Q4 2024 Kenvue Inc Earnings Call

After the Speakers' remarks, there will be a question and answer session 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 Sofia to Cintas head of Investor Relations for <unk>.

Speaker Change: Good morning, everyone and welcome to <unk> fourth quarter and full year 2020 Corp earnings Conference call I am pleased to be joined today, but keep them on gun, Chief Executive Officer, and Paul <unk>, 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.

Speaker Change: Our operating and financial performance market opportunities and growth.

Speaker Change: These statements represent our current beliefs expectations or assumptions about future events and are subject to various risks uncertainties and changes that are difficult to predict and could cause our actual results to differ materially.

Speaker Change: 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 reference 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.

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 a substitute for or superior to those most directly comparable U S GAAP financial measures.

Hello and welcome to the View 4th quarter in full year 2024 earnings conference call.

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

Speaker Change: Those most directly comparable U S GAAP financial measures and a reconciliation of our non-GAAP items to their respective nearest U S. GAAP measures can be found in this morning's earnings press release, and our presentation available on our IR page of <unk> website investors that can view dot com with that I'll turn it over to Tivo.

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

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 Tainnis, head of investor relations for Kenview.

Tivo: Thank you Sophie and good morning, everyone and thank you for joining us today as.

Tivo: I'll begin by sharing our performance and progress in 2024, and then provide a review of our results for the fourth quarter.

Good morning everyone and welcome to Kennedy's 4th quarter and full year 2024 earnings conference call. I'm pleased to be joined today by Tea Moon, chief executive officer, and Paul Rue, 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 in financial performance, market opportunities and growth. These statements represent our current beliefs, expectations, or assumptions about future events and are subject to various risks.

Tivo: Close by discussing our outlook for 2025, we spoke building on some of these topics later in the call.

Uncertainties and changes that are difficult to predict and could cause our actual results to differ materially.

Tivo: Our organic sales growth for the year was one 5%. This was below our expectations and we are not satisfied with it as we will discuss later this was due impart to lower the unexpected incidences of cough, cold and flu, which negatively impacted our pediatric pain franchise and a reduction in distributor orders in Asia.

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.

Tivo: Pacific, particularly China.

During this call we will reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or a substitute for financial information presented in accordance with US GAP.

Tivo: While top line meets our expectations, we met or exceeded all expectations on the older phones.

Tivo: We meaningfully expanded our adjusted gross margin and took significant costs out of our infrastructure, which enabled us to increase investments in our brands and we delivered adjusted diluted EPS for the year of $1 14 squarely within our guidance range.

These non-GAAP financial measures should be viewed in conjunction with the most directly comparable USA financial measures and are not presented as substitutes for a superior to those most directly comparable USA financial measures.

Tivo: I just thought of 'twenty 'twenty four we outlined three priorities for Ken view, reaching more consumers freeing up resources to invest behind our brands and fostering a new culture of stuff he waltzed deferments and impact why.

Those not directly comparable US GAAP financial measures and a reconciliation of our non-GAAP items to their respective nearest US GAAP measures can be found in this morning's earnings press release and our presentation available in our IR page of Candy's website, investors.keview.com. Would that, I'll turn it over to TiVo.

Tivo: Do we still have work ahead of us to accelerate growth we made progress on each one of these priorities. So let me take each one and two.

Thank you, Sophia. Good morning everyone and thank you for joining us today.

Tivo: First to reach more consumers across all three segments, we strengthen our presence in prominence in store and online launched impact with innovation and expanding and deepen our engagement with consumers and has kept professionals.

I'll begin by sharing our performance and progress in 2024 then provide a review of our results for the 4th quarter. Are you close by discussing our outlook for 2025 with small building on some of these topics later in the call.

Tivo: In self care, we strengthened our leadership positions with nearly 80% of the Sigma is gaining share, including our largest brands tylenol uptake of nicorette amongst others.

Tivo: In our Central House, we grew mid single digits, and we delivered volume growth in North America, EMEA and Latin America.

Our organic sales growth for the year was 1.5%. This was below our expectations, and we are not satisfied with it as we will discuss later this was due in part to lower than expected incidences of cough, cold, and flu, which negatively impacted our pediatric pain franchise and a reduction in distributor orders in the Asia Pacific, particularly China.

Tivo: And it's giving us in beauty, we grew both volume and value in EMEA and Latin America, while exiting the year with volume growth in the U S. We expect to build on this momentum through accelerated volume and organic sales growth in 2025.

While top line meets our expectations, we met or exceeded our expectations on other fronts.

Tivo: Secondly, we are taking significant cost out of the business to enable us to increase investment in our brands and here. We are ahead of our plans.

We meaningfully expanded our adjusted gross margin and took significant costs out of our infrastructure which enabled us to increase investments in our brands and we delivered adjusted downloaded EPS for the year of $1.14 squarely within our guidance range.

Tivo: We continue to expand our adjusted gross margin with an increase of 200 basis points year over year to a competitor, 60% driven in large part by strong productivity and hence smelting operations. The muscles that we continue to build Atkins U.

Tivo: To put this into a longer term perspective. This is more than 400 basis points ahead of pre COVID-19 levels.

At the start of 2024 we outlined three priorities for Kenview reaching more consumers, freeing up resources to invest behind our brands and fostering a new culture of that rewards performance and impact. While we still have work ahead of us to accelerate growth, we made progress on each one of these priorities, so let me take each one in turn.

Tivo: In addition, we successfully executed the first year of our view forward, our two year initiative to become a more agile organization with a more efficient cost structure and are well on track to deliver $350 million of annualized savings by 2026.

First, to reach more consumers across our three segments we strengthen our presents and prominence in store and online launched in impact with innovation and expanded and deepen our engagement with consumers and healthcare professionals.

Tivo: As a result of these actions we were able to increase our total brand investment for the year by about 20% a significant step towards our plan to reinvest more competitively in the growth of our brands.

Tivo: We invested in three areas.

In self care we strengthen our leadership positions with nearly 80% of the segment gaining share, including our largest brands, Tylenol, Zyrtec, and Nicorette amongst others.

Tivo: We increased our advertising budget to 10, 6% of sales in 2024 compared to eight 7% and to power a year.

Tivo: And people did to social media Influencer led campaigns, which helped us expand our reach and shoot stronger Brahma House.

In essential health we will meet single digits and we delivered volume growth in North America, EMEA, and Latin America.

Tivo: We also ramped up our investments and that's kept proficiently engagement in the U S. For example, neutrogena is now at its highest level of a French recommendations by now in sort of adjacent to face category in the last four years.

And it's skin has a beauty. We grew both volume and value in EMEA in Latin America while exiting the year with volume growth in the US.

Tivo: And we invested in stronger install prism and prominence which for example contributed to the rapid expansion of Neutrogena Aveeno N O G X in Europe.

We expect to build on this momentum to accelerate volume and organic sales growth in 2025.

Tivo: Third we have fundamentally shifted the way we work to embrace a culture of performance and impact across can view, we introduced a new performance incentive muddled directly tied to business outcomes, focusing all can viewers on all key priorities.

Second, we are taking significant cost out of the business to enable us to increase investment in our brands and here we are ahead of our plans.

Tivo: To complement our existing talent, we brought in new team members to elevate our capabilities and expertise across key areas of our business.

We continue to expand adjusted gross margin with an increase of 200 basis points year over year to a competitive 60.4% driven in large part by strong productivity and $150 million of annualized savings by 2026.

Tivo: We also enhanced our operating model, establishing global brand development teams, who are responsible for growing their brands globally with integrated strategies relevant innovation and impact from communications.

As a result of these actions, we were able to increase our total brand investment for the year by about 20%.

Tivo: This model now operational in 2020 five is not only more effective but more efficient avoiding duplications of effort and driving greater accountability.

The significant step toward our plan to reinvest more competitively in the growth of our brands.

We invested in 3 areas.

Tivo: Now I'd like to turn to our fourth quarter results in Q4, we delivered organic sales growth of one 7% and adjusted diluted EPS of 26 cents.

We increased our advertising budget to 10.6% of sales in 2024 compared to 8.7% in the power year and pivoted to social media influencer-led campaigns which helped us expand our reach and show stronger row house.

Tivo: While we were tracking in line with our organic sales growth outlooks when November growth fell short of expectations in December primarily due to two factors one much lower the unexpected incidences of cold cough and flu at an outsized impact on our pediatric pain franchise in the U S and in China.

