Why did reported diluted EPS decline so sharply in the second quarter?

The decline was primarily due to a non-cash charge of $488 million ($337 million after-tax) to adjust the carrying value of long-lived assets related to the Dr.Ci:Labo® business, which the company attributed to strategy updates and shifts in consumer sentiment and shopping patterns in China. Diluted EPS was $0.03 versus $0.23 in the prior year period.

Is the underlying business performing better on a margin basis?

Gross margin improved significantly, with gross profit margin up 360 basis points to 59.1% and adjusted gross profit margin up 410 basis points to 61.6%, attributed to supply chain efficiency initiatives, commodity pricing, and value realization. However, adjusted operating income margin declined slightly to 22.8% from 23.1% because increased brand investment more than offset the gross margin expansion.

What drove the sales results in the quarter?

Net sales decreased 0.3% to $4.0 billion. Organic growth was 1.5%, comprised of 2.1% value realization from carry-over pricing and new price actions, partially offset by (0.6)% volume. Volume declines were driven primarily by Skin Health and Beauty and Self Care, partially offset by growth in Essential Health.

Has Kenvue changed its full-year guidance?

No. Based on current spot rates, Kenvue reaffirmed its 2024 outlook, including net sales growth of 1.0%-3.0% (2.0%-4.0% organic growth) and adjusted diluted EPS in the range of $1.10-$1.20. The company noted it cannot reconcile forward-looking adjusted diluted EPS or organic growth to GAAP measures without unreasonable efforts.

How did the company's debt and cash position change?

Cash and cash equivalents were $1.0 billion at June 30, 2024, down from $1.4 billion at December 31, 2023. Total debt was $8.5 billion, up from $8.3 billion, and net debt was $7.5 billion, compared with $6.9 billion at year-end 2023. Free cash flow for the six months ended June 30, 2024 was $0.5 billion, versus $1.4 billion a year earlier.

KVUE 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 6, 2024. Cited figures are marked; the original filing is the authoritative source.

Kenvue Inc. (NYSE: KVUE) reported results for the fiscal second quarter ended June 30, 2024, furnishing a press release as Exhibit 99.1 under Item 2.02.

Net sales were $4.0 billion^a, down 0.3% from the prior year period, while organic growth was 1.5%, comprised of 2.1% value realization (price and mix) and (0.6)% volume. Gross profit margin expanded 360 basis points to 59.1%, and adjusted gross profit margin expanded 410 basis points to 61.6%, reflecting supply chain productivity gains and value realization. However, diluted EPS fell to $0.03 from $0.23, primarily due to a non-cash long-lived asset impairment charge of $488 million ($337 million after-tax) tied to the Dr.Ci:Labo® business.

Adjusted diluted EPS was $0.32^b versus $0.31 a year earlier. Operating income margin fell to 3.9% from 17.5%, and adjusted operating income margin was 22.8% versus 23.1%, as brand investment increased. The effective tax rate was 10.8% versus 32.7%, driven by the reversal of a deferred tax liability related to the Dr.Ci:Labo® impairment.

Net debt was $7.5 billion^c at June 30, 2024, compared with $6.9 billion at December 31, 2023, and free cash flow for the six months was $0.5 billion versus $1.4 billion a year earlier. Kenvue reaffirmed its 2024 outlook, including net sales growth of 1.0%-3.0% (2.0%-4.0% organic growth) and adjusted diluted EPS of $1.10-$1.20, based on current spot rates. Management stated it is accelerating investment in its brands following productivity gains.

02—Key points

Key Highlights

Net sales of $4.0 billion, down 0.3% year over year; organic growth of 1.5% (value realization +2.1%, volume (0.6)%).
Gross profit margin rose 360 basis points to 59.1%; adjusted gross profit margin rose 410 basis points to 61.6%.
Diluted EPS of $0.03 versus $0.23 prior year, driven by a $488 million non-cash Dr.Ci:Labo® long-lived asset impairment ($337 million after-tax); adjusted diluted EPS of $0.32 versus $0.31.
Operating income margin of 3.9% versus 17.5%; adjusted operating income margin of 22.8% versus 23.1% as brand investment offset gross margin gains.
Effective tax rate of 10.8% versus 32.7%, reflecting reversal of a deferred tax liability tied to the Dr.Ci:Labo® impairment.
Net debt of $7.5 billion at June 30, 2024, up from $6.9 billion at December 31, 2023; free cash flow of $0.5 billion for the six months versus $1.4 billion a year earlier.
2024 outlook reaffirmed: net sales growth of 1.0%-3.0% (2.0%-4.0% organic) and adjusted diluted EPS of $1.10-$1.20.

03—Questions

Frequently Asked Questions

Why did reported diluted EPS decline so sharply in the second quarter?
The decline was primarily due to a non-cash charge of $488 million ($337 million after-tax) to adjust the carrying value of long-lived assets related to the Dr.Ci:Labo® business, which the company attributed to strategy updates and shifts in consumer sentiment and shopping patterns in China. Diluted EPS was $0.03 versus $0.23 in the prior year period.
Is the underlying business performing better on a margin basis?
Gross margin improved significantly, with gross profit margin up 360 basis points to 59.1% and adjusted gross profit margin up 410 basis points to 61.6%, attributed to supply chain efficiency initiatives, commodity pricing, and value realization. However, adjusted operating income margin declined slightly to 22.8% from 23.1% because increased brand investment more than offset the gross margin expansion.
What drove the sales results in the quarter?
Net sales decreased 0.3% to $4.0 billion. Organic growth was 1.5%, comprised of 2.1% value realization from carry-over pricing and new price actions, partially offset by (0.6)% volume. Volume declines were driven primarily by Skin Health and Beauty and Self Care, partially offset by growth in Essential Health.
Has Kenvue changed its full-year guidance?
No. Based on current spot rates, Kenvue reaffirmed its 2024 outlook, including net sales growth of 1.0%-3.0% (2.0%-4.0% organic growth) and adjusted diluted EPS in the range of $1.10-$1.20. The company noted it cannot reconcile forward-looking adjusted diluted EPS or organic growth to GAAP measures without unreasonable efforts.
How did the company's debt and cash position change?
Cash and cash equivalents were $1.0 billion at June 30, 2024, down from $1.4 billion at December 31, 2023. Total debt was $8.5 billion, up from $8.3 billion, and net debt was $7.5 billion, compared with $6.9 billion at year-end 2023. Free cash flow for the six months ended June 30, 2024 was $0.5 billion, versus $1.4 billion a year earlier.

04—Continue

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