Q1 2025 Kenvue Inc Earnings Call
Speaker Change: Hello and welcome to the Kenvue First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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 1 on your telephone keypad.
Speaker Change: Good morning everyone and welcome to Kenvue's first quarter 2025 earnings conference call. I'm pleased to be joined today by Thibaut Mongon, Chief Executive Officer and Paul Ruh, Chief Financial Officer.
Speaker Change: Before we get started, I'd like to remind you that today's call includes forward-looking statements regarding among other things are operating in 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: For information regarding these risks and uncertainties, please refer to our earnings material related to this call posted on our website and our filings with the SAC.
Speaker Change: Ves non-GAAP financial Measures should be viewed in conjunction with the most directly comparable US GAAP financial Measures and are not presented as substitutes for or superior to those most directly comparable US GAAP financial Measures.
Speaker Change: Those most directly comparable US GAAP financial measures and a reconciliation of our non-GAAP items to their respective nearest US GAAP measures .
Speaker Change: Can be found in this morning's earnings press release and our presentation available on our IR page of Kenvue's website, investors.kenvue.com. With that, I'll turn it over to Thibaut.
Thibaut Mongon: Thank you Sofya, good morning everyone and thank you for joining the call. Alongside our first caller earnings report today, you will have seen that we have also announced plans for a CFO transition and I will speak more about that shortly.
Thibaut Mongon: To begin with our results, we entered 2025 with clear and deliberate plans to accelerate profitable growth over the course of the year.
Thibaut Mongon: We have an enviable portfolio of leading and resilient consumer health brands where efficacy and trust matter to consumers.
In Q1, our team demonstrated strong execution of our plans.
Thibaut Mongon: As such, we are maintaining our organic sales growth outlook for the year and we are updating our adjusted operating margin and adjusted diluted EPS outlook to reflect the estimated impact of incremental cost associated with current tariffs and of current foreign exchange rates. [inaudible]
Azonti Sipelid,
Thibaut Mongon: Following a first half, where we continue to expect underlying health of the business to be masked by well-identified factors, we expect to accelerate our top-line performance in the back half of the year as we realize the compounding benefits from the structural changes and investments we have implemented across the business.
Thibaut Mongon: While staying agile and flexible amidst dynamic market conditions, we continue to advance
Thibaut Mongon: First, our new operating model is now fully activated. Our brands are benefiting from more innovation and impactful marketing activation campaigns supported by more competitive level of investments.
Speaker Change: As discussed at Cagney, we are increasingly leveraging what we call our Kenvue's five extraordinary powers to unleash the full potential of our brands.
Thibaut Mongon: Loveraging of superior science, launching insights led innovation, increasing our presence with ESCA professionals, activating breakthrough marketing campaigns and driving seamless commerce.
Speaker Change: Second, we are continuing to optimize our constructors through operational efficiencies [inaudible]
Speaker Change: In April , we reached a major operational milestone, completing our Transition Services Agreement program, finalizing the exit of more than 2,300 TSAs, Asperr Plan and without any disruption to our business.
Speaker Change: We are starting to see the benefits from our most streamlined and efficient systems and processes that are fit for purpose for Kenvue.
Speaker Change: Third, we are strengthening our performance culture with new weather working, new reward systems and a new milestone In March, we moved into our new global headquarters in Summit, New Jersey where we consolidated seven US locations under one roof for the first time in our history, unlocking greater internal and external collaboration and speed.
Speaker Change: So now let me provide more context on our first quarter results
Speaker Change: Organic Sales Decline 1.2% versus Q1 last year, which was consistent with a fuller outlook.
Speaker Change: As anticipated, this included a 3-4% headwind from the combined impact of destocking, mostly in China, and the strategic investment we are making in price and trade spend in the US to improve the competitiveness of our brands.
As we have discussed,
Speaker Change: The destocking in China is driven by both the lingering impact of the weak pediatric pain and fever season and actions we are taking to improve distributor execution. We are on track with our plans to strengthen and streamline our distributor network and expect to have these two factors behind us by the end of Q2.
Speaker Change: Globally, we are activating of 5 extraordinary powers, driving stronger consumption performance for the company in Q1 relative to Q4. In fact, consumption for the Q4 outpaced organic sales growth across each of our three segments.
In self-care, we delivered organic sales growth of 0.3%.
Speaker Change: Gross was brought based across our allergy, digestive health and smoking cessation franchises and more than offset a decline in the cough call and flu category.
on Self-Care Brands of Strunger and Performing Better Than Ever
Speaker Change: with nearly 80% of the business expanding or maintaining market share. We further enhance our leadership positions around the world this quarter.
Speaker Change: As it relates to cough, cold and flu, both consumption and replenishment in the US exceeded our expectations due to higher than anticipated incidences, helping mitigate the impact of a very subdued season in EMEA in Asia-Pacific.
were consumptions and destocking were worse than anticipated.
Speaker Change: Importantly, our teams capitalize on the seasonal spike in the US and strengthen Tylenol's number one position, gaining share for the 11th straight quarter and widening the gap further with competition.
