Kenvue Inc (KVUE)

[DewDiligence]

Starboard believes Kenvue “must embrace a new marketing-driven culture” and said that under J&J, the division wasn’t prioritized. The firm said there’s an opportunity to get the skin care and beauty division to at least an industry growth rate of 4.4% and highlighted recent examples of improved product marketing.

https://endpts.com/starboard-says-kenvue-skin-and-beauty-lines-need-to-be-reinvigorated/

[DewDiligence]

KVUE +7% on Starboard stake, according to WSJ sources:

https://www.wsj.com/business/deals/activist-starboard-value-takes-stake-in-tylenol-maker-kenvue-cc3175bb

[DewDiligence]

KVUE taps into anti-aging market:

https://finance.yahoo.com/news/kenvue-introduces-patented-micro-peptide-104500089.html

Whether these products actually prevent skin aging is beside the point, if consumers think they do. (Staying out of the sun is still the best way to prevent skin aging.)

[DewDiligence]

KVUE 2Q24 CC transcript:

https://finance.yahoo.com/news/kenvue-kvue-q2-2024-earnings-180020554.html

[DewDiligence]

This Barron's piece on Dividend Aristocrats from 2023 is still a good read:

https://www.barrons.com/articles/johnson-johnson-spinout-kenvue-is-the-new-dividend-aristocrat-6e75a708

[DewDiligence]

KVUE recently increased its dividend to an annualized rate of $0.81:

https://finance.yahoo.com/news/kenvue-increases-quarterly-cash-dividend-104500883.html

At the current share price ($20.58), the new annualized payout is a yield of 3.9%.

[DewDiligence]

KVUE 2Q24 CC slides:

https://s202.q4cdn.com/991673667/files/doc_financials/2024/q2/FINAL-KVUE-2Q24-Earnings_Deck-8524.pdf

[DewDiligence]

KVUE reports 2Q24 results—reiterates 2024 guidance:

https://investors.kenvue.com/financial-news/news-details/2024/Kenvue-Reports-Second-Quarter-2024-Results/default.aspx

2024 guidance remains as follows:

• Sales growth of 1-3%

• Organic sales growth of 2-4% (with a 1% headwind from currency)

• Non-GAAP EPS of $1.10-1.20. This guidance excludes 2024 restructuring costs of $275M or $0.14/sh related to the layoff announced in May 2024 and a $500M non-cash impairment recorded in 2Q24 related to the Dr.Ci:Labo business in China. If we add back the 2024 restructuring costs described above, the 2024 non-GAAP EPS guidance range is $0.96-1.06. At the midpoint of this range ($1.01), the current share price ($20.50) represents a P/E ratio of about 20x.

The stock +13% today because expectations were low and there was no bad news in the quarterly report. Moreover, KVUE is the kind of “defensive” high-dividend stock that is considered a haven during volatile periods.

[DewDiligence]

JNJ divests 9.5% KVUE stake @$20.00/sh:

https://finance.yahoo.com/news/kenvue-announces-pricing-secondary-offering-231300336.html

Kenvue Inc. announced today the pricing of its previously announced secondary underwritten public offering (the "Offering") of 182,329,550 shares of its common stock (the "Shares") at a public offering price of $20.00 per share.

…Kenvue is not selling any shares of common stock and will not receive any proceeds from the sale of the Shares in the Offering or from the debt-for-equity exchange (as described below).

In connection with the Offering, Johnson & Johnson (NYSE: JNJ) is expected to exchange the Shares for indebtedness of Johnson & Johnson expected to be held by Goldman Sachs & Co. LLC and J.P. Morgan (collectively, the "Selling Shareholders"). Following the debt-for-equity exchange, if consummated, the Selling Shareholders intend to sell the Shares to the underwriters in the Offering. After the completion of the Offering, Johnson & Johnson will no longer own any shares of Kenvue’s common stock.

It has always been JNJ’s intention to divest its equity stake in KVUE approximately one year after KVUE’s IPO, so this transaction signifies nothing in particular about KVUE.

[DewDiligence]

The stock is +6% as I'm typing. Investors like cost-cutting.

