Kenvue Inc.

Greetings and welcome to Kenview's third quarter 2023 earnings conference call. My name is Daryl and I'll be your operator today. 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 call, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce you to Kenview's Vice President of Investor Relations, Tina Romani.

Good morning, everyone. I am pleased to be joined today by Tiba Mangan, Chief Executive Officer and Director, and Paul Roux, Chief Financial Officer. Before we get started, I'd like to remind you that today's call includes forward-looking statements regarding, among other things, our operating and financial performance, market opportunities, and 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've also referenced 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 a presentation available on the investor relations section of our company's website, 10view.com. And with that, I'm pleased to turn the call over to Thibault.

Thank you, Tina. Good morning, and thank you for joining us today. I'm pleased to be here with you, hosting our first earning call as a fully independent company. Since our last call, Cambu has formally separated from Johnson & Johnson, and we are now included in the S&P 500 Index, solidifying our place as the world's largest pure-play consumer health company by revenue. It's hard to believe it has only been two months since J&J completed their successful exchange offer, given all we have accomplished this year. So in addition to delivering another healthy quarter with 3.6% organic growth this quarter on top of 4.7% growth last year, we also continue to make tremendous progress standing up KenJu for success as a standalone company. From the creation of legal entities and the transfer of licenses to the development of fit for purpose company policies and build out of systems, our teams continue to execute our separation plan successfully and on time. We remain on track in building a consumer-focused operating infrastructure while simultaneously bringing to life our purpose to realize the extraordinary power of everyday care and delivering profitable growth. Operating in the attractive consumer health space with an unparalleled portfolio of science-backed, healthcare professional-recommended, trusted brands is what drives the resiliency and sustainability of our performance. We do all this in what continues to be a volatile environment and we are conscious of the impact of the current geopolitical and macroeconomic situation on consumer behavior. It is our long track record through economic cycles and our performance this year that gives us confidence in the superiority of our model based on brands that are part of daily rituals and designed for moments that matter. Every day, we continue to make sure our brands are attractive for all consumers and we cultivate their desire for our efficacious, trusted products. Similar to Q2 and consistent with what we have seen historically, while consumers may be trending down in certain discretionary categories, we continue to see strong affinity for our brands and stable private label penetration. As a standalone company, our teams remain focused on advancing consumer health through innovation, bringing new options to market that consumers love, and expanding the reach of our brands in the categories we operate in. And we see this reflected in the healthy performance of our portfolio again this quarter. Starting with our largest segment, self-care, once again this quarter, self-care has demonstrated its ability to serve consumers with trusted solutions when they need them most. Even as unprecedented levels of cold, cough, and flu incidents started to normalize as expected this quarter, we continue to see self-care outperform the market, growing 6.7% on top of a strong 6.9% growth last year, driven by both value realization and positive volumes, with all our product categories growing mid to high single digits. Consumer loyalty to our brands alongside investments in relevant brand activation, introduction of consumer experience, enhancing innovation, and premiumization continue to foster volume growth and share gains. Let me share some examples with you. In digestive health, our Imodium and Pepsi brands are outpacing the market as supply recovery and strong consumer demand underpin growth. As consumer preferences shift away from preventive solutions to immediate relief products, our teams strategically launch successful brand activation campaigns that capitalize on this dynamic, ultimately accelerating our share gains during the quarter. In pain care, even with cold and flu incidence levels down and a slow start to the season so far as the weather in the northern hemisphere remained unseasonably warm, We are gaining shares this year globally through premium innovation and product premiumization. Tylenol, the number one pain brand globally, continues to gain share with successful premiumization initiatives and the reintroduction of product activation and display supporting growth. This is a testament to the brand's leadership, the enviable consumer and healthcare professional trust, and the strength of our teams. Another standout innovation in this category that deserves highlighting is our recently launched Motrin Dual Action product in the U.S. It combines two core ingredients from two iconic brands, Motrin and Tylenol, and the combination of these two brands is resonating with our consumers with eight hours of relief in pain and inflammation, driving share gain for Motrin. Beyond the U.S., we apply a similar winning formula around the world. In China, for example, Motrin recently expanded into more holistic fever solutions with a successful launch of new Motrin fever