventing our ways of working.

And this includes implementing mud systems designed specifically to meet the needs of a new company and enables speed agility accuracy and a lower cost base.

For example, we are implementing a new integrated business planning process that will improve our demand forecasting capabilities and service levels through better integrating and automating retailer data and demand sensing.

This plan will be implemented throughout the next six quarters with the majority occurring this year and all of this will be enabled by our teams around the world, which leads me to our final priority fostering a culture that he waltzed about four months and impact.

Thibaut Mangan: You've heard me say that over the past several years, we have been going to the gym on gross margin, and through this work, we will continue to strengthen this muscle, driving efficiency across our supply chain, managing our mix, and implementing thoughtful revenue management initiatives. In addition, as we exit our transition services agreements with Johnson & Johnson, we are not simply replicating legacy processes but rather intentionally reinventing our ways of working. And this includes implementing modern systems designed specifically to meet the needs of our new company and enable speed, agility, accuracy, and a lower cost base. For example, we are implementing a new integrated business planning process that will improve our demand forecasting capabilities and service levels through better integrating and automating retailer data and demand sensing.

In 2024, we are deploying a new can view pessimist management plan with clear goals and a heightened sense of accountability for every viewer supplant introduces a new incentive programs for all leaders encouraging and rewarding impact on the four drivers of shareholder return topline growth margin expansion.

Earnings growth and free cash flow.

Further we are streamlining decision, making across the organization, including in my own leadership team and most importantly, we are creating a culture based on our current view of values, where everyone has a strong sense of purpose and belonging and opportunity to grow and is rewarded for impact.

So in closing we made significant progress in 2023 and why do we still have a lot of work ahead of us our priorities are clear in 2024 and gives me confidence in our ability to deliver our plan for the year I'm deeply grateful to our talented teams for their energy and passion to work together as one team to build a new company.

It is inspiring to see 22000 can do is rally behind one purpose, helping people realize the extraordinary power of everyday care and I know they will make us successful this year and into the future and with that I'll turn it over to Paul.

Thibaut Mangan: This plan will be implemented throughout the next six quarters, with the majority occurring this year. And all of this will be enabled by our teams around the world, which leads me to our final priority, fostering a culture that rewards performance and impact. In 2024, we are deploying our new Kenvue Performance Management Plan with clear goals and a heightened sense of accountability for every Kenvuer. The plan introduces new incentive programs for all leaders, encouraging and rewarding impact on the four drivers of shareholder return, top-line growth, margin expansion, earnings growth, and free cash flow. Furthermore, we are streamlining decision-making across the organization, including in my own leadership team. And, most importantly, we are creating a culture based on our Kenvue values where everyone has a strong sense of purpose and belonging, an opportunity to grow, and is rewarded for impact.

Thank you Taylor and good morning, everyone.

<unk> 23 was a transformational year, where we delivered strong topline growth margin expansion and robust cash generation, even in the face of a dynamic macro backdrop and significant cost headwinds.

I will start with an overview of results for the fourth quarter and the year, then close with our outlook for 2024.

As you heard from Tivo fourth quarter performance did not meet our expectations as in store execution fell short of plan in the U S skin health and beauty business.

While we don't expect recovery overnight I'm encouraged by what the new leadership team has accomplished in the past couple of months diagnosing the issue and put an action plan in place that is already underway.

Now getting to results.

Fourth quarter organic sales declined two 4%.

It is important to consider our fourth quarter performance in the context of six 2% organic growth last year.

Thibaut Mangan: So, in closing, we made significant progress in 2023, and while we still have a lot of work ahead of us, our priorities are clear in 2024 and give me confidence in our ability to deliver our plan for the year. I'm deeply grateful to our talented teams for their energy and passion to work together as one team to build our new company. It is inspiring to see 22,000 Kenvuers rally behind one purpose, helping people realize the extraordinary power of everyday care, and I know they will make us successful this year and into the future. And with that, I'll turn it over to Paul.

Where we experienced the outsized growth in self care, primarily driven by unprecedented demand for OTC products.

In this context fourth quarter growth was three 8% on a two year stack basis.

Liberalization contributed five eight points to fourth quarter growth offset by a volume decline of eight two points.

Let me deconstruct the volume decline is there are several unique drivers impacting volume that do not reflect the underlying strength of our brands.

First about three points come from lapping an early and strong cold cough and flu season that drove double digit organic growth last year.

Further this year saw a later start to the season combined with approximately 15% lower incidence levels.

Paul Roux: Thank you, Thibault, and good morning, everyone. 2023 was a transformational year where we delivered strong top line, gross margin expansion, and robust cash generation, even in the face of a dynamic macro backdrop and significant cost headwinds. I will start with an overview of results for the fourth quarter and the year, then close with an outlook for 2024. As you heard from Thibault, our fourth quarter performance did not meet our expectations.

As we have shared previously and batch of our OTC business volume is characteristically linked to incidence levels, which can go up or down in any given season for.

Or can view, our focus is to be prepared to serve our consumers.

While continuing to gain share regardless of what the season neighboring and that is what you saw from us this quarter.

Second 2022 product discontinuation negatively impacted the quarter by about one point.

Of note as of the fourth quarter, we have fully lapped the broadest continuations and do not expect to see an impact next year.

Lastly, trade inventory reduction accounted for about one point as retailers tightening their inventory levels.

Paul Roux: As in-store execution fell short of plan in the U.S. skin health and beauty business. While we don't expect recovery overnight, I'm encouraged by what the new leadership team has accomplished in the past couple of months, diagnosing the issue and putting an action plan in place that is already underway. Now getting to results. Fourth quarter organic sales declined 2.4%.

In sum a little over five points of volume decline is attributed to idiosyncratic elements all of the fourth quarter with the remaining three points, mainly attributable to continued softness in China and they're on their performance in U S skin health and beauty, we have discussed.

For the full year net sales grew three 3% to $15 4 billion.

Paul Roux: It's important to consider our fourth quarter performance in the context of 6.2% organic growth last year, where we experienced outsized growth in self-care, primarily driven by unprecedented demand for our OTC products. In this context, fourth quarter growth was 3.8% on a two-year stack basis. Value realization contributed 5.8 points to fourth quarter growth, offset by a volume decline of 8.2 points.

Organic growth of 5% reflects the value realization of seven 7% and a volume decrease of two 7% of which approximately two points is attributed to the 2022 priorities continuation as we have discussed all year.

And the suspension of personal care products in Russia through the first half.

When normalizing volume to exclude these two distinct items volume was slightly down on nearly eight points of value realization demonstrating the lower elasticity of our brands.

Paul Roux: Let me deconstruct the volume decline as there are several unique drivers impacting volume that do not reflect the underlying strengths of our brands. First, about three points come from lapping an early and strong cold, cough, and flu season that drove double-digit organic growth last year. Additionally, this year saw a later start to the season combined with approximately 15% lower incidence levels.

You also see the power of the portfolio and the fact that private label penetration remains relatively flat throughout the year.

Even as consumers look to be trending down in other categories.

These dynamics give us confidence in our ability to improve volume growth as we progressed through 2024.

Moving to gross margins fourth quarter gross margin expanded 220 basis points to 59, 5% and full year adjusted gross margin increased 30 basis points to 58, 4%.

Paul Roux: As we have shared previously, in parts of our OTC business, volume is characteristically linked to incidence levels, which can go up or down in any given season. For Kenvue, our focus is to be prepared to serve our consumers while continuing to gain share regardless of what the season may bring. And that is what you saw from us this quarter.

As we have discussed with you previously there are some nonrecurring items in our results as we refine our accounting and reporting methodologies to a more comparable with our peers.

Impacts from these refinements were a benefit of approximately 50 basis points in the fourth quarter and 10 basis points for the full year.

Inflationary headwinds moderated during the fourth quarter as positive trends in logistics offset ongoing pressures in energy and wage inflation.

