jpm.txt

North America Equity Research
29 May 2023
J PMORGAN
www.jpmorganmarkets.com
Kenvue
􀋘No More Tears􀋙 as Separation from Parent to
Accelerate Growth, FCF, Dividends; Initiate with OW Initiation
Overweight
KVUE, KVUE US
Price (26 May 23):$26.30
Price Target (Dec-23):$29.00
Beverage, Household & Personal
Care Products
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
Bloomberg JPMA TEIXEIRA <GO>
Drew Levine, CFA
(1-212) 622-0374
drew.levine@jpmorgan.com
Shovana Chowdhury
(1-212) 270-2184
shovana.chowdhury@jpmorgan.com
J.P. Morgan Securities LLC
Quarterly Forecasts (FYE Dec)
Adj. EBITDA ($ mn)
2022A 2023E 2024E
Q1 800 867A 968
Q2 1,022 940 1,000
Q3 971 1,007 1,014
Q4 812 983 1,001
FY 3,606 3,797 3,983
Style Exposure
We are initiating coverage of Kenvue (NYSE ticker: KVUE) with an OW rating
and a Dec 2023 price target of $29 (70/30 mix of peer multiples and DCF). As the largest pure-play consumer health company in the world following its separation
from parent Johnson & Johnson (N-rated by Chris Schott), we view KVUE as
uniquely positioned to benefit from consumer mega trends (self-care, aging). We expect KVUE to deliver resilient growth ahead in large addressable markets (TAM
~ $369bn) with iconic brands that form strong consumer connections from birth in
a portfolio spanning cold, flu, pain, allergy, and smoke cessation OTC medicines,
skincare, mouthwash, baby care, and wound care, among others. As a stand-alone company, we believe Kenvue board and management will be more focused and
accountable for the growth and profitability of the business following the separation that began in 2019, with significant opportunities to scale in many
adjacencies and markets around the world organically and through tuck-in M&A (would be incremental to our estimates and not needed to meet algorithm).
• Large Categories That Benefit from Wellness Tailwinds and Sustainable Growth Momentum, Even after Lapping COVID Tailwinds. With 10
iconic brands with sales greater than $400M (Neutrogena, Listerine, Tylenol,
Johnson􀋖s Baby, Aveeno, Nicorette, Zyrtec, Band-Aid, Stayfree/Carefree,
OGX) as well as over 37 regional brands, KVUE is poised to offer investors at least ~4-5% three-year CAGR in organic sales (OSG) , in line with top peers.
We note that due to supply chain constraints and SKU rationalization, KVUE lost share with OSG 3Y CAGR of+3.4% while the broader categories grew
+4.8%. KVUE still holds solid market shares in key categories and markets,
and like OW-rated PG, KVUE is still US-centric, which provides room to
regain share and 􀋘lift and shift􀋙 some of the most iconic brands abroad.
• Further Margin Expansion Opportunity. KVUE already delivered
impressive +200/250 bps GM/EBITDA expansions vs. 2019, outperforming
peers and despite cost and supply chain challenges. But we still see see KVUE generating profit growth ahead of sales growth from 2023-2025 with a three-
year CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin
expansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion)
and 25.3% in 2021.
• Attractive Valuation & Dividend Yield for Best-in-Class Growth
Compounder. We believe KVUE offers upside to investors at current levels
even after rallying from IPO price of $22 on May 3. At our $29 Dec 2023 price target, KVUE will be valued at ~16x EV/EBITDA 24E, which is
approximately where OW-rated CL trades currently for 2023E (still ~2x
cheaper than PG). As KVUE builds its track record as a public company (if our
estimates for solid quarters ahead materialize) and post-potential distribution
of shares that JNJ owns to current JNJ shareholders, we believe KVUE should
trade with the major-league high-quality multinationals that have defensive sales, compounding growth, and solid free cash flow conversion.
See page 92 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
Sources for: Style Exposure – J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
2
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Price Performance
YTD 1m 3m 12m
Abs - - - -
Rel - - - -
Company Data
Shares O/S (mn) 1,935
52-week range ($) 27.80-25.25
Market cap ($ mn) 50,893.83
Exchange rate 1.00
Free float(%) 10.4%
3M - Avg daily vol (mn) -
3M - Avg daily val ($ mn) -
Volatility (90 Day) -
Index S&P 500
BBG BUY|HOLD|SELL -
Key Metrics (FYE Dec)
$ in millions FY22A FY23E FY24E FY25E
Financial Estimates
Revenue 14,950 15,662 16,289 16,973
Adj. EBITDA 3,606 3,797 3,983 4,308
Adj. EBIT 3,310 3,487 3,648 3,957
Adj. net income 2,589 2,404 2,451 2,693
Adj. EPS 1.34 1.24 1.27 1.39
BBG EPS - - - -
Cashflow from operations 2,407 2,821 2,953 3,268
FCFF 2,032 2,405 2,471 2,763
Margins and Growth
Revenue growth (0.7%) 4.8% 4.0% 4.2%
Total Organic Growth Rate (%) - - - -
Gross margin 55.8% 56.6% 56.7% 57.3%
EBITDA margin 24.1% 24.2% 24.5% 25.4%
EBITDA growth (5.4%) 5.3% 4.9% 8.2%
EBIT margin 22.1% 22.3% 22.4% 23.3%
Net margin 17.3% 15.4% 15.0% 15.9%
Adj. EPS growth (4.5%) (7.1%) 1.9% 9.9%
Ratios
Net debt/EBITDA NM 2.0 1.8 1.7
ROIC - - - -
ROE 13.0% 15.5% 21.6% 22.7%
Valuation
FCFF yield 4.0% 4.7% 4.9% 5.4%
Dividend yield 0.0% 1.5% 3.1% 3.2%
EV/Revenue 3.4 3.8 3.1 3.0
EV/EBITDA 14.0 15.7 12.7 11.8
Adj. P/E 19.7 21.2 20.8 18.9
Summary Investment Thesis and Valuation
Investment Thesis
We rate Kenvue (KVUE) Overweight. As the largest pure-play
consumer health company in the world, reaching 1.2 billion
consumers daily, KVUE benefits from participating in large
categories where reliability and performance matter for
consumers. As such, we highlight five KVUE attributes that
underpin our positive view: (1) resilient top-line growth
expected, (2) room for margin expansion, (3) high cash flow
conversion and shareholder-friendly capital allocation, (4)
management has a strong background not only with JNJ but with
other blue-chip CPGs with solid relationships with key
customers, and (5) attractive valuation.
Valuation
Despite the strong share performance since the IPO, we view
current valuation as attractive. Our Dec 2023 target price of $29
is based on a blended average of EV/EBITDA (based on blended
average of HLN, Consumer Health, HPC & Beauty peers) and
a DCF based on perpetual growth method. We assign a 70%
weighting to EV/EBITDA as the primary valuation method
embedding 15.1.x EV/EBITDA off our 2024E EBITDA
estimate of $4.0B (implies $27 per share) and 30% weighting to
DCF as the secondary valuation method embedding $32 per
share. KVUE currently trades at 15.5x our 2023E EBITDA and
was priced at the IPO at 13.3x our 2023E EBITDA.
Source: J.P. Morgan Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and J.P. Morgan estimates for all other tables. Note: Price history may not be
complete or exact.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
3
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Table Of Contents
Summary of Investment Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risks to Rating and Price Target . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Company Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Resilient Sales Growth in Large Categories Driven by
Consumer Mega Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Growth Strategy Focused on Five Pillars . . . . . . . . . . . . . . . . . . . . . . . . . 10
Balanced Portfolio Shaped through Strategic
Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Self Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR) . . . . . . . . 12
Skin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-YR
CAGR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Essential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR CAGR). . . 15
Margin Trajectory Improving Post-Strategic Transformation and Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Financial Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Path to ~+4% Top Line over Next Few Years with Upside If Elasticities
Hold Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Gross Margins Poised to Improve – Can Return to 2021 Peak by 2025 . . 26
Post-2023 Leverage in Middle of P&L to Help Drive Solid Earnings
Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Balance Sheet, FCF, CapEx. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
KVUE Deserves Premium to HLN with Potential to Converge to CL Over
Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Benchmarking Against Peers – HLN Anchor at Low End, Already at CL Levels, PG Aspirational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Price Target Derivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Most Recent Point of Sales Trends in the U.S. (NielsenIQ) . . 41
Key Brands POS Performance in the U.S. . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Income Statement Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . 49
Balance Sheet Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Cash Flow Historical & Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Strong, Global Management Team . . . . . . . . . . . . . . . . . . . . . . . . . 52
Global and U.S. Sales and Market Share Trends. . . . . . . . . . . . 53
Global Category Market Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Self Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Skin Health & Beauty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Essential Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
U.S. Pricing, Share and Volume by Category - Tracked Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
4
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Summary of Investment Thesis
As the largest pure-play consumer health company in the world, reaching 1.2 billion
consumers daily, KVUE benefits from participating in large categories where reliability
and performance matter for consumers. As such, we highlight five KVUE attributes that underpin our positive view: (1) resilient top-line growth, (2) room for margin expansion,
(3) high cash flow conversion and shareholder-friendly capital allocation, (4)
management􀋖s strong background not only with JNJ but other blue-chip CPGs with solid
relationships with key customers, and (5) attractive valuation.
• Resilient Top-Line Growth in Large Categories. KVUE has strong leadership in
three main categories (self-care, skin health & beauty, essential health) that combined represent around $369bn in sales globally. The company boasts a portfolio
of seven #1 global brands and 37 #1 regional brands, with the top 10 brands above $400M in sales. Based on market data, KVUE􀋖s largest brands are Neutrogena,
Listerine, Tylenol, and Johnson􀋖s baby. Management expects the categories to grow
at a compounded annual growth rate of 3-4% globally through 2025 and for the company to drive growth competitive with the market, implying organic growth of
about 4%, which we believe is doable and somewhat conservative. Given the strong
start of 2023 with 11% organic sales growth (OSG) in Q123, we anticipate that KVUE will grow 6% organically this year, but as the company laps pricing, we expect it to decelerate (similar to most peers) to ~4% OSG in the following years.
• Accelerating Growth with Innovation, Digital Marketing, Omnichannel distribution... From an innovation standpoint, KVUE spends about 2.5% of sales on
R&D, introducing products that meet unsolved needs rooted in clinical trials. KVUE has launched roughly 100 new products per annum over the past several years, and
innovation introduced over the rolling preceding three-year period has accounted for
about $1.5 billion in net sales each year since 2020 (about 10% sales mix). As with
most CPGs, KVUE has been directing more of its marketing spend (~9-10% of
sales) into digital media (about 71% of total in 2022). With that and its increased
relationship with key e-commerce retailers, the company was able to grow its online sales at a +20% CAGR from 2020 to 2022 to 13% online and double its Skin Health
& Beauty e-commerce sales. In North America, for example, the digital marketing
spend accounted for 73% of total marketing spend in 2022, which was up from 59%
in 2020 and 49% in 2019 and drove a +29% increase in media ROI as of October
2022 and collective 13 points increase in U.S. household penetration from 2019 to
2021.The average consumer review on Amazon is 4.6 stars vs. category of 4.4 ,
including Neutrogena, Aveeno, Lubriderm, and Clean & Clear.
• ….and Through New Product Adjacencies & Introducing Successful Brands in
International Markets. Despite having many #1 positions, many of the sub-
categories are fragmented, as we discuss in the market share analysis later in this
report. For instance, Neutrogena is the #1 facial care brand in the U.S. but still the #3 facial care brand globally. In the facial cleansing category, Neutrogena is the #3
brand in the U.S. among Hispanics and the #2 brand in the U.S. among Millennials.
It is also the #1 most reviewed brand in the skin care category on Amazon in 2022.
This allows KVUE to build scale behind core priority brands that are not fully
distributed in all markets. While KVUE has presence in 165 markets globally, it prioritizes eight markets: the U.S. (#1 market), Canada (#3), the U.K. (#5), Germany
(#7), Brazil (#4), India (#6), Japan (#8), and China (#2). We think the company
could follow the CPG playbook of 􀋘lift-and-shift􀋙 successful products to additional Kenvue (KVUE)
Overweight
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
5
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
geographies over time.
• Optionality in M&A as KVUE Evaluates Acquisitions to Enhance Core Portfolio and Capabilities. The company has undertaken a number of acquisitions
and divestitures over the past seven years with 15 divestitures and 10 acquisitions
since 2016. While not necessary to achieve its growth algorithm, the company plans
to continue looking at M&A opportunities, although it sounds like management is
intent on remaining focused squarely on the consumer health space and would be looking more for tuck-in vs. transformational M&A. We expect M&A to be focused
on faster growing, premium categories, as has been the case with recent transactions
(e.g., Dr.Ci:Labo and Zarbee􀋖s). We do not include M&A in our P&L estimates, but we do budget around $500M for M&A in cash flow.
• Room for Profitability to Continue to Expand and Lead to Operating Leverage.
We expect the reorganization of brands, lower costs, better availability of key raw
materials (shortage of silicone impacted SH&B division), and supply chain
optimization will lead to better profitability ahead. While there are some 􀋘dis-synergies􀋙 from the separation (e.g., TSAs and TMAs – as we discuss below),
we expect the phasing out of these expenses to become a tailwind to margins. From an EBITDA perspective, however, we do see KVUE generating profit growth ahead
of sales growth from 2023-2025 with a three-year CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin expansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion) and 25.3% in 2021. For context,
KVUE has a good track record of 200 bps gross margin and 250 bps EBITDA expansion in the last three years.
• Reliable Cash Flow (~100% Conversion in 2023-25). We expect KVUE to
deliver>100% FCF conversion (% of adjusted net income) in each of 2023-2025,
and we model for free cash flow to grow at a three-year CAGR of +11% to $2.8
billion in 2025. The free cash flow outlook is supported by solid adjusted EBITDA growth (as described above) and some tailwind from working capital management as inventory normalizes following a step-up in 2022 (more below), which more than
offsets cash separation costs expected to be incurred from 2023-2025 (around
$595M post-tax) and some step-up in capital expenditures.
• Best-in-Class Dividend Yield. KVUE dividend policy post-IPO will be a quarterly
dividend of $0.20 per share beginning in 3Q23 (fiscal quarter ending October 1,
2023), which at the current price of $26.30 implies an annualized dividend yield of
about 3.0% (at the IPO price of $22, the annualized dividend yield was closer to
3.6%). Looking ahead, we expect the company to target an annual dividend payout ratio of around 55-65% (JPMe 2024E 64%), and we model for 3% dividend growth
in both 2023 and 2024 as the company targets moderate growth in dividend per
share.
• Management Has Strong Expertise in Categories, Already Operating
Independently for +3 Years. KVUE has a strong, seasoned management team that will benefit from continuity as many of the c-level executive ushered in the strategic transformation beginning in the 2019 time frame through the IPO. Moreover, the consumer segment largely operated independently within JNJ historically, and as
such, even after the separation, the organization should be well positioned to
continue life as a public company. The management team has around 18 years of
experience in consumer goods and healthcare on average and is a diverse group
including over 58% women and representing nine different nationalities.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
6
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Risks to Rating and Price Target
• Execution Risk Tied to the Separation from JNJ. While the separation started in
2019, KVUE has never operated as a stand-alone company, and there is inherent execution risk tied to the separation from JNJ. The company will operate under
transition services and manufacturing agreements ranging from two to five years,
and there is no guarantee that Kenvue will be able to exit the agreements in a timely
manner in order to drive cost savings. Moreover, Kenvue may be unable to
successfully develop internal systems from an operational, financial, administrative,
or IT perspective as a stand-alone company or may be unable to successfully source new manufacturing for regulated OTC products that are currently being produced by
JNJ under the TMAs. Currently, the TMA covers certain SKUs of Tylenol, Motrin,
Benadryl, and others that account for less than 10% of KVUE sales.
• Potential Talc Litigation outside North America. Kenvue could be subject to talc-
related litigation outside the U.S. and Canada relating to claims that talc causes
cancer. We note that JNJ released a statement on April 27: 􀋘As unequivocally and
unambiguously stated, Johnson & Johnson has agreed to retain all the talc-related
liabilities and indemnify Kenvue for any and all costs – arising from litigation in the United States and Canada.􀋙 While our understanding is that there are currently only
a few active claims relating to talc outside North America, the company has not taken any reserves against these claims, and there could be additional lawsuits in the future exposing KVUE to talc-related liabilities. On April 5, JNJ proposed an $8.9
billion settlement to resolve about 60,000 talc claimants in the U.S.
• Seasonal Factors Could Impact Performance of Some OTC Products. Kenvue􀋖s
Self Care business as of 2022 represented 40% of sales and 53% of segment-level operating income and over the past three years generated 90% of KVUE􀋖s organic growth. The segment has benefitted from tailwinds to its pain relief and cold and
cough businesses from various waves of the COVID-19 pandemic and recent 􀋘triple-demic􀋙 (COVID-19, RSV, flu). Additionally, the company has exposure to
seasonal allergy trends. If upcoming cold, cough, and flu and/or allergy seasons are more mild than expected, there could be downside risk to estimates.
• Inflation and Supply Chain Volatility May Impact Cost Outlook. As with other
consumer products companies, Kenvue over the past two plus years has had to
navigate significant inflationary cost pressures and a challenging supply chain
environment. Ingredient, packaging, transportation, and labor shortages have impacted service levels, product availability, and KVUE profitability, and while the cost and supply chain environment appears to be improving, inflationary cost pressures persist and the supply chain environment could again worsen.
• Consumer Demand May Weaken in Response to Macroeconomic Environment
or Pricing Actions. While elasticities thus far have held up better than historically
in response to material pricing actions undertaken by the company beginning in
2H22, a deterioration in the macroeconomic environment or higher sensitivity to
incremental pricing actions may dent consumer demand for Kenvue􀋖s products. In a softer macroeconomic environment, consumers may choose to trade down to private label products or other lower priced branded offerings.
• Distribution of KVUE Shares by JNJ Could Put Pressure on KVUE Share Price. Following Kenvue􀋖s IPO, JNJ still owns approximately 89.6% of KVUE shares. JNJ intends to effect a tax-free distribution of KVUE shares, which would
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
7
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
entail lowering its ownership stake to below 20%. If JNJ decides to pursue a
distribution of its KVUE shares, there could be selling pressure on the stock
depending on the structure of the distribution or discount implied by a share
exchange offering.
Company Description
Kenvue Inc. (KVUE) is the largest pure-play consumer health company in the
world with a history dating back over 135 years and a presence in over 165
countries with an estimated 1.2 billion people utilizing the company􀋖s products
daily. Kenvue􀋖s portfolio includes a number of iconic brands including Tylenol,
Listerine, Band-Aid, Johnson􀋖s, Neutrogena, Aveeno, Zyrtec, and Nicorette, among
others. The company boasts 10 brands that generated over $400 million in annual
net sales in 2022, and seven of its brands hold leading positions across global
categories. All in, Kenvue generated roughly $15 billion in sales and $3.6 billion
EBITDA in 2022. The company operates three segments, Self Care (40% of 2022
sales), Skin Health & Beauty (29% of 2022 sales), and Essential Health (31% of
2022 sales), and by geographic region the company generates roughly 50% of sales
in North America, 21% of sales in Europe, the Middle East & Africa, 21% of sales
in Asia Pacific, and 8% of sales in Latin America. Kenvue owns 25 in-house
manufacturing sites in addition to seven manufacturing sites under transition
manufacturing agreements and employs more than 22,000 people globally.
Prior to its IPO on May 3, 2023, Kenvue operated as the Consumer Health
Business of Johnson & Johnson (JNJ), and following the offering JNJ holds a
roughly 89.6% stake in the company. J.P. Morgan acted as a lead book-running
manager for Kenvue􀋖s initial public offering.
Table 1: EV/EBITDA Valuation vs. Key Comps - Full Table in Valuation Section
Ticker 2023E 2024E 2023E 2024E
KVUE 15.5x 14.7x 4.8% 4.9%
HLN 14.0x 13.3x 5.0% 5.7%
PG 17.8x 16.7x 4.5% 4.7%
CL 15.8x 14.7x 4.0% 4.5%
RKT 13.4x 12.7x 5.4% 6.1%
CHD 19.4x 18.3x 3.0% 3.7%
EV/EBITDA FCF Yield
Source: Bloomberg Finance L.P and J.P. Morgan estimates.
Figure 1: Select KVUE Brands
Source: Company reports.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
8
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Resilient Sales Growth in Large Categories
Driven by Consumer Mega Trends
Kenvue is the largest pure-play company in the Consumer Health sector with 135+
years of history and a portfolio of iconic and trusted brands (science-backed, healthcare
professional recommendations) that many consumers are introduced to at a young age or
when they􀋖re most vulnerable (e.g., provided to you when you􀋖re not doing well by
someone that cares for you – like for a cut or an illness).
The company􀋖s portfolio is split into three segments: Self Care (40% of 2022 sales),
Skin Health & Beauty (29% of 2022 sales), and Essential Health (31% of 2022 sales).
All told, the categories in which KVUE competes represent a $369 billion market
globally that has grown at a three-year CAGR of +4.8% from 2019-2022 (or +3.5%
from 2018-2021 vs. overall CPG sector growth of around +3.1% over the same time
period).
Figure 2: KVUE 2019 Revenue Mix
Self
Care,
33.6%
Skin
Health &
Beauty,
32.2%
Essential
Health, 34.2%
2019
Source: Company reports.
Figure 3: KVUE 2022 Revenue Mix
Health &
,
Self
Care,
40.3%
Skin
Health &
Beauty,
29.1%
Essential
Health,
30.6%
2022
Source: Company reports.
Figure 4: KVUE 2025E Revenue Mix
Self
Care,
41.7%
Skin
Health &
Beauty,
29.7%
Essential
Health,
28.7%
2025E
Source: J.P. Morgan estimates.
Figure 5: KVUE Category Sales Mix
% of FY22 Sales
COUGH, COLD AND
ALLERGY, 12%
PAIN CARE, 11%
OTHER SELF CARE
(DIGESTIVE HEALTH,
SMOKING
CESSATION AND
OTHER), 15%
FACE AND BODY
CARE, 22%
HAIR, SUN AND
OTHER, 8%
ORAL CARE, 11%
BABY CARE, 10%
OTHER ESSENTIAL
HEALTH (WOMEN'S
HEALTH AND
WOUND CARE), 11%
Source: Company reports.
Figure 6: KVUE Geographic Sales Mix
% of FY22 Sales
NORTH AMERICA,
50%
EMEA, 21%
ASIA PACIFIC,
21%
LATIN AMERICA, 8%
Source: Company reports.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
9
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Bottom up, the company􀋖s $369 billion TAM consists of:
• $114 billion in Self Care categories (e.g., analgesics, gastrointestinals,
dermatologicals, cough & cold, lifestyle CHC, allergy, eye care, smoking control)
• $217 billion in Skin Health & Beauty categories (e.g., conditioners and treatments,
hair loss treatment, shampoos, medicated shampoos, skin care, adult sun care)
• $38 billion in Essential Health categories (e.g., baby and child products ex-wipes,
mouthwash/dental rinses, sanitary protection ex-U.S./Canada/China, wound care)
Figure 7: KVUE TAM Build
$ bn
$369
$114
$217
$38
$0
$50
$100
$150
$200
$250
$300
$350
$400
Self Care Skin Health & Beauty Essential Health Total
Source: Company reports.
Figure 8: TAM Mix by Category vs. KVUE Revenue Mix
31%
59%
10%
40%
29% 31%
0%
10%
20%
30%
40%
50%
60%
70%
Self Care Skin Health & Beauty Essential Health
% of TAM % of KVUE 2022 Sales
Source: Company reports.
Growth across the categories has been broad based over the past three years with a
+MSD% CAGR including +6.2% in Essential Health categories, +5.1% in Self Care
categories, and +4.5% in Skin Health & Beauty categories, although we note that the
category growth rates over the past few years were impacted by pandemic-related
tailwinds and more recently pricing actions from inflationary cost pressures. Typically
(as we detail later), Essential Health categories grow slower relative to Skin Health &
Beauty (fastest growing) – albeit KVUE was negatively impacted in this segment by
self-inflicted SKU rationalization – and Self Care (slightly below Skin Health &
Beauty).
Figure 9: Category Sales CAGR - Each Category CAGR Accelerated vs. Historical Trend
3.4% 3.6%
3.0%
3.5%
5.1%
4.5%
6.2%
4.8%
0%
1%
2%
3%
4%
5%
6%
7%
Self Care Skin Health & Beauty Essential Health Total
CAGR '18-'21 CAGR '19-'22
Source: Company reports.
We view KVUE􀋖s category exposure as a sweet spot in CPG at the intersection of
healthcare and consumer goods – both with long-term secular tailwinds that should lead
to consistent +3-4% growth globally through 2025. At a high level from a category
perspective, growth should be enabled by increased focus on health by consumers and
retailers alike, which was accelerated by the pandemic era, aging population and rising
middle class globally, premiumization, and digitization.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Growth Strategy Focused on Five Pillars
KVUE aims to grow the top line competitively with its underlying category exposure
(+3-4%) driven largely by reinvesting behind its iconic core brands and supplementing
with expansion into new category adjacencies and geographies and bolt-on M&A
focused on consumer health.
The company is primarily focusing its investments behind its top 15 global brands
(Tylenol, Zyrtec, Rhinocort, Motrin, ORSL, Benadryl, Nicorette, Zarbee􀋖s, Aveeno,
Neutrogena, Dr.Ci:Labo, OGX, Johnson􀋖s, Listerine, Band-Aid) and eight priority
markets (U.S., Canada, U.K., Germany, Brazil, India, Japan, China) where it sees the
greatest opportunity for growth ahead with long runway.
Below, we outline our view on KVUE􀋖s growth strategies and thoughts on the
company􀋖s prospects.
