Financial Performance - Kenvue reported net sales of $3.9 billion for the fiscal three months ended March 31, 2024, reflecting an increase of $42 million, or 1.1% compared to the same period in 2023[206]. - Net sales increased by 1.1% to $3.894 billion for the fiscal three months ended March 31, 2024, compared to $3.852 billion for the same period in 2023[220]. - The company experienced organic growth of $73 million, primarily due to value realization, despite volume-related decreases[207]. - Selling, general, and administrative expenses rose to $1.6 billion, an increase of $71 million, or 4.7%, compared to $1.5 billion in the same period last year[209]. - Operating income decreased by $90 million, or 14.1%, to $550 million for the fiscal three months ended March 31, 2024, compared to $640 million in the prior year[206]. - Net income for the fiscal three months ended March 31, 2024, was $296 million, a decline of $173 million, or 36.9%, from $469 million in the same period in 2023[206]. Segment Performance - Self Care segment net sales rose by 3.5% to $1.698 billion, with organic growth of 4.2% driven by increased demand for Cough, Cold, and Allergy products[225]. - Skin Health and Beauty segment net sales decreased by 5.1% to $1.054 billion, with organic growth declining by 4.5% due to volume-related decreases and execution challenges[227]. - Essential Health segment net sales increased by 3.7% to $1.142 billion, with organic growth of 4.9% primarily driven by strong performance in Oral Care[230]. - Adjusted operating income for the Self Care segment increased by 4.1% to $606 million, supported by value realization and supply chain optimization[226]. - Adjusted operating income for the Essential Health segment rose by 21.9% to $256 million, driven by value realization despite volume-related decreases[231]. Cost and Expenses - The gross profit margin increased by 240 basis points to 57.6% for the fiscal three months ended March 31, 2024, up from 55.2% in the prior year, driven by value realization and supply chain optimization[208]. - Cost of sales decreased by $75 million, or 4.3%, to $1.7 billion, attributed to supply chain optimization and lower ingredient costs[208]. - Restructuring expenses amounted to $41 million for the fiscal three months ended March 31, 2024, related to global workforce reductions and organizational efficiencies[211]. - Interest expense increased significantly to $95 million from $1 million in the prior year, driven by interest on Senior Notes and Commercial Paper[214]. - Provision for taxes decreased by $9 million to $131 million, with an effective tax rate increase to 30.7% from 23.0% year-over-year[215]. - Other operating expenses increased by $95 million to $78 million, primarily due to a $68 million impairment charge related to corporate headquarters[212]. Cash Flow and Capital Management - Net cash flows from operating activities decreased by $515 million to $287 million for the fiscal three months ended March 31, 2024, compared to $802 million in the prior year[235]. - Cash and cash equivalents decreased by $227 million to $1.2 billion as of March 31, 2024, down from $1.4 billion as of December 31, 2023[242]. - Net cash flows used in investing activities were $152 million for the fiscal three months ended March 31, 2024, compared to $41 million in the same period of 2023[237]. - Net cash flows (used in) from financing activities were $(326) million for the fiscal three months ended March 31, 2024, a significant decrease from $7,388 million in the prior year[238]. - The company paid $383 million in dividends during the fiscal three months ended March 31, 2024, with a declared dividend of $0.20 per share[250]. - The company has authorized a share repurchase program for up to 27 million shares, with 4.6 million shares repurchased for $91 million during the fiscal three months ended March 31, 2024[253]. Debt and Risk Management - As of March 31, 2024, the company had cash and cash equivalents of $1.2 billion and a borrowing capacity of $4.0 billion under its Revolving Credit Facility[239]. - The company remains in compliance with all debt covenants as of March 31, 2024, with no defaults reported[249]. - As of March 31, 2024, the company's outstanding long-term debt portfolio was primarily composed of fixed-rate debt, minimizing the impact of market interest rate fluctuations on operations[264]. - The company manages interest rate risk through a mix of variable and fixed-rate debt, aiming for a cost-effective portfolio[264]. - The company is exposed to commodity price risks from various inputs, including resins, pulp, corn derivatives, and energy, and employs strategic pricing mechanisms to manage these costs[265]. - Credit risk is mitigated through diverse customer bases and credit evaluations, although current macroeconomic conditions may complicate receivable collections[266]. - The company may hedge anticipated fixed-rate debt issuance through cash flow hedges to manage interest rate risk[264]. - Future floating rate debt may expose the company to interest rate changes, particularly under the Revolving Credit Facility[264]. - The company has limited concentrations of credit risk due to the diversity of its customer base, reducing potential credit losses[266]. - Nonperformance by counterparties to financial instrument contracts is considered unlikely, as the company contracts with credit-worthy entities[266]. - The company is subject to various market and economic factors that influence interest rate risk, including U.S. monetary and tax policies[264]. - The company utilizes collateral or other security as appropriate to further mitigate credit risk[266]. Corporate Developments - Kenvue completed its separation from Johnson & Johnson in August 2023, with J&J retaining approximately 9.5% of Kenvue's outstanding common stock[190]. - The company is incurring non-recurring separation-related costs, expected to continue through at least fiscal year 2024[192]. - The company’s Ukrainian business represented 0.2% of net sales for the fiscal three months ended March 31, 2024, and 0.1% of net assets[201].

Financial Data and Key Metrics Changes - The company reported a 1.9% organic growth in Q1 2024, following an 11.2% growth in the same quarter last year, indicating a solid performance despite a 3.1% decline in volumes compared to the prior year [9][51] - Adjusted gross margin expanded by 290 basis points, reflecting strong execution in supply chain productivity and value realization [44][55] - Adjusted net income for the quarter was $547 million, with adjusted diluted earnings per share at $0.28, representing a 7.7% growth on a like-for-like basis compared to last year [86] Business Line Data and Key Metrics Changes - Self Care segment achieved 4.2% organic growth on top of 15.3% growth last year, with notable share growth for major brands like Tylenol and Zyrtec [36][52] - Essential Health grew by 4.9% this quarter, driven by strong performance in Oral Care and Baby Care, despite a 1.9% volume decline [38][53] - Skin Health and Beauty segment saw a decline of 4.5% in organic sales, with a 6.9% decline in volume, indicating challenges in stabilizing this business [14][82] Market Data and Key Metrics Changes - The U.S. market experienced a reduction in retail inventory levels, impacting volumes in the Self Care segment, which is expected to continue into Q2 [10][62] - In Asia, particularly China, the company reported strong growth in Self Care brands, with significant innovation contributing to market leadership [12][107] - The company noted a shorter cough, cold, and flu season in the U.S. compared to the previous year, affecting overall market performance [10][27] Company Strategy and Development Direction - The company is focused on three strategic priorities for 2024: reaching more consumers, freeing up resources for brand investment, and fostering a culture of performance and impact [8][21] - The "Our Vue Forward" initiative aims to streamline operations, reduce costs, and enhance competitiveness as the company transitions to an independent entity [49][79] - The company is committed to increasing brand activation investments by 15% in 2024, funded through improved gross margins and cost structure transformation [18][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver on its plans for the year and execute long-term growth strategies, despite acknowledging challenges in the Skin Health and Beauty segment [21][34] - The company anticipates low single-digit negative growth in Q2, primarily due to inventory reductions and a slow start to the allergy season, but expects a recovery in the second half of the year [81][87] - Management highlighted the importance of maintaining strong relationships