We also ramped up our investment in healthcare professional engagement in the US, for example, Neutrogena is now at its highest level of average recommendations by the pathologists in the face category in the last 4 years.

Tivo: And two we had a reduction in customer orders in Asia Pacific, particularly in China, where we experienced temporary disruption you know distributional network quite essential health and skin has France.

And we invested in stronger in-store presence and prominence which for example contributed to the rapid expansion of Neutrogena, Aveeno, and OGX in Europe.

Tivo: This was driven by secondary distributors, who face liquidity issues did not fully execute activation programs.

Tivo: <unk> is a process of replacing these underperforming distributors and reclaiming direct responsibility for activation with key local retailers to avoid this issue in the future.

Third, we have fundamentally shifted the way we work to embrace a culture of performance and impact across Genview. We introduced a new performance and incentive model directly tied to business outcomes focusing all can viewers and our key priorities and to complement our existing talent, we brought in new team members to elevate our capabilities and expertise across key areas of our business.

Tivo: So these two factors were unfortunately large enough to mass career progress in the other parts of our business to help further dimensionalize the impact of the significant decline of pediatric pain incidents on our revenue.

Tivo: Total company organic sales growth without these franchise, who would have been about two points higher in the fourth quarter and about one point higher for the full year of 2024.

Tivo: Now looking at each segment, beginning with self care, which grew organic sales by two 9% in the fourth quarter.

We also enhance our operating model establishing global brand development teams who are responsible for growing their brands globally with integrated strategies relevant innovation and impactful communications. This model now operational in 2025 is not only more effective but more efficient, providing duplication of effort and driving greater accountability.

Tivo: As noted the low flu season led to a double digit decline over last year in our pediatric pain franchise as a category contracted over 40% in China and nearly 11% in the U S. Our two largest markets.

Tivo: December was much weaker than the hour and industry projections as the typical peak in pediatric incidences did not occur.

Tivo: Retailers responded by limiting that orders in China by starting to reduce inventories had built ahead of the season.

Now I'd like to turn to our 4th quarter results in Q4 we delivered organic sales growth of 1.7% and adjusted that with the EPS of 26 cents. While we were tracking in line with the organic sales group outlook for November, growth fell short of expectations in December, primarily due to two factors. One, much lower than expected incidences of cold, cough, and flu at an outsized impact on a pediatric pain franchise in the US and in China.

Tivo: Without pediatric pain. These was a terrific quarter fall sell scale segments with organic sales growing high single digits as nicorette grew nearly 20% our digestive health franchise grew mid teens and energy grew high single digits, we continue to drive consumer awareness and amplify innovations such as filing all easy to swallow.

And 2, we had a reduction in custom orders in Asia Pacific, particularly in China where we experience temporary disruption, you know, distribution network for essential health and skin health brands.

This was driven by secondary distributors who face liquidity issues that did not fully execute activation programs.

Tivo: Through innovative consumer centric campaigns.

Tivo: Notably we continued to gain share in self care in the fourth quarter, including in pediatric pain, where we grew share globally by 70 basis points versus last year.

When the process of replacing these underperforming distributors and reclaiming direct responsibility for activation with key local retailers to avoid this issue in the future.

Tivo: Essential health, where organic sales decreased <unk>, 7% in the fourth quarter, we faced a material headwind from the decline in system orders in Asia Pacific, particularly China that I discussed earlier.

These two factors were unfortunately large enough to mask real progress in the other parts of our business.

To help further dimensionalize the impact of the significant decline of pediatric pain incidents on our revenue.

Tivo: Currently we do not see these declining orders, reflecting the rate of consumption in the region out.

Tivo: Outside of Asia Pacific segment grew at a healthy mid single digit rate in Q4 with a third consecutive quarter of volume growth innovation continues to play an important role as we drive household penetration in these categories, where we come in leadership positions.

Total company organic sales growth without this franchise would have been about 2 points higher in the 4th quarter and about 1 point higher for the full year 2024.

Now looking at each segment I'll begin with self care which organic cells by 2.9% in the fourth quarter.

Tivo: Example, we continue to expand to determine clinical solutions into the U S where the line was the number one innovation in 2024.

As noted, the low flu season led to a double digit decline over the last year in a pediatric pain franchise as a category contracted over 40% in China and nearly 11% in the US are two largest markets.

Tivo: But you know kids range is our fastest growing line in its U S category.

Tivo: Bounded prohibit innovation continues to do very well driving more than a third of our wound care growth in the U S for the year.

December was much weaker than our and industry projections as a typical peak in pediatric incidences did not occur.

Retailers responded by limiting their orders and in China by starting to reduce the inventories they built ahead of the season.

Tivo: Finally in skin health and beauty, we delivered volume led to 6% organic sales growth for the quarter, albeit on the shelf space.

Tivo: EMEA and Latin America continue to be growth engines for the segments and we drove volume led to double digit organic sales growth in the quarter across both regions.

Without pediatric pain, this was a terrific quarter for our self-care segment with organic sales growing high single digits as Nicorette grew nearly 20% of digestive health franchise called metes and allergy grew high single digits.

We continue to drive consumer awareness and amplify innovations such as Tylenol Easy to swallow through innovative consumer-centric campaigns.

Tivo: In EMEA, specifically Q4 was our 11th consecutive quarter of organic sales growth with all our major brands Neutrogena, Aveeno and O G X growing nicely and we continue to expand in the region with the launch of happy knowing 12 Central European markets.

Importantly, we continue to gaining self-care in the 4th quarter, including in pediatric pain where we grew share globally by 70 basis points versus last year.

Tivo: In North America, we delivered mid single digit organic sales growth during the quarter as we continued to see improvements into areas. We have prioritized. This fall for example, during the fourth quarter Neutrogena largest Bryan Keane has regained its position as the number one face care, Brian in all U S China offline and.

In essential health where organic cells decrease 0.7% in the fourth quarter we faced a material headwind from the decline in customer orders in Asia Pacific, particularly China, that I discussed earlier.

Importantly, we do not see this decline in orders reflecting the rate of consumption in the region.

Outside of Asia Pacific, the segment grew at a healthy mid single digit rate in Q4 with a third consecutive quarter of volume growth.

Tivo: Online.

Nick: Nick would you not cleaning platform an important entry point for the brand grew share into brick and mortar channels in the fourth quarter with a combined effect of increased points of distribution attractive entry price points on specific codes.

Innovation continues to play an important role as we drive household penetration in these categories where we command leadership positions, for example, we continue to expand Listerine clinical solutions in the US where the line was the number one innovation in 2024.

Nick: Influencer led consumer communication and innovation with our new ultra gentle clean cell line.

I've been a kids' range is the fastest growing line in its US category, and our bounded pro innovation continues to do very well, driving more than a third of our wound care growth in the US for the year.

While 2020 full showed the recovery is not linear and it's taking longer than anticipated. We remain encouraged by this progress in 2025, we will amplify our innovations and further strengthen our competitiveness.

Finally, in skinhead and beauty we delivered volume led 2.6% organic sales growth for the quarter, albeit on a soft base.

in Latin America continue to be growth engines for the segment and we draw volume lead double digit organic sales growth in the quarter across both regions.

Nick: An example, as part of our strategic collaboration with Doctor shot that we announced in Q4, we launched a new major campaign earlier this week featuring artists, Dave Mccree, our newest into genome better though.

Nick: A great example of our ambition for the Brown with a book to Bill a global Gen Z music sensation and the most followed dermatologist in social media getting together to recommence in number one fifth game Brian in America.

In a specifically Q4 was our 11th consecutive quarter of organic cells growth with all our major brands Neutrogena, Aveeno, and OGX growing nicely, and we continue to expand in the region with the launch of Alino in 12 Central European markets.

In North America, we delivered mid single digit organic sales growth during the quarter as we continue to see improvements in the areas we have prioritized as far.

Nick: So, let's now turn to our outlook for 2025, well entering 2025 with a challenging external environment economic uncertainty geopolitical tensions and a stronger dollar.

Nick: Parallel consumers continue to look for convenience and value, but I'm not compromising on that house. So given this backdrop, we expect our weighted categories to grow below historical average in 2025 into a range of 2% to 3% into geographies, where we compete.

