Kenvue : Third Quarter 2024 Earnings Call Transcript

Corrected Transcript

07-Nov-2024

Kenvue, Inc. (KVUE)

Q3 2024 Earnings Call

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

CORPORATE PARTICIPANTS

Sofya S. Tsinis	Paul Ruh
Vice President-Investor Relations, Kenvue, Inc.	Chief Financial Officer, Kenvue, Inc.
Thibaut Mongon
Chief Executive Officer & Director, Kenvue, Inc.

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OTHER PARTICIPANTS

Bonnie Herzog	Steve Powers
Analyst, Goldman Sachs & Co. LLC	Analyst, Deutsche Bank Securities, Inc.
Anna Lizzul	Keith Devas
Analyst, BofA Securities, Inc.	Analyst, Jefferies LLC
Andrea Teixeira	Nik Modi
Analyst, JPMorgan Securities LLC	Analyst, RBC Capital Markets LLC
Peter Grom	Korinne Wolfmeyer
Analyst, UBS Securities LLC	Analyst, Piper Sandler & Co.
Filippo Falorni	Jeremy Fialko
Analyst, Citigroup Global Markets, Inc.	Analyst, HSBC Bank Plc

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MANAGEMENT DISCUSSION SECTION

Operator: Hello and welcome to the Kenvue Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and- answer session. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sofya Tsinis, Head of Investor Relations for Kenvue.

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Sofya S. Tsinis

Vice President-Investor Relations, Kenvue, Inc.

Good morning, everyone. I'm pleased to be joined today by Thibaut Mongon, Chief Executive Officer; and Paul Ruh, Chief Financial Officer. Before we get started, I'd like to remind you that today's call includes forward-looking statements regarding, among other things, our operating and financial performance, market opportunities and growth. These statements represent our current beliefs, 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. For information regarding these risks and uncertainties, please refer to our earnings materials related to this call posted on our website and our filings with the SEC.

During this call, we will also reference certain non-GAAP financial information. 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 US GAAP. These non-GAAP financial measures should be viewed in conjunction

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

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. Those most directly comparable US GAAP financial measures and a reconciliation of our non-GAAP items to those US GAAP measures can be found in this morning's press release and our presentation available on the IR page of Kenvue's website, www.investors.kenvue.com.

With that, I'll pass the call over to Thibaut.

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Thibaut Mongon

Chief Executive Officer & Director, Kenvue, Inc.

Thank you, everyone, for joining us today. First, I'd like to welcome Sofya Tsinis as our Head of Investor Relations. Many of you know Sofya. She brings over 20 years of experience and expertise in both investor relations and equity research in the consumer product sector. And we are pleased she is now part of the Kenvue team.

In the third quarter, we delivered year-over-year organic growth of 0.9% on top of 3.6% last year. Despite the softer top line that we are actively addressing, we delivered another quarter of strong productivity and efficiencies, funded our investment in our brands and generated adjusted diluted earnings per share of $0.28. Throughout the organization, we are fundamentally and rapidly transforming our ways of working to unleash our full potential and fulfill our commitments to create long term shareholder value.

Leveraging our entire portfolio of iconic and trusted brands, we are activating our new Kenvue playbook to strengthen our presence and prominence in-store, reach more consumers directly and through healthcare professionals and amplify our innovation in a more impactful way. Self Care and Essential Health are already benefiting from this new way of working. In Skin Health and Beauty, while we are not yet where we want to be, we are advancing these focus areas to improve our growth trajectory and I will get into more details about the early results we started seeing in a minute.

This playbook is powered by the increased marketing investment we discussed with you earlier this year. For 2024, we are on track to invest approximately 20% more than we did last year through advertising, healthcare professional engagement, in-store prominence and direct consumer engagement with an increasing focus on social media marketing powered by analytics and AI.

Not only are we investing more, but we are also improving the efficiency and effectiveness of our marketing spend. For example, we announced in August the creation of our new Global Content Factory, the production agency ecosystem we will leverage to drive relevant content in each market while reducing our costs. We are funding these marketing investments by driving productivity and efficiencies in our business. In Q3, we delivered another quarter of strong adjusted gross margin expansion of 130 basis points versus last year.

