Kenvue Inc.

Greetings and welcome to the Kenview second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tina Romani, head of investor relations for Kenview. Thank you. Tina, you may begin.

Good morning, everyone. Joining me on the call today is our Chief Executive Officer, Thibaut Mangon, and our Chief Financial Officer, Paul Roux. Please note that today's call will include forward-looking statements regarding, among other things, our operating and financial performance, market opportunities, and our growth. These statements represent our current beliefs or expectations about future events and are subject to various risks uncertainties and assumptions that could cause our actual results to differ materially. For information regarding these risks and uncertainties, please refer to our earnings materials related to this call posted on our website and our filings with the SEC. During this call, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this morning's press release and our presentation available on our IR website. With that, it's my pleasure to turn the call over to Thibault.

Thank you, Tina. Good morning, and thank you for joining our second quarter earnings call and our very first as a public company. Our recent IPO marked an important and exciting milestone in Canview's history over the last 135 years, We have established ourselves as the world's largest pure-play consumer health company, and now, as a standalone company, we are looking forward to building on our strong heritage and continuing to deliver on our purpose to realize the extraordinary power of everyday care. Before we begin, as you may have seen this morning, Johnson & Johnson announced their intended next step in the separation of Kenview. At this point, we are very limited on what information we can provide other than what has been made public. And as a result, we will not be able to discuss any further details at this time. What I can tell you is that we are ready to take on the next phase in our journey to becoming a fully independent company. For today's call, I'll begin with an overview of our second quarter results. Paul will then take you through a more detailed view of our Q2 financials and 2023 outlook. and then Paul and I will be happy to answer any questions you may have. But first, let me begin with our strong results this quarter. With over $4 billion in net sales, Q2 was one of the strongest quarters in our 135-year history and certainly the strongest since the beginning of our business transformation in 2019. Organic sales grew 7.7%, bringing our first half organic growth to a very strong 9.4%. Similar to Q1, our growth was broad-based across all segments of our portfolio and across all geographic regions. So this quarter was yet another proof point showcasing the power of our portfolio. Our three segments did well. We saw double-digit growth in self-care, continued recovery in skin health and beauty, and growth ahead of our long-term expectations in essential health. Further, we delivered balanced growth across all geographic regions, with North America contributing about half of the growth, with all other regions representing the remainder. There were several portfolio highlights in the quarter, but let me focus your attention on a few standouts. In pain and in cough and cold care, we saw higher incidence rates drive continued demand for our leading brands, such as Tylenol, Motrin, and our other brands in these need states. Across our self-care portfolio, we see innovation, premiumization, and healthcare professional recommendations all fueling market share growth for many of our brands. In skin health and beauty, Our performance in sun care showed the power of our brands as we see continued recovery after a period of disruption. Innovation, improved supply, and strong commercial execution contributed to sustained market share growth for Neutrogena Sun this season. In essential health, our Listerine mouthwash superiority claim over dental floss is being deployed around the world, And our Listerine Gum Therapy product in the U.S. is ranked number one new code in the mouthwash category this quarter. And we continue to see the power of BoundAid, where consumer-led innovation and strong customer partnerships delivered another strong quarter. BoundAid was also recognized in the quarter as America's most trusted brand for 2023 by Morning Consult, and this is the second year in a row that BoundAid has earned the top spot. With the macro environment continuing to be challenging, consumers are increasingly more choiceful with their purchase decisions. In the consumer health space, though, they turn to brands and products they know and trust, and we have many of those brands in our portfolio. We see this playing out in the value-volume dynamics of Canview this quarter. While value represented 9.4 points of growth, volumes only declined 1.7 points. and excluding the impact of our own intentional decisions like portfolio rationalization or suspension of our personal care business in Russia, volumes were about flat this quarter. Important to note that we delivered this exceptionally strong first half of the year in part thanks to the investment we have made in our supply chain, building capacity and resiliency. While service levels will continue to be a focus area for us, we have made significant progress that have allowed us to capitalize on and deliver against the unique demands of the first half of the year. Regarding our margins, they continue to be healthy fundamentally when excluding non-operational impacts such as FX or stand-up company costs. Inflationary pressures, though moderating, continue to be meaningful, but this quarter again, we use a combination of strategic value realization, both price and mix, and productivity initiatives in our operations to offset a significant portion of these costs, which Paul will get into in just a moment. So net, a strong quarter showing the power of our world-class portfolio of category-leading brands that includes many of the most recognizable household names across consumer health. Which brings me to Canview's greatest source of competitive advantage. With a sole focus on consumer health, Every day, our 22,000 CanViewers are committed to delivering science-based innovative solutions that increase relevancy with consumers and strengthen credibility with healthcare professionals. These relationships have been cultivated over decades through innovations supported by rigorous science based on our vast clinical research capabilities and meaningful cross-category consumer insights. As a result, brands across our portfolio have a long history of recommendations by healthcare professionals and are often the number one most recommended brand in their respective categories, which ultimately fosters lifelong loyalty to our brands, loyalty that is passed down from generation to generation. Our first half results exemplify this loyalty and consumers' desire for our