{"page_number": 1, "text": "This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.\nJ P M O R G A N North America Equity Research\n29 May 2023\nInitiation\nKenvue Overweight\nKVUE, KVUE US\n(cid:728)No More Tears(cid:729) as Separation from Parent to Price (26 May 23):$26.30\nAccelerate Growth, FCF, Dividends; Initiate with OW Price Target (Dec-23):$29.00\nWe are initiating coverage of Kenvue (NYSE ticker: KVUE) with an OW rating Beverage, Household & Personal\nand a Dec 2023 price target of $29 (70/30 mix of peer multiples and DCF). As the Care Products\nlargest pure-play consumer health company in the world following its separation Andrea Teixeira, CFA AC\nfrom parent Johnson & Johnson (N-rated by Chris Schott), we view KVUE as (1-212) 622-6735\nuniquely positioned to benefit from consumer mega trends (self-care, aging). We andrea.f.teixeira@jpmorgan.com\nexpect KVUE to deliver resilient growth ahead in large addressable markets (TAM Bloomberg JPMA TEIXEIRA <GO>\n~ $369bn) with iconic brands that form strong consumer connections from birth in Drew Levine, CFA\na portfolio spanning cold, flu, pain, allergy, and smoke cessation OTC medicines, (1-212) 622-0374\ndrew.levine@jpmorgan.com\nskincare, mouthwash, baby care, and wound care, among others. As a stand-alone\nShovana Chowdhury\ncompany, we believe Kenvue board and management will be more focused and\n(1-212) 270-2184\naccountable for the growth and profitability of the business following the\nshovana.chowdhury@jpmorgan.com\nseparation that began in 2019, with significant opportunities to scale in many J.P. Morgan Securities LLC\nadjacencies and markets around the world organically and through tuck-in M&A\n(would be incremental to our estimates and not needed to meet algorithm).\nQuarterly Forecasts (FYE Dec)\n\u2022 Large Categories That Benefit from Wellness Tailwinds and Sustainable Adj. EBITDA ($ mn)\nGrowth Momentum, Even after Lapping COVID Tailwinds. With 10 2022A 2023E 2024E\nQ1 800 867A 968\niconic brands with sales greater than $400M (Neutrogena, Listerine, Tylenol,\nQ2 1,022 940 1,000\nJohnson(cid:726)s Baby, Aveeno, Nicorette, Zyrtec, Band-Aid, Stayfree/Carefree, Q3 971 1,007 1,014\nOGX) as well as over 37 regional brands, KVUE is poised to offer investors at Q4 812 983 1,001\nleast ~4-5% three-year CAGR in organic sales (OSG) , in line with top peers. FY 3,606 3,797 3,983\nWe note that due to supply chain constraints and SKU rationalization, KVUE\nStyle Exposure\nlost share with OSG 3Y CAGR of+3.4% while the broader categories grew\n+4.8%. KVUE still holds solid market shares in key categories and markets,\nand like OW-rated PG, KVUE is still US-centric, which provides room to\nregain share and (cid:728)lift and shift(cid:729) some of the most iconic brands abroad.\n\u2022 Further Margin Expansion Opportunity. KVUE already delivered\nimpressive +200/250 bps GM/EBITDA expansions vs. 2019, outperforming\npeers and despite cost and supply chain challenges. But we still see see KVUE\ngenerating profit growth ahead of sales growth from 2023-2025 with a three-\nyear CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin\nexpansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion)\nand 25.3% in 2021.\n\u2022 Attractive Valuation & Dividend Yield for Best-in-Class Growth\nCompounder. We believe KVUE offers upside to investors at current levels\neven after rallying from IPO price of $22 on May 3. At our $29 Dec 2023 price\ntarget, KVUE will be valued at ~16x EV/EBITDA 24E, which is\napproximately where OW-rated CL trades currently for 2023E (still ~2x\ncheaper than PG). As KVUE builds its track record as a public company (if our\nestimates for solid quarters ahead materialize) and post-potential distribution\nof shares that JNJ owns to current JNJ shareholders, we believe KVUE should\ntrade with the major-league high-quality multinationals that have defensive\nsales, compounding growth, and solid free cash flow conversion.\nSources for: Style Exposure \u2013 J.P. Morgan Quantitative and Derivatives Strategy; all other tables are company data and J.P. Morgan estimates.\nSee page 92 for analyst certification and important disclosures.\nJ.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that\nthe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single\nfactor in making their investment decision.\nwww.jpmorganmarkets.com"}
{"page_number": 2, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nPrice Performance Summary Investment Thesis and Valuation\nInvestment Thesis\nWe rate Kenvue (KVUE) Overweight. As the largest pure-play\nconsumer health company in the world, reaching 1.2 billion\nconsumers daily, KVUE benefits from participating in large\ncategories where reliability and performance matter for\nconsumers. As such, we highlight five KVUE attributes that\nunderpin our positive view: (1) resilient top-line growth\nexpected, (2) room for margin expansion, (3) high cash flow\nconversion and shareholder-friendly capital allocation, (4)\nmanagement has a strong background not only with JNJ but with\nYTD 1m 3m 12m other blue-chip CPGs with solid relationships with key\nAbs - - - - customers, and (5) attractive valuation.\nRel - - - -\nValuation\nCompany Data\nDespite the strong share performance since the IPO, we view\nShares O/S (mn) 1,935\ncurrent valuation as attractive. Our Dec 2023 target price of $29\n52-week range ($) 27.80-25.25\nMarket cap ($ mn) 50,893.83 is based on a blended average of EV/EBITDA (based on blended\nExchange rate 1.00 average of HLN, Consumer Health, HPC & Beauty peers) and\nFree float(%) 10.4%\na DCF based on perpetual growth method. We assign a 70%\n3M - Avg daily vol (mn) -\n3M - Avg daily val ($ mn) - weighting to EV/EBITDA as the primary valuation method\nVolatility (90 Day) - embedding 15.1.x EV/EBITDA off our 2024E EBITDA\nIndex S&P 500\nestimate of $4.0B (implies $27 per share) and 30% weighting to\nBBG BUY|HOLD|SELL -\nDCF as the secondary valuation method embedding $32 per\nKey Metrics (FYE Dec)\nshare. KVUE currently trades at 15.5x our 2023E EBITDA and\n$ in millions FY22A FY23E FY24E FY25E was priced at the IPO at 13.3x our 2023E EBITDA.