Paul Roux: Second, 2022 product discontinuations negatively impacted the quarter by about one point. Of note, as of the fourth quarter, we have fully lapped the product discontinuations and do not expect to see an impact next year. Lastly, trade inventory reduction accounts for about one point as retailers tighten their inventory levels. In sum, a little over five points of volume decline can be attributed to idiosyncratic elements of the fourth quarter.

While FX continued to pressure gross margin by about a point during the quarter and for the full year.

Turning to adjusted operating income fourth quarter, adjusted operating income margin expanded 190 basis points and our full year adjusted operating income margin was flat.

Adjusted operating margin benefited from the nonrecurring items I just spoke about by about 180 basis points for the quarter and 70 basis points for the year.

For taxes.

Fourth quarter adjusted effective tax rate was 15, 8%.

The decrease versus prior year is primarily the result of tax law changes that negatively impacted 2020 to the release of tax reserves, mostly due to the statute of limitations expiring and benefits from effective tax planning.

Paul Roux: With the remaining three points mainly attributed to continued softness in China and their underperformance in U.S. skin health and beauty, as discussed. For the full year, net sales grew 3.3% to $15.4 billion. Organic growth of 5% reflects the value realization of 7.7% and the volume decrease of 2.7%, of which approximately 2 points is attributed to the 2022 product discontinuations we have discussed all year and the suspension of personal care products in Russia through the first half. When normalizing volume to exclude these two distinct items, volume was slightly down on nearly eight points of value realization, demonstrating the lower elasticity of our brands.

The full year adjusted effective tax rate was 23, 4%.

The decrease in adjusted effective tax rate versus prior year is primarily due to the release of tax reserves.

And finally, adjusted net income was $586 million for the quarter and $2 4 billion for the year.

Adjusted diluted earnings per share was 31 cents for the quarter and $1 29 for the year, including an approximate <unk> <unk> benefit from the nonrecurring items I spoke about.

Now turning to cash and capital allocation for the year, we generated $2 7 billion in free cash flow. It is worth noting that the free cash flow benefited from separation related items and the timing of working capital at the end of the year.

During the year, we demonstrated our commitment to disciplined capital allocation as outlined during our IPO.

Paul Roux: You also see the power of the portfolio in the fact that private level penetration remains relatively flat throughout the year, even as consumers look to be trending down in other categories. These dynamics give us confidence in our ability to improve volume growth as we progress through 2024. Moving to gross margins, fourth-quarter gross margin expanded 220 basis points to 59.5%, and full-year adjusted gross margin increased 30 basis points to 58.4%. As we have discussed with you previously, there are some non-recurring items in our results as we refine our accounting and reporting methodologies to be more comparable with our peers. Impacts from these refinements were a benefit of approximately 50 basis points in the fourth quarter and 10 basis points for the full year. Inflationary headwinds moderated during the fourth quarter as positive trends in logistics offset ongoing pressures in energy and wage inflation, while FX continued to pressure gross margin by about a point during the quarter and for the full year.

We strengthened our balance sheet reduce our leverage and returned cash to our shareholders.

We have executed on our capital allocation priorities, including a 64% dividend payout ratio and reducing our gross leverage from two five times to two two.

As you model 2024, it will be important to consider their working capital timing benefit in 2023 as well as the fact that we retain a full year of dividends and have a full year of interest expense.

Which brings me to the outlook for 2024.

First I want to Echo <unk> point that we have strong conviction in our ability to execute our plan for the year.

We have a clear strategy in place and in 2024, we're focused on reaching more consumers optimizing the way, we work to invest behind our brands and rewarding performance and impact.

We will drive efficiencies through further investment in supply chain technology, and our recently implemented integrated business planning process.

We will then redeployed the dollars generated from these operating efficiencies into consumer facing brand support.

Growth and market share capture will be of particular focus for these incremental investments and finally, we will accelerate the exits of DSA is establishing a new operating infrastructure that meets our needs as an independent company.

Paul Roux: Turning to Adjusted Operating Income, fourth quarter Adjusted Operating Income margin expanded 190 basis points, and full-year Adjusted Operating Income margin was flat. Adjusted operating margin benefited from the non-recurring items I just spoke about by about 180 basis points for the quarter and 70 basis points for the year. For taxes, our fourth quarter adjusted effective tax rate was 15.8%. The decrease versus the prior year is primarily the result of tax law changes that negatively impacted 2022, the release of tax reserves mostly due to the statute of limitations expiring, and benefits from effective tax planning. The full-year adjusted effective tax rate was 23.4%.

In summary, it would it be a year focused on enhanced engagement with consumers, while continuing our transition to a truly standalone entity.

In 2024, we expect to achieve organic growth in the range of 2% to 4%.

We expect quarterly organic sales growth to improve sequentially as we progress through the year and as compares ease.

And this impacts all of the strategic initiatives that <unk> outlined begin to materialize.

We expect certain headwinds to continue in the first half of 2024.

Such as a lower flu season versus last year.

Softness in China, and persistent impacts of in store issues with our skin health and beauty portfolio.

However, as we accelerate investment behind our brands, particularly focused on in store presence and prominence enhancing consumer engagement and amplifying innovation, we expect to see growth accelerate as these actions begin to have more of an impact in the second half of the year.

Paul Roux: The decrease in the adjusted effective tax rate versus the prior year is primarily due to the release of tax reserves. And finally, adjusted net income was $586 million for the quarter and $2.4 billion for the year. Adjusted diluted earnings per share was $0.31 for the quarter and $1.29 for the year, including an approximate 3 cent benefit from the non-recurring items I spoke about. Now turning to cash and capital allocation, for the year, we generated $2.7 billion in free cash flow. It is worth noting that the free cash flow benefited from separation-related items and the timing of working capital at the end of the year. During the year, we demonstrated our commitment to disciplined capital allocation, as outlined during our IPO. We strengthened our balance sheet, reduced our leverage, and returned cash to our shareholders.

We also think it's prudent to acknowledge that 2024 could be another volatile year as economic and geopolitical headlines impact consumer confidence.

The lower end of our guidance reflects the potential for a weaker consumer and the possibility for one loans in our seasonal businesses.

Looking to the first quarter, we expect organic growth to be about flat.

While we don't plan to guide quarterly as part of our normal practice given the outsized performance in the first quarter of 2023, which benefited from nonrecurring retailer inventory rebuilds combined with a strong cold cough and flu season, we thought it would be helpful to provide perspective on Q1.

Moving down the P&L, we expect to maintain a healthy gross margin profile with adjusted gross profit margin expected to be closer to 2021 levels.

We expect adjusted operating income margin to be slightly below last year.

While the operating efficiency that we spoke about begin to materialize, partially offsetting the increased investment in our brands that includes an approximately 15% increase in our marketing spend as well as the absorption of a full year of public company costs.

Paul Roux: We have executed on our capital allocation priorities, including a 64 percent dividend payout ratio and reducing our gross leverage from 2.5 times to 2.2. As you model 2024, it will be important to consider the working capital timing benefit in 2023, as well as the fact that we will be paying a full year of dividends and have a full year of interest expense. Which brings me to the outlook for 2024.

Regarding other guidance items in EPS at.

At current spot rates, we expect translational foreign currency impact of about one point to reported net sales.

We expect net interest expense to be approximately $400 million evenly.

Evenly split across quarters.

We expect an adjusted tax rate of 25, 5% to 26, 5%, which reflects the changes in tax loss, primarily the enactment of pillar two legislation adopting the OECD global minimum tax.

Regarding EPS, assuming a full year 2020 for weighted average share count of 192 billion shares we expect adjusted earnings per share to be in the range of 110 to $1 20.

Paul Roux: First, I want to echo Tibo's point that we have strong conviction in our ability to execute our plan for the year. We have a clear strategy in place, and in 2024, we're focused on reaching more consumers, optimizing the way we work to invest in our brands, and rewarding performance and impact. We will drive efficiencies through further investments in supply chain, technology, and a recently implemented integrated business planning process. We will then redeploy the dollars generated from these operating efficiencies into consumer-facing brand support. Volume growth and market share capture will be of particular focus for this incremental investment. And finally, we will accelerate the exit of TSAs, establishing a new operating infrastructure that meets our needs as an independent company.