Speaker Change: We rolled out successful innovation and drove consumer engagement with our greatness Herz football themed campaign. And once again, Tylenol was the only brand in the category gaining value and volume share in Q1, increasing household penetration and expanding points of distribution.
Speaker Change: In allergy, with strengthened Kenvue's leadership in the category, with their tech growing both value and volume shares is quarter, also widening the gap relative to our competition.
Speaker Change: Similar to what I just described for Thalino, our teams delivered an increase in household penetration and indistribution behind the excellent execution of a packaging refresh that leverage consumer insight and the strategic implementation of value pricing on some codes.
Speaker Change: While a prolonged winter shifted the start of the season this year, we are well positioned to continue to win with consumers.
Speaker Change: In skin health and beauty, organic cells decline 4.8% amidst a disselerating category backdrop largely due to three reasons.
Speaker Change: The impact from this stocking in China, the soft-senses in Latin America, and our planned strategic price investment in the US, along with a lot of rotations in the club channel this quarter.
Speaker Change: Our EMEA region remained an area of strength, with organic cells growing year-over-year for the 12th consecutive quarter, largely driven by double digit growth in our Avino brand.
Speaker Change: with excellent performance in the UK and a successful rollout of the brand across new doors in Central Europe as well as continued momentum in OGX.
Speaker Change: Similar to what we discussed for self-care, consumption outpaced organic sales as expected.
Speaker Change: In the US, we have driven sequential consumption improvement in Q1 versus Q4 as a result of our breakthrough brand building campaigns paired with expert recommendation and relevant value equation.
Speaker Change: In April , we drove positive consumption for our priority platforms of Neutrogena, Fescare, Avino Body Care and OGX Hair Care, which represent together the majority of our U.S. business.
Speaker Change: And the investment we made on several Neutrogena and Avino lines to ensure our pricing was in line with consumer psychological thresholds, are starting to pay dividends in sell-out, with double digit volume growth for a number of important offerings in face and body care.
Speaker Change: In particular, looking at our biggest brand, Neutrogena, we launched our new beauty to a science brand positioning in February. We supported it with a 360-degree media campaign featuring artist and Gen Z influencer Tate McRae and world-renowned dermatologist Dr. Shah.
Speaker Change: The buzz across social media behind this campaign has been terrific, with over 8 billion earned media impressions so far, and it is enabling Neutrogena to reach a new, younger audience in a highly relevant and authentic manner.
Speaker Change: In fact, Neutrogena's household penetration with Gen Z consumers grew 30 basis points, a critical demographic driving about half of the growth in the skincare category.
Speaker Change: And all of this has been showing up in market share with Neutrogena phase, maintaining its number one share position in America in both value and volume for the second quarter in a row.
Speaker Change: So while we expect global organic sales of skin health and beauty to continue to contract in the near term due to the remaining impact from destocking in Asia, strategic price investment in the US, and what has been so far slow start to the Sun season, we are encouraged by the improvement in the underlying health of our brands.
Speaker Change: With a recent momentum in consumption growth and a strong slate of innovation we are activating in the back half, we remain laser focused on returning the segment to growth this year.
Speaker Change: Finally, in essential health, Cuban organic cells were flat in the context of global category dissederation, as growth in wound care was offset by declines in women's health and oral care.
Speaker Change: While we did see positive global consumption, organic cells were negatively affected by competitive pressures in certain geographies which we are addressing and destocking in Asia.
Speaker Change: We continue to do well with our premium offerings, two examples from the U.S. market in Mauswash, our most premium platform, Lissering Total Care and Lissering Clinical Solutions, grew double digits in Q1. And Lissering is now the fastest growing brand in dollars and in units on Amazon.
Speaker Change: And in Baby, Adino grew double digit in Q1, growing four times faster than competition, and is the fastest growing brand in the category.
Speaker Change: Moving forward, while we are seeing a dissederation in the categories, we are activating a two-pronged approach designed to ensure that we capture consumers across the price spectrum.
Speaker Change: On one hand, we continue to drive premium innovation to gain distribution and increase household penetration.
Speaker Change: In Q2, just to name a few examples, we are rolling out least ever in clinical solutions outside the US, while launching a new variant targeted at sensitivity in the US.
Speaker Change: We are also expanding the bandaid brand and Avino Kids Ranges.
with Bandit Waterproof and Avino Kids for Corley Air. [inaudible]
Speaker Change: Now, before I turn it over to Paul, I want to share more on our CFO transition. First, I want to thank Paul for his leadership and many valuable contributions to Kenvue as we establish the company as a standalone business through the separation and the IPO. I want to thank Paul for his leadership and for his leadership and for his leadership and for his leadership and for his leadership. [inaudible]
Speaker Change: With much of the work to establish Kenvue as an independent company completed, and of strengths and commercial and operational foundations now in place, now is the right time for this transition.
Speaker Change: We are pleased to share that Amit Banetti will join us on May 12 as our new Chief Financial Officer.
Speaker Change: Amit is a world-class executive with 30 years of experience at global consumer product companies and a proven track record in both financial and operational roles. So we look forward to his contributions as Kenvue moves into his next chapter. And now I will turn it over to Paul.