1. Grow Brand Relevance and Salience
The biggest driver for long-term growth is likely to be household penetration and
incidence opportunity as even KVUE􀋖s largest brands have significant usage gaps.
Relevance and salience to consumers should be enabled by marketing campaigns
(predominately digital-focused at this point – more below) and continued focus on
clinical claims and working with healthcare professionals to secure recommendations
(also applicable to innovation).
For example, in the pain relief category in the U.S. there are 4.5x more consumers using
some form of non-steroidal anti-inflammatory drugs (NSAIDs) vs. consumers
exclusively using acetaminophen (generic name for Tylenol); in skin care there are 2.7x
more consumers who suffer from sensitive skin vs. sensitive product contribution to the
body care category in the U.S.; and in oral care household penetration for mouthwash is
1.8x higher in the U.S. and U.K vs. larger markets in ROW (e.g., Spain, Italy, France,
China, Japan, Thailand, Indonesia, Philippines). See deep-dive analysis in the back of
this report for market sizes, household penetration, and market share globally and in the
most relevant countries and categories.
Figure 10: 4.5x More Consumers in U.S. Use
Some Form of Pain Care vs. Acetaminophen
Alone
26M
118M
Consumers with certain medical conditions exclusively using
acetaminophen in the U.S.
Consumers with certain medical conditions using some form
of pain relief in the U.S.
Source: Nielsen Homescan Panel.
Figure 11: 2.7x More Consumers Have
Sensitive Skin vs. Sensitive Skin Product
Share of Body Care
26%
71%
Sensitive skin product contribution to body care category in
the U.S.
Suffer from sensitive skin in the U.S.
Source: Aveeno State of Skin Sensitivity Report.
Figure 12: Household Penetration Opportunity
in Mouthwash
15%
29%
50%
Household penetration in China Household penetration in Japan Household penetration in U.S. and U.K.
Source: Company reports.
2. Increase Product Availability through Omnichannel Strategy
The largest areas of opportunity are to expand presence in pharmacy and e-comm, in our
view. In retail, the opportunity is for incremental shelf space gains as retailers devote
more space to consumer health categories with KVUE well positioned to gain share
given its scale, market share position, and investments behind marketing and consumer
insights, in addition to deeper penetration in the faster growing pharmacy channel in
EMEA, India, and China (APAC is ~21% of sales, and China and India combined are
around 50% of APAC sales with China the #2 market globally and India the #6 market
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
globally for KVUE). KVUE􀋖s e-commerce opportunity is largely consistent with the rest of CPG as KVUE􀋖s sales mix to pure-play e-commerce is around 6%, which about doubles to 13% when including retail.com. Looking from 2020-2022, KVUE􀋖s e-
commerce sales grew at a roughly +20% CAGR. KVUE is aiming to increase product availability in the e-commerce channel and increased investment in digital marketing
over the past few years to help accelerate e-commerce mix; for example, 71% of
KVUE􀋖s marketing spend was on digital in 2022, up from 44% in 2019. The company is
also expanding in the DTC channel with brands like Dr.Ci:Labo (63% of sales in Japan
DTC in 2022), although it is still early days.
3. Deliver Consistent Cadence of Consumer-Centric Innovation
The company􀋖s innovation strategy is centered on elevating the core brands, enhancing
the consumer experience, and solving for unmet needs. The company􀋖s innovation
agenda is supported by 1,500 dedicated R&D employees (R&D is ~2.5% of KVUE sales, which is above the peer average of ~2.0%); over the past several years the company has launched roughly 100 new products per annum, and innovation introduced
over the rolling preceding three-year period has accounted for about $1.5 billion in net sales each year since 2020 (about 10% sales mix).
The company􀋖s innovation leverages its relationships with healthcare professionals and
also relies on clinical claims. Recent examples include: 1) Listerine rolling out claims
that the product reduces 5x more plaque above the gumline vs. flossing; 2) Children􀋖s
Zyrtec Oral Chewables and Dissolve Tabs and Tylenol Dissolve Packs for adults and
children who find it difficult to swallow pills; 3) Neutrogena Rapid Firming Peptide Contour Lift Face Cream, which contains an anti-aging ingredient (acetyl dipeptide)
designed for sensitive skin; 4) sustainable packaging solutions that reduce plastic including Neutrogena Hydro Boost refillable pods, Aveeno Body Wash refill packs, and
Listerine concentrate kits; and 5) Aveeno Calm + Restore focused on the underserved
segment of consumers with sensitive, extra-dry skin.
4. Expand into New Product Adjacencies and Geographic Markets
The company is in 165 markets globally but prioritizes eight markets: the U.S. (#1
market), Canada (#3), the U.K. (#5), Germany (#7), Brazil (#4), India (#6), Japan (#8),
and China (#2). Back to the Listerine example, there is still has a significant household
penetration opportunity as the overall United States mouthwash category penetration
rate was only 50% as of December 2022, while in APAC, category penetration was only
29% in Japan and 15% in China, each as of 2022.The company does plan for growth
outside of these markets as well but will generally look to build scale behind core priority brands and then expand portfolio offerings or enter adjacencies by leveraging
priority brands. The company gave the example of launching Aveeno in Indonesia,
Malaysia, and the Philippines, and we think the company could follow the CPG
playbook of 􀋘lift-and-shift􀋙 successful products to additional geographies over time.
5. Continually Evaluate Acquisitions to Enhance Core Product Portfolio and
Capabilities
The company has undertaken a number of acquisitions and divestitures over the past seven years with 15 divestitures and 10 acquisitions since 2016. While not necessary to
achieve its growth outlook, the company plans to continue looking at M&A opportunities, although it sounds like management is intent on remaining focused
squarely on the consumer health space and would be looking more for tuck-in vs.
transformational M&A. We expect M&A to be focused on faster growing, premium This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
12
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
categories, as has been the case with recent transactions (e.g., Dr.Ci:Labo and Zarbee􀋖s).
Balanced Portfolio Shaped through Strategic
Transformation
Self Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR)
Self Care is KVUE􀋖s largest segment with $6.0 billion in sales (~40% of FY22 sales)
and $2.1 billion in adjusted operating income (34.6% margin and 53.4% of KVUE
segment-level adjusted OI). Categories represented in Self Care primarily include
cough, cold and allergy, pain care, digestive health, and smoking cessation. Key brands
include Tylenol, Nicorette, Zyrtec, Motrin, Rhinocort, Benadryl, Zarbee􀋖s, ORSL, and
Imodium.
Figure 13: Self Care 40% of Revenues and 53% of Segment OI
40% 53%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of FY22 Sales % of FY22 Segment OI
Source: Company reports.
Figure 14: Self Care Category Revenue Mix
% of FY Sales
35.7% 32.2%
26.7% 32.2%
37.6% 35.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019 2022
COUGH, COLD AND ALLERGY PAIN CARE OTHER SELF CARE
Source: Company reports.
Self Care Has Been the Key Driver of KVUE􀋖s Improved Sales Trajectory in L3Y
Self Care has been aided by tailwinds from COVID and recent 􀋘tripledemic􀋙 (RSV, flu,
COVID) and resulting increased consumer focus on health (e.g., increased smoking
cessation attempts during the pandemic). In fact, from 2020-2022 Self Care drove ~91%
of KVUE􀋖s organic sales growth with the segment posting a 3Y CAGR of +8.6%
relative to total company 3Y CAGR of +3.4%. Within the Self Care +8.6% 3Y CAGR,
volume growth contributed about 6.3% to the organic CAGR with price/mix
contributing about +2.5%. Impressively, the company􀋖s 3Y CAGR has remained
resilient sequentially through most of 2022 and even accelerated in 1Q23 behind higher
incidence of cold and flu in EMEA and inventory replenishment at retail.
Figure 15: Self Care Organic Growth Trends and Outlook
7.5%
4.4%
7.0%
1.7% 2.2%
3.3%
1.9%
1.5%
4.1%
6.4%
2.4%
1.5%
0%
2%
4%
6%
8%
10%
12%
2020 2021 2022 2023E 2024E 2025E
Volume Price/Mix
Source: Company reports and J.P. Morgan estimates.
Figure 16: Self Care 2022/2023E Organic Growth by Halves
10.9%
3.7% 4.5%
-0.9%
1.4%
6.6%
7.3%
5.4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1H22 2H22 1H23E 2H23E
% volume % price/mix
Source: Company reports and J.P. Morgan estimates.
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13
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Following a strong three years of growth, which some could argue would have been
even stronger if not for supply chain challenges on Tylenol, and outlook for a fourth
strong year in 2023, we see the biggest question facing the segment as whether KVUE will be able to 􀋘comp the comp􀋙 and deliver on roughly +4.7% organic growth post-
2023 as the inflationary environment normalizes and the company contends with
lapping years of strong tailwinds to pain care and cough, cold & flu. That is, the question is whether the category growth trends normalize to historical growth levels or
have a reversion to the mean. While acknowledging the vagaries of virus/allergy
seasonal trends, there are a number of drivers both at the macro and company-level that provide a pathway to solid, albeit more normalized growth ahead.
Growth Is Not Only Driven by the Pandemic...
In pain care, KVUE should see ongoing tailwinds from deeper penetration for its brands
given unmet medical needs of consumers and wide gap between the number of
consumers using some form of pain relief vs. those using acetaminophen (active ingredient in Tylenol) exclusively (i.e., some consumers using NSAIDs or a combination of sometimes NSAIDs/sometimes acetaminophen). As we noted above, in
the U.S. there are roughly 26M consumers with chronic health conditions using
exclusively acetaminophen vs. 118M consumers with chronic health conditions using
some form of pain relief (i.e., NSAIDs or dual-users of NSAIDs or acetaminophen). We expect the company to prioritize the opportunity for household penetration and usage expansion in North America (usage gap vs. overall pain care) and APAC (middle class
becoming more open to Western medicine) over the next few years. There should also
be growth opportunity through form factor extensions that provide ease of use/
convenience for consumers (e.g., dissolvable tablets) and line extensions targeted at specific indications (e.g., arthritis, back pain).
...Strong Growth in Allergy Medicines Proves Power of Brand Equity and
Innovation
In allergy, KVUE should benefit long term from increasing allergy incidence (e.g.,
number of allergy days per season has grown by over 20 days from 1990-2018 given
impacts from factors like climate change, and pollen concentration has increased 21%
over the same period) and penetration in the U.S. (through Zyrtec) and China (through
Rhinocort). Like in pain care, we also expect form factor extensions to aid in driving
growth; for example, the company introduced Children􀋖s Zyrtec Chewables to enhance the consumer experience and drive adoption given challenges many children have with
swallowing pills. This innovation helped to drive accelerated category growth for
pediatric allergy (U.S. growth accelerated 5x for 2H22) with Zyrtec the #1 brand in
pediatric allergy.
Smoke Cessation Benefits from Self-Care Tailwinds Prior to the Pandemic and
Accelerated Post COVID-19
In other self-care categories, KVUE should see continued benefit from quit attempts in
smoking cessation supported by new scientific claims, products (e.g., Nicorette QuickMist and app), and marketing campaigns (e.g., 􀋘Do Something Incredible􀋙
campaign drove 74% improvement in media ROI and 2.6 points of market share gains
globally), as well as potential entry into vaping cessation. The company also plans to
selectively invest to drive growth in digestive health through ORSL.
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14
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Skin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-
YR CAGR)
Skin Health & Beauty (􀋘SHB􀋙) generated sales of $4.4 billion in 2022 (~29% of FY22
sales) and $0.7 billion in adjusted operating income (16.3% margin and 18.1% of
KVUE segment-level adjusted OI). Categories represented in SHB primarily include
face and body care, hair care, and sun care, and key brands include Neutrogena, Aveeno,
OGX, Dr.Ci:Labo, Le Petit Marseillais, Lubriderm, Rogaine, Dabao, and Clean & Clear.
Figure 17: Skin Health & Beauty 29% of Revenues and 18% of Segment
OI
29% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of FY22 Sales % of FY22 Segment OI
Source: Company reports.
Figure 18: Skin Health & Beauty Category Revenue Mix
% of FY Sales
74.6% 68.7%
25.4% 31.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019 2022
FACE AND BODY CARE HAIR, SUN AND OTHER
Source: Company reports.
Flat OSG Performance in Last 3 Years Ending 2023, Due to Supply Chain
Constraints...
Despite the category growing at a +4.5% CAGR from 2019-2022, KVUE􀋖s SHB
segment has underperformed (3Y CAGR through 2022 just +0.1%) as the business
suffered through supply chain challenges that seemed to have a greater impact relative
to competitors, partially attributable to KVUE􀋖s exposure to sun care, which went
through challenges last year given silicone shortages, in addition to impacts from lost
usage occasions during the COVID pandemic (also impacted competitors). With that,
over the past three years SHB essentially contributed nothing to KVUE􀋖s organic
growth, and as of 2022, SHB volumes still stood around 3% below 2019 levels.
… Turning the Corner Accelerating to MSDs OSG in 2H22 and Low Teens in 1Q23
That said, KVUE appears to be turning a corner more recently in top-line trajectory
(albeit against a low bar) as the company undertook actions to streamline its supply
chain and build resilience (in addition to general easing of supply chain situation
globally). Specifically, 2H22 organic growth in the segment came in at +5.3% (+MSD%
in each of 3Q/4Q) vs. a -4.0% organic growth decline in 1H22, implying a 3Y CAGR in
2H22 of +1.5% vs. -0.8% in 1H22. Momentum has continued thus far in 1Q23 with
organic growth of +13.2%, and the segment seems to be on stronger footing now to take
advantage of favorable secular trends in the categories of body, face, and sun care.
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15
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 19: Skin Health & Beauty Organic Growth Trends and Outlook
-3.3%
2.3%
-2.3% -2.1%
2.5%
3.5%
0.8%
0.6%
2.8%
7.9% 2.6%
1.8%
-4%
-2%
0%
2%
4%
6%
8%
10%
2020 2021 2022 2023E 2024E 2025E
Volume Price/Mix
Source: Company reports and J.P. Morgan estimates.
Figure 20: Skin Health & Beauty 2022/2023E Organic Growth by Halves
-5.6%
1.1% 1.0%
-5.1%
1.6%
4.1%
8.4%
7.4%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1H22 2H22 1H23E 2H23E
% volume % price/mix
Source: Company reports and J.P. Morgan estimates.
With a favorable setup that should benefit from reopening, lapping a low comparison
base, and recent innovation, the company should be able to deliver >+5% organic
growth over the next three years and drive one-third of the company􀋖s organic growth
(vs. just 1% from 2020-2022). Supporting the top-line outlook is execution against
innovation and marketing with larger focus on Neutrogena Hydro Boost in face care,
sun care innovation (both Neutrogena and Aveeno), and more focus on body care with
Aveeno Calm + Restore for sensitive skin. The company is likely also to push more on
growth in the APAC region through its recent acquisition of dermocosmetic brand Dr.
Ci:Labo (acquired in 2019) in the prestige segment (dermocosmetics growing 2x
category rate) and Dabao (􀋘local jewel􀋙 brand) in the mass segment (64% share of
category). In hair care, OGX has seen strong performance in the premium segment in
the U.S., and the company should also benefit from growth in the hair re-growth
category with Rogaine.
The biggest question ahead for SHB, in our view, is simply that the company hasn􀋖t
demonstrated an ability to generate consistent top-line growth and take advantage of the
secular tailwinds to the categories. That said, with improving supply chain situation,
reinvestment behind marketing, and innovation, we do see a path to +MSD% in the
years ahead.
Essential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR
CAGR)
Essential Health generated sales of $4.6 billion in 2022 (~31% of FY22 sales) and $1.1
billion in adjusted operating income (24.3% margin and 28.4% of KVUE segment-level
adjusted OI). Categories represented in Essential Health primarily include oral care,
baby care, women􀋖s health, and wound care, and key brands include Listerine, Johnson􀋖s
Baby, Stayfree / Carefree, Band-Aid, Neosporin, and o.b.
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16
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 21: Essential Health 31% of Revenues and 28% of Segment OI
31% 28%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of FY22 Sales % of FY22 Segment OI
Source: Company reports.
Figure 22: Essential Health Category Revenue Mix
% of FY Sales
32.2% 32.7%
35.1% 32.7%
32.7% 34.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019 2022
ORAL CARE BABY CARE OTHER ESSENTIAL HEALTH
Source: Company reports.
Essential Health has been the main area of focus of KVUE􀋖s transformation over the
2019-2022 period when the new management team came in with a focus on active
portfolio management and simplification and margin improvement. Specifically, since
2019 the segment has seen a -$100M headwind from divestitures (around 2% of 2019
sales) and another -$100M headwind from SKU rationalization. With that, the segment
has underperformed the category CAGR of +6.2% from 2019-2022 with organic growth
CAGR of +0.9% from 2020-2022 and volumes ending 2022 over 5% lower vs. 2019.
With a lot of the portfolio cleanup now in the past, the segment should be able to return
to growth more consistent with historical levels, aided by significant pricing actions
with modest elasticity and a couple of key marketing campaigns behind core brands
Listerine and Aveeno Baby. We model for Essential Health to grow +3.4% in 2023 and
then grow at a 2Y CAGR of +2.2% in 2024-2025.
Figure 23: Essential Health Organic Growth Trends and Outlook
0.3% 0.6%
-6.2% -5.5%
0.6% 1.6%
2.2% 1.4%
4.9%
8.9%
1.6%
0.8%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2020 2021 2022 2023E 2024E 2025E
Volume Price/Mix
Source: Company reports and J.P. Morgan estimates.
Figure 24: Essential Health 2022/2023E Organic Growth by Halves
-5.9% -6.6% -6.0% -5.0%
3.2%
6.7%
9.2% 8.5%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1H22 2H22 1H23E 2H23E
% volume % price/mix
Source: Company reports and J.P. Morgan estimates.
The company sounds particularly optimistic around Listerine given the category
penetration opportunity and marketing of new scientific claims. We noted before that
mouthwash penetration is 1.8x higher in the U.S. and U.K. vs. other larger markets in
ROW, and the company is rolling out claims from a scientific study that Listerine is 5x
more effective at destroying plaque above the gum line vs. flossing (has led to 5 point
increase in share of healthcare professionals recommending Listerine to 63%).
The +LSD% top-line outlook for the segment appears reasonable, in our view, given the
mature categories in which KVUE competes in the segment, although we note that
KVUE􀋖s market share trends have been quite challenged over the past couple years,
which management attributes in part to the SKU rationalization effort that likely led to
some lost points of distribution and shelf space. Typically we would view SKU
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
rationalization as 􀋘normal course of business,􀋙 and we would be surprised if elimination
of non-core SKUs with low velocity (as is typically the case in an SKU rationalization
effort) led to that material market share losses as normally one would expect sales to
flow back to the higher velocity, core SKUs. As such, perhaps the market share losses
could be more tied to less than ideal execution and differentiated offerings from competitors (e.g., CHD􀋖s TheraBreath in mouthwash).
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North America Equity Research
29 May 2023 J PMORGAN
Margin Trajectory Improving Post-Strategic
Transformation and Investments
Following the current management team coming into the business around 2019, KVUE saw improvement in margin trajectory driven by a strategic transformation and series of
investments aimed at both improving profitability and also driving top-line momentum.
Some of the actions we outlined above (e.g., 15 divestitures and 10 acquisitions to
reshape the portfolio since 2016, SKU rationalization, investments in higher ROI digital media), but others included supply chain simplification (e.g., rationalizing smaller
external manufacturers) and investments in supply chain digitization (e.g., automation,
resiliency), and there was also a margin mix benefit from faster growth in the higher-
margin Self Care segment. Together these areas helped lead to a +290 bps expansion in
KVUE gross margins from 2019 to 2021.
KVUE􀋖s EBITDA margins improved +445 bps in 2020 (26.1%) vs. 2019 (21.6%) but finished -78 bps YOY in 2021 given reinvestment behind advertising (-120 bps
headwind as advertising expense increased to 9.7% of sales) to 25.3% but still about 365
bps ahead of 2019 levels. Pressure continued in 2022 driven by supply chain, inflation,
and FX pressures with margins compressing another -119 bps YOY. Looking ahead,
with pricing actions now in place (mostly a 2H22 event) to begin to help offset inflationary cost pressures and incremental pricing in 2023 (we estimate ~45% of 2023
pricing is carryover from 2022), KVUE􀋖s EBITDA margins should begin to recover
even after burdening the P&L with stand-alone company costs (e.g., transition services
and manufacturing agreements, public company costs, incremental hires to support standalone organization), which likely total ~$100M.
Deliberate Portfolio Optimization Toward Core and Faster Growing Consumer Health Categories
M&A has played a significant role in shaping the KVUE portfolio with some of its
largest brands the result of acquisitions including Tylenol (1958), Neutrogena (1994),
Aveeno (1996), and Listerine (2006). More recently, the company has undertaken efforts
to streamline its portfolio to core brands and 􀋘local jewels􀋙 (i.e., leveraging same active ingredient/technology at platform brand) while exiting slower growth, lower margin
brands/categories and making acquisitions in faster growth, higher margin brand/
categories. As noted, since 2016 the company has actively shaped the portfolio by
completing 15 divestitures and 10 acquisitions. Recent notable acquisitions include Vogue International (OGX) in 2016, NeoStrata in 2016, Zarbee􀋖s in 2018, and Dr.
Ci:Labo in 2019; some notable divestitures include RoC and Nizoral in 2018 in the Skin
Health & Beauty segment and Compeed (2017) and Reach (2021) in the Essential Health segment.
Beyond M&A, KVUE also undertook an extensive SKU rationalization effort over the past few years that has resulted in a 21% reduction in the number of SKUs from 2019-
2022 and was a roughly ~$100M headwind to the top line in the Essential Health
segment with some additional impact to Skin Health & Beauty as well.
The SKU rationalization and M&A efforts, while detrimental to the top line and the company􀋖s market share performance, helped to improve the margin structure by
reducing complexity and eliminating lower profitability items as evidenced by Essential Health segment adjusted operating income margins expanding approximately 340 bps
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North America Equity Research
29 May 2023 J P M O R G A N
from 2019 to 2022 despite organic sales CAGR of just +0.9% and reported sales down -
6.7% from 2019 levels.
Figure 25: Essential Health Segment Sales, OI, Margin 2022 vs. 2019
$ m
$4,896
$4,570
$1,022 $1,111
20.9%
24.3%
19.0%
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2019 2022
Sales Segment OI Segment OI Margin
Source: Company reports.
Figure 26: Essential Health Profit/Margin Improvement Despite Lower
Sales
-6.7%
8.7%
+340 bps
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Sales 2022 vs. 2019 Segment OI 2022 vs. 2019 Segment OI Margin 2022 vs. 2019
Source: Company reports.
We expect the company to continually evaluate opportunities to streamline its portfolio
by eliminating tail SKUs (likely an annual exercise as it is with any CPG company),
although from our perspective it appears that much of the 􀋘heavy lifting􀋙 of portfolio
optimization is largely behind the company at this point. Looking ahead, M&A figures
to continue to play a role in shaping of the portfolio, likely continuing in the higher
growth/margin segments within Consumer Health (e.g., Self Care and Skin Health &
Beauty), and we expect M&A to be more bolt-on in nature vs. transformational
transactions. With strong FCF generation and a healthy balance sheet (post-IPO net
debt-to-TTM EBITDA likely ~2.1x) KVUE should have ample dry powder to deploy to
M&A if it deems fit, and we think management is likely earmarking $500-750M for
acquisitions in the years ahead (vs. JPMe FCF $2.4B/$2.5B/$2.8B in 2023/2024/2025),
although we note that we don􀋖t account for any M&A benefit within our P&L estimates.
Supply Chain Optimization to Reduce Complexity, Increase Efficiency and
Resiliency
While supply chain challenges plagued KVUE during 2022 given input shortages and
transportation challenges, the company has undertaken efforts since 2019 to structurally
improve its supply chain by investing in digitization to increase efficiency and resiliency
and by reduced complexity through external manufacturer rationalization.
Pre-pandemic, KVUE􀋖s supply chain focus was mostly on operational excellence,
quality control, and margin maximization, but COVID tested the resilience and
flexibility of the supply chain and uncovered a lack of redundancy that impacted
product availability and service. The company noted that in 2021/2022 64%/63% of its
scheduled capital spend for supply chain investments was allocated to digitization
(automation), which ultimately allows for better demand planning, capacity, and
resilience. Some examples include 1) shift to conditions-based maintenance from
scheduled maintenance given better monitoring capabilities allows for better capacity
availability while also alleviating labor challenges; 2) complexity reduction through
SKU rationalization and product design standardization (e.g., bottle types) and reducing
the number of small external manufacturers (e.g., company eliminated 60% of small
external manufacturers); 3) increasing dual sourcing and reducing specification on
critical ingredients to improve availability/resilience; and 4) integrated business
planning to optimize forecasting and inventory management, leading to better
profitability and cash flow.
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North America Equity Research
29 May 2023 J PMORGAN
All in, the company􀋖s in-house manufacturing footprint of 25 facilities accounted for
56% of production volume in 2022 while the remaining 44% of production was handled
by seven JNJ facilities under transition manufacturing agreements and 230 external manufacturers (as noted above, a 60% reduction since 2019). Within the segments, Skin
Health & Beauty tends to be more out-sourced while Self Care is more in house. The company also operates 114 distribution centers and 38 customer service centers globally,
with distribution often operated in partnership with third parties.