In addition, as we rapidly transform our organization, we are also starting to see a decline in non-marketing- related operating expenses. We have now exited nearly three quarters of our TSAs and remain on track to fully exit these agreements by mid-2025. As we unwind these TSAs, our teams continue to find better, simpler and more cost-effective ways to operate as an independent company. We are also on track to deliver $350 million in annual savings by 2026 through the Our Vue Forward initiative as we continue to modernize our systems and optimize our organization. Combining these two programs, we are making rapid progress in becoming a leaner, more agile and fast moving consumer health organization with a more efficient cost structure, which in turn, allows us to invest in our brands at more competitive levels, build new capabilities and deliver on our income commitments.

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

Now, looking at the key highlights of our performance this quarter. Around the world, we see that consumers continue to prioritize taking control of their own health and are looking for convenience and value. In Self Care, our largest segment, organic sales grew 0.7% in the third quarter, in line with our expectations as we lapped a strong year ago comparison of 6.7% growth. In a quarter where we saw volumes impacted by continued low incidence of allergy and pediatric fever, Self Care once again outperformed the market. In the US, we continue to strengthen our number one positions in pain and allergy with both Tylenol and Zyrtec once again growing share in both value and volume this quarter. This was the 9th consecutive quarter of share gain for Tylenol and the 13th consecutive quarter of share gains for Zyrtec.

We are rapidly expanding distribution of our recently launched Tylenol Easy to Swallow across key retailers and are amplifying this innovation with increased advertising spend and an impactful omni-channel approach with our Greatness Hurts campaign. As a result, Tylenol Easy to Swallow is already the number one performing innovation in adult internal analgesics across the US and is bringing new consumers to the brand.

Outside the US, our Self Care portfolio continues to gain share as well. For example, we continue to win with Nicorette. In the UK, we drove mid-teens growth in Nicorette QuickMist as a first and only nicotine replacement therapy marketed to aid both smoking and vaping cessation. In addition, we are building on this momentum with the relaunch of Nicorette Lozenge, with a new claim of fighting cravings in just 2 minutes. With this multipronged approach, we're not only strengthening our global leadership position in smoking cessation, but are also expanding the category to vaping cessation.

Essential Health continued to perform well, driving volume growth for the second quarter in a row. We delivered organic growth of 4.5% in the third quarter on top of 3.8% last year, with broad based growth across all categories and all regions. Here as well, we are advancing our priorities to drive sustained growth. For example, in Oral Care, this was another strong quarter for Listerine with high single digit growth globally. We are driving this growth by expanding distribution at our top retail partners and enhancing our in-store prominence with impactful displays, especially with our latest innovations like Listerine Clinical Solutions in the US. In addition, we are reaching more consumers, increasing our media spend and partnering with digital creators to generate engaging content on social media that highlights the superiority of Listerine in a consumer relevant way.

Similarly, we see the positive impact of our new ways of working with BAND-AID in the US, where we drove mid- single digit growth behind the success of our latest innovation BAND-AID PRO HEAL. This superior product has been clinically tested to improve wound healing by 60%. And here as well, we expanded distribution at our top retail partners, increased media presence with the return of the iconic BAND-AID jingle and have generated strong traction to date with BAND-AID PRO HEAL accounting for more than one-third of the brand's growth.

In Skin Health and Beauty, organic sales for the segment declined 2.7% year-over-year. In the US, our playbook is not yet delivering the results we want to see and the pace of recovery was hindered this quarter by muted sun season and decelerating Skin Care category dynamics. In China, the consumer backdrop, as many of you know, remains challenging. While addressing these headwinds is short term, we are also moving at pace to strengthen our underlying Skin Care expertise by building a world-class team and by partnering with the best leaders in the industry, two key enablers to improve and sustain higher performance in these segments.

This week, we welcomed Andrew Stanleick to Kenvue as our new Head of Skin Health and Beauty for North America and Europe. Andrew is a seasoned and accomplished leader with a strong global track record in building brands, successfully leading turnarounds and accelerating growth with a deep understanding of how to win in Skin Health and Beauty.

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

We are also creating powerful partnerships with highly influential leaders in Skin Care. Last week, we announced a breakthrough collaboration between Neutrogena and two of the world's most recognizable dermatologists, Dr. Bhanusali, a renowned skincare innovator and Dr. Shah, the most followed dermatologist educator worldwide with over 20 million social media followers across key social channels and over 550 million likes on TikTok. The objective of this multiyear partnership is to strengthen the brand's innovation and create more engaging and authentic communication while expanding and accelerating our dermatologist engagement. These are two foundational steps in the right direction for the segment, with more to come in the future.