This range assumes about a <unk> <unk> foreign exchange headwind based on current rates.

To show a comparable view across years, we have included a slide in our presentation that outlines a rebased starting point for 2024.

In other words, a like for like view and we've been a public company for the entirety of 2023.

This rebase view includes a full year of public company costs, a full year of interest expense and a normalized tax rate and share count.

At the midpoint our earnings per share guidance is about flat when comparing to the Rebased 2023 adjusted diluted EPS.

Closing, we are proud of what we have achieved in our first year as Ken view.

I'll also acknowledging challenges in our skin health and beauty business that we have plans in place to improve as.

Paul Roux: In summary, it will be a year focused on enhanced engagement with consumers while continuing our transition to a truly stand-alone entity. In 2024, we expect to achieve organic growth in the range of 2 to 4 percent. We expect quarterly organic sales growth to improve sequentially as we progress through the year and as comparisons ease, and as impacts of the strategic initiatives that Thibault outlined begin to materialize. We expect certain headwinds to continue in the first half of 2024, such as a lower flu season versus last year, softness in China, and persistent impacts of in-store issues with our skin health and beauty portfolio. However, as we accelerate investment behind our brands, particularly focused on in-store presence and prominence, enhancing consumer engagement, and amplifying innovation, we expect to see growth accelerate as these actions begin to have more of an impact in the second half of the year. We also think it's prudent to acknowledge that 2024 could be another volatile year as economic and geopolitical headlines impact consumer confidence. The lower end of our guidance reflects the potential for a weaker consumer and the possibility of unknowns in our seasonal businesses.

As for 2024, our priorities are reaching more consumers freeing up resources to invest behind our brands and fostering a culture that rewards performance and impact.

And with that we'll take your questions.

Thank you at this time will be conducting a question and answer session. In the interest of time, we ask that you limit yourself to one question and one follow up to allow for as many questions as possible.

Like to ask a question. Please press star one on your telephone keypad to withdraw your question simply press Star one again for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

One moment. Please for your first question.

Okay.

Our first question comes from the line of Stephen Powers of Deutsche Bank. Please go ahead.

Yes, Thank you and good morning, everybody.

Maybe I can start just on the topline I think just given the momentum that.

We have exiting 'twenty three.

I think some people could look at the call for flat organic in the first quarter.

Given the comparisons is as ambitious and also in the 2% to 4% for the full year is potentially ambitious so maybe just a little bit more color on your visibility to that organic.

Forecast and some of the building blocks that we should be looking for as we get into the year.

Yeah sure good morning, Steve.

Regarding your question on the top line.

And our ambitions for 2024.

We continue to see all categories growing 3% to 4% in 'twenty four and beyond.

Paul Roux: Looking to the first quarter, we expect organic growth to be about flat. While we don't plan to guide quarterly as part of our normal practice, given the outsized performance in the first quarter of 2023, which benefited from non-recurring retailer inventory rebuilds, combined with a strong cold, cough, and flu season, we thought it would be helpful to provide perspective on Q1. Moving down the P&L, we expect to maintain a healthy gross margin profile with adjusted gross profit margin expected to be closer to 2021 levels. We expect adjusted operating income margin to be slightly below last year.

Our guidance for 2024 reflects the range of scenarios.

It does embed a sequential improvement as we move through the year and as we lap. The unusual compares of 2023 that we talked about but also the fact that we expect our increased investment in the plans as I outlined earlier.

Generate impact, especially in the second half of the year.

So that's what makes us confident in our plans for the year, but we also think it's prudent to acknowledge some of the dynamics at play in 2024, and that's why our guidance also contemplates certain headwinds that could materialize.

Paul Roux: While the operating efficiencies we spoke about began to materialize, partially offsetting the increased investment in our brands that includes an approximately 15% increase in our marketing spend, as well as the absorption of a full year of public company costs. Regarding other guidance items and EPS. At current spot rates, we expect a translational foreign currency impact of about 1 point to report net sales. We expect net interest expense to be approximately $400 million, evenly split across quarters.

Suggests further softness in China.

At the time, it will take to improve our in store execution and scheme.

As well as a possibility for unknowns in our seasonal businesses.

But I reiterate that we are confident in our.

Our plans for the year.

Okay very good very good.

And then maybe maybe maybe this is for Paul on the on the margin forecast.

I guess, just some clarification that the the press release talked about.

The strong gross margin.

You talked about just a few minutes ago as well and then it contemplates a 50 basis points of FX headwinds I just wanted to.

Paul Roux: We expect an adjusted tax rate of 25.5% to 26.5%, which reflects changes in tax laws, primarily the enactment of Pillar 2 legislation adopting the OECD's global minimum tax. Regarding EPS, assuming a full year 2024 weighted average share count of 1.92 billion shares, we expect adjusted earnings per share to be in the range of 1.10 to 1.20. This range assumes about a 4 cent foreign exchange headwind based on current rates. To show a comparable view across years, we have included a slide in our presentation that outlines a rebate starting point for 2024. In other words, a like-for-like view had we been a public company for the entirety of 2023. This rebase view includes a full year of public company costs, a full year of interest expense, and a normalized tax rate and share counts.

To clarify is that 50 basis points, all within SG&A and if maybe you can give some color as to the drivers of that transactional headwind in SG&A number one and number two.

<unk> talked about year over year rates of increase in advertising I'm, just I guess I'm a little curious as to where we were we finished 23 I don't know if you can I'm sure it's going to be in the K.

But maybe just give a little color on where advertising finish.

Finished as a percentage of sales in 'twenty, three and how you how you expect that to trend into 24. Thank you.

Thank you for the question Steve.

In regards to your first part of the question. Yes. We are we're very pleased with our gross margin trajectory as you know.

And people I mentioned, we have developed a muscle in terms of continued sustained.

Gross profit margin enhancement and the FX that I talked about is embedded.

In gross margin and also in SG&A was primarily in gross margin.

To your second question year over year rates of advertising.

Paul Roux: At the midpoint, our earnings pressure guidance is about flat when compared to the rebased 2023 adjusted diluted EPS. In closing, we are proud of what we have achieved in our first year at Kenvue while also acknowledging challenges in our skin health and beauty business that we have plans in place to improve. As for 2024, our priorities are reaching more consumers, freeing up resources to invest in our brands, and fostering a culture that rewards performance and impact. Thank you, and with that, we'll take your questions. Thank you.

We will disclose that advertising in a K a.

Advertising year over year versus 22 was slightly down.

But I can tell you that we have very strong plans to increase our advertising I mentioned, 15% were approximately $300 million more that will fuel the progressive growth enhancement that <unk> talked about.

Okay very good thank you so much.

Thank you. Our next question comes from line of Ana <unk> of Bank of America. Please go ahead.

Operator: At this time, we will be conducting a question and answer session. In the interest of time, we ask that you limit yourself to one question and one follow-up to allow for as many questions as possible. If you'd like to ask a question, please press the star 1 on your telephone keypad. To withdraw your question, simply press star 1 again.

Hi, good morning. Thanks, so much for the question I wanted to ask on the Q4 skin health and beauty I know you said the volume weakness was made.

And by the U S. But can you be more specific on how much of the weakness was driven by China on doctors see libel and are you expecting that to recover in Q1 in terms of your guidance and then also in the U S and health and beauty and in Q3, you had highlighted some innovation in Sun care furniture gainer, what help last quarter.

Stephen Powers: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, for your first question. Our first question comes from Stephen Powers of Deutsche Bank. Please go ahead.

Our that volume a significant deceleration here in Q4, so in terms of their recovery and distribute and where are you at in your conversations with retailers. Thanks.

Thibaut Mangan: Yes, thank you, and good morning, everybody. Maybe we can start just on the top line. I think, just given the momentum that we have when we are exiting 23. I think some people could look at the call for flat organic growth in the first quarter, given the comparisons, as ambitious, and also the two to 4% for the full year as potentially ambitious. So maybe just a little bit more color on your visibility to that organic forecast and some of the building blocks that we should be looking for as we get into the year. Yes, sure. Good morning, Steve.