with consumers and healthcare professionals to drive brand loyalty and market share [66][29] Other Important Information - The adjusted effective tax rate for Q1 was 28.3%, influenced by jurisdictional earnings mix and share-based compensation [31] - The company plans to maintain its outlook for organic growth in the range of 2% to 4% for the full year, with earnings per share expected between $1.10 and $1.20 [58][86] - The company is actively engaging with healthcare professionals to increase brand recommendations and consumer engagement [29][41] Q&A Session Summary Question: What should be expected in Skin Health and Beauty moving forward? - Management indicated that recovery in Skin Health and Beauty will take time and will not be linear, but they are focused on executing their stabilization plan [90][91] Question: How is the promotional intensity affecting the market? - Management noted that their categories remain resilient, and they are focused on maintaining brand relevance and credibility with healthcare professionals [65][66] Question: What are the expectations for the "Our Vue Forward" program? - Management emphasized that the program is crucial for reinventing the company's operations and enhancing competitiveness as they exit transitional service agreements with J&J [68][69] Question: What drove the outperformance in Q1? - The outperformance was attributed to price realization and some volume growth, with strong performance noted in Europe and Essential Health segments [73] Question: How will the company manage gross margin expectations? - Management expressed confidence in achieving their gross margin goals, driven by pricing strategies and operational efficiencies, despite ongoing inflationary pressures [131]

Financial Performance - Q1 2024 net sales increased by 1.1% to $3.9 billion, with organic growth of 1.9%[1][2] - Net sales for the fiscal three months ended March 31, 2024, were $3,894 million, a 1.1% increase from $3,852 million in the same period last year[36] - Net sales for the fiscal three months ended April 2, 2023, were $3,852 million, with a gross profit of $2,125 million and a gross profit margin of 55.2%[44] - Organic growth for total net sales was 1.9%, with Self Care segment showing 4.2% growth, while Skin Health and Beauty declined by 4.5%[37][38][39] - Essential Health segment achieved organic growth of 4.9%, driven by strong performance in Oral Care[40] Earnings and Profitability - Diluted earnings per share for Q1 2024 were $0.15, while adjusted diluted earnings per share were $0.28[1][7] - Gross profit margin for Q1 2024 was 57.6%, up from 55.2% in the prior year, with adjusted gross profit margin at 60.2%[4] - Net income for the quarter was $296 million, down from $469 million year-over-year, resulting in a diluted net income per share of $0.15[36] - Adjusted operating income for the quarter was $855 million, up from $819 million in the previous year, reflecting a margin of 22.0%[41][42] - The company reported a significant increase in adjusted EBITDA to $933 million, with an EBITDA margin of 24.0%[42] Future Projections - Kenvue expects full year 2024 net sales growth to be in the range of 1.0% to 3.0%, with organic growth projected at 2.0% to 4.0%[9][10] - For full year 2024, Kenvue expects adjusted diluted earnings per share to be in the range of $1.10 to $1.20, assuming a diluted weighted average share count of 1.92 billion[11][12] - Reported interest expense for full year 2024 is expected to be approximately $400 million[13] - The effective tax rate for full year 2024 is projected to be between 26.5% to 27.5%, with an adjusted effective tax rate between 25.5% to 26.5%[14] Cost Management and Workforce - The company anticipates a net reduction of approximately 4% of its global workforce, aiming for annualized pre-tax gross cost savings of about $350 million by 2026[8] - The company incurred restructuring expenses of $41 million during the quarter as part of its strategic initiatives[36] Cash Flow and Debt - Cash and cash equivalents as of March 31, 2024, were $1.2 billion, while total debt stood at $8.6 billion, resulting in a net debt of $7.4 billion[49] - Free cash flow for the fiscal three months ended April 2, 2023, was reported at $0.7 billion[46] Taxation - The adjusted effective tax rate for the fiscal year 2024 is forecasted to be between 25.5% and 26.5%[46] - The effective tax rate for the fiscal three months ended April 2, 2023, was 23.0%, with adjustments leading to an adjusted effective tax rate of 20.4%[46] Challenges - Kenvue continues to face challenges including intellectual property protections and potential disruptions from geopolitical events[33]

Part I [Business](index=7&type=section&id=Item%201.%20Business) Kenvue, the world's largest pure-play consumer health company, achieved **$15.4 billion** in 2023 net sales across three segments, emphasizing digital marketing and innovation in a competitive, regulated market [Company Overview](index=7&type=section&id=Company%20Overview) Kenvue, the world's largest pure-play consumer health company, achieved **$15.4 billion** in 2023 net sales across three segments, becoming fully independent from J&J in August 2023 - Kenvue is the world's largest pure-play consumer health company by revenue, with net sales of **$15.4 billion** in 2023[17](index=17&type=chunk) - The company operates through three reportable business segments: Self Care, Skin Health and Beauty, and Essential Health[17](index=17&type=chunk) - In August 2023, Kenvue completed its separation from Johnson & Johnson (J&J) and became a fully independent public company; J&J retains approximately **9.5%** of Kenvue's outstanding common stock[18](index=18&type=chunk) [Brands and Product Portfolio](index=8&type=section&id=Brands%20and%20Product%20Portfolio) Kenvue's portfolio is organized into three global reportable segments, each leveraging category-specific expertise while benefiting from the company's overall scale, including Self Care, Skin Health and Beauty, and Essential Health Kenvue Reportable Segments and Major Brands | Segment | Product Categories | Major Brands | | :--- | :--- | :--- | | **Self Care** | Pain Care; Cough, Cold, and Allergy; Other (Digestive Health, Smoking Cessation, etc.) | Tylenol®, Motrin®, Benadryl®, Nicorette®, Zyrtec®, Zarbee's™ | | **Skin Health and Beauty** | Face and Body Care; Hair, Sun, and Other | Neutrogena®, Aveeno®, Dr.Ci:Labo®, OGX®, Rogaine® | | **Essential Health** | Oral Care; Baby Care; Other (Women's Health, Wound Care, etc.) | Listerine®, Johnson's®, BAND-AID® Brand Adhesive Bandages, Stayfree® | [Brand Marketing](index=8&type=section&id=Brand%20Marketing) Kenvue employs a digital-first marketing strategy, significantly increasing its digital media spend from approximately **44%** in 2019 to about **73%** in 2023, enabling flexible targeting and data-driven ROI evaluation - The company has shifted to a digital-first marketing approach, increasing its share of digital spend from approximately **44%** of total media spend in 2019 to approximately **73%** in 2023[25](index=25&type=chunk) - This digital focus enables flexibility, efficient reach to high-value audiences, and the use of data science and analytics to evaluate media ROI and identify growth opportunities[25](index=25&type=chunk)[26](index=26&type=chunk) [Product Development and Innovation](index=8&type=section&id=Product%20Development%20and%20Innovation) Kenvue's R&D organization, comprising approximately **1,500** scientists and engineers, focuses on human-centric product development, leveraging scientific expertise and partnerships to drive continuous innovation based on consumer insights - The global R&D team consists of approximately **1,500** scientists, doctors, pharmacists, and engineers with expertise across various core disciplines[29](index=29&type=chunk) - The R&D process is centered on human empathy, utilizing consumer insights and partnerships with healthcare professionals to identify unmet needs and drive product innovation[27](index=27&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [Supply Chain and Manufacturing](index=9&type=section&id=Supply%20Chain%20and%20Manufacturing) Kenvue utilizes a balanced manufacturing footprint, with over half of its 2023 production from in-house facilities and the remainder from third-party suppliers, supported by a distribution network primarily partnering with third-party operators while adhering to rigorous quality standards - In 2023, over half of the production volume was delivered by Kenvue's in-house manufacturing facilities, with the rest supplied by external manufacturers[35](index=35&type=chunk) - The company purchases principal raw materials like resin, pulp, corn derivatives, and vegetable oils