\nFinancial Estimates\nRevenue 14,950 15,662 16,289 16,973\nAdj. EBITDA 3,606 3,797 3,983 4,308\nAdj. EBIT 3,310 3,487 3,648 3,957\nAdj. net income 2,589 2,404 2,451 2,693\nAdj. EPS 1.34 1.24 1.27 1.39\nBBG EPS - - - -\nCashflow from operations 2,407 2,821 2,953 3,268\nFCFF 2,032 2,405 2,471 2,763\nMargins and Growth\nRevenue growth (0.7%) 4.8% 4.0% 4.2%\nTotal Organic Growth Rate (%) - - - -\nGross margin 55.8% 56.6% 56.7% 57.3%\nEBITDA margin 24.1% 24.2% 24.5% 25.4%\nEBITDA growth (5.4%) 5.3% 4.9% 8.2%\nEBIT margin 22.1% 22.3% 22.4% 23.3%\nNet margin 17.3% 15.4% 15.0% 15.9%\nAdj. EPS growth (4.5%) (7.1%) 1.9% 9.9%\nRatios\nNet debt/EBITDA NM 2.0 1.8 1.7\nROIC - - - -\nROE 13.0% 15.5% 21.6% 22.7%\nValuation\nFCFF yield 4.0% 4.7% 4.9% 5.4%\nDividend yield 0.0% 1.5% 3.1% 3.2%\nEV/Revenue 3.4 3.8 3.1 3.0\nEV/EBITDA 14.0 15.7 12.7 11.8\nAdj. P/E 19.7 21.2 20.8 18.9\nSource: 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\ncomplete or exact.\n2\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 3, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable Of Contents\nSummary of Investment Thesis ........................... 4\nRisks to Rating and Price Target........................... 6\nCompany Description ..................................... 7\nResilient Sales Growth in Large Categories Driven by\nConsumer Mega Trends.................................... 8\nGrowth Strategy Focused on Five Pillars ......................... 10\nBalanced Portfolio Shaped through Strategic\nTransformation............................................ 12\nSelf Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR) ........ 12\nSkin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-YR\nCAGR)...................................................... 14\nEssential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR CAGR)... 15\nMargin Trajectory Improving Post-Strategic Transformation\nand Investments........................................... 18\nFinancial Outlook.......................................... 22\nPath to ~+4% Top Line over Next Few Years with Upside If Elasticities\nHold Up ..................................................... 22\nGross Margins Poised to Improve \u2013 Can Return to 2021 Peak by 2025 .. 26\nPost-2023 Leverage in Middle of P&L to Help Drive Solid Earnings\nGrowth ...................................................... 27\nBalance Sheet, FCF, CapEx................................... 30\nValuation.................................................. 33\nKVUE Deserves Premium to HLN with Potential to Converge to CL Over\nTime........................................................ 33\nBenchmarking Against Peers \u2013 HLN Anchor at Low End, Already at CL\nLevels, PG Aspirational ......................................... 34\nPrice Target Derivation....................................... 37\nMost Recent Point of Sales Trends in the U.S. (NielsenIQ).. 41\nKey Brands POS Performance in the U.S. ........................ 44\nFinancial Statements...................................... 49\nIncome Statement Historical & Estimates......................... 49\nBalance Sheet Historical & Estimates............................ 50\nCash Flow Historical & Estimates............................... 51\nStrong, Global Management Team......................... 52\nGlobal and U.S. Sales and Market Share Trends............ 53\nGlobal Category Market Share............................. 61\nSelf Care ................................................. 61\nSkin Health & Beauty........................................ 69\nEssential Health............................................ 77\nU.S. Pricing, Share and Volume by Category - Tracked\nChannels.................................................. 86\n3\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 4, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nSummary of Investment Thesis\nKenvue (KVUE) As the largest pure-play consumer health company in the world, reaching 1.2 billion\nOverweight consumers daily, KVUE benefits from participating in large categories where reliability\nand performance matter for consumers. As such, we highlight five KVUE attributes that\nunderpin our positive view: (1) resilient top-line growth, (2) room for margin expansion,\n(3) high cash flow conversion and shareholder-friendly capital allocation, (4)\nmanagement(cid:726)s strong background not only with JNJ but other blue-chip CPGs with solid\nrelationships with key customers, and (5) attractive valuation.\n\u2022 Resilient Top-Line Growth in Large Categories. KVUE has strong leadership in\nthree main categories (self-care, skin health & beauty, essential health) that\ncombined represent around $369bn in sales globally. The company boasts a portfolio\nof seven #1 global brands and 37 #1 regional brands, with the top 10 brands above\n$400M in sales. Based on market data, KVUE(cid:726)s largest brands are Neutrogena,\nListerine, Tylenol, and Johnson(cid:726)s baby. Management expects the categories to grow\nat a compounded annual growth rate of 3-4% globally through 2025 and for the\ncompany to drive growth competitive with the market, implying organic growth of\nabout 4%, which we believe is doable and somewhat conservative. Given the strong\nstart of 2023 with 11% organic sales growth (OSG) in Q123, we anticipate that\nKVUE will grow 6% organically this year, but as the company laps pricing, we\nexpect it to decelerate (similar to most peers) to ~4% OSG in the following years.