Q3 2024 Kenvue Inc Earnings Call
Sync by TheBetta.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sophia Sinnott, Head of Investor Relations for Kenview.
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.
Speaker Change: 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.
Speaker Change: These non-GAAP financial measures should be viewed in conjunction with the most directly comparable U S. GAAP financial measures and are not presented as substitutes for or superior to those most directly comparable U S GAAP financial measures.
Speaker Change: It's mostly directly comparable U S GAAP financial measures and a reconciliation of our non-GAAP items to both U S. GAAP measures can be found in this morning's press release and our presentation available on the IR page of <unk> website, Www dot investors that can view dot com with that I'll pass the call over to Tivo.
Tivo: Thank you everyone for joining us today first I'd like to welcome coffee at the center of our head of Investor Relations. Many of you know feel she brings over 20 years of experience and expertise in both Investor Relations and equity research in the consumer product sector and we are pleased she is now part of the care team.
Speaker Change: The third quarter, we delivered year over year organic growth of the open.
9% on top of three 6% last year.
Despite the softer top line that we are actively addressing them, we delivered another quarter of strong productivity and efficiencies funded our investments in all brands and generated adjusted diluted earnings per share of 28 cents.
Throughout the organization, we are fundamentally and rapidly transforming our ways of working to unleash our full potential and fulfill our commitments to create long term shareholder value.
Leveraging our entire portfolio of iconic and trusted brands well activating a new ku playbook to strengthen our presence in prominence install reached more consumers directly and who has got professionals and amplified innovation in a more impactful way.
Speaker Change: I'm scared and central health are already benefiting from this new way of working.
Speaker Change: In skin health and beauty, while we are not yet where we want to be we are advancing these focus areas to improve our growth trajectory and I will get into more details about the early results, we started seeing even a minutes.
Speaker Change: This playbook is powered by the increased marketing investment we discussed with you earlier this year.
For 2024, we are on track to invest approximately 20% more than we did last year advertising has kept professional engagement installed prominence and direct consumer engagement with an increasing focus on social media marketing all led by analytics and AI.
Speaker Change: Not only are we investing more but we're also improving the efficiency and effectiveness of our marketing spend.
For example, we announced in August the creation of a new global content factory the products and agency ecosystem, we will leverage to drive relevant content in each market what are reducing our costs.
Speaker Change: We are funding these marketing investments by driving productivity and efficiencies in our business in Q3, we delivered another quarter of strong adjusted gross margin expansion of 130 basis points versus last year.
Speaker Change: In addition, as we rapidly transform organization, while also starting to see a decline in non marketing related operating expenses.
Speaker Change: We have now exited nearly three quarters of all key assays and remain on track to fully execute these agreements by mid 2025.
Speaker Change: As we unwind these TSA as our teams continue to find better simpler and more cost effective ways to operate as an independent company.
Speaker Change: We are also on track to deliver $350 million in annual savings by 2026.
Speaker Change: All of you for what initiative as we continue to modernize our systems and optimize our organization.
Speaker Change: Combining these two programs, we're making rapid progress in becoming a leaner more agile and fast moving consumer health organization with a more efficient cost structure, which in turn allows us to invest in all brands at more competitive levels be the new capabilities and deliver on our income commitments.
Speaker Change: Now looking at the key highlights of this quarter.
Speaker Change: Around the world, we see that consumers continue to prioritize taking control of their own health and are looking for convenience and value.
Speaker Change: In <unk>, our largest segment organic sales growth, 0.7% in the third quarter in line with our expectations as we lapped strong year ago comparison of six 7% growth.
Speaker Change: In a quarter, where we saw volumes impacted by continued low incidents of allergy in pediatric fever since can once again outperform the market.
Speaker Change: In the U S. We continued to strengthen our number one positions in pain and allergy with both tylenol NZ uptake once again growing share in both value and volume this quarter.
Speaker Change: This was the ninth consecutive quarter of share gain for tylenol, and the 13th consecutive quarter of share gains, albeit that.
