Kenvue Wraps Up 2023 With Volume Softness; Challenges Expected in First Half of 2024

Equity Analyst

Keonhee Kim

Kenvue is the world’s largest pure-play consumer health company by revenue, generating $15 billion in annual sales. Formerly known as Johnson & Johnson’s consumer segment, Kenvue spun off and went public in May 2023. We expect Kenvue, with the freedom to allocate capital and invest as a standalone entity, to mainly focus on growing its 15 priority brands (including Tylenol, Nicorette, Listerine, and Zyrtec) to drive future growth. We forecast the company to spend roughly 3% of sales in research and development, on par with some of its wide-moat competitors, to launch innovative products, specifically in digital consumer health. Recent examples include the Nicorette QuickMist SmartTrack spray and Zyrtec AllergyCast app. 

Kenvue has been rationalizing its portfolio through a reduction in a number of stock-keeping units and business selloffs (15 divestitures from 2016-22). Now that most of this optimization is behind us, we expect a more agile portfolio. Macro factors such as an aging population, premiumization of consumer health care products, and growing emerging markets should provide tailwinds for Kenvue’s wide array of brands. We also expect Kenvue to benefit from an increasing digital investment—71% of company’s marketing spending in 2022 was digital versus 44% in 2019—as this should fuel both e-commerce as well as in-person store sales. 

We expect margin expansion from two channels: favorable pricing dynamics and improving supply chain efficiencies. Our analysis tells us that Kenvue has been able to stay ahead of its markets in terms of price hikes and we expect this trend to continue thanks to its products’ strong brand power. During inflationary environment, we have seen Kenvue astutely pass over rising costs through robust price hikes with 7.7% of sales growth from price and mix during 2023 . We also expect cost savings over the next five years from supply chain optimization initiatives as Kenvue dedicates roughly 60% of capital expenditures to automation and digitalization of its manufacturing and distribution network, improving end-to-end integration.

Business Strategy & Outlook

We assign Kenvue a wide moat because we believe the company’s strong brand reputation and customer loyalty (intangible assets) as well as significant economies of scale (cost advantage) should continue to support economic profits for at least the next 20 years. By our analysis, Kenvue has consistently achieved a return on invested capital including goodwill) in the low teens over the last decade, higher than our estimate of its weighted average cost of capital of 7.3%, and we believe the company will be able to maintain a similar level of ROIC for the next 20 years. 

Kenvue has five brands that generate over $1 billion in sales–Johnson’s, Neutrogena, Listerine, Tylenol, and Aveeno—as well as a number of brands that generate over $400 million in sales—Nicorette, Zyrtec, Band-Aid, Benadryl, Motrin, and OGX. Many of Kenvue’s brands boast strong brand power and have outgrown their respective market over the past decade. In fact, some of Kenvue’s brands have such strong brand recognition that they are synonymous with their generic names. Notable examples include Tylenol (generic name: acetaminophen) and Band-Aid (generic name: adhesive bandage). All of Kenvue’s top brands are market leaders in their respective categories in North America: Nicorette (controls 48%), Listerine (45%), Imodium (36%), Band-Aid (34%), Johnson’s (26%), and Tylenol (16%). Kenvue’s brands have also held their market leadership for over a decade (2013 is earliest data available on Euromonitor), demonstrating stability of their market share. Lastly, Kenvue’s brands do not have a meaningful competitor in most markets and the rest of space is shared among minor brands and private labels that have no significant shares. 

One of the main reasons for Kenvue’s market outperformance, in our opinion, is the significant brand power and customer loyalty its brands have amassed, with decades of history on the shelf and inside people’s homes. Listerine first became commercially available in 1914, Band-Aid in 1921, and Tylenol in 1955, so Kenvue’s brands’ reputation, which is underpinned by their long-standing history, is difficult to replicate. We also believe a number of Kenvue’s brands (Tylenol, Motrin, Zyrtec, Band-Aid, and Benadryl) are sought out in times of poor health, so the importance of brand familiarity and trust is heightened. And because Kenvue’s brands are backed by years of scientific research, they benefit from recommendations of professionals across its mix of products. For example, Nicorette is the number one doctor- and pharmacist-recommended smoking cessation brand and Listerine is the number one dentist-recommended mouthwash in the U.S. 