from multiple third-party sources, with no single supplier providing a significant portion of total requirements[34](index=34&type=chunk) - The distribution network largely relies on partnerships with expert third-party operators for warehousing and distribution, ensuring compliance with Kenvue's quality standards through regular audits[36](index=36&type=chunk)[37](index=37&type=chunk) [Competition](index=10&type=section&id=Competition) Kenvue faces significant competition across its segments from a diverse range of companies, including global consumer healthcare and CPG firms, regional players, generic OTC manufacturers, and private-label brands Key Competitors by Segment | Segment | Key Competitors | | :--- | :--- | | **Self Care** | Haleon, Procter & Gamble, Reckitt Benckiser Group, private-label brands | | **Skin Health and Beauty** | Beiersdorf, L'Oréal, Procter & Gamble, Unilever, private-label brands | | **Essential Health** | Colgate-Palmolive, Kimberly Clark, Procter & Gamble, Unilever, private-label brands | [Environmental, Social, and Governance](index=10&type=section&id=Environmental%2C%20Social%2C%20and%20Governance) Kenvue's ESG strategy, the "Healthy Lives Mission," is built on three pillars: Healthy People, Healthy Planet, and Healthy Practice, guiding goals in diversity, public health, climate change, sustainable packaging, and ethical practices, with Board oversight - The ESG strategy, "Healthy Lives Mission," focuses on three pillars: Healthy People, Healthy Planet, and Healthy Practice[43](index=43&type=chunk) - Key focus areas under these pillars include Diversity, Equity & Inclusion; Climate Change; Plastics; and Sustainable Product Innovation[45](index=45&type=chunk)[52](index=52&type=chunk) - The Board of Directors provides ultimate oversight for ESG matters, with responsibilities allocated across its three key committees[50](index=50&type=chunk) [Human Capital](index=12&type=section&id=Human%20Capital) As of December 31, 2023, Kenvue employed approximately **22,000** people globally, emphasizing a culture of performance and commitment to diversity, equity, and inclusion, with a global workforce that is **50%** female and a leadership team that is **54%** female - As of December 31, 2023, Kenvue had approximately **22,000** employees worldwide[56](index=56&type=chunk) - The global workforce is approximately **50%** male and **50%** female; in the U.S., **36%** of employees identify as racial or ethnic minorities[58](index=58&type=chunk) - Key DE&I goals include strengthening female and ethnic representation at all management levels to reflect the market, ensuring equitable pay, and achieving a top-quartile Inclusion Index Score[60](index=60&type=chunk) [Intellectual Property](index=13&type=section&id=Intellectual%20Property) Kenvue relies on trademarks, trade secrets, patents, and copyrights to protect its business, with brands being critical to its success, and has been granted limited-duration licenses by J&J for certain legacy branding post-separation - The company's success is heavily dependent on its brand portfolio, with the vast majority of net sales from products with proprietary trademarks and trade names[69](index=69&type=chunk) - Post-separation, J&J has licensed certain intellectual property, including the "Johnson & Johnson" name and other legacy branding, to Kenvue for a limited time[68](index=68&type=chunk) - While the company maintains a portfolio of patents, no single patent is considered material to any specific product or product family[71](index=71&type=chunk) [Government Regulations](index=14&type=section&id=Government%20Regulations) Kenvue is subject to extensive and complex global government regulations, with key oversight in the U.S. from the FDA, FTC, and CPSC, covering product development, manufacturing, labeling, advertising, safety, and data privacy, with a trend toward increasingly stringent requirements - The business is regulated by numerous U.S. federal authorities, including the FDA, FTC, CPSC, OSHA, EPA, and DEA, as well as comparable bodies in other jurisdictions[72](index=72&type=chunk) - Product classifications such as OTC drugs, cosmetics, medical devices, and dietary supplements are subject to different regulatory frameworks that vary by market, including the U.S., EU, and China[73](index=73&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - The company is also subject to evolving laws in areas like environmental, health and safety (EHS), privacy and data protection (e.g., GDPR, PIPL), and anti-corruption (e.g., FCPA)[89](index=89&type=chunk)[92](index=92&type=chunk)[94](index=94&type=chunk) [Seasonality](index=21&type=section&id=Seasonality) Kenvue's business is generally not seasonal, though some products experience minor fluctuations, such as increased sales of cold/flu products in winter and allergy products in spring/fall, with minimal net effect on annual sales - The overall business is not considered seasonal, but certain product categories exhibit seasonal sales patterns[97](index=97&type=chunk) - Self Care products for cold/flu and allergies see increased sales in winter and spring/fall, respectively; Skin Health products with SPF are higher in summer, while moisturizers are higher in fall/winter[97](index=97&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) Kenvue faces diverse risks including intense competition, brand reputation threats, operational dependencies, supply chain disruptions, cybersecurity vulnerabilities, significant product liability litigation, intellectual property challenges, and financial exposures from global economic conditions and substantial debt [Risks Related to Our Business, Industry and Operations](index=21&type=section&id=Risks%20Related%20to%20Our%20Business%2C%20Industry%20and%20Operations) Kenvue faces risks from intense competition, potential damage to its brand reputation, and the need to adapt to shifting consumer preferences and market trends, alongside operational challenges including reliance on third-party manufacturers, supply chain disruptions, inflationary pressures, IT security breaches, and attracting and retaining talent - The company faces substantial competition from multinational corporations, private-label brands, and generic products across all segments and markets[101](index=101&type=chunk)[110](index=110&type=chunk) - One customer accounted for approximately **12%** of total net sales in 2023, highlighting dependence on key retail partners amidst a changing retail landscape[124](index=124&type=chunk) - Operational risks include reliance on third parties for manufacturing key products like Tylenol® and Zyrtec®, potential supply chain disruptions, and volatility in raw material costs[143](index=143&type=chunk)[144](index=144&type=chunk)[149](index=149&type=chunk) - The business is increasingly dependent on IT systems, exposing it to cybersecurity threats, which could result in operational disruption and reputational damage[155](index=155&type=chunk)[156](index=156&type=chunk) [Risks Related to Government Regulation, Legal Proceedings and Financial and Economic Market Conditions](index=40&type=section&id=Risks%20Related%20to%20Government%20Regulation%2C%20Legal%20Proceedings%20and%20Financial%20and%20Economic%20Market%20Conditions) The company is subject to extensive global regulations and significant legal risks, including product liability litigation concerning ingredients like talc, acetaminophen, and phenylephrine, which could result in substantial expenses and reputational harm, alongside financial and economic risks from global operations, foreign currency fluctuations, geopolitical events, and potential impairment of assets - The company is subject to legal proceedings related to talc-containing products sold outside the U.S. and Canada; while J&J has indemnified Kenvue for Talc-Related Liabilities within the U.S. and Canada, this indemnity may not be sufficient, and Kenvue remains responsible for claims elsewhere[192](index=192&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - Litigation has been filed alleging links between prenatal exposure to acetaminophen (Tylenol®) and developmental disorders, and class actions have been filed regarding the effectiveness of phenylephrine (PE) as a nasal decongestant[187](index=187&type=chunk)[188](index=188&type=chunk) - The business is exposed to risks from global operations, including foreign currency fluctuations, geopolitical tensions, and trade policy changes; the Russia-Ukraine war has led to the suspension of most product supplies to Russia[222](index=222&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk) - Changes in tax laws or increased audit scrutiny could adversely affect the company's effective tax rate and financial