Speaker Change: We are rapidly expanding distribution of our recently launched stand in an easy to swallow across key retailers.
Speaker Change: Are you finding these innovation with increased advertising spend and an impactful omnichannel approach with our greatness helps campaign.
Speaker Change: As a result, signing an easy to swallow is already the number one performing innovation in adult and timberland and music. So Crosby U S earnings.
Speaker Change: It's bringing new consumers to the brand.
Speaker Change: Outside the U S. All sense got portfolio continues to gain share as well.
Speaker Change: Example, we continue to win with Nicorette in the U K, we drove mid teens growth in knee quite quick missed as a first and only nicotine replacement therapy marketed to aid both smoking and creeping sensation.
Speaker Change: In addition, we are building on this momentum with the relaunch of Nicorette Lawson's with a new claim of fighting cravings and just two minutes.
Speaker Change: With this multi pronged approach will not only strengthen our global leadership position in smoking cessation, but are also expanding the category to vaping sensation.
Speaker Change: Central has continued to perform well driving volume growth for the second quarter in a row.
Speaker Change: We delivered organic growth of four 5% in the third quarter on top of three 8% last year with broad based growth across all categories and all regions.
Speaker Change: Well, we are advancing our priorities to drive sustained growth.
Speaker Change: By example in oral care. This was another strong quarter for LISTERINE with high single digit growth globally. We are driving this growth by expanding distribution of our top retail partners and in enhancing our install prominence with impactful displays, especially with our latest innovations like Easter and clinical solutions in the U S.
Speaker Change: In addition, we're reaching more consumers, increasing our media spend and partnering with digital creators to generate engaging content on social media that highlights the superiority of LISTERINE consumer relevant way.
Speaker Change: Similarly, we see the positive impact of our new ways of working with bounded in the U S, where we drove mid single digit growth behind the success of our latest innovation validate parochial.
Speaker Change: This superior product has been clinically tested to improve wound healing by 60% and here as well we expanded distribution at our top retail partners increased media presence with the return of the iconic bounded jingle and have generated strong traction to date with bounded program accounting for more than one third of our brands growth.
Speaker Change: In skin has some beauty organic sales for the segment declined two 7% year over year in the U S. Our playbook is not yet delivering the results we want to see and the pace of recovery was he led this quarter by the muted sense season, and decent everything skincare category dynamics in China.
Speaker Change: From a backdrop as many of you know remains challenging.
Speaker Change: While addressing these headwinds in the short term, while also moving at pace to strengthen underlying skincare expertise by building a world class team and by partnering with the best leaders in the industry to key enablers to improve and sustain higher performance in these segments.
Speaker Change: This week, we welcomed Andrew Stein leg can view as our new head of scheme has been beautiful North America, and Europe, and drawing is a seasoned and accomplished leader with a strong global track record in building brands successfully leading turnarounds and accelerating growth with a deep understanding of how to win and skin health and beauty.
Speaker Change: We are also creating powerful partnerships with highly influential leaders in skincare.
Speaker Change: Last week, we announced a breakthrough collaboration between neutrogena and two of the worlds most recognizable dermatologist looked a bedroom sally or be known skincare, you know Vito and other shocks. The most followed dermatologist to educate a worldwide with over 20 million social media followers across key social channels and over 500.
Speaker Change: 15 million likes on tick tock.
Speaker Change: The objective of this multi year partnership is to strengthen the Bronx innovation and create more engaging and authentic communication, while expanding and accelerating our dermatologist engagement.
Speaker Change: These are two foundational steps into right direction for the segments with multiple come in the future.
Speaker Change: Europe continued to deliver a strong performance during the third quarter growing double digits and demonstrating the power of our playbook and just segments.
Speaker Change: Sales growth was balanced between volume growth and value realization driven by new product launches solid brand activation plans and distribution expansion.
Speaker Change: For example, we rapidly increased our installed presence with the deployment of nearly 5000 neutrogena brand blocks across pharmacies in France, and Spain, and we significantly amplified our reach to consumers with Ana and hence influence our strategy in these countries.