For example, during the 4th quarter, Neutrogena, our largest brand in skin health, regained its position as the number one face care brand in all US channels offline and online.

Speaker Change: Atkins U. We are now approximately 90 days from completing what has been a long and resource intensive operational separation from J&J.

In oncogena cleansing platform, an important entry point for the brandro share in the brick and mortar channels in the 4th quarter with a combined effect of increased points of distribution, attractive entry price points on specific codes influencer led consumer communication and innovation with our new ultra gentle clean cell line.

Speaker Change: To put in perspective, we exited over 2000 th saving more than 50 countries, who the end of 2020 full without business disruption.

Speaker Change: <unk> now completed approximately 85% of the planned exits our team continued to find better simpler and more cost effective ways to operate as an independent company.

While 2024 showed the recovery is not linear and it's taking longer than anticipated, we remain encouraged by this progress. In 2025, we will amplify our innovations and further strengthen our competitiveness.

Speaker Change: And that's one of the last steps in the separation, we officially opened our new can do headquarters in summit, New Jersey next months.

With TSA, because it's behind us in 2025, we are ready to enter the next chapter of our journey as an independent company with our number one priority being centered on accelerating profitable growth and generating sustainable value creation.

As an example, as part of our strategic collaboration with Dr. Shah that we announced in Q4, we launched a new major campaign earlier this week featuring artist Ted McRae on newest Neuina ambassador.

Speaker Change: We expect to deliver 2% to 4% organic sales growth in 2025 and grow revenue faster than our categories into civil half of the year.

It's a great example of our ambition for the brand with a popular global Gen Z music sensation and the most followed dermatologist on social media getting together to recommend the number one faith game brand in America.

Speaker Change: We are confident in our outlook for 2025 for several reasons.

Speaker Change: First we will realize the compounding benefits from the structural changes we implemented in 2020 for this year, we will fully activate our new operating model with strong tenants leaner organization, greater efficiencies and clear roles and responsibilities.

Speaker Change: Brands will benefit from a second year of higher investment levels supported by a healthier P&L with stronger gross margins and lower infrastructure costs, and we will be more agile and move faster enabled by technology and capabilities that are rightful can view as a standalone consumer goods company.

So let's now turn to our outlook for 2025. We are entering 2025 with a challenging external environment, economic uncertainty, geopolitical tensions, and a stronger dollar. In parallel, consumers continue to look for convenience and value, but I'm not compromising on their health. So given this backdrop, we expect our weighted categories to grow below historical average in 2025 in the range of 2 to 3% in geo geographies where we compete.

Atan view we are now approximately 90 days from completing what has been a long and resource intensive operational separation from JNG.

Speaker Change: And second we have strong plans to drive momentum across all three segments. In 2025, we will launch 40% for innovation compared to 2024, which will further strengthen our portfolio through premium amortization extension into adjacencies and attractive entry price points we.

To put it in perspective, we exited over 2000 TSAs in more than 50 countries through the end of 2024 without business disruption.

We expect net distribution gains this year driven by the healthy innovation lineup and strengthen retailer partnerships, leading to higher prominence of all brands.

Having now completed the proximity 85% of the planned exits our team continued to find better, simpler and more cost effective ways to operate as an independent company.

Speaker Change: And all brands will be supported by more competitive trade and marketing investments with stronger partnerships with celebrities influences in our health care professionals.

And as one of the last steps in this separation will officially open a new Caview headquarters in Summit, New Jersey next month.

Speaker Change: We have streamlined our roster of advertising agencies, and our recently launched our new global content factory, which will drive more impactful content with greater efficiencies will have the opportunity to talk more about our 2025 plans in our next chapter at Cagny later this month.

With TSA exists behind us in 2025 we are ready to enter the next chapter of our journey as an independent company with our number one priority being centered on accelerating profitable growth and generating sustainable value creation.

Speaker Change: While our innovation and marketing support I expect it to be equally strong throughout the year or first half results will not reflect the underlying health of our business and they will be negatively impacted by two main factors destocking largely due to the lingering impact of the weak pediatric paint season ended disruption we are correcting in China.

We expect to deliver 2 to 4% organic sales growth in 2025 and grow revenue faster than our categories in the second half of the year.

We are confident in our outlook for 2025 for several reasons.

Speaker Change: And the strategic investments, we are making selective price reductions and trade spend in the U S to improve our competitiveness.

First, we will realize the compounding benefits from the structural changes we implemented in 2024. This year we will fully activate our new operating model with strong talent, a leaner organization, greater efficiencies and clear roles and responsibilities.

Speaker Change: Certainly while reinvesting in all brands, we will continue to be extremely disciplined in the management of our P&L and we expect to expand adjusted operating margin in 2025, and with that I'll turn it over to Paul.

Our brands will benefit from a 2nd year of higher investment levels supported by a healthier PNL with stronger growth margins and lower infrastructure costs.

And we will be more agile and move faster, enabled by technology and capabilities that are right for Kenview as a standalone consumer health company.

Paul: Thank you T Bo and good morning, everyone.

Paul: I start with an overview of results for the fourth quarter and the year and then close with the details around our outlook for 2025.

And second, we have strong plans to drive momentum across all three segments in 2025.

Paul: Fourth quarter organic sales grew one 7% versus last year, which was disappointing due to the reasons that people highlighted.

We will launch 40% more innovation compared to 2024, which will further strengthen our portfolio through premiumization extension into adjacies and attractive entry price points.

Paul: Organic sales growth in the quarter was relatively balanced between value realization in volume.

We expect net distribution gains this year driven by the healthy innovation lineup and strengthen retailer partnerships leading to higher prominence of our brands.

Paul: We drove favorable about utilization across all segments and volume growth in both self care skin health and beauty.

Paul: Overall volume increased 0.7% year over year, a lot of your organization contributed 1% organic sales growth, primarily driven by incremental pricing outside the U S.

And our brows will be supported by more competitive trade and market investment with stronger partnerships with celebrities, influencers, and healthcare professionals.

For the year organic sales increased one 5% with value realization of two 7% and consolidated volume declines of one 2%.

We have streamline our roster of advertising agencies and have recently launched a new global content factory which will drive more impactful content with greater efficiencies. We'll have the opportunity to talk more about our 2025 plans and our next chapter at Cagney later this month.

Paul: Going forward, we expect a more normal balance between value reputation in volume with this Q2 volume increases to drive organic sales growth.

Paul: Taking a look at our segments in the fourth quarter sounds good organic sales grew two 9% year over year as volumes and valued organization contributed one 7% and one 2% of gross respectively.

While our innovation and marketing support are expected to be equally strong throughout the year or first half results will not reflect the underlying health of our business as there will be negatively impacted by two main factors this stocking largely due to the lingering impacts of the weak pediatric pain season and the disruption we are correcting in China and the strategic investment we are making in selective price reductions and trades spend in the US to improve our competitiveness.

Importantly, while reinvesting in our brands, we will continue to be extremely disciplined in the management of our P&L, and we expect to expand adjusted operating margin in 2025, and with that I'll turn it over to Paul.

Thank you, Tibo, and good morning everyone.

Paul: Steve mentioned the segment delivered very strong organic sales growth, except for a pediatric paint.

I start with an overview of results for the 4th quarter and the year, and then close with the details around our outlook for 2025.

Paul: Which was a significant drag on the segment and the company growth importantly in self care, we continued to gain share across categories globally for the quarter and full year.

4th quarter organic sales grew 1.7% versus last year, which was disappointing, due to the reasons that Tivo highlighted.

Paul: In skin health and beauty organic sales grew two 6% year over year in the quarter as volume increased two 1% on easier comparisons and value realization contributed 0.5%.

Organic cells growth in the quarter was relatively balanced between value realization and volume.

We drove favorable value realization across all segments and volume growth in both self-care and skin health and beauty.

Overall, volume increased 0.7% year over year.

Paul: Rising accident abroad, more than offset the impact of our strategic investment behind select price reductions and in store activation in the U S.

Value realization contributed 1% to organic sales growth, primarily driven by incremental pricing outside the US.

Paul: We remain focused on building further traction with our commercial airports to strengthen this segment's performance.

Paul: And for our Central health organic sales declined 7% in the quarter with value realization, increasing one 2% year over year, which was more than offset by volume declines of one 9%.

For the year, organic sales increased 1.5% with value realization of 2.7% and consolidate the volume declines of 1.2%.