condition[220](index=220&type=chunk)[221](index=221&type=chunk) [Risks Related to Our Relationship with J&J](index=52&type=section&id=Risks%20Related%20to%20Our%20Relationship%20with%20J%26J) Kenvue faces risks from its recent separation from J&J, including historical financial data not reflecting future performance, potential failure to achieve expected separation benefits, rebranding challenges, reliance on J&J for critical functions under transitional agreements, potential conflicts of interest, and significant indemnification obligations to and from J&J - Historical financial information may not be indicative of future results as it was prepared on a carve-out basis while part of J&J's broader organization[238](index=238&type=chunk)[239](index=239&type=chunk) - Kenvue relies on J&J for manufacturing of key products (Tylenol®, Zyrtec®) and other critical services under transitional agreements; failure to perform by J&J or to find replacements upon expiration could adversely affect the business[256](index=256&type=chunk)[259](index=259&type=chunk) - J&J has agreed to indemnify Kenvue for certain liabilities, including talc-related claims in the U.S. and Canada, but this indemnity may not be sufficient to cover the full amount of such liabilities[266](index=266&type=chunk) - To preserve the tax-free nature of the separation, Kenvue is restricted from engaging in certain strategic transactions, such as mergers or large stock issuances, until August 2025[265](index=265&type=chunk) [Risks Related to Ownership of Our Common Stock](index=59&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of Kenvue common stock involves risks including potential stock price volatility, the possibility that an active trading market may not be sustained, potential price depression from future sales by J&J, the need to implement effective internal controls as a new public company, and financial flexibility limitations due to significant debt obligations - The stock price may be volatile, and future sales by J&J, which owned approximately **9.5%** of common stock as of year-end 2023, could cause the price to decline[272](index=272&type=chunk)[274](index=274&type=chunk) - The company has substantial debt obligations from its separation financing, which could require a significant portion of cash flow for interest payments and limit business flexibility[280](index=280&type=chunk)[282](index=282&type=chunk) - As a holding company, Kenvue depends on dividends and distributions from its subsidiaries to meet its obligations, including debt service and potential dividends to its own shareholders[284](index=284&type=chunk) - Certain provisions in the company's certificate of incorporation and bylaws, along with Delaware law, may prevent or delay an acquisition, potentially decreasing the stock's trading price[288](index=288&type=chunk) [Unresolved Staff Comments](index=64&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Not applicable; the company has no unresolved staff comments - There are no unresolved staff comments[295](index=295&type=chunk) [Cybersecurity](index=64&type=section&id=Item%201C.%20Cybersecurity) Kenvue's cybersecurity risk management is integrated into its Enterprise Risk Management (ERM) framework, led by the CISO, based on best practices like the NIST Cybersecurity Framework, and overseen by the Nominating, Governance and Sustainability Committee of the Board - Cybersecurity risk management is integrated into the company's Enterprise Risk Management (ERM) Framework and is based on standards such as the NIST Cybersecurity Framework[296](index=296&type=chunk)[297](index=297&type=chunk) - The Nominating, Governance and Sustainability Committee of the Board is responsible for overseeing privacy and cybersecurity risks, meeting at least twice a year with the CISO[302](index=302&type=chunk) - The company has a dedicated Data Incident Response Program to identify, assess, and manage significant data incidents and determine reporting obligations on a timely basis[297](index=297&type=chunk) [Properties](index=65&type=section&id=Item%202.%20Properties) As of December 31, 2023, Kenvue utilizes approximately **214** global facilities for administration, R&D, manufacturing, and distribution, and is relocating its global corporate headquarters and R&D center to Summit, New Jersey, between 2025 and 2026 - As of year-end 2023, the company utilizes approximately **214** facilities worldwide, with **44** owned and **170** leased or used by other rights[306](index=306&type=chunk) - A new global corporate headquarters and R&D center is being established in Summit, New Jersey, with a long-term lease signed in April 2023; the relocation is planned for 2025-2026[308](index=308&type=chunk) [Legal Proceedings](index=65&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 17, "Commitments and Contingencies," to the Consolidated Financial Statements - Details on legal proceedings are provided in Note 17 of the financial statements[310](index=310&type=chunk) [Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable; the company has no mine safety disclosures - This item is not applicable to the company[311](index=311&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=66&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Kenvue's common stock trades on the NYSE under the symbol "KVUE" since May 2023, with quarterly dividends of **$0.20** per share paid, and a share repurchase program authorized in Q3 2023, under which **350,000** shares were repurchased in December 2023 - The company's common stock began trading on the NYSE under the symbol "KVUE" on May 4, 2023[312](index=312&type=chunk)[316](index=316&type=chunk) 2023 Dividend Summary | Declaration Date | Record Date | Payment Date | Per Share Amount | | :--- | :--- | :--- | :--- | | July 20, 2023 | August 28, 2023 | September 7, 2023 | $0.20 | | October 26, 2023 | November 8, 2023 | November 22, 2023 | $0.20 | Share Repurchases in Q4 2023 | Period | Total Number of Shares Purchased (Thousands) | Average Price Paid Per Share | Shares Remaining for Purchase (Thousands) | | :--- | :--- | :--- | :--- | | Oct 1 - Oct 31 | — | $ — | 27,000 | | Nov 1 - Nov 30 | — | $ — | 27,000 | | Dec 1 - Dec 31 | 350 | $ 20.47 | 26,650 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, Kenvue reported net sales of **$15.4 billion**, a **3.3%** increase, with **5.0%** organic growth, but net income decreased to **$1.66 billion** due to higher SG&A and interest expenses, while generating **$3.2 billion** in cash from operations and ending the year with **$1.4 billion** in cash, following significant debt issuance post-separation [Results of Operations](index=74&type=section&id=Results%20of%20Operations) For fiscal year 2023, Kenvue's net sales increased **3.3%** to **$15.44 billion**, with **5.0%** organic growth, while gross profit rose **4.3%** to **$8.64 billion**, but operating income declined **6.1%** to **$2.51 billion** and net income decreased **19.4%** to **$1.66 billion** due to increased SG&A and new interest expense Fiscal Year 2023 vs 2022 Performance | Metric (in Millions) | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Net sales** | $15,444 | $14,950 | 3.3% | | **Gross profit** | $8,643 | $8,285 | 4.3% | | **Operating income** | $2,512 | $2,675 | (6.1)% | | **Net income** | $1,664 | $2,064 | (19.4)% | - Organic sales growth was **5.0%**, driven by value realization (price/mix) of **7.7%**, partially offset by a volume decline of **2.7%**[355](index=355&type=chunk)[376](index=376&type=chunk) - SG&A expenses increased by **$508 million** (**9.0%**), primarily due to higher costs in enterprise functions as a standalone company, transition service agreement costs with J&J, and a **$255 million** increase in non-recurring Separation-related costs[357](index=357&type=chunk) - The company incurred **$250 million** in net interest expense in 2023, compared to none in 2022, due to debt issued in connection with the IPO[360](index=360&type=chunk) [Segment Results](index=78&type=section&id=Segment%20Results) In fiscal 2023, the Self Care segment was the primary growth driver, with net sales increasing **7.0%** to **$6.5 billion** and adjusted operating income up **10.1%**, while Skin Health and Beauty saw a slight sales increase of **0.6%** to **$4.4 billion** but a **4.1%** decline in adjusted operating income, and Essential Health's sales grew **1.0%** to **$4.6 billion** but its adjusted operating income decreased by **9.0%** Segment Net Sales (FY 2023 vs FY 2022) | Segment (in Millions) | FY 2023 Net Sales | FY 2022 Net Sales | Change (%) | Organic Growth (%) | | :--- | :--- | :--- | :--- | :--- | | **Self Care** | $6,451 | $6,030 | 7.0% | 8.4% | | **Skin Health and Beauty** | $4,378 | $4,350 | 0.6% | 