Digital Marketing Improving ROI as Company Shifts to Omnichannel About 6% of KVUE􀋖s sales are through pure-play e-commerce, but mix more than
doubles to 13% including retailer.com (largely in line with CPG peers), and the company􀋖s online sales have grown at a +20% CAGR from 2020 to 2022. One of the drivers beyond the general shift of consumption to online channels is the company􀋖s
focus on digital marketing, which has taken shape over the past several years. In North
America, for example, the digital marketing spend accounted for 73% of total marketing
spend in 2022, which was up from 59% in 2020 and 49% in 2019 and drove a +29%
increase in media ROI as of October 2022 and collective 13 points increase in U.S.
household penetration from 2019 to 2021. The company has pointed to digital investments driving improved social media engagement including for Neutrogena a 660% increase in followers from August to December 2021 as a result of its SkinU
campaign on TikTok, which generated over 300 million social media impressions. The company has also focused a lot of its digital efforts outside of the U.S., in particularly in
APAC, which accounted for 63% of global e-commerce sales in 2020. Investments
behind digital media are largely table stakes for CPG companies at this stage as a cost-
efficient and effective way to engage with consumers. Digital focus is likely to continue to be important, especially for segments or brands appealing to younger digitally-native consumers like within Skin Health & Beauty. The company does continue to invest in
traditional media, although it largely depends on where the consumer is in that particular
market.
Opportunity for Margin Expansion as KVUE Exits TSA/TMA
Looking ahead, one of the bigger areas for margin expansion opportunity for KVUE will likely be in exiting transition services agreements (TSA) and transition
manufacturing agreements (TMA) with JNJ post-separation, which run on a cost-plus
model. Of the roughly $100M in incremental costs associated with being a stand-alone company, we estimate that the TSA and TMA could be roughly 50-60% of the incremental costs (i.e., 30-40 bps margin opportunity of roughly 130 bps EBITDA margin expansion modeled for 2022-2025).
The TSAs generally run for 24 months following the separation, although some services
could be provided for a longer period of time (less than 60 months) in certain
circumstances such as if the functions are limited by regulatory approval. The company
noted that it plans on working with JNJ in establishing its own stand-alone IT functions,
which would run concurrent to the TSA and could account for less than a 100 bps
headwind to profitability and decline post-2023.
The TMAs cover Self Care products including certain Tylenol, Zyrtec, Mortin, Benadryl and other OTC products that represented less than 10% of KVUE􀋖s 2022 sales. Within
the TMAs, KVUE is responsible for demand forecasting (both binding and non-
binding), and JNJ will be responsible for sourcing raw materials and manufacturing. The TMAs have different lengths depending on product but in all cases phase out over a This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
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North America Equity Research
29 May 2023 J PMORGAN
five-year period (could be extended for three additional 12-month periods under certain
circumstances), and the company aims to exit most of the TMAs within three years.
Generally speaking the TMAs take a longer time to exit vs. TSAs given the time line for
regulatory approvals or marketing authorization transfers. The TMA periods are 3-60
months for Tylenol products and 21-60 months for Zyrtec, Motrin, and Benadryl products.
To be fair, some of the potential savings opportunity could be eroded if KVUE opts to
select another third party to facilitate any G&A or manufacturing function, although it􀋖s
possible that a different third-party fee could be lower than JNJs (because JNJ now has
to make a margin on these contracts), and/or KVUE could look to drive efficiencies out of processes and manufacturing. Additionally, there is risk that KVUE standing up its
own functions or in-sourcing manufacturing could run into challenges if it or third
parties are unable to replicate JNJ processes.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Financial Outlook
Path to ~+4% Top Line over Next Few Years with Upside If
Elasticities Hold Up
KVUE􀋖s long-term algorithm calls for organic top-line growth to be competitive with
category growth rates, which the company expects to be around +3-4% per annum
through 2025. This growth rate is consistent with the recent past where KVUE􀋖s
categories grew at a roughly +3.5% CAGR from 2018-2021 (although category organic
growth CAGR accelerated in 2019-2022 given COVID tailwinds and pricing to +4.8%).
Figure 27: KVUE Organic Growth Drivers by Year
1.4% 2.6%
-0.1%
-1.6%
1.8%
2.8%
1.7%
1.2%
4.0%
7.6%
2.2%
1.4%
-0.2% -0.3%
-0.1%
-4%
-2%
0%
2%
4%
6%
8%
10%
2020 2021 2022 2023E 2024E 2025E
Volume Price/Mix Other*
Source: Company reports and J.P Morgan estimates; *Other relates to carve-out financial
adjustments
Figure 28: KVUE Historical and Forward 3Y CAGR Drivers
1.3% 1.0%
2.3%
3.7%
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%
5%
L3Y (2020-2022) N3Y (2023-2025)
Volume Price/Mix
Source: Company reports and J.P. Morgan estimates.
That said, based on historical data it appears that KVUE has been underperforming the
overall category growth rate over the same period (we estimate organic growth CAGR
+2.6% 2018-21), although the company has been transforming the business to put it on
a better footing for organic growth by sharpening resource allocation and optimizing the
portfolio (e.g., SKU rationalization, acquisitions/divestitures). In fact, KVUE􀋖s organic
growth trends have accelerated for three consecutive years since 2019 – ramping from
+1.4% in 2019 to +3.8% in 2022 with the 2019-2022 CAGR +3.4%. As we noted,
organic growth over the past few years has been hampered by supply chain disruptions,
SKU rationalization, and COVID-19, and excluding these items the company estimates
that its organic growth CAGR from 2019-2022 would have been about +5.4%.
Figure 29: KVUE Historical Sales Bridge
$ m
$14,950
$14,324
+1.4%
+1.7%
-0.2%
-1.8% -0.1%
$14,467
+2.6%
+1.2%
-0.3%
+1.5%
-0.9%
$15,054
-0.1%
+4.0%
-0.1%
-4.2% -0.3%
$13,000
$13,500
$14,000
$14,500
$15,000
$15,500
$16,000
Source: Company reports.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
KVUE Lagged Peers in OSG Due to Delayed Pricing, Improving Recently
As such, in the past three years KVUE􀋖s organic growth trends have underperformed
peers with KVUE􀋖s +3.4% below the median of +5.2% and the average of +9.5%
(+5.8% ex-OLPX). While adjusting for the aforementioned headwinds would have
resulted in KVUE organic growth CAGR just slightly above the median (i.e., +5.4% vs.
median +5.2%), we don􀋖t see it as a fair comparison as peer companies faced many of
the same headwinds as KVUE between supply chain disruptions and COVID-19.
Timing is also a driver of the underperformance vs. peers over the last three years as
KVUE was late vs. peers in putting through pricing actions and at a more moderate level
vs. most of HPC (i.e., KVUE just in 2H22 began putting through pricing in the ~HSD
range overall while HPC peers took multiple rounds of pricing ranging from MSD-LDD
in some cases), although we also aren􀋖t projecting KVUE to grow much faster vs. peers
ahead despite delayed pricing benefit.
Figure 30: Organic Sales 3Y CAGR vs. Peers
CY20-CY22
-5%
0%
5%
10%
15%
20%
25%
ELF HNST RKT OR PG CL CLX HLN ULVR CHD BEI KMB KVUE NWL EL COTY
Organic 3Y CAGR Average Median
Source: Company reports and J.P. Morgan estimates.; *OLPX 3Y Organic CAGR +68.1% removed for ease of comparison
2023 Should Still Be Above Algorithm at ~6% OSG, Normalizing to Peer Average
~+4% in 2024+
Looking ahead, we see KVUE as well positioned for +6% organic top line in 2023 and ~
+4% organic top-line growth over the following two years (3Y CAGR +4.7%) with
potential for upside if elasticities hold up better than expected (we believe KVUE is
modeling internally for elasticities to revert to historical mean vs. relatively more
limited elasticities experienced thus far and positive volume growth of +2.4% in 1Q23
despite +8.8% price/mix). Underpinning the expected top-line growth is the underlying
category growth trends, which we detailed earlier. Within KVUE􀋖s portfolio, we expect
top-line growth to be led by Self Care and Skin Health & Beauty segments, while
Essential Health contributes relatively less given category dynamics.
Specifically, we estimate Self Care to grow at a three-year CAGR of +5.8% and
contribute ~50% to KVUE􀋖s organic growth through 2025, Skin Health & Beauty to
grow at a three-year CAGR of +5.4% and contribute ~33% to KVUE􀋖s organic growth
through 2025, and Essential Health to grow at a three-year CAGR of +2.6% and
contribute ~17% to KVUE􀋖s organic growth through 2025. We note that in the prior
three years (2020-2022), Self Care grew at a +8.6% three-year CAGR and contributed
nearly ~91% to KVUE organic growth, Skin Health & Beauty grew at a +0.1% threeyear
CAGR and contributed ~1% to KVUE organic growth, and Essential Health grew
at a +0.9% three-year CAGR and contributed around ~8% to KVUE organic growth.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 31: Segment Contribution to YOY Organic Growth
3.2%
2.0%
4.1%
3.2%
1.9%
-0.9% 2.0%
0.9%
0.2% 1.7%
1.5%
1.5%
0.6% 0.7%
-0.5%
1.0%
0.6%
0.7%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2020 2021 2022 2023E 2024E 2025E
Self Care Skin Health & Beauty Essential Health
Source: Company reports and J.P. Morgan estimates.
Figure 32: Segment Contribution to L3Y and N3Y Organic CAGR
3.1%
2.4%
0.0% 1.6%
0.3%
0.8%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
L3Y (2020-2022) N3Y (2023-2025)
Self Care Skin Health & Beauty Essential Health
Source: Company reports and J.P. Morgan estimates.
Figure 33: Segment Organic Growth by Year
9.5%
-2.8%
1.9%
2.9%
5.4%
2.8%
2.1%
3.5%
10.9%
0.5%
-1.4%
3.8%
8.1%
5.8%
3.4%
6.0%
4.6%
5.1%
2.2%
4.0%
4.8%
5.3%
2.3%
4.2%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Self Care Skin Health & Beauty Essential Health Total
2020 2021 2022 2023E 2024E 2025E
Source: Company reports and J.P. Morgan estimates.
Figure 34: Segment L3Y and N3Y Organic CAGR
8.6%
0.1%
0.9%
3.4%
5.8%
5.4%
2.6%
4.7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Self Care Skin Health & Beauty Essential Health Total
L3Y (2020-2022) N3Y (2023-2025)
Source: Company reports and J.P. Morgan estimates.
Expect OSG to Be Mostly Driven By Pricing (as Peers) But Normalize Ahead
Within the top-line outlook, we expect 2023 growth to be driven exclusively by price/
mix as the company benefits from carryover pricing actions put through in 2022 as well
as some incremental pricing in 2023, partially offset by expected volume decline likely
from elasticity and continued normalization post tailwinds from COVID-19 and recent
􀋘triple-demic.􀋙 2022 organic growth was likewise driven entirely by price/mix, although
volumes were relatively flattish as volume growth in Self Care was offset by the other
segments, which was partially impacted by SKU rationalization, product exits in Russia,
COVID-19 lockdowns, and supply disruptions. Excluding these items management
estimates 2022 volumes would have been up +1.7%. Historically, volume represented
around two-thirds of KVUE organic growth with price/mix one-third, and looking ahead
past 2023 we expect a return to this top-line growth mix as the company laps materially
higher pricing increases, likely by mid 2024.
For 2023, we estimate that roughly 45% of our +7.6% price/mix forecast results from
carryover pricing actions and that price/mix will contribute +8.2% to the top line in
1H23 and +6.9% in 2H23. We estimate total volumes -1.6% for 2023 with 1H23
volumes roughly flat (+0.2%) and 2H23 volumes down around -3.4%. As noted above,
1Q23 volumes came in +2.4% against +8.8% price/mix with strong volume
performance in Self Care (+7.1%) and Skin Health & Beauty (+4.3%) more than
offsetting the decline in Essential Health (-5.5%). There were a number of drivers to the
stronger than expected volume performance in 1Q23: 1) Self Care benefitted from a
strong cold, cough, and flu season in EMEA, driving higher incidence, and the segment
also benefitted from retailer restocking in the U.S. as most retailers exited 4Q22 with
lower inventory levels; and 2) the Skin Health & Beauty segment benefited from easy
comparisons (lapped -8.6% volume decline in 1Q22) and inventory rebuild at retailers
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
with strength in Neutrogena (Hydro Boost) and Aveeno. Some of the tailwinds to 1Q23
could continue into 2Q23, including in Self Care as usage occasions likely remained
elevated in EMEA in the weeks following quarter-end, and the company will also
continue to lap material supply chain challenges. We model for a normalization in
volume trends in 2H23 as the comparisons get tougher and the company may not benefit
as much from inventory replenishment and there remains uncertainty on consumer
elasticities ahead, although more conservative 2H estimates could provide a source of
upside should the consumer landscape hold up better than anticipated or if there are
strong allergy seasons in Self Care.
Figure 35: KVUE 1Q23 Organic Growth Performance by Segment
7.1%
4.3%
-5.5%
2.4%
8.2%
8.9%
9.4%
8.8%
-10%
-5%
0%
5%
10%
15%
20%
SELF CARE SKIN HEALTH AND
BEAUTY
ESSENTIAL HEALTH TOTAL
% volume % price/mix
Source: Company reports.
Figure 36: KVUE Organic Growth Drivers 1H23E vs. 2H23E
0.2%
-3.4%
8.2%
6.9%
-4%
-2%
0%
2%
4%
6%
8%
10%
1H23E 2H23E
% volume % price/mix
Source: Company reports and J.P. Morgan estimates.
For 2024 we model for price/mix of +2.2% and volumes of +1.8% and for 2025 price/
mix of +1.4% and volumes +2.8%. We see 2024 as benefiting early in the year from
carryover pricing from 2023 before the drivers of the top-line should normalize more
toward the company􀋖s longer-term algorithm of two-thirds volume and one-third price
mix.
Figure 37: KVUE Forward Estimated Sales Bridge
$ m
$16,973
$14,950
-1.6%
+7.6% $15,662
+1.8% +2.2% $16,289
+2.8%
+1.4%
$13,000
$13,500
$14,000
$14,500
$15,000
$15,500
$16,000
$16,500
$17,000
$17,500
2022 Volume Price/mix 2023E Volume Price/mix 2024E Volume Price/mix 2025E
Source: Company reports and J.P. Morgan estimates.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Gross Margins Poised to Improve – Can Return to 2021 Peak
by 2025
KVUE􀋖s gross margins expanded by +125 bps in 2020 and another +164 bps in 2021
before compressing -88 bps in 2022 to 58.1% as the company dealt with inflationary
cost pressures seen throughout CPG (raw material inputs, freight, packaging) and supply
chain challenges, primarily in the Skin Health and Beauty segment. Prior to 2022, gross
margin expansion over the past few years has been driven by productivity (e.g., ZBB),
rationalization of smaller third-party manufacturers (60% of small external
manufacturers eliminated), portfolio optimization (21% SKU reduction), and favorable
segment mix (higher margin Self Care growth).
Figure 38: KVUE Gross Margin Bridge
58.1%
-0.6%
56.1% 0.1% -1.2% -4.0%
0.7%
1.1% 57.4% 0.4%
0.5%
2.1% 59.0% 0.1% 0.4%
1.7%
1.0%
55%
56%
57%
58%
59%
60%
61%
62%
Source: Company reports.
We model for +54 bps gross margin expansion in 2023, slight -6 bps compression in
2024, and +38 bps expansion in 2025, which would return gross margins to 2021 levels
at 59.0%.
We see a number of drivers of gross margin expansion: 1) further optimization of
supply chain and COGS efficiencies; 2) rollover of 2022 pricing actions as well as
incremental pricing in 2023 and beyond; 3) abating cost headwinds; and 4)
favorable segment mix with continued faster growth in higher margin Self Care
and Skin Health and Beauty segments (although some Skin Health and Beauty profit
growth likely to be reinvested). Relating to our estimates, expectations for 2024 could
admittedly be conservative as we leave our margin assumptions unchanged despite a
stronger than expected start to 2023 – the aforementioned drivers and abating
inflationary pressures could lead to better gross margin performance than we have
modeled.
Inflation should remain a headwind in 2023 (perhaps roughly -240 bps to gross
margins), albeit to a lesser extent than 2022 where we estimate costs could have been a -
400 bps headwind. On COGS, we estimate roughly 40% is in raw materials and inputs,
30% in internal and external manufacturing costs, and the remaining 30% in other
overhead, freight, and amortization. Within KVUE􀋖s cost buckets, raw materials are
relatively diversified, in our view, with resins, pulp and paper, agro chemicals (like
ethanol and glycerin), and packaging materials the largest exposures, although in total
these represent less than 20% of total COGS. From an FX perspective, the company
hedges its transactional exposure for forecasted revenues, purchases, receivables, and
payables, but it does not hedge translational risk. Key currencies include EUR, GBP,
JPY, CNY, CAD, BRL, and INR.
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27
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Exit of TSA and TMA Is Another Source of Margin Improvement Longer Term
Within the cost outlook, we also note that KVUE entered into a Transition
Manufacturing Agreement (in addition to Transition Services Agreement that sounds
more related to operating services), which covers pharmaceutical products like Tylenol,
Zyrtec, Motrin, and Benadryl, among others. The company noted that the products
covered under the TMA accounted for less than 10% of its sales in 2022. The TMA is
based on a cost-plus model and ranges in terms from 3 to 60 months depending on the
product (3-60 months for Tylenol, 21-60 months for Zyrtec, 21-60 months for Motrin,
and 21-60 months for Benadryl), although the company notes that these terms could be
extended for up to three additional 12-month periods if there are issues, which we think
would be mostly due to regulatory processes and facility validation. Management
expects to be out of the TMA within three years for most of the products. Exiting these
TMA agreements should allow for better margin profile over time as the company no
longer pays the markup associated with the agreement.
Relative to peers, KVUE􀋖s adjusted gross margins (including amortization of definite
life intangible assets to make more comparable) compare favorably to most HPC and
consumer health peers (ranks below only HLN, RKT, and BEI) but are well below those
of more pure-play beauty names. Overall, KVUE􀋖s category exposure to OTC and
beauty lends itself to strong gross margin profile vs. HPC more exposed to everyday
essentials, and many companies in the peer set have also faced greater inflationary cost
pressures given COGS exposure more weighted to the oil complex, pulps, and
transportation/logistics costs.
Figure 39: Gross Margins vs. Peers
CY22
0%
10%
20%
30%
40%
50%
60%
70%
80%
Gross Margin Average Median
Source: Company reports and J.P. Morgan estimates.; *KVUE adjusted gross margins including amortization of definite life intangibles;
**CL adjusted gross margins adding back shipping & handling costs
Post-2023 Leverage in Middle of P&L to Help Drive Solid
Earnings Growth
Following 2023, which will be burdened both by costs related to TSA and separation
costs, we see SG&A as a lever to help drive operating growth in the years ahead as the
company 1) continues to exercise disciplined cost management with zero-based
budgeting practices; and 2) works to take out costs over time related to the ~$100M
incremental costs associated with the separation from JNJ, including exiting transition
services agreements, primarily over the next two years as well as transition
manufacturing agreements, which we estimate account for roughly 60% of the
incremental stand-alone costs. At the same time, we expect KVUE to further support its
brands through increased advertising spending in the near term following a period of
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
being more selective in 2022.
Specifically, we are modeling for SG&A as a percent of sales to be 42 bps unfavorable
YOY in 2023, roughly neutral in 2024, and 51 bps favorable in 2025, which would then
put SG&A as a percent of sales just below 2022 levels. Within SG&A, advertising has
been a bit lumpy and oscillated between favorable and unfavorable to margins over the
past three years. Investments increased in 2021 to support top-line growth and key
brands but were lower in 2022 as the company made more discriminating decisions on
advertising given the supply disruptions and inflationary cost environment (balancing
investment with profitability). We see the company stepping up investments in 2023 to
support the top-line growth, primarily in the Self Care segment.
Figure 40: KVUE Operating Expense Outlook
33.2%
31.7%
33.6% 33.4% 33.9% 33.9% 33.3%
2.7%
2.2%
2.4% 2.5%
2.6% 2.6%
2.6%
-250
-200
-150
-100
-50
0
50
100
150
200
250
29%
30%
31%
32%
33%
34%
35%
36%
37%
2019 2020 2021 2022 2023E 2024E 2025E
SG&A % of Sales R&D % of Sales YOY Favorable/(Unfavorable) bps
Source: Company reports and J.P. Morgan estimates.
Figure 41: KVUE Advertising Expense
8.8%
8.5%
9.7%
9.1%
9.5%
9-10%
-150
-100
-50
0
50
100
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
2019 2020 2021 2022 2023E Target
Advertising Expense % of Sales YOY Favorable/(Unfavorable) bps
Source: Company reports and J.P. Morgan estimates.
A&P Spend Is Up but Still Trails Most Peers, Yet...
KVUE􀋖s advertising spend of about 9.1% of sales is a bit below close HPC peers like
CL (11.1%) and PG (9.9%), although as we noted above we expect A&P spending to
step up 40 bps in 2023E to 9.5%. We note that some of the comparisons vs. peers are not
apples to apples as some companies account for go-to-market activities (e.g., sampling,
sales force, etc.) within advertising expense, which makes spend appear elevated. Also,
we note that marketing productivity has been up, which helps explain the relatively
higher efficient ratio (lower A&P as a percentage of sales). Historically, the company
had made efforts to improve SG&A efficiency through organization redesign (reduced
head count 10% from 2019-2022) and also increasing ROI on media spend by 28% from
2019-2021.
Figure 42: Advertising Expense vs. Peers
CY22 or Last Fiscal* where noted
0%
5%
10%
15%
20%
25%
30%
35%
Advertising % of Sales Average Median
Source: Company reports and J.P. Morgan estimates.
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
R&D Is Higher Than Peers
On the other hand, KVUE􀋖s R&D spending is in the top quartile vs. peers at 2.5%
(average 2.0% and median 1.8%), which speaks to the company􀋖s commitment to
spending behind developing innovation and driving unique claims for its products.
Figure 43: Research and Development Expense vs. Peers
CY22 or Last Fiscal* where noted
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
R&D % of Sales Average Median
Source: Company reports and J.P. Morgan estimates.
Longer term, KVUE􀋖s financial algorithm calls for earnings growth ahead of sales
growth, although given the burden of stand-alone company costs and incremental
interest expense, earnings per share growth will likely fall below this target in 2023 and
2024 before seeing faster growth in 2025 as the company sees leverage throughout the
P&L for the aforementioned reasons. From an EBITDA perspective, however, we do see
KVUE generating profit growth ahead of sales growth from 2023-2025 with a threeyear
CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin
expansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion) and
25.3% in 2021.
Figure 44: KVUE EBITDA Growth Outlook
21.7%
0.9%
-5.4%
5.3% 4.9%
8.2%
$3,101
$3,775 $3,810 $3,606 $3,797 $3,983
$4,308
-10%
-5%
0%
5%
10%
15%
20%
25%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
2019 2020 2021 2022 2023E 2024E 2025E
EBITDA $ m (left-axis) EBITDA YOY Growth (right-axis)
Source: Company reports and J.P. Morgan estimates.
Figure 45: KVUE EBITDA vs. Sales Growth Outlook
6.1%
4.3%
0%
1%
2%
3%
4%
5%
6%
7%
EBITDA CAGR (2023-2025) Sales CAGR (2023-2025)
Source: J.P. Morgan estimates.
For ease of comparison, we prefer to look at EBITDA as the primary profit KPI for
KVUE as the company􀋖s adjusted earnings per share excludes the impact of
amortization of definite life intangible assets, which it treats 100% of brands/
trademarks, while competitors do not adjust this expense out. As such, KVUE􀋖s adjusted
earnings appear higher than they otherwise would following the accounting convention
across our coverage universe. In our model we present adjusted earnings per share both
with and without the impact of amortization of intangible assets, but we think investors
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
may prefer to look to EBITDA.
Versus the peer set, KVUE􀋖s EBITDA margins are in the top quartile at 24.1% vs.
average 21.3% and median 21.8% (ex-OLPX average 18.8% and median 20.9%), but
still trail closest peer HLN (25.1%), and are between PG (25.0%) and CL (23.5%). We
see opportunity for KVUE to expand EBITDA margins ahead as pricing flows through,
inflation abates, and the company works to take out costs to stand up the company (e.g.,
TSA, TMA).
Figure 46: EBITDA Margins vs. Peers
CY22
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
RKT HLN PG KVUE CL OR CHD ELF EL COTY ULVR KMB BEI CLX NWL HNST
EBITDA Margin Average Median
Source: Company reports and J.P. Morgan estimates.; *OLPX EBITDA Margin 60.9% removed for ease of comparison.
Balance Sheet, FCF, CapEx
Following the company􀋖s IPO, balance sheet leverage is around 2.1x net debt to trailing
12-month adjusted EBITDA (or roughly 2.4-2.5x gross debt to trailing 12-month
adjusted EBITDA) assuming roughly $9.0 billion in senior notes and commercial paper
and roughly $1.2 billion in cash. With EBITDA growth and strong FCF generation, we
see KVUE deleveraging to around 1.8x net debt to BITDA by 2024 and 1.6x by 2025.
The company could potentially delever faster (or increase cash returns to shareholders)
in the event it doesn􀋖t pursue acquisitions as we believe the company is building in
cushion to its cash/balance sheet outlook to accommodate bolt-on M&A. Relative to its
peer set, KVUE􀋖s balance sheet leverage is largely middle of the pack with PG (1.2x)
and CL (1.6x) lower and HLN (3.6x) higher.
Figure 47: KVUE Leverage Outlook
2.4x
2.2x
2.1x
1.9x
2.1x
2.0x
1.8x
1.6x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
Post-IPO 2023E 2024E 2025E
Gross Debt to EBITDA Net Debt to EBITDA
Source: Company reports and J.P. Morgan estimates.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
From a free cash flow perspective, the company is targeting >100% FCF conversion (%
of adjusted net income) in each of 2023-2025, and we model for free cash flow to grow
at a three-year CAGR of +11% to $2.8 billion in 2025. The free cash flow outlook is
supported by solid adjusted EBITDA growth (as described above) and some tailwind
from working capital management as inventory normalizes following a step-up in 2022
(more below), which more than offsets cash separation costs expected to be incurred
from 2023-2025 (around $595M post-tax) and some step-up in capital expenditures.