Many of Kenvue’s brands come at a moderate to significant pricing premium when compared with their close competitors and that premium is magnified when compared with private labels. But even at higher prices, we see that consumers continue to choose Kenvue’s brands over their competitors’. Furthermore, Kenvue is able to stay ahead of the industry in terms of pricing—consistently raising prices higher than a brand’s group average. The leading market share in many of the categories it plays in, even at higher prices, illustrates Kenvue’s strong brand reputation and a high level of consumer trust and loyalty. 

To ensure its brand prowess and to maintain its leading position, Kenvue spends roughly 4% of sales on research and development and 10% on advertising and marketing, on par with its wide-moat competitor Procter & Gamble (3% and 11% of sales on research and development, and A&M, respectively). We believe Kenvue can maintain its leading share position and entrenched standing with retailers through product innovation thanks to an extensive level of research that it conducts in many spaces it operates in. For example, since 2009 Kenvue (and Johnson & Johnson) generated more than 90% of industry-sponsored research on baby skin care and it also leads in mouthwash research. We believe the knowledge that is gained through these studies is instrumental in Kenvue launching products that are well-received by consumers and maintaining its market leadership, demonstrated by its number one spot in global baby toiletries and global mouthwash industry. 

We believe through its impressive scale and global footprint, Kenvue has garnered favorable relationships with its suppliers and achieved significant economies of scale that smaller competitors are not able to achieve. Given the market dominance that many of Kenvue’s brands enjoy, we contend that retailers rely on Kenvue’s products to drive traffic in their stores, upholding our belief that Kenvue is a category captain in many product channels. A category captain recommends optimal product mix, promotional strategies, and product placement, and both the captain and retailers share data and analysis. This is a critical competitive advantage for large manufacturers, not only over new entrants and small players, but also in intra-category competition among the leading three or four brands, as it helps the category captain retain prime real estate in the store. Such relationships are mutually beneficial, with the vendor becoming an essential retail partner, developing sales strategies to maximize volume and retailers’ margins while prioritizing its own brands. In our view, trusted manufacturers like Kenvue, which operate with a wide array of consumer health products, are critical to retailers that are reluctant to risk costly out-of-stocks with unproven suppliers. 

We also see Kenvue enjoying cost advantages, although we concede that evidence of this moat source is weaker compared with what we see for intangible assets. We view customer acquisition costs as a critical metric to assess cost advantages for CPG manufacturers and believe Kenvue has excelled on this front. Kenvue has grown at the pace of or more quickly than the industry while spending less on advertising and marketing (10% of total sales versus industry average of 15% of total sales) which helps the company post higher returns compared with its competitors. Furthermore, slotting fees present a challenge to CPG manufacturers, especially for upstart enterprises, and we believe Kenvue is well positioned to exercise its scale to negotiate favorable slotting fees and fend off any new entries from stealing their shelf space.

Wide

Economic Moat

Kenvue

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Kenvue reports strong Q2 earnings and eyes growth in China

Kenvue's Q2 performance showcased resilience and strength in its portfolio, despite challenges from inflation and macro environment. The company's focus on innovation, supply chain investment, and balanced capital allocation strategy positions it well for future growth and value realization.

KVUE reports strong Q3 earnings and focuses on innovation and recovery plans

KVUE's Q3 2023 earnings call highlighted strong overall performance, with a focus on brand loyalty, innovation, and recovery plans for the Skin Health and Beauty segment. The company addressed challenges related to market softness in China and contrasting cold and flu season performance. Despite these challenges, KVUE remains optimistic about its investment plans and opportunities for growth.

KVUE reports 5% organic growth in 2023, focuses on stabilizing Skin Health and Beauty for 2024 growth

KVUE's Q4 2023 earnings call highlighted the company's 2024 priorities, financial performance, and strategic plans. Despite challenges in the Skin Health and Beauty segment, the company is confident in its ability to drive growth and profitable growth in 2024. KVUE aims to achieve organic growth in the range of 2% to 4% in 2024 and is focused on reaching more consumers, investing in brands, and fostering a culture that rewards performance and impact.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Kenvue, Inc. is a consumer health company. It operates through the following business segments: Self Care, Skin Health and Beauty, and Essential Health. The Self Care segment includes cough, cold and allergy, pain care, digestive health, and smoking cessation. The Skin Health and Beauty segment offers face and body care and hair, sun and others. The Essential Health segment focuses on oral care, baby care, women's health and wound care. The company was founded on February 23, 2022 and is headquartered in Skillman, NJ.