Going forward we expect a more normal balance between value realization and volume with a skewed to volume increases to drive organic sales growth.

Paul: While organic sales for the essential health grew four 1% for full year.

Taking a look at our segments.

Which was the fastest growth in recent years.

Paul: Fourth quarter was an outlier primarily due to a reduction in customer orders in Asia Pacific, particularly in China.

In the 4th quarter, Sensa Organics sales grew 2.9% year over year as volumes and value realization contributed 1.7% and 1.2% of growth respectively.

Paul: Without the Asia Pacific organic sales for the Central Health grew mid single digits in the fourth quarter with Latin America, and North America, leading the charge.

As Ste mentioned, the segment delivered very strong organic sales growth, except for pediatric pain, which was a significant drag on the segment and the company growth.

Paul: Moving now to adjusted gross margin.

Our operations team drove meaningful productivity improvements in 2024, expanding adjusted gross margin by 200 basis points versus last year to 64%.

Importantly, in self-care, we continue to gain share across categories globally for the quarter and full year.

Paul: As anticipated in the fourth quarter adjusted gross margin came in at 58, 7% versus 59, 5% last year, which as you may recall.

In Skin Health and beauty, organic cells grew 2.6% year by year in the quarter as volume increased 2.1% on easier comparisons and value realization contributed 0.5%.

Paul: Included a nonrecurring benefit of approximately 50 basis points.

Pricing actions abroad more than offset the impact of our strategic investment behind select price reductions and in store activation in the US.

Paul: In Q4, we continued to generate supply chain efficiencies and value realization, which helped offset inflationary headwinds.

We remain focused on building further traction with our commercial efforts to strengthen the segment's performance.

Paul: Adjusted operating margin was 19, 2% in the quarter and landed at 21, 5% for the full year right at the midpoint of like 21% to 22% guidance range recall, we raised our total brand investment in 2024 by about 20% with cost savings and gross margin improvement funds.

And for essential health, organic sales declined 0.7% in the quarter with value realization increasing 1.2% year over year, which was more than offset by volume declines of 1.9%.

While organic sales for essential health grew 4.1% for full year.

Which was the fastest growth in recent years.

Paul: They spent.

The 4th quarter was an outlier.

Paul: As of 2024 years, and we're more than halfway through realizing our view forward savings.

Primarily due to reduction in customer orders in Asia Pacific, particularly in China.

Paul: Well on track to get the food annualized run rate of 350 million by 2026.

Paul: Closing out the P&L.

Without Asia Pacific organic sales for essential health group mixing of digits in the 4th quarter, with Latin America and North America leading the charge.

Paul: Net interest expense was 95 million for the quarter and 378 million and for the full year, Australia 24 inline with our expectations for taxes fourth quarter adjusted effective tax rate was 17, 7% and full year adjusted effective tax rate was 25, 5%.

Moving now to adjusted gross margin.

Our operations team drove meaningful productivity improvements in 2024, expanding adjusted gross margin by 200 basis points versus last year to 60.4%.

Paul: Slightly below our expectations due to the realization of discrete tax benefits and finally adjusted net income was 499 million for the quarter or 26 cents of adjusted diluted EPS.

As anticipated in the 4th quarter, at just the gross margin came in at 58.7%.

Versus 59.5% last year, which, as you may recall, included a non-recurring benefit of approximately 50 basis points.

Paul: Full year adjusted net income was $2 2 billion or $1.14 adjusted diluted EPS within our 2024 guidance range.

In Q4, we continue to generate supply chain efficiencies and value realization which helped offset inflationary headwinds.

Paul: Before discussing the outlook for this year I'd like to take you through to internal initiatives that we are deploying to upgrade data analytics across multiple facets of can view as part of the evolution of our company.

Adjusted operating margin was 19.2% in the quarter and landed at 21.5% for the full year, right at the midpoint of our 21 to 22% guidance range.

Paul: As we continue our revenue growth management. Therefore, we are deploying a global center of excellence that will support our markets with strategic pricing and promotional capabilities.

Recall. We raised our total brand investment in 2024 by about 20% with cost savings and gross margin improvement funding is spent.

Paul: Also implementing a new trade spend management technology in select markets, which will facilitate more robust management of trade investment and better informed promotional spending decisions all to further improved effectiveness.

As of 2024 year end, where more than halfway through realizing our view for savings and are well on track to get the full analyzed run rate of 350 million by 2026.

Closing out the P&L

Paul: Second we will complete the global rollout of integrated business planning with enhanced digital capabilities in 2025.

Net interest expense was $95 million for the quarter and 378 million for the full year of 2024 in line with our expectations.

For taxes

Paul: The new IBP process, and AI, driven tools will improve the level of information that supports our financial forecasting enhancing planning accuracy.

And full year adjusted the tax rate was 25.5%.

Paul: Also while these upgraded systems and processes do not protect against some demand changes they collectively enable greater agility and more timely decision, making significantly enhancing our ability to respond to shifting market trends.

Slightly below our expectations, due to the realization of discrete tax benefits.

And finally, I just the net income was 499 million for the quarter or 26 cents of adjusted diluted EPS.

Paul: Now to summarize our expectations for the full year 2025.

Full year adjusted net income was 2.2 billion or $1.14 adjusted diluted EPS.

Paul: We expect organic sales growth to be in the 2% to 4% range, representing an acceleration from 'twenty to 'twenty four levels.

Within our 2024 guidance range.

Paul: With girls and expect it to be volume led.

Paul: Our assumptions are grounded on approximately 2% to 3% growth across the categories and markets, where we compete.

Before discussing the outlook for this year, I'd like to take you through two internal initiatives that we are deploying to upgrade data and analytics across multiple facets of Kenview as part of the evolution of our company.

Paul: Based on current spot rates, we are assuming currency will be an approximately 3% headwind to our top line, resulting in expected net sales in the range of down 1% to up 1%.

First, as we continue our revenue growth management effort, we are deploying a global center of excellence that will support our markets with strategic pricing and promotion capabilities.

Paul: As you heard from people, we have strong commercial plans for the year for each one of our segments.

Paul: We bring in amplify more innovation to market.

Paul: Average, our growing marketing muscle continued to build distribution and realized benefits from revenue growth management at the same time, we're coming into 2025 with more competitive brand support levels with the goal to accelerate consumption.

We're also implementing new trade spend management technologies select markets which will facilitate more robust management of trade investment and better informed promotional spending decisions. All to further improved effectiveness.

Second, we will complete the global rollout of integrated business planning with enhanced digital capabilities in 2025.

Paul: We also expect our teams to execute at a higher level in 2025 behind the full adoption of our new operating model.

Paul: Looking at our segments for the full year, we expect self care organic sales growth will accelerate from 'twenty to 'twenty four levels building on our strong leadership positions and continuing to introduce differentiated innovation.

The new IBP process and AI driven tools will improve the level of information that supports our financial forecasting, enhancing planning accuracy.

Paul: <unk> skin health and beauty, we expect to return this segment on a global basis.

Paul: Organic sales growth in 2025, how do we continue to strengthen our U S business, while driving ongoing solid performance in EMEA and Latin America.

Also, while this upgraded systems and processes do not protect against some demand changes they collectively enable greater agility and more timely decision making, significantly enhancing our ability to respond to shifting market trends.

Paul: And finally in essential health has pricing rolls off we expect to deliver more moderate organic sales growth in 2025 with broad based growth across the categories.

Now, to summarize our expectations for the full year 2025. We expect organic sales growth to be in the 2 to 4% range, representing an acceleration from 2024 levels with grows expected to be volume lead.

Paul: From a quarterly progression as Tivo mentioned, Destocking and strategic price investments will impact the cadence of can be as top line and margin performance in the first half of the year.

Our assumptions are grounded on approximately 2 to 3% growth across the categories and markets where we compete.

Combined we estimate these factors will account for a three to four point headwind in the first quarter.

Based on current spot rates we are assuming currency will be an approximately 3% headwind to our top line, resulting in expected net sales in the range of down 1%.

Paul: As a result, we expect organic sales to decline low single digits in Q1, we.

to up 1%.

Paul: We expect these headwinds on top line to moderate in the second quarter.

Paul: These dynamics will mask the underlying council the business in the first half of the year.