[DewDiligence]

KVUE reports 1Q24 results—cuts workforce 4%:

https://investors.kenvue.com/financial-news/news-details/2024/Kenvue-Reports-First-Quarter-2024-Results/default.aspx

2024 guidance remains as follows:

• Sales growth of 1-3%

• Organic sales growth of 2-4% (with a 1% headwind from currency)

• Non-GAAP EPS of $1.10-1.20. This excludes 2024 restructuring costs related to the 4% layoff of $275M or $0.14/sh. (A similar amount of restructuring costs is expected in 2025.) If the 2024 restructuring costs were included in the non-GAAP EPS guidance, the range would be $0.96-1.06. At the midpoint of this range, the current share price ($20.05) represents a P/E ratio of about 20x.

CC slides:
https://s202.q4cdn.com/991673667/files/doc_financials/2024/q1/KVUE-Q1-2024-Earnings-Presentation_FINAL_WEBSITE.pdf

[DewDiligence]

KVUE slides from 2/23/24 CAGNY conference:

https://s202.q4cdn.com/991673667/files/doc_events/2024/Feb/23/16307-kenvue-gca-media-relations-cagny-final.pdf

[DewDiligence]

KVUE reports 4Q23 results—issues 2024 guidance:

https://investors.kenvue.com/financial-news/news-details/2024/Kenvue-Reports-Full-Year-and-Fourth-Quarter-2023-Results/default.aspx

2024 guidance for revenue growth is +2-4% in constant currency and +1-3% in USD.

2024 non-GAAP EPS guidance is $1.10-1.20. At the current share price ($19.10), the midpoint of the guidance range represents a forward EPS of 16.6x.

Note: KVUE’s non-GAAP EPS excludes restructuring costs, which were $29M ($0.02/sh) in 4Q23.

4Q23 CC slides:
https://s202.q4cdn.com/991673667/files/doc_financials/2023/q4/FINAL-KVUE-Q4-FY-2023-Earnings-Presentation-2-8-24.pdf

[DewDiligence]

More on the Tylenol ruling:

https://www.wsj.com/health/pharma/court-rejects-claims-linking-tylenol-ingredient-to-autism-adhd-307eccb5

A federal judge dealt a likely fatal blow to hundreds of lawsuits against manufacturers of Tylenol and generic acetaminophen, ruling the plaintiffs don’t have admissible evidence to support claims that using the pain reliever during pregnancy raises a child’s risks of autism or attention-deficit hyperactivity disorder.

In a ruling late Monday, U.S. District Judge Denise Cote in Manhattan said the more than 400 consolidated lawsuits were centered on scientific claims that were fundamentally unreliable.

I.e., the claims were based on junk science.

[DewDiligence]

Based on the volume and price action on Dec 7, KVUE clearly received a favorable indication from the court overseeing the Tylenol class action. I presume the reason this hasn't been reported by the business press is that the court hasn't yet issued a formal ruling.

[KOmani]

Maybe confirmed today after hours?

A Seeking Alpha article stating they had court victory and a little volume with price action.

Could be just a little pump job but seems to be finding a bid at $22

Much easier targets than this for a pump, but you never know.

[DewDiligence]

KVUE is +5% today, so the judge in the Tylenol class-action suit pertaining to pregnancy risk apparently ruled that the plaintiffs cannot introduce their junk science into evidence. A hearing on this matter took place this morning, although I have yet to see confirmation of the ruling.

[DewDiligence]

KVUE reports 3Q23 results—lowers 2023 guidance slightly:

https://investors.kenvue.com/financial-news/news-details/2023/Kenvue-Reports-Healthy-Third-Quarter-2023-Results/default.aspx

3Q23 sales of $3.9B were +3.3% YoY. Organic sales YoY growth (which excludes the effects of FX, acquisitions, and divestitures) was +3.6%, consisting of +7.1% from price/mix and -3.5% from volume, due mainly to lower sales in China.

3Q23 non-GAAP net income was $438M, -25% YoY due in large part to a higher effective tax rate. 3Q23 GAAP and non-GAAP EPS were $0.23 and $0.31, respectively.

