Executive Summary / Key Takeaways

• Kenvue, the pure-play consumer health leader, is undergoing a significant transformation post-separation from Johnson & Johnson (JNJ), focusing on operational efficiency, increased brand investment, and a performance culture to drive profitable growth.
• First Quarter 2025 results showed a 3.9% net sales decline (-1.2% organic), impacted by unfavorable FX, destocking in Asia, and strategic price investments in the US, but demonstrated gross margin expansion and sequential consumption improvement in key areas like US Skin Health and Beauty.
• The company maintains its 2025 organic sales growth outlook of 2% to 4%, anticipating a stronger second half driven by lapping first-half headwinds, increased innovation (40% more launches), and benefits from revenue growth management and operational efficiencies.
• The 2025 adjusted operating margin is now expected to contract slightly (vs. prior expectation of expansion), and adjusted diluted EPS is projected to be about flat (vs. prior flat to up 2%), primarily due to the estimated $150 million gross impact of incremental tariffs and unfavorable foreign exchange rates.
• Key risks include the impact of tariffs, ongoing legal proceedings related to product liabilities (talc, acetaminophen, Zantac, PE, BPO), potential market softness, and the successful execution of strategic initiatives and the Skin Health and Beauty turnaround.

The Genesis of a Pure-Play Leader

Kenvue Inc. stands today as the world's largest pure-play consumer health company, a status achieved through a deliberate and complex separation from its former parent, Johnson & Johnson. This journey, initiated with an announced intention in late 2021 and culminating in full independence in August 2023, has fundamentally reshaped the business. Kenvue inherited a portfolio of iconic, trusted brands spanning Self Care, Skin Health and Beauty, and Essential Health segments, built on over a century of heritage. The separation process itself involved the intricate transfer of assets and liabilities, the establishment of standalone operational capabilities, and the unwinding of numerous Transition Services Agreements (TSAs) with JJ, a process successfully completed in April 2025 without significant disruption. This foundational shift has allowed Kenvue to sharpen its focus solely on the consumer health market, tailoring its strategy, investments, and organizational structure to this specific landscape.

The strategic imperative post-separation has been clear: transform into a more agile, efficient, and competitive standalone entity capable of accelerating profitable growth. This involves reaching more consumers effectively, freeing up resources to invest more significantly behind its brands, and fostering a high-performance culture. Initiatives like the "Our Vue Forward" multi-year restructuring program, approved in May 2024 and targeting $350 million in annualized pre-tax gross cost savings by 2026, are central to this transformation, aiming to optimize the cost structure through workforce reductions, management changes, and centralized shared services. The move into a new global headquarters in Summit, New Jersey, in March 2025, consolidating multiple US locations, is another step intended to enhance collaboration and speed.

Competitive Arena and Differentiated Strengths

Operating at the intersection of healthcare and consumer goods, Kenvue competes in a dynamic global market against a mix of large, diversified consumer goods companies and more specialized players. Key rivals include giants like Procter & Gamble (PG), Unilever (UL), and Colgate-Palmolive (CL), who compete across various segments, as well as numerous smaller, regional, and private-label competitors.

Kenvue's competitive positioning is anchored by its portfolio of science-backed, professionally recommended brands. In Self Care, brands like Tylenol and Zyrtec hold number one positions in pain and allergy in the US, consistently gaining share and widening the gap against competitors. Listerine dominates the Oral Care segment globally, significantly larger than its nearest rival. In Skin Health and Beauty, Neutrogena maintains a number one position in US face care. This leadership is not merely historical; it is actively reinforced through strategic investments in innovation, marketing, and engagement with healthcare professionals (HCPs). For instance, Kenvue has doubled its professional sales force and increased sampling efforts, leading to higher dermatologist recommendations for brands like Neutrogena.

The company's differentiation stems from its deep scientific expertise and focus on efficacy, leveraging its heritage to build trust with both consumers and HCPs. While specific, quantifiable technological advantages in product formulation beyond general claims of superiority (e.g., Band-Aid Pro Heal improving wound healing by 60%, Neutrogena sun protection blocking up to 98% UVA/UVB) are not extensively detailed with specific metrics, the emphasis on "superior science" and "insights-led innovation" is a core strategic pillar. R&D efforts are focused on developing new products and extending existing lines, with a planned 40% increase in innovation launches in 2025 compared to 2024. Examples like Tylenol Easy to Swallow, Listerine Clinical Solutions, and Neutrogena Collagen Bank highlight this focus on premium, differentiated offerings. The company is also leveraging technology to enhance operations, including a new global ERP system implementation and a 5-year collaboration with Microsoft (MSFT) utilizing AI for digital transformation. While these operational tech advancements don't directly impact product performance, they are intended to improve agility, efficiency, and data management, indirectly supporting competitiveness.