\n\u2022 Accelerating Growth with Innovation, Digital Marketing, Omnichannel\ndistribution... From an innovation standpoint, KVUE spends about 2.5% of sales on\nR&D, introducing products that meet unsolved needs rooted in clinical trials. KVUE\nhas launched roughly 100 new products per annum over the past several years, and\ninnovation introduced over the rolling preceding three-year period has accounted for\nabout $1.5 billion in net sales each year since 2020 (about 10% sales mix). As with\nmost CPGs, KVUE has been directing more of its marketing spend (~9-10% of\nsales) into digital media (about 71% of total in 2022). With that and its increased\nrelationship with key e-commerce retailers, the company was able to grow its online\nsales at a +20% CAGR from 2020 to 2022 to 13% online and double its Skin Health\n& Beauty e-commerce sales. In North America, for example, the digital marketing\nspend accounted for 73% of total marketing spend in 2022, which was up from 59%\nin 2020 and 49% in 2019 and drove a +29% increase in media ROI as of October\n2022 and collective 13 points increase in U.S. household penetration from 2019 to\n2021.The average consumer review on Amazon is 4.6 stars vs. category of 4.4 ,\nincluding Neutrogena, Aveeno, Lubriderm, and Clean & Clear.\n\u2022 \u2026.and Through New Product Adjacencies & Introducing Successful Brands in\nInternational Markets. Despite having many #1 positions, many of the sub-\ncategories are fragmented, as we discuss in the market share analysis later in this\nreport. For instance, Neutrogena is the #1 facial care brand in the U.S. but still the\n#3 facial care brand globally. In the facial cleansing category, Neutrogena is the #3\nbrand in the U.S. among Hispanics and the #2 brand in the U.S. among Millennials.\nIt is also the #1 most reviewed brand in the skin care category on Amazon in 2022.\nThis allows KVUE to build scale behind core priority brands that are not fully\ndistributed in all markets. While KVUE has presence in 165 markets globally, it\nprioritizes eight markets: the U.S. (#1 market), Canada (#3), the U.K. (#5), Germany\n(#7), Brazil (#4), India (#6), Japan (#8), and China (#2). We think the company\ncould follow the CPG playbook of (cid:728)lift-and-shift(cid:729) successful products to additional\n4\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 5, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\ngeographies over time.\n\u2022 Optionality in M&A as KVUE Evaluates Acquisitions to Enhance Core\nPortfolio and Capabilities. The company has undertaken a number of acquisitions\nand divestitures over the past seven years with 15 divestitures and 10 acquisitions\nsince 2016. While not necessary to achieve its growth algorithm, the company plans\nto continue looking at M&A opportunities, although it sounds like management is\nintent on remaining focused squarely on the consumer health space and would be\nlooking more for tuck-in vs. transformational M&A. We expect M&A to be focused\non faster growing, premium categories, as has been the case with recent transactions\n(e.g., Dr.Ci:Labo and Zarbee(cid:726)s). We do not include M&A in our P&L estimates, but\nwe do budget around $500M for M&A in cash flow.\n\u2022 Room for Profitability to Continue to Expand and Lead to Operating Leverage.\nWe expect the reorganization of brands, lower costs, better availability of key raw\nmaterials (shortage of silicone impacted SH&B division), and supply chain\noptimization will lead to better profitability ahead. While there are some\n(cid:728)dis-synergies(cid:729) from the separation (e.g., TSAs and TMAs \u2013 as we discuss below),\nwe expect the phasing out of these expenses to become a tailwind to margins. From\nan EBITDA perspective, however, we do see KVUE generating profit growth ahead\nof sales growth from 2023-2025 with a three-year CAGR of +6.1% vs. top-line\nCAGR of +4.3%, implying EBITDA margin expansion to 25.4% in 2025 from\n24.1% in 2022 (roughly +130 bps expansion) and 25.3% in 2021. For context,\nKVUE has a good track record of 200 bps gross margin and 250 bps EBITDA\nexpansion in the last three years.\n\u2022 Reliable Cash Flow (~100% Conversion in 2023-25). We expect KVUE to\ndeliver>100% FCF conversion (% of adjusted net income) in each of 2023-2025,\nand we model for free cash flow to grow at a three-year CAGR of +11% to $2.8\nbillion in 2025. The free cash flow outlook is supported by solid adjusted EBITDA\ngrowth (as described above) and some tailwind from working capital management\nas inventory normalizes following a step-up in 2022 (more below), which more than\noffsets cash separation costs expected to be incurred from 2023-2025 (around\n$595M post-tax) and some step-up in capital expenditures.\n\u2022 Best-in-Class Dividend Yield. KVUE dividend policy post-IPO will be a quarterly\ndividend of $0.20 per share beginning in 3Q23 (fiscal quarter ending October 1,\n2023), which at the current price of $26.30 implies an annualized dividend yield of\nabout 3.0% (at the IPO price of $22, the annualized dividend yield was closer to\n3.6%). Looking ahead, we expect the company to target an annual dividend payout\nratio of around 55-65% (JPMe 2024E 64%), and we model for 3% dividend growth\nin both 2023 and 2024 as the company targets moderate growth in dividend per\nshare.\n\u2022 Management Has Strong Expertise in Categories, Already Operating\nIndependently for +3 Years. KVUE has a strong, seasoned management team that\nwill benefit from continuity as many of the c-level executive ushered in the strategic\ntransformation beginning in the 2019 time frame through the IPO. Moreover, the\nconsumer segment largely operated independently within JNJ historically, and as\nsuch, even after the separation, the organization should be well positioned to\ncontinue life as a public company. The management team has around 18 years of\nexperience in consumer goods and healthcare on average and is a diverse group\nincluding over 58% women and representing nine different nationalities.