We note that 2022 was a tougher year from a cash flow perspective (FCF conversion
79% and overall FCF -27% YOY) as the company had a significant working capital
headwind due to supply chain disruption, inflation, and also building inventory ahead of
the JNJ separation (safety stock). As we mentioned, we expect inventory normalization
to be a tailwind to free cash flow ahead, and we model for working capital as a percent
of sales to decline from 16.8% in 2022 to 13.5% in 2025.
Figure 48: KVUE Free Cash Flow Outlook
0%
20%
40%
60%
80%
100%
120%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2021 2022 2023E 2024E 2025E
FCF $m (left-axis) FCF % of adj. Net Income (right-axis)
Source: Company reports and J.P. Morgan estimates.
Figure 49: KVUE Working Capital Outlook
17.7%
13.6% 12.9%
16.8%
15.2%
14.0% 13.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2019 2020 2021 2022 2023E 2024E 2025E
Net Working Capital Net Working Capital % of Sales
Source: Company reports and J.P. Morgan estimates.
Capital expenditures begin to step up slightly in 2023 (we model for 2.7% of sales from
2.5% in 2022 and 2.0% in 2021) and a bit more in 2024/2025 (3.0% of sales), although
the historical level is not necessarily apples to apples as the 2.0% range didn􀋖t allocate
enterprise-level costs that are now incurred as a stand-alone company. Capital
investments will likely continue to focus on digitization of the supply chain and also
building out capacity for growth.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
KVUE􀋖s capital expenditures are generally lower than peers historically, although we do
expect a step-up ahead as the company works to build capacity and capabilities as a
stand-alone company. As of 2022, KVUE􀋖s 2.5% capital expenditures as a percent of
sales benchmarks below peer average of 3.1% and median 3.3%, but we also note that
KVUE is relatively more asset light vs. HPC peers with 44% of volumes produced
externally. For comparison CLX has returned to a more normalized 80/20 split between
in-house and external manufacturing from around 50/50 during the pandemic.
Figure 50: Capital Expenditures vs. Peers
CY22
0%
1%
2%
3%
4%
5%
6%
7%
BEI EL KMB CL PG COTY OR CHD NWL CLX RKT HLN ULVRKVUE ENR HNST ELF OLPX
CapEx % of Sales Average Median
Source: Company reports and J.P. Morgan estimates.
KVUE announced its intention to pay a quarterly dividend of $0.20 per share
beginning in 3Q23 (fiscal quarter ending October 1, 2023), which at the current price of
$26.30 implies an annualized dividend yield of about 3.0% (at the IPO price of $22,
the annualized dividend yield was closer to 3.6%). Looking ahead, we expect the
company to target an annual dividend payout ratio of around 55-65% (JPMe 2024E
64%), and we model for 3% dividend growth in both 2023 and 2024 as the company
targets moderate growth in dividend per share.
Figure 51: KVUE Dividend Yield Compares Favorably to Peers Even after Share Rally
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
ULVR KMB NWL KVUE CLX RKT PG CL HLN OR EL CHD BEI COTY ELF HNST OLPX
Dividend Yield Average Median
Source: Bloomberg Finance L.P. and J.P Morgan estimates.
Other capital allocation priorities include likely bolt-on M&A. We see management
budgeting roughly $500-750M per annum for acquisitions, although we don􀋖t build in
any benefit from M&A into our model, and as such the M&A 􀋘placeholder􀋙 could lead
to increased cash returns to shareholders. At this point, we expect share repurchases to
be limited to offset share creep from stock-based compensation expense, although the
company could look to evaluate opportunistic share repurchases over time.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Valuation
KVUE Deserves Premium to HLN with Potential to Converge to CL over Time
Initial Discount Is an Opportunity, in Our View Should Fade Post Spin/Split
KVUE shares were priced at $22 at the IPO (toward the high end of initial $20-23
range) and closed +22.3% higher on its first day of trading on May 4, 2023. As of May
26, KVUE shares remain +19.5% above the IPO price. From a valuation perspective, at the IPO price KVUE shares implied around 13.3x/12.7x our 2023E/2024E EBITDA estimate and 19.9x/19.3x our 2023E/2024E EPS including amortization of definite life intangible assets (or 17.7x/17.4x 2023E/2024E EPS excluding amortization of definite life intangible assets as the company reports its adjusted earnings). Following the IPO,
KVUE now trades at 15.5x/14.7x our 2023/2024 EBITDA estimates and 23.8x/23.1x
our 2023/2024 EPS estimates.
We view the discounted valuation implied at the IPO price and attractive dividend yield
(~3.6% at IPO) as compensating investors for potential overhangs arising from 1) JNJ
still owning ~89.6% of KVUE shares post-IPO with the intention to make a tax-free distribution of additional shares likely by the end of 2023 (i.e., reduce ownership below
20%); and 2) KVUE retaining potential outside–North America liabilities tied to talc litigation. We also believe JNJ wanted to set KVUE up for a successful offering given it would still own such a meaningful stake in the business (i.e., price the ~10.4% well so it would have better monetization on remaining ownership).
De-Consolidation Process on a Tax-Free Spin-Off or Split
On the potential overhang from additional liquidity coming to the market, we highlight a few items to consider: 1) there are a number of ways ways JNJ could effect reducing its
stake – a spin-off (i.e., pro-rata distribution of KVUE shares to current JNJ shareholder)
or a split-off (i.e., exchange of JNJ shares for KVUE shares often at a discount), with a split-off more of an 􀋘active􀋙 decision to hold KVUE shares and thus may limit selling
pressure; 2) JNJ could decide to delay and/or not pursue a distribution of shares pending
market conditions; and 3) while there is a 180-day lock-up on selling/disposing of
shares post-IPO, our understanding is that the provision can be waived by the underwriters. There are a number of precedent transactions including recently the split-
off of Elanco (ELAN) from Lilly (LLY) in 2019 whereby LLY offered exchange for
ELAN shares at a 7% discount and in 2013 the split-off of Zoetis (ZTS) from Pfizer
(PFE) whereby PFE offered exchange for ZTS shares at a 7% discount.
Talc Liability Outside the US & Canada
On the potential talc liability, JNJ management on April 27 stated, 􀋘As unequivocally and unambiguously stated, Johnson & Johnson has agreed to retain all the talc-related
liabilities – and indemnify Kenvue for any and all costs – arising from litigation in the United States and Canada.􀋙 KVUE will retain potential liabilities relating to talc litigation outside of North America, but our understanding is that as of now there are only a handful of active claims outside of the U.S. and Canada, but to date KVUE management has not recorded any reserve liabilities relating to these claims, and the tort laws and consumer protections outside of the U.S. and Canada are not as robust. KVUE plans to discontinue the sale of talc-based Baby Powder globally this year (already
discontinued in the U.S. and Canada).
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Benchmarking Against Peers – HLN Anchor at Low End, Already at CL Levels, PG Aspirational
The closest peer to KVUE, in our view, is Haleon (HLN, covered by Celine Pannuti)
given similar category exposures (e.g., pain relief, cold, cough, allergy, oral), financial metrics (e.g., sales, EBITDA, growth outlook), and geographic exposures (KVUE ~70%
developed markets vs. HLN roughly two-thirds). HLN was also formed as a result of a carve-out from a larger pharma company (GSK in this case).
There are some differences between the companies. From a financial perspective,
KVUE has a more attractive dividend yield (~3.0% vs. HLN 1.6%) and lower leverage (2.1x net-debt-to-EBITDA vs. HLN 3.6x). KVUE has exposure to faster growing
categories like Skin Health & Beauty, while HLN has exposure to (typically) faster
growing categories like VMS (notwithstanding post-COVID normalization and
somewhat discretionary nature of products); while overall DM/EM exposure is similar,
KVUE has higher exposure to North America (~50%) vs. HLN (~37%) and lower
exposure to EMEA and LatAm (KVUE ~29% combined vs. HLN ~39%), while APAC exposure is similar (KVUE 21%, HLN 23%). The most important difference, in our
view, is the stronger brand portfolio of KVUE with seven brands in a number 1 position
globally, while HLN claims a number 1 position in digestive health and therapeutic oral health (under sensitive franchise for Sensodyne). That said, overall it appears that in the U.S. at least in categories with direct competitive entries from both KVUE and HLN
that KVUE holds the edge in household penetration (e.g., allergy, cough, cough, and flu,
pain relief) based on Numerator data.
Post-IPO, KVUE􀋖s valuation multiple has already migrated close to U.S.-based peer
Colgate-Palmolive (CL, OW-rated), which also has similar financial KPIs.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Table 2: KVUE Key KPIs and Valuation vs. Direct Peer Set
Kenvue (KVUE) Haleon (HLN) Colgate-Palmolive (CL)* The Procter & Gamble Company (PG)
Geographic Exposure (Sales)
North America 50% 38% 21% --
US 44% 34% 33% 45%
APAC 21% 23% 16% --
EMEA & LatAM 29% 39% 42%
EMEA 21% -- -- --
LatAM 8% -- -- --
International 56% 66% 67% 54%
Pet -- -- 21% --
Self Care - 40% of sales - Tylenol, Zyrtec,
Nicorette, Motrin, Zarbee's, Orsl, Benadryl,
Rhinocort
Pain Relief - 23% of sales - Advil, Panadol,
Voltaren
Oral Care - 43% of sales - Colgate, Sorriso,
Tom's of Maine, elmex, hello
Health Care - 14% of sales - Crest, Oral-B, Vicks,
ZzzQuil, Pepto-Bismol, Clearblue, Align,
Metamucil
Skin Health & Beauty - 29% of sales -
Neutrogena, Aveeno, OGX, Dabao, Lubriderm,
Rogaine, Clean&Clear, Dr.Ci:Labo, Le Petit
Marseillais
Respiratory Health - 15% of sales - Theraflu,
Otrivin, Flonase
Personal Care - 19% of sales - Softsoap, Speed
Stick, Lady Speed Stick, Irish Spring, Tom's of
Maine, Filorga, eltaMD, Protex, Sanex, Palmolive,
PCA Skin
Beauty - 18% of sales - Olay, SK-II, Native, Old
Spice, Head & Shoulders, Herbal Essences,
Pantene
Essential Health - 31% of sales - Listerine, Band-
Aid, Johnson's, Neosporin, Stayfree, o.b.,
Carefree
Oral - 27% of sales - Sensodyne, Paradontax,
Polident, Biotene
Home Care - 17% of sales - Palmolive, Suavitel,
Ajax, Fabuloso
Fabric & Home Care - 35% of sales - Tide, Gain,
Bounce, Downy, Ariel, Dawn, Cascade, Febreze,
Swiffer, Mr. Clean
VMS - 15% of sales - Centrum, Emergen-C,
Caltrate
Pet - 21% of sales - Hill's Pet Nutrition
Baby, Feminine, and Family Care - 25% of
sales - Pampers, Luvs, Bounty, Charmin, Puffs,
Tampax, Always
Digestive Health & Other - 19% of sales - Tums,
Preparation H, Eno, Fenistil
Grooming - 8% of sales - Gillette, Braun, Venus
Kenvue (KVUE) Haleon (HLN) Colgate-Palmolive (CL)* The Procter & Gamble Company (PG)
CY22 Net Sales ($B) $15.0 $13.4 $18.0 $80.3
CY23-CY25 Organic Sales CAGR 4.7% 4.8% 4.9% 4.5%
CY22 adjusted EBITDA ($B) $3.6 $3.4 $4.2 $20.1
CY22 adjusted EBITDA Margin 24.1% 25.1% 23.5% 25.0%
CY23-CY25 EBITDA CAGR 6.1% 6.2% 7.0% 8.4%
Net-Debt-to-TTM EBITDA 2.1x 3.6x 1.9x 1.4x
Dividend Yield 3.0% 1.6% 2.7% 2.5%
2023 EV/EBITDA 15.5x 14.0x 15.8x 17.8x
2024 EV/EBITDA 14.7x 13.3x 14.7x 16.7x
2023 P/E 23.8x 18.3x 24.3x 23.9x
2024 P/E 23.1x 16.9x 22.2x 21.9x
Financial & Valuation Metrics
Company Geographic and Segment Mix
Segment & Key Brands
Source: Company reports, Bloomberg Finance L.P., J.P. Morgan estimates.; *CL North America ex-Pet but U.S. includes Pet
Beyond HLN, CL, and PG, we also compare KVUE to additional companies with
exposure to the Consumer Health space and also a broader basket of HPC and Beauty
companies given KVUE􀋖s presence in the face care, body care, and sun care categories
as well as baby care. KVUE sales growth and margin outlook are largely comparable
across the Consumer Health and HPC & Beauty peers on average (e.g., HPC & Beauty
weighted average 2023-2024E sales CAGR +5.1% with 2023E EBITDA margins
~23.2% and Consumer Health weighted-average 2023-2024E sales CAGR +3.1% with
2023E EBITDA margins ~25.4% vs. KVUE 2023-2024E sales CAGR +4.4% with
2023E EBITDA margins 24.2%).
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
36
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Table 3: Comparable Analysis for KVUE
JPM JPM Price (LC) Dividend Market Cap
Enterprise
Value
Company Ticker Analyst Rating 5/26/2023 Yield (USD mn) (USD mn) 2022 2023E 2024E 1-yr 2-yr 5-yr
Consumer Health
Beiersdorf BEI GR Pannuti N 123.90 112 0.6% 33,471 25,316 17.1x 14.9x 13.8x 14.8x 14.7x 15.1x
Bayer BAYN GR Vosser N 54.32 60 4.4% 57,208 95,239 6.6x 7.2x 6.7x 6.7x 6.9x 7.6x
Haleon HLN LN Pannuti UW 3.30 3 0.7% 37,617 49,816 14.8x 14.0x 13.3x 12.9x 12.9x 12.9x
Reckitt Benckiser Group RKT LN Pannuti OW 64.16 75 2.9% 56,731 66,275 14.0x 13.4x 12.7x 13.2x 13.9x 14.6x
Sanofi SAN FP Vosser OW 99.40 105 3.6% 134,490 141,743 9.0x 9.0x 8.5x 8.6x 9.1x 9.8x
Unilever ULVR LN Pannuti UW 41.69 39 3.6% 129,635 159,456 13.0x 12.8x 12.0x 12.5x 12.5x 13.3x
AVERAGE 12.4x 11.9x 11.2x 11.4x 11.7x 12.2x
WTD. AVERAGE 11.6x 11.3x 10.6x 10.9x 11.1x 11.8x
MEDIAN 13.5x 13.1x 12.3x 12.7x 12.7x 13.1x
HPC & Beauty
Colgate-Palmolive CL Teixeira OW 76.21 87 2.5% 63,221 71,538 16.9x 15.8x 14.7x 15.8x 15.8x 15.5x
Procter & Gamble PG Teixeira OW 145.40 168 2.6% 342,703 389,376 19.1x 17.8x 16.7x 16.9x 17.2x 16.4x
Church & Dwight CHD Teixeira UW 93.97 86 1.2% 22,953 25,616 20.8x 19.4x 18.3x 17.3x 18.1x 18.2x
Kimberly-Clark KMB Teixeira UW 136.30 139 3.5% 45,985 54,237 16.6x 14.4x 13.4x 14.0x 13.8x 12.8x
Clorox CLX Teixeira UW 159.09 158 3.0% 19,667 22,617 24.9x 32.2x 17.2x 18.5x 18.1x 17.4x
Newell Brands NWL Teixeira OW 8.73 14 3.2% 3,615 9,596 7.7x 9.0x 7.9x 9.0x 9.4x 10.3x
Estee Lauder EL Teixeira OW 194.44 224 1.4% 69,495 74,877 23.1x 29.9x 19.7x 21.3x 23.0x 21.5x
e.l.f. ELF Teixeira OW 101.28 102 N/A 5,456 5,596 51.6x 39.5x 34.6x 26.1x 23.2x 19.6x
L'Oreal OR FP Pannuti N 411.00 400 1.5% 236,141 239,811 24.9x 22.8x 21.0x 20.4x 22.6x 21.2x
Olaplex OLPX Teixeira UW 3.29 5 N/A 2,153 2,546 5.9x 9.4x 8.4x 12.4x 18.2x 18.2x
Reynolds Consumer Products REYN Teixeira OW 27.11 31 3.4% 5,693 7,778 14.2x 12.6x 11.6x 12.4x 12.4x 12.2x
Coty COTY Teixeira N 11.03 12 N/A 9,406 14,318 15.2x 14.1x 13.0x 12.4x 13.2x 12.6x
AVERAGE 20.1x 19.7x 16.4x 16.4x 17.1x 16.3x
WTD. AVERAGE 21.0x 20.3x 17.9x 18.0x 18.9x 17.9x
MEDIAN 18.0x 16.8x 15.7x 16.4x 17.6x 16.9x
Kevnue KVUE Teixeira OW 26.30 29.00 3.0% 50,362 58,714 16.3x 15.5x 14.7x -- -- --
JPM JPM Price (LC)
Company Ticker Analyst Rating 5/26/2023 2022 2023E 2024E 1-yr 2-yr 5-yr 2022 2023E 2024E
Consumer Health
Beiersdorf BEI GR Pannuti N 123.90 112 33.9x 31.6x 28.7x 28.6x 29.0x 28.8x 0.9% 2.6% 2.7%
Bayer BAYN GR Vosser N 54.32 60 6.8x 7.7x 7.1x 7.1x 7.4x 8.4x 5.8% 7.1% 11.1%
Haleon HLN LN Pannuti UW 3.30 3 17.9x 18.3x 16.9x 16.0x 16.0x 16.0x 5.3% 5.0% 5.7%
Reckitt Benckiser Group RKT LN Pannuti OW 64.16 75 18.8x 18.8x 17.4x 17.7x 18.6x 19.2x 4.4% 5.4% 6.1%
Sanofi SAN FP Vosser OW 99.40 105 12.0x 12.1x 11.2x 11.0x 11.8x 12.6x 6.6% 6.6% 7.6%
Unilever ULVR LN Pannuti UW 41.69 39 16.2x 16.4x 15.2x 17.7x 17.7x 18.7x 5.3% 6.3% 6.7%
AVERAGE 17.6x 17.5x 16.1x 16.4x 16.8x 17.3x 4.7% 5.5% 6.6%
WTD. AVERAGE 15.6x 15.6x 14.4x 15.0x 15.4x 16.2x 5.3% 6.0% 7.1%
HPC & Beauty
Colgate-Palmolive CL Teixeira OW 76.21 87 25.7x 24.3x 22.2x 24.0x 23.8x 23.5x 2.9% 4.0% 4.5%
Procter & Gamble PG Teixeira OW 145.40 168 25.5x 23.9x 21.9x 23.5x 23.9x 23.0x 3.4% 4.5% 4.7%
Church & Dwight CHD Teixeira UW 93.97 86 31.6x 30.2x 27.9x 26.7x 27.7x 27.4x 3.1% 3.0% 3.7%
Kimberly-Clark KMB Teixeira UW 136.30 139 24.2x 21.8x 19.6x 20.9x 20.3x 18.9x 4.0% 4.5% 4.9%
Clorox CLX Teixeira UW 159.09 158 38.3x 30.2x 26.3x 30.4x 28.7x 26.3x 3.7% 3.9% 4.4%
Newell Brands NWL Teixeira OW 8.73 14 5.6x 9.0x 6.8x 10.0x 11.3x 11.4x -16.2% 12.3% 15.9%
Estee Lauder EL Teixeira OW 194.44 224 37.2x 56.6x 32.9x 35.0x 37.5x 35.2x 1.4% 1.7% 3.5%
e.l.f. ELF Teixeira OW 101.28 102 74.5x 53.4x 51.4x 44.2x 40.4x 36.0x 1.4% 1.8% 2.3%
L'Oreal OR FP Pannuti N 411.00 400 36.5x 34.2x 31.3x 31.2x 35.5x 33.6x 2.2% 3.1% 3.3%
Olaplex OLPX Teixeira UW 3.29 5 7.3x 12.9x 10.9x 17.2x 26.1x 26.1x 11.8% 11.6% 10.4%
Reynolds Consumer Products REYN Teixeira OW 27.11 31 21.2x 20.2x 17.6x 18.7x 17.6x 16.9x 1.6% 6.8% 5.6%
Coty COTY Teixeira N 11.03 12 31.5x 20.1x 22.6x 23.2x 28.4x 24.2x 4.8% 3.6% 5.7%
AVERAGE 29.9x 28.1x 24.3x 25.4x 26.8x 25.2x 2.0% 5.1% 5.7%
WTD. AVERAGE 30.3x 29.9x 25.8x 26.8x 28.4x 27.1x 2.8% 3.8% 4.2%
MEDIAN 28.6x 24.1x 22.4x 23.7x 26.9x 25.2x 3.0% 3.9% 4.6%
Kevnue KVUE Teixeira OW 26.30 29.00 22.3x 23.8x 23.1x -- -- -- 4.0% 4.8% 4.9%
JPM Price
Target
EV/EBITDA
JPM Price
Target
P/E Hist. FwdP /E Avg. FCF Yield
Hist. Fwd EV/EBITDA Avg.
Source: Company reports, Bloomberg Finance L.P., and J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
37
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Price Target Derivation
We see investors gravitating toward EV/EBITDA to inform valuation for KVUE given
that the company􀋖s treatment of amortization of definite life intangible assets will make
P/E less comparable to peers based on what the company will report as its adjusted
earnings, although we will also present an EPS including amortization of definite life
intangibles to make the comparison more apples to apples. We also added a discounted
cash flow valuation to where the stock could trade over the medium to longer term as
the company continues to execute against its growth priorities and improves margins.
To determine our target multiples for KVUE we use a blended average based on the
comparable analysis discussed above. Given KVUE􀋖s characteristics similar to HLN, we
view it as the most direct comparable company and see investors anchoring valuation
against it for now – as such in our target multiple analysis we assign a one-third
weighting to HLN􀋖s multiple. We ascribe a one-third weighting to other Consumer
Health peers and one-third weighting to HPC & Beauty peers (i.e., in total two-thirds
weighting to Consumer Health and one-third to HPC & Beauty). The lower weighting to
higher-multiple HPC & Beauty seems fair to us given generally slower growth/margin
profile vs. Beauty peers historically and less everyday use vs. HPC peers. We then
assign a 70% weighting to EV/EBITDA as the primary valuation metric and 30% to
DCF as a secondary metric. As such, our Dec 2023 price target embeds an EV/EBITDA
multiple of 15.1x, which is 0.4x below the current 2023E multiple for KVUE.
Table 4: EV/EBITDA Multiple for Peer Sets
Target Multiple Blend
EV/EBITDA Weighting Multiple
Haleon 33% 13.9x
Consumer Health ex-Haleon 33% 11.2x
HPC & Beauty 33% 20.2x
Total 100% 15.1x
Source: Bloomberg Finance L.P. and J.P. Morgan.
Our Dec 2023 price target of $29 is based on a blended average of the above multiples
against our 2024 EBITDA estimate and a DCF value of $32 (based on perpetual growth
method). Our target price implies 10% upside from the May 26 close on top of a ~3%
dividend yield.
Table 5: Method 1: EV/EBITDA Derivation
Price Target Methodology on EV/EBITDA Dec-23
CY2024 EBITDA $ mn $3,983
Target Multiple 15.1x
(-) Post IPO Net Debt $ mn $7,820
# of shares 2023E mn 1,935
2023 Implied Price Target $27
Upside/Downside 2.4%
Source: J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
38
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Table 6: Method 3: DCF Derivation
$ m, except per share value
Terminal Value (Perpetual Growth)
CY2033E Unlevered Free Cash Flow $3,687
Long-Term Growth Rate 1.0%
Terminal Value $79,813
Equity Value (Perpetual Growth)
Present Value of Terminal Value $44,541
Present Value of Unlevered Free Cash Flows $25,496
-Net Debt $7,820
Equity Value $62,217
Equity Value per Share $32
Shares Outstanding 1,935
Source: J.P. Morgan estimates.
Table 7: Blended Price Target Implies ~10% Upside from Current Levels
Price Target Methodology Dec-23
Mix of EV/EBITDA 70%
Mix of DCF 30%
Blended $29.00
Upside from last price 10.1%
Source: J.P. Morgan estimates.