patches. Within allergy, while the season remains soft with lower incidence levels this year, we have continued to drive accelerated share gains globally and in our largest market, the U.S. Adult Zyrtec has maintained its number one branded share leadership for 77 consecutive weeks now, and Children's Zyrtec achieved number one branded share position to an impactful go-to-market strategy and high-taught outreach to healthcare professionals supporting the successful launch of Children's Zyrtec shoeables last year. We also draw share gains for Benadryl in the U.S. with the launch of our Extra Strength formula and for our Allergy portfolio in China. Smoking cessation had another strong quarter as well. In the UK, our Nicolet team secured a new indication for vaping cessation. Early indications of consumer response have been strong with Nicolet gaining share and increasing household penetration. This new indication demonstrates Canview's credibility in establishing new standards in the category while also highlighting the opportunity for growth in other markets around the world. Through these examples, you see the CanView model at work. We continuously strengthen our leadership positions across product categories, introducing impactful innovations, bringing healthcare professionals new clinical data, and identifying solutions to help address unmet consumer health needs. And we do this successfully, extending the reach of our iconic brands to deliver sustainable growth. Before I wrap on self-care, I want to take a moment to address the U.S. acetaminophen litigation, which we appreciate, based on our engagement with many of you in recent weeks, remains top of mind. As you will understand, I'm limited on what I can say on active litigation. However, given some of the noise and frankly misinformation we have seen lately, I believe we should provide some clarity. Over the past several months, it's important to note that the only meaningful development in the litigation from our perspective has been that FDA continues to maintain the same pregnancy advice on acetaminophen labels that has been in place for decades. This conclusion is based on multiple reviews since 2014, with the most recent being March 2023, that recent studies do not change FDA's view on acetaminophen safety. For us at Canview, nothing is more important than the health and safety of the people we use our products. We are also concerned about the potential for real public health consequences in allowing claims made in courtrooms to influence medical decisions. Acetaminophen is one of the most studied medications in history and is often recommended by doctors as a first-line treatment option for women who have a fever or are experiencing pain during pregnancy, conditions that, when left untreated, are scientifically known to potentially have serious health consequences for both mother and baby, and we continue to stand behind the safety of our product. Getting back to the third quarter and moving to skin health and beauty, while we are executing on our plans to gradually increase performance, with organic growth about flat this quarter, our current results do not reflect our long-term ambition for the segment nor the underlying strength of our brands. There were two primary pockets of weakness this quarter in the segment, which accounted for about two-thirds of the 6.8% volume decline. First, the continued impact of the rationalization initiatives we conducted last year, and second, the general market softness in China. Starting with the first, as a reminder, we made the decision in 2022 to discontinue certain codes to focus on the production of core lines while we were experiencing supply chain disruption. These discontinuations resulted in lost points of distribution in the 2022 U.S. retailer planogram resets. And with planogram resets occurring annually, our first opportunity to regain a portion of these distribution points is with the fall 2023 resets, which are happening as we speak. While we expect to still see an impact of these discontinuations in the fourth quarter as these changes take time to materialize in our results, it's good to see our team securing a number of wins with the customers' resets. Moving to China, we see continued softness in that geography with Chinese consumers being more cautious on spending. As I shared last quarter, we have expected a slower recovery in China, and unfortunately that's what we see happening. We remain positive on the long-term prospect in China, though. We have operated there for many years and have confidence in the market's potential longer term. But we need to be patient, as we expect continued softness in the market in Q4. And our teams on the ground will continue to be agile and allocate resources according to the opportunities they see in the market. Importantly, despite these two distinct dynamics, we were pleased to see sequential quarter over quarter improvements when looking at organic sales on a two-year basis, which factors in some of the unique supply recovery dynamics we are lapping in the back half of 2022. If we look at the performance of skin health by geography now, in the U.S., our largest market, when excluding the impact of discontinuations, we are pleased to see sequential progress in our recovery plan with some of our core platforms gaining share. This quarter, we expanded our beloved Neutrogena HydroBoost line by elevating our science, design, and packaging. This includes upgrading the water gel format with dye-free, fragrance-free options alongside more sustainable packaging, and also introducing our new Hydro Boost water cream, which delivers nine times more lightweight hydration. These two innovations are in the