\n5\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 6, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nRisks to Rating and Price Target\n\u2022 Execution Risk Tied to the Separation from JNJ. While the separation started in\n2019, KVUE has never operated as a stand-alone company, and there is inherent\nexecution risk tied to the separation from JNJ. The company will operate under\ntransition services and manufacturing agreements ranging from two to five years,\nand there is no guarantee that Kenvue will be able to exit the agreements in a timely\nmanner in order to drive cost savings. Moreover, Kenvue may be unable to\nsuccessfully develop internal systems from an operational, financial, administrative,\nor IT perspective as a stand-alone company or may be unable to successfully source\nnew manufacturing for regulated OTC products that are currently being produced by\nJNJ under the TMAs. Currently, the TMA covers certain SKUs of Tylenol, Motrin,\nBenadryl, and others that account for less than 10% of KVUE sales.\n\u2022 Potential Talc Litigation outside North America. Kenvue could be subject to talc-\nrelated litigation outside the U.S. and Canada relating to claims that talc causes\ncancer. We note that JNJ released a statement on April 27: (cid:728)As unequivocally and\nunambiguously stated, Johnson & Johnson has agreed to retain all the talc-related\nliabilities and indemnify Kenvue for any and all costs \u2013 arising from litigation in the\nUnited States and Canada.(cid:729) While our understanding is that there are currently only\na few active claims relating to talc outside North America, the company has not\ntaken any reserves against these claims, and there could be additional lawsuits in the\nfuture exposing KVUE to talc-related liabilities. On April 5, JNJ proposed an $8.9\nbillion settlement to resolve about 60,000 talc claimants in the U.S.\n\u2022 Seasonal Factors Could Impact Performance of Some OTC Products. Kenvue(cid:726)s\nSelf Care business as of 2022 represented 40% of sales and 53% of segment-level\noperating income and over the past three years generated 90% of KVUE(cid:726)s organic\ngrowth. The segment has benefitted from tailwinds to its pain relief and cold and\ncough businesses from various waves of the COVID-19 pandemic and recent\n(cid:728)triple-demic(cid:729) (COVID-19, RSV, flu). Additionally, the company has exposure to\nseasonal allergy trends. If upcoming cold, cough, and flu and/or allergy seasons are\nmore mild than expected, there could be downside risk to estimates.\n\u2022 Inflation and Supply Chain Volatility May Impact Cost Outlook. As with other\nconsumer products companies, Kenvue over the past two plus years has had to\nnavigate significant inflationary cost pressures and a challenging supply chain\nenvironment. Ingredient, packaging, transportation, and labor shortages have\nimpacted service levels, product availability, and KVUE profitability, and while the\ncost and supply chain environment appears to be improving, inflationary cost\npressures persist and the supply chain environment could again worsen.\n\u2022 Consumer Demand May Weaken in Response to Macroeconomic Environment\nor Pricing Actions. While elasticities thus far have held up better than historically\nin response to material pricing actions undertaken by the company beginning in\n2H22, a deterioration in the macroeconomic environment or higher sensitivity to\nincremental pricing actions may dent consumer demand for Kenvue(cid:726)s products. In a\nsofter macroeconomic environment, consumers may choose to trade down to private\nlabel products or other lower priced branded offerings.\n\u2022 Distribution of KVUE Shares by JNJ Could Put Pressure on KVUE Share\nPrice. Following Kenvue(cid:726)s IPO, JNJ still owns approximately 89.6% of KVUE\nshares. JNJ intends to effect a tax-free distribution of KVUE shares, which would\n6\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 7, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nentail lowering its ownership stake to below 20%. If JNJ decides to pursue a\ndistribution of its KVUE shares, there could be selling pressure on the stock\ndepending on the structure of the distribution or discount implied by a share\nexchange offering.\nCompany Description\nKenvue Inc. (KVUE) is the largest pure-play consumer health company in the\nworld with a history dating back over 135 years and a presence in over 165\ncountries with an estimated 1.2 billion people utilizing the company(cid:726)s products\ndaily. Kenvue(cid:726)s portfolio includes a number of iconic brands including Tylenol,\nListerine, Band-Aid, Johnson(cid:726)s, Neutrogena, Aveeno, Zyrtec, and Nicorette, among\nothers. The company boasts 10 brands that generated over $400 million in annual\nnet sales in 2022, and seven of its brands hold leading positions across global\ncategories. All in, Kenvue generated roughly $15 billion in sales and $3.6 billion\nEBITDA in 2022. The company operates three segments, Self Care (40% of 2022\nsales), Skin Health & Beauty (29% of 2022 sales), and Essential Health (31% of\n2022 sales), and by geographic region the company generates roughly 50% of sales\nin North America, 21% of sales in Europe, the Middle East & Africa, 21% of sales\nin Asia Pacific, and 8% of sales in Latin America. Kenvue owns 25 in-house\nmanufacturing sites in addition to seven manufacturing sites under transition\nmanufacturing agreements and employs more than 22,000 people globally.\nPrior to its IPO on May 3, 2023, Kenvue operated as the Consumer Health\nBusiness of Johnson & Johnson (JNJ), and following the offering JNJ holds a\nroughly 89.6% stake in the company. J.P. Morgan acted as a lead book-running\nmanager for Kenvue(cid:726)s initial public offering.