01—Abstract
Summary
Summary of the 10-Q filed May 9, 2024. Cited figures are marked; the original filing is the authoritative source.
Kenvue Inc. reported first-quarter 2024 results with net sales of $3.9 billiona, essentially flat versus $3.85 billion a year earlier (an increase of $42 million, or 1.1%).
Organic growth was $73 millionb, driven by value realization, partially offset by volume declines. Gross profit rose to $2.24 billion from $2.13 billion, and the filing states gross profit margin increased to 57.6% from 55.2%. Net income fell to $296 million from $469 million, or $0.15 per diluted share versus $0.27.
The decline reflects higher interest expense of $95 millionc (versus $1 million), a $68 million impairment on the Skillman, New Jersey interim headquarters, $41 million of restructuring expenses, and higher SG&A. The prior-year period also included a GILTI accounting change that the filing says raised that period's net income by $139 million. Cash flow from operations was $287 million, down from $802 million, mainly due to working capital timing.
The company paid $383 milliond in dividends and repurchased $91 million of shares, and it had $1.16 billion in cash and cash equivalents at quarter end. Total debt was $8.56 billion, including $7.78 billion of Senior Notes and other long-term debt and $769 million of commercial paper. Total equity declined to $10.6 billion from $11.2 billion, largely due to foreign currency translation losses in accumulated other comprehensive loss.
Looking ahead, on May 6, 2024, the Board approved a multi-year initiative expected to generate pre-tax restructuring expenses and other charges of about $275 million in each of fiscal 2024 and 2025. The filing also discloses ongoing litigation, including product liability claims related to acetaminophen, phenylephrine, and benzoyl peroxide products, and securities class actions related to phenylephrine. The company states it cannot reasonably estimate the potential liability for these matters.
02—Key points
Key Highlights
- Net sales were $3.89 billion, up 1.1% ($42 million) year over year, with organic growth of $73 million (value realization offset by volume declines).
- Gross profit margin rose to 57.6% from 55.2%, per the filing, aided by supply chain optimization and lower ingredient and packaging costs.
- Net income fell 36.9% to $296 million; diluted EPS was $0.15 versus $0.27, pressured by $95 million of interest expense and a $68 million impairment on the held-for-sale Skillman headquarters.
- Operating income declined to $550 million from $640 million, including $41 million of restructuring expenses.
- Segment adjusted operating income rose 7.3% to $1.01 billion, led by Essential Health (up 21.9% to $256 million) and Self Care (up 4.1% to $606 million).
- Operating cash flow fell to $287 million from $802 million, and cash declined to $1.16 billion; the company paid $383 million in dividends and repurchased $91 million of stock.
- On May 6, 2024, the Board approved a multi-year cost optimization initiative with about $275 million of pre-tax charges expected in each of fiscal 2024 and 2025.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Kenvue kept $0.08.
- Revenue$3.89B100.0%
- Cost of revenue−$1.65B42.4%
- Gross profit$2.24B57.6%
- Operating costs−$1.69B43.5%
- Operating income$550.0M14.1%
- Interest, other & tax−$254.0M6.5%
- Net income$296.0M7.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 9, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $3.89B$3.77B | +3.4% |
| Cost of Revenue | $1.65B— | — |
| Gross Profit | $2.24B$2.05B | +9.6% |
| R&D Expenses | $100.00M— | — |
| SG&A Expenses | $1.57B— | — |
| Operating Income | $550.00M— | — |
| Interest Expense | $109.00M— | — |
| Net Income | $296.00M$361.00M | −18.0% |
| EPS (Basic) | $0.15$0.21 | −28.6% |
| EPS (Diluted) | $0.15$0.21 | −28.6% |
| Shares Outstanding (Basic) | 1.92B— | — |
| Shares Outstanding (Diluted) | 1.92B— | — |
05—Questions
Frequently Asked Questions
Why did Kenvue's net income decline so sharply in the first quarter of 2024?
Net income fell to $296 million from $469 million. The filing attributes the decline mainly to interest expense of $95 million, compared with $1 million a year earlier, after the company issued senior notes and commercial paper. Other drivers include a $68 million impairment on the Skillman, New Jersey interim headquarters, $41 million of restructuring expenses, and higher SG&A. The prior-year period also benefited from a GILTI accounting change that the filing says added $139 million to that period's net income.
Did Kenvue's sales and profitability improve despite the lower net income?
Net sales rose $42 million, or 1.1%, to $3.89 billion, and gross profit increased to $2.24 billion. The filing states gross profit margin rose to 57.6% from 55.2%. Segment adjusted operating income increased 7.3% to $1.01 billion, with Essential Health and Self Care contributing growth, while Skin Health and Beauty was roughly flat.
What is the company's debt and liquidity position?
Total debt was $8.56 billion as of March 31, 2024, including $769 million of commercial paper. The company had no outstanding balance under its $4.0 billion Revolving Credit Facility and reported cash and cash equivalents of $1.16 billion. The filing states it was in compliance with all debt covenants.
What are the main legal risks disclosed in the filing?
The filing describes product liability lawsuits involving acetaminophen (Tylenol), phenylephrine, and benzoyl peroxide products, along with securities class actions and shareholder derivative complaints tied to phenylephrine disclosures. The company says it cannot reasonably estimate the likelihood or magnitude of potential liability for these claims. Talc-related liabilities in the United States and Canada are indemnified by former parent J&J, according to the filing.
What new restructuring plan was announced after the quarter ended?
On May 6, 2024, the Board approved a multi-year initiative to optimize the cost structure. It is expected to generate pre-tax restructuring expenses and other charges of about $275 million in each of fiscal 2024 and 2025, or about $550 million in total. The filing says the company expects to reinvest all or part of the benefits in growth, including advertising, product promotion, and healthcare professional engagement.
06—Continue