For additional context, we offer the assumptions underlying our discounted cash flows
analysis through 2033 and sensitivity tables using both an EBITDA exit multiple and
perpetual growth that points to meaningful upside potential in KVUE shares to the lowto
mid-$30s range. Underlying our DCF analysis, we assume a weighted-average cost of
capital of around 5.7% based on a beta of 0.73, risk-free rate of 3.8%, market risk
premium of 4.8%, a marginal cost of debt of 5.0%, low-single-digit organic top-line
growth through 2033 (decelerating from 4.8% reported in CY2023E to 2% in
CY2033E), with the company expanding margins at an average 25 basis points
thereafter, modest headwind from use of working capital, and capital expenditures of 3-
4% of sales annually.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
39
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Table 8: KVUE DCF
$ m
WACC Calculation
Beta 0.73
Risk-free rate 3.8%
Market risk premium 4.8%
Cost of Equity 7.3%
Marginal cost of debt 5.0%
Tax rate 25.6%
After-tax cost of debt 3.7%
Equity weight 55.2%
Debt weight 44.8%
WACC 5.7%
Unlevered Free Cash Flow Analysis 0 1 2 3 4 5 6 7 8 9 10 11
$ m CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033
Sales $14,950.0 $15,662.3 $16,289.0 $16,972.8 $17,651.7 $18,307.3 $18,935.0 $19,530.1 $20,088.1 $20,604.7 $21,075.6 $21,497.1
EBIT $2,961.8 $3,163.6 $3,343.9 $3,673.8 $3,864.9 $4,054.2 $4,240.5 $4,422.6 $4,599.2 $4,769.0 $4,930.7 $5,083.0
Tax Rate 22.8% 25.6% 25.7% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5%
After-tax EBIT $2,286.0 $2,352.5 $2,485.4 $2,737.6 $2,879.9 $3,021.0 $3,159.9 $3,295.6 $3,427.1 $3,553.7 $3,674.1 $3,787.7
+D&A $644.0 $633.8 $639.5 $634.5 $655.7 $678.8 $703.7 $730.7 $759.4 $789.9 $822.2 $856.1
+CapEx -$374.8 -$416.7 -$482.2 -$504.2 -$529.6 -$576.7 -$624.9 -$673.8 -$718.2 -$762.4 -$806.1 -$849.1
+Net Change in Working Capital -$672.0 $133.5 $99.4 -$3.8 -$88.3 -$91.5 -$94.7 -$97.7 -$100.4 -$103.0 -$105.4 -$107.5
Unlevered Free Cash Flow $1,883.3 $2,703.1 $2,742.0 $2,864.0 $2,917.8 $3,031.6 $3,144.1 $3,254.8 $3,368.0 $3,478.2 $3,584.8 $3,687.2
YOY % 43.5% 1.4% 4.5% 1.9% 3.9% 3.7% 3.5% 3.5% 3.3% 3.1% 2.9%
Present Value of Unlevered Free Cash Flow $1,883.3 $2,617.6 $2,512.9 $2,484.0 $2,394.9 $2,354.8 $2,311.3 $2,264.4 $2,217.5 $2,167.2 $2,113.9 $2,057.7
Assumptions CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033
Sales Growth -0.7% 4.8% 4.0% 4.2% 4.0% 3.7% 3.4% 3.1% 2.9% 2.6% 2.3% 2.0%
EBIT Margin 19.8% 20.2% 20.5% 21.6% 21.9% 22.1% 22.4% 22.6% 22.9% 23.1% 23.4% 23.6%
CapEx % of Sales 2.5% 2.7% 3.0% 3.0% 3.0% 3.2% 3.3% 3.5% 3.6% 3.7% 3.8% 4.0%
Change in Net Working Capital % of Sales -4.5% 0.9% 0.6% 0.0% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5%
Source: Company reports, Bloomberg Finance L.P, Damodaran Online, and J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
40
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Table 9: KVUE DCF Sensitivity Based on Terminal EV/EBITDA Multiples
$31 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2%
11x $32 $31 $29 $28 $27 $26 $24
12x $34 $33 $31 $30 $28 $27 $26
13x $36 $35 $33 $31 $30 $29 $27
14x $38 $36 $35 $33 $32 $30 $29
15x $40 $38 $37 $35 $33 $32 $30
16x $42 $40 $38 $37 $35 $33 $32
Discount Rate
Terminal
Value
EBITDA
Multiple
Source: J.P. Morgan estimates.
Table 10: KVUE DCF Sensitivity Based on Perpetual Growth Rate
$32 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2%
0.0% $40 $35 $31 $28 $25 $23 $21
0.5% $44 $38 $34 $30 $27 $24 $22
1.0% $50 $42 $37 $32 $29 $26 $23
1.5% $58 $48 $41 $35 $31 $27 $25
2.0% $69 $55 $46 $39 $34 $30 $26
2.5% $87 $66 $53 $44 $37 $32 $28
Discount Rate
Long-Term
Growth
Rate
Source: J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
41
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Most Recent Point of Sales Trends in the
U.S. (NielsenIQ)
Tracked Channel 4Y CAGR Accelerated Sequentially QTD in the U.S. Based on
NielsenIQ
The most recent tracked channel data (QTD for 5-weeks ending 5/6) shows that
KVUE􀋖s dollar takeaway (total company in tracked channel) was up +4.2% driven by
pricing (up +14.5%) while volumes were down -9.0%. This print shows a sequential
deceleration (only on the headline but when normalizing for the pandemic, it accelerated
on a 4-year CAGR) from 12-week period ending 4/1 (bracketing Q123) in which
KVUE􀋖s dollar takeaway was up +5.5% (pricing up +11.9% while volume was down -
5.7%). It also decelerated slightly from the 12-week period ending 12/31/22 (bracketing
4Q22) which was up +4.4% (pricing up +11.0% but volume down -5.9%). On a 4Y
CAGR basis, takeaway was up +4.1% for the 12-week period ending 12/31, +1.5% for
the 12-week period ending 4/01 and +2.3% in the 5-week period ending 5/06.
Figure 52: KVUE􀋖s $ Takeaway in Tracked Channels Driven by Pricing
Rolling 12W Period Ending 5/06
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ, J.P. Morgan
Below we lay out some of the most recent POS trends in the U.S. and how KVUE
stacks up against peers among HPC companies. In the last 12 weeks, consumer
takeaway has been in the MSDs in the tracked channels measured by NielsenIQ in
the U.S., which places KVUE in the middle of the pack relative to peers, per the
tables below.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
42
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 53: Takeaway Growth in Latest 4-Week Period (YOY change sorted by 4 weeks)
$ Takeaway 1-Wk 4-Wk 12-Wk 52-Wk 1-Wk 4-Wk 12-Wk 52-Wk
HNST 27.8% 24.7% 25.1% 19.8% 22.2% 18.6% 18.7% 17.0%
CHD 6.1% 6.2% 7.8% 6.6% 5.7% 5.7% 5.7% 5.6%
CLX 5.4% 5.2% 7.9% 4.8% 4.4% 4.6% 4.9% 4.3%
PG 6.2% 4.9% 6.4% 6.2% 8.0% 7.1% 6.9% 6.9%
UNLVR 4.1% 4.3% 6.2% 8.6% 5.6% 5.6% 6.0% 5.8%
EPC -1.0% 4.0% 3.1% 4.7% 2.0% 3.0% 2.4% 1.7%
KVUE 2.7% 3.8% 5.4% 1.1% 2.6% 2.3% 1.7% 2.8%
KMB 4.2% 3.0% 3.4% 4.8% 3.3% 2.6% 2.2% 2.5%
REYN 7.8% 2.7% 7.9% 11.2% 8.1% 6.3% 8.1% 7.9%
ENR 1.0% 1.3% 1.9% 6.6% 4.3% 3.8% 4.1% 4.5%
CL 2.4% -0.2% 0.5% 4.8% 0.6% 1.0% 0.7% 2.0%
NWL -24.6% -20.2% -16.8% -11.2% -4.7% -3.7% -3.7% -2.5%
YOY % Change in $ Takeaway 4-Yr CAGR
Source: NielsenIQ, J.P. Morgan. UNLVR (Unilever) is covered by Celine Pannuti.
Figure 54: Weekly Growth Rates for HPC Companies (YOY change sorted by latest week)
$ Takeaway 04/15/23 04/22/23 04/29/23 05/06/23 04/15/23 04/22/23 04/29/23 05/06/23
HNST 13.4% 38.6% 19.7% 27.8% 13.5% 23.5% 15.6% 22.2%
REYN -0.8% 0.1% 4.1% 7.8% 5.3% 5.6% 6.3% 8.1%
PG -0.8% 11.3% 3.1% 6.2% 5.6% 9.4% 5.6% 8.0%
CHD 2.3% 11.9% 4.8% 6.1% 4.1% 7.6% 5.5% 5.7%
CLX 4.5% 9.5% 1.4% 5.4% 4.2% 5.8% 3.9% 4.4%
KMB -2.4% 9.4% 1.1% 4.2% 1.2% 4.1% 2.0% 3.3%
UNLVR -2.6% 10.4% 6.0% 4.1% 3.8% 7.5% 5.8% 5.6%
KVUE 0.8% 11.2% 1.1% 2.7% 1.6% 3.5% 1.6% 2.6%
CL -5.8% 5.8% -2.9% 2.4% -0.9% 3.1% 1.2% 0.6%
ENR 0.0% 6.1% -1.8% 1.0% 3.5% 4.6% 3.0% 4.3%
EPC 10.6% 14.3% -6.2% -1.0% 3.5% 4.7% 1.8% 2.0%
NWL -27.4% -11.5% -16.9% -24.6% -6.0% -1.1% -3.1% -4.7%
YOY % Change in Weekly $ Takeaway 4-Yr CAGR
Source: NielsenIQ, J.P. Morgan. UNLVR (Unilever) is covered by Celine Pannuti.
Figure 55: Company $ Takeaway
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
HNST 24.7% 25.1% 19.8%
CHD 6.2% 7.8% 6.6%
CLX 5.2% 7.9% 4.8%
PG 4.9% 6.4% 6.2%
UNLVR 4.3% 6.2% 8.6%
EPC 4.0% 3.1% 4.7%
KVUE 3.8% 5.4% 1.1%
KMB 3.0% 3.4% 4.8%
REYN 2.7% 7.9% 11.2%
ENR 1.3% 1.9% 6.6%
CL -0.2% 0.5% 4.8%
NWL -20.2% -16.8% -11.2%
Source: NielsenIQ. J.P. Morgan
Figure 56: Company Takeaway 2-Year Stack
Current 4-Week Period Takeaway + YAGO vs. Previous 4-Week + YAGO
Current Last Diff.
ENR 4.0% -6.7% 1076
KMB 16.1% 8.1% 797
EPC 12.5% 5.9% 656
NWL -27.0% -31.6% 460
REYN 17.4% 13.5% 395
CL 5.2% 2.0% 320
KVUE -1.1% -3.1% 201
CLX 5.7% 4.2% 147
UNLVR 10.5% 9.2% 129
PG 11.9% 11.2% 72
CHD 11.5% 11.1% 41
HNST 35.7% 43.4% (771)
Source: NielsenIQ. J.P. Morgan
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
43
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 57: Y/Y % Change in Units
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
HNST 15.3% 12.6% 7.7%
CHD 1.8% 1.9% -0.7%
PG -2.1% -0.8% -2.4%
KMB -3.6% -4.5% -2.5%
UNLVR -5.3% -3.9% -4.8%
ENR -6.1% -8.5% -9.1%
EPC -6.3% -5.8% -4.3%
CLX -8.7% -7.1% -9.5%
KVUE -9.4% -7.2% -8.6%
REYN -10.2% -4.1% -3.8%
CL -13.6% -14.3% -8.8%
NWL -21.7% -18.4% -15.1%
Source: NielsenIQ. J.P. Morgan
Figure 58: Y/Y % Change in Price per Unit
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
CL 15.5% 17.3% 14.8%
CLX 15.1% 16.1% 15.9%
KVUE 14.5% 13.6% 10.6%
REYN 14.3% 12.6% 15.6%
EPC 11.0% 9.5% 9.4%
UNLVR 10.1% 10.5% 14.1%
HNST 8.1% 11.1% 11.3%
ENR 7.9% 11.3% 17.3%
PG 7.1% 7.2% 8.8%
KMB 6.8% 8.3% 7.5%
CHD 4.4% 5.8% 7.4%
NWL 1.8% 1.9% 4.6%
Source: NielsenIQ. J.P. Morgan
Figure 59: Y/Y % Change in Velocity
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
KVUE 12.0% 12.1% 13.4%
CLX 10.9% 11.7% 7.3%
ENR 10.8% 13.5% 19.5%
KMB 7.2% 7.5% 6.8%
CL 6.0% 6.8% 8.5%
UNLVR 4.9% 6.5% 14.2%
CHD 4.8% 5.3% 6.4%
PG 4.0% 4.5% 5.4%
HNST 3.5% 3.2% 5.8%
EPC 3.4% 5.0% 8.2%
REYN 1.5% 6.2% 12.1%
NWL -0.7% 0.1% 4.7%
Source: NielsenIQ. J.P. Morgan
Figure 60: Y/Y % in Total Distribution Points
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
HNST 20.5% 21.2% 13.2%
CHD 1.3% 2.3% 0.2%
REYN 1.2% 1.7% -0.8%
PG 0.8% 1.8% 0.8%
EPC 0.6% -1.8% -3.2%
UNLVR -0.5% -0.3% -4.9%
KMB -3.9% -3.8% -1.9%
CLX -5.2% -3.4% -2.3%
CL -5.8% -5.9% -3.4%
KVUE -7.3% -6.0% -10.9%
ENR -8.6% -10.2% -10.8%
NWL -19.6% -16.9% -15.2%
Source: NielsenIQ. J.P. Morgan
Figure 61: Y/Y% Change in TDP on Promotion
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
HNST 3.5% 1.1% 0.0%
ENR 2.7% 1.8% 2.7%
KVUE 2.1% 1.4% 0.9%
CHD 1.2% 0.7% 2.2%
EPC 0.4% -1.1% -2.0%
CLX 0.2% 1.3% -0.3%
PG -0.7% -0.5% -0.9%
KMB -0.8% -0.3% -0.3%
UNLVR -1.4% 0.6% 0.3%
CL -1.5% -2.0% -1.3%
REYN -3.3% -0.3% -1.7%
NWL -4.4% -0.9% 2.0%
Source: NielsenIQ. J.P. Morgan
Figure 62: Y/Y% Change in Promotional Efficiency
Y/Y % Change ranked high to low in latest 4-week period
4-Wk 12-Wk 52-Wk
NWL 6.0% 4.9% -0.2%
KVUE 5.3% 3.9% 0.2%
HNST 4.3% -1.9% -0.3%
PG 2.9% 1.9% -1.6%
CHD 1.7% 2.0% 2.8%
CLX 1.6% 4.6% 3.0%
UNLVR 0.7% -1.5% -0.4%
EPC 0.2% -0.7% -2.1%
ENR -0.3% 1.5% 0.0%
CL -0.6% -1.6% -4.3%
REYN -1.0% -1.1% 2.6%
KMB -1.1% -2.8% -2.5%
Source: NielsenIQ. J.P. Morgan
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44
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Key Brands POS Performance in the U.S.
Below we have added the latest POS trends in the U.S. as per NielsenIQ data for some
of KVUE􀋖s iconic brands.
Figure 63: Summary of $ Takeaway in Tracked Channel
5W Ending 5W Ending
12/31/2022 4/1/2023 5/6/2023 12/31/2022 4/1/2023 5/6/2023
KVUE 4.4% 5.5% 4.2% 4.1% 1.5% 2.3%
Listerine -0.3% 7.4% 10.7% 1.4% 0.2% 1.5%
Tylenol 13.7% 14.6% 4.8% 14.7% 8.5% 10.5%
Zyrtec 3.5% 3.3% 6.8% 7.8% 5.2% 4.8%
Benadryl 2.0% 4.5% 7.4% 6.3% 3.9% 4.4%
Aveeno -0.1% -0.9% 1.9% 2.0% 0.2% 0.9%
Neutrogena -0.3% 4.4% 5.8% -2.2% -3.1% -1.8%
Band Aid -0.2% 3.2% 7.2% 4.1% 3.8% 4.8%
$ Takeaway (YOY) 4Y CAGR $ Takeaway (YOY)
12W Ending 12W Ending
Source: NielsenIQ. J.P. Morgan
The latest NielsenIQ data shows that Listerine􀋖s dollar takeaway was up +10.7% driven
by pricing, which was up +15.2%, while volume was down -3.9% in the latest fiveweek
period ending May 6. This is a sequential acceleration from the brand􀋖s dollar
takeaway for the 12-week period ending 4/1/23 (bracketing Q123), which was up +7.4%
(pricing up +10.7% while volume was down -2.9%) and also improved from the 12-
week period ending 12/31/22, where the headline takeaway was flat (-0.3%), broken out
into pricing up +8.1% but volume down -7.7%. We note that the uptick may be
attributable to easier comps in the base period, where headline takeaway was down -
7.7% (pricing up +2.3% but volume down -9.8%) in the five-week period ending 5/7/22.
Normalizing for the pandemic, takeaway was up +1.4% for the 12-week period ending
12/31, flat (+0.2%) for the 12-week period ending 4/01, and +1.5% for the five-week
period ending 5/06 on a four-year CAGR basis.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
45
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 64: $ Takeaway in Tracked Channels - Listerine
Rolling 12W Period Ending 5/06
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
The most recent tracked channel data shows that Tylenol􀋖s dollar takeaway was up
+4.8% driven by pricing (up +12.8%) while volume was down (-7.1%) in the latest 5-
week period ending May 6. This print is a sequential deceleration on the headline (but
accelerated on a four-year CAGR) from the 12-week period ending 4/01, where
Tylenol􀋖s takeaway was up +14.6% (pricing +14.4%, volume flat or +0.2%). It also
decelerated from the 12-week period ending 12/31/22 in which the brand􀋖s takeaway
was up +13.7% (pricing up +12.8% and volume slightly up +0.9%). As it relates to fouryear
CAGR, takeaway was up +14.7% for the 12-week period ending 12/31, +8.5% for
the 12-week period ending 4/01, and +10.5% for the five-week period ending 5/06.
Figure 65: $ Takeaway in Tracked Channels - Tylenol
Rolling 12W Period Ending 5/06
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
The latest NielsenIQ data points to Zyrtec􀋖s consumption up +6.8% (pricing up +10.2%
while volume down -3.1%) in the latest five-week period ending May 6. This print is an
acceleration from dollar takeaway up +3.3% (pricing up +7.3%, volume down -3.8%) in
the 12-week period ending 4/01, and consumption up +3.5% (pricing up +7.6% but
volume down -3.8%) for the 12-week period ending 12/31/22. However, we note that
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46
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
there has been a sequential deceleration on a four-year CAGR basis where Zyrtec􀋖s
takeaway was up +7.8% for the 12-week period ending 12/31, +5.2% for the 12-week
period ending 4/01, and +4.8% for the five-week period ending 5/06.
Figure 66: $ Takeaway in Tracked Channels - Zyrtec
Rolling 12W Period Ending 5/06
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
The most recent tracked channel data shows that headline consumption for Benadryl
was up +7.4% (pricing up +16.3% but volume down -7.7%) for the five-week period
ending 5/06, which sequentially accelerated both on a headline and on four-year CAGR
basis. Benadryl􀋖s dollar takeaway was up +4.5% (pricing up +12.5%, volume down -
7.1%) for the 12-week period ending 4/1/23 and was up +2.0% (pricing up +11.2% but
volume down -8.3%) for the 12-week period ending 12/31/22. As it relates to four-year
CAGR, takeaway was up +6.3% for the 12-week period ending 12/31, +3.9% for the
12-week period ending 4/01, and +4.4% for the five-week period ending 5/06.
Figure 67: $ Takeaway in Tracked Channels - Benadryl
Rolling 12W Period Ending 5/06
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
As per the most recent data from NielsenIQ, Aveeno􀋖s dollar takeaway was slightly up
+1.9%, with pricing (up +18.2%) being the main driver, while volume was down -
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
47
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
13.8% in the five-week period ending May 6. This is a sequential acceleration from the
12-week period ending 4/1/23, where headline consumption was slightly down -0.9%
(pricing up +13.9% while volume was down -13.0%). Dollar takeaway was flat (-0.1%),
broken out into pricing up +9.7% but volume down -8.9% in the 12-week period ending
12/31/22. The brand appears to have easier comps in the prior period, when headline
consumption was down -6.7% (flat or +0.3% pricing and -7.0% volume) in the fiveweek
period ending 5/7/22. On a four-year CAGR basis, takeaway was modestly up
+2.0% for the 12-week period ending 12/31 and was flat (+0.2%) for the 12-week
period ending 4/01, while it was slightly up sequentially by +0.9% for the five-week
period ending 5/06.
Figure 68: $ Takeaway in Tracked Channels - Aveeno
Rolling 12W Period Ending 5/06
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
The latest tracked channel data point to Neutrogena􀋖s dollar takeaway improving with
consumption up +5.8% (pricing up +11.2%, volume down -4.9%) in the latest five-week
period ending May 6 and compares to dollar takeaway down -10.0% (pricing +0.5%,
volume -10.5%) in the prior period. As mentioned, this is a sequential acceleration from
the 12-week period ending 4/1/23 where the data shows that dollar takeaway was up
+4.4% (pricing was up +8.6% while volume was down -3.9%), and this too was a
sequential improvement from consumption slightly down (-0.3%, broken out into
pricing up +8.2% but volume down -7.8%) in the 12-week period ending 12/31/22.
Looking at longer term trends, four-year CAGR consumption was down -2.2% in the
12-week period ending 12/31/22 and decelerated to -3.1% in the 12-week period ending
4/01 but was less negative (down -1.8%) in the five-week period ending 5/06.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
48
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 69: $ Takeaway in Tracked Channels - Neutrogena
Rolling 12W Period Ending 5/06
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
The most recent tracked channel data shows that Band Aid􀋖s dollar takeaway was up
+7.2%, with pricing (+16.8%) being the main driver, while volume was down -8.3%,
which improved from both consumption up +3.2% (pricing +12.1%, volume -7.9%) for
the 12-week period ending 4/1/23 and flat (-0.2%, pricing up +11.4% but volume down
-10.4%) in the 12-week period ending 12/31/22. The brand􀋖s four-year CAGR for
consumption was up +4.1% in the 12-week period ending 12/31/22, +3.8% in the 12-
week period ending 4/01, and +4.8% in the five-week period ending 5/06.
Figure 70: $ Takeaway in Tracked Channels - Band Aid
Rolling 12W Period Ending 5/06
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
01/16/21
02/13/21
03/13/21
04/10/21
05/08/21
06/05/21
07/03/21
07/31/21
08/28/21
09/25/21
10/23/21
11/20/21
12/18/21
01/15/22
02/12/22
03/12/22
04/09/22
05/07/22
06/04/22
07/02/22
07/30/22
08/27/22
09/24/22
10/22/22
11/19/22
12/17/22
01/14/23
02/11/23
03/11/23
04/08/23
05/06/23
Sales Volume Pricing
Source: NielsenIQ. J.P. Morgan
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
49
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Financial Statements
Income Statement Historical & Estimates
Table 11: KVUE Income Statement
$ million, except per share values
Income Statement 2019 2020 2021 2022 2023E 2024E 2025E
Revenue 14,324 14,467 15,054 14,950 15,662 16,289 16,973
% change 1.0% 4.1% -0.7% 4.8% 4.0% 4.2%
Cost of goods sold 6,633 6,585 6,587 6,610 6,800 7,050 7,246
Amortization of definite life intangible assets 344 415 414 348 324 305 283
Gross profit, adjusted 8,035 8,297 8,881 8,688 9,186 9,544 10,010
as a % of revenue 56.1% 57.4% 59.0% 58.1% 58.7% 58.6% 59.0%
Change as % of revenue (bps) 125 164 (88) 54 (6) 38
Gross profit, adjusted incl.-Amortization of definite life intangible assets 7,691 7,882 8,467 8,340 8,862 9,239 9,727
as a % of revenue 53.7% 54.5% 56.2% 55.8% 56.6% 56.7% 57.3%
Change as % of revenue (bps) 79 176 (46) 80 14 59
Selling, general and administrative expenses 4,760 4,588 5,061 5,000 5,305 5,515 5,659
as a % of revenue 33.2% 31.7% 33.6% 33.4% 33.9% 33.9% 33.3%
Change as % of revenue (bps) (152) 191 (17) 42 (1) (51)
Research & development 391 320 355 375 412 421 434
as a % of revenue 2.7% 2.2% 2.4% 2.5% 2.6% 2.6% 2.6%
Change as % of revenue (bps) (51) 14 15 12 (4) (3)
Stock-based compensation expense (0) (0) (0) (0) 1 (0) 0
Other expense/(income) 149 (55) (28) 3 (19) (40) (40)
Operating Income, adjusted 2,736 3,444 3,493 3,310 3,487 3,648 3,957
as a % of revenue 19.1% 23.8% 23.2% 22.1% 22.3% 22.4% 23.3%
Change as % of revenue (bps) 471 (60) (106) 13 13 91
Operating Income, adjusted incl.-Amortization of definite life intangible assets 2,392 3,029 3,079 2,962 3,164 3,344 3,674
as a % of revenue 16.7% 20.9% 20.5% 19.8% 20.2% 20.5% 21.6%
Change as % of revenue (bps) 0.0% 42385.1% -4798.0% -6439.7% 3872.1% 3297.9% 11168.4%
Interest income 0 0 0 0 46 39 27
Interest expense 0 0 0 0 329 418 395
Other income/(expense) - - - - - - -
Pretax Income, adjusted 2,736 3,444 3,493 3,310 3,204 3,270 3,589
as a % of revenue 19.1% 23.8% 23.2% 22.1% 20.5% 20.1% 21.1%
Pretax Income, adjusted incl.-Amortization of definite life intangible assets 2,392 3,029 3,079 2,962 2,881 2,965 3,307
as a % of revenue 16.7% 20.9% 20.5% 19.8% 18.4% 18.2% 19.5%
Taxes, adjusted 679 741 782 721 800 819 896
Adjusted Tax Rate 24.8% 21.5% 22.4% 21.8% 25.0% 25.0% 25.0%
Taxes, adjusted incl.-Amortization of definite life intangible assets 667 703 731 676 739 761 843
Adjusted Tax Rate incl.-Amortization of definite life intangible assets 27.9% 23.2% 23.7% 22.8% 25.6% 25.7% 25.5%
Net Income adjusted (non-GAAP) 2,057 2,703 2,711 2,589 2,404 2,451 2,693
as a % of revenue 14.4% 18.7% 18.0% 17.3% 15.4% 15.0% 15.9%
Net Income adjusted incl.-Amortization of definite life intangible assets 1,725 2,326 2,349 2,286 2,142 2,204 2,464
as a % of revenue 12.0% 16.1% 15.6% 15.3% 13.7% 13.5% 14.5%
Diluted EPS, adjusted $1.06 $1.40 $1.40 $1.34 $1.24 $1.27 $1.39
% change 31% 0% -5% -7% 2% 10%
Diluted EPS, adjusted incl.-Amortization of definite life intangible assets $0.89 $1.20 $1.21 $1.18 $1.11 $1.14 $1.27
% change 35% 0% -3% -6% 3% 12%
Average Shares Outstanding - Diluted 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1
Adjusted EBITDA 3,101 3,775 3,810 3,606 3,797 3,983 4,308
as a % of revenue 21.6% 26.1% 25.3% 24.1% 24.2% 24.5% 25.4%
Change as % of revenue (bps) 445 (78) (119) 13 21 93
Source: Company reports and J.P. Morgan estimates.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
50
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Balance Sheet Historical & Estimates
Table 12: KVUE Balance Sheet
$ million
Balance Sheet 2019 2020 2021 2022 2023E 2024E 2025E
Cash and cash equivalents 752.0 617.6 740.0 1,231.4 1,014.1 1,012.8 980.9
Trade receivables, less allowances for credit losses 2,158.7 1,857.9 2,073.7 2,121.7 2,280.9 2,370.3 2,471.4
Inventories 1,779.3 1,685.1 1,701.8 2,226.3 1,957.5 1,852.3 1,818.7
Prepaid expenses & other current assets 335.1 275.3 254.2 170.7 178.9 187.6 193.8
Other current assets 117.4 161.6 154.0 123.4 123.4 123.4 123.4
Total Current Assets 5,142.5 4,597.6 4,923.7 5,873.7 5,554.8 5,546.3 5,588.2
PP&E, net 2,147.2 1,956.6 1,826.6 1,820.2 1,926.7 2,074.1 2,226.6
Intangible assets, net 11,490.0 11,610.4 10,701.2 9,853.5 9,904.9 10,100.3 10,567.4
Goodwill 9,726.4 10,326.1 9,810.1 9,184.6 9,184.6 9,184.6 9,184.6
Deferred taxes on income 182.4 193.3 188.7 143.9 143.9 143.9 143.9
Other assets 522.4 495.9 401.4 404.3 404.3 404.3 404.3
Total non-current Assets 24,068.4 24,582.3 22,927.9 21,406.4 21,564.3 21,907.1 22,526.7
Total Assets 29,210.9 29,179.8 27,851.6 27,280.0 27,119.1 27,453.4 28,115.0
Accounts payable 1,408.5 1,579.3 1,826.5 1,829.4 1,853.3 1,936.9 2,000.6
Accrued liabilities 802.5 1,014.0 1,023.6 906.3 939.6 985.3 1,017.7
Accrued rebates, returns and promotions 930.9 874.6 834.4 862.2 900.9 936.2 976.3
Accrued taxes on income 483.1 409.7 366.4 336.1 354.8 368.7 384.5
Other current liabilities - - - - - - -
Total Current Liabilities 3,625.1 3,877.7 4,051.0 3,934.0 4,048.6 4,227.1 4,379.1
Long-term debt, net of current maturities - - - - 8,512.1 8,309.8 8,121.7
Employee related obligations 303.4 345.0 302.2 213.5 213.5 213.5 213.5
Deferred taxes on income 2,467.2 2,781.7 2,729.0 2,462.8 2,462.8 2,462.8 2,462.8
Other long-term liabilities 726.7 804.7 754.0 727.0 727.0 727.0 727.0
Total Non-current Liabilities 3,497.3 3,931.4 3,785.2 3,403.3 11,915.4 11,713.0 11,525.0
Total Liabilities 7,122.4 7,809.1 7,836.2 7,337.2 15,964.0 15,940.1 15,904.1
Total Equity 22,088.5 21,370.7 20,015.4 19,942.8 11,155.2 11,513.3 12,210.9
Total Liabilities and Equity 29,210.9 29,179.8 27,851.6 27,280.0 27,119.1 27,453.4 28,115.0
Source: Company reports and J.P. Morgan estimates.