\nTable 1: EV/EBITDA Valuation vs. Key Comps - Full Table in Valuation Section\nEV/EBITDA FCF Yield\nTicker 2023E 2024E 2023E 2024E\nKVUE 15.5x 14.7x 4.8% 4.9%\nHLN 14.0x 13.3x 5.0% 5.7%\nPG 17.8x 16.7x 4.5% 4.7%\nCL 15.8x 14.7x 4.0% 4.5%\nRKT 13.4x 12.7x 5.4% 6.1%\nCHD 19.4x 18.3x 3.0% 3.7%\nSource: Bloomberg Finance L.P and J.P. Morgan estimates.\nFigure 1: Select KVUE Brands\nSource: Company reports.\n7\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 8, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nResilient Sales Growth in Large Categories\nDriven by Consumer Mega Trends\nKenvue is the largest pure-play company in the Consumer Health sector with 135+\nyears of history and a portfolio of iconic and trusted brands (science-backed, healthcare\nprofessional recommendations) that many consumers are introduced to at a young age or\nwhen they(cid:726)re most vulnerable (e.g., provided to you when you(cid:726)re not doing well by\nsomeone that cares for you \u2013 like for a cut or an illness).\nThe company(cid:726)s portfolio is split into three segments: Self Care (40% of 2022 sales),\nSkin Health & Beauty (29% of 2022 sales), and Essential Health (31% of 2022 sales).\nAll told, the categories in which KVUE competes represent a $369 billion market\nglobally that has grown at a three-year CAGR of +4.8% from 2019-2022 (or +3.5%\nfrom 2018-2021 vs. overall CPG sector growth of around +3.1% over the same time\nperiod).\nFigure 2: KVUE 2019 Revenue Mix Figure 3: KVUE 2022 Revenue Mix Figure 4: KVUE 2025E Revenue Mix\n2019 Self Essential 2022 Self Essential 2025E Self\nEssential Care, Health, Care, Health, Care,\nHealth, 34.2% 33.6% 30.6% 40.3% 28.7% 41.7%\nSkin Skin Skin\nHealthH &e alth & Health & Health &\nBeauty, , Beauty, Beauty,\n32.2% 29.1% 29.7%\nSource: Company reports. Source: Company reports. Source: J.P. Morgan estimates.\nFigure 5: KVUE Category Sales Mix Figure 6: KVUE Geographic Sales Mix\n% of FY22 Sales % of FY22 Sales\nOTHER ESSENTIAL COUGH, COLD AND LATIN AMERICA, 8%\nHEALTH (WOMEN'S ALLERGY, 12%\nHEALTH AND\nWOUND CARE), 11% PAIN CARE, 11%\nOTHER SELF CARE ASIA PACIFIC,\nBABY CARE, 10% (DIGESTIVE HEALTH, 21% NORTH AMERICA,\nSMOKING 50%\nCESSATION AND\nORAL CARE, 11% OTHER), 15%\nHAIR, SUN AND FACE AND BODY EMEA, 21%\nOTHER, 8% CARE, 22%\nSource: Company reports. Source: Company reports.\n8\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 9, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nBottom up, the company(cid:726)s $369 billion TAM consists of:\n\u2022 $114 billion in Self Care categories (e.g., analgesics, gastrointestinals,\ndermatologicals, cough & cold, lifestyle CHC, allergy, eye care, smoking control)\n\u2022 $217 billion in Skin Health & Beauty categories (e.g., conditioners and treatments,\nhair loss treatment, shampoos, medicated shampoos, skin care, adult sun care)\n\u2022 $38 billion in Essential Health categories (e.g., baby and child products ex-wipes,\nmouthwash/dental rinses, sanitary protection ex-U.S./Canada/China, wound care)\nFigure 7: KVUE TAM Build Figure 8: TAM Mix by Category vs. KVUE Revenue Mix\n$ bn\n$400 $369 70%\n$350 $38 59%\n60%\n$300\n$250 50% 40%\n$200 $217 40% 31% 29% 31%\n$150 30%\n$100 20% 10%\n$50 $114 10%\n$0 0%\nSelf Care Skin Health & Beauty Essential Health Total Self Care Skin Health & Beauty Essential Health\n% of TAM % of KVUE 2022 Sales\nSource: Company reports. Source: Company reports.\nGrowth across the categories has been broad based over the past three years with a\n+MSD% CAGR including +6.2% in Essential Health categories, +5.1% in Self Care\ncategories, and +4.5% in Skin Health & Beauty categories, although we note that the\ncategory growth rates over the past few years were impacted by pandemic-related\ntailwinds and more recently pricing actions from inflationary cost pressures. Typically\n(as we detail later), Essential Health categories grow slower relative to Skin Health &\nBeauty (fastest growing) \u2013 albeit KVUE was negatively impacted in this segment by\nself-inflicted SKU rationalization \u2013 and Self Care (slightly below Skin Health &\nBeauty).\nFigure 9: Category Sales CAGR - Each Category CAGR Accelerated vs. Historical Trend\n7% 6.2%\n6% 5.1%\n4.8%\n5% 4.5%\n4% 3.4% 3.6% 3.5%\n3.0%\n3%\n2%\n1%\n0%\nSelf Care Skin Health & Beauty Essential Health Total\nCAGR '18-'21 CAGR '19-'22\nSource: Company reports.\nWe view KVUE(cid:726)s category exposure as a sweet spot in CPG at the intersection of\nhealthcare and consumer goods \u2013 both with long-term secular tailwinds that should lead\nto consistent +3-4% growth globally through 2025. At a high level from a category\nperspective, growth should be enabled by increased focus on health by consumers and\nretailers alike, which was accelerated by the pandemic era, aging population and rising\nmiddle class globally, premiumization, and digitization.\n9\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 10, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nGrowth Strategy Focused on Five Pillars\nKVUE aims to grow the top line competitively with its underlying category exposure\n(+3-4%) driven largely by reinvesting behind its iconic core brands and supplementing\nwith expansion into new category adjacencies and geographies and bolt-on M&A\nfocused on consumer health.\nThe company is primarily focusing its investments behind its top 15 global brands\n(Tylenol, Zyrtec, Rhinocort, Motrin, ORSL, Benadryl, Nicorette, Zarbee(cid:726)s, Aveeno,\nNeutrogena, Dr.Ci:Labo, OGX, Johnson(cid:726)s, Listerine, Band-Aid) and eight priority\nmarkets (U.S., Canada, U.K., Germany, Brazil, India, Japan, China) where it sees the\ngreatest opportunity for growth ahead with long runway.\nBelow, we outline our view on KVUE(cid:726)s growth strategies and thoughts on the\ncompany(cid:726)s prospects.\n1. Grow Brand Relevance and Salience\nThe biggest driver for long-term growth is likely to be household penetration and\nincidence opportunity as even KVUE(cid:726)s largest brands have significant usage gaps.