Guidance for the full 2023 calendar year is: YoY sales growth of 4.0-4.5% (from the prior range of 4.5-5.5%); and YoY organic sales growth of 5.5-6.0% (from the prior range of 5.5-6.5%); and GAAP EPS of $1.26-1.28 (from the prior range of $1.26-1.31). The reductions are due to a late start to the cold/flu season as well as continued weakness in China.

CC slides:
https://s202.q4cdn.com/991673667/files/doc_financials/2023/q3/2023-Q3-QuarterlyEarningsReport-FINAL_Website_10-26-23.pdf

[DewDiligence]

KVUE director bought $100K of stock on open market yesterday:

https://www.sec.gov/Archives/edgar/data/1944048/000194404823000068/xslF345X05/wk-form4_1693513510.xml

[DewDiligence]

Re: KVUE’s talc liability

After thinking this through, I’ve come to the opinion that KVUE’s talc-litigation risk (which excludes cases in the US and Canada, where JNJ is on the hook) is actually quite small.

One reason why damage awards from consumer-product litigation are so high in the US is that US plaintiffs have the right to request a jury trial. However, this is not the case in many countries of the world, where a judge or magistrate rules on the merits of such cases.

Moreover, even in other countries where jury trials are permitted, these countries do not allow plaintiffs the kind of district “shopping” that occurs in the US, where plaintiffs seek out the friendliest venue in which to try their cases.

All told, these legal differences between the US and most other countries are hugely consequential, IMO.

[DewDiligence]

Re: JNJ’s 9.5% equity stake

Actually, JNJ retained a 9.5% equity stake in KVUE following the split-off, so the phrase, “fully independent” in KVUE’s 8/23/23 PR (in the post I’m replying to) is perhaps misleading.

Still, the salient point is that JNJ does not intend to monetize its 9.5% equity stake in KVUE in the near future. JNJ could easily have exchanged 100% of its KVUE shares in the (heavily oversubscribed) voluntary exchange offer, so JNJ’s decision to retain a 9.5% stake is an indication that JNJ considers KVUE undervalued at the current share price.

[DewDiligence]

The P/E, based on the company’s 2023 non-GAAP EPS guidance of $1.26-1.31, is 17.5-18x — high, but not exorbitant, for a reliable company in a non-cyclical sector of the economy.

I’m impressed with the backgrounds of the CEO and CFO, which include extensive international experience. (~50% of KVUE’s sales are ex-US.)

I listened to KVUE’s 2Q23 CC (its first CC ever) and thought the amount of disclosure was helpful. (Nobody on the CC asked about the ex-US talc liabilities; the sell-side analysts presumably didn’t want to get off on the wrong foot, LOL.)

I’m considering taking a position after a bit more DD.

[DewDiligence]

KVUE becomes fully independent of JNJ:

https://finance.yahoo.com/news/kenvue-becomes-fully-independent-company-102500011.html

[DewDiligence]

KVUE’s sets annualized dividend of $0.80/sh—(from 7/20/23):

https://finance.yahoo.com/news/kenvue-initiates-quarterly-cash-dividend-102300286.html

At the current share price ($23.66), the annualized payout is a yield of 3.4%.

[DewDiligence]

KVUE 2Q23 results (announced 7/20/23)…

2Q23 sales of $4.0B were +5.4% YoY. Organic sales YoY growth (which excludes the effects of FX, acquisitions, and divestitures) was +7.7%, consisting of +9.4% from price/mix and -1.9% from volume (due in part to the discontinuation of personal care products in Russia).

2Q23 non-GAAP net income was $581M, -21% YoY due in large part to a higher effective tax rate. 2Q23 non-GAAP EPS was $0.32.

Guidance for the full 2023 calendar year is: YoY sales growth of 4.5-5.5%; and YoY organic sales growth of 5.5-6.5%. On a longer-term basis, KVUE expects sales growth of 3-4%.