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51
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Cash Flow Historical & Estimates
Table 13: KVUE Cash Flow Statement
$ million
Cash Flow Statement 2019 2020 2021 2022 2023E 2024E 2025E
Operating Activities
Net income 1,724.8 2,325.8 2,348.8 2,286.0 2,142.1 2,203.8 2,463.9
Post-tax amortization 332.1 377.2 362.4 302.7 280.9 264.4 245.5
Depreciation 365.1 331.3 317.4 296.0 310.2 334.9 351.7
Tax impact on amortization 12.1 38.0 51.1 45.3 42.7 40.2 37.3
Stock-based compensation expense 102.4 115.5 141.3 137.1 141.8 146.0 150.4
Other operating activities 146.0 24.0 20.3 13.0 - - -
Deferred income taxes 160.9 109.1 (159.2) (104.9) - - -
Other current and non-current assets 51.4 29.9 30.2 75.9 (8.1) (8.7) (6.2)
Accrued liabilities 40.6 123.0 49.8 (17.0) 72.1 81.0 72.5
Employee related obligations 3.4 0.2 13.7 2.0 - - -
Accrued taxes on income 166.1 (82.9) (26.7) (6.8) 18.7 13.9 15.8
Other liabilities 115.4 85.0 (22.7) 49.7 - - -
Separation Costs - - - - (312.4) (222.0) (59.5)
Trade receivables 40.2 264.8 (303.1) (142.0) (159.2) (89.3) (101.1)
Inventories 180.0 108.9 (76.8) (582.0) 268.9 105.2 33.6
Accounts payable 2.6 154.0 330.5 52.0 23.9 83.6 63.7
Net change in operating working capital 222.7 527.7 (49.4) (672.0) 133.5 99.4 (3.8)
Net cash (used in) provided by operating activities 3,443.1 4,003.7 3,077.2 2,407.1 2,821.4 2,953.0 3,267.5
Investing Activities
Purchase of property, plant and equipment (288.9) (229.0) (294.9) (374.8) (416.7) (482.2) (504.2)
Acquisitions, investments, and proceeds from disposal of assets/businesses/investments (1,866.1) 145.5 123.4 (14.9) (375.0) (500.0) (750.0)
Other - - - - - - -
Net cash (used in) provided by investing activities (2,155.0) (83.4) (171.5) (389.6) (791.7) (982.2) (1,254.2)
Financing Activities
Proceeds from loans and notes payable - - - 14.3 8,995.0 - -
Repayments of debt (40.2) (11.4) (7.0) - (482.9) (202.3) (188.0)
Net share issuance - - - - (72.0) (198.5) (238.7)
Dividends paid - - - - (774.1) (1,571.3) (1,618.5)
Net transfer from (to) the parent (1,090.6) (4,052.1) (2,735.7) (1,478.8) (9,913.0) - -
Other - - - - - - -
Net cash (used in) provided by financing activities (1,130.8) (4,063.4) (2,742.7) (1,464.5) (2,247.0) (1,972.1) (2,045.2)
Effect of exchange rate changes (10.6) 8.7 (40.6) (61.5) - - -
Net (dec)/increase in cash and equivalents 146.6 (134.4) 122.4 491.5 (217.3) (1.4) (31.9)
Cash at beginning of period 605.4 752.0 617.6 740.0 1,231.4 1,014.1 1,012.8
Cash at end of period 752.0 617.6 740.0 1,231.4 1,014.1 1,012.8 980.9
Free Cash Flow 3,154.2 3,774.8 2,782.4 2,032.4 2,404.7 2,470.7 2,763.3
FCF Conversion 153% 140% 103% 79% 100% 101% 103%
Source: Company reports and J.P. Morgan estimates.
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52
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Strong, Global Management Team
KVUE has a strong, seasoned management team that will benefit from continuity as
many of the c-level executives ushered in the strategic transformation beginning in the 2019 time frame through the IPO. Moreover, the consumer segment largely operated
independently within JNJ historically, and as such, even after the separation, the organization should be well positioned to continue life as a public company. The management team has around 18 years of experience in consumer goods and healthcare on average and is a diverse group including over 58% women and representing nine different nationalities. Below, we highlight some of the key members of the executive team.
• Thibaut Mongon, CEO – Mr. Mongon served as Executive Vice President and
Worldwide Chairman, Consumer Health at Johnson & Johnson since 2019 and had
been with the company since 2000. Mr. Mongon joined the Consumer Health
organization in 2014 as Group Chairman Asia-Pacific and prior to that joined the Pharmaceutical sector in 2012 as Global Commercial Strategy Leader for the Neuroscience therapeutic division.
• Paul Ruh, CFO – Mr. Ruh joined Johnson & Johnson in 2017 as Chief Financial Officer, Consumer Health. Prior to Johnson & Johnson, Mr. Ruh held several financial leadership roles at PepsiCo, including CFO of Latin America, CFO of
PBA, and CFO PepsiCo Foodservice. Prior to PepsiCo, Mr. Ruh held roles at Procter & Gamble and McKinsey. All together, Mr. Ruh has over 30 years
experience in the consumer goods sector.
• Jan Meurer, Chief Growth Officer – Mr. Meurer joined Johnson & Johnson in
2015 and most recently served as Global Head of Strategy, Consumer Health. Prior
to that, Mr. Meurer held the roles of President, Johnson & Johnson Southeast Asia and Area Managing Director Central Europe, Consumer Health. Prior to Johnson & Johnson, Mr. Meurer spent time at Procter & Gamble, PGT Healthcare, and Siemens
Technologies. All together, Mr. Meurer has over 25 years experience building
consumer brands.
• Meredith (Meri) Stevens, Chief Operations Officer – Ms. Stevens joined Johnson
& Johnson in 2015 and most recently served as Worldwide Vice President,
Consumer Health Supply Chain and Deliver. Prior to that, Ms. Stevens led Supply
Chain Strategy and Deployment at Johnson & Johnson. Prior to Johnson & Johnson,
Ms. Stevens held roles at Newell Rubbermaid (Chief Supply Chain Officer) and
Tyco, Bertelsmann, Knoll, and General Electric in operations and procurement leadership positions. All together, Ms. Stevens has over 30 years of operations
experience.
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53
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Global and U.S. Sales and Market Share
Trends
We did a deep dive into the various categories pertinent to KVUE using a few data
sources including Euromonitor, which includes a global perspective; NielsenIQ, mainly
for market share analysis and sales trends within the U.S.; and independent consultant
Numerator data for U.S. household penetration. Below we delve further into our
analysis by the different categories and brands. We also highlight the global note we
collaborated on last year (link).
Considering KVUE􀋖s key categories globally, including analgesics, allergy care,
mouthwash, digestive remedies, baby care, body care, sun care, and smoking cessation,
the company has the largest global market share in mouthwash and smoking cessation,
above 30% each, with allergy care and baby care following in the mid to high teens,
digestive remedies, analgesics, and adult mass sun care in HSDs, and mass skin care
(including face care and body care) at about MSD global market share as per data from
Euromonitor. We explore KVUE􀋖s global market share in depth under the three
segments below.
Figure 71: Global Market Share by Category
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Baby Care Mouthwash Skin Care Smoking
Cessation
Digestive
Remedies
Sun Care Analgesics Allergy Care
Source: Euromonitor, J.P. Morgan
Looking further into each of these key categories􀋖 market share performance in crucial
markets including the U.S., UK, China, India, and Brazil gives us a better sense of how
KVUE􀋖s market share is doing in these geographies, as per Euromonitor data. Starting
with the mouthwash category, KVUE has a market share of about ~45% in the U.S. and
~40% in the UK, with market share of roughly 30% in both Brazil and China. Although
KVUE has an extremely high market share of over 70% in the Indian market, it is
comparatively a much smaller region in terms of revenues for the company. Overall,
KVUE has a market share of 35.1% globally. For smoking cessation, KVUE has 31.4%
global market share, and we note that KVUE distributes the brand Nicorette only
outside the U.S., where the company has a market share above 40% in both the U.K.
and Brazil, among the regions we are analyzing.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
54
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 72: Market Share by Country - Mouthwash
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Brazil China India UK USA
Source: Euromonitor, J.P. Morgan
Figure 73: Market Share by Country - Smoke Cessation
40.2%
40.4%
40.6%
40.8%
41.0%
41.2%
41.4%
41.6%
41.8%
42.0%
Brazil UK
Source: Euromonitor, J.P. Morgan
From the regions we are considering, KVUE has the largest market share in the U.S.
(~27%) followed by China at about 15% and the UK with 9% in the allergy category,
whereas globally it is 17.2%. KVUE􀋖s baby care category is more prevalent outside the
U.S., especially with its iconic brand, Johnson􀋖s. As such, the Euromonitor data
unsurprisingly points to higher market share in emerging markets with India of 32.5%
and Brazil of 23.1%. KVUE has a total market share of 14.4% globally.
Figure 74: Market Share by Country - Allergy
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
China UK USA
Source: Euromonitor, J.P. Morgan
Figure 75: Market Share by Country - Baby Care
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Brazil China India UK USA
Source: Euromonitor, J.P. Morgan
Euromonitor shows that KVUE has higher market share in the U.S. (10%) and the UK
(9.9%) in the digestive remedies category, while the company has a market share of
7.2% in the category globally. For OTC analgesics/pain relief, KVUE has a global
market share of 7.1%, with the largest market share in the U.S. of 20.5% followed by
the UK of 11.3%.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
55
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 76: Market Share by Country - Digestive Remedies
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Brazil China India UK USA
Source: Euromonitor, J.P. Morgan
Figure 77: Market Share by Country - Analgesics
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Brazil China UK USA
Source: Euromonitor, J.P. Morgan
Turning to beauty, KVUE has global market share of 8.2% in mass adult sun care and
4.4% in skin care (including market share of 6.3% in mass body care and 4.1% in mass
face care – more below under segment analysis), according to data from Euromonitor.
The company has market share of 37.4% in Brazil and 16.0% in the U.S. in the sun care
category and 12.4% in the U.S. and 6.1% market share in Brazil in the mass skin care
category.
Figure 78: Market Share by Country - Sun Care
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Brazil China India UK USA
Source: Euromonitor, J.P. Morgan
Figure 79: Market Share by Country - Body Care
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Brazil China India UK USA
Source: Euromonitor, J.P. Morgan
Additionally, we looked at five-year CAGR growth rates (2017 to 2022) of KVUE􀋖s
categories. The Euromonitor data shows analgesics/pain care (+9.1%), pediatric
consumer health (+7.5%), digestive (+6.0%), and allergy (+5.1%) had the highest fiveyear
CAGR growth rates globally. Similarly in the U.S., categories with the largest fiveyear
CAGRs include pediatric consumer health (+13.3%), analgesics/pain care
(+12.6%), and digestive (+12.3%). This is in line with management􀋖s commentary that
the company concentrated on products that were in high retail demand, especially
during the pandemic. Based on KVUE􀋖s largest categories as per the Euromonitor data,
skin care grew +2.9%, baby/child products increased by +1.0%, and oral care increased
+2.8% on a five-year CAGR globally, and in the U.S. the data shows that the largest
categories include mass skin care, including mass body care and facial care (+2.5%),
and allergy care (+5.3%) besides analgesics/pain care (+12.6%) as mentioned above.
See below scatter plots for market share both globally and in the U.S.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
56
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 80: Global Market Share Growth by Category
Y-Axis: KVUE Market Share change (2017 - 2022); X-Axis: KVUE Category 5Y CAGR
Baby/Child
Products
Bath/
Shower
Haircare
Wound
Care
Analgesics
Dermatologicals
Allergy
Sun Care
Smoke Cessation
Digestive
Paediatric Consumer
Health
Hygiene
-500
-400
-300
-200
-100
0
100
200
300
-2% 0% 2% 4% 6% 8% 10%
Source: Euromonitor, J.P. Morgan
Figure 81: U.S. Market Share Growth by Category
Y-Axis: KVUE Market Share change (2017 - 2022); X-Axis: KVUE Category 5Y CAGR
Baby/Child
Products
Oral
Care
Skin
Care
Sun Care
Analgesics
Dermatologicals
Digestive
Eye
Care
Wound Care
Allergy
Paediatric Consumer
Health
Hygiene
-600
-400
-200
0
200
400
600
800
1000
1200
-2% 0% 2% 4% 6% 8% 10% 12% 14%
Source: Euromonitor, J.P. Morgan
Household Penetration in the U.S. Is Strong in Key Brands Yet Can Grow Further
To analyze the household penetration (HHP) of some of KVUE􀋖s iconic brands in the
U.S., we looked at an independent data vendor, Numerator. The sequential changes are
valuable to check, but we caveat the data in absolute terms may not be very reliable
given that it is based on consumers providing receipts, which we feel tends to skew
toward younger consumers, although the company notes matching to U.S. Census.
Using the HHP trends for the 52-week period ending 4/30, Tylenol (32.1%), Listerine
(28.9%), and Neutrogena (25.6%, in the face care category) appear to have some of the
highest household penetration in the U.S., although the data shows a deceleration in
HHP especially for the latter two brands. Note that Listerine􀋖s HHP has been worse
recently, while UW-rated Church & Dwight􀋖s TheraBreath HHP has improved (more
below under NielsenIQ). Additionally, the data points to high private label HHP,
especially in the categories pertaining to the Self Care segment that we examined below.
As such, management noted that the U.S. Self Care business has higher private label
exposure of about 25-30%, although this is much lower (~10%) for the overall company
in aggregate. We have provided more details in the tables below.
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57
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 82: Household Penetration - Allergy Care
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Private Label 42.9% 45.2% 41.7% 43.2% 42.3%
Benadryl 13.3% 14.1% 13.6% 14.5% 13.0%
Claritin 10.5% 10.9% 10.3% 11.1% 10.0%
Zyrtec 9.2% 9.1% 9.4% 10.0% 9.7%
Flonase 7.0% 6.7% 6.0% 6.8% 6.8%
Allegra 6.2% 6.0% 5.8% 6.3% 6.2%
Source: Numerator, J.P. Morgan
Figure 83: Household Penetration - Pain Relievers
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Private Label 62.6% 65.5% 59.3% 60.7% 59.4%
Tylenol 24.9% 32.2% 29.3% 32.4% 32.1%
Advil 19.6% 20.7% 18.2% 18.8% 19.4%
Aleve 18.0% 17.5% 14.6% 14.2% 12.3%
Motrin 9.2% 10.3% 7.2% 9.7% 9.8%
Bayer 10.8% 10.7% 12.0% 11.6% 9.7%
Excedrin 10.8% 9.7% 7.3% 8.6% 7.7%
Midol 2.5% 2.8% 2.9% 3.2% 3.1%
Source: Numerator, J.P. Morgan
Figure 84: Household Penetration - Cold, Cough & Flu
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Private Label 58.6% 61.7% 42.2% 54.0% 56.6%
Vicks 27.8% 31.9% 21.9% 34.3% 36.9%
Halls 32.0% 32.7% 20.2% 28.8% 31.1%
Mucinex 21.8% 22.1% 13.6% 23.8% 27.5%
Ricola 17.2% 18.4% 10.7% 18.2% 21.1%
Robitussin 10.9% 11.6% 5.7% 10.4% 11.9%
TheraFlu 6.4% 7.0% 3.5% 5.8% 7.0%
Sudafed 5.9% 6.5% 4.1% 6.3% 6.1%
Zarbee's 4.9% 6.0% 3.4% 5.3% 5.3%
Source: Numerator, J.P. Morgan
Figure 85: Household Penetration - Digestive Remedies
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Private Label 54.7% 56.6% 54.4% 55.0% 53.6%
Tums 19.2% 21.2% 21.2% 21.8% 20.9%
Pepto-Bismol 12.1% 13.3% 13.1% 15.3% 15.2%
Dulcolax 6.9% 7.3% 8.4% 9.1% 9.6%
Miralax 7.4% 6.6% 7.3% 8.6% 8.2%
Imodium 6.2% 6.1% 5.3% 6.8% 6.5%
Alka-Seltzer 6.7% 7.0% 8.1% 7.1% 5.9%
Pepcid 2.5% 3.8% 4.6% 5.0% 4.3%
Source: Numerator, J.P. Morgan
Figure 86: Household Penetration - Mouthwash
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Listerine 32.1% 33.0% 32.3% 31.9% 28.9%
Crest 21.8% 23.6% 23.4% 24.4% 23.0%
Private Label 24.9% 25.2% 23.7% 21.6% 20.1%
ACT (Oral Care) 9.0% 9.1% 8.7% 8.0% 8.3%
Colgate 9.7% 8.4% 7.1% 7.0% 5.8%
TheraBreath 1.3% 1.5% 3.0% 3.4% 4.9%
Source: Numerator, J.P. Morgan
Figure 87: Household Penetration - Sun Care
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Banana Boat 19.8% 19.3% 17.7% 21.4% 21.7%
Private Label 22.3% 21.2% 19.3% 20.4% 19.7%
Coppertone 15.6% 14.0% 13.1% 15.2% 15.5%
Neutrogena 13.9% 13.7% 15.0% 14.4% 15.2%
Jergens 5.4% 5.3% 4.7% 5.6% 5.4%
CeraVe 1.8% 2.0% 2.8% 3.3% 5.2%
Aveeno 2.8% 2.6% 3.3% 2.8% 2.2%
L'Oreal Paris 1.7% 1.5% 1.4% 1.5% 1.5%
Source: Numerator, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 88: Household Penetration - Body Care
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Gold Bond 14.6% 14.7% 14.6% 15.2% 14.5%
Bath & Body Works 22.3% 22.0% 19.1% 20.0% 14.1%
Private Label 19.2% 17.8% 15.6% 13.9% 13.1%
Vaseline 11.9% 11.8% 12.6% 12.3% 12.4%
Nivea 11.4% 12.5% 13.4% 12.9% 11.6%
Aveeno 11.2% 11.2% 11.7% 11.0% 11.4%
CeraVe 4.7% 5.9% 8.9% 10.4% 11.1%
Eucerin 6.0% 6.7% 7.3% 7.8% 6.8%
Olay 1.3% 1.4% 1.8% 1.9% 2.2%
Neutrogena 2.2% 2.2% 2.3% 2.3% 1.8%
Source: Numerator, J.P. Morgan
Figure 89: Household Penetration - Face Care
52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23
2019 2020 2021 2022 2023
Private Label 39.4% 41.0% 36.3% 34.5% 32.9%
Neutrogena 28.7% 28.5% 27.5% 27.5% 25.6%
CeraVe 3.9% 5.3% 11.0% 13.6% 15.4%
Cetaphil 7.9% 9.1% 10.4% 11.1% 10.6%
L'Oreal Paris 8.8% 8.4% 8.8% 7.6% 7.9%
Clean & Clear 14.5% 13.2% 11.1% 10.1% 7.1%
Aveeno 6.6% 6.0% 6.1% 6.4% 4.8%
Source: Numerator, J.P. Morgan
Market Share Improving in the U.S. Based on Tracked Channels
We carried out an in-depth analysis of some of KVUE􀋖s pertinent categories using
tracked channel data (NielsenIQ) to gauge how the company􀋖s market performance
(value and volume share as well as price) evolved over time, specifically in the U.S.
However, base period dynamics limit the degree of read-through from tracked channel
data. We carried out a YOY analysis of the recent NielsenIQ data available (ending
5/6/23) and also analyzed YOY data as of 12/31/22 (we will refer to this as prior yearend
or 􀋘PYE􀋙) to see how KVUE categories performed YTD as well as YOY data as of
5/7/22 (we will refer to this as prior-year or 􀋘PY􀋙) to see how KVUE performed in the
categories from a year ago (as of 5/6/23). These additional charts for PY and PYE are
added to the appendix for reference. Below we elaborate more on our findings.
In the four-week period ending May 6, KVUE posted modest positive dollar share
performance (+15 bps vs. -45 bps in the four-week period ending 12/31/22 or 􀋘PYE􀋙
and -152 bps four-week period ending 5/7/22) as the company gained dollar share in 11
out of 19 categories (vs. eight categories as of PYE and six categories as of PY – both
out of 19 categories) that we track for the company. As we show in the table below, the
largest share gains occurred in antiseptic (+456 bps vs. +418 bps as of PYE and +558
bps as of PY) and baby bath (+408 bps vs. losing -18 bps as of PYE and -645 bps as of
PY), besides the outsized growth in baby powder (+1,138 bps vs. losing -107 bps as of
PYE and -377 bps as of PY), but this category makes up a very small percentage of
sales in the U.S. as per the tracked channels. Conversely, the largest share loss occurred
in baby lotion (-252 bps vs. -322 as of PYE and -49 bps as of PY) and facial skin care (-
197 bps vs. -266 bps as of PYE and -291 bps as of PY), with more moderate share loss
in cold & flu (-133 bps vs. -113 bps as of PYE but gained +159 bps as of PY). Given
that the 19 categories below account for roughly 78% of KVUE􀋖s sales in the tracked
channels, on a weighted basis, we estimate KVUE gained +15 bps (vs. losing -45 bps as
of PYE and -152 bps as of PY) of overall value share but lost -54 bps (vs. -32 bps as of
PYE and -83 bps as of PY) on a volume share basis in the latest four-week period
ending 5/6/23. KVUE retail price realization was up by ~15%, 15%, and 11% in the last
four, 13, and 52 weeks YOY.
Value Share Improved Sequentially Driven by Pricing as Volume Share
Deteriorated YTD
Sequentially, on a YOY four-week period basis, value share improved, but volume share
appears to have deteriorated YTD, although the metric improved from PY especially as
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North America Equity Research
29 May 2023 J P M O R G A N
pricing at retail increased tremendously during the time line observed. More
specifically, KVUE gained +15 bps of value share in the four-week period ending
5/6/23, improving from losing -45 bps in the four-week period ending 12/31/22 and -
152 in the four-week period ending 5/7/22 as mentioned above. Similarly, the company
lost -54 bps of volume share in the four-week period ending 5/6/23, or 22 bps lower
from -32 bps volume share loss in the four-week period ending 12/31/22, but improving
from -83 bps volume share loss in the four-week period ending 5/7/22. During this time,
pricing at retail increased tremendously by +14.7% in the four-week period ending
5/6/23 and compares to up by +8.5% in the four-week period ending 12/31/22 and
+2.3% in the four-week period ending 5/7/22, as the company took pricing in 2H22 and
again in 1Q23.