As you heard from TiVo, we have strong commercial plans for the year for each one of our segments as we bring an amplify more innovation to market, leverage our growing marketing muscle, continue to build distribution and realize benefit from revenue growth management.

Paul: As we cycle through them organic sales growth is expected to be much stronger in the back half of the year relative to the front half.

At the same time, we're coming into 2025 with more competitive brand support levels with the goal to accelerate consumption.

In parallel we expect 20 to 25 to be another year of strong productivity and efficiencies for our company.

We also expect our teams to execute at the higher level in 2025 behind the full adoption of our new operating model.

Looking at our segments for the full year we expect.

Paul: We are continuing to accelerate automation streamlined end to end processes optimize spend leverage digital and AI at warehouses logistics and demand management and are on track to realize the balance of our go forward savings.

Self-care organic sales growth will accelerate from 2024 levels, building on a strong leadership positions and continuing to introduce differentiated innovation.

Paul: These combined savings will more than offset the investments, we're making behind the business to increase our brands' competitiveness as well as inflationary on foreign exchange related headwinds that we're facing this year.

In skin health and beauty, we expect to return the segment on a global basis, back to organic sales growth in 2025 as we continue to strengthen our US business.

While driving ongoing solid performance in a mea and Latin America.

Paul: As a result, we're planning for an adjusted operating margin to expand year over year.

Paul: Given the fluidity of the recent tariff announcements, we have not factored in any impact in this outlook.

And finally, in essential health, as pricing rolls off, we expect to deliver more moderate organic sales growth in 2025 with broad-based growth across the categories.

Paul: We are assuming a fairly similar net interest expense to 'twenty 'twenty four and adjusted effective tax rate of $25 five to 26, 5% with about 193 billion diluted weighted average shares outstanding.

From a quarterly progression as Tivo mentioned, this talking and strategic price investments will impact the cadence of Kennedy stop line and margin performance in the first half of the year.

Combined, we estimate these factors will account for a 3 to 4 point headwind in the first quarter.

Paul: We're planning to grow adjusted diluted EPS on a constant currency basis slightly ahead of organic sales growth, even as we continued to reinvest at higher rates behind their brands.

As a result, we expect organic cells to decline, low single digits in Q1. We expect these headwinds on top line to moderate in the 2nd quarter.

These dynamics will mask the underlying health of the business in the first half of the year.

Paul: Adjusted diluted earnings per share is expected to be flat to up 2%, including a mid single digit headwind from currency.

As we cycle through them, organic sales growth is expected to be much stronger in the back half of the year, relative to the front half.

Paul: In closing 20 to 25 will be an important year for Kennedy you.

Paul: As we put our separation from J&J behind US we entered the next chapter of our journey as an independent company and aim to unleash acceleration in our profitable growth.

In parallel, we expect 2025 to be another year of strong productivity and efficiencies for our company.

Paul: Teams around the world are ready and I want to thank them for their passion and focus on helping more consumers realized starting or any power of everyday care.

We are continuing to accelerate automation, streamline end to end processes optimize spend, leverage digital and AI to enhance logistics and demand management and are on track to realize the balance of our view forward savings.

Paul: Before we open the call for questions you may have seen the filing to the ones recently made by starboard value.

This combined savings will more than offset the investments we're making behind the business to increase our brand's competitiveness, as well as inflationary and foreign exchange related headwinds that we're facing this year.

Paul: We engaged regularly with our shareholders and are open to constructive dialogue and suggestions from all Kansas shareholders with that said the purpose of today's call is to discuss our 2024 results and 2025 outlook. We appreciate you keeping your questions focused on these topics and we will not be making any further comment.

As a result, we're planning for adjusted operating margin to expand year by year.

Given the fluidity of the recent tariff announcements, we have not factored in any impact in this outlook.

Paul: On our shareholder conversations while the nominations at this time.

With that we will open the call for questions.

We are assuming a fairly similar net interest expense to 2024 and adjusted effective tax rate of 25.5% to 26.5% with about 1.93 billion that loaded we did average shares outstanding.

Paul: Thank you at this time, we'll be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question to allow for as many questions as possible.

We're planning to grow a just a diluted EPS on a constant currency basis, slightly ahead of organic sales growth.

Even as we continue to reinvest at higher rates behind our brands.

Paul: If you have a question. Please press star one on your telephone keypad.

Paul: Draw your question simply press Star two for.

Adjusted diluted earnings per share are expected to be flat to up 2%, including a mid single digit headwind from currency.

Paul: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey one moment. Please for your first question.

In closing, 2025 will be an important year for Kenview.

Speaker Change: Our first question comes from the line of Filippo for learning with Citi. Please proceed with your question.

As we put our separation from J&J behind us, we enter the next chapter of our journey as an independent company and aim to unleash acceleration in a profitable growth.

Filippo: Hey, good morning, everyone. So I wanted to ask two clarification on the organic sales growth guidance for 2025.

Our teams around the world are ready, and I want to thank them for the passion and focus on helping more consumers realize the extraordinary power of everyday care.

Filippo: First in terms of like did negatively impacts that you saw in Q4, both of them call them flow into Central House can you give us a sense of like what is the contribution of the drag in Q1.

Before we open the call for questions, you may have seen the filing that was recently made by Starboard Value.

Filippo: Particularly in cold and flu it seems like the case count has really picked up in the end of December beginning of January. So are you assuming you are not going to get a restocking in a new cold and flu and especially the pediatrics.

We engage regularly with our shareholders and are open to constructive dialogue and suggestions from all candidate shareholders.

With that said, the purpose of today's call is to discuss a 2024 results and 2025 outlook.

Cold and flu medicine that you called out and then on the kind of in Asia Pacific.

Filippo: They take inventory issues can you walk us through like what impact are you expecting going for and how long it would take you to fix the disruption that you called out.

We appreciate you keeping your questions focused on these topics, and we will not be making any further comments on our shareholder conversations or denominations at this time.

With that, we will open the call for questions.

Filippo: Thank you.

Thank you. At this time, we will be conducting a question and answer session.

Filippo: Yes. Good morning people are and so your question about the guidance for 2025.

In the interest of time we ask that you please limit yourself to one question to allow for as many questions as possible.

Filippo: Let me.

Filippo: It's all by.

If you have a question, please press star one on your telephone keypad.

Speaker Change: Talking about how we feel confident about our guidance overall.

To withdraw your questions simply press 2.

Speaker Change: You should think about a starting point we grew one 5% in 2024, you heard me say in the prepared remarks that if you are.

For participants using speaker equipment it may be necessary to pick up your handset before pressing the start key.

One moment please for your first question.

Speaker Change: Without a pediatric pain.

Speaker Change: We would have grown one point higher as a company.

Speaker Change: I would say all run rate exiting 2024 is about two and a half the subs. If you add to that the stroller plans. We have for 2025 and the fact that we are going to benefit from the compounding impact of the structural changes we did in 2024, that's what gets us to the.

Our first question comes from the line of Filippo Felorni with city. Please proceed with your question.

Speaker Change: To the midpoint of our guidance now what will bring us up or down versus a sweet point will be driven by a quite a big indication and how consumers respond, but also the seasonal businesses and how the seasons are going to behave in that.

Speaker Change: 2000, 22025, so if the seasons are positive it will tilt towards the higher end of our guidance. If it's not the case it would be towards the low end.

Speaker Change: Off of the guidance.

Speaker Change: No as you said.

Speaker Change: We expect that while we have strong operational plans.

Speaker Change: For the full year, we expect in 'twenty AR in the first quarter are too.

Speaker Change: To have two factors that will depress our results and mask the underlying health of our other business. So first one is a lingering impact of the low <unk>.

Speaker Change: Pediatric pain.

Speaker Change: Incidents that we saw in the in Q4 and you are right we're not expecting.

Speaker Change: Uptake in the in the in Q1 for.

Speaker Change: For two reasons.

Speaker Change: In a market like the U S. A while we see while we saw the uptick at the beginning of January than a decline in the.

Speaker Change: January and we see a slight uptick again recently he has been pretty erratic and I think it's too soon to call for fly and upside into the U S and China.

Speaker Change: The go to market different distributors and installs tend to stock up ahead of the season. They had low season in Q4, as we talked about and so even if our the incidents goes up in Q1, we would expect them to destock and to bleed the inventory in Q1.

Speaker Change: The impact on our shipments.