Yeah, Good morning, Adam.

Let let me answer your question on the on <unk> on.

<unk> skin health and where what do we see in <unk> in China and the U S. So in China, we saw a weak demand for all brands, especially Doctor C level due to temporary PR issues that you're all familiar with.

We we believe that <unk> issues out.

Dissipating as we speak but you know we have.

We are going to be.

Portfolio about them continuing to monitor how the categories are doing how the consumer sentiment is growing in <unk> in China.

Paul Roux: Regarding your question on our top line and our ambitions for 2024, we continue to see our categories growing 3 to 4 percent in 2024 and beyond. Our guidance for 2024 reflects a range of scenarios. It does embed a sequential improvement as we move through the year and as we look at the unusual comparisons of 2023 that we talked about, but also the fact that we expect increased investment and the plans that I outlined earlier generate impact, especially in the second half of the year. So that's what makes us confident in our plans for the year. But we also think it's prudent to acknowledge some of the dynamics at play in 2024, and that's why our guidance also contemplates certain headwinds that could materialize, such as further softness in China, the time it will take to improve in-store execution in skin, as well as the possibility of unknowns in our seasonal businesses. But I reiterate that we are confident in our plans for the year. Okay, very good, very good. And then maybe this is for Paul on the margin forecast.

And.

While we are going to see gradual recovery in our 24, well not contemplating in our guidance.

Strong recovery, especially in the first half of the year.

In skincare brands in in in China.

I remind you that China is about 7% of our revenue.

As a total company.

But we have a.

Total portfolio are represented in in China.

And and skin health is not the largest part of our portfolio in China.

Regarding.

The U S.

Yes.

We had an ambitious recovery plan in Q4 and as I said in my prepared remarks are we.

The outcome of this plan was not what we what we had expected.

What's good is that we understand exactly.

What is going on all brands are healthy Neutrogena for example, he is the very.

Paul Roux: I guess just some clarifications. The press release talked about the strong gross margin outlook that you talked about just a few minutes ago as well, but it contemplated 50 basis points of FX headwinds. I just wanted to clarify, is that 50 basis points all within SG&A? And if maybe you could give some color to the drivers of that transactional headwind in SG&A, number one. And number two, we talked about year-over-year rates of increase in advertising. I guess I'm a little curious as to where we finish at 23.

Very high penetration in the U S.

Our online sales.

<unk> are doing well, we grew double digits on Amazon with a brand like Neutrogena. For example, so what we really need to improve is execution and Jan and his team are laser focused on the on improving execution and it is going to be broad based is it goes beyond just distribution.

But it starts with our in store presence and prominence.

And here I'm talking about better on shelf execution, increasing displays increasing fixtures updating as a packaging where needed to make a range easier to shop.

Paul Roux: I don't know if you can – I'm sure it's going to be in the K, but maybe just give a little color on where advertising finishes the percentage of sales in 23 and how you expect that to trend into 24. Thank you. Thank you for the question, Steve. In regards to the first part of your question, yes, we are very pleased with our gross margin trajectory. As you know, and Thibault mentioned, we have developed a muscle in terms of continued, sustained, gross profit margin enhancement. And the ethics that I talked about are embedded in gross margin and also in SG&A, but primarily in gross margin.

I'm sure that we have the price pack architecture everywhere.

And ultimately, making it easier for customers of our consumers to to shop in store for their needs.

It's also about engaging with consumers in a bigger way than what we did in 2023, we have industry, leading all lie on the advertising. So really 24, it's about increasing the reach and frequency.

Of of all.

Paul Roux: To your second question, year-over-year rates of advertising, we will disclose advertising in RK. Advertising year-over-year versus 22 was slightly down, but I can tell you that we have very strong plans to increase our advertising. I mentioned 15%, approximately $300 million more that will fuel the progressive growth enhancement that Thibault talked about. Okay, very good. Thank you so much.

Engagement activities.

Brand activation activities with both consumer and health care professionals.

We're going to put more products in their hands think about samples.

Because we know that once they try our products they love them.

And lastly, we will.

Deploy innovation at a bigger scale.

Refining our 2023 programs and we are excited about what we have in the plan for 2024 in terms of innovation and.

Anna Lizzell: Thank you. Our next question comes from Anna Lizzell of Bank of America. Please go ahead. Hi, good morning.

Our retailers are excited about it as well so it's a much in a nutshell, it's a heightened focused.

Thibaut Mangan: Thanks so much for the question. For Q4, skin health and beauty, I know you said the volume weakness was mostly driven by the U.S., but can you be more specific on how much of the weakness was driven by China in Dr. C. Labo and are you expecting this to recover in Q1 in terms of your guidance? And then also in the U.S., on skin health and beauty, in Q3 you highlighted some innovation in sun care for Neutrogena, which helped last quarter, but volume saw a significant deceleration here in Q4. So, in terms of recovery and distribution, where are you in your conversations with retailers? Thanks. Yeah, good morning, Anand.

Our heightened focus more precision around the execution more presence with consumers on play Fi Ah amplified innovation as I said, it's not going to.

Happen overnight recovery will not be linear.

But we are confident that these are stronger plan.

Will help stabilize the business and with again, a higher level of precision execution.

We expect growth to in 'twenty four two.

To definitely be ahead of 'twenty three.

Great. Thanks, that's super helpful and if I can ask a follow up on healthcare.

Thibaut Mangan: So let me answer your question on skin health and what we see in China and in the US. So in China, we saw weak demand for our brands, especially Dr. Silabo, due to temporary PR issues that you are familiar with. We believe that these PR issues are dissipating as we speak, but, you know, we are going to be thoughtful about continuing to monitor how the categories are doing, how the consumer sentiment is going in China. And while we are going to see gradual recovery in 24, we are not contemplating in our guidance a strong recovery, especially in the first half of the year, in our skincare brands in China. I remind you that China is about 7% of our revenue as a total company, but we have our total portfolio represented in China. And skin health is not the largest part of our portfolio in China.

In Q4, just outside of cold coffee.

Comment on the rest of the portfolio I think you had mentioned last quarter you were seeing some gains in your other category you sorry, I was wondering if there are some bright spots there or if they were although somewhat of a drag in the corner Inc.

Yes, it's a great question, because we talk a lot about the season and Paul described.

It describes very well the dynamics there and how pleased we are with the with our performance during the season, but the strength of our leadership position does it happened by accident. It's the outcome of a lot of work that permeates throughout the entire self care portfolio.

And that's true for.

Analgesics, but it's also true for LNG for digestive.

Digestive health for smoking cessation.

Thibaut Mangan: Regarding the U.S., we had an ambitious recovery plan in Q4, and as I said in my prepared remarks, the outcome of this plan was not what we expected. What's good is that we understand exactly what is going on. Our brands are healthy.

And in these other areas of the business. We are very pleased with the with our performance.

We see continued performance in smoking cessation.

A good performance of digestive health, Idaho G. While we had lower incidence is a strong share gains our innovation like <unk> Chewables continues to do very well.

Thibaut Mangan: Neutrogena, for example, has a very high penetration rate in the U.S. Our online sales are doing well. We grew double-digit on Amazon with a brand like Neutrogena, for example. So what we really need to improve is execution, and Jan and his team are laser-focused on improving this execution, and it's going to be broad-based. It goes beyond just distribution, but it starts with our in-store presence and prominence. And here I'm talking about better on-shelf execution, increasing displays, increasing fixtures, updating the packaging where needed to make our range easier to shop, making sure that we have the price pack architecture everywhere, and ultimately making it easier for our customers, for our consumers, to shop in-store for their needs. It's also about engaging with consumers in a bigger way than what we did in 2023. We have industry-leading ROI on our advertising, so really, 24 is about increasing the reach and frequency of engagement activities and brand activation activities with both consumers and healthcare professionals. We are going to put more products in their hands. Think about samples because we know that once they try our product, they love it.