Figure 90: KVUE Value & Volume Share Change by Key Categories – U.S.
Contribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share
For Periods Ending 5/06/23
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.6% 2.7% 2.7% 50 58 20 (29) (18) (19)
Allergy 13.9% 12.8% 11.1% 89 124 66 (64) (53) (63)
Antibiotic 2.2% 2.3% 2.4% 158 55 (92) (22) (134) (267)
Anti-Diarrhea 2.4% 2.4% 2.3% (101) (42) 76 (266) (187) (26)
Antiseptic 0.1% 0.1% 0.0% 456 410 482 437 396 485
Baby Bath 3.0% 3.2% 3.2% 408 206 (78) 244 2 (141)
Baby Lotion 0.8% 0.8% 0.8% (252) (312) (273) (28) (140) (260)
Baby Oil 0.5% 0.6% 0.5% 32 (47) (246) (55) (59) 24
Baby Powder 0.4% 0.4% 0.5% 1,138 572 175 1,594 713 150
Baby Soap 1.0% 1.0% 1.0% 198 102 (104) 257 303 50
Bandages 4.5% 4.5% 4.5% (72) (39) (64) (176) (127) (143)
Body Wash 2.2% 2.3% 2.3% (32) (28) (12) (50) (27) 4
Body Lotion 3.1% 3.4% 3.2% (87) (87) (100) (57) (32) (20)
Cold & Flu 1.1% 1.2% 1.4% (133) (6) 32 (3) (0) (1)
Digestive Aid 0.6% 0.7% 0.7% 102 19 (22) (322) (332) (199)
Facial Skin Care 9.7% 10.2% 10.2% (197) (215) (296) (191) (207) (255)
Mouthwash 8.3% 8.8% 9.1% (102) (61) (256) (109) (59) (151)
Pain Relief 16.2% 16.1% 16.9% 76 218 137 (35) (14) 13
Sun Care 5.1% 3.7% 4.0% 38 99 (148) 81 187 6
Weighted Total 77.6% 77.1% 76.8% 15 41 (53) (54) (53) (85)
YOY $ Share Change (bps) YOY EQ Share Change (bps)
Source: NielsenIQ, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 91: KVUE Pricing Change by Key Categories – U.S.
Change in Pricing in Latest 4, 13 & 52-Weeks
For Periods Ending 5/06/23
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.6% 2.7% 2.7% 16.8% 13.8% 10.2%
Allergy 13.9% 12.8% 11.1% 13.7% 13.7% 10.8%
Antibiotic 2.2% 2.3% 2.4% 13.7% 13.0% 12.7%
Anti-Diarrhea 2.4% 2.4% 2.3% 16.5% 15.3% 11.0%
Antiseptic 0.1% 0.1% 0.0% 22.2% 42.8% 55.8%
Baby Bath 3.0% 3.2% 3.2% 18.1% 16.1% 13.7%
Baby Lotion 0.8% 0.8% 0.8% 16.2% 13.7% 12.3%
Baby Oil 0.5% 0.6% 0.5% 13.1% 11.4% 10.7%
Baby Powder 0.4% 0.4% 0.5% 15.6% 17.0% 15.2%
Baby Soap 1.0% 1.0% 1.0% 16.2% 11.8% 13.0%
Bandages 4.5% 4.5% 4.5% 12.5% 12.7% 10.5%
Body Wash 2.2% 2.3% 2.3% 19.6% 14.5% 7.8%
Body Lotion 3.1% 3.4% 3.2% 11.1% 9.3% 7.2%
Cold & Flu 1.1% 1.2% 1.4% -0.9% 11.9% 19.7%
Digestive Aid 0.6% 0.7% 0.7% 21.3% 17.4% 9.7%
Facial Skin Care 9.7% 10.2% 10.2% 17.7% 17.1% 15.2%
Mouthwash 8.3% 8.8% 9.1% 16.9% 14.1% 8.9%
Pain Relief 16.2% 16.1% 16.9% 14.8% 21.2% 13.4%
Sun Care 5.1% 3.7% 4.0% 8.4% 0.4% -1.9%
Weighted Total 77.6% 77.1% 76.8% 14.7% 15.0% 11.2%
YOY EQ Price Change (%)
Source: NielsenIQ, J.P. Morgan
Below we provide an in-depth discussion of the three segments – Self Care, Skin Health
& Beauty, and Essential Health – and examine the categories within each of these
segments further using data from Euromonitor, mainly for global market share/trends,
and NielsenIQ for U.S. market share/trends. As it specifically relates to NielsenIQ, we
carried out a YOY analysis of the recent NielsenIQ data available (ending 5/6/23) and
also analyzed YOY data as of 12/31/22 (we will refer to this as prior year-end or
􀋘PYE􀋙) to see how KVUE categories performed YTD as well as considering YOY data
as of 5/7/22 (we will refer to this as prior-year or 􀋘PY􀋙) to see how KVUE performed in
the categories from a year ago (as of 5/6/23). We have not provided the charts pertaining
to PYE and PY data points but have only referred to the data in our analysis. Below, we
delve into some of the specific categories within each of KVUE􀋖s three segments.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Global Category Market Share
Self Care
Our analysis of the tracked channel data for some of the major categories within the Self
Care segment are laid out below from various tracked channel data sources including
Euromonitor and NielsenIQ.
Paincare. We utilized Euromonitor to assess how KVUE􀋖s market share fared globally
both at the company and brand level within the OTC paincare category. KVUE has a
global market share of 7.1% in this category. Looking further at the brand level, we get
the sense that KVUE􀋖s brands (both Tylenol and Motrin) have been gaining market
share globally. More specifically, the data shows that Tylenol grew market share
tremendously from 2.5% in 2013 to 4.6% in 2022, and Motrin also grew but at a lower
magnitude, from 0.9% in 2013 to 1.4% in 2022. Note that some of the other major
brands in the category, including Advil (Haleon), Aspirin (Bayer), and Aleve (Bayer),
lost market share during this time frame.
Figure 92: Paincare - Global Market Share by Company
15.2% 15.2%
5.9% 7.1%
5.5% 5.6%
5.9% 5.4%
3.3%
4.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Haleon Kenvue Sanofi Bayer Reckitt
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 93: Paincare - Global Market Share by Brands
4.6%
3.9%
2.9%
1.4%
1.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Tylenol Advil Aspirin Motrin Aleve
Source: Euromonitor, J.P. Morgan
Looking specifically in the U.S. employing NielsenIQ, due to the iconic Tylenol and
Motrin brands, paincare makes up the largest component for both the overall company
and within the Self Care segment (as per category weight based on sales calculated
using data from NielsenIQ). The tracked channel data for the four-week period observed
shows that KVUE􀋖s dollar value share has remained consistent through the time line
considered with value share gain of +76 bps for the four-week period ending 5/6/23 (vs.
+75 bps in the four-week period ending 12/31/22 or PYE and +76 bps in the four-week
period ending 5/7/22 or PY). We note that private label (PL) lost -30 bps of value share
in the four-week period ending 5/6/23; however, PL gained +148 bps as of PYE and
gained more modestly (+53 bps) as of PY. As it relates to volume share, KVUE lost -35
bps in the four-week period ending 5/6/23 while PL gained +69 bps during this period.
Below we show how both value and volume share performed for the 4, 13, and 52
weeks ending 5/6/23 for KVUE and some of its competitors.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 94: Paincare - U.S. Value Share
For Periods Ending 5/06/23, YOY (bps)
76
(19) (11)
(30) (26)
218
(59)
(34)
(83)
(30)
137
(87)
(36)
14
(4)
(150)
(100)
(50)
-
50
100
150
200
250
KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 95: Paincare - U.S. Volume Share
For Periods Ending 5/06/23, YOY (bps)
(35)
(4) (0)
69
(30)
(14)
(69)
(0)
111
(17)
13
(123)
(1)
58
47
(150)
(100)
(50)
-
50
100
150
KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Allergies. In the allergies category globally, KVUE leads with market share of 17.2% as
mentioned above, followed by Bayer (13.1%) and Sanofi (11.8%). As it relates to
brands, both of KVUE􀋖s brands, Zyrtec and Benadryl, have gained global market share
slightly during the time frame considered.
Figure 96: Allergy - Global Market Share by Company
15.8%
17.2%
12.3%
13.1%
11.8%
11.8%
4.1% 3.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Kenvue Bayer Sanofi Haleon
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 97: Allergy - Global Market Share by Brands - KVUE Absolute Leader Combining Zyrtec and Benadryl
11.8%
8.3%
7.9%
6.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Claritin Zyrtec Allegra/Telfast Benadryl
Source: Euromonitor, J.P. Morgan
In the U.S., NielsenIQ tracked channel data shows that KVUE gained +89 bps of value
share in the four-week period ending 5/6/23, which is slightly below gain of +96 bps as
of PYE but improved from losing -37 bps as of PY. However, KVUE􀋖s volume share has
been pressured, losing -64 bps in the four-week period ending 5/6/23 (and compares to
losing -69 bps as of PYE but gaining +20 bps as of PY). We note here that private label
gained +85 bps of volume share in the four-week period ending 5/6/23 (vs. +88 bps as
of PYE but losing -90 bps as of PY). Below we show how both value and volume share
performed for the 4, 13 and 52 weeks ending 5/6/23 for KVUE and some of its
competitors.
Figure 98: Allergy - U.S. Value Share
For Periods Ending 5/06/23, YOY (bps)
89
(10)
(59)
(19)
27
124
(85)
(42)
(2)
31
66
(136)
(20)
78
12
(150)
(100)
(50)
-
50
100
150
KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 99: Allergy - U.S. Volume Share
For Periods Ending 5/06/23, YOY (bps)
(64)
16
(30)
85
33
(53)
(15)
(30)
109
31
(63)
(30) (28)
68
13
(80)
(60)
(40)
(20)
-
20
40
60
80
100
120
KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Cough & Cold. In the cold, cough (and allergy) remedies category as per Euromonitor
data globally, KVUE leads with market share of 7.3% followed by Haleon (6.7%) and
Reckitt (5.7%). We note here KVUE􀋖s global brands including Sudafed (0.7%) and
Benylin (0.6%) market share compared to competitors including Vicks (4.7%, owned by
OW-rated Procter & Gamble), Halls (3.4%, owned by Mondelez International) and
Mucinex (2.5%, owned by Reckitt), among others.
Figure 100: Cold & Cough Global Market Share by Company
6.7%
7.3%
7.5%
6.7%
5.1%
4.6% 5.7%
4.5% 5.0%
4.6% 4.6%
4.5%
3.6%
3.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Kenvue Haleon Reckitt Procter & Gamble Bayer Sanofi Mondelez
Source: Euromonitor, J.P. Morgan
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North America Equity Research
29 May 2023 J P M O R G A N
Figure 101: Cold & Cough Global Market Share by Brands
4.7%
3.4%
2.5%
1.6%
0.7%
1.5%
1.0%
0.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Vicks Halls Mucinex Ricola
Strepsils Sudafed Robitussin Benylin
Source: Euromonitor, J.P. Morgan
As per NielsenIQ, KVUE lost -133 bps of value share in the four-week period ending
5/6/23, sequentially worse from losing -113 bps as of PYE while gaining +159 bps as of
PY. As it relates to volume share, the company seems to have 􀋘improved􀋙 YTD,
although it lost -3 bps in the four-week period ending 5/6/23 vs. -13 bps PYE but
slightly gained +6 bps as of PY. Below we show how both value and volume share
performed for the 4, 13, and 52 weeks ending 5/6/23 for KVUE and some of its
competitors.
Figure 102: Cough & Cold - U.S. Value Share
For Periods Ending 5/06/23, YOY (bps)
(133)
(230)
(156) (148)
(940)
(94) (93)
(6)
782
184
419
12 36
198
32
813
343
539
401
14
278
(1,200)
(1,000)
(800)
(600)
(400)
(200)
-
200
400
600
800
1,000
KENVUE PROCTER &
GAMBLE
BAYER AG RECKITT PRIVATE
LABEL
CHURCH &
DWIGHT
HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 103: Cough & Cold - U.S. Volume Share
For Periods Ending 5/06/23, YOY (bps)
(3)
8
(2)
(0)
(22)
(1) (3)
(0)
28
5
9
6
1 2
(1)
25
7
9
17
0
3
(30)
(20)
(10)
-
10
20
30
40
KENVUE PROCTER &
GAMBLE
BAYER AG RECKITT PRIVATE
LABEL
CHURCH &
DWIGHT
HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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North America Equity Research
29 May 2023 J P M O R G A N
Digestive Remedies. Globally, data from Euromonitor points to KVUE holding the
second largest market share position (7.2%) in the digestive remedies category, while
Haleon has the highest market share with 7.8% market share. As it relates to brands,
KVUE􀋖s larger brands include Imodium (2.4% global market share) and Pepcid (1.5%
market share on a global basis), while Dulcolax (Sanofi) has the largest market share
(2.5%). We have included charts below showing how KVUE stacks up against
competitors in the digestive remedies category globally overall. (KVUE has a few other
brands with small market share that are too small to show here.)
Figure 104: Digestive Remedies Global Market Share by Company
8.0% 7.8%
6.8% 7.2%
7.1% 6.5%
5.8% 5.9%
2.6% 2.3% 2.4% 2.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Haleon Kenvue Sanofi Bayer Procter & Gamble Reckitt
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 105: Digestive Remedies Global Market Share by Brands
2.5%
2.4%
2.2%
1.7%
1.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Dulcolax Imodium Tums Gaviscon Pepcid
Source: Euromonitor, J.P. Morgan
NielsenIQ data shows that KVUE gained +50 bps of value share in the four-week period
ending 5/6/23 in the acid relief category, which is an improvement from slightly gaining
+4 bps as of PYE but losing -6 bps as of PY. We also looked at the anti-diarrhea
category, where the company􀋖s performance is worse, losing value share of -101 bps in
the four-week period ending 5/6/23 (vs. gaining +217 bps as of PYE and +165 as of
PY). In the digestive aid category, KVUE gained +102 bps value share in the four-week
period ending 5/6/23 (vs. losing -265 bps PYE but gaining +51 bps PY) while PL lost -
49 bps value share during this time period and compares to gaining +319 as of PYE and
+77 bps as of PY. Below we show how both value and volume share performed for the
4, 13, and 52 weeks ending 5/6/23 for KVUE and some of its competitors for acid relief,
anti-diarrhea, and digestive aid categories.
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 106: Acid Relief - Value Share
For Periods Ending 5/06/23, YOY (bps)
50
(72)
(36) (36)
60
26
58
(58)
(26)
(39)
56
(10)
20
(45)
(16)
(28)
40
(1)
(80)
(60)
(40)
(20)
-
20
40
60
80
KENVUE PROCTER &
GAMBLE
BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 107: Acid Relief - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(29)
(20)
(70)
(38)
75
(18) (15) (17)
(63)
(44)
49
(4)
(19)
(11)
(36) (35)
21
26
(80)
(60)
(40)
(20)
-
20
40
60
80
100
KENVUE PROCTER &
GAMBLE
BAYER AG SANOFI PRIVATE LABEL HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 108: Anti-Diarrhea - Value Share
For Periods Ending 5/06/23, YOY (bps)
(101) (100)
229
(42)
(108)
166
76
(89)
7
(150)
(100)
(50)
-
50
100
150
200
250
KENVUE PROCTER & GAMBLE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 109: Anti-Diarrhea - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(266)
(15)
289
(187)
(16)
160
(26) (15) (14)
(300)
(200)
(100)
-
100
200
300
400
KENVUE PROCTER & GAMBLE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 110: Digestive Aid - Value Share
For Periods Ending 5/06/23, YOY (bps)
102
(49)
19
49
(22)
94
(60)
(40)
(20)
-
20
40
60
80
100
120
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 111: Digestive Aid - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(322)
326
(332)
335
(199)
200
(400)
(300)
(200)
(100)
-
100
200
300
400
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Skin Health & Beauty
Our analysis of the tracked channel data for some of the major categories within the
Skin Health & Beauty segment are laid out below using Euromonitor to gauge how
KVUE is performing globally and NielsenIQ for U.S. performance.
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Face Care. Looking at the mass face care category on a worldwide basis, data from
Euromonitor shows that KVUE has market share of 4.1%, while L􀋖Oreal Groupe
(covered by Celine Pannuti) has the highest global market share of 12.5%. By brands,
Neutrogena has the fourth highest market share (2.7%), while Clean & Clear has a very
small global market share (0.7%).
Figure 112: Mass Face Care Global Market Share by Company
9.3%
12.5%
5.2% 5.6%
5.2% 5.1%
4.9% 5.0%
4.3% 4.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
L'Oréal Beiersdorf Unilever Procter & Gamble Kenvue
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 113: Mass Face Care Global Market Share by Brands
4.9%
4.8%
2.8%
2.7%
2.5%
0.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
L'Oréal Paris Olay CeraVe Neutrogena Nivea Clean & Clear
Source: Euromonitor, J.P. Morgan
Face care makes up the largest component within the Skin Health & Beauty segment,
specifically in the U.S. (as per category weight based on sales calculated using data
from NielsenIQ). The tracked channel data for the four-week period observed shows
that KVUE􀋖s dollar value share has improved, albeit negative, through the time line
considered, with value share loss of -197 bps for the four-week period ending 5/6/23
(vs. -266 bps as of PYE and -291 bps as of PY). We note that L􀋖Oreal (covered by
Celine Pannuti) has been a clear value share winner also in the U.S., gaining +426 bps
in the four-week period ending 5/6/23, +419 bps as of PYE and +183 bps as of PY. On a
volume share basis, KVUE lost -191 bps in the four-week period ending 5/6/23 (vs. -
194 bps as of PYE and -136 bps as of PY), while L􀋖Oreal gained +411 bps of volume
share in the same period (compares to +484 bps as of PYE and +318 bps as of PY).
Below we show how both value and volume share performed for the 4, 13, and 52
weeks ending 5/6/23 for KVUE and some of its competitors.
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 114: Face Care - Value Share
For Periods Ending 5/06/23, YOY (bps)
(197)
(109)
426
(58) (53)
(215)
(130)
414
(55) (54)
(296)
(85)
370
(29) (40)
(400)
(300)
(200)
(100)
-
100
200
300
400
500
KENVUE PROCTER & GAMBLE L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 115: Face Care - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(191)
15
411
11
(236)
(207)
9
419
(10)
(182)
(255)
(8)
433
2
(86)
(300)
(200)
(100)
-
100
200
300
400
500
KENVUE PROCTER & GAMBLE L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Body Care. With a global market share of 6.3% in the mass body care category, KVUE
has a long way to catch up with Beiersdorf, which has the largest global market share of
14.1% in this category according to the Euromonitor data. Turning to brands, Aveeno􀋖s
market share of 2.0% and Johnson􀋖s of 1.2% globally as of 2022 are also far behind in
market share from the #1 brand (Nivea owned by Beiersdorf with market share of 12%)
in this category.
Figure 116: Mass Body Care Global Market Share by Company
14.3% 14.1%
10.3%
9.9%
8.3%
8.7%
6.9%
6.3%
2.0%
3.4%
1.5% 1.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Beiersdorf Unilever Natura&Co Kenvue L'Oréal Procter & Gamble
Source: Euromonitor, J.P. Morgan
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 117: Mass Body Care Global Market Share by Brands
12.0%
4.5%
2.6%
2.3%
2.0%
1.4%
1.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Nivea Vaseline Dove CeraVe
Aveeno Eucerin Olay Johnson's
Source: Euromonitor, J.P. Morgan
For the U.S. alone, the NielsenIQ data for both body lotion and body wash categories, as
part of the analysis for body care in the U.S., show that KVUE􀋖s value share in the body
lotion category has 􀋘improved􀋙 YTD in comparison, while that of body wash has
deteriorated YTD, albeit both categories are losing value share. More specifically,
KVUE lost -87 bps of value share in the four-week period ending 5/6/23 in the body
lotion category, where L􀋖Oreal gained +63 bps during this period) and is an
􀋘improvement􀋙 from losing -224 bps as of PYE, but performance is worse from a year
ago when KVUE slightly lost -9 bps of value share in the four-week period ending
5/7/22. For body wash, in the four-week period ending 5/6/23, the data suggests KVUE
lost -32 bps of value share, while OW-rated PG gained +189 bps during the same
period, and compares to KVUE gaining +38 bps as of PYE. For volume share, KVUE
lost -57 bps in the four-week period ending 5/6/23 in the body lotion category, while
private label gained +81 bps during this period and is an 􀋘improvement􀋙 from KVUE
losing -138 bps as of the four-week period ending 12/31/22. KVUE lost -50 bps of
volume share in the four-week period ending 5/6/23, while OW-rated Procter & Gamble
gained +225 bps of volume share in body wash during the same period, and compares to
KVUE gaining +56 bps in the four-week period ending 12/31/22. Below we show how
both value and volume share performed for the 4, 13, and 52 weeks ending 5/6/23 for
KVUE and some of its competitors for both body lotion and body wash categories.
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 118: Body Lotion - Value Share
For Periods Ending 5/06/23, YOY (bps)
(87)
(74)
63
(18)
(63)
31
(87)
(49)
74
(41)
(70)
30
(100)
44
55
(2)
(54)
5
(120)
(100)
(80)
(60)
(40)
(20)
-
20
40
60
80
100
KENVUE BEIERSDORF AG L'OREAL SA SANOFI UNILEVER
GROUP
PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 119: Body Lotion - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(57)
(24)
23
(11)
(137)
81
(32) (26)
25
(56)
(158)
98
(20)
74
17
(36)
(141)
1
(200)
(150)
(100)
(50)
-
50
100
150
KENVUE BEIERSDORF AG L'OREAL SA SANOFI UNILEVER
GROUP
PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 120: Body Wash - Value Share
For Periods Ending 5/06/23, YOY (bps)
(32)
189
(136)
(281)
(28)
151
(106)
(279)
(12)
142
(52)
(122)
(400)
(300)
(200)
(100)
-
100
200
300
KENVUE PROCTER & GAMBLE COLGATE UNILEVER GROUP
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 121: Body Wash - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(50)
225
(163)
(66)
(28)
151
(106)
(279)
(12)
142
(52)
(122)
(400)
(300)
(200)
(100)
-
100
200
300
KENVUE PROCTER & GAMBLE COLGATE UNILEVER GROUP
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Sun care. KVUE has the third place in global market share (8.2%) according to data
from Euromonitor, far behind Beiersdorf (15.2%) but more comparable with L􀋖Oreal
(8.5%; covered by Celine Pannuti). KVUE competes in the sun care market with brands
including Neutrogena (4.7%), Johnson􀋖s (1.9%), Piz Buin (1.0%), Aveeno (0.5%), and
much smaller Dabao (0.1%).
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 122: Mass Adult Sun Care Global Market Share by Company
14.7%
15.2%
8.8%
9.5% 8.5%
8.2%
6.6%
7.3%
4.3%
3.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Beiersdorf L'Oréal Kenvue Edgewell Kao Corp
Source: Euromonitor, J.P. Morgan
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 123: Mass Adult Sun Care Global Market Share by Brands
10.3%
4.7%
3.5%
2.6%
1.9%
1.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Nivea Banana Boat Garnier Neutrogena
Coppertone L'Oréal Johnson's Piz Buin
Source: Euromonitor, J.P. Morgan
For the U.S. alone, the tracked channel data for the four-week period observed shows
that KVUE􀋖s dollar value share deteriorated YTD but is a big improvement compared to
PY, with KVUE gaining +38 bps in the four-week period ending 5/6/23 (vs. +172 bps as
of PYE but losing -550 bps as of PY). As it relates to volume share, KVUE gained +81
bps in the four-week period ending 5/6/23 (vs. +343 bps as of PYE but losing -310 bps
as of PY). Below we show how both value and volume share performed for the 4, 13,
and 52 weeks ending 5/6/23 for KVUE and some of its competitors.
Figure 124: Suncare - Value Share
For Periods Ending 5/06/23, YOY (bps)
38 39
9
87
36
99
20
(14)
124
(24)
(148)
31
54
82
(33)
(200)
(150)
(100)
(50)
-
50
100
150
KENVUE PROCTER & GAMBLE BEIERSDORF AG L'OREAL SA PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 125: Suncare - Volume Share
For Periods Ending 5/06/23, YOY (bps)
81
16
8
26
42
187
9
(43)
42
(37)
6 11
51
18
(29)
(100)
(50)
-
50
100
150
200
KENVUE PROCTER & GAMBLE BEIERSDORF AG L'OREAL SA PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Essential Health
Our analysis of both Euromonitor (for global performance) and NielsenIQ (for U.S.
performance) tracked channel data for some of the major categories within the Essential
Health segment are laid out below.
Mouthwash. In the mouthwash category, KVUE clearly leads with market share of
35.1% globally, albeit decelerating in recent years, and nearly 3x larger than its closest
competitors – OW-rated Colgate-Palmolive (11.9%) and OW-rated Procter & Gamble
(9.6%). As we mentioned earlier, we believe KVUE has superior science, and the recent
claim of plaque removal 5x better than flossing alone will likely help household
penetration globally and market share improvement.
Figure 126: Mouthwash Global Market Share by Company
36.5%
35.1%
11.6% 11.9%
9.9% 9.6%
4.5% 4.5%
3.1% 3.0%
0.9% 2.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Kenvue Colgate Procter & Gamble Haleon Sanofi Church & Dwight
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 127: Mouthwash Global Market Share by Brands
34.9%
10.1%
5.2%
2.1%
3.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Listerine Colgate Crest Aquafresh
ACT TheraBreath Oral-B Scope
Source: Euromonitor, J.P. Morgan
For the U.S. alone, the NielsenIQ tracked channel data for the four-week period shows
that KVUE􀋖s dollar value share has 􀋘improved,􀋙 albeit negative, through the time line
considered with value share loss of -102 bps for the four-week period ending 5/6/23 (vs.
