Kenvue Inc.

Hello and welcome to the Kenview fourth quarter and full year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sophia Ticinis, head of investor relations for Kenview.

Good morning, everyone, and welcome to Canvy's fourth quarter and full year 2024 earnings conference call. I'm pleased to be joined today by Tiba Mongon, Chief Executive Officer, 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, expectations, or assumptions about future events, and are subject to various risks, uncertainties, and changes that are difficult to predict and 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 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 U.S. GAAP. These non-GAAP financial measures should be viewed in conjunction with the most directly comparable U.S. GAAP financial measures and are not presented as substitutes for or superior to those most directly comparable U.S. GAAP financial measures. Those most directly comparable U.S. GAAP financial measures and a reconciliation of our non-GAAP items to their respective nearest U.S. GAAP measures can be found in this morning's earnings press release and our presentation, available on our IR page of Canview's website, investors.canview.com. With that, I'll turn it over to Thibault.

Thank you, Sophia. Good morning, everyone, and thank you for joining us today. I'll begin by sharing our performance and progress in 2024, then provide a review of our results for the fourth quarter. I will close by discussing our outlook for 2025, with Paul building on some of these topics later in the call. Our organic sales growth for the year was 1.5%. This was below our expectations, and we are not satisfied with it. As we will discuss later, this was due in part to lower than expected incidences of cough, cold, and flu, which negatively impacted our pediatric pain franchise, and a reduction in distributor orders in Asia Pacific, particularly China. While top line missed our expectations, we met or exceeded our expectations on other fronts. We meaningfully expanded our adjusted gross margin and took significant costs out of our infrastructure, which enabled us to increase investments in our brands. And we delivered adjusted diluted EPS for the year of $1.14, squarely within our guidance range. At the start of 2024, we outlined three priorities for Canview. Reaching more consumers, freeing up resources to invest behind our brands, and fostering a new culture that rewards performance and impact. While we still have work ahead of us to accelerate growth, we make progress on each one of these priorities. So let me take each one in turn. First, to reach more consumers across our three segments, we strengthen our presence and prominence in-store and online, launch impactful innovation, and expand and deepen our engagement with consumers and healthcare professionals. In self-care, we strengthen our leadership positions with nearly 80% of the segment gaining share, including our largest brands, Tylenol, Zyrtec, and Nicorette, amongst others. In essential health, we grew mid-single digits, and we delivered volume growth in North America, EMEA, and Latin America. And in skin health and beauty, we grew both volume and value in EMEA and Latin America, while exiting the year with volume growth in the U.S. We expect to build on this momentum to accelerate volume and organic sales growth in 2025. Second, we are taking significant cost out of the business to enable us to increase investment in our brands. And here we are ahead of our plans. We continue to expand adjusted gross margin with an increase of 200 basis points year over year to a competitive 60.4% driven in large part by strong productivity enhancement in our operations, the muscle that we continue to build at Canview. To put this into a longer term perspective, this is more than 400 basis points ahead of pre-COVID levels. In addition, we successfully executed the first year of Our View Forward, our two-year initiative to become a more agile organization with a more efficient cost structure and are well on track to deliver $350 million of annualized savings by 2026. As a result of these actions, we were able to increase our total brand investment for the year by about 20%, a significant step toward our plan to reinvest more competitively in the growth of our brands. We invested in three areas. We increased our advertising budget to 10.6% of sales in 2024, compared to 8.7% in the power year, and pivoted to social media influencer-led campaigns, which helped us expand our reach and fuel stronger Brown Health. We also ramped up our investment in healthcare professional engagement. In the U.S., for example, Neutrogena is now at its highest level of average recommendations by dermatologists in the phase category in the last four years. And we invested in stronger in-store presence and prominence, which, for example, contributed to the rapid expansion of Neutrogena Aveeno NOGX in Europe. Third, we have fundamentally shifted the way we work to embrace a culture of performance and impact across Canview. We introduced a new performance and incentive model directly tied to business outcomes, focusing all CanViewers on our key priorities. And to complement our existing talent, we brought in new team members to elevate our capabilities and expertise across key areas of our business. We also enhanced our operating model, establishing global brand development teams who are responsible for growing their brands globally with integrated strategies, relevant innovation, and impactful communications. This model, now operational in 2025, is not only more effective, but more efficient, avoiding duplications of effort and driving greater accountability. Now I'd like to turn to our fourth quarter results. In Q4, we delivered organic sales growth of 1.7% and adjusted diluted EPS of 26 cents. While we were tracking in line with our organic sales growth outlook through November, Growth fell short of our expectations in December, primarily due to two factors. One, much lower than expected incidences of cold, cough, and flu had an outsized impact on our pediatric pain franchise in the U.S. and in China. And two, we had a reduction in customer orders in Asia Pacific, particularly in China, where we experienced temporary disruption in our distribution network for essential health and skin health brands. This was driven by secondary distributors who faced liquidity issues and did not fully execute activation programs. We're in the process of replacing these underperforming distributors and reclaiming direct responsibility for activation with key local retailers to avoid this issue in the future. These two factors were unfortunately large enough to mask real progress in the other parts of our business. To help further dimensionalize the impact of the significant decline of pediatric pain incidents on our revenue, Total company organic sales growth without this franchise would have been about two points higher in the fourth quarter and about one point higher for the full year 2024. Now looking at each segment, I'll begin with self-care, which grew organic sales by 2.9% in the fourth quarter. As noted, the low flu season led to a double-digit decline over the last year in a pediatric pain franchise, as the category