Thank you, Thibaut, and good morning everyone.
Paul Ruh: I appreciate the kind words as Kenvue transitions to its next TFO and thank the rest of the leadership team and all of you are talented Kenvueers. There are many accomplishments to be proud of as we established Kenvue as a standalone company positioning the organization for accelerated growth.
Paul Ruh: I look forward to working with Thibaut, Amit and the rest of the team to ensure a smooth transition and I will be cheering Kenvue on in his next chapter.
Now I will go over the company's first quarter results.
Paul Ruh: In Q1, organic sales declined 1.2% versus Q1 last year, as the team executed on our plans against an increasingly dynamic external backdrop.
Paul Ruh: As anticipated, both value-relication and volumes were unfavorable in the quarter, declining 0.3 and 0.9% respectively.
Paul Ruh: As we indicated on our Q4 call, Anat Kagni, we implemented strategic price investments and install activations in the US, which weighed on value-relication and more than offset the contribution from select price increases outside the US.
Paul Ruh: While we have action these strategic investments across our segments, during the quarter the impact was most pronounced in skin health and beauty.
Thibaut Mongon: We have been very deliberate with our approach targeting specific categories and skews to enhance our brand competitiveness and as Thibaut mentioned, we are seeing improvement in consumption as a result of these actions, which is very encouraging.
Thibaut Mongon: As we look at our segment performance, in self-care, valid realization drove 0.3% growth in organic cells, as volumes were flat.
Thibaut Mongon: In Asia Pacific, the pediatric business was softer than we anticipated, which means it will take a little bit longer to fully digest elevated trade inventories.
Interest of Consumption,
Thibaut Mongon: We keep driving stronger gains across the portfolio, a testament to the strength of our brands and the quality of the execution of a strategy. In skin health and beauty, organic health declined 4.8% as volumes and value realization were down 2.9 and 1.9% year-to-year respectively.
Thibaut Mongon: These results reflect our targeted and focus approach to investment within the skin health portfolio, a loss of rotations in the club channel this quarter, and the continued impact of this talking.
Thibaut Mongon: and known distribution network adjustments in China. At the same time, the category was softer than anticipated, particularly in the U.S., as well as in Sun, which resulted in weaker volumes in the
Thibaut Mongon: As anticipated, we expect Q2 to remain pressured for similar reasons with stronger performance in the back half of the year, as we lap the first half trainers and continue to execute on our powerful commercial plans.
Thibaut Mongon: We saw category deceleration as well as this talking in Asia-Pacific, weighing on performance in the quarter and expect the latter to be largely behind us by the end of Q2.
Thibaut Mongon: Switching gears to Adjusted Gross Margin, which came in at a good level of 60%, although down 20 basis points versus last year.
Thibaut Mongon: Our supply chain teams continue to successfully execute our productivity initiatives but volume the leverage on favorable currency and inflationary headwinds as well as the price investments that we're making more than offset those benefits.
Thibaut Mongon: As anticipated, adjusted operating margin contracted 220 basis points versus last year to 19.8 percent.
Thibaut Mongon: This was entirely driven by the increased support behind our brands we initiated last year.
Thibaut Mongon: As a reminder, we started to reflect the significant step of an investment in Q2 last year, so the base period comparison is lower in Q1 relative to the rest of the year.
Thibaut Mongon: Importantly, we continue to take out infrastructure costs and reduced S&A spend, executing brand investments and we are pacing well towards realizing the 350 million in gross analyzed savings of our view forward initiative by 2026.
Thibaut Mongon: This resulted in adjusting an income of $465 million, and adjusted diluted EPS of 24 cents, including about a two-cent headwind from currency.
Thibaut Mongon: Now let me turn it back to Thibaut for our outlook [inaudible]
Thank you, Paul. Let me turn now to our outlook.
Thibaut Mongon: As you have heard from other companies over the past several weeks, from a macro perspective, 2025 is shaping up to be a dynamic year.
Thibaut Mongon: Despite this backdrop, and with our first quarter results consistent with our full year expectations, we are not changing our organic sales growth outlook for 2025, which remains in the 2-4% range.
We continue to anticipate a muted first half.
Thibaut Mongon: followed by growth acceleration in the back half behind strong commercial activation, launch of superior innovation, increased contribution from revenue growth management, and the lapping of headwinds that are weighing on the first half, specifically stepped up trade and price investments, and disruptions in trade inventory.
Thibaut Mongon: As a reminder, we didn't anticipate at the beginning of the year that the categories and markets where we compete would deserate towards a 2-3% range in 2025, we see control deserration relative to prior years driven by the absence of price.
Thibaut Mongon: This continues to be our base case scenario at this time. We will continue to closely monitor actual category dynamics whether linked to seasonal incidents or macroeconomic factors.
Thibaut Mongon: For example, in the short term, from a seasonal incidence point of view, the prolonged winter in the US has pushed allergy and sent seasons out leading to a soft start to the season for both categories.
Thibaut Mongon: And from a macro point of view, we have seen some retailers tightening older management in April in the US.