Speaker Change: And in the U K Avino became one of the fastest growing face care brands with strong install institution and the violent campaign with everybody money may hedge.
Speaker Change: In the U S. We do not see the all sequential volume improvements that we were expecting with revenue for this segment declining year over year. However, we're encouraged by early signs of sequential recovery in the areas that we have to prioritize thus far.
Speaker Change: For example, you need to Gino we have good concerted it felt behind strengthening install performance for our two largest platforms face and Sun, which account for about 80% of the brown sales into the U S and we're starting to see initial progress in breaking the melco tracked channels in phase one.
Speaker Change: <unk> still down year over year, Neutrogena gained 40 basis points of share sequentially since a new face care plan O grams were put in place midway through the quarter.
Speaker Change: And in September Neutrogena regained its position as the number one face care Brown in these channels.
Speaker Change: In sum despite the muted season, we strengthened our number one leadership position and outperformed the market this quarter.
Speaker Change: Switching that gained 20 basis points all share the same channels.
Speaker Change: We see these improvements as early evidence that our can do playbook is starting to generate results in neutrogena.
Speaker Change: In distribution, while we see further opportunities for improvements, we're making progress shelf resets are now complete wells this year with neutrogena benefiting from increased points of distribution at some retailers improved shelving and navigation that causes and broad distribution for our latest innovations.
Speaker Change: Collagen back acne basketball sensitive scheme, and our new ultra gentle keen sense.
Speaker Change: In addition, we have doubled our professional sales force and are now reaching significantly more dermatologist and he needs working neutrogena has now reached its highest level of overage recommendations about dermatology useful face care in the last four years.
Speaker Change: Investments for the long term and a strong signs of future revenue potential.
Speaker Change: Importantly, while reaching more consumers with our increased marketing investments and continued pivot to social platforms, such a steep tuck in Instagram.
Speaker Change: For example, we are supporting all collagen back innovation through an impact from campaigns targeting Gen Z consumers with celebrity highly steinfeld.
Speaker Change: These social activation of generated more than 800 million video views to date.
Speaker Change: These actions are starting to drive sequential share gains in the pockets of our neutrogena business that we have prioritized, thus far but let me be clear. It is still working progress and our teams are working diligently on both on peace filings as Neutrogena Green shoots and building the same momentum across the balance of our skin health and beauty business.
Speaker Change: Yes.
Speaker Change: As I've said all alone the recovery of our U S skin. It has to be something that will not happen overnight and will not be linear, but we continue to work to make fundamental changes to this business with new talent, new partnerships and a relentless focus on executing a new playbook with precision.
Speaker Change: At the beginning of the year I told you that you would see and you can do in action as we transformed from a division of a large organization to being an independent pure play global leader in consumer health.
Speaker Change: Our transformation is well on its way and we already started seeing improvements in both of the P&L, but we are not yet seeing the full impact in our topline or 'twenty 'twenty four gross rate is tracking towards the low end of the range. We shared with you at the beginning of the year due to both the pace of a recovery in skin health and beauty and softer category dynamics.
Speaker Change: In the back half of the year in both self care and skin health and beauty.
Speaker Change: At the same time, we are ahead on our productivity initiatives, which in combination with our cost savings programs are fueling an acceleration in brand investment for future growth, while still enabling us to deliver within our adjusted diluted earnings per share outlook for the year.
Speaker Change: In parallel well.
Speaker Change: Making sure we are building the right foundation for sustainable performance, we are advancing our healthy lives mission you may have seen our improved msci's call from Triple B to double a.
Speaker Change: I'm also encouraged to see that every day our teams around the world demonstrate our unwavering commitment to transform our company and advance our key priorities of reaching more consumers investing more behind our brands and building a culture of stuff. Some of an impact does this makes us confident that we are on our way to generate sustained.
Speaker Change: And profitable growth and drive strong value creation over time, we'd thought I will turn it over to Paul.
Paul: Thank you T Bo and good morning, everyone.
Paul: Third quarter organic growth was 0.9% driven by value reputation across all segments and volume growth in essential health for the second quarter in a row.