Johnson & Johnson

Kenvue, which owns brands including Tylenol, Band-Aid, and Neutrogena, will begin trading Thursday. Shares were priced higher than an earlier range.

J&J Consumer-Health IPO Stock Kenvue to Raise $3.8 Billion

SKILLMAN, N.J.--(BUSINESS WIRE)--Kenvue Inc. (NYSE: KVUE) ("Kenvue") will begin trading today on the New York Stock Exchange under the ticker symbol “KVUE”.

Kenvue to Begin Trading on the New York Stock Exchange

A unit of Johnson & Johnson is headed for the biggest initial public offering in more than a year after its shares were priced near the top of the expected range Wednesday evening.

Johnson & Johnson's Kenvue IPO to command valuation of more than $40 billion in biggest public debut since 2021

NEW BRUNSWICK, N.J. & SKILLMAN, N.J.--(BUSINESS WIRE)--Johnson & Johnson (NYSE: JNJ) and Kenvue Inc. (“Kenvue”), a wholly owned subsidiary of Johnson & Johnson, today announced the pricing of Kenvue's upsized initial public offering (“IPO”) of 172,812,560 shares of Kenvue's common stock at a price to the public of $22.00 per share. In addition, Kenvue has granted the underwriters a 30-day option to purchase up to an additional 25,921,884 shares of its common stock to cover over-allotmen.

Johnson & Johnson and Kenvue Announce Pricing of Upsized Kenvue Inc. Initial Public Offering

The listing of the Tylenol maker would be by far the biggest initial public offering so far this year.

J&J Prices Consumer Unit IPO at $22 a Share

Johnson & Johnson (NYSE: JNJ ) will spin out its consumer health unit as Kenvue tomorrow, May 4. The stock will trade on the NYSE under the symbol KVUE.

KVUE Stock: Should You Buy Into the Kenvue IPO?

Johnson & Johnson's consumer health company Kenvue is expected to hit the initial public offering market this week and mark the largest deal since late 2021.

J&J's Kenvue spinoff to hit IPO market this week in the biggest deal since late 2021

One of the season's most hotly anticipated initial public offerings (IPOs) is about to hit the market. Kenvue is a planned spinoff from Johnson & Johnson (NYSE: JNJ ), and the company is set to begin trading soon.

KVUE Stock IPO: When Does Kenvue Go Public? What Is the Kenvue IPO Price Range?

BranchOut Food Inc/OR

Nature Wood Group Ltd

Interactive Strength Inc

The week's news was led by J&J's consumer health unit Kenvue, which set terms for its $3.3 billion listing on Monday. Six IPOs submitted initial filings this past week.

US IPO Weekly Recap: J&J Spin-Off Kenvue Launches Billion-Dollar Deal In A 1 IPO Week

IPO Update: Kenvue Seeks $3.25 Billion IPO.

IPO Update: Kenvue Seeks $3.25 Billion IPO

Are signs of life emerging from the moribund IPO market? If Johnson & Johnson (NYSE:JNJ)'s corporate advisors are correct, then, yes, possibly.

Does Johnson & Johnson's Kenvue IPO signal signs of life for US IPO market?

Johnson & Johnson JNJ expects to raise roughly $3 billion in an initial public offering of its consumer-health unit. In a filing with the Securities and Exchange Commission made public Monday afternoon, Johnson & Johnson said it expects to sell more than 151 million shares in the IPO at a price of $20 to $23, which would raise roughly $3.25 billion at the midpoint price of $21.50.

Johnson & Johnson aims to raise $3 billion in Kenvue IPO

Johnson & Johnson will price shares of its consumer-health spinoff Kenvue at $20 to $23 in an initial public offering later this year. J&J said it launched a roadshow for the IPO of more than 151 million shares of common stock.

Johnson & Johnson to price shares of consumer spinoff Kenvue at $20 to $23 in IPO

NEW BRUNSWICK, N.J.--(BUSINESS WIRE)--Johnson & Johnson (NYSE: JNJ) today announced that Kenvue Inc. (“Kenvue”), a wholly owned subsidiary of Johnson & Johnson comprising its Consumer Health Business, has launched a roadshow for the initial public offering (“IPO”) of 151,204,000 shares of its common stock. Kenvue expects to grant the underwriters a 30-day option to purchase up to an additional 22,680,600 shares of its common stock to cover over-allotments, if any. The IPO price is curre.