Luisa: And the civil Luisa.

Luisa: That will impact the <unk>.

Luisa: Because it was the first quarter on that front.

Luisa: Is there a lingering impact of the distribution disruption we saw in the in China or what it will take a Olivia if time to fix.

Luisa: Yeah.

Luisa: Paul do you want to add something.

Luisa: The table, yes, and I said in my prepared remarks Filippone.

Luisa: The factors that cable referred to how.

Luisa: How do they drag of about three to four points. So the combination of the slow start to the season, particularly in pediatrics and also the lingering backs out the distribution issues, we have in China and Asia Pacific in General there's one more factor that I would like to mention that gets us to the top line.

Luisa: Oh for low single digits in Q1, which is trade investments that we're stepping up in the first half of 2025, as we think Holistically high volatile brand investment, we're not only have brand marketing investments through advertising, but we are also making sure that our promotional spend in store is competitive and we're doing that.

Luisa: Primarily in the U S. So trade investment and promotional programs. So that's how I get to the number that I explained before.

Luisa: This is temporary and it does not.

Luisa: Let's say much about the underlying health of the business because that's a dose impacts I cycled through we would see the acceleration in the second half of the year, how do we see the full impact of our plants, including the benefits of our G. M.

Luisa: The full impact of our of our brand plans and some of the absence of the headwinds we saw in 2024, so strong operational plans underlying geese impacts that I described.

Speaker Change: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.

Peter Grom: Thanks, operator, and good morning, everyone, maybe just to follow up on that.

Speaker Change: I would love to get some perspective on just the category growth assumptions I think you mentioned, 2% to 3% globally can you maybe share how you see that playing out in the U S versus what you might expect internationally and then just on the guidance right. I think you just mentioned an acceleration in the back half of the year. So should we interpret that as <unk>.

Speaker Change: Organic sales growth is going to be muted as well and then maybe just taking the flip of.

Speaker Change: So the first question I mean, what are you assuming in the fourth quarter are you assuming that you get these.

Speaker Change: These headwinds that you dealt with from weaker cough and cold from the inventory disruptions are you assuming they come back and that's part of the improvement that you're embedding in the back half of the year.

Speaker Change: Yeah, Peter Good morning, So let me take the question your question on the category.

Speaker Change: The assumptions for 2025, and Paul will follow up on the on the phasing in the in 2025. So we indeed expect all categories to slow down.

Speaker Change: From a 3% to 4% to a 2% to 3% in 2025 I would say the main reason Peter is the fact that you will have a much lower impact of a price.

Speaker Change: In 2025 compared to 2024 from a consumer point of view, what we see is them on one hand consumers are clearly focused on.

Speaker Change: Convenience and value.

Speaker Change: But they are also extremely focused on the health and the health of their loved ones and they are not ready to compromise.

Speaker Change: All of this and we see it.

Speaker Change: With the example of private label penetration that continues to be I would say about flat on a global basis and actually if I look at the most recent periods, our private label penetration in all categories going down.

Speaker Change: In aggregate, so I would expect a consumer to be a big.

Speaker Change: You need to be focused on the high quality differentiated superior solutions.

Speaker Change: We will have.

Speaker Change: Our lower roll off pricing in 2025 differently or do you want to take a pause.

Speaker Change: About the phasing short thank you cable and Peter good morning.

Speaker Change: I describe the dynamics in Q1, and particularly for the second quarter, we will see we do see an acceleration we expect an acceleration and is it it's split into positive territory. It's not all the way to the four strengths are off.

Speaker Change: Our our.

Speaker Change: Plans, because the dynamics in China will take more than one quarter or two to be fixed. So again. It does not have demonstrated the full impact of our plants when it comes to the fourth quarter assumptions.

Speaker Change: Youre right are what we are talking about in Q Hardie is D. E is the absence of the headwinds that we saw in AR in Q4 of 2024.

Speaker Change: We expect a normal season, Oh, if at all in Goldcorp on flu.

Speaker Change: And we also see selective price actions outside the U S and the full impact of our plants.

Speaker Change: With the most strengths being seen in Q4 of 2025.

Speaker Change: Thank you. Our next question comes from the line of Anna Liberal with Bank of America. Please proceed with your question.

Anna Liberal: Hi, good morning. Thank you so much for the question.

Anna Liberal: I wanted to ask on skin health and beauty in particular, the volumes starting to recover here in the fourth quarter and I was wondering just if you can give more insight on the innovation pipeline and any potential for shelf space gains in 2025, I was wondering if you're expecting maybe a better suncor.

Anna Liberal: Every season, and then potentially shelf space gains in the fall. Thank you.

Anna Liberal: Alright, good morning, and let me let me take this one so as.

Anna Liberal: As far as skin health and beauty is concerned.

Anna Liberal: Or are recovering.

Anna Liberal: Recovery as we saw in 'twenty four is taking longer than initially expected, having said that we see that our plans E. Adult plans are working.

Anna Liberal: When you see our progress in the areas, where we focus our efforts we continue to see very strong traction in Europe, and Latin America, and we would expect continued traction in 2020 fives in a in this region. We have strong plans in terms of.

Anna Liberal: Distribution innovation.

Anna Liberal: And communication and in North America, we are very encouraged by the positive signs we keep seeing in our intervention and you saw.

Anna Liberal: That's we got our leadership back across all channels in the fourth quarter of online and offline and.

Anna Liberal: And so in 2025, we will ultrafine efforts to more part of the portfolio, we have I would say largely totally.

Anna Liberal: Two logic that result, optical heads and beauty team with strong talent in 2024, and you start seeing the impact of what.

Anna Liberal: What this team is is doing we are going to rollout that's much stronger innovation pipeline.

Anna Liberal: In 2025 in the U S and around the world.

Anna Liberal: And this will be supported by strong and I wouldn't even say stronger campaigns.

Anna Liberal: As we pivot towards social media Influencer led campaigns and really execute them at a stronger level. If you look at the campaign. We just released this week, we stick microarray, we got 1 billion media impressions in the first 24 hours.

Was that five times the engagement rate on organic social media.

Anna Liberal: That's just what we would expect from industry benchmark, so up to a very good start our.

Anna Liberal: Our investment he has got professionals is working as well.

Anna Liberal: And we will continue to invest in these in these areas. So more innovation in skin health and beauty I will not get into the details of what it will look like for obvious reasons, but we are studying with our revitalize our hydro boost.

Anna Liberal: Session.

Anna Liberal: In the first quarter, while building on the innovation, we launched in the fourth quarter, our new pin says lines.

Anna Liberal: And Oh, God I Adjourn Bank line, which is off to a good start.

Anna Liberal: We'll also.

Anna Liberal: Increase our distribution to your question about the Sun care, we feel good about the upcoming sees a little turns off.

Anna Liberal: Retailer partnerships.

Anna Liberal: We'll see how the.

Anna Liberal: Season plays out, but we feel that we all.

Anna Liberal: Well prepared getting into into the season, and we will continue to invest behind all has got professional recommendation.

Anna Liberal: So all in that's what makes us confident that we will return this segment to growth in 2025 on a global basis.

Speaker Change: Thank you. Our next question comes from the line of Andrea to share with J P. Morgan Chase proceed with your question.

Andrea: Thank you operator, and good morning, everyone can you just elaborate more on the temporary trade investments you are embedding in.

Speaker Change: In guidance.

Speaker Change: And should we expect I understand like the three percentage point of organic sales growth to be mostly driven by volumes and in the second half and in the price realization to be negative in the U S. But positive abroad with FX led pricing. So hopefully like if you can kind of break it down if it's fair to assume number one that.

Speaker Change: You, obviously will have potentially the last price realization, but some as you mentioned before chipotle. Thank you.

Speaker Change: Just one other question I had said.

Speaker Change: Expect to have pricing towards the back end of the year.

Speaker Change: And then on the operating margin guidance that Paul had nation to be above 'twenty 'twenty four I understand the puts and takes here is like the synergies are coming in in line with what you expected.

Speaker Change: And then but that's going to be a gross margin accretion and then your SG&A will have that A&P investment and I think that's one of the things that we haven't discussed on that call yet is the 11%.

Speaker Change: Two holds in 2020, five or you actually invest even more because when you say investment in trade spending. It's obviously above the line, but you also had said that you are putting more programs in place at the retailer. So I was wondering if.