1.8% | | **Essential Health** | $4,615 | $4,570 | 1.0% | 3.6% | | **Total** | $15,444 | $14,950 | 3.3% | 5.0% | Segment Adjusted Operating Income (FY 2023 vs FY 2022) | Segment (in Millions) | FY 2023 Adj. Op. Income | FY 2022 Adj. Op. Income | Change (%) | | :--- | :--- | :--- | :--- | | **Self Care** | $2,299 | $2,088 | 10.1% | | **Skin Health and Beauty** | $679 | $708 | (4.1)% | | **Essential Health** | $1,011 | $1,111 | (9.0)% | | **Total** | $3,989 | $3,907 | 2.1% | [Liquidity and Capital Resources](index=81&type=section&id=Liquidity%20and%20Capital%20Resources) Kenvue's primary liquidity sources include **$1.4 billion** cash on hand, cash from operations (**$3.2 billion** in 2023), a **$4.0 billion** revolving credit facility, and a **$4.0 billion** commercial paper program, with **$7.75 billion** in Senior Notes issued and **$13.8 billion** distributed to J&J in connection with its separation Cash Flow Summary (FY 2023 vs FY 2022) | Cash Flow (in Millions) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | **Net cash from operating activities** | $3,168 | $2,525 | | **Net cash used in investing activities** | $(488) | $(390) | | **Net cash used in financing activities** | $(2,527) | $(1,583) | - Primary sources of liquidity include **$1.4 billion** in cash, a **$4.0 billion** Revolving Credit Facility (undrawn as of year-end), and a **$4.0 billion** Commercial Paper Program (**$599 million** outstanding)[391](index=391&type=chunk)[392](index=392&type=chunk) - In March 2023, the company issued **$7.75 billion** in Senior Notes across eight series with maturities ranging from 2025 to 2063[397](index=397&type=chunk)[566](index=566&type=chunk) - On May 8, 2023, Kenvue made a distribution of **$13.8 billion** to J&J using proceeds from the IPO and debt financing[406](index=406&type=chunk) [Critical Accounting Policies and Estimates](index=85&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Kenvue's critical accounting policies involve significant management judgment and estimates in areas such as Revenue Recognition (variable consideration), Income Taxes (post-separation complexities), Goodwill and Intangible Assets valuation (annual impairment testing), and Stock-Based Compensation (fair value estimation using valuation models) - **Revenue Recognition:** Involves estimating variable consideration such as trade promotions, rebates, and sales returns using the "expected value" or "most likely amount" method[416](index=416&type=chunk) - **Income Taxes:** Calculated on a separate return basis post-separation; the company changed its accounting for Global Intangible Low-Tax Income (GILTI) from the deferred method to the period cost method in Q3 2023[419](index=419&type=chunk)[423](index=423&type=chunk) - **Goodwill and Intangible Assets:** Goodwill is tested for impairment annually at the reporting unit level using a discounted cash flow model; no impairment was recorded in fiscal 2023[426](index=426&type=chunk)[427](index=427&type=chunk) - **Stock-Based Compensation:** Fair value of awards is estimated at the grant date using valuation models (e.g., Black-Scholes for options) with assumptions for volatility, dividend yield, and risk-free rates[430](index=430&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Kenvue is exposed to foreign currency, inflation, interest rate, commodity price, and credit risks; a hypothetical **10%** unfavorable change in exchange rates would have decreased 2023 net income by approximately **$98 million**, while inflationary pressures are managed through price increases, and interest rate risk is mitigated by a primarily fixed-rate debt portfolio - **Foreign Currency Risk:** A hypothetical **10%** unfavorable change in the average exchange rate would have reduced FY2023 net income by approximately **$98 million**[438](index=438&type=chunk) - **Inflation Risk:** The company has experienced and continues to face higher costs for raw materials, transportation, and other inputs, which it partially offsets through price increases and supply chain optimization[440](index=440&type=chunk) - **Interest Rate Risk:** The company's outstanding long-term debt of **$7.7 billion** is primarily fixed-rate, limiting the impact of market interest rate fluctuations on results; future floating-rate debt could introduce more risk[442](index=442&type=chunk)[443](index=443&type=chunk) - **Credit Risk:** Credit risk from customer receivables is limited due to a diverse customer base; the company performs credit evaluations to mitigate this risk[446](index=446&type=chunk) [Financial Statements and Supplementary Data](index=92&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains Kenvue's audited consolidated financial statements for fiscal years ended December 31, 2023, January 1, 2023, and January 2, 2022, including the Independent Registered Public Accounting Firm's Report, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Equity, and Cash Flows, along with detailed Notes [Report of Independent Registered Public Accounting Firm](index=93&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on Kenvue's consolidated financial statements, noting a change in accounting principle for global intangible low-taxed income (GILTI) in 2023 and identifying U.S. net sales revenue recognition as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements[450](index=450&type=chunk) - A change in accounting principle for Global Intangible Low-Taxed Income (GILTI) was noted for 2023[451](index=451&type=chunk) - U.S. net sales revenue recognition was identified as a critical audit matter due to the high degree of auditor effort involved in procedures related to recording sales and trade promotions[456](index=456&type=chunk)[457](index=457&type=chunk) [Consolidated Financial Statements](index=96&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements present Kenvue's financial position and performance, with total assets of **$27.85 billion**, total liabilities of **$16.64 billion**, and total equity of **$11.21 billion** as of December 31, 2023, and **$15.44 billion** in net sales and **$1.66 billion** in net income for fiscal year 2023, resulting in diluted EPS of **$0.90** Key Balance Sheet Data (as of Dec 31, 2023) | Account (in Millions) | Amount | | :--- | :--- | | **Total Current Assets** | $6,138 | | **Total Assets** | $27,851 | | **Total Current Liabilities** | $5,481 | | **Long-term debt** | $7,687 | | **Total Liabilities** | $16,640 | | **Total Equity** | $11,211 | Key Income Statement Data (FY 2023) | Account (in Millions, except EPS) | Amount | | :--- | :--- | | **Net sales** | $15,444 | | **Gross profit** | $8,643 | | **Operating income** | $2,512 | | **Net income** | $1,664 | | **Diluted EPS** | $0.90 | [Notes to the Consolidated Financial Statements](index=102&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures supporting the financial statements, covering the separation from J&J, basis of presentation, accounting policies, segment information, debt, legal contingencies, and the relationship with J&J, including specifics on the **$7.75 billion** Senior Notes and significant litigation related to acetaminophen, sunscreen, Zantac, and phenylephrine - **Note 1 (Description of Company):** Details the separation from J&J, completed with the Exchange Offer on August 23, 2023, making Kenvue a fully independent company; also discloses a change in accounting for GILTI to the period cost approach in Q3 2023[474](index=474&type=chunk)[477](index=477&type=chunk)[544](index=544&type=chunk) - **Note 5 (Borrowings):** Details the **$7.75 billion** in Senior Notes issued in March 2023 and the **$4.0 billion** Commercial Paper Program established as part of the separation financing[566](index=566&type=chunk)[567](index=567&type=chunk)[576](index=576&type=chunk) - **Note 12 (Relationship with J&J):** Outlines key agreements governing the post-separation relationship, including the Separation, Tax Matters, Transition Services, and Transition Manufacturing Agreements[651](index=651&type=chunk)[658](index=658&type=chunk)[661](index=661&type=chunk) - **Note 17 (Commitments and Contingencies):** Discusses significant product liability litigation, including claims related to acetaminophen (Tylenol®), sunscreen (benzene), Zantac, and phenylephrine (PE)[711](index=711&type=chunk)[714](index=714&type=chunk)[718](index=718&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=168&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not applicable; the company reports no changes in or disagreements with its accountants on accounting and financial disclosure - This item is not applicable[735](index=735&type=chunk) [Controls and Procedures](index=170&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal controls reported during Q4 2023, and a management report on internal control over financial reporting is not yet required for this newly public company - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[737](index=737&type=chunk) - A management report on internal control over financial reporting is not included due to the transition period for newly public companies[738](index=738&type=chunk) [Other Information](index=170&type=section&id=Item%209B.