Thibaut Mongon: So these two factors may shift volumes from one quarter to the next
Thibaut Mongon: and requires us to remain agile. So we are proactively taking additional actions to address this fluid environment, such as ensuring we have sufficient offerings across both ends of the pricing spectrum and reframing our communication to highlight the value our brands bring to consumers.
Thibaut Mongon: Regarding effects, since February , the dollar has depreciated and based on current rates, we are assuming approximately 1% drag on top line from currency which is better than the approximately 3% impact we assume previously.
Thibaut Mongon: As it relates to our adjusted operating margin and adjusted diluted EPS,
Thibaut Mongon: We continue to expect margins to expand in the back half of the year, albeit at lower levels than we previously thought, due to the impact of tariffs on costs.
Thibaut Mongon: Regarding tariffs, the outlook we provided in early February accounted for the tariffs that were in effect at that time.
Thibaut Mongon: Since then, the situation has evolved considerably and remains quite fluid.
Thibaut Mongon: Based on what we currently know, we estimate the gross impact of tariffs that has been implemented by the US as of May 7, as well as the retaliatory measures implemented to date by other countries.
Thibaut Mongon: will be nearly $150 million for 2025. Even though our current infrastructure is set up so that most of the manufacturing happens close to our end markets, there are some finished goods and raw materials that move across borders.
Thibaut Mongon: We are implementing a number of actions to help mitigate the impact of tariffs, including accelerating our productivity initiatives, activating alternate sourcing, optimizing our supply chain and leveraging revenue growth management.
Thibaut Mongon: But even with these mitigation actions, we will face higher than previously anticipated costs for imported products and components, and we will not be able to absorb the full impact this calendar year.
Thibaut Mongon: Importantly, we are determined to preserve the long-term health of our brands and will work with our retail partners to find the best way to minimize the impact for our consumers.
Thibaut Mongon: Given this backdrop and our ongoing commitment to invest in our brands, we now expect adjusted operating margin to contract slightly for the full year.
Thibaut Mongon: Please note, we have not changed any of our below-the-line assumptions [inaudible]
Thibaut Mongon: Taking this all together, we now expect adjusted diluted EPS for 2025 to be about flat versus last year.
Thibaut Mongon: This forecast assumes that currency is a low single digit headwind to EPS, with adjusted diluted EPS up low single digit on a constant currency basis.
Thibaut Mongon: So, in closing, we are focused on executing our strategy to accelerate profitable growth while ensuring that we remain agile and nimble to strengthen our competitive positions as we navigate through this dynamic and evolving environment.
Thibaut Mongon: All of this is made possible by all can-viewers around the world. Our teams are getting stronger every day and I would like to thank all can-viewers for their continued commitment to unlock our full potential and drive long-term shareholder value creation.
and now we will open the call for questions.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. In the interest of time, we ask that you limit yourself to one question to allow for as many questions as possible.
Speaker Change: If you have a question, please press star one on your telephone keypad. To withdraw your question, simply press star two. For participants using speaker, equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please for your first question.
Speaker Change: Our first question comes from the line of Bonnie Herzog with Goldman Sachs, please proceed with your question.
All right, thank you. Good morning, everyone.
Bonnie Herzog: Um, I guess I wanted to to drill down a little bit on- [inaudible]
Bonnie Herzog: You know, some of the the innovation plans that you have for the year and spending just given the the environment and the macro just curious to hear how
Bonnie Herzog: You know, maybe your innovations, you know, the innovation plans have evolved, if at all, especially given, you know, some of the slowdown we're seeing and the consumer pressures. I guess I'm asking in terms of timing of launches, you know, and or merchandising support.
Thibaut Mongon: Yeah, good morning, Bonnie. Thank you for your question indeed. We have a strong plan for innovation and broad activation.
Thibaut Mongon: throughout 2025 with an expected acceleration in the back half of the year.
We believe that in times like that, or brands.
Thibaut Mongon: are well positioned to really respond to what consumers are looking for, consumers are looking for efficacy.
They are looking for trust.
Thibaut Mongon: And that's why we are tweaking our plans to make sure that we are present where shoppers are and offer the right value equation.
Unknown Speaker 00.26.08 Transcription by CastingWords Transcription by CastingWords
Thibaut Mongon: We did plan the year with investments in price and trade in the U.S.
Thibaut Mongon: That way on our results in the short term, that that helpful in an environment like this to make sure that you have the right price equation and you heard in my prepared remark.
Thibaut Mongon: The impact we start seeing on consumption, moving in the right direction. So are we planning to change or plan significantly given the external environment? The answer is
Brodly No
We continue to believe that innovation. [inaudible]
and Giving Reasons
Unknown Executive, Sofya Tsinis, Paul Ruh
present in store, visible, and offers a value equation.
Now we are augmenting [inaudible]
Thibaut Mongon: on a number of fronts. On one hand, we are making sure that we have the right entry price points and rise price back architecture.
Thibaut Mongon: to make sure that we respond to the different needs of different consumers.
Thibaut Mongon: If you are looking for low cash outlay pack, we will have that if you are more looking for
Thibaut Mongon: We offer the right value equations. We also make sure that we are present in the channels.
where shoppers are...