Johnson & Johnson Announces Launch of Kenvue Inc. IPO Roadshow

J&J's consumer health unit Kenvue aims to raise $3.5 billion or more in the initial public offering, sources told the Wall Street Journal.

Johnson & Johnson consumer health unit valued at $40 billion ahead of IPO, report says

Johnson & Johnson (NYSE:JNJ) is reportedly discussing the spin-off and initial public offering (IPO) of its consumer business Kenvue with investors, in a move set to test the waters of the subdued market. Kenvue will meet with investors as early as Monday to discuss the float, according to the Wall Street Journal, in a bid to raise over US$3.5bn on the New York Stock Exchange in the coming weeks.

Johnson & Johnson to eye up IPO market with consumer brand spin-off

Fidelis Insurance Holdings Ltd

Hanryu Holdings Inc

Jayud Global Logistics Ltd

ACELYRIN Inc

Top Kingwin Ltd

Trio Petroleum Corp

U Power Ltd

US Goldmining Inc

Wang & Lee Group Inc

U.S. IPO Weekly Recap: IPO Market Has A Full Week Of Small Deals, Led By Chinese Issuers.

U.S. IPO Weekly Recap: IPO Market Has A Full Week Of Small Deals, Led By Chinese Issuers

As Johnson & Johnson readies for the separation of its consumer health division later this year into the consumer-focused company called Kenvue, the healthcare giant's first quarter was marked by continuing moves away from COVID-era focuses and into areas like robotic surgery.

Johnson & Johnson Preps for Kenvue Spinoff While Noting Strong Q1 in OTC

ARB IOT Group Ltd

Atmus Filtration Technologies Inc

Golden Heaven Group Holdings Ltd

Cytomed Therapeutics Ltd

Global Mofy Metaverse Ltd

Ispire Technology Inc

Millennium Group International Holdings Ltd

Multi Ways Holdings Ltd

Simpple Ltd

VCI Global Ltd

Four small issuers began trading this past week. Two small IPOs submitted initial filings.

U.S. IPO Weekly Recap: Small Deals Drive Activity In The IPO Market's Short Week

Kenvue Inc., the consumer products spinoff from Johnson & Johnson JNJ, +0.89% , has grown the roster of banks underwriting its initial public offering beyond the two original leads . Goldman Sachs & Co. LLC and JP Morgan, according to a filing on Friday.

J&J Kenvue spinoff adds slew of banks to its initial public offering roster

AbbVie

Amgen

Boeing

General Dynamics

Kimberly-Clark

L3Harris

Lockheed Martin

Altria

Merck

Northrop Grumman

Philip Morris

Raytheon Technologies

Investing in blue-chip companies that pay dividends and relentlessly focusing on reinvesting the proceeds is a proven strategy for reliable long-term returns. But what about the occasional black swan? Potentially devastating litigation? Overlooked liabilities on the balance sheet? Financial engineering?

Blue-Chip Stocks And Red Flags - Things To Consider In Your Due Diligence

As markets open for the new year, a mega breakup that could shake up the consumer healthcare market is coming down the initial public offering (IPO) pipeline.

J&J's Spin-Off Kenvue Lists for IPO in Healthcare Giant Split

Kenvue has filed to go public as part of its separation process from parent firm Johnson & Johnson. The company sells consumer healthcare and wellness products worldwide.

Kenvue Begins IPO Process As It Seeks To Separate From Johnson & Johnson

Johnson & Johnson (NYSE:JNJ)'s consumer health unit Kenvue has filed to be listed as an independent company on the New York Stock Exchange under the ticker symbol "KVUE." Kenvue, which J&J says has components signifying knowledge and sight, is a milestone in the healthcare giant's 135-year history.

Johnson & Johnson's Band-Aid and Tylenol company Kenvue files for IPO, moving closer to spin off

Kenvue Inc. KVUE, , the consumer products unit of Johnson & Johnson JNJ, +1.09% , late Wednesday filed its initial public offering as part of a previously disclosed spinoff plan for the business. Kenvue plans to trade on the New York Stock Exchange under the symbol KVUE with lead underwriters Goldman Sachs Group Inc. and JPMorgan Chase & Co. For the fiscal year ended Jan. 2, Kenvue reported $15.05 billion in net sales, and $2.03 billion in net income.

News for Kenvue Stock (KVUE)