Speaker Change: That number is is appropriate and if you feel this is gonna be aware, even atlanta in 'twenty or 'twenty five.

Speaker Change: I'll stop here.

Speaker Change: Okay Alright. Thank you for your question I will start with your question on what we really mean by your strategic pricing investments and ER and then.

Speaker Change: Paul.

Speaker Change: We will take your question on the <unk>.

Speaker Change: SG&A and in gross margin.

Speaker Change: But what what are we talking about when we talk about pricing investments as we reposition <unk> for accelerated growth.

Speaker Change: You see that we are taking deliberate actions across the business to make us more competitive one aspect of this competitiveness is making sure that all brands are.

Speaker Change: At the right price points for consumers.

Speaker Change: That's just a competition in 2025, we are making adjustments.

Speaker Change: To Oh business, especially in the U S to ensure that this happens.

Speaker Change: We are not doing it across the board we are doing it in select brands in select codes.

Speaker Change: That's where we see an opportunity to be more competitive and be rewarded.

Speaker Change: With high yield volume, if we become more competitive I will not give you more details for obvious competitive reasons, but I can give you examples of what it looks like I think example is one thing we are correcting is that in the past we have made.

Speaker Change: Price increases and for certain codes, we crossed set certain price thresholds that impacted all volumes. So after doing a few successful pilots in a in 2024, where we have checked that going back down below these.

Speaker Change: Price thresholds were driving volume we are doing we are implementing.

Speaker Change: Those again on select codes in 2025.

Another example of an investment we're making is simplifying the number of price points within specific brands in certain browse all the times a number of price points that are grown prohibiting us from co promoting different products within that.

Speaker Change: Brown at the same price point, while simplifying these in 2025, reducing the number of price points, which will allow us to co promote our products more effectively and make all displays more effective so all of that ends up being an investment in the short term, but we are confident that.

Speaker Change: It will turn into volume growth in the mid to long term.

Speaker Change: Great. Thank you cable Onda, let me put some numbers behind your questions.

Speaker Change: First of all you said you asked whether these will have an impact on volume. So I wouldn't have a negative value realization in the U S.

Speaker Change: And the answer is yes, we do expect a negative value realization in the U S. Primarily in Q1 and in Q2 behind a dis promotional spend investment we see brand investment Holistically, Yeah, Bush and pool. That's how every other consumer company does it and Ah Hi, Mark.

Mix will allow us to be much more competitive at the point of sale and also supported by our brand investments.

Speaker Change: So what do we expect in the balance of the year in the second half a dose will be rolling out will it be in the right with the right price points and we will also taking price in the balance of the of the of the world and that will allow us to have positive value reputation and overhauls.

Speaker Change: Towards the second half of the year.

Speaker Change: However, we see a funding all of these that's your second part of your question. We do have very concrete and strong plans are both on the gross margin line on the operating margin line. So friendly when it comes to gross margin you know that we have delivered a trajectory of gross margin enhancement.

Speaker Change: We do have line of sight to more building blocks, particularly driven by efficiencies end to end value chain are not at the same pace I was in the past of course, but we do see gross margin accretion modest gross margin accretion.

Speaker Change: In 2025, and when it comes to SG&A. We do believe we have still some room to go in terms of our a M. P investment again lots of much more moderate level, we're thinking about these push and pull marketing mix model.

Speaker Change: And are we will be very thoughtful about the ROI of both our top and and brand marketing investments, but we still want to invest more while we are are able to deliver on our algorithm that we talked about our guidance that we talked about which is.

Growing our operating margins year over year. So those are the puts and takes them and we believe we have strong efficiency plans because we want to continue to fuel our brands both from a push on food perspective.

Speaker Change: Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.

Bonnie Herzog: Alright. Thanks.

Speaker Change: Why.

Speaker Change: I had a question on your self care segment margin switch.

Speaker Change: I get a lot in Q4.

Speaker Change: Full year so.

Speaker Change: Yeah, you guys called out yeah. The flu season has been tracking much weaker I guess than expected, but you know just hoping for a little more color on how we should think about segment margin trajectory from here, especially in the context of maybe subdued price mix growth.

Speaker Change: Moving forward and then certainly some of the reinvestment plans. Thank you.

Speaker Change: But thank you for the question I would not place too much emphasis on the quarterly.

Speaker Change: Cros are all on the quarterly margin by segment remember, there's fluidity between the different segments and also it is impacted by a mix we talked about the fact that our pediatrics business was Uh Huh says he saw declines and that suddenly.

Speaker Change: Factors that may cause temporarily I would say it had the lowest gross margin it self care in the end of the year, but that is a temporary if you think about has all over our overall Uh huh.

Speaker Change: Operating margin performance.

Speaker Change: We were squarely within the guidance that we talked about so overall consolidated operating margin was 21, 5%. So we contemplated all of these investments and there are puts and takes when it comes to mix and how we drive our our brand investments and we do see how should we think about 2025.

Speaker Change: I'm, a little bit of an acceleration in South Korea gross margin, we will continue to invest in sales in skin health as we talked about both in the push on the pool and the Samsung sales continue will continue to be a driving eh operating margin enhancement for that incremental.

Speaker Change: Bring margin that would that I described so those are the puts and takes between the different segments and also how mix plays a and all of this is supported by strong efficiency programs overall.

Speaker Change: Thank you. Our next question comes from the line of current wildfire with Piper Sandler. Please proceed with your question.

Wildfire: Hey, thanks, so much for the question.

Speaker Change: I'd like to touch a little bit more on kind of like the cadence of the margin trajectory I know you're talking about a little bit of modest expansion for the full year, but any more deeper color you can provide us on what to expect for Q1 for the gross margin up on the operating margin line and how that should progress over the year and then maybe you could touch a little bit on some of your.

Speaker Change: Our risk mitigation plans as it relates to potential terrorists I know that there's still a pretty dynamic situation right now and a lot of uncertainty, but how much flexibility do you think you have to offset with pricing.

Speaker Change: So supply chain enhancements to drive better productivity, if tariffs were to take hold thank you.

Speaker Change: Thank you for the question Green when it comes to marketing evolution throughout the year, both on the gross margin and the operating margin level is.

Speaker Change: It will be a follow a little bit off the top line trajectory given the leverage that we're seeing the investment levels that we're seeing the pricing that I talked about.

Speaker Change: So it will be more muted. The awards are the first half of the year, particularly in Q1, and we will see an acceleration towards the.

Speaker Change: In the second quarter, and particularly the third quarter.

Speaker Change: Remember, we talked about the normal cadence that our gross margin are as follows.

Speaker Change: Usually the second quarter is the highest one that we will see some investments so we'd probably see a little bit of a shift more towards the third quarter and normally the fourth quarter has a the associated AR.

Speaker Change: Costs related to plant maintenance et cetera. So it will follow that trajectory net net are we see a more muted Q1 accelerating towards the second quarter third quarter, as well and then and going to the normal levels. In Q4. So that's the cadence of our gross margin and operating margin.

Speaker Change: And when it comes to tariffs of course that yeah. We're following closely we established a a a a team that's dedicated end to end to tracking.

Speaker Change: The impact to the Oh, if these tariffs.

Speaker Change: And we have very very good.

Speaker Change: Plants that were ready to trigger.

Speaker Change: And our exposure is mostly between at this point between the U S and Canada, that's what that's where the majority of the cross border trade happens, we do see we do have imports from China into the U S very little from from Mexico, and small parts from China.

Speaker Change: And we have a variety of levers that we're pulling them and those include of course alternate sourcing we are considering a potential pricing actions, but we are not triggering at this point given the fluidity, we already we have the playbook ready and we will be ready.

Speaker Change: To take actions in the short term and also in the long term the guidance that we have does not include any impact of of any tariffs and that's something that we will be Oh of course are working closely with our customers to ensure that we continue to provide our consumers.

Speaker Change: With the right value equation.

Speaker Change: But we are ready when whenever it comes.

Speaker Change: Our playbook is ready to be activated.

Speaker Change: Thank you. Our next question comes from the line of Nik Modi with RBC capital markets. Please proceed with your question.

Nik Modi: Yeah. Thank you and good morning, everyone.

Nik Modi: People Paul I was wondering if you could remind us on how the incentives our incentive compensation works, particularly for the regional managers and I'm asking this in the context of are they compensated or the targets post FX just given the movement of the dollar versus the rest of the world.