Thibaut Mongon: As you know, we are present in Omni channels, but we make sure that we continue to be where we are consumers of.
Speaker Change: Thank you. Our next question comes from the line of Peter Grom with UBS. Please proceed with your question.
Thanks, operators. Good morning, everyone. Hope you're doing well.
Speaker Change: I wanted to ask you some kind of the phasing of organic growth, maybe specifically on the second quarter. It sounds like a week or start to the allergy season, you mentioned some de-stopping in the US and April , as well as in China, continued price investment. So, is there any way to frame an expectation for second quarter organic growth versus what we just saw in the first quarter? And then I guess just related, you know, totally understanding about, you know, some of the headwinds are going to reverse.
Speaker Change: in the back half of the year. But can you just talk about the degree of confidence and the embedded improvement in the back half, just given the uncertain backdrop? Thanks.
Unknown Speaker 05.
Speaker Change: Great Peter, good morning, good to see you. So, your first question on organic growth in the second quarter.
Speaker Change: Even what we see in the environment. As you know, we do not guide by quarters. Our plans still assume muted first half followed by an acceleration in the second half.
what has not changed. [inaudible]
Speaker Change: for Q2 and the very short term is that our organic sales growth will continue to be burdened by the headwinds from destocking in Asia and the impact of the strategic price investments we are making in the U.S.
That works in the plan that has not changed.
Speaker Change: To your point, what we are monitoring right now, because it could have an impact in terms of shifting revenue from one quarter to the next.
He's Susan and Mackerel.
Speaker Change: On the season side, we have experienced a prolonged winter and cough-cold influenza incidences in the US.
Speaker Change: So that has been positive for Tallinn or Brown, for example, in Q1, but the side effect of that, it has that spushed
Speaker Change: spring out a bit and so what we see is the allergy and sun season have been pushed out and we see a slow start at the beginning of the second quarter for the season.
Speaker Change: But much as you know, much of the season remains in front of us, these things can change quickly as you have seen in the past year and past quarters, so it's way too early to call on the season.
Speaker Change: From a macro point of view on consumer confidence, we see some deseration in some categories and geographies, but then that's the beauty of our consumer health categories, people are not leaving our categories.
Speaker Change: In some spaces they are spending less than their trip and so we need to see how these things continue to evolve.
Speaker Change: What matters for us is regardless of the external environment, how do we remain laser focused on increasing household penetration and we have
Speaker Change: The lot of opportunities there and gaining share as we activate our brands and that's why we are encouraged by the momentum we saw in consumption and share across some of our categories and geographies. I talked about self-care, I talked about part of skin health in the US. [inaudible]
of Skin Health in Europe . That's what we are pushing forward.
Speaker Change: Your second question on our confidence in the outlook for the back half.
Speaker Change: as we lap a higher-based period comparison, but also the destocking in Asia, where we are on track to put that behind us by the end of Q2.
Speaker Change: What gives us confidence that we will accelerate growth in the second half?
Speaker Change: is the strength of our commercial plan. We have more innovation.
Speaker Change: We see that our investment in breakthrough marketing campaigns is paying back consumers are responding with an increase in household penetration.
Speaker Change: and have exciting plans in this regard for the back half. And we also start realizing benefits of enhanced RGM capabilities.
Speaker Change: And if you look at the full year 2025, we expect pricing to be a net positive.
Speaker Change: And overall, we see that our teams are executing at a higher level through 2020-5. So that makes us very confident in the backhouse.
Speaker Change: Now, as I said, what could impact the second half of the performance is if the underlying demand for categories is lower than anticipated?
Speaker Change: We should have an impact on the sales lift from our brand activations. So that's where we'll need to continue to be agile and make sure that we augment our plans where necessary. But today, we don't see our categories going below the two to three percent that we anticipated. We'll be right back.
Speaker Change: for the year. But you know, these are very fluid environment and we'll see how things play out for both seasons and macro regardless, Kenvue is here to play to win.
Speaker Change: Thank you. Our next question comes from the line of Andrea Teixeira with JP Morgan. Please proceed with your question.
Seeing us a lot of at least in the cell in.
Speaker Change: Success and how you're going to be tracking and how can disaster-stracted in more details. Thank you.
Speaker Change: Totally understand that we have more work to do. Having said that we are really encouraged to see the flywheel starting to turn in the right direction with given all the actions we have taken to drive consumption.
in Positive Territory,
Speaker Change: And so, we are very happy to see that in the most recent period, we see that happening on the in the areas of the business in the US where we have focused attention, namely, having, having a body care, a nitrogen, a phase care and OGX hair care.
Speaker Change: that together represent the majority of our business, of skin health and beauty business in the US.
So,
Speaker Change: What we have said all along is that this year's consumption will come ahead of revenue, of organic sales growth, in that what you see playing out.
Speaker Change: in the first quarter with consumption outpacing organic sales growth. So we continue, we expect to continue to see that playing out.
in the first half of the year.
Speaker Change: Thank you. Our next question comes from the line of Anna Lizzul with Bank of America. Please proceed with your question.