Speaker Change: Overall volumes declined one 6% year over year, driven by self care skin health and beauty.
Speaker Change: <unk> reputation contributed two 5% to organic growth with balanced contribution from carryover benefits and incremental value realization actions taken this year.
Speaker Change: While we expect both price and mix to continue to contribute to growth. We expect volumes will play a bigger role in our growth algorithm going forward.
Speaker Change: Taking a closer look at our segments.
Speaker Change: <unk> care organic growth was seven 7% year over year in line with our expectations as we drove continued share gains across the segment with particular strength in pain and allergy Valley release atrium contributed one 8% of growth driven by carryover benefits and incremental pricing actions taken this year.
Speaker Change: Partially offset by a volume decline of 1.1%, primarily due to softer incidences in allergy and pediatric fever, as well as some retailers reverting to historical order patterns in cold cough and flu instead of stocking up ahead of the season.
Speaker Change: <unk> cessation once again had a strong quarter overall.
Speaker Change: Moving to essential health once again essential health grew across all categories and all geographic regions generating organic growth of four 5% in line with our expectations.
Speaker Change: Sorry realization was three 7% driven mostly by carryover pricing selective price increases outside the U S and mixed benefits from innovation such at least three in clinical solutions.
Speaker Change: For the second consecutive quarter volume grew year over year coming in at 0.8% during the third quarter.
Speaker Change: And for skin health and beauty organic sales declined two 7% with a four 7% volume decline, partially offset by 2% of positive value realization driven primarily by carryover benefits.
Speaker Change: As Steve mentioned, the pace of recovery in the U S slowed in the quarter underlining our need to strengthen the impact of our actions against an increasingly dynamic environment.
Speaker Change: We continue to diligently strengthen our teams and capabilities to fully and effectively deploy our new playbook.
Speaker Change: Moving on to adjusted gross margins our operations team continued to drive meaningful productivity improvements, which in combination with favorable valley reputation hunting nonrecurring separation related benefit resulted in a year over year expansion of 130 basis points to 67%.
Speaker Change: In fact, we have improved adjusted gross margins year over year during the last five quarters. We're.
Speaker Change: We're laser focused on fostering a culture of efficiency and operational discipline and you can see the productivity benefits in our adjusted gross margin this year.
Speaker Change: NSL last year was in Q3, it was the beginning of where we experienced the anti-Japanese sentiment in China, so we are lacking that, it was not material in Q3 and will not be a material factor in Q4 as well.
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Speaker Change: Thank you. Our next question comes from the line of Andrea Teixeira with JP Morgan. Please proceed with your question.
Andrea Teixeira: Thank you. Good morning. I was hoping to see if you can elaborate a little bit more on what are the green shoots you're seeing and how Andrew is going to amplify, as you pointed out, Thibaut, the initiatives that you have been putting together. Understandably, you have a backdrop.
of a deceleration in skin health and beauty.
Speaker Change: But thinking of the innovation that you put together and you'll be putting for a while now.
Speaker Change: More digital investments and thinking about how much that increase A&P that you announced in the beginning of the year will translate into an accelerated improvement there. So anything you can.
Speaker Change: Give us in terms of timing when we should be expecting this to materialize. And for Paul, given the commentary, you expanded a bit on the prepared remarks on the TSAs.
Speaker Change: and the TMA is getting out. Just wondering where we should be thinking if you can update us with the savings that we're seeing so far and how margins should evolve from here. Thank you.
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Speaker Change: All right. Good morning, Andrea. So let me start with a question, and then I will hand it over to Paul.
So your first question is about...
Speaker Change: the green shoots, how we are going to amplify them, and the impact of our investment.
So if you take a step back.
This year we are profoundly transforming the way we operate.
Speaker Change: We are changing our ways of working, and we are increasing our investment, and we do that across the portfolio.
Speaker Change: And we are pleased to see that our self-care and our essential health segments
Speaker Change: are already responding well to this new playbook with very strong share gains in self-care and two quarters in a row of volume growth in essential health.