However, Kenvue faces competitive pressures, including from private-label brands, although management notes limited global exposure and no significant down-trading trend in its categories. The rapidly changing retail landscape and evolving consumer preferences, particularly noted as challenging in China for the Skin Health and Beauty segment, also present competitive hurdles. Compared to larger, more diversified peers like PG and UL, Kenvue's focused portfolio offers potential for deeper category expertise but may lack the same scale advantages in procurement or broad distribution networks. Against more specialized competitors like CL in oral care, Kenvue leverages its broader health credentials and premium offerings. The company's strategic response involves targeted price and trade investments in key markets like the US to ensure competitive value propositions, alongside increased brand building.

Performance and Financial Health

Kenvue's financial performance in the period following its separation reflects both the inherent resilience of its categories and the challenges of establishing a standalone entity amidst dynamic external conditions.

For the fiscal three months ended March 30, 2025, Kenvue reported Net sales of $3,741 million, a decrease of 3.9% compared to $3,894 million in the prior-year period. This decline was primarily driven by a 2.7% unfavorable impact from foreign currency exchange rates and a 1.2% decrease in Organic sales. The organic decline stemmed from a 0.9% volume decrease and 0.3% unfavorable value realization (price/mix). This performance was notably impacted by decreases in Skin Health and Beauty (due to competitive pressures, strategic price investments, and distribution losses) and Self Care (weak cough/cold/pediatric pain season outside the US, China destocking), partially offset by growth in North America Self Care (Allergy Care, Pain Care).

Despite the top-line pressure, Gross profit margin expanded by 40 basis points to 58.0% in Q1 2025, primarily benefiting from supply chain optimization initiatives, though partially offset by volume deleverage and unfavorable value realization. Selling, general, and administrative expenses decreased by 2.3% to $1,537 million, reflecting savings from the "Our Vue Forward" initiative and lower separation-related costs, although brand support investments increased in Skin Health and Beauty and Essential Health. Restructuring expenses increased to $60 million in Q1 2025, driven by higher IT and project costs related to the transformation. Operating income saw a slight increase to $558 million from $550 million in Q1 2024, benefiting from lower impairment charges (none in Q1 2025 vs. $68 million in Q1 2024 related to the former HQ). Net income for Q1 2025 was $322 million, up from $296 million in Q1 2024, resulting in diluted EPS of $0.17 compared to $0.15.

Looking back at full year 2024, Kenvue reported Net sales of $15.46 billion, with organic sales growth of 1.5%, tracking towards the low end of its initial guidance range. This was attributed to the pace of recovery in Skin Health and Beauty and softer category dynamics in the back half, including lower-than-expected cold, cough, and flu incidence and distributor issues in China. However, the company met or exceeded profitability expectations, with adjusted gross margin expanding 200 basis points to 60.4% and adjusted operating margin reaching 21.5%, reflecting strong productivity gains and cost savings that funded a significant increase (~20%) in brand investment.

From a liquidity standpoint, Kenvue appears well-positioned. As of March 30, 2025, cash and cash equivalents stood at $1,057 million. Net cash flows from operating activities increased significantly to $428 million in Q1 2025 compared to $287 million in Q1 2024, driven by favorable working capital changes. While net cash flows were used in investing ($167 million) and financing ($310 million) activities in Q1 2025 (including debt repayment, dividends, and share repurchases), the company maintains access to a $4 billion revolving credit facility (undrawn as of March 30, 2025) and a $4 billion commercial paper program ($1,676 million outstanding). Management believes these resources, combined with expected operating cash flows, provide adequate liquidity for current and long-term obligations, capital expenditures, and strategic investments. Free cash flow conversion in 2024 was impacted by separation-related costs and investments in the "Our Vue Forward" program, but the company has a stated long-term target of 90-100% conversion post-transformation.