Anna Lazole: Hi, good morning and thank you so much for the question.
Speaker Change: I had a follow-up to Bonnie's question earlier on, can help in beauty, just with the significant promotional activity you're doing in these categories. How are you expecting to balance this with marketing investment as we're moving through the year?
Presenter Very short video.
Speaker Change: So, good morning, Anna, thank you for the question. On the investment for the balance of the year, we continue to plan to invest more this year than last year, behind our brands.
Speaker Change: that's across the portfolio, and that is the case for skin health and beauty. We are going to continue to do that in a responsible way, with Kinai to ROI, as we always do.
Speaker Change: But we have a lot of space to go after with our brands and as long as we see the right return investment whether it's on media ROI.
Speaker Change: We will continue to invest. Again, we are very encouraged to see consumptions moving into positive territories for our priority platforms and we expect to continue to do that.
Moving forward. What?
Mrs. Mask in the first half.
Speaker Change: by the investment we are making in price and trade investment.
Speaker Change: in the US and overall with our marketing investment, but over time we expect our margin to improve as consumption increases, we gain volume leverage and at the first half at wins dissipate.
Speaker Change: Thank you. Our next question comes from the line of Keith Davis with Jeffries. Please proceed with your questions.
Hi, thanks for the question. Good morning.
Keith Davis: Just wanted to drill down, I guess, on the price and trade investments you guys are making most notably in skin health and beauty. It looks like the consumers responding. I guess from your perspective.
Speaker Change: It'd be good to know, are you largely, do you feel like you're largely catching up?
Speaker Change: to where competitors are in terms of the kind of the price, different price offerings, how you expect them to respond.
and then maybe just broader the consumption uplift in April . Hello.
Speaker Change: Yes, so on skin health and beauty you write, we see consumers increasingly responding to our investment and effort.
Speaker Change: The community impact of our actions is starting to play out and that what makes us confident for not only the balance of the year but the future of these brands.
Speaker Change: We see, as I said, what we are particularly excited about is to see the increase in outdoor penetration.
Speaker Change: with Genzy Consumers, which is a demographic where we were lagging or competitors and seeing this group of consumers who, as you know, represent a big part.
of consumption in skincare categories.
Celecht Dintrugina, their brand, is extremely encouraging.
Unknown Executive, Sofya Tsinis, Paul Ruh
Speaker Change: It's clear for everybody that when I talk about investment in having the right price point, it's not necessarily being the cheapest.
We are not the cheapest in the categories.
Speaker Change: that we want to make sure that we hit the right.
Speaker Change: Unknown Speaker 1-1-1 Transcription by CastingWords Transcription by CastingWords We hope you enjoyed this video. If you did, please leave a comment below. If you would like to see more, please subscribe to our channel. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Nick Modi with RBC capital markets. Please proceed with your question.
Yeah, thank you. Good morning, everyone.
Nick Modi: Tibo, I just wanted to get your thoughts on, you know, supply chain.
Nick Modi: A lot of reports on shipments from China to the US are down significantly more recently and it might continue just given some retailers and even some manufacturers aren't taking some of the inventory under their own P&L and keeping it over in China. And so I guess I had two questions on that. One is...
Speaker Change: Have you thought about that exposure? Does that create any risk in terms of ingredients coming that could potentially lead to some issues in terms of product shortages? But more importantly, a lot of competitors in the beauty space and the personal care space are produced in China. So I'm just curious.
Speaker Change: If you think this could create an opportunity, actually, and do you have the supply chain agility to deliver on the demand if in fact retailers have some bare shelves? Thanks.
Speaker Change: Nick, that's a great question and it seems like you could be in our offices working with these of teams because that's exactly the way we look at it. On one hand,
We are making sure that...
Speaker Change: We are working very hard as you heard from Paul to mitigate the impact of terrorists as much as we can.
in a fluid environment.
Speaker Change: dual sourcing and adjusting our supply chain is part of it. As you know, China represent a relatively small part of our import into the US, our supply chain is structured to be.
Speaker Change: in Regents for Regents, so we produce very close to where we sell.
Speaker Change: But what it means is that the small part that doesn't fit this model is there for a good reason and so it's not easy to move quickly because if it were we would have done it some time ago.
Speaker Change: So that's why making these adjustments is going to take time. But you are absolutely right, we are also looking at...
Speaker Change: And so that's why you have us really deploy a playbook that we have used in the past.
when it's getting tougher for consumers.
Speaker Change: which is continuing to stay the course on innovation to bring new consumers in our categories that are under-penetrated.
Speaker Change: that are continuing to advertise and invest behind our brands, especially those like ours, who are number one and number two in their categories, but making sure that you are extremely precise in the type of...
Speaker Change: Packaging format you offer and making sure that you are where shoppers are. I would I would
Speaker Change: Add one more point on supply chain resiliency. You know that we have invested quite a lot in the past number of years since COVID in increasing the resiliency of our supply chain, and for times like this.
Speaker Change: Resilience Supply Chain is certainly something that is valued by our retail partners.
Speaker Change: Nick, just one more point to add, in terms of our analyzed exposure to foreign sources.