Speaker Change: In Skin Health and Beauty, we are also applying the same playbook.
Speaker Change: But we are disciplined in prioritizing how we are going after our recovery plan. And we have decided to focus on, to start with the biggest areas.
Speaker Change: If you take Neutrogena, it's sun and phase, and it's the in-store execution. And that's what...
Speaker Change: Confidence that the playbook starts working is that where we started implementing a new playbook so far, we are seeing green shoots. So I'll give you a couple examples. We invested in strengthening our presence with dermatologists.
Speaker Change: And we see a strong response in terms of recommendation by a dermatologist. And we are now back to where we were four years ago with face care. So that's really encouraging. In terms of in-store execution,
Speaker Change: It's an area where we have focused a lot of energy, and it's good to see that since the new planograms were put in place,
approximately mid-August, so halfway through the quarter.
We see Neutrogena face.
going back to number one position in the U.S.
Speaker Change: In September, and by the way, we see that continuing in October, so we now have eight weeks behind us of Neutrogena phase being back to number one position in brake and motor track channels.
Speaker Change: So that's very encouraging. Same thing from a direct to consumer marketing and the effect of our marketing campaigns, our pivot to social media, our partnership with celebrities is clearly working in having us connect
Speaker Change: in a much more effective way with a younger audience and Gen Z consumers, which is also a focus area for us. You heard me talking about the 800 million views to date.
Speaker Change: on Neutrogena Collagen Bank. The same thing is happening on OGX. We have I think 1.2 billion views with our OGX relaunch campaign with Demi Lovato.
So that's working. As I said, early days.
Speaker Change: That's an encouragement for us to continue in this direction and do more. So that's exactly what the team, and Andrew will play a big part in this, what the team is focusing on. How do we amplify these green shoots?
Speaker Change: Making sure that they are executed with even more precision at a larger scale.
Speaker Change: and are not limited to Neutrogena, Faith and Sun but are amplified across the rest of our skincare portfolio as well.
Paul, do you want to take the second one on...
Paul: Of course, Andrean, good morning. So on TSAs, let me step back. TSAs, we're exiting them on track.
Speaker Change: I feel very pleased that we have not encountered any operational disruptions. So, thank you, team, for doing that with excellence.
Speaker Change: And remember, the TSA exits will not necessarily allow us to exit in an optimized manner. That's why we have our View Forward Program. We are going to realize a few benefits.
Speaker Change: But given the time limitation we have to exit TSAs by mid next year, it's not necessarily an optimized exit. That's why we have our View Forward program and we're tracking well. We announced it last quarter.
Speaker Change: We have started to realize some of the benefits of that ViewForward program. We are on track to deliver the $350 million savings by
Speaker Change: 2026, where we'll be seeing the full impact. And it's not only about effectiveness, efficiency as well, and finding new ways of working in a leaner, more agile manner.
Speaker Change: Specifically on savings, what actions we have taken. We have taken a lot of the functional actions, procurement actions as well.
Speaker Change: and largely some of the org actions we have already taken as well. But we will continue to progress throughout the balance of the year and into 2025 as well.
Speaker Change: Your question is also around the impact to margins. We are starting to see some of the benefits of both, particularly of ViewForward.
Speaker Change: We expect to see the full impact more towards 2025 that will continue to be fuelled for incremental marketing investments as well.
Speaker Change: So we are not there where we want to be from a competitiveness perspective in terms of investing behind a brand.
Speaker Change: and the fuel that we get from RV Forward, TSA Exits, and of course, cross-margin expansion will allow us to continue to invest and deliver on our algorithm as well. So that's how I see things, good progress so far, and we will continue throughout the balance of the year and into next year as well.
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Speaker Change: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.