\nRelevance and salience to consumers should be enabled by marketing campaigns\n(predominately digital-focused at this point \u2013 more below) and continued focus on\nclinical claims and working with healthcare professionals to secure recommendations\n(also applicable to innovation).\nFor example, in the pain relief category in the U.S. there are 4.5x more consumers using\nsome form of non-steroidal anti-inflammatory drugs (NSAIDs) vs. consumers\nexclusively using acetaminophen (generic name for Tylenol); in skin care there are 2.7x\nmore consumers who suffer from sensitive skin vs. sensitive product contribution to the\nbody care category in the U.S.; and in oral care household penetration for mouthwash is\n1.8x higher in the U.S. and U.K vs. larger markets in ROW (e.g., Spain, Italy, France,\nChina, Japan, Thailand, Indonesia, Philippines). See deep-dive analysis in the back of\nthis report for market sizes, household penetration, and market share globally and in the\nmost relevant countries and categories.\nFigure 10: 4.5x More Consumers in U.S. Use Figure 11: 2.7x More Consumers Have Figure 12: Household Penetration Opportunity\nSome Form of Pain Care vs. Acetaminophen Sensitive Skin vs. Sensitive Skin Product in Mouthwash\nAlone Share of Body Care\n118M 71% 50%\n29%\n26%\n26M 15%\nConsumers with certain medical conditions exclusively usingConsumers with certain medical conditions using some form Sensitive skin product contribution to body care category in Suffer from sensitive skin in the U.S.\nacetaminophen in the U.S. of pain relief in the U.S. the U.S. Household penetration in China Household penetration in Japan Household penetration in U.S. and U.K.\nSource: Nielsen Homescan Panel. Source: Aveeno State of Skin Sensitivity Report. Source: Company reports.\n2. Increase Product Availability through Omnichannel Strategy\nThe largest areas of opportunity are to expand presence in pharmacy and e-comm, in our\nview. In retail, the opportunity is for incremental shelf space gains as retailers devote\nmore space to consumer health categories with KVUE well positioned to gain share\ngiven its scale, market share position, and investments behind marketing and consumer\ninsights, in addition to deeper penetration in the faster growing pharmacy channel in\nEMEA, India, and China (APAC is ~21% of sales, and China and India combined are\naround 50% of APAC sales with China the #2 market globally and India the #6 market\n10\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 11, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nglobally for KVUE). KVUE(cid:726)s e-commerce opportunity is largely consistent with the rest\nof CPG as KVUE(cid:726)s sales mix to pure-play e-commerce is around 6%, which about\ndoubles to 13% when including retail.com. Looking from 2020-2022, KVUE(cid:726)s e-\ncommerce sales grew at a roughly +20% CAGR. KVUE is aiming to increase product\navailability in the e-commerce channel and increased investment in digital marketing\nover the past few years to help accelerate e-commerce mix; for example, 71% of\nKVUE(cid:726)s marketing spend was on digital in 2022, up from 44% in 2019. The company is\nalso expanding in the DTC channel with brands like Dr.Ci:Labo (63% of sales in Japan\nDTC in 2022), although it is still early days.\n3. Deliver Consistent Cadence of Consumer-Centric Innovation\nThe company(cid:726)s innovation strategy is centered on elevating the core brands, enhancing\nthe consumer experience, and solving for unmet needs. The company(cid:726)s innovation\nagenda is supported by 1,500 dedicated R&D employees (R&D is ~2.5% of KVUE\nsales, which is above the peer average of ~2.0%); over the past several years the\ncompany has launched roughly 100 new products per annum, and innovation introduced\nover the rolling preceding three-year period has accounted for about $1.5 billion in net\nsales each year since 2020 (about 10% sales mix).\nThe company(cid:726)s innovation leverages its relationships with healthcare professionals and\nalso relies on clinical claims. Recent examples include: 1) Listerine rolling out claims\nthat the product reduces 5x more plaque above the gumline vs. flossing; 2) Children(cid:726)s\nZyrtec Oral Chewables and Dissolve Tabs and Tylenol Dissolve Packs for adults and\nchildren who find it difficult to swallow pills; 3) Neutrogena Rapid Firming Peptide\nContour Lift Face Cream, which contains an anti-aging ingredient (acetyl dipeptide)\ndesigned for sensitive skin; 4) sustainable packaging solutions that reduce plastic\nincluding Neutrogena Hydro Boost refillable pods, Aveeno Body Wash refill packs, and\nListerine concentrate kits; and 5) Aveeno Calm + Restore focused on the underserved\nsegment of consumers with sensitive, extra-dry skin.\n4. Expand into New Product Adjacencies and Geographic Markets\nThe company is in 165 markets globally but prioritizes eight markets: the U.S. (#1\nmarket), Canada (#3), the U.K. (#5), Germany (#7), Brazil (#4), India (#6), Japan (#8),\nand China (#2). Back to the Listerine example, there is still has a significant household\npenetration opportunity as the overall United States mouthwash category penetration\nrate was only 50% as of December 2022, while in APAC, category penetration was only\n29% in Japan and 15% in China, each as of 2022.The company does plan for growth\noutside of these markets as well but will generally look to build scale behind core\npriority brands and then expand portfolio offerings or enter adjacencies by leveraging\npriority brands. The company gave the example of launching Aveeno in Indonesia,\nMalaysia, and the Philippines, and we think the company could follow the CPG\nplaybook of (cid:728)lift-and-shift(cid:729) successful products to additional geographies over time.