-344 bps as of PYE and -394 bps as of PY) in the U.S. It is worth noting that UW-rated
Church & Dwight (CHD) has been gaining value share in all three periods, with gain of
+499 bps in the four-week period ending 5/6/23, +375 bps in the four-week period
ending 12/31/22 (PYE) and +203 bps in the four-week period ending 5/7/22 (PY) in the
U.S. as per NielsenIQ, but globally Euromonitor points to market share of 2.6%. As it
relates to volume share, KVUE lost -109 bps in the four-week period ending 5/6/23 (vs.
losing -235 bps as of PYE and -202 bps as of PY), while CHD gained +260 bps in the
four-week period ending 5/6/23 (vs. gaining +181 bps as of PYE and +89 bps as of PY).
Below we show how both value and volume share performed for the 4, 13, and 52
weeks ending 5/6/23 for KVUE and some of its competitors.
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
79
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(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 128: Mouthwash - Value Share
For Periods Ending 5/06/23, YOY (bps)
(102)
(209)
(16)
(48)
(90)
499
(61) (39)
(180)
(51)
(27)
(62)
408
(22)
(256)
(21)
(44)
22
(17)
320
26
(300)
(200)
(100)
-
100
200
300
400
500
600
KENVUE PROCTER &
GAMBLE
COLGATE SANOFI PRIVATE
LABEL
CHURCH &
DWIGHT
HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 129: Mouthwash - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(109)
(71)
6 12
(115)
260
0
(59)
(41)
(25)
1
(108)
210
5
(151)
17
(17)
16
(66)
155
23
(200)
(150)
(100)
(50)
-
50
100
150
200
250
300
KENVUE PROCTER &
GAMBLE
COLGATE SANOFI PRIVATE
LABEL
CHURCH &
DWIGHT
HALEON
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Wound Care. KVUE has the largest global market share in the wound care category
with 19.2%, with a large gap from the next couple of competitors, Beiersdorf (11%) and
3M (5.3%). This is also evident in the brand share analysis as shown below with
KVUE􀋖s Band-Aid well above the others.
Figure 130: Wound Care Global Market Share by Company
19.4% 19.2%
10.7% 11.0%
5.5% 5.3%
3.6% 3.6%
3.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Kenvue Beiersdorf 3M Yunnan Baiyao Paul Hartmann
Source: Euromonitor, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 131: Wound Care Global Market Share by Brands
16.1%
10.8%
2.5%
1.5%
3.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Band-Aid Hansaplast Nexcare Johnson's Dermaplast
Source: Euromonitor, J.P. Morgan
For the U.S. alone, we analyzed the NielsenIQ data for both bandages and antiseptic
categories as part wound care. Within bandages, KVUE lost -72 bps of value share in
the four-week period ending 5/6/23 (vs. flat of -1 bp as of PYE but gaining +181 bps as
of PY) and lost -176 bps of volume share in the four-week period ending 5/6/23 (vs. -
111 bps as of PYE but gaining +260 bps as of PY) in the bandages category. There are
other competitors outside of KVUE􀋖s main peers in the bandages category that we did
not capture in our U.S. analysis. KVUE􀋖s antiseptic category in the U.S. appears to be
much smaller in comparison as per total category sales data from tracked channel. The
company gained +456 bps value share in the four-week period ending 5/6/23 (vs. +418
bps as of PYE and +558 bps as of PY) and +437 bps volume share in the four-week
period ending 5/6/23 (vs. +463 bps as of PYE and +676 bps as of PY). Below we show
how both value and volume share performed for the 4, 13, and 52 weeks ending 5/6/23
for KVUE and some of its competitors for both the bandages and antiseptic categories.
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 132: Bandages - Value Share
For Periods Ending 5/06/23, YOY (bps)
(72)
2
(39)
(20)
(64) (63)
(80)
(70)
(60)
(50)
(40)
(30)
(20)
(10)
-
10
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 133: Bandages - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(176)
181
(127)
138
(143)
(26)
(200)
(150)
(100)
(50)
-
50
100
150
200
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 134: Antiseptic - Value Share
For Periods Ending 5/06/23, YOY (bps)
456
5
(279)
410
(6)
(276)
482
(6)
(400) (319)
(300)
(200)
(100)
-
100
200
300
400
500
600
KENVUE RECKITT PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 135: Antiseptic - Volume Share
For Periods Ending 5/06/23, YOY (bps)
437
51
(338)
396
(13)
(253)
485
(14)
(400) (327)
(300)
(200)
(100)
-
100
200
300
400
500
600
KENVUE RECKITT PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Baby Toiletries. The baby care and child-specific categories point to KVUE having the
largest market share globally, but it appears to be deteriorating with time. Looking
further at the brand data cut, there is a clear deceleration in the global market share for
the Johnson􀋖s brand.
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 136: Baby Care Global Market Share by Company
16.6%
14.4%
6.7% 6.7%
4.4% 4.6%
2.1% 2.1%
1.9% 1.8%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Kenvue Kimberly-Clark Procter & Gamble Beiersdorf Unilever
Source: Euromonitor, J.P. Morgan
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 137: Baby Care Global Market Share by Brands
11.4%
5.9%
4.1%
1.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Johnson's Huggies Pampers Aveeno Nivea
Source: Euromonitor, J.P. Morgan
We analyzed the NielsenIQ data for baby bath, baby lotion, baby oil, baby powder, and
baby soap categories in the U.S., but we note that baby toiletries makes up a smaller part
of KVUE􀋖s business in the U.S. while international geographies are a larger source of
revenues. We have added below value and volume share performance charts for the 4,
13, and 52 weeks ending 5/6/23 for KVUE and some of its competitors.
Figure 138: Baby Bath - Value Share
For Periods Ending 5/06/23, YOY (bps)
408
(23)
46
(68)
(158)
206
(23)
38
(12)
(78) (79)
35 37
2
(13)
(200)
(100)
-
100
200
300
400
500
KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 139: Baby Bath - Volume Share
For Periods Ending 5/06/23, YOY (bps)
244
11 18
(62)
(141)
2
(3)
14
(50)
(29)
(141)
17 11
(8)
(78)
(200)
(150)
(100)
(50)
-
50
100
150
200
250
300
KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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84
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 140: Baby Lotion - Value Share
For Periods Ending 5/06/23, YOY (bps)
(252)
180
12
78
(312)
170
25
93
(273)
94
71
2
(400)
(300)
(200)
(100)
-
100
200
300
KENVUE L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 141: Baby Lotion - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(28)
73
53
172
(140)
69
3
177
(260)
38
(10)
(150)
(300)
(250)
(200)
(150)
(100)
(50)
-
50
100
150
200
KENVUE L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 142: Baby Oil - Value Share
For Periods Ending 5/06/23, YOY (bps)
32
(34)
(137)
(47)
(28)
(100)
(246)
54
(14)
(300)
(250)
(200)
(150)
(100)
(50)
-
50
100
KENVUE UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 143: Baby Oil - Volume Share
For Periods Ending 5/06/23, YOY (bps)
(55)
(28)
(148)
(59)
(24)
(233)
24 27
(391)
(450)
(400)
(350)
(300)
(250)
(200)
(150)
(100)
(50)
-
50
KENVUE UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 144: Baby Powder - Value Share
For Periods Ending 5/06/23, YOY (bps)
1,138
(1,153)
572
(603)
175
(180)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 145: Baby Powder - Volume Share
For Periods Ending 5/06/23, YOY (bps)
1,594
(1,811)
713
(856)
150
(361)
(2,000)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
KENVUE PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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85
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 146: Baby Soap - Value Share
For Periods Ending 5/06/23, YOY (bps)
198
(12)
110
(133)
(74)
102
(38)
93
4
(71)
(104)
32
86
9
(150) (127)
(100)
(50)
-
50
100
150
200
250
KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
Figure 147: Baby Soap - Volume Share
For Periods Ending 5/06/23, YOY (bps)
257
47 54
(32)
(441)
303
24 47 50
(417)
50 64
38
69
(514)
(600)
(500)
(400)
(300)
(200)
(100)
-
100
200
300
400
KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL
4W 13W 52W
Source: NielsenIQ, J.P. Morgan
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
U.S. Pricing, Share and Volume by Category
- Tracked Channels
Figure 148: KVUE Value & Volume Share Change by Key Categories - U.S. (Prior Year-End)
Contribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share
For Periods Ending 12/31/22
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.8% 2.9% 2.6% 4 (0) 31 (18) (21) 3
Allergy 9.3% 9.9% 10.9% 96 120 13 (69) (58) (35)
Antibiotic 2.1% 2.2% 2.4% (169) (130) (118) (282) (245) (254)
Anti-Diarrhea 2.4% 2.4% 2.2% 217 21 170 131 (76) 99
Antiseptic 0.0% 0.0% 0.0% 418 373 394 463 418 411
Baby Bath 2.9% 3.1% 3.3% (18) (27) (324) (15) (19) (374)
Baby Lotion 0.7% 0.7% 0.8% (322) (282) (162) (100) (121) (155)
Baby Oil 0.5% 0.5% 0.6% (33) (72) (402) 286 281 (53)
Baby Powder 0.4% 0.4% 0.5% (107) 58 (104) (101) 2 (188)
Baby Soap 0.9% 1.0% 1.1% 64 11 (303) 532 320 (339)
Bandages 4.1% 4.3% 4.5% (1) (33) 15 (111) (146) 1
Body Wash 2.3% 2.3% 2.3% 38 10 (14) 56 25 15
Body Lotion 3.8% 3.5% 3.2% (224) (192) (68) (138) (96) (2)
Cold & Flu 2.6% 2.1% 1.2% (113) 8 154 (13) (13) 4
Digestive Aid 0.7% 0.7% 0.6% (265) (159) 130 (530) (255) 104
Facial Skin Care 10.1% 10.4% 10.6% (266) (297) (299) (194) (251) (217)
Mouthwash 9.1% 9.5% 9.3% (344) (293) (322) (235) (179) (173)
Pain Relief 20.1% 18.7% 16.3% 75 205 129 48 41 61
Sun Care 6.5% 4.5% 3.8% 172 187 (162) 343 371 30
Weighted Total 81.3% 79.1% 76.4% (45) (18) (80) (32) (51) (70)
YOY $ Share Change (bps) YOY EQ Share Change (bps)
Source: NielsenIQ, J.P. Morgan
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andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 149: KVUE Value & Volume Share Change by Key Categories - U.S. (Prior Year)
Contribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share
For Periods Ending 5/7/22
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.5% 2.5% 2.7% (6) 50 56 5 29 39
Allergy 13.6% 12.4% 10.9% (37) (48) 14 20 15 54
Antibiotic 2.4% 2.4% 2.6% (222) (127) 30 (380) (220) 6
Anti-Diarrhea 2.0% 2.0% 2.1% 165 231 189 176 212 234
Antiseptic 0.0% 0.0% 0.0% 558 286 79 676 356 103
Baby Bath 3.3% 3.6% 3.6% (645) (625) (396) (673) (737) (592)
Baby Lotion 0.8% 0.9% 0.9% (49) (42) (127) (89) 74 23
Baby Oil 0.6% 0.6% 0.6% (540) (579) (207) (124) (230) (132)
Baby Powder 0.5% 0.5% 0.5% (377) (521) (303) (463) (704) (524)
Baby Soap 1.1% 1.1% 1.2% (541) (486) (351) (811) (825) (498)
Bandages 4.2% 4.2% 4.5% 181 213 83 260 282 206
Body Wash 2.2% 2.3% 2.4% (50) (49) (14) (5) (1) 19
Body Lotion 3.0% 3.3% 3.2% (9) (31) 36 16 1 5
Cold & Flu 0.8% 0.8% 0.8% 159 191 333 6 11 18
Digestive Aid 0.5% 0.6% 0.6% 51 136 397 80 175 501
Facial Skin Care 10.1% 11.1% 11.5% (291) (258) (203) (136) (138) (17)
Mouthwash 8.7% 9.3% 9.7% (394) (423) (129) (202) (250) (101)
Pain Relief 15.3% 15.2% 14.7% 76 72 250 72 82 86
Sun Care 6.2% 4.4% 4.1% (550) (505) (426) (310) (322) (255)
Weighted Total 77.8% 77.1% 76.5% (152) (139) (29) (83) (85) (20)
YOY $ Share Change (bps) YOY EQ Share Change (bps)
Source: NielsenIQ, J.P. Morgan
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88
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 150: KVUE Pricing Change by Key Categories - U.S. (Prior Year-End)
Change in Pricing in Latest 4, 13 & 52-Weeks
For Periods Ending 12/31/22
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.8% 2.9% 2.6% 8.7% 8.5% 6.3%
Allergy 9.3% 9.9% 10.9% 11.2% 12.3% 6.7%
Antibiotic 2.1% 2.2% 2.4% 10.6% 11.1% 9.1%
Anti-Diarrhea 2.4% 2.4% 2.2% 11.0% 10.8% 7.8%
Antiseptic 0.0% 0.0% 0.0% 72.0% 68.1% 55.7%
Baby Bath 2.9% 3.1% 3.3% 10.5% 11.5% 12.8%
Baby Lotion 0.7% 0.7% 0.8% 9.1% 10.8% 11.2%
Baby Oil 0.5% 0.5% 0.6% 10.8% 11.0% 9.8%
Baby Powder 0.4% 0.4% 0.5% 13.8% 15.0% 14.3%
Baby Soap 0.9% 1.0% 1.1% 6.3% 11.7% 16.4%
Bandages 4.1% 4.3% 4.5% 11.0% 10.9% 7.3%
Body Wash 2.3% 2.3% 2.3% 5.5% 7.7% 4.3%
Body Lotion 3.8% 3.5% 3.2% 5.9% 7.0% 5.9%
Cold & Flu 2.6% 2.1% 1.2% 36.1% 61.3% 19.2%
Digestive Aid 0.7% 0.7% 0.6% 9.5% 7.4% 5.3%
Facial Skin Care 10.1% 10.4% 10.6% 10.8% 14.0% 10.8%
Mouthwash 9.1% 9.5% 9.3% 9.1% 9.2% 5.3%
Pain Relief 20.1% 18.7% 16.3% 5.2% 14.8% 4.3%
Sun Care 6.5% 4.5% 3.8% -2.4% -5.6% -3.6%
Weighted Total 81.3% 79.1% 76.4% 8.5% 12.3% 6.8%
YOY EQ Price Change (%)
Source: NielsenIQ, J.P. Morgan
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
Figure 151: KVUE Pricing Change by Key Categories - U.S. (Prior Year)
Change in Pricing in Latest 4, 13 & 52-Weeks
For Periods Ending 5/7/22
JOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix
L4W L13W L52W L4W L13W L52W
KVUE
Acid Relief 2.5% 2.5% 2.7% 1.6% 1.2% -0.4%
Allergy 13.6% 12.4% 10.9% 0.4% 1.4% 2.2%
Antibiotic 2.4% 2.4% 2.6% 7.4% 3.6% 0.1%
Anti-Diarrhea 2.0% 2.0% 2.1% 5.1% 4.6% 2.7%
Antiseptic 0.0% 0.0% 0.0% 52.3% 27.4% 5.4%
Baby Bath 3.3% 3.6% 3.6% 7.1% 10.4% 11.0%
Baby Lotion 0.8% 0.9% 0.9% 8.7% 8.7% 8.1%
Baby Oil 0.6% 0.6% 0.6% 7.6% 8.4% 7.7%
Baby Powder 0.5% 0.5% 0.5% 12.9% 14.6% 10.1%
Baby Soap 1.1% 1.1% 1.2% 14.4% 19.0% 11.9%
Bandages 4.2% 4.2% 4.5% 5.1% 3.4% 2.7%
Body Wash 2.2% 2.3% 2.4% 2.6% 2.1% 0.4%
Body Lotion 3.0% 3.3% 3.2% 6.6% 5.2% 9.8%
Cold & Flu 0.8% 0.8% 0.8% 12.4% -2.7% -8.0%
Digestive Aid 0.5% 0.6% 0.6% 0.9% 2.6% 2.9%
Facial Skin Care 10.1% 11.1% 11.5% 4.0% 3.4% 1.3%
Mouthwash 8.7% 9.3% 9.7% 1.6% 2.4% 6.3%
Pain Relief 15.3% 15.2% 14.7% -2.8% -5.1% 6.7%
Sun Care 6.2% 4.4% 4.1% 2.5% 8.4% 12.6%
Weighted Total 77.8% 77.1% 76.5% 2.3% 2.2% 4.8%
YOY EQ Price Change (%)
Source: NielsenIQ, J.P. Morgan
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Investment Thesis, Valuation and Risks
Kenvue (Overweight; Price Target: $29.00)
Investment Thesis
We rate Kenvue (KVUE) Overweight. As the largest pure-play consumer health company
in the world, reaching 1.2 billion consumers daily, KVUE benefits from participating in
large categories where reliability and performance matter for consumers. As such, we highlight five KVUE attributes that underpin our positive view: (1) resilient top-line growth
expected, (2) room for margin expansion, (3) high cash flow conversion and shareholder-
friendly capital allocation, (4) management has a strong background not only with JNJ but with other blue-chip CPGs with solid relationships with key customers, and (5) attractive valuation.
Valuation
Despite the strong share performance since the IPO, we view current valuation as attractive.
Our Dec 2023 target price of $29 is based on a blended average of EV/EBITDA (based on
blended average of HLN, Consumer Health, HPC & Beauty peers) and a DCF based on
perpetual growth method. We assign a 70% weighting to EV/EBITDA as the primary
valuation method embedding 15.1.x EV/EBITDA off our 2024E EBITDA estimate of
$4.0B (implies $27 per share) and 30% weighting to DCF as the secondary valuation method
embedding $32 per share. KVUE currently trades at 15.5x our 2023E EBITDA and was
priced at the IPO at 13.3x our 2023E EBITDA. Risks to Rating and Price Target
We believe the key risks to our OW rating and price target for Kenvue are (1) execution risk
tied to the separation from JNJ, (2) potential talc litigation outside North America, (3)
seasonality of cold & flu and allergy medicines, (4) inflation and supply chain volatility, (5)
risk of trade-down to private label due to deteriorating macroeconomic outlook or pricing
actions (elasticity), and (5) share overhang from JNJ announced intention to de-consolidate KVUE, which may include a spin-off or split-off KVUE shares, leading to potential short-
term excess supply of shares.
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91
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
Kenvue: Summary of Financials
Income Statement - Annual FY21A FY22A FY23E FY24E FY25E
Revenue 15,054 14,950 15,662 16,289 16,973
COGS (6,587) (6,610) (6,800) (7,050) (7,246)
Gross profit 8,467 8,340 8,862 9,239 9,727
SG&A (5,061) (5,000) (5,305) (5,515) (5,659)
Adj. EBITDA 3,810 3,606 3,797 3,983 4,308
D&A - - - - -
Adj. EBIT 3,493 3,310 3,487 3,648 3,957
Net Interest 0 0 (283) (379) (367)
Adj. PBT 3,493 3,310 3,204 3,270 3,589
Tax (731) (676) (739) (761) (843)
Minority Interest - - - - -
Adj. Net Income 2,711 2,589 2,404 2,451 2,693
Reported EPS 1.05 1.08 1.11 1.14 1.27
Adj. EPS 1.40 1.34 1.24 1.27 1.39
DPS 0.00 0.00 0.40 0.81 0.84
Payout ratio 0.0% 0.0% 36.1% 71.3% 65.7%
Shares outstanding 1,935 1,935 1,935 1,935 1,935
Balance Sheet & Cash Flow Statement FY21A FY22A FY23E FY24E FY25E
Cash and cash equivalents 740 1,231 1,014 1,013 981
Accounts receivable 2,074 2,122 2,281 2,370 2,471
Inventories 1,702 2,226 1,957 1,852 1,819
Other current assets 408 294 302 311 317
Current assets 4,924 5,874 5,555 5,546 5,588
PP&E 1,827 1,820 1,927 2,074 2,227
LT investments - - - - -
Other non current assets 21,101 19,586 19,638 19,833 20,300
Total assets 27,852 27,280 27,119 27,453 28,115
Short term borrowings - - - - -
Payables 1,827 1,829 1,853 1,937 2,001
Other short term liabilities 2,224 2,105 2,195 2,290 2,378
Current liabilities 4,051 3,934 4,049 4,227 4,379
Long-term debt 0 0 8,512 8,310 8,122
Other long term liabilities 3,785 3,403 3,403 3,403 3,403
Total liabilities 7,836 7,337 15,964 15,940 15,904
Shareholders' equity 20,015 19,943 11,155 11,513 12,211
Minority interests - - - - -
Total liabilities & equity 27,852 27,280 27,119 27,453 28,115
BVPS 10.34 10.31 5.76 5.95 6.31
y/y Growth (6.3%) (0.4%) (44.1%) 3.2% 6.1%
Net debt/(cash) (740) (1,231) 7,498 7,297 7,141
Cash flow from operating activities 3,077 2,407 2,821 2,953 3,268
o/w Depreciation & amortization 680 599 591 599 597
o/w Changes in working capital (49) (672) 134 99 (4)
Cash flow from investing activities (171) (390) (792) (982) (1,254)
o/w Capital expenditure (295) (375) (417) (482) (504)
as % of sales 2.0% 2.5% 2.7% 3.0% 3.0%
Cash flow from financing activities (2,743) (1,465) (2,247) (1,972) (2,045)
o/w Dividends paid 0 0 (774) (1,571) (1,618)
o/w Net debt issued/(repaid) (7) 14 8,512 (202) (188)
Net change in cash 163 553 (217) (1) (32)
Adj. Free cash flow to firm 2,782 2,032 2,405 2,471 2,763
y/y Growth (26.3%) (27.0%) 18.3% 2.7% 11.8%
Income Statement - Quarterly 1Q23A 2Q23E 3Q23E 4Q23E
Revenue 3,851A 3,947 3,911 3,953
COGS (1,726)A (1,738) (1,666) (1,671)
Gross profit 2,125A 2,209 2,245 2,283
SG&A (1,316)A (1,337) (1,310) (1,343)
Adj. EBITDA 867A 940 1,007 983
D&A - - - -
Adj. EBIT 796A 861 928 903
Net Interest (1)A (90) (96) (95)
Adj. PBT 795A 770 832 808
Tax (150)A (181) (205) (203)
Minority Interest - - - -
Adj. Net Income 630A 574 611 590
Reported EPS 0.29A 0.26 0.28 0.27
Adj. EPS 0.33A 0.30 0.32 0.30
DPS 0.00A 0.00 0.20 0.20
Payout ratio 0.0%A 0.0% 71.0% 73.9%
Shares outstanding 1,935A 1,935 1,935 1,935
Ratio Analysis FY21A FY22A FY23E FY24E FY25E
Gross margin 56.2% 55.8% 56.6% 56.7% 57.3%
EBITDA margin 25.3% 24.1% 24.2% 24.5% 25.4%
EBIT margin 23.2% 22.1% 22.3% 22.4% 23.3%
Net profit margin 18.0% 17.3% 15.4% 15.0% 15.9%
ROE 13.1% 13.0% 15.5% 21.6% 22.7%
ROA 9.5% 9.4% 8.8% 9.0% 9.7%
ROCE 13.1% 13.0% 13.2% 13.9% 14.8%
SG&A/Sales 33.6% 33.4% 33.9% 33.9% 33.3%
Net debt/equity NM NM 0.7 0.6 0.6
P/E (x) 18.8 19.7 21.2 20.8 18.9
P/BV (x) 2.5 2.6 4.6 4.4 4.2
EV/EBITDA (x) 13.3 14.0 15.7 12.7 11.8
Dividend Yield 0.0% 0.0% 1.5% 3.1% 3.2%
Sales/Assets (x) 0.5 0.5 0.6 0.6 0.6
Interest cover (x) - - 13.4 10.5 11.7
Operating leverage 35.2% 756.1% 112.5% 115.6% 201.2%
Revenue y/y Growth 4.1% (0.7%) 4.8% 4.0% 4.2%
EBITDA y/y Growth 0.9% (5.4%) 5.3% 4.9% 8.2%
Tax rate 22.4% 21.8% 25.0% 25.0% 25.0%
Adj. Net Income y/y Growth 0.3% (4.5%) (7.1%) 1.9% 9.9%
EPS y/y Growth 0.3% (4.5%) (7.1%) 1.9% 9.9%
DPS y/y Growth - - - 103.0% 3.0%
Source: Company reports and J.P. Morgan estimates.
Note: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which
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Coverage Universe: Teixeira, Andrea: Becle, S.A.B. de C.V. (CUERVO.MX), Brown-Forman Corp (BFb), Central Garden & Pet (CENTA),
Church & Dwight (CHD), Clorox (CLX), Coca-Cola (KO), Colgate-Palmolive Co (CL), Constellation Brands (STZ), Coty Inc (COTY),
Energizer Holdings (ENR), Hydrofarm (HYFM), Keurig Dr Pepper Inc (KDP), Kimberly Clark Corp (KMB), Molson Coors Beverage Co
(TAP), Monster Beverage (MNST), Newell Brands Inc (NWL), Olaplex (OLPX), PepsiCo (PEP), Primo Water Corp (PRMW), Reynolds
(REYN), The Duckhorn Portfolio (NAPA), The Estee Lauder Cos (EL), The Honest Company (HNST), The Procter & Gamble Company (PG),
e.l.f. Beauty Inc (ELF)
J.P. Morgan Equity Research Ratings Distribution, as of April 01, 2023
Overweight
(buy)
Neutral
(hold)
Underweight
(sell)
J.P. Morgan Global Equity Research Coverage* 47% 38% 15%
IB clients** 47% 44% 34%
JPMS Equity Research Coverage* 46% 41% 13%
IB clients** 66% 65% 53%
*Please note that the percentages might not add to 100% because of rounding.
**Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided
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Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
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