Nik Modi: And sometimes there's a tendency for both the pull back on spending to hit.

Nik Modi: In a post FX numbers and so I just wanted to get some clarity around that and if you had any thoughts around mitigating that risk and if that is in fact, how you compensate.

Speaker Change: So Nick they are metrics that we have for everyone in the company and by the way we have a.

Nik Modi: And approach to one can do.

Nik Modi: It includes it's all in so we have.

Nik Modi: The leavers are to be able to offset as much as possible forex impacts.

Nik Modi: And we do not give any dispensation to any teams head regarding forex. Our plans are on a on a I sometimes they are reflective externally in line with our guidance, we talked about organic sales.

Nik Modi: And we also talked about a R E P S and on a constant currency basis.

Nik Modi: But we have we're talking both an important thing that I wanted to mention is that.

Nik Modi: We do have hedging programs are and we.

Nik Modi: Have those for the purpose of our predictability and we employ them it very rigorously and the last thing that I wanted to mention is that in 2025, we have already factored in the headwinds that yeah.

Nik Modi: Referred to so mid single digits, a headwind seen in in EPS and that's how we compensate compensate our teams.

Nik Modi: So it's a it's a holistic approach it's one team approach.

Nik Modi: We are not going to take the foot off the pedal.

Nik Modi: When it comes to investment in our brands remember, we talked about in 2024 that we would be investing four.

Nik Modi: $400 million more in advertising and that's exactly what we did.

Nik Modi: We will make all the tradeoffs, but the majority of the airports will be towards more taking complexity on on rewarded the complexity and Oh, Oh, they're non value added costs off of out of our P&L to be able to protect our T. Our investments despite.

Nik Modi: Potential swings in currency remember, it's organic it's one team.

Nik Modi: That's how we evaluate our teams.

Speaker Change: Thank you. Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Lauren Lieberman: Great. Thanks, so much and so sneaking in a clarification and then a real question clarification was just in the prepared remarks I thought you said that skin health and beauty was up mid singles in the U S, which if that's the case in EMEA and Latin America were up double digits in volume I just wanted to understand them.

Speaker Change: The total result of two 2.5%.

Speaker Change: The more interesting question and the go to market in Asia, and you called out in particular, our central health, but I was curious what the route to market is.

Speaker Change: The other categories. There and then also just you know there's a range of what it means to use distributors.

Speaker Change: In China right, there's the we put stuff on it.

And it's like very hands off which I don't think that's what you do and because I know you have significant local operations and the other side is it just.

Speaker Change: Let you know getting the product from point a to point B. So I was just curious to understand where you fall currently on that continuum and with the changes you're looking to make what it will look like after the fact and if there is sort of investment you need to make in local capabilities staffing and so on to you know to complete that contemplate that journey. Thanks.

Lauren Lieberman: Yeah. Thank you Laura and so very quickly on your first question, you're absolutely right. The U S grew mid single digits in skin had some beauty in the fourth quarter in EMEA and Latam grew.

Speaker Change: Grew very strongly double digit.

Speaker Change: We are very pleased with the performance in all segments in Indiana and.

Speaker Change: And we are encouraged to see these these improvements in our in the U S regarding.

Speaker Change: Regarding your question about the route to market.

Speaker Change: In China.

Speaker Change: So we.

Speaker Change: Remember the majority of our business in China easing.

Speaker Change: Care and call. This part of the business. We have one dedicated go to market with distributors, who are specialized in serving hospitals and pharmacies across the country.

Speaker Change: The non regulated if you will of the portfolio.

Speaker Change: Essentially the house and scheme house, we use different types of distributors.

Speaker Change: We serve directly what we call tier one distributors.

Speaker Change: Well more at the provincial level and these distributors sell themselves to lower tier distributors wholesalers, whose says.

Speaker Change: Supermarkets grocery stores.

Speaker Change: Aimed at different tiers of cities and villages in in China. So that's how it works.

Speaker Change: What we are doing about it.

Speaker Change: As we speak is two things one.

Speaker Change: But replacing the distributors, who are clearly facing difficulties in the current environment in China, which as we all know AR continues to see a consumer that is cautious about.

Speaker Change: About consuming.

Speaker Change: Products and and are facing liquidity issues just civil thing that we are fixing is where we are.

Speaker Change: <unk> relied too much on these lower tier distributors to activate all brands. We are deploying our teams to reclaim responsibility falls in negotiation with these key local retailers of all brand activation teams that will give us two benefits.

Speaker Change: One.

Speaker Change: Home, though of the activation of all brands in these low with tears in the country and two more visibility.

Speaker Change: On the quality of the execution in our in these lower tier customers.

Speaker Change: Thank you our last question will come from the line of Steve powers with Deutsche Bank. Please proceed with your question.

Steve Powers: Thank you very much and good morning.

Maybe just to close the loop on Laurence prior clarification question, if they if the U S and EMEA and Latin America were all sort of comfortably above the segment average.

Steve Powers: It's a pretty pretty weak Asia Pacific results I mean, you can just add.

Steve Powers: Amplify or clarify a little bit.

Steve Powers: But on that but my real question was on especially on cash flow.

Steve Powers: And just your expectations of cash relative to the dollar $14 17, or an EPS that you called if my math is right.

Steve Powers: Fiscal 'twenty for conversion of cash kind of came in around 60%, you've obviously previously framed the evergreen target of 100% plus so just with the TSA exits winding down how much progress do you think you'll be able to make against that 100 plus percent target in 'twenty five and then more broadly when do we think we can get back to.

Cheating that long term run rate on a on a more consistent basis. Thank you.

Steve Powers: Yep, So very quickly on your first question, you're absolutely right Steve.

Steve Powers: The quarter was not a positive for Asia Pacific for the reason I I mentioned in the.

Steve Powers: In Inc. In China, Paul do you want to take the one on free cash flow yeah happy to.

Speaker Change: So just to set the stage a free cash flow in 2023 was a $2 7 billion free cash flow in 2024 was $1 3 billion.

Speaker Change: We think about what happened to between 23 and 24, it's about half and half. The first half is a separation related items. For example in 2023, we had a partial year of interest how partially a company costs I'm, the only one where operational elements.

Speaker Change: In 'twenty 'twenty four we had a particular year and where we didn't have in the numbers number of working days at the end of the year. So from an ADR perspective, we had a headwind and remember we're also investing in our view forward.

Speaker Change: Investing to exit the TSA, so we're very thoughtful and prudent about how we're investing in our in our in our business for long term success. So that explains the 'twenty to 'twenty three to 'twenty to 'twenty, four so half and half.

Speaker Change: Do you think about going forward.

Speaker Change: We are expecting to get closer to.

Speaker Change: Two the cash conversion that I talked about but we will not get there in 2025, we will continue to invest in or before what we still are investing in TSA, particularly a TSA exits, particularly in our I T.

Speaker Change: Which requires investment in a S. A P on other platforms and it will give us an opportunity to become much more agile. So those are the right investments that we're doing and we also talked about the fact that we're moving to a southern headquarters he will drive the right energy the right collaborations.

Speaker Change: Within our team so with those investments behind us, we see very clear line of sight to getting to that 90% to 100% cash conversion.

Speaker Change: But just you know the separation and the investments that we're going through to set ourselves up for four of our clear success.

Speaker Change: Maybe require investment temporarily.

Speaker Change: And then we will have a very strong cash conversion as we traditionally do.

Speaker Change: We have very also clear building blocks to be able to get there from a cash conversion cash conversion cycle perspective, how do we become a yeah, a fully fully independent company and operate.

In a consumer environment with the right payables with the right inventories were the right here receivables and because we have the building blocks to get there. So overall our line of sight to that cash conversion. After a period of investment which is the right thing to do.

Speaker Change: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to T bone longhorn for concluding comments.

Speaker Change: So thank you all for joining US today, we hope that these calls gave you some color on our outlook for 2025 and as I said earlier, we enter 2025 very confident in our ability to deliver on our outlook.

Speaker Change: With the compounding impact of the transformation, we let in 2024 and that is the strength of the plans we have for 2025, so we thought.

Speaker Change: Thank you for joining us today.

Speaker Change: We'll talk soon.

Speaker Change: Thank you. This concludes today's conference. Thank you for your participation have a wonderful day you may now disconnect your lines at this time.