contracted over 40% in China and nearly 11% in the US, our two largest markets. December was much weaker than our and industry projections, as a typical peak in pediatric incidences did not occur. Retailers responded by limiting their orders, and in China by starting to reduce the inventories they built ahead of the season. Without pediatric pain, this was a terrific quarter for our self-care segment, with organic cells growing high single digits, as Nicorette grew nearly 20%, our digestive health franchise grew mid-teens, and allergy grew high single digits. We continue to drive consumer awareness and amplify innovations, such as Tylenol Easy to Swallow, through innovative consumer-centric campaigns. Importantly, we continued to gain share in self-care in the fourth quarter, including in pediatric pain, where we grew share globally by 70 basis points versus last year. In essential health, where organic sales decreased 0.7% in the fourth quarter, we faced a material headwind from the decline in customer orders in Asia Pacific, particularly China, that I discussed earlier. Importantly, we do not see this decline in orders reflecting the rate of consumption in the region. Outside of Asia Pacific, the segment grew at a healthy mid-single digit rate in Q4, with a third consecutive quarter of volume growth. Innovation continues to play an important role as we drive household penetration in these categories where we command leadership positions. For example, we continue to expand Listerine Clinical Solutions in the U.S., where the line was the number one innovation in 2024. Our Aveeno Kids range is the fastest growing line in its U.S. category, and our BoundAid ProHeal innovation continues to do very well, driving more than a third of our wound care growth in the U.S. for the year. Finally, in skin health and beauty, we delivered volume-led 2.6% organic cells growth for the quarter, albeit on a soft base. EMEA and Latin America continue to be growth engines for the segment, and we drove volume-led double-digit organic cells growth in the quarter across both regions. In EMEA specifically, Q4 was our 11th consecutive quarter of organic sales growth with all our major brands Neutrogena, Aveeno and OGX growing nicely. And we continue to expand in the region with the launch of Aveeno in 12 central European markets. In North America, we delivered mid single digit organic sales growth during the quarter as we continue to see improvements in the areas we have prioritized thus far. For example, during the fourth quarter, Neutrogena, our largest brand in skin health, regained its position as the number one face care brand in all US channels, offline and online. And our Neutrogena Cleansing Platform, an important entry point for the brand, grew share in the brick and mortar channels in the fourth quarter, with a combined effect of increased points of distribution, attractive entry price points on specific codes, influencer-led consumer communication, and innovation with our new ultra-gentle cleanser line. While 2024 showed the recovery is not linear and is taking longer than anticipated, we remain encouraged by this progress. In 2025, we will amplify our innovations and further strengthen our competitiveness. As an example, as part of our strategic collaboration with Dr. Shah that we announced in Q4, we launched a new major campaign earlier this week featuring artist Tate McRae, our newest Neutrogena ambassador. This is a great example of our ambition for the brand, with a popular global Gen Z music sensation and the most followed dermatologist on social media getting together to recommend the number one face care brand in America. So let's now turn to our outlook for 2025. We are entering 2025 with a challenging external environment, economic uncertainty, geopolitical tensions, and a stronger dollar. In parallel, consumers continue to look for convenience and value, but are not compromising on their health. So given this backdrop, we expect our weighted categories to grow below historical average in 2025 in the range of 2% to 3% in the geographies where we compete. At Canview, we are now approximately 90 days from completing what has been a long and resource-intensive operational separation from J&J. To put it in perspective, We exited over 2,000 TSAs in more than 50 countries through the end of 2024 without business disruption. Having now completed approximately 85% of the planned exits, our team continued to find better, simpler, and more cost-effective ways to operate as an independent company. And as one of the last steps in this separation, we'll officially open our new Canview headquarters in Summit, New Jersey next month. With TSA exits behind us in 2025, we are ready to enter the next chapter of our journey as an independent company with our number one priority being centered on accelerating profitable growth and generating sustainable value creation. We expect to deliver 2 to 4% organic sales growth in 2025 and grow revenue faster than our categories in the second half of the year. We are confident in our outlook for 2025 for several reasons. First, we will realize the compounding benefits from the structural changes we implemented in 2024. This year, we will fully activate our new operating model with strong talent, a leaner organization, greater efficiencies, and clear roles and responsibilities. Our brands will benefit from a second year of higher investment levels supported by a healthier P&L with stronger gross margins and lower infrastructure costs. And we will be more agile and move faster, enabled by technology and capabilities that are right for Canview as a standalone consumer health company. And second, we have strong plans to drive momentum across our three segments in 2025. We will launch 40% more innovation compared to 2024, which will further strengthen our portfolio through premiumization, extension into adjacencies, and attractive entry price points. We expect net distribution gains this year, driven by the healthy innovation lineup and strengthened retailer partnerships leading to higher prominence of our brands. And our brands will be supported by more competitive trade and marketing investments with stronger partnerships with celebrities, influencers, and healthcare professionals. We have streamlined our roster of advertising agencies and have recently launched our new global content factory, which will drive more impactful content with greater efficiencies. We'll have the opportunity to talk more about our 2025 plans and our next chapter at Cagney later this month. While our innovation and marketing support are expected to be equally strong throughout the year, our first half results will not reflect the underlying health of our business as they will be negatively impacted by two main factors. De-stocking, largely due to the lingering impact of the weak pediatric pain season and the disruption we are correcting in China. and the strategic investment we are making in selective price reductions and trade spend in the U.S. to improve our competitiveness. Importantly, while reinvesting in our brands, we will continue to be extremely disciplined in the management of our P&L, and we expect to expand adjusted operating margin in 2025. And with that, I'll turn it over to Paul.