PR:
https://investors.kenvue.com/financial-news/news-details/2023/Kenvue-Debuts-with-Strong-Second-Quarter-2023-Results/default.aspx

CC slides:
https://s202.q4cdn.com/991673667/files/doc_financials/2023/q2/Kenvue-Q2-2023-Earnings-Presentation.pdf

[Enterprising Investor]

Johnson & Johnson Announces Preliminary Results of Kenvue Inc. Exchange Offer (8/21/23)

NEW BRUNSWICK, N.J.--(BUSINESS WIRE)--Johnson & Johnson (NYSE: JNJ) today announced that, based on preliminary results, its previously announced offer to its shareholders to exchange their shares of Johnson & Johnson common stock for shares of Kenvue Inc. (NYSE: KVUE) (“Kenvue”) common stock owned by Johnson & Johnson was oversubscribed. The exchange offer expired at 12:00 midnight, New York City time, at the end of the day on August 18, 2023. Under the terms of the exchange offer, 8.0324 shares of Kenvue common stock will be exchanged for each share of Johnson & Johnson common stock accepted in the exchange offer.

According to the exchange agent, Computershare Trust Company, N.A., 802,707,331 shares of Johnson & Johnson common stock were validly tendered and not validly withdrawn, including 250,407,279 shares that were tendered by notice of guaranteed delivery. Johnson & Johnson intends to accept 190,955,436 of the tendered shares in exchange for the 1,533,830,450 shares of Kenvue common stock owned by Johnson & Johnson. Because the exchange offer was oversubscribed, Johnson & Johnson is accepting only a portion of the shares of its common stock that were validly tendered and not validly withdrawn, on a pro rata basis in proportion to the number of shares tendered. Shareholders who owned fewer than 100 shares of Johnson & Johnson common stock, or an "odd-lot," who have validly tendered all of their shares, will not be subject to proration, in accordance with the terms of the exchange offer.

Based on the total number of shares of Johnson & Johnson common stock reported to be tendered prior to the expiration of the exchange offer, it is estimated that approximately 23.8% of the tendered shares of Johnson & Johnson common stock will be exchanged, assuming all shares tendered by guaranteed delivery procedures are delivered under the terms of the exchange offer. This preliminary proration factor is subject to change based on the number of tendered shares that satisfy the guaranteed delivery procedures, as well as the number of "odd-lot" shares that were validly tendered and are not subject to proration. Johnson & Johnson expects to announce the final proration factor on August 23, 2023, promptly following the expiration of the guaranteed delivery period. Shares of Johnson & Johnson common stock tendered but not accepted for exchange will be returned to the tendering shareholders in book-entry form promptly after the final proration factor is announced. Following the completion of the exchange offer, Johnson & Johnson will retain approximately 9.5% of the outstanding shares of Kenvue common stock.

Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are the dealer managers for the exchange offer.

About Johnson & Johnson

At Johnson & Johnson, we believe good health is the foundation of vibrant lives, thriving communities and forward progress. That’s why for more than 135 years, we have aimed to keep people well at every age and every stage of life. Today, as the world’s largest, most diversified healthcare products company, we are committed to using our reach and size for good. We strive to improve access and affordability, create healthier communities, and put a healthy mind, body and environment within reach of everyone, everywhere. We are blending our heart, science and ingenuity to profoundly change the trajectory of health for humanity.

https://www.businesswire.com/news/home/20230821033927/en/Johnson-Johnson-Announces-Preliminary-Results-of-Kenvue-Inc.-Exchange-Offer

[DewDiligence]

I'm not seeing a JNJ swap point…

I do not understand what you mean.

[DewDiligence]

JNJ sets exchange ratio for KVUE split-off:

https://www.businesswire.com/news/home/20230816763323/en

[pappi]

Greetings: Any thoughts on this JNJ spin-off? I'm not seeing a JNJ swap point, mostly because it sounds complicated to effect, me not living in the US. But a straight stock investment habit over time seems plausible, with DRIP.
- pappi

[DewDiligence]

JNJ launches tax-free exchange offer for KVUE:

https://www.businesswire.com/news/home/20230723805654/en

[DewDiligence]

JNJ will “split off” 90%_stake_in KVUE via—(voluntary)—tax-free exchange of KVUE shares for JNJ shares:

https://www.businesswire.com/news/home/20230720974196/en (4th bullet point)

This is the same method PFE used to distribute its shares of ZTS following ZTS’ IPO. A split-off is a more shareholder-friendly process than a spin-off in that only those shareholders who want the split-off company end up with shares of that company.

JNJ did include the proviso that the split-off is subject to market conditions, but I think only the timing of the transaction—not the split-off decision per se—will be affected by market conditions.