Our strong performance in self care is broad based across the portfolio.

Great. Thank you so much.

Thank you. Our next question comes from line of Andrea <unk> of Jpmorgan. Please go ahead.

Thank you operator, and good morning, everyone I have a question and a follow up chip or can you elaborate more on the time of the displays you just mentioned the fixture isn't a shelf space for recovery in the U S. In particular ahead of the spring I heard that a large retailer is probably moving some of the beautifully sad thing to this.

Summer is that impacting our expectations number one.

And number two like you had mentioned.

You were seeing progress throughout the year, which obviously it has to do also the comps, but it is it fair to assume flattish.

Flat to slightly negative Q1, or first half of the year for organic turning positive potentially only flat in Q2, and then the second half of the year is where we should be able to see significant progress on on on that.

And and a follow up in terms of the shipments against consumption on P. O S. I know, it's hard to really focus on Nielsen, but unfortunately, that's why we can E in terms of consumption.

Thibaut Mangan: And lastly, we will... deploy innovation at a bigger scale, amplifying our 2023 programs, and we are excited about what we have in the plan for 2024 in terms of innovation, and retailers are excited about it as well. So, in a nutshell, it's a heightened focus.

Should investors expect that you know that tracked channel data will remain weak for most of the first half of the year and should start to see a better chance to where at June and July given the reset. So you were confident that with innovation that you've called upon.

Thibaut Mangan: A heightened focus, more precision around execution, more presence with consumers, and amplified innovation. As I said, it's not going to happen overnight. Recovery will not be linear, but we are confident that this stronger plan will help stabilize the business, and with, again, a higher level of precision in our execution, we expect growth to, in 24, to definitely be ahead of 23. Great. Thanks. That's super helpful.

All the work that you have done to simplify the Skus and also lapping those skus simplifications, which is probably going to be a tailwind all else equal so should we be seeing slightly better than.

And then progress so as you look at the first quarter against our fourth quarter.

Yeah.

Yeah, that's that's a big question Andreas so, but it is important to them.

Thibaut Mangan: And if I can ask a follow-up on self-care in Q4, just outside of cold, cough, and flu, could you comment on the rest of the portfolio? I think you mentioned last quarter you were seeing some gains in your other categories. So, I was wondering if there were some bright spots there or if they were also somewhat of a drag in the quarter.

So let me unpack your question in the <unk>.

In terms of Ah.

Phasing.

And what we would do.

What we plan to see unfolding.

Unfolding in skin health and beauty.

For the year first of all I think the way you are describing as a euro is directionally correct, we're not guiding by segment by quarter, but I think the way you described.

Thibaut Mangan: Thanks. Yes, it's a great question because we talk a lot about the season, and Paul described very well the dynamics there and how pleased we are with our performance during the season. But the strength of a leadership position doesn't happen by accident. It's the outcome of a lot of work that permeates throughout the entire self-care portfolio. And that's true for analgesics, but it's also true for allergies, for digestive health, and for smoking cessation.

The phasing throughout the year is directionally correct and in line with the way we see it given the noise you have in the comps you talked about.

The impact of a discontinuation.

The.

The.

Suspension of ourselves in Russia in the first half of the year. These are going to be tailwind.

For in terms of growth rate, but we have headwinds.

Thibaut Mangan: And in these other areas of the business, we are very pleased with our performance. We see continued performance in smoking cessation, and good performance in digestive health. In allergy, while we had lower incidences, strong share gains or innovation like Zyrtec Chewables continues to do very well. So our strong performance in self-care is broad-based across the portfolio. Great. Thank you so much.

Like for example in Q1, the large replenishment we saw in the in our retailer inventory once we got out of the majority of our supply chain issue in the back half of 'twenty, two that's going to be a headwind.

For us so if but if you.

Exclude these.

Thibaut Mangan: Thank you. Our next question comes from Andrea Teixeira of J.P. Morgan. Please go ahead.

<unk> dynamics are.

What we are laser focused on innovation is deploying a plan that I just highlighted.

Andrea Teixeira: Thank you, operator, and good morning, everyone. I have a question and a follow-up. Chibu, can you elaborate more on the time of the displays? You just mentioned the fixtures and the shelf space recovery in the U.S., in particular ahead of spring. I heard that a large retailer is probably moving some of the beauty resets into the summer.

And <unk> and making sure that we execute with precision that does include.

The stronger presence in store, but that also includes amplifying.

<unk>, all reach to consumers and healthcare professionals.

Thibaut Mangan: Is that impacting your expectations, number one? And number two, like you had mentioned, you're seeing progress throughout the year, which obviously has to do with the comps, but is it fair to assume flat or slightly negative Q1 or first half of the year for organic, turning positive, potentially only reflecting Q2, and then the second half of the year is where we should be able to see significant progress on that? And a follow-up, in terms of shipments against consumption on POS, I know it's hard to really focus on Nielsen, but unfortunately, that's what we can see in terms of consumption. Should investors expect that tracking channel data will remain weak for most of the first half of the year and should start to see better trends toward June and July, given the resets, or are you confident that with the innovation that you called upon, all the work that you have So should we be seeing slightly better progress as you look at the first quarter against the fourth quarter? That's a big question, Andrea, but it's an important one.

And so that's where you will have different phasing of the impact of these different aspects of the plan throughout the year.

I can tell you that we are.

Executing all higher investment plan in terms of media.

As of January So you will see a lag as we all know between you know the spending advertising and ends of consumption that has already started in terms of in store activation that will happen throughout the year depending.

The rhythm each each retailer.

So we are laser focused on executing.

Executing these as building blocks.

You also mentioned that we are doing very well online.

Well, Brian expand six very strong and we grew our Brian like Neutrogena double digits, that's something that is not easy for you.

To track.

But that continues to be a source of strength a strength for us and so we are laser focused on the tracked channel. If you will which is what you see in and which is where we have the biggest area for improvement.

And then that's helpful. If I can squeeze one question for Paul in terms of like the cadence for gross margin you did call out the TSA TMA phasing and I understand it's about $100 million potential savings is that fully included in a potentially second half should.

Thibaut Mangan: So let me unpack your question in terms of phasing and what we would, what we plan to see unfolding in skin health and beauty for the year. First of all, I think the way you are describing the year is directionally correct. We are not guiding by segment or by quarter, but I think the way you described the phasing throughout the year is directionally correct and in line with the way we see it given the noise you have in the comps. You talked about the impact of discontinuation, the suspension of our sales in Russia in the first half of the year. These are going to be tailwinds in terms of growth rate, but we have headwinds like, for example, in Q1, the large replenishments we saw in retail inventory once we got out of the majority of our supply chain issues in the back half of 22. That's going to be a headwind for us.

We think about okay part of it being impacted in this outlook for operating margin being flattish given all the investments that you're making you're saying in other words, whatever you gained as the year is.

He's gonna be reinvested into marketing and the 15% that you called out the A&P.

And then he's still going to have more benefiting till the 2025 is that the way we should be thinking.

Yes, Directionally correct Andrea Thank you for your question.

As you know gross margin is the result of several elements including value realization.

We have about 60% of the value realization.

As a carryover from last year, and we will take surgical pricing in a different.

Thibaut Mangan: But if you exclude these comps dynamics, what we are laser focused on at our organization is deploying the plan that I just highlighted and making sure that we execute with precision. That does include a stronger presence in stores, but it also includes amplifying our reach to consumers and healthcare professionals. And so that's where you will have different phasing of the impact of these different aspects of the plan throughout the year.

To another 40%. So that's one area. In addition to premium amortization and mix and also the efficiency that we talked about in addition of course, you have the inflation and Forex impact inflation is still positive what is coming down so you would see.

A progression into.

To contribute to gross margin enhancement in terms of that inflation, we're expecting TSA as we speak day by day, we're talking about hundreds of TSA and that impacted both our gross profit line and also our operating income line and those are spread throughout the year.

Thibaut Mangan: I can tell you that we are executing our higher investment plan in terms of media as of January. So you will see a lag, as we all know, between the spending on advertising and the consumption that has already started. In terms of in-store activation, that will happen throughout the year depending on the rhythm each retailer has.