efficacious products. While consumers may be trading down in more discretionary and traditional staple categories, we have not seen this dynamic in our portfolio. Consistent with what we have seen historically during times of challenge and uncertainty, private label penetration for our categories remains stable on a global basis this quarter. Our first half results also reflect the unique opportunity we have to expand usage occasions across the spectrum of consumer health. There is no limit for consumers to take care of their own health, and for Canview, there is no limit to finding new ways to help consumers take care of their health. The categories in which we operate tend to be underdiagnosed, undertreated, and underpenetrated. Using sun care, for example, since we are in the middle of the summer season, it's estimated that one in five Americans will develop skin cancer in their lifetime. Yet today, a majority of Americans do not use sunscreen on a regular basis. At Kenview, we want to understand why that is, what are the barriers to adoption. That's a tremendous opportunity for us to leverage our extensive capabilities and consumer insights to develop innovative new products to better serve the needs of our consumers. So with this in mind, this year in the U.S., we launched Neutrogena Pure Screen Plus Mineral UV Tint in four shades that blend smoothly to complement skin tones. Our new products are up to 30% less whitening than the leading mineral sunscreen, which is one of the biggest frustrations consumers have. Innovation like these has fueled share gains through better customer retention, increased consumption, and attraction of new consumers to the brand, all driving the strengths we saw in the quarter for Neutrogena Suncare. That's what makes this consumer health space very attractive, the infinite ability to expand usage occasions and give consumers around the world new opportunities to take care of their health. Now, let me take a moment to speak to the strength and agility of our operating model that supported our results. Since 2019, we have made tremendous strides in removing complexity, streamlining our organizational and operational footprint, and simplifying our portfolio while investing in digital and omnichannel capabilities that position us well for the future. Today, we have a resilient portfolio with iconic brands, well-balanced across categories and geographic markets. Our model is designed to drive synergies across our portfolio from shared consumer insights, go-to-market strategies, operation, marketing, innovation, and so on. While we set our strategy and allocate resources at the segment level, all three segments are focused on one single and cohesive end market, consumer health. Take products for children as an example. You'll see products living in self-care with children's Tylenol, in skin health with Neutrogena or Aveeno Sun for kids, or in essential health with Johnson's Baby or Band-Aid. But it's one consumer, one pediatrician, one understanding of the interaction between child and parents that allow us to present ourselves as a preferred partner for everything you need for children's health. And the same applies to the rest of the portfolio. This dynamic is a critical component in understanding the strengths of Canview. In addition, being a pure-play consumer health business both drives efficiency across areas like R&D and advertising and also affords us agility and flexibility. We saw this agility in action this quarter with the Canview team delivering strong performance on multiple fronts, including responding to unprecedented demand for self-care brands. So as you can see, our second quarter results are emblematic of the power of our portfolio. In a dynamic microeconomic environment, we delivered strong top line with operationally healthy margins and solid earnings per share, all of which supported the initiation of our first quarterly dividend as Canview of 20 cents per share. Now looking to the back half of 2023, this year has for sure been an incredible journey for Canview so far. but we have a lot to look forward to with a full-year organic growth expected to be between 5.5 and 6.5%. Paul will take you through the assumptions embedded within our full-year outlook, but I wanted to take a moment to acknowledge the consumer landscape. It continues to be uncertain, and we anticipate market volatility will continue, including in the incidence level for the upcoming winter season. In this environment, and building on the unique nature of the consumer health space, we at Canview will continue to stay focused on what we do best, delivering superior, science-backed, efficacious health solutions to serve the needs of our 1.2 billion consumers around the world who know and trust our brands. In self-care, we will deliver a consistent cadence of innovation and marketing programs to drive growth on our priority brands. You may have seen we just launched Tylenol Precised, where we leverage in self-care our extensive skin health expertise to develop a maximum strength topical pain treatment with rapid absorption and an aesthetically pleasing next-level experience. For me, this is another great example of what we mean by the power of the portfolio with synergies across segments delivering innovative health solutions. Within skin health and beauty, while we expect continued progress on distribution point recovery in the U.S. through the third quarter, we are planning to return to a normal cadence of innovation with a strengthened and more resilient supply chain and reactivation of marketing campaigns to continue to build momentum in our brands. And within essential health, we expect science-backed claims and innovation launches to drive category essentiality and relevance via effective execution while strengthening brand equity in priority markets. So as you can tell, a lot to look forward to in the back half of the year. So in closing, as the largest pure-play consumer health company in the world, and with the unparalleled depth and breadth of our portfolio, we offer a one-stop solution for retailers, positioning Canview as the preferred partner of choice for retailers who want to become the destination for everyday care. This quarter was another strong illustration of the resilience of our categories and the strength of the Canview operating model. None of this would be possible without the passion, commitment, and honest mindset demonstrated by our amazing team of 22,000 Ken viewers who work every day to help consumers realize the extraordinary power of everyday care. I want to acknowledge and recognize them here as we start our journey as a standalone company. To summarize, we feel confident about the future of this business. with the strength of our brands, the power of our portfolio, and our unique competitive advantages, which we believe will enable us to consistently deliver strong performance over time and drive long-term value for all our stakeholders.