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Peter Grom: Thanks, operator. Good morning, everyone. Hope you're doing well. So, Thibaut, you kind of mentioned
Speaker Change: The two key reasons for weaker growth this year is kind of the weaker US category trend and kind of the
Andrea Teixeira: Slower recovery and skin health and beauty and I guess as we look forward here I guess I totally understand some of the one-offs you're going to be cycling in 4q that would put
Andrea Teixeira: Organic Growth more in line with the long-term algorithm, but just as you look out to next year I'd be curious how you're thinking about the potential for weaker category growth to persist and maybe for long recovery and skin health and beauty to really impact
Andrea Teixeira: your ability to return to on algorithm growth. I know we'll probably get 25 guidance in a few months, but just curious if based on where things stand today, would you anticipate some of these headwinds persisting into next year? Thanks.
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Speaker Change: Good morning, this is Paul. So thank you for the question.
Speaker Change: We're not going to talk about 2025 today, look forward to our conversation in the future. But I can tell you that 2024 has been a year of profound transformation. We're very pleased with the progress we've made so far. And that transformation will also continue into 2025.
Speaker Change: The transformation will allow us to accelerate our top line growth from this year and grow at a faster pace than we are doing this year.
Speaker Change: And of course, from a cash perspective, we will continue to return cash to shareholders with attractive dividends. All that is part of our shareholder returns.
Speaker Change: Specifically, in terms of categories, we are monitoring performance of categories, we contemplate a variety of scenarios.
Speaker Change: but it's certainly some of the factors that we're going to be considering as we think about 2025. We do believe that 2024 has become a little bit of a new base and from there we will assess how things will continue to work and on top of that we will deliver in 2025 and beyond on our algorithm.
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Speaker Change: Thank you. Our next question comes from the line of Filippo Filorni with Citi. Please proceed with your question.
Hi, good morning, everyone
Speaker Change: I wanted to ask a question on retailer inventory levels. Some of your peers have talked about.
Speaker Change: Retailers being more cautious with their inventory ordering patterns, particularly in the skin care category. So I was wondering if you saw any impact in Q3 and what are your expectations for Q4? And then specifically for the drug channel, given the importance of the channel for your business, are you seeing any impact from the recent store closures from some key customers? And how should we think about that potential impact into Q4? Thank you.
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Speaker Change: Okay, good morning, Philippe. So, let me take the first one on inventory level.
If I look around the world...
Speaker Change: In general, around the world, we see more cautious ordering patterns in self-care categories, given the low levels of incidence.
Speaker Change: And we would, we have seen that in Q3 and would certainly continue to see that in happening in Q4 until the season happens. We are clearly in a post-pandemic, post-COVID world.
Speaker Change: where supply chains are stable and so we don't see retailers stocking up.
Speaker Change: ahead of the season. And they are going to wait until they see demand pick up to order what they need. And as you heard from Paul and I so far, we have not seen levels of incidents
Speaker Change: Moving in the direction of the peak, for those of you who live in the northeast, you certainly have seen that we had good weather so far.
Speaker Change: So net net, I would expect us at Canview to exit 2024 with healthy levels of inventory around the world.
Your specific question on the drug channel.
Speaker Change: I believe it's in the US. Drug and pharmacy overall is a strong channel for us worldwide. It's doing very well outside of the US.
Speaker Change: and so we will continue to work very closely with our retail partners.
when they move on with their consolidation plans.
closes.
You see a short-term impact.
Speaker Change: as the inventory present in this store is redistributed into other stores.
Speaker Change: And so you may see a short-term impact when a store closes, but over time...
Speaker Change: It certainly does normalize. We do not sell discretionary products at Canview. By and large, we sell products you need.
Speaker Change: and you are looking for a very clear reason. And so, if you cannot find your product, our product in one store, we usually see consumers going to another store to get the brand they trust and need.
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Speaker Change: Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
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Steve Powers: Thank you and good morning. Paul, your initial comments on 25 were helpful. I wanted to sort of drill down and link it back to what Thibaut was talking about with respect to skin health and beauty. In that business,
Speaker Change: You talked about the signs that the playbook is working in green shoots, which is great. On the other hand, the market backdrop is choppy.
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You're still sort of in the earlier.