Where we will be seeing is the investment are studying right out of the gate and some of that.

We'll take it will bear fruits.

Later, if its more equity advertising or promotional spend will delivered benefits in the shorter term. So that's how we see the cadence.

Thibaut Mangan: So we are laser focused on executing these building blocks. I also mentioned that we are doing very well online, where the brand experience is very strong, and we grew a brand like Neutrogena double-digit. That's something that is not easy for you to track, but that continues to be a source of strength for us.

So it's definitely a more I'll say, it's a balance.

Without enhancements towards the second half and we intend to continue.

That into 2025, we're not running into 'twenty typhoon that philosophy of heightened investment should continue beyond 'twenty four.

Thank you.

Paul Roux: And so we are later focused on the tracked channel, if you will, which is what you see and which is where we have the biggest area for improvement. And then that's helpful, if I can squeeze one question for Paul in terms of like the cadence for gross margin, he did call out the TSA, TMA phasing, and I understand it's about $100 million potential savings, is that fully included in the potentially second half? Should we think about, okay, part of it being impacted by this outlook for operating margin being flattish given all the investments that you're making, so in other words, whatever you gain this year is going to be reinvested into marketing and the 15% that he called out in A&P, and then you're still going to have more benefit into 2025. Is that the way we should be thinking? Yes, directionally correct, Andrea.

Our next question comes from line of Felipe a fellow named of Citi. Please go ahead.

Hey, good morning, everyone I wanted to go back to the question on the marketing investment I think the initial plan was to spend more in 2023, but I think Paul you said advertising was slightly down in 2023, So maybe what drove I guess the decline and then as you.

Think about the investment into 2024 can you give us a little bit more.

Great examples of where you're spending advertising by product by category and your expected ROI of those investments. Thank you.

Yeah, Let me start with the first part of the question and maybe I'll turn it over to keep up with your second one.

Particularly the investment in advertising was slightly down year over year and that was primarily the result of a reduction in Asia Pacific, where we did not see investable propositions in towards the back half of the year.

Paul Roux: Thank you for the question. As you know, gross margin is the result of several elements, including value realization. We have about 60% of value realization as a carrier from last year, and we will take surgical pricing in addition to another 40%, so that's one in addition to premiumization and mix. And also the efficiency that we talked about. In addition, of course, you have the inflation and forex impacts.

But looking into 2020 for investing in our brand is.

He is a key priority to further fuel the growth I mentioned, approximately 15% so about $300 million more we want to start out of out of the gate and the most important thing is our philosophy of maximizing ROI is what we're going after them and that it will be applied to all the categories as a as long as we see.

Paul Roux: Inflation is still positive, but it's coming down, so you will see a progression into contribution to gross margin enhancement in terms of that inflation. We're executing TSAs as we speak. Day by day, we're talking about hundreds of TSAs, and that impact both our gross profit line and also our operating income line. And those are spread throughout the year.

Dosing vegetable propositions, and we maximize IRI across the portfolio of tier one of the things you want out yes, I'm Filippo vis a vis. Additionally, this all.

Investments.

<unk> is a broad base to activate our brands with consumers and with health care professionals. So.

I remind you that our advertising line only captures the bulk of our investment to activate their brands as everything that's related to health care professional engagement is not reflected in that line. In 2024, we are going to increase our investment in both areas.

Paul Roux: What you will be seeing is the investment starting right out of the gate. Some of that will take, will bear fruit later if it's more equity advertising or promotional spend will deliver the benefits in the shorter term. So that's how we see the cycle.

And we are going to apply this additional investment.

Across our portfolio, but very focused behind our 15 priority brands that I highlighted in my prepared remarks, so it's a very focused plan.

Paul Roux: So it's definitely more of a balance with an enhancement towards the second half, and we intend to continue that into 2025. We're not running into 2025, but that philosophy of heightened investment should continue beyond 2024. Thank you. Thank you. Our next question comes from the line of Filippo Falone of City. Please go ahead.

That was a more fuel behind a philosophy that Paul highlighted of extremely high Oh, we have I believe industry, leading all eyes are on the on our marketing investment.

The capabilities that we havent developed over the years.

With.

State of the art analytics systems and capabilities. So we intend to continue to.

Filippo Falone: I wanted to go back to the question on marketing investment. I think the initial plan was to spend more in 2023, but I think, Paul, you said advertising was slightly down in 2023. So maybe what drove the decline?

Use this disciplined approach to.

To deploy a higher level of <unk>.

And so that's once again, what makes us confident in our ability to deliver the plan we outlined earlier this year.

Got it. Thank you and then if I can follow up quickly on the cane out them beauty segment.

Paul Roux: And then, as you think about the investment into 2024, can you give us a little bit more concrete examples of where you're spending advertising by product, by category, and your expected ROI on those investments? Thank you. Yeah, let me start with the first part of your question, and maybe I'll turn over to Tivo for your second one. Particularly the investment in advertising, yes, was slightly down year over year, and that was primarily the result of a reduction in Asia-Pacific, where we did not see investable propositions in towards the back half of the year. But looking into 2024, investing in a brand is a key priority to fuel the growth. As I mentioned, approximately 15% is about $300 million more.

That is a segment that has been underperforming over the last couple of quarter. You mentioned, obviously this quarter. The challenges I guess can you review a little bit more like what are you changing in the way you manage this business and what gives you the confidence in the improvement as you get through 2020 floor for skin health and beauty. Thank you.

Yesterday, but what's very clear about skin health and beauty is that.

Are the opportunities to improved are really isolated to two areas two important areas, but two areas one is China.

China market.

And the other one is I would say install performance in <unk> in the U S. So our plan is laser focused.

To improve our performance.

In these two areas, while we continue to show growth in the other areas, where it's working well Nimbly Europe and Latin America. So in China, its not entirely in all happens and that's why I talked about.

Paul Roux: We want to start out of the gate. And the most important thing is our philosophy of maximizing ROI is what we're going after. And that will be applied to all the categories as long as we see those investable propositions and we maximize ROI across the portfolio. Tivo, anything you want to add?

All.

Position to fill.

Thoughtfully track, how the categories are developing in that market make sure that we do not invest.

Thibaut Mangan: Yes, and Filippo, this overall investment is broad-based to activate our brands with consumers and with healthcare professionals. So I remind you that our advertising line only captures part of our investment to activate our brands, as everything that's related to healthcare professional engagement is not reflected in that line. In 2024, we are going to increase our investment in both areas, and we are going to apply this additional investment across the portfolio, but very focused on our 15 priority brands that I highlighted in my prepared remarks. So it's a very focused plan, but with more fuel behind a philosophy that Paul highlighted of extremely high ROI.

Ed.

The curve.

To get a strong a strong return so we are monitoring consumer sentiment and as we see the right conditions for skincare brands in the in China, We will.

Invest appropriately.

In the U S install whats difference in 'twenty three 'twenty four compared to 23 is a higher level of precision in execution. The heightened focus and tell you that many people in the organization are focused on this plan.

The the plan that are young our new leader for North America, and his team with the support of the entire organization.

Thibaut Mangan: We have, I believe, industry-leading ROIs on our marketing investment. These are the capabilities that we have developed over the years with state-of-the-art analytics systems and capabilities. So we intend to continue to use this disciplined approach to deploy a higher level of dollars.

We have put together and started executing.

As we speak is very precise.

And entities heightened focus increased level of precision.

And higher level of investment.

Thibaut Mangan: And so that's, once again, what makes us confident in our ability to deliver the plan we outlined this year. Thank you. And then, if I can follow up quickly on the skin health and beauty segment, that is a segment that has been underperforming over the last couple of quarters. You mentioned, obviously, this quarter, the challenges.

Uh huh.

Again, we would expect this to to deliver stronger results, especially in the back half of the year.

Not going to.

Happened overnight, but over time, we're confident that we're going to see the full potential of our brands.

And being unleashed in that market.

Thank you Don.