\n5. Continually Evaluate Acquisitions to Enhance Core Product Portfolio and\nCapabilities\nThe company has undertaken a number of acquisitions and divestitures over the past\nseven years with 15 divestitures and 10 acquisitions since 2016. While not necessary to\nachieve its growth outlook, the company plans to continue looking at M&A\nopportunities, although it sounds like management is intent on remaining focused\nsquarely on the consumer health space and would be looking more for tuck-in vs.\ntransformational M&A. We expect M&A to be focused on faster growing, premium\n11\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 12, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\ncategories, as has been the case with recent transactions (e.g., Dr.Ci:Labo and Zarbee(cid:726)s).\nBalanced Portfolio Shaped through Strategic\nTransformation\nSelf Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR)\nSelf Care is KVUE(cid:726)s largest segment with $6.0 billion in sales (~40% of FY22 sales)\nand $2.1 billion in adjusted operating income (34.6% margin and 53.4% of KVUE\nsegment-level adjusted OI). Categories represented in Self Care primarily include\ncough, cold and allergy, pain care, digestive health, and smoking cessation. Key brands\ninclude Tylenol, Nicorette, Zyrtec, Motrin, Rhinocort, Benadryl, Zarbee(cid:726)s, ORSL, and\nImodium.\nFigure 13: Self Care 40% of Revenues and 53% of Segment OI Figure 14: Self Care Category Revenue Mix\n% of FY Sales\n100% 100%\n90%\n90% 80% 37.6% 35.5%\n80% 70%\n70% 60%\n60% 50% 26.7% 32.2%\n50% 40%\n40% 30%\n30% 40% 53% 20% 35.7% 32.2%\n20% 10%\n0%\n10%\n2019 2022\n0%\n% of FY22 Sales % of FY22 Segment OI COUGH, COLD AND ALLERGY PAIN CARE OTHER SELF CARE\nSource: Company reports. Source: Company reports.\nSelf Care Has Been the Key Driver of KVUE(cid:726)s Improved Sales Trajectory in L3Y\nSelf Care has been aided by tailwinds from COVID and recent (cid:728)tripledemic(cid:729) (RSV, flu,\nCOVID) and resulting increased consumer focus on health (e.g., increased smoking\ncessation attempts during the pandemic). In fact, from 2020-2022 Self Care drove ~91%\nof KVUE(cid:726)s organic sales growth with the segment posting a 3Y CAGR of +8.6%\nrelative to total company 3Y CAGR of +3.4%. Within the Self Care +8.6% 3Y CAGR,\nvolume growth contributed about 6.3% to the organic CAGR with price/mix\ncontributing about +2.5%. Impressively, the company(cid:726)s 3Y CAGR has remained\nresilient sequentially through most of 2022 and even accelerated in 1Q23 behind higher\nincidence of cold and flu in EMEA and inventory replenishment at retail.\nFigure 15: Self Care Organic Growth Trends and Outlook Figure 16: Self Care 2022/2023E Organic Growth by Halves\n12% 14%\n10% 12% 1.4%\n8% 1.9% 4.1% 10 8%% 7.3%\n6.6%\n46% 1.5% 6.4% 1.5% 246 %%% 10.9%\n% 7.5% 7.0% 2.4% 3.7% 4.5% 5.4%\n2% 4.4% 1.7% 2.2% 0% -0.9%\n0% 3.3% -2%\n2020 2021 2022 2023E 2024E 2025E 1H22 2H22 1H23E 2H23E\nVolume Price/Mix % volume % price/mix\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\n12\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 13, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFollowing a strong three years of growth, which some could argue would have been\neven stronger if not for supply chain challenges on Tylenol, and outlook for a fourth\nstrong year in 2023, we see the biggest question facing the segment as whether KVUE\nwill be able to (cid:728)comp the comp(cid:729) and deliver on roughly +4.7% organic growth post-\n2023 as the inflationary environment normalizes and the company contends with\nlapping years of strong tailwinds to pain care and cough, cold & flu. That is, the\nquestion is whether the category growth trends normalize to historical growth levels or\nhave a reversion to the mean. While acknowledging the vagaries of virus/allergy\nseasonal trends, there are a number of drivers both at the macro and company-level that\nprovide a pathway to solid, albeit more normalized growth ahead.\nGrowth Is Not Only Driven by the Pandemic...\nIn pain care, KVUE should see ongoing tailwinds from deeper penetration for its brands\ngiven unmet medical needs of consumers and wide gap between the number of\nconsumers using some form of pain relief vs. those using acetaminophen (active\ningredient in Tylenol) exclusively (i.e., some consumers using NSAIDs or a\ncombination of sometimes NSAIDs/sometimes acetaminophen). As we noted above, in\nthe U.S. there are roughly 26M consumers with chronic health conditions using\nexclusively acetaminophen vs. 118M consumers with chronic health conditions using\nsome form of pain relief (i.e., NSAIDs or dual-users of NSAIDs or acetaminophen). We\nexpect the company to prioritize the opportunity for household penetration and usage\nexpansion in North America (usage gap vs. overall pain care) and APAC (middle class\nbecoming more open to Western medicine) over the next few years. There should also\nbe growth opportunity through form factor extensions that provide ease of use/\nconvenience for consumers (e.g., dissolvable tablets) and line extensions targeted at\nspecific indications (e.g., arthritis, back pain).\n...Strong Growth in Allergy Medicines Proves Power of Brand Equity and\nInnovation\nIn allergy, KVUE should benefit long term from increasing allergy incidence (e.g.,\nnumber of allergy days per season has grown by over 20 days from 1990-2018 given\nimpacts from factors like climate change, and pollen concentration has increased 21%\nover the same period) and penetration in the U.S. (through Zyrtec) and China (through\nRhinocort). Like in pain care, we also expect form factor extensions to aid in driving\ngrowth; for example, the company introduced Children(cid:726)s Zyrtec Chewables to enhance\nthe consumer experience and drive adoption given challenges many children have with\nswallowing pills. This innovation helped to drive accelerated category growth for\npediatric allergy (U.S. growth accelerated 5x for 2H22) with Zyrtec the #1 brand in\npediatric allergy.