Speaker Change: sort of innings, I guess, of a real full turnaround in skin health and beauty. Andrew just arrived, for example. So I guess just as you think about 25 and the context of that business, is the mentality and the objective that you're taking into 25 one of just
merely stabilizing that business year over year.
Speaker Change: or is the ambition, you know, sort of the realistic ambition and the goal to actually grow that business next year? I'm hearing, I'm just not sure what I'm...
Speaker Change: When I parse between all the different commentary, I'm not sure if you feel like the business is ready to grow next year or if we're still attempting to stabilize in 2025.
Steve Powers: Yes, Steve, very good question. Let me be very clear. We are focused on returning the segment to growth and expect to do that in 2025.
Speaker Change: To your point, we need to see what happens to the category overall.
Speaker Change: From what we see today, I don't think we can count on an improvement in consumer sentiment in Asia.
Speaker Change: So for us, 2025, it's really about fueling expansion in the EMEA. It's working very well. How do we fuel this growth we are seeing? And countering the deceleration we see in the category in the US with a better execution of our playbook.
That's our plan for 2025.
Speaker Change: I gave you examples of green shoots, early green shoots in the parts of the portfolio we have prioritized thus far. Now we need to expand across the segment with precision at scale.
Speaker Change: continue to secure more points of distribution. As you know, the planograms flip in the back half of next year. In the meantime, strengthen in-store prominence, making sure that our marketing content drives
Speaker Change: Stronger Conversion, and continuing to add new talent, skills, capabilities. So that's what we are going for.
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Speaker Change: Thank you. Our next question comes from the line of Keith Davis with Jeffries. Please proceed with your question.
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Thank you. Good morning. Thank you for the question.
Speaker Change: I just wanted to, I guess, double back on a theme that I guess has been mentioned a couple of times, but it sounds like there's a unique category, softness, yet you're proceeding with your reinvestment plans. And so,
Speaker Change: I guess I'm interested in how you guys think about if the category trends persist how that might change your thinking on where to reinvest and or.
Speaker Change: if it changes your expectations for a timeline on the return, it sounds like 24 is a heavy investment year and 25 will be as well. And so, in light of the category trends,
Thank you for the question, Keith.
We are confident in our ability to continue to source
Speaker Change: to invest in our brands from both our gross profit, our gross margins, and also our view forward. Remember, our view forward is a two year program.
Speaker Change: and we have been successful in getting the efficiencies and productivity out of that.
were not done in terms of investing at competitive levels.
Speaker Change: So, we do believe we have the right building blocks to continue to fuel the funds for that growth.
Speaker Change: Of course, we're monitoring our own performance and the category performance as well. But our algorithm calls for continued investment in our brands. This is not a one-time step-up.
Speaker Change: and we will continue to approach, in a very thoughtful manner, a continued investment. And thoughtful, what I mean is...
Speaker Change: Always based on return on investment, which is something that we have done all along.
Speaker Change: and we will make sure that our brands get the proper investments to not only get the right return but also the reach that we need to drive the penetration.
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Speaker Change: Thank you. Our next question comes from the line of Nick Modi with RBC Capital Markets. Please proceed with your question.
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Speaker Change: Thank you. Good morning, everyone. Thibaut, I just was curious how you think about the skincare kind of portfolio complexity.
Speaker Change: In your view, what would kind of be the hero products within the Neutrogena brand family? And, you know, is there an opportunity maybe to streamline and simplify these transferable demand to kind of, you know, make sure that you're focusing on the right SKUs and allocating the right amount of money to the right SKUs? Thank you.
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Speaker Change: Yeah, Nick, very good question. The team does a good job prioritizing
The biggest.
It's about making sure that we push the platforms.
Speaker Change: So Hyderboost, for example, is one of our mega platforms. So we get a lot of synergies by promoting this range of products.
Speaker Change: It's also about doing a better job at unifying the brand, and you will see initiatives in that.
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Speaker Change: this fall, you will see stronger brand blocks, easier to navigate with a shelving.
Speaker Change: organization that helps consumers to pick the right products for what they need that will certainly make our brands easy to shop in brick-and-mortar stores.