%20Other%20Information) During the fourth quarter of 2023, no directors or officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated any Rule 10b5-1 trading arrangements during the fourth quarter of 2023[740](index=740&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=170&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) Not applicable; the company has no disclosures regarding foreign jurisdictions that prevent inspections - This item is not applicable[741](index=741&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=171&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item will be included in the company's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference - Information is incorporated by reference from the upcoming Proxy Statement[742](index=742&type=chunk) [Executive Compensation](index=171&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item will be included in the company's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference - Information is incorporated by reference from the upcoming Proxy Statement[743](index=743&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=171&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership will be included in the company's 2024 Proxy Statement; as of December 31, 2023, **79,115,372** securities were to be issued upon exercise of outstanding options and rights, with a weighted-average exercise price of **$20.60**, and **178,706,283** securities remained available for future issuance Equity Compensation Plan Information (as of Dec 31, 2023) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | **Equity compensation plans approved by security holders** | 79,115,372 | $20.60 | 178,706,283 | | **Total** | 79,115,372 | $20.60 | 178,706,283 | [Certain Relationships and Related Transactions, and Director Independence](index=171&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item will be included in the company's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference - Information is incorporated by reference from the upcoming Proxy Statement[746](index=746&type=chunk) [Principal Accountant Fees and Services](index=171&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item will be included in the company's definitive Proxy Statement for the 2024 Annual Meeting of Shareholders and is incorporated herein by reference - Information is incorporated by reference from the upcoming Proxy Statement[747](index=747&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=172&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements found in Item 8, notes the omission of financial statement schedules as not applicable, and provides a list of all exhibits filed as part of the Annual Report on Form 10-K, including governance and separation-related agreements - The financial statements required by this item are listed in Item 8[748](index=748&type=chunk) - A list of exhibits filed with the report is provided, including key agreements such as the Separation Agreement, Tax Matters Agreement, and Transition Services Agreement with Johnson & Johnson[749](index=749&type=chunk)[750](index=750&type=chunk) [Form 10-K Summary](index=174&type=section&id=Item%2016.%20Form%2010-K%20Summary) None; the company has not provided a Form 10-K summary - No summary is provided[752](index=752&type=chunk)

Financial Data and Key Metrics Changes - In 2023, net sales grew 3.3% to $15.4 billion, with organic growth of 5% reflecting a value realization of 7.7% and a volume decrease of 2.7% [29][60] - Fourth quarter organic sales declined 2.4%, contrasting with 6.2% organic growth in the previous year [27][29] - Fourth quarter gross margin expanded 220 basis points to 59.5%, while full-year adjusted gross margin increased 30 basis points to 58.4% [58][59] Business Line Data and Key Metrics Changes - Essential Health segment achieved 3.6% organic growth, exceeding long-term expectations, driven by gross margin enhancement strategies [9][10] - Self Care, the largest segment, delivered organic growth of 8.4% in 2023, following 10.9% growth in 2022 [16][37] - Skin Health and Beauty segment experienced organic growth of 1.8%, below expectations due to in-store execution issues in the US [38][41] Market Data and Key Metrics Changes - EMEA and Latin America showed strong performance, with double-digit growth in Latin America driven by Neutrogena's successful product launches [12][40] - In China, weaker consumer demand negatively impacted skin care brands, particularly Dr.Ci:Labo, due to temporary PR issues [41][104] - The US market underperformed expectations, with a disappointing execution of recovery plans in the Skin Health and Beauty segment [41][82] Company Strategy and Development Direction - The company has identified three key priorities for 2024: reaching more consumers, investing in brands, and fostering a performance-driven culture [7][50][98] - Plans include enhancing in-store presence, amplifying consumer engagement, and increasing marketing investments by approximately 15% [21][65][118] - The company aims to stabilize the Skin Health and Beauty business in the US while monitoring consumer sentiment in China [49][127] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the Skin Health and Beauty segment but expressed confidence in the plans to improve execution and stabilize the business [55][72] - The outlook for 2024 anticipates organic growth in the range of 2% to 4%, with expectations for sequential improvement throughout the year [64][90] - Management highlighted potential headwinds, including softness in China and ongoing in-store execution issues in the US [92][102] Other Important Information - The company generated $2.7 billion in free cash flow for the year, benefiting from separation-related items and working capital timing [32][61] - A dividend program was initiated, reflecting a commitment to returning cash to shareholders with a 64% payout ratio [39][61] - Adjusted diluted earnings per share were $0.31 for the quarter and $1.29 for the year, including a benefit from non-recurring items [88][96] Q&A Session Summary Question: What is the visibility on the organic forecast for 2024? - Management expressed confidence in the organic growth forecast, expecting sequential improvement as investments and strategic initiatives take effect [100][101] Question: Can you clarify the advertising spend and its impact? - Advertising spend was slightly down in 2023, primarily due to reduced investment in Asia-Pacific, but plans for a 15% increase in 2024 were confirmed [139][142] Question: What are the specific challenges in the Skin Health and Beauty segment? - The challenges are mainly attributed to weak demand in China and in-store execution issues in the US, with a focused plan to improve these areas [104][143]

Financial Performance - Kenvue's full year 2023 net sales reached $15.4 billion[25], with organic growth of 5.0%[47] - The adjusted gross profit margin for full year 2023 was 58.4%[91], compared to a reported gross profit margin of 56.0%[91] - Full year 2023 adjusted diluted earnings per share was $1.29[258] - The company's Q4 2023 net sales were $3.8 billion[45], a 5.8% increase[45], with organic growth of 7.7%[88] - Adjusted operating income margin for Q4 2023 was 21.8%[94], while the reported operating income margin was 12.5%[95] Segment Performance - Self Care net sales for the fiscal year 2023 were $6.451 billion[13] - Skin Health and Beauty net sales for the fiscal year 2023 were $4.378 billion[17] - Essential Health net sales for the fiscal year 2023 were $4.615 billion[20] 2024 Outlook - Kenvue projects full year 2024 reported net sales growth of 1.0% - 3.0%[170] and organic growth of 2.0% - 4.0%[170] - The company anticipates a full year 2024 adjusted diluted earnings per share of $1.10 - $1.20[170], assuming a diluted weighted average share count of 1.92 billion[171]

