Kenvue Inc. — Q1 2024 Form 10-Q
Reporting period: Fiscal three months ended March 31, 2024; comparable period ended April 2, 2023. Kenvue is a global consumer health company with Self Care, Skin Health and Beauty, and Essential Health segments. The prior-year quarter preceded the April 2023 transfer from Johnson & Johnson (J&J) and was prepared on a carve-out basis, so some comparisons are not fully like-for-like.
Financial performance and position
| Metric | Q1 2024 | Prior comparable quarter | Change / context |
|---|---|---|---|
| Net sales | $3.894 billion | $3.852 billion | Up 1.1%; organic growth 1.9%, with 5.0% price/mix offset by 3.1% lower volume and a 0.8% foreign-exchange headwind. |
| Gross profit / margin | $2.242 billion / 57.6% | $2.125 billion / 55.2% | Margin expanded 240 basis points; lower input costs and supply-chain savings contributed. |
| Operating income | $550 million | $640 million | Down 14.1%; included $41 million restructuring expense and $68 million impairment, among other items. |
| Net income / diluted EPS | $296 million / $0.15 | $469 million / $0.27 | Net income declined 36.9%; interest expense rose substantially after standalone debt financing. |
| Operating cash flow | $287 million | $802 million | Down $515 million, primarily from working-capital movements, including payment timing and higher receivables. |
| Capital expenditures | $153 million | $55 million | Investing cash outflow was $152 million. |
| Cash and cash equivalents | $1.155 billion | $1.382 billion at Dec. 31, 2023 | Quarter-end cash declined $227 million. |
| Total debt | $8.555 billion | $8.286 billion at Dec. 31, 2023 | Includes $750 million of current Senior Notes principal and $767 million of commercial paper, net of discount. |
Current assets were $6.097 billion and current liabilities $6.166 billion at quarter-end. Kenvue had no borrowings under its $4.0 billion revolving credit facility and reported compliance with debt covenants. Management stated that cash, operating cash generation, and available borrowing and capital-market access were adequate for obligations, and expected liquidity to cover obligations for at least the next 12 months.
Segments
- Self Care: Sales $1.698 billion, up 3.5%; adjusted operating income $606 million, up 4.1%. Organic growth reflected price/mix, partly offset by lower volume; Pain Care was affected by U.S. trade inventory fluctuations.
- Skin Health and Beauty: Sales $1.054 billion, down 5.1%; adjusted operating income $149 million, roughly flat. Sales weakness reflected U.S. execution, distribution and supply constraints, and softness in China.
- Essential Health: Sales $1.142 billion, up 3.7%; adjusted operating income $256 million, up 21.9%. Oral Care and Women’s Health grew; Baby Care volume declined.
Segment adjusted operating income rose 7.3% to $1.011 billion. This non-GAAP measure excludes specified costs and other items; reported operating income declined.
Material changes and notable items
- Net sales grew modestly, while reported operating income and net income fell. Interest expense was $95 million versus $1 million in the prior-year quarter, reflecting the standalone debt structure; total debt was $8.555 billion.
- Gross margin improved, but SG&A rose 4.7% to $1.573 billion and increased to 40.4% of sales from 39.0%, reflecting standalone enterprise costs, J&J transition-services costs, and brand investment.
- Q1 included a $68 million impairment on the Skillman, New Jersey interim headquarters after it was classified as held for sale, and $41 million of restructuring charges. Separation-related costs were $67 million versus $98 million.
- Foreign-currency translation contributed a $280 million quarterly loss in other comprehensive income; comprehensive loss was $2 million despite net income of $296 million.
- Cash dividends paid were $383 million; the company repurchased 4.6 million shares for $91 million. The Board declared a further $0.20-per-share dividend payable in May 2024.
- The filing reports immaterial out-of-period adjustments correcting prior-period balance-sheet amounts related primarily to the Separation; management concluded they were not material to either period’s financial statements.
Outlook, risks and contingencies
- No specific sales or earnings guidance for the year is provided in the filing. On May 6, 2024, after quarter-end, the Board approved a multi-year cost-structure initiative expected to incur about $275 million of pre-tax restructuring expenses and other charges in each of 2024 and 2025, or about $550 million total. Kenvue expects to reinvest all or part of the benefits in growth, including advertising, promotion, and healthcare-professional engagement.
- Management cited competition, concentrated retail customers, consumer and channel shifts, execution and supply constraints, inflation and foreign exchange, and the ability to realize restructuring benefits as business risks. One customer represented approximately 13% of Q1 sales; the top 10 represented approximately 43%.
- Legal matters include acetaminophen-related claims, phenylephrine-related consumer and securities litigation, benzoyl peroxide product claims, Zantac-related matters, and environmental proceedings. Kenvue says it cannot reasonably estimate potential losses for certain matters; it believes outcomes, net of accruals, are not expected to materially affect financial position, but a resolution or accrual increase could materially affect a period’s results or cash flows.
- J&J retained and agreed to indemnify Kenvue for specified U.S. and Canadian talc-related liabilities; Kenvue remains responsible for specified talc-related liabilities outside those countries. Tax indemnification obligations and unrecognized tax benefits also remain relevant.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The filing reports no material changes to the risk factors in the 2023 Form 10-K.
Investor verification points
- Assess how much of sales growth is sustainable volume versus price/mix, particularly the continued weakness in Skin Health and Beauty and Baby Care.
- Track operating cash conversion and working capital, along with capital spending and dividend/buyback outflows.
- Monitor debt maturities, commercial-paper usage, interest costs, and access to refinancing markets.
- Evaluate the $550 million restructuring plan’s execution, timing, realized savings, and reinvestment against its expected charges.
- Follow product-related litigation, regulatory developments concerning oral phenylephrine, benzoyl peroxide and acetaminophen, and the extent of J&J indemnification and tax arrangements.
- Compare reported earnings with segment adjusted operating income, noting the exclusions and the prior-year carve-out basis; verify future results on a more comparable standalone basis.