top three new launches in facial moisturizers, and Hydro Boost won the 2023 People's Beauty Award in its category, reflecting its status as a category prototype in hydration. We also had a strong finish to the same season, growing more than 80% faster than the market and regaining our leadership position through experience-enhancing innovation and compelling brand activation, with Neutrogena holding nearly half the top 10 launches of the category. Building on these successes, we continue to deploy our recovery plan and look forward to sequential improvement in the coming quarters. Outside the U.S., I've already spoken about China, but in other markets, we are excited to see positive initial reactions to the reintroduction of innovation and benefits from flow resets completed earlier in the year. This quarter, we have seen skin health and beauty growth meetings in both Latin America and Europe. In Latin America, strong performance was driven by strength in Sun, coupled with positive customer response to the Neutrogena HydroBoost innovation I just talked about. In Europe, momentum continued in Neutrogena and Adeno, with mid-teens growth across priority markets and strong consumer response to the new product innovation our teams launched early in the year. Neutrogena is currently growing twice as fast as the category in Germany, outpacing the competition, fueled by the continued success of our Hydro Boost and Retinal Boost lines. In the UK, Aveeno continues to accelerate its share growth, with the team holding the number one position in body care and also doubling its share in face care less than a year ago. With Europe being the first in the portfolio to launch innovation and completing their flow reset early in the year, we believe this market serves as a leading indicator for the remainder of the globe. While we expect gradual recovery to continue, we acknowledge there is more work ahead. Our brand equities are strong, and these examples of success give us confidence that with the proper support, the segment will deliver over time a level of performance aligned to our long-term ambition. And in essential health, with 3.8% organic growth this quarter, essential health continues to deliver ahead of our long-term growth goals for the segments. Our value realization and premiumization strategies continues to perform well with 10 points of value realization offset by about six points of volume. And about two points of the volume decline can be attributed to the softness in China I just talked about, with the remaining reflecting our prioritization of margin recovery through value realization, as well as certain market and competitive dynamics. Innovation in oral care, premiumization in women's health, and strength in the U.S. baby care are fueling our growth. Starting with mouthwash, we continue to see strength with Listerine gum therapy in the U.S. Recognizing three out of four adults suffer from some form of gum disease in the U.S., you may remember that we launched earlier this year Listerine gum therapy to address this unmet consumer need. Under Listerine, the number one oral care brand on the market, and with acceptance by the American Dental Association, we have seen immediate success post-launch with Listerine Gum Therapy quickly winning and holding the number one new product innovation in the mouthwash category. In addition, we also continue to see positive response from healthcare professionals with our five times-flossing claim gaining traction around the world. And we see the impact in our performance. While being roughly five times larger than the next competitor, Listerine continues to gain share globally through the strength of our innovation, healthcare professional recommendations, and a strong distribution network. In baby care, our global leadership in baby toiletries remains strong. Johnson's Baby and Aveeno Baby are the number one and number two brands in the baby toiletries category globally and are eight times and two times bigger than the next closest competitor, respectively. While we continue to see pressure in Asia, in the U.S., our largest market, We see strong growth, with Johnson's Baby and Aveeno Baby gaining share, with supply recovery, value realization, and the successful launch of Aveeno Kids, which is driving substantial growth, becoming the fastest growing brand in the U.S. kids' toiletries market. Finally, in women's health and wound care, we had another quarter of solid growth. So as you can tell, our Q3 performance exemplifies the power of our portfolio. While we continue to operate in a dynamic environment requiring agility and customer intimacy, I am pleased with the way our teams have been able to deliver on our top-line objectives this quarter and throughout the year. The same applies to the balance of the P&L, and Paul will walk you through the details of our financials. We are pleased with our ability to navigate market dynamics and deliver earnings per share in line with expectations while executing our plan to stand up our standalone company for success. So in closing, we delivered another quarter of healthy growth as a result of the balance we have across our intentionally curated portfolio of iconic brands, the power and agility of our operating model, and the execution of our 22,000 can-be-wells around the world. I want to take this opportunity to thank our teams for their outside-in focus, their owner's mindset, and their daring spirit. As a fully independent company, they demonstrate every day their commitment to deliver innovative healthcare solutions to our more than 1.2 billion consumers around the globe. And with that, I'll pass the call over to Paul to review our financial results in more detail.