[Part I — FINANCIAL INFORMATION](index=5&type=section&id=Part%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Kenvue's unaudited condensed consolidated financial statements detail its financial position and performance post-separation [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in Millions) | Account | October 1, 2023 | January 1, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $1,062 | $1,231 | | Total current assets | $5,894 | $5,877 | | Goodwill | $8,974 | $9,185 | | Intangible assets, net | $9,487 | $9,853 | | **Total Assets** | **$27,077** | **$27,316** | | **Liabilities & Equity** | | | | Total current liabilities | $5,161 | $3,926 | | Long-term debt | $7,685 | $— | | **Total Liabilities** | **$16,184** | **$7,346** | | **Total Equity** | **$10,893** | **$19,970** | - Total liabilities significantly increased from **$7.3 billion** to **$16.2 billion**, primarily due to **$7.7 billion** in long-term debt incurred during the separation from Johnson & Johnson; total equity decreased from **$20.0 billion** to **$10.9 billion** due to distributions and reclassification[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Key Operating Results (in Millions, Except Per Share Data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,915 | $3,789 | $11,778 | $11,183 | | Gross profit | $2,250 | $2,125 | $6,600 | $6,239 | | Operating income | $710 | $763 | $2,052 | $2,144 | | Interest expense, net | $100 | $— | $154 | $— | | **Net income** | **$438** | **$586** | **$1,337** | **$1,703** | | **Diluted EPS** | **$0.23** | **$0.34** | **$0.73** | **$0.99** | - For the third quarter, net sales grew **3.3% YoY** to **$3.9 billion**, but net income decreased **25.3%** to **$438 million**, primarily due to **$100 million** interest expense and higher SG&A[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in Millions) | Cash Flow Activity | Nine Months Ended Oct 1, 2023 | Nine Months Ended Oct 2, 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities | $2,218 | $1,881 | | Net cash flows used in investing activities | $(223) | $(223) | | Net cash flows used in financing activities | $(2,144) | $(1,520) | - Financing activities for the first nine months of 2023 were dominated by separation-related transactions, including **$7.7 billion** from Senior Notes, **$4.2 billion** from the IPO, and a **$13.8 billion** distribution to Johnson & Johnson[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain Kenvue's financial statements, covering separation, accounting policies, new debt, and key events like the IPO - Kenvue became a fully independent company on **August 23, 2023**, after Johnson & Johnson completed an exchange offer, with J&J now owning **9.5%** of Kenvue's common stock[35](index=35&type=chunk) - The company is organized into **three business segments**: Self Care, Skin Health and Beauty, and Essential Health[31](index=31&type=chunk) - In connection with the separation, the company incurred significant new debt, including **$7.75 billion** in Senior Notes and establishing a **$4.0 billion** Commercial Paper Program and a **$4.0 billion** Revolving Credit Facility[72](index=72&type=chunk)[81](index=81&type=chunk)[86](index=86&type=chunk) - Pursuant to the Separation Agreement, Johnson & Johnson retained and indemnified Kenvue for all talc-related liabilities in the **United States and Canada**, while Kenvue remains responsible for liabilities outside these regions[172](index=172&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Kenvue's financial performance, liquidity, and capital resources, highlighting Q3 sales growth and operating income decline [Results of Operations](index=60&type=section&id=Results%20of%20Operations) Q3 2023 vs Q3 2022 Performance (in Millions) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $3,915 | $3,789 | 3.3% | | Gross profit | $2,250 | $2,125 | 5.9% | | Operating income | $710 | $763 | (6.9)% | | Net income | $438 | $586 | (25.3)% | YTD 2023 vs YTD 2022 Performance (in Millions) | Metric | YTD 2023 | YTD 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $11,778 | $11,183 | 5.3% | | Gross profit | $6,600 | $6,239 | 5.8% | | Operating income | $2,052 | $2,144 | (4.3)% | | Net income | $1,337 | $1,703 | (21.5)% | - Q3 2023 organic growth was **3.6%**, driven by **7.1%** from price/mix, partially offset by a **3.5%** decline in volume[248](index=248&type=chunk) - YTD 2023 organic growth was **7.5%**, driven by **8.4%** from price/mix, partially offset by a **0.9%** decline in volume[267](index=267&type=chunk)[268](index=268&type=chunk) [Segment Results](index=62&type=section&id=Segment%20Results) Q3 2023 Net Sales by Segment (in Millions) | Segment | Q3 2023 Net Sales | YoY Change | Organic Growth | | :--- | :--- | :--- | :--- | | Self Care | $1,613 | 6.4% | 6.7% | | Skin Health and Beauty | $1,119 | (0.4)% | (0.4)% | | Essential Health | $1,183 | 3.0% | 3.8% | | **Total** | **$3,915** | **3.3%** | **3.6%** | YTD 2023 Net Sales by Segment (in Millions) | Segment | YTD 2023 Net Sales | YoY Change | Organic Growth | | :--- | :--- | :--- | :--- | | Self Care | $4,914 | 10.1% | 12.0% | | Skin Health and Beauty | $3,377 | 3.5% | 5.1% | | Essential Health | $3,487 | 0.8% | 3.9% | | **Total** | **$11,778** | **5.3%** | **7.5%** | [Liquidity and Capital Resources](index=70&type=section&id=Liquidity%20and%20Capital%20Resources) - Post-separation, Kenvue's capital structure changed significantly with the issuance of **$7.75 billion** in Senior Notes and the establishment of a **$4.0 billion** Commercial Paper Program and a **$4.0 billion** Revolving Credit Facility[282](index=282&type=chunk)[283](index=283&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - Net cash from operating activities increased to **$2.2 billion** for the first nine months of 2023, up from **$1.9 billion** in the prior year, driven by favorable working capital changes[278](index=278&type=chunk)[279](index=279&type=chunk) - The company declared a third-quarter dividend of **$0.20 per share**, paid on September 7, 2023, and a fourth-quarter dividend of **$0.20 per share**, payable on November 22, 2023[291](index=291&type=chunk)[293](index=293&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Kenvue identifies primary market risks including foreign currency, inflation, interest rates, commodity prices, and credit risk - Primary market risks include foreign currency exposure, inflation on input costs, interest rate risk on new debt, commodity price risk, and customer credit risk[298](index=298&type=chunk)[299](index=299&type=chunk)[301](index=301&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - The company uses derivative instruments, such as forward foreign exchange contracts, to manage foreign currency exposure[298](index=298&type=chunk) - In connection with the separation, the company incurred approximately **$9.0 billion** of new debt, including **$7.75 billion** in fixed-rate Senior Notes, exposing it to interest rate risk[302](index=302&type=chunk) [Item 4. Controls and Procedures](index=74&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded Kenvue's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the reporting period[307](index=307&type=chunk) - There were **no material changes** to the company's internal control over financial reporting during the quarter[308](index=308&type=chunk) [Part II — OTHER INFORMATION](index=74&type=section&id=Part%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=74&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 13, covering product liability claims and other litigation - Information regarding legal proceedings is incorporated by reference from Note 13, "Commitments and Contingencies," in the financial statements[309](index=309&type=chunk) [Item 1A. Risk Factors](index=74&type=section&id=Item%201A.%20Risk%20Factors) Risk factors are incorporated by reference from the Split-Off Prospectus, covering operational, financial, and separation-related challenges - Information regarding risk factors is incorporated by reference from the "Risk Factors" section of the company's Split-Off Prospectus[310](index=310&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) Kenvue adopted an Executive Severance Pay Plan, effective August 23, 2023, outlining benefits for executive officers upon termination - Kenvue adopted the Executive Severance Pay Plan on **October 30, 2023**, effective **August 23, 2023**[313](index=313&type=chunk) - Under the plan, the CEO receives **2x base salary plus target bonus** in a standard severance event, increasing to **2.5x** after a change of control, with other executives receiving **1.5x** and **2x** respectively[314](index=314&type=chunk)[317](index=317&type=chunk)

21 kenvue Paul Ruh Chief Financial Officer Disclaimer Unless otherwise indicated, information contained in this presentation concerning our industry and the markets in which we operate, including our general expectations, market position, market share, market opportunity and market size, has been obtained from third-party sources, including industry publications and other reports, internal data sources and management estimates, which we believe to be reliable and based on reasonable assumptions. Unless othe ...