Outlook and Path Forward

Kenvue's outlook for 2025 reflects a year of continued transformation and expected acceleration, albeit with new external pressures. The company is maintaining its core Organic sales growth outlook in the range of 2% to 4%. This is based on an expectation that its weighted categories will grow between 2% and 3%, with Kenvue aiming to grow faster than the market, particularly in the second half of the year.

The first half of 2025 is anticipated to be muted, with organic sales expected to decline low single digits in Q1, burdened by approximately 3-4 points of headwinds from lingering destocking (especially in Asia) and strategic price and trade investments in the US. These headwinds are expected to moderate in Q2, paving the way for stronger organic sales growth in the back half. Confidence in this acceleration is driven by the expected compounding benefits from the structural changes and investments made in 2024, the full activation of the new operating model, a planned 40% increase in innovation launches, and anticipated benefits from revenue growth management and operational efficiencies. The company expects 2025 organic sales growth to be volume-led.

The financial outlook for 2025 has been impacted by external factors since the initial guidance. Based on current foreign exchange rates, the company anticipates approximately a 1% drag on the top-line, resulting in a Net sales growth range of 1% to 3%. More significantly, the estimated gross impact of incremental tariffs implemented by the US and retaliatory measures by other countries is approximately $150 million for fiscal year 2025. While Kenvue is implementing mitigation actions (productivity, alternate sourcing, supply chain optimization), it does not expect to fully absorb this impact in 2025. As a result, the Adjusted operating margin is now expected to contract slightly for the full year (compared to a prior expectation of expansion), and Adjusted diluted EPS is projected to be about flat versus 2024 (compared to a prior range of flat to up 2%). On a constant currency basis, adjusted diluted EPS is still expected to grow low-single-digits.

Segment-wise, Kenvue expects Self Care organic sales growth to accelerate from 2024 levels, building on strong leadership positions. A key focus is returning the Skin Health and Beauty segment to growth on a global basis in 2025, leveraging improved consumption trends, increased brand investment, and a strong innovation pipeline. Essential Health is expected to deliver more moderate organic sales growth as pricing rolls off, with broad-based growth across categories.

Risks and Challenges

Despite the strategic focus and anticipated acceleration, Kenvue faces several notable risks. The estimated $150 million gross impact from tariffs in 2025 represents a material headwind to profitability that the company cannot fully offset in the current year, potentially pressuring margins and requiring careful management of pricing and costs.

Ongoing legal proceedings pose significant potential liabilities. These include numerous product liability claims related to talc (outside the US/Canada), acetaminophen (alleging links to autism/ADHD), OTC Zantac (alleging NDMA degradation and cancer links), orally administered phenylephrine (following FDA panel findings on efficacy), and benzoyl peroxide acne products (alleging benzene degradation). While the company accrues for probable losses where estimable, the potential magnitude and likelihood of loss for many of these matters are currently unable to be reasonably estimated, and adverse outcomes could materially impact financial condition, results of operations, or cash flows.

External market dynamics, including potential category deceleration below the company's 2-3% base case assumption, continued volatility in seasonal businesses, and cautious retailer order management, could impact sales performance. The successful execution of the Skin Health and Beauty turnaround plan is critical, and the pace of recovery in this segment remains a key factor to watch. Furthermore, while TSA exits are complete, the multi-year implementation of a new global ERP system introduces operational complexity and potential risks to internal controls.

Conclusion

Kenvue is navigating a pivotal phase in its evolution as an independent consumer health leader. The first quarter of 2025 highlighted the near-term pressures from external factors and strategic adjustments, resulting in a top-line decline. However, it also demonstrated underlying operational strength through gross margin expansion and encouraging signs of sequential consumption improvement in key areas like US Skin Health and Beauty, suggesting that strategic investments and transformation efforts are beginning to yield results.

The core investment thesis rests on Kenvue's ability to leverage its portfolio of iconic, science-backed brands, enhance operational efficiency through initiatives like "Our Vue Forward," and strategically reinvest in innovation and brand building to drive accelerated profitable growth. The outlook for a stronger second half of 2025, fueled by increased innovation and the dissipation of temporary headwinds, provides a clear path for investors to monitor progress. While new challenges, particularly the impact of tariffs on profitability, necessitate a revised financial outlook for 2025, the company's commitment to its long-term strategy and cash generation capabilities remains central. The successful execution of the Skin Health and Beauty turnaround and the effective mitigation of tariff impacts are critical factors that will shape Kenvue's trajectory and its ability to deliver sustainable value creation in the years ahead.