01—Abstract
Summary
Summary of the 10-Q filed August 6, 2024. Cited figures are marked; the original filing is the authoritative source.
Kenvue Inc. reported second-quarter 2024 results in this Form 10-Q for the period ended June 30, 2024.
Net sales were $4.00 billiona for the fiscal three months, essentially flat versus $4.01 billion a year earlier, while gross profit rose to $2.37 billion from $2.23 billion. Operating income fell sharply to $154 million from $702 million, driven by a $510 million impairment charge, mainly a $488 million non-cash charge tied to the Dr.Ci:Labo® skin health business, along with $48 million of restructuring expenses. Net income declined to $58 million from $430 million, and diluted earnings per share were $0.03 versus $0.23.
For the six months, net income was $354 millionb versus $899 million, and net cash from operating activities was $727 million versus $1,544 million. On the balance sheet, total assets fell to $26.44 billion from $27.85 billion at year-end 2023, largely reflecting the impairments and currency translation, and total equity declined to $10.18 billion. Loans and notes payable rose to $1.43 billion from $599 million, and cash and cash equivalents fell to $1.01 billion from $1.38 billion.
The company paid $766 millionc in dividends in the first half and $91 million to repurchase shares. J&J's Debt for Equity Exchange in May 2024 meant J&J no longer owned any Kenvue common stock. Management approved a 2024 Multi-Year Restructuring Initiative with expected pre-tax charges of approximately $275 million in each of fiscal 2024 and 2025, and the filing discloses ongoing product liability and litigation matters, including acetaminophen, phenylephrine, and benzoyl peroxide claims, for which the company states it cannot reasonably estimate potential liability beyond amounts accrued.
02—Key points
Key Highlights
- Net sales of $4.00 billion for the quarter, down $11 million, or 0.3%, versus $4.01 billion a year earlier; organic growth was $61 million, or 1.5%.
- Operating income fell to $154 million from $702 million, primarily due to $510 million of impairment charges, including $488 million for the Dr.Ci:Labo® business.
- Net income was $58 million, or $0.03 per diluted share, compared with $430 million, or $0.23 per diluted share, a year earlier.
- Gross profit margin expanded to 59.1% from 55.5%, reflecting supply chain optimization benefits and value realization.
- Essential Health segment adjusted operating income rose 43.6% to $359 million, while Skin Health and Beauty adjusted operating income fell 17.9% to $165 million.
- Cash and cash equivalents declined to $1.01 billion, and loans and notes payable increased to $1.43 billion from $599 million at year-end 2023.
- The 2024 Multi-Year Restructuring Initiative is expected to produce pre-tax charges of approximately $275 million in each of fiscal 2024 and 2025.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Kenvue kept $0.01.
- Revenue$4.00B100.0%
- Cost of revenue−$1.64B40.9%
- Gross profit$2.37B59.1%
- Operating costs−$2.21B55.3%
- Operating income$154.0M3.9%
- Interest, other & tax−$96.0M2.4%
- Net income$58.0M1.5%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 6, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $4.00B$3.85B | +3.8% |
| Cost of Revenue | $1.64B$1.73B | −5.3% |
| Gross Profit | $2.37B$2.13B | +11.3% |
| R&D Expenses | $105.00M$89.00M | +18.0% |
| SG&A Expenses | $1.64B$1.50B | +9.3% |
| Operating Income | $154.00M$640.00M | −75.9% |
| Interest Expense | $106.00M$11.00M | +863.6% |
| Net Income | $58.00M$469.00M | −87.6% |
| EPS (Basic) | $0.03$0.27 | −88.9% |
| EPS (Diluted) | $0.03$0.27 | −88.9% |
| Shares Outstanding (Basic) | 1.92B1.72B | +11.6% |
| Shares Outstanding (Diluted) | 1.92B1.72B | +11.9% |
05—Questions
Frequently Asked Questions
Why did operating income drop so sharply in the second quarter of 2024?
Operating income fell to $154 million from $702 million mainly because of $510 million in impairment charges, which included a $488 million non-cash charge related to the Dr.Ci:Labo® skin health business following a change in strategy and weaker forecasts for China. Restructuring expenses of $48 million and higher selling, general, and administrative expenses, which rose to $1.64 billion from $1.52 billion, also contributed.
Is Kenvue still majority-owned by Johnson & Johnson?
No. The filing states that following the Debt for Equity Exchange completed on May 17, 2024, J&J no longer owned any shares of Kenvue common stock. Kenvue became a fully independent company after the August 2023 Exchange Offer.
What is the company's exposure to talc-related liabilities?
The Separation Agreement provides that J&J retained liabilities for talc or talc-containing products sold by J&J or its affiliates in the United States and Canada, and agreed to indemnify Kenvue for those Talc-Related Liabilities. Kenvue remains responsible for talc-related liabilities for products sold outside the United States and Canada.
How is the company funding its dividends and share repurchases?
In the first six months of 2024, Kenvue paid $766 million in dividends and $91 million to purchase treasury shares. Operating cash flow was $727 million for the period. Management believes existing cash and cash generated from operations will be sufficient to service current obligations for at least the next 12 months. The company also has a $4.0 billion revolving credit facility, which had no outstanding balance, and a commercial paper program with $668 million outstanding.
What litigation risks are disclosed in the filing?
The filing describes multiple product liability and class action matters, including claims that acetaminophen in utero exposure is associated with autism and ADHD, phenylephrine efficacy claims, and benzoyl peroxide benzene claims. It also describes securities and derivative suits related to phenylephrine disclosures. Management states the ultimate outcome is not expected to have a material adverse effect on financial position, but the company cannot reasonably estimate the likelihood or magnitude of potential liability for several of these matters.
06—Continue