Europe continued to deliver strong performance during the third quarter, growing double digits and demonstrating the power of our playbook in this segment. Sales growth was balanced between the volume growth and value realization, driven by new product launches, solid brand activation plans and distribution expansion. For example, we rapidly increased our in-store presence with the deployment of nearly 5,000 Neutrogena brand blocks across pharmacies in France and Spain. And we significantly amplified our reach to consumers with an enhanced influencer strategy in these countries. And in the UK, Aveeno became one of the fastest growing face care brands with strong in-store execution and a viral campaign with celebrity Molly-Mae Hague.

In the US, we did not see the overall sequential volume improvements that we were expecting, with revenue for the segment declining year-over-year. However, we are encouraged by the early signs of sequential recovery in the areas that we have prioritized thus far. For example, in Neutrogena, we have put concerted effort behind strengthening in-store performance for our two largest platforms, Face and Sun, which account for about 80% of the brand's sales in the US. And we are starting to see initial progress in brick and mortar track channels. In Face, while still down year-over-year, Neutrogena gained 40 basis points of share sequentially since the new face care planograms were put in place midway through the quarter. And in September, Neutrogena regained its position as the number one face care brand in this channel.

In Sun, despite the muted season, we strengthened our number one leadership position and outperformed the market this quarter as Neutrogena gained 20 basis points of share in the same channel. We see these improvements as early evidence that our Kenvue playbook is starting to generate results in Neutrogena.

In distribution, while we see further opportunities for improvement, we are making progress. Shelf resets are now complete for this year, with Neutrogena benefiting from increased point of distribution at some retailers, improved shelving and navigation at others and broad distributions for our latest innovations, Collagen Bank, acne patch for sensitive skin and our new Ultra Gentle cleansers.

In addition, we have doubled our professional sales force and are now reaching significantly more dermatologists and it is working. Neutrogena has now reached its highest level of average recommendations by dermatologists for face care in the last four years. These are investments for the long term and the strong signs of future revenue potential.

Importantly, we are reaching more consumers with our increased marketing investments and continued pivot to social platforms such as TikTok and Instagram. For example, we are supporting our Collagen Bank innovation through an impactful campaign targeting Gen Z consumers with celebrity Hailee Steinfeld. This social-first activation has generated more than 800 million video views to date. These actions are starting to drive sequential share gains in the pockets of our Neutrogena business that we have prioritized thus far. But let me be clear, this is still work in progress and our teams are working diligently on both amplifying this Neutrogena green shoots and building the same momentum across the balance of our Skin Health and Beauty business.

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

As I've said all along, the recovery of our US Skin Health business will not happen overnight and will not be linear, but we continued to work to make fundamental changes to this business with new talent, new partnerships and a relentless focus on executing our new playbook with precision.

At the beginning of the year, I told you that you would see a new Kenvue in action as we transform from a division of a large organization to being an independent, pure play global leader in consumer health. Our transformation is well on its way, and we already started seeing improvements in parts of the P&L, but we are not yet seeing the full impact in our top line. Our 2024 growth rate is tracking towards the low end of the range we shared with you at the beginning of the year due to both the pace of the recovery in Skin Health and Beauty and softer category dynamics in the back half of the year in both Self Care and Skin Health and Beauty. At the same time, we are ahead on our productivity initiatives, which in combination with our cost savings programs, are fueling an acceleration in brand investment for future growth while still enabling us to deliver within our adjusted diluted earnings per share outlook for the year.

In parallel, we are making sure we are building the right foundation for sustainable performance. We are advancing our Healthy Lives Mission. You may have seen our improved MSCI score from BBB to AA. Also encouraged to see that every day our teams around the world demonstrate their unwavering commitment to transform our company and advance our key priorities of reaching more consumers, investing more behind our brands and building a culture of performance and impact. This makes us confident that we are on our way to generate sustainable and profitable growth and drive strong value creation over time.

With that, I will turn it over to Paul.

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Paul Ruh

Chief Financial Officer, Kenvue, Inc.

Thank you, Thibaut, and good morning, everyone. Our third quarter organic growth was 0.9%, driven by value realization across all segments and volume growth in Essential Health for the second quarter in a row. Overall volumes declined 1.6% year-over-year driven by Self Care and Skin Health and Beauty. Value realization contributed 2.5% organic growth with balance contribution from carryover benefits and incremental value realization actions taken this year. While we expect both price and mix to continue to contribute to growth, we expect volumes will play a bigger role in our growth algorithm going forward.