Channel represents only about 10% [inaudible]
Thibaut Mongon: So that gives you a frame of reference of how much we're talking about. In addition, of course, to the point that Thibaut just made. We have been working hard on making our supply chain more resilient. We do outsourcing, triple sourcing [inaudible]
Thibaut Mongon: So we have created some of the agility to give us the flexibility to capture some of the the outside opportunities that you mentioned.
Speaker Change: Thank you. Our next question comes from the line of Filippo Falorni with City. Please proceed with your question.
Filippo Filorni: Hi, good morning, everyone, and best of luck to Paul and your business chapter. First, I have two questions. One on self-care.
Speaker Change: Maybe, can you talk about like the benefits that you saw from the high incidence in the US, called in flu? I think your expectation was that you were not expecting any replenishment of inventory, but maybe...
Speaker Change: Can you help me understand if you've got one in Q1?
Speaker Change: And then another one on tariffs, the 150 million gross impact that you mentioned, can you help us understand what bucket it's composed of in terms of like what raw materials or finished product it includes? And obviously there's been.
Speaker Change: Sofya, an exemption on pharmaceutical imports, but maybe can you give us a sense of the potential in fact, if they wear some incremental tires on pharmaceutical imports. Thank you.
Speaker Change: Okay, so Filippo, let's, good morning, let me take the first one and then Paul can take the second one on tariff.
Speaker Change: So, on self-care, and specifically the cough call and flu season, overall globally,
The season was...
Speaker Change: I would say about flat, if you think about the combination of Q4 and Q1.
Slightly Down, Vestus, Vestus last year.
So not not a great- [inaudible]
Speaker Change: versus last season, so not a great season, with marked differences by region. So in the US, if you recall, we had a very low season in Q4, followed by an initial peak early February , it went down, then a large peak in in...
So the first pick in January , a second pick in February .
Speaker Change: and what we saw in the month of March is distributors...
Guest Speakers today are
Speaker Change: of Inventory to go through the coming quarters until the next season. In Asia,
Speaker Change: We saw something different with a low level of incidence continuing in the first quarter. As a result of that, if you recall correctly, we were expecting retailers to
Speaker Change: De Plea, their inventory with the expected increase demand during the first quarter that didn't happen to the level and to the extent we expected. So that's going to be somewhat of...
a small headwind in the second quarter.
Speaker Change: because the destocking will continue to happen in the second quarter for them to hit the appropriate level of replenishment. So, overall, they balance each other, but different dynamics between the US and China.
Let me take the Tariq's question.
Speaker Change: So, Filippo, as you said, we have a gross impact of terrorists that are currently in place for about 150 million for 2025. Let me break it down into two dimensions.
Speaker Change: The biggest importer is Canada, Canada into the U.S. And most of that is Finnish goods. And it has been qualified a majority on their current U.S. MCA exemptions, so that nets out to a small proportion of the torrental limb backlash on 10%.
Speaker Change: The other dimension is where does the biggest impact in terms of the tariff come from and that's from China.
Speaker Change: It's only about 10% of our analyzed rates it spends, however it is the largest impact, it's about two thirds of the analyzed impact at the current rate of 145%.
Speaker Change: to give a little bit more color. Two-thirds is finished product about one-third is Roman Keevels.
Speaker Change: and that's what we have embedded into our guidance. In terms of your question on pharmacist's impact that has not gone in effect, we are of course assessing the impact, but at this point we're not ready to provide a number. It's not in effect yet.
Speaker Change: Thank you. Our next question comes from the line of Javier Escalante with Evercore ISI. Please proceed with your question.
Javier Escalante: Hello, good morning, everyone. A high level question from me and new to the name, but...
Javier Escalante: If you could please help me and investors understand why your SGNA is so elevated in terms of percentage of sales if we exclude marketing and R&D for investment.
Javier Escalante: So to what extent scale plays a role in this, given the breadth of your portfolio and its
Javier Escalante: So as you end this TSA with G&J, are you considering restructuring at the regional level to bring down SG&A to levels more commensurate to peers or even open to a more focus?
Prada Porfolio, thank you.
Javier Escalante: The high level question, so we report S-GNA including total S-GNA and advertising expenses, so that all of that is embedded into operating margins.
Javier Escalante: And we do thorough benchmarking in terms of understanding our competitiveness both in terms of how much we invest in our brands and how much we have in terms of the infrastructure costs.
Javier Escalante: As you know, we are investing more in the behind our brands and we have increased last year over the prior year 400 million dollars more.
Javier Escalante: So assertively going after brand investment, and at the same time we're fueling that from efficiencies and that's why we put our view forward program together.
Javier Escalante: The separation from J&J is allowing us to be more flexible nimble and also have a lower cost pace but we needed to separate. On top of that we put a view forward program that makes us more efficient and we are very much on track to deliver the $350 million of savings that we talked about.
Javier Escalante: that should be realized by 2026. It's the program is on track. We are acutely looking at our cost efficiencies to be able to fuel the top line and that's the puts and takes in the piano that you see in DSGNA and reflect in the operating margins.