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Speaker Change: Thank you. Our next question comes from the line of Corinne Wolfmeyer with Piper Sandler. Please proceed with your question.
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Speaker Change: Hey, good morning. Thanks for taking the question. I'd like to touch a little bit on the gross margin this quarter. It did come in a little bit stronger. And maybe you can talk through some of the puts and takes there. And as we think about Q4 and then even into 2025, what are some of the headwinds or even tailwinds that we should be cognizant of, especially around input costs, inflation, transportation costs, et cetera? Thanks.
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Speaker Change: Thank you for the question, Corinne. We are very pleased with the performance on gross margin. The team is very dedicated to making sure that we get the fuel for the growth for the brands.
Speaker Change: and we have confidence in continuing to expand our gross margins going forward.
Speaker Change: The sources are value realization, pricing will be less of a labor, but it will always be a component.
Speaker Change: Manufacturing and supply chain efficiencies are a big building block to improve our gross margins.
Speaker Change: When it comes to commodities, commodity trends are helping offset some of the increased labor and logistics inflation that we have recently seen.
But the benefits of
Speaker Change: Commodity Tailwinds are probably going to start winding down, so we're continuing to balance all of the elements of how we build our gross margins.
Speaker Change: We remember from a seasonality perspective or the progress throughout the year.
Speaker Change: I said that we are close to the 60% for the full year and that's where we are at this point. We are maintaining our outlook.
Speaker Change: Margin progression is not linear, given all these dynamics that I mentioned.
Speaker Change: As I think about going forward, I do believe that these improvements are going to be closer and more to the targeted long-term cross-margin expansion goals that we talked about.
Speaker Change: which are in the range of 20 to 30 basis points on a sustainable basis in the long term. So pleased with the performance. It will continue to be a strength of ours. We have the building blocks, and it will be the fuel for our growth.
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Speaker Change: Thank you. Our last question will come from the line of Jeremy Falco with HSBC. Please proceed with your question.
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Jeremy Falco: Hi there, thanks for taking the question at the end of the call. So just a couple of things from me. So I guess the first thing is...
Jeremy Falco: you've talked about all of these reasons why I guess you know you're incrementally a little bit more cautious on the top line but I guess a lot of them sound relatively transitory for me in terms of sun care kind of phasing of the cold and flu season so I just wanted to draw routes particularly focused on the US the extent to which this
Jeremy Falco: This is a kind of an underlying softening in the consumer rather than just the kind of accumulation of some of these slightly unfavorable phasing factors and the second thing linked to that is are there any areas where you might have seen some sort of a pick up in the price discounting or promotion? Thanks.
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Okay, Jeremy, let me start with your first question about
The external environment and the consumer in the U.S.
Speaker Change: When you look at the levels of incidents we have had all year long across all geographies in terms of sun, allergy, pediatric fever, it seems like flu is moving in the same direction. These low levels of incidents is
Speaker Change: We don't know yet if it's a new normal or not, but I would say it's pretty unusual to have such low levels of incidents across geographies, across all these categories.
Speaker Change: who in terms of, but it doesn't reflect the state of the consumer.
Speaker Change: and with price points that cater to the different needs of different consumers so you can meet the consumer where they are and that's where we focus a lot of our attention.
We don't see
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Speaker Change: The highest penetrated category, which is the US OTC category, we see private label penetration going down this quarter again.
Speaker Change: When we look at our categories in the U.S. specifically, we don't see any increase in promotion intensity in the self-care segment. We see a slight, low single-digit increase in self-care in essential health and skin health categories.
Speaker Change: but I would say nothing out of the ordinary and something that is more in line with I would say a new normal.
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Speaker Change: So thank you for all your questions. That concludes our report on our Q3 performance. Thank you, everyone, for joining us this morning. As you can tell, CanVue continues.
Speaker Change: in our new CanView playbook that will allow us to deliver within Outlook in terms of EPS despite a softer revenue in the back half of the year.
Speaker Change: With that, we wish you all a great rest of the day.
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