Taking a closer look at our segments. Self Care organic growth was 0.7% year-over-year, in line with our expectations as we drove continued share gains across the segment with particular strength in Pain and Allergy. Value realization contributed 1.8% of growth driven by carryover benefits and incremental pricing actions taken this year. This was partially offset by a volume decline of 1.1%, primarily due to softer incidences in allergy and pediatric fever, as well as some retailers reverting to historical order patterns in cold, cough and flu instead of stocking up ahead of the season. Smoking cessation once again had a strong quarter overall.

Moving to Essential Health, once again, Essential Health grew across all categories and all geographic regions, generating organic growth of 4.5%, in line with our expectations. Value realization was 3.7%, driven mostly by carryover pricing, selective price increases outside the US and mix benefits from innovation such as Listerine Clinical Solutions. For the second consecutive quarter, volume grew year-over-year, coming in at 0.8% during the third quarter.

And for Skin Health and Beauty, organic sales declined 2.7%, with a 4.7% volume decline, partially offset by 2% of positive value realization driven primarily by carryover benefits. As Thibaut mentioned, the pace of recovery in the US slowed in the quarter, underlining our need to strengthen the impact of our actions against an increasingly

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

dynamic environment. We continue to diligently strengthen our teams and capabilities to fully and effectively deploy our new playbook.

Moving now to adjusted gross margins. Our operations team continued to drive meaningful productivity improvements, which in combination with favorable value realization and a non-recurring separation related benefit, resulted in a year-over-year expansion of 130 basis points to 60.7%. In fact, we have improved adjusted gross margins year-over-year during the last five quarters. We're laser focused on fostering a culture of efficiency and operational discipline, and you can see the productivity benefits in our adjusted gross margin this year. Our teams are relentless in driving procurement savings, extracting efficiencies through process automation and leveraging digital upgrades that increasingly provide real-time analytics, helping optimize logistics and demand management. All in, the 60.7% adjusted gross margin level in the third quarter, while slightly ahead of our expectations, but directionally aligned with the lower sequential progression that is typical in the second half of the year. As a reminder, the fourth quarter is typically our lowest gross margin quarter given the timing of our annual plant maintenance.

Turning to adjusted operating margin, which was 22.1% in the third quarter. It reflects strong gross margin improvement and initial benefits from Our Vue Forward, which were more than offset by our decision to increase our marketing investment this year, which is a key driver of our playbook. Our teams have successfully exited hundreds of TSAs with our former parent company without the operational disruptions that often accompany separations. As of today, we have exited approximately 70% of our TSAs and are on pace to exit all by mid-2025.

The Our Vue Forward initiative is tracking to plan on efficiencies. Our Vue Forward equips us to operate more effectively and ultimately, more competitively as we eliminate redundancies, reduce layers of hierarchy to drive faster decision making and implement new systems and automation to strengthen our capabilities in areas such as consumer insights and forecasting. We continue to expect adjusted operating margin in the range of 21% to 22% in 2024, which factors the benefits from Our Vue Forward and our supply chain efficiencies and the increase in brand activation investments.

Closing out the P&L, net interest expense for the quarter was $96 million. Given our year-to-date trend, we believe this is our current quarterly run rate and thus, expect interest expense for the year to be approximately $380 million. For taxes, the third quarter adjusted effective tax rate was 28.9%, a bit higher than planned, primarily due to shift in jurisdictional mix of income and an increase in non-deductible costs. As such, we now expect our full year adjusted tax rate to be in the range of 26.5% to 27%.

And finally adjusted net income was $542 million for the quarter and adjusted diluted earnings per share were [indiscernible] (00:21:51).

Now, to summarize our expectations for the full year 2024. As you heard from Thibaut, we expect organic growth towards the low end of the 2% to 4% range we shared with you in the beginning of the year due to both the pace of recovery in Skin Health and Beauty and softer category dynamics in the second half of the year in Self Care and Skin Health and Beauty. As it relates to cold, cough and flu, at this point, we're tracking towards a late start to the season given the levels of incidence we have seen so far. We are assuming foreign exchange will be a headwind of about 1% for the full year. And for adjusted diluted earnings per share, we are confirming a range of $1.10 to $1.20 as we see stronger than planned gains in productivity and efficiencies offsetting the impact of a softer top line, fueling the acceleration in brand investment for future growth and allowing us to deliver within our adjusted EPS outlook for the year. We plan to exit this year of profound transformation with healthy Self Care and Essential Health segments, benefiting from our new playbook as well as the Skin Health and Beauty segment showing signs of stabilization in important parts of the business. All this powered by the leaner, more agile and

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

fast moving organization with more opportunities to free up resources and increase investment in our brands. This makes us confident that we are on our way to drive strong value creation over time.