Speaker Change: Thank you. Our next question comes from the line of Susan Anderson with Kenneth Michael Arjunoti, please proceed with your question.
Speaker Change: Hi, good morning, Alec Legg on for Susan. My question is just on trading down or potentially seeing that. So we've heard from some peers that they were gaining share maybe in private label, but are there any brands or categories that you are seeing pulled up maybe better been expected and then other areas that may be seeing consumers looking for more value options? Thank you. Thank you very much.
Speaker Change: Yeah, thank you for the question. Here, as I said, we see that consumers remain choiceful.
Speaker Change: They are looking for convenience and value, but they are not compromising on their health and the health of their loved ones.
Speaker Change: That's, I would say, constant in our consumer health categories. We have seen that over and over again in expansion times or in recent times consumer behavior in our categories.
Doesn't really change much.
People are looking for trust, value [inaudible]
Speaker Change: Brands that they are familiar with that have been recommended to them by their healthcare professionals that has been part of their medicine cabinet or their household for years, decades, sometimes generations, and that's what Kenvue is all about. So the short answer to your question is no, we don't see...
Downtrade to private level, globally as Kenvue.
Speaker Change: Our exposure to private level is limited on a global basis and with this it's limited universe where we are exposed to private level.
Speaker Change: We don't see down-traded. Actually, if I look at the most recent periods, penetration of private label in our categories is down, overall by another 50 basis points in the last period. Now, it doesn't mean that we are not-
Speaker Change: Taking this very seriously and our teams are working every single day to make sure that we offer the right value proposition whether it's a new format and innovation the right pack and count. Thank you very much.
Speaker Change: Or the right, making sure that we hit the price thresholds that I talked about earlier. So we work very hard every day to make sure that our brands continue to earn consumer confidence and so far that what we continue to see playing out in the marketplace. So let's go to the marketplace.
Speaker Change: Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Steve Powers: Thank you very much and good morning. And Paul, thank you for your partnership over the past few years. Thank you.
Steve Powers: Thibaut, I wanted to ask, I'm sure on that we'll have more to say when he arrives on the scene, but can he provide a bit more perspective on what you're expecting and to bring to the Kenvue team? Obviously he's a decent professional as you said.
Steve Powers: He's well known to many of us and very well respected.
Speaker Change: but he's probably most closely associated today with being Kellogg through the Kellanova WK Kellogg separation and the subsequent style of Kellanova to Mars. So I guess in that context, one key question, certainly one I've been feeling this morning is whether today's change in some way signals more appetite and more open-mindedness.
Speaker Change: for Analogist Types of Corporate Action on Kenvies Part. Thank you.
Speaker Change: Yes, Steve, thank you for the question, and you heard me...
Talk about the fact that we were excited to...
Speaker Change: Welcome Amit to Kenvue, and an emphasized fact that we were excited for him to bring his 30 years.
of Global Experience. [inaudible]
Speaker Change: in CPG, in both finance and operational roles, and that's really what drove our decision to invite Amit to join the team. Amit brings expertise across the spectrum. He has a proven record of driving profitable growth.
Speaker Change: really supporting initiatives aimed at accelerating our profitable growth agenda and deliver values for shareholders. So it will be focused on revenue growth.
Paul Ruh: Stronger data management, right resource allocation, improving rigidity including you know better integration of planning, financial forecasting, continue to drive what Paul talked about or strong program to shift. [inaudible]
Paul Ruh: Resources from fixed cost infrastructure to viable cost, brand investment, strengthening our operating cash flow, I could go on and on and on.
Speaker Change: So, this is really about this global leadership, operational expertise, proven track record, and long tenure in consumer goods that make us believe that Amid is a great addition to the Kenvue team.
https://www.youtube.com
Speaker Change: Thank you. Our last question will come from the line of Korin Wolfmeyer with Piper Sandler. Please proceed with your question.
Corinne Wolfmeyer: Good morning. Thank you so much for the question. I'd like to just touch a little bit more on the tariff impact that you're investing for the year. And any color you can give us on, you know, when that should start to hit the P&L and when we should start to see some of those mitigation efforts really take hold. And then is there any chance, you know, if the tariff do continue that the impacts could be fully offset at some point come to 2026 or how are you thinking about that? Thank you. Yeah.
Corinne Wolfmeyer: Thank you for the question, Korinne. So this is what we have reflected in our guidance for the year.
That's the Mass.
Corinne Wolfmeyer: In terms of being able to absorb it in 2026, we're working towards it. We have many actions in place that includes...
Corinne Wolfmeyer: Productivity Initiatives, we are looking for alternate sourcing and we're optimizing our supply chain and we're also working on revenue growth management initiatives.
Just including targeted price actions, but we will only take those [inaudible]
Corinne Wolfmeyer: in partnership with Retail Partners because all the media what we want to do is protect the brand health so that's the plan and we're working towards absorbing as much as we can this year and we will see how the fluid situation evolves in 2026 and beyond.
Corinne Wolfmeyer: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Thibaut Mongon for concluding comments.
Thibaut Mongon: So thank you all for joining us today for this quarter one earnings update and for your continued support for Kenvue.