Thibaut Mangan: I guess, can you review a little bit more, like, what are you changing in the way you manage this business, and what gives you confidence in the improvement as you get through 2024 for skin health and beauty? Thank you. Yes, Peter, what's very clear about skin health and beauty is that the opportunities to improve are really isolated to two areas, two important areas, but two areas. One is the Chinese market.

Thank you. Our next question comes from Susan Anderson of <unk>.

Canaccord Genuity. Please go ahead.

Hi, good morning, Alec leg on for Susan a lot of color. So thank you for that but on the gross margin. You said you expect it to get to fiscal 'twenty. One levels I guess what are the key drivers of those gains in fiscal 'twenty four versus 21.

Thibaut Mangan: And the other one is, I would say, in-store performance in the U.S. So our plan is laser-focused to improve our performance in these two areas while we continue to fuel growth in the other areas where it's working well, namely Europe and Latin America. So in China, it's not entirely in our hands, and that's why I talked about our position to: We thoughtfully track how the categories are developing in that market, making sure that we do not invest ahead of the curve to get a strong return. So we are monitoring consumer sentiment, and as we see the right conditions for our skincare brand in China, we will invest appropriately. In the U.S. installation, what's different in 23, in 24, compared to 23, is the higher level of precision in the execution, the heightened focus, and tell you that many people in the organization are focused on this plan.

How should we think about how that progresses through the year. Thank you.

Yes, Thank you Alec and.

Great question, and one that I'm happy to talk about because.

This is an area of strength for kind of view and our we've been on this journey of increasing our margins and enhancing our margins through a complete suite of flavors that include value realizations on efficiencies throughout the value chain. Since 2019, I would actually say that we are managing our gross margin profile.

In a very competitive way and I would say above average compared to our industry peers, you should I think about the dynamics of the balance of the year I would continue to see all those things continue.

Continued value realization mixed management premium mutation.

Thibaut Mangan: The plan that Jan, our new leader for North America, and his team, with the support of the entire organization, have put together and started executing as we speak, is very precise, and this heightened focus, increased level of precision, and higher level of investment. Again, we would expect this to deliver stronger results, especially in the back half of the year. It's not going to happen overnight, but over time, we are confident that we are going to see the full potential of our brands being unleashed in that market. Thank you. I'll pass it on.

We are starting to see some of the tailwind of inflation now.

Where previously headwinds, although we still have forex are something that we're mindful of the efficiencies that we have in place and the discipline that we have in terms of managing that value chain will allow us to continue to in this journey of driving gross margin enhancement.

Thanks, and then just.

Just a quick follow up are you able to comment on this in.

It seems like the judge positive ruling for the defendant.

Yes, we really don't have any update.

Update that we're going through the process to dismiss the MTR.

Operator next question.

Susan Kay Anderson: Thank you. Our next question comes from Susan Anderson of Canaccord, Geneva. Please go ahead. Hi. Good morning. Alec Legon for Susan.

Thank you.

Question comes from the line of nave anti of BNP Paribas. Please go ahead.

Alright, Thanks for taking my question.

So we understand no marketing expense.

Underperforming product activation, but was there something else.

Operator: A lot of color, so thank you for that. But on gross margins, you said you expected to get to fiscal 21 levels. I guess what are the key drivers of those gains in fiscal 24 versus 21, and how should we think about how that progresses through the year? Thank you. Yeah. Thank you, Alec.

The right product display or maybe the packaging now highlighting enough.

I'm the health care recommendation will be helpful to know and what are the right level.

Although it G&A and maybe having children.

Thank you.

Yeah. So let me let me take this one I think overall the execution of a recovery plan in the first quarter fell short of expectation on the number of of elements.

Paul Roux: And it's a great question and one that I'm happy to talk about because this is an area of strength for Kenvue. And we've been on this journey of increasing our margins and enhancing our margins through a complete suite of levers that include value realization and efficiencies throughout the value chain. Since 2019, I would actually say that we are managing our gross margin profile in a very competitive way, and I would say it is above average compared to our industry peers. If you think about the dynamics of the balance of the year, I would continue to see all those things. Continued value realization, mixed management, and premiumization. We are starting to see some of the tailwinds of inflation now that were previously headwinds.

That Ah I talked about it in a nutshell is making sure that our brands are more prominent in store easier to shop.

And supported by the.

Appropriate.

The level of engagement activities, both at the consumer had managed care professional level.

All of these elements were included in the plan.

The level of investment or the precision of the accretion was not what we expected and the outcome was not what we expected no lessons learned.

Paul Roux: Although we still have forex, something that we are mindful of, the efficiencies that we have in place and the discipline that we have in terms of managing that value chain will allow us to continue on this journey of driving gross margin enhancement. Thanks. And then, just a potentially quick follow-up. Are you able to comment on the acetaminophen lawsuit? It seemed like the judge had a positive ruling for the defendants.

These all these lessons are included in our in the buildup of the plan for 2024, and that's why you see us in the U S.

Executing a plan that is.

Different from what we had in 2023 in these different dimensions.

And so you will see this broad based activation plan put.

Paul Roux: Thank you. We really don't have any update there. We're going through the process to dismiss the MDL. Operator, next question.

Put in place, but I would say if you think about the three priorities I.

Operator: Thank you. Our next question comes from Navane Dye of BNP Paribas. Please go ahead.

Outlined for the company more broadly.

In 2024, you will see a different can view in 2024 compared to what you saw in 2023, it's going to be our first full year as an independent company.

Navane Dye: Hi, thanks for taking my question. So, we understand low marketing expense drove the underperformance in product activation, but was there something else, such as not the right product display, or maybe the packaging not highlighting enough the healthcare recommendations? It would be helpful to know.

And so you will see.

Oh, especially of 15 priority brands being activated at a much higher level in the in 2024.

Thibaut Mangan: And what are the right levels of overall SGMA and maybe R&D to address that? Thank you.

With a strong building blocks across these.

These 15 brands and across all three all three segments.

You are going to.

See us being a much more agile.

Thibaut Mangan: I think overall, the execution of our recovery plan in the fourth quarter fell short of expectations on a number of elements that I talked about. In a nutshell, it's making sure that our brands are more prominent in-store, easier to shop for, and supported by the appropriate level of engagement activities, both at the consumer and healthcare professional level. While, you know, all these elements were included in the plan, the level of investment or the precision of the execution were not what we expected, and the outcome was not what we expected.

And moving with speed and urgency to capitalize on all the opportunities we see in the market and unleash the full potential of our portfolio. So I think quite as investment.

The investment is going to be fueled by the continued and I went to accelerated.

Gross profit margin.

The enhancements that Paul referred to.

As we exit all TSA as with Johnson <unk> Johnson, It's also an opportunity for us to reinvent the way we work.

Thibaut Mangan: Now, lessons learned, all these lessons are included in the buildup of the plan for 2024, and that's why you see the U.S. executing a plan that is different from what we had in 2023 in these different dimensions. And so you will see this broad-based activation plan put in place. But I would say if you think about the three priorities I outlined for the company more broadly in 2024, you will see a different Kenvue in 2024 compared to what you saw in 2023. This is going to be our first full year as an independent company.

Work faster better, making it easier for teams to operate but also do it at a lower cost base and this combination of expanding margin and low and efficiencies into the organization is what's going to fuel.

These are these investments and and allows us to allow us to fuel growth.

In 2020 for now so you will be a bit noisy for the AR due to the compares unusual compares we have in the in 2023, but if you look at the underlying strength of the business and are the building blocks, we have to drive growth in 2010.

Thibaut Mangan: And so, you will see, especially, our 15 priority brands being activated at a much higher level in 2024, with strong building blocks across these 15 brands and across our three segments. You will see us being much more agile and moving with speed and urgency to capitalize on all the opportunities we see in the market and unleash the full potential of our portfolio. That requires investment.

Four and profitable growth in 2024, and bring our long term I'll go through life.

We are we have confidence in our in our plants.

Thanks, very much for your comments.

Can I ask actually a photo lepton.