Thank you, and with that, we will take your questions.

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QUESTION AND ANSWER SECTION

Operator: Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] One moment, please, for your first question. Our first question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.

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Bonnie Herzog

Analyst, Goldman Sachs & Co. LLC

Q

Thank you. Good morning. I guess I had a question on your updated organic sales growth guidance. Although it's now lower, it does still imply a decent step up in Q4. So I was hoping for a little more color on the drivers of this. For instance, have you seen your shipments in October improve versus Q3? And I guess I'm thinking about that in the context of maybe a little bit more of a more normalized flu and cough purchasing cycle. I guess ultimately, I'm trying to understand the visibility you have in light of the US consumer and global macro pressures. Thank you.

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Thibaut Mongon

Chief Executive Officer & Director, Kenvue, Inc.

A

Yeah, good morning, Bonnie, and thank you for your question about our updated guidance. So as you remember, the guidance that we provided at the beginning of the year contemplated a number of different scenarios. From an organic growth point of view, from a revenue point of view to start with, we are seeing several factors that are not helping externally. We talked about the slower category in allergies and pediatric fever we have seen so far. The deceleration in the category - the Skin Health category that the whole industry is seeing. The consumer remains cautious in China and your question about Q4, so far, we are seeing a late start to the cold, cough and flu season. So that's certainly not helping. Having said that, we have things to do internally and especially in Skin Health and Beauty, as you heard in my prepared remarks.

Regarding Q4, we continue to expect Q4 to be our strongest growth quarter for the years - for the year and two reasons to that. The first one is that we see - we start seeing the cumulative impact of our new Kenvue playbook in action. And you heard many examples of that in the prepared remarks. The second reason is that, we are having easier year-over-year comparisons in the fourth quarter. Two elements that negatively impacted Q4 last year are not repeating this year, the destocking and the portfolio rationalization we had last year. So these are tailwinds for us this year.

Two other elements that negatively impacted Q4 last year are now part of the base with no comp benefits this year. The situation in China, but also, the flu season where we see so far, both years comparable in terms of level of low incidence and the fact that we are seeing a slow start to the season. So that's how we see the fourth quarter and what guides our thinking in terms of revenue growth. Paul, do you want to give some color on the EPS?

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Paul Ruh

Chief Financial Officer, Kenvue, Inc.

A

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

Thank you, Thibaut. I agree with you completely on the top line. And despite this backdrop, on EPS, we are very confident in our ability to deliver towards the middle of our $1.10 to $1.20 guidance range for the full year. And this is despite the investments that we're doing to activate our brands at stepped up levels and we're maintaining that. And that is fueled by the ongoing productivity improvements that we have been delivering and continue to expect to deliver and it is both in the gross margin line and also through Our Vue Forward program with efficiencies being realized and we will continue to realize them going forward as well.

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Operator: Thank you. Our next question comes from the line of Anna Lizzul with Bank of America. Please proceed with your question.

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Anna Lizzul

Analyst, BofA Securities, Inc.

Q

Hi. Good morning. Thank you so much for the question. I was wondering if you could frame the most recent trends for Skin Health and what would you say are sort of the first initiatives for Andrew in his new role? And also if you can provide just how much of a drag China was for Dr.Ci:Labo? It sounds like maybe this was a little bit incrementally weaker sequentially. Was wondering if you could clarify? Thank you.

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Thibaut Mongon

Chief Executive Officer & Director, Kenvue, Inc.

A

Yes. Anna, so on Skin Health and Beauty, the external environment is certainly not helping in the back half of the year. We had a slow sun season. You heard it from everybody. Sun Care, which is an important business for us, did not contribute to growth as much as we would expect in a normal year. And throughout the third quarter, we started seeing a deceleration in the Skin Care category in the US, something that, by the way, we expect to continue into Q4. And to your earlier point, we see continued softness in Asia. So the three elements combined are clearly slowing us down.