Financial Performance - Kenvue reported net sales of $15.0 billion in 2022, making it the world's largest pure-play consumer health company by revenue [163]. - Net sales for the fiscal three months ended July 2, 2023, were $4.0 billion, an increase of $207 million or 5.4% compared to $3.8 billion in the same period last year [215]. - Net sales increased to $7.9 billion for the six months ended July 2, 2023, up $469 million or 6.3% from $7.4 billion in the prior year, with organic growth of $698 million after excluding unfavorable currency impacts [240]. - Net income decreased to $430 million, down $174 million or 28.8% compared to $604 million in the prior year [214]. - Net income decreased to $760 million, down $372 million or 32.9% from $1.1 billion in the prior year, impacted by increased tax provisions and higher interest expenses [260]. Sales and Growth Segments - The Self Care segment net sales were $1.7 billion, an increase of $180 million or 12.2%, with organic growth of $210 million or 14.2% [232]. - The Skin Health and Beauty segment net sales remained at $1.1 billion, with a slight increase of $21 million or 1.9%, and organic growth of $38 million or 3.4% [234]. - The Essential Health segment net sales were $1.2 billion, with a marginal increase of $6 million or 0.5%, and organic growth of $46 million or 3.8% [237]. - The Self Care segment net sales grew to $3.3 billion, an increase of $355 million or 12.1%, with organic growth of $435 million driven by increased demand for Cough, Cold, and Allergy products [252]. - The Skin Health and Beauty segment net sales rose to $2.3 billion, up $120 million or 5.6%, with organic growth of $172 million primarily from strong e-commerce performance [254]. - The Essential Health segment net sales remained flat at $2.3 billion, with a slight decrease of $6 million or 0.3%, but organic growth was $91 million or 3.9% driven by value realization [256]. Costs and Expenses - Cost of sales increased to $1.8 billion, up $140 million or 8.5%, primarily due to higher costs of key ingredients and packaging materials, with cost of sales as a percentage of net sales rising to 44.5% [216]. - Cost of sales rose to $3.5 billion, an increase of $233 million or 7.1%, primarily due to higher variable costs and commodity inflation, resulting in a cost of sales percentage of 44.7% of net sales [241][242]. - Selling, general, and administrative expenses rose to $1.5 billion, an increase of $147 million or 10.7%, with SG&A as a percentage of net sales increasing to 37.9% [217]. - Selling, general, and administrative expenses increased to $3.0 billion, up $299 million or 11.0%, with SG&A as a percentage of net sales rising to 38.5% due to higher enterprise function costs and non-recurring separation-related costs [243]. - Interest expense increased to $53 million from $0 million in the prior year, driven by interest on senior unsecured notes [222]. - Interest expense increased to $54 million, reflecting costs associated with Senior Notes and commercial paper, compared to no interest expense in the prior year [246]. Capital and Financing - Kenvue completed its IPO on May 8, 2023, raising net proceeds of $4.2 billion from the sale of 198,734,444 shares at an initial price of $22 per share [172]. - The company distributed $13.8 billion to Johnson & Johnson from the IPO proceeds and other financing transactions [173]. - The company has incurred approximately $9.0 billion of new debt related to the Debt Financing Transactions, including $7.75 billion from the Senior Notes offering [288]. - The company issued $7.75 billion in senior unsecured notes on March 22, 2023, with net proceeds of $7.7 billion after costs, which were used to lend to J&J [267]. - As of July 2, 2023, the company had no outstanding balances under its $4.0 billion Revolving Credit Facility [271]. Strategic Initiatives - The company plans to continue expanding its global operations, targeting underpenetrated markets and leveraging its scale in the U.S. and China [188]. - Kenvue is investing in digital capabilities, including data analytics and e-commerce, to enhance consumer health experiences and drive growth [186]. - Kenvue's innovation strategy focuses on science-backed solutions and consumer insights to develop new products and technologies [184]. - The company actively refines its portfolio through acquisitions and divestitures, focusing on high growth and high margin businesses, although no significant transactions occurred in the recent fiscal periods [199]. Market and Economic Conditions - Approximately half of Kenvue's net sales in 2022 were generated outside North America, indicating a balanced global footprint [166]. - The company faces substantial competition across all business segments and geographic markets, with competitors benefiting from the growth in e-commerce and digital business models [192]. - Since 2021, the company has experienced higher than expected inflation, including rising transportation and supply-chain costs, adversely affecting operational results [193]. - The company is exposed to inflationary pressures affecting raw material costs, which have been partially offset by price increases [285]. - The company is exposed to foreign currency risks due to significant non-U.S. operations, with ongoing efforts to manage this exposure through various strategies [197][198]. Tax and Regulatory Environment - The global implementation of the EU's Pillar Two Directive, establishing a minimum effective tax rate of 15%, could materially impact future financial statements [212]. - Provision for taxes rose to $209 million, an increase of $38 million or 22.2%, primarily due to higher U.S. tax on foreign income [223]. Cash Flow and Dividends - Cash flows from operating activities improved to $1.544 billion, an increase of $399 million or 34.8% compared to the prior year [260]. - Net cash flows from operating activities increased to $1.5 billion for the six months ended July 2, 2023, up from $1.1 billion in the prior year, representing a $399 million increase [262]. - Net cash flows used in investing activities were $118 million for the six months ended July 2, 2023, compared to $115 million in the same period last year [263]. - Net cash flows used in financing activities totaled $1.4 billion for the six months ended July 2, 2023, significantly higher than $885 million in the prior year, primarily due to a $13.8 billion distribution to J&J [265]. - The company declared a cash dividend of $0.20 per share for the third quarter of 2023, payable on September 7, 2023 [278]. Litigation and Risks - The company is involved in ongoing litigation that may adversely impact its financial condition and cash flows [280]. - The company anticipates ongoing non-recurring separation-related costs through at least fiscal year 2024 as it establishes itself as a standalone public entity [175].

Financial Performance - Reported net sales increased by 5.4% to $4 billion, with organic growth of 7.7%[21] - Full year 2023 organic growth is expected to be between 5.5% and 6.5%[21] - Reported EPS was $0.23, and adjusted EPS was $0.32[21] - Adjusted gross profit margin was 59.3% in Q2 2023 compared to 57.5% in Q2 2022[49] - Adjusted EBITDA margin was 24.5% in Q2 2023 compared to 26.8% in Q2 2022[51] - Adjusted net income was $581 million in Q2 2023 compared to $732 million in Q2 2022[54] Segment Performance - Self Care segment reported net sales increased 12.2%, with organic growth of 14.2%[44] - Skin Health & Beauty segment reported net sales increased 1.9%, with organic growth of 3.4%[44] - Essential Health segment reported net sales increased 0.5%, with organic growth of 3.8%[46] Guidance - The company anticipates a reported net sales growth between 4.5% and 5.5% for fiscal year 2023[59] - The company anticipates adjusted earnings per share between $1.26 and $1.31 for fiscal year 2023[59]