So she can discuss the next steps too.

Nation.

Yeah, No no no.

Thibaut Mangan: That investment is going to be fueled by the continued and, I would say, accelerated gross profit margin enhancement that Paul referred to. As we exit our TSAs with Johnson & Johnson, it's also an opportunity for us to reinvent the way we work, work faster, better, make it easier for our teams to operate, but also do it at a lower cost base. And this combination of expanded margin and efficiencies in the organization is what's going to fuel this investment and allow us to fuel growth in 2024. Now, the year will be a bit noisy due to the comparisons, the unusual comparisons we have in 2023, but if you look at the underlying strength of the business and the building blocks we have to drive growth in 2024 and profitable growth in 2024 and bring our long-term algo to life, we are confident in our plans. Thanks very much for your comments and suggestions. Can I ask, actually, a follow-up on the litigation, if you can discuss at all the next steps to end the litigation? Yeah, Navon, like I said, there's really not much I can share.

Said theres really not much I can share we're going through the process now that the court has.

Granted our motion to exclude exclude experts and.

Testimony, so we're going through the process through.

To allow the court to determine whether it's the cases.

Yes.

Thank you.

Thank you our final question for today comes from from Pizza Crumb of UBS. Please go ahead.

Thanks, operator, and good morning, everyone I guess I had a more conceptual question on the guidance.

But overtime as we've kind of seen some of your staples cheers.

Underperformed from a topline perspective or a share perspective.

Re jigger and investments to fuel growth in many cases that coincides niche rebating.

<unk> just set the company up for a stronger growth not not in the current year, having more in future years.

Is that what's going on here like is your thought process on the need for investment in innovation evolve versus where we were six nine months ago or has this kind of earnings performance being contemplated for some time and then I guess just a follow up to Steve's question earlier on the organic growth.

The flat performance in <unk>, a function of weaker category growth in.

And the improvement just the assumption that the category accelerates or is the.

Underlying improvement.

Assuming that you your performance relative to the category.

Through substantially because it would just seem that if you're kind of exiting the year in more mid single digit growth that would imply some pretty decent share gains. So if theres any color on kind of the share assumptions would be helpful. Thanks.

Paul Roux: We're going through the process now that the court has granted our motions to exclude experts' testimony. So we're going through the process to allow the court to determine whether the cases are dismissed. Thank you. Thank you. Our final question for the day comes from Peter Grom of UBS. Please go ahead.

Yes to answer quickly your Q1 question Peter.

And we have included in our slide deck.

The slide that I think you will find helpful. As you model 'twenty four with all the puts and takes in the different quarters of 2023, you will see that Q1.

Peter K. Grom: Craig's operator and good morning, everyone. I guess I had a more conceptual question about the guy. But over time, we've kind of seen some of your staples tiers that have, you know, underperformed from a top line perspective or share perspective. They kind of rejigger their investments to try and fuel growth. In many cases, that coincides with rebasing earnings to set the company up for stronger growth, not, you know, not in the current year, but more in future years. But is that what's going on here?

<unk> has a number of.

Items that are going to to make the compares very challenging.

For us so it's really about a unique event that happened last year I talked to for example, about the inventory replenishment.

But also the fact that we expect the season to continue to be below last year in as we exit the winter.

Similar to what we have seen in the in Q4 of 2023. So it's a mix of unique items to what happened at Ken view last year and a continued lower level of incidents in Q1 similar to what we saw in Q4 to your broader question about.

Thibaut Mangan: Like, has your thought process on the need for investment and innovation evolved versus where we were six, nine months ago? Or has this kind of earnings performance been contemplated for some time? And then I guess just a follow-up to Steve's question earlier on organic growth. Is the flat performance in OneQ a function of weaker category growth, and the improvement just an assumption that the category accelerates? Or is the underlying improvement assuming that your performance relative to the category improves substantially? Because it would just seem that if you're kind of exiting the year with more mid single-digit growth, that that would imply some pretty decent share gains. So just any color on any kind of the share assumptions would be helpful.

Whether or not we are changing our philosophy I would say our commitment to our long term algorithm.

Is stronger than ever.

Our commitment to deliver.

Strong T S all through.

3% to 4% top line growth year over year.

Growing earnings faster than on share.

And having a disciplined capital allocation strategy.

Is what we started deploying in 'twenty three you are going to see as we move through 24 and 25.

We become fully independent and exit our transition service agreements with Johnson <unk> Johnson that you are going to see this long term algorithm brought to life in our in the.

Thibaut Mangan: Thanks. Yes, to answer quickly your Q1 question, Peter, and we have included in our slide deck a slide that I think you will find helpful as you model 24 with all the puts and takes in the different quarters of 2023. You will see that Q1 has a number of items that are going to make the comparisons very challenging for us.

In a meaningful way.

That's and that was always the plan to.

Make sure that we exit.

Aw PSA and reinvent our ways of working so we make it fit for purpose for our company with our ways of working that fee.

What we need to be successful as can do but also do it at a lower base and a combination of the slower car space and the continued improving performance in gross margins that we have demonstrated our ability to do four years again in 'twenty three and we're going to do it again in 'twenty four is what brings a few.

Thibaut Mangan: So it's really about unique events that happened last year. I talked, for example, about inventory replenishment. But also, the fact that we expect the season to continue to be below last year as we exit the winter, similar to what we have seen in Q4 of 2023. So it's a mix of unique items to what happened at Kenvue last year and a continued lower level of incidence in Q1, similar to what we saw in Q4.

Two our two a M.

Bring more investment a two L brands.

There is no limit to our investment in our brands. We are very disciplined approach. We go for the return on investment approach. We believe that we have strong investable propositions in terms of building blocks and activities for 'twenty.

Thibaut Mangan: To your broader question about whether or not we are changing our philosophy, I would say our commitment to our long-term algorithm is stronger than ever. Our commitment to deliver strong TSR through 3 to 4 percent top-line growth year over year, growing earnings faster than planned, and having a disciplined capital allocation strategy is what we started deploying in 2023. You will see as we move through 2024 and 2025, as we become fully independent and exit our transition service agreements with Johnson & Johnson, you will see this long-term algorithm brought to life in 2022 in a meaningful way. And that was always the plan to make sure that we exited our PSAs and reinvented our ways of working so we made it fit for purpose for our company with ways of working that fit what we need to be successful at Kenvue but also did it at a lower base.

<unk> as an example, and that's why we feel confident that the higher investment that we mentioned when you gave us good results in 'twenty four and beyond.

Thank you we have reached the end of our question and answer session I would like to turn the floor back over placebo.

Yeah.

Alright. So thank you all for participating on today's call 2023 was as we talked about the transformational thoughtful can view I think we have been very clear about our priorities for 2020 for reaching more consumers investing in all brands and foster a culture, that's what's best for months and impact.

So we look forward to updating you throughout the year as we continue to advance these efforts and for now have a nice day and thank you again.

Thank you. This concludes today's conference call.

Thank you for your participation.

Thibaut Mangan: And the combination of this lower cost base and the continued improvement in gross margins that we have demonstrated our ability to do for years, again in 23, and we are going to do it again in 24, this is what brings fuel to Kenvue, and brings more investment to our brands. There is no limit to our investment in our brands. We are very disciplined in our approach. We go for a return investment approach. We believe that we have strong investable propositions in terms of building blocks and activities for 24, as an example. And that's why we feel confident that the higher investment that we mentioned will give us good results in 24 and beyond.

Have a wonderful day you may disconnect your lines at this time.

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Thibaut Mangan: Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over to Thibaut Mongon for concluding remarks. All right, so thank you all for participating on today's call. 2023 was, as we talked about, transformational for Kenvue.

Okay.

Thibaut Mangan: I think we have been very clear about our priorities for 2024, reaching more consumers, investing in our brands, and fostering a culture that rewards performance and impact. So we look forward to updating you throughout the year as we continue to advance these efforts. And for now, have a nice day, and thank you again. This concludes today's conference call. We thank you for your participation. Have a wonderful day. You may disconnect your lines at this time.

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