Now, there are also things we know we need to do better internally, right. And it's really applying the playbook, executing the playbook consistently with precision and at scale across the portfolio, continuing to secure more distribution, strengthening our in-store prominence, making sure that our marketing campaigns drive stronger conversion and that's what our teams are focused on. And so what are we doing differently in the back half of the year on top of implementing this playbook? First and foremost, we are strengthening the team. We are bringing new talent skills and capabilities. You may remember that we are moving next year to Summit, New Jersey with our new headquarter. It's also an opportunity for us to build a new Skin Health and Beauty Center of Excellence with our teams co-located, marketing, R&D, operations to - with new skills and capabilities in Skin Health. And us welcoming Andrew this week is the latest addition to this team.

We are also augmenting these internal capabilities with external partnerships. And you saw last week another example of that with our partnership with Dr. Bhanusali and Dr. Shah, with the objective to strengthen innovation and communication on the Neutrogena brand specifically. And you will see the continued improved augmentation in our campaigns. So that's what we are focused on.

Your question about our new leader for North America and Europe, Andrew, who joined us recently. We are happy to have Andrew join the team and augment our internal skills and capabilities. Andrew brings two decades of experience, a strong track record in growing brands, turning around businesses, moving transformation agendas. He has a deep expertise in Skin Health and has a deep understanding of what it takes to win in the mass and masstige Skin Health and Beauty markets in the US. So together with Charmaine, our Chief Growth Officer; Jan, our leader for North America; and the whole team, Andrew and everybody will amplify the green

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Kenvue, Inc. (KVUE)	Corrected Transcript
Q3 2024 Earnings Call	07-Nov-2024

shoots we see with Neutrogena and build the momentum across the balance of our Skin Health and Beauty business.

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Paul Ruh

Chief Financial Officer, Kenvue, Inc.

A

And, Anna let me answer your last question, which is on DCL. On DCL, last year was - in Q3, it was the beginning of where we experienced the anti-Japanese sentiment in China. So, we are lapping that, it's not material - was not material in Q3 and will not be a material factor in Q4 as well.

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Operator: Thank you. Our next question comes from the line of Andrea Teixeira with JPMorgan. Please proceed with your question.

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Andrea Teixeira

Analyst, JPMorgan Securities LLC

Q

Thank you. Good morning. I was hoping to see if you can elaborate a little bit more on what are the green shoots you're seeing and how Andrew is going to amplify, as you pointed out, Thibaut, the initiatives that you have been putting together? Understandably, you have a backdrop of a deceleration in Skin Health and Beauty, but thinking of the innovation that you put together and you will be putting for a while now more digital investments and thinking about how much that increased A&P that you announced in the beginning of the year will translate into an accelerated improvement there? So anything you can give us in terms of timing when we should be expecting this to materialize?

And for Paul, given the commentary you expanded a bit on the prepared remarks on the TSAs getting - and the TMAs getting out. Just wondering where we should be thinking - if you can update us with the savings that we have seen so far and how margins should evolve from here? Thank you.

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Thibaut Mongon

Chief Executive Officer & Director, Kenvue, Inc.

A

All right. Good morning, Andrea. And so let me start with the question and then I will hand over to Paul. So your first question is about the green shoots, how are we going to amplify them and the impact of our investments? So if you take a step back, this year, we are profoundly transforming the way we operate. We are changing our ways of working and we are increasing our investment. And we do that across the portfolio. And we are pleased to see that our Self Care and our Essential Health segments are already responding well to this new playbook, with very strong share gains in Self Care and two quarters in a row of volume growth in Essential Health. In Skin Health and Beauty, we are also applying the same playbook, but we are disciplined in prioritizing how we are going after our recovery plan. And we have decided to focus on - to start with the biggest areas. If you take Neutrogena, it's Sun and Face and it's the in-store execution and that's what makes us confident that the playbook starts working is that where we started implementing our new playbook so far, we are seeing green shoots.

So I'll give you a couple example. We invested in strengthening our presence with dermatologists, and we see a strong response in terms of recommendation by dermatologists. And we are now back to where we were four years ago with face care. So that's really encouraging. In terms of in-store execution, it's an area where we have focused a lot of energy and it's good to see that since the planogram - where new planograms were put in place, approximately mid-August, so halfway through the quarter, we see Neutrogena Face going back to number one position in the US in September. And by the way, we see that continuing in October. So we now have eight weeks behind us of Neutrogena Face being back to number one position in brick and mortar track channels. So that's very encouraging.

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