\nSmoke Cessation Benefits from Self-Care Tailwinds Prior to the Pandemic and\nAccelerated Post COVID-19\nIn other self-care categories, KVUE should see continued benefit from quit attempts in\nsmoking cessation supported by new scientific claims, products (e.g., Nicorette\nQuickMist and app), and marketing campaigns (e.g., (cid:728)Do Something Incredible(cid:729)\ncampaign drove 74% improvement in media ROI and 2.6 points of market share gains\nglobally), as well as potential entry into vaping cessation. The company also plans to\nselectively invest to drive growth in digestive health through ORSL.\n13\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 14, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nSkin Health & Beauty (29% of Sales, 18% of OI, OSG +0.1% 3-\nYR CAGR)\nSkin Health & Beauty ((cid:728)SHB(cid:729)) generated sales of $4.4 billion in 2022 (~29% of FY22\nsales) and $0.7 billion in adjusted operating income (16.3% margin and 18.1% of\nKVUE segment-level adjusted OI). Categories represented in SHB primarily include\nface and body care, hair care, and sun care, and key brands include Neutrogena, Aveeno,\nOGX, Dr.Ci:Labo, Le Petit Marseillais, Lubriderm, Rogaine, Dabao, and Clean & Clear.\nFigure 17: Skin Health & Beauty 29% of Revenues and 18% of Segment Figure 18: Skin Health & Beauty Category Revenue Mix\nOI % of FY Sales\n100% 100%\n90% 89 00 %% 25.4% 31.3%\n80% 70%\n70% 60%\n60% 50%\n45 00 %% 34 00 %% 74.6% 68.7%\n30% 20%\n20% 29% 18% 10%\n0%\n10%\n2019 2022\n0%\n% of FY22 Sales % of FY22 Segment OI FACE AND BODY CARE HAIR, SUN AND OTHER\nSource: Company reports. Source: Company reports.\nFlat OSG Performance in Last 3 Years Ending 2023, Due to Supply Chain\nConstraints...\nDespite the category growing at a +4.5% CAGR from 2019-2022, KVUE(cid:726)s SHB\nsegment has underperformed (3Y CAGR through 2022 just +0.1%) as the business\nsuffered through supply chain challenges that seemed to have a greater impact relative\nto competitors, partially attributable to KVUE(cid:726)s exposure to sun care, which went\nthrough challenges last year given silicone shortages, in addition to impacts from lost\nusage occasions during the COVID pandemic (also impacted competitors). With that,\nover the past three years SHB essentially contributed nothing to KVUE(cid:726)s organic\ngrowth, and as of 2022, SHB volumes still stood around 3% below 2019 levels.\n\u2026 Turning the Corner Accelerating to MSDs OSG in 2H22 and Low Teens in 1Q23\nThat said, KVUE appears to be turning a corner more recently in top-line trajectory\n(albeit against a low bar) as the company undertook actions to streamline its supply\nchain and build resilience (in addition to general easing of supply chain situation\nglobally). Specifically, 2H22 organic growth in the segment came in at +5.3% (+MSD%\nin each of 3Q/4Q) vs. a -4.0% organic growth decline in 1H22, implying a 3Y CAGR in\n2H22 of +1.5% vs. -0.8% in 1H22. Momentum has continued thus far in 1Q23 with\norganic growth of +13.2%, and the segment seems to be on stronger footing now to take\nadvantage of favorable secular trends in the categories of body, face, and sun care.\n14\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 15, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 19: Skin Health & Beauty Organic Growth Trends and Outlook Figure 20: Skin Health & Beauty 2022/2023E Organic Growth by Halves\n10% 12%\n8% 10%\n8%\n6% 1.8% 6% 8.4%\n4% 7.9% 2.6% 4% 4.1% 7.4%\n2% 20 .. 36 %% 2.8% 2.5% 02% % 1.6% 1.1% 1.0%\n-20% % -0 3.8 .3% % -2.3% -2.1% 3.5% --- 642 %%% -5.6% -5.1%\n-4% -8%\n2020 2021 2022 2023E 2024E 2025E 1H22 2H22 1H23E 2H23E\nVolume Price/Mix % volume % price/mix\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\nWith a favorable setup that should benefit from reopening, lapping a low comparison\nbase, and recent innovation, the company should be able to deliver >+5% organic\ngrowth over the next three years and drive one-third of the company(cid:726)s organic growth\n(vs. just 1% from 2020-2022). Supporting the top-line outlook is execution against\ninnovation and marketing with larger focus on Neutrogena Hydro Boost in face care,\nsun care innovation (both Neutrogena and Aveeno), and more focus on body care with\nAveeno Calm + Restore for sensitive skin. The company is likely also to push more on\ngrowth in the APAC region through its recent acquisition of dermocosmetic brand Dr.\nCi:Labo (acquired in 2019) in the prestige segment (dermocosmetics growing 2x\ncategory rate) and Dabao ((cid:728)local jewel(cid:729) brand) in the mass segment (64% share of\ncategory). In hair care, OGX has seen strong performance in the premium segment in\nthe U.S., and the company should also benefit from growth in the hair re-growth\ncategory with Rogaine.\nThe biggest question ahead for SHB, in our view, is simply that the company hasn(cid:726)t\ndemonstrated an ability to generate consistent top-line growth and take advantage of the\nsecular tailwinds to the categories. That said, with improving supply chain situation,\nreinvestment behind marketing, and innovation, we do see a path to +MSD% in the\nyears ahead.\nEssential Health (31% of Sales, 28% of OI, OSG +0.9% 3-YR\nCAGR)\nEssential Health generated sales of $4.6 billion in 2022 (~31% of FY22 sales) and $1.1\nbillion in adjusted operating income (24.3% margin and 28.4% of KVUE segment-level\nadjusted OI). Categories represented in Essential Health primarily include oral care,\nbaby care, women(cid:726)s health, and wound care, and key brands include Listerine, Johnson(cid:726)s\nBaby, Stayfree / Carefree, Band-Aid, Neosporin, and o.b.\n15\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 16, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 21: Essential Health 31% of Revenues and 28% of Segment OI Figure 22: Essential Health Category Revenue Mix\n% of FY Sales\n100% 100%\n90%\n90% 80% 32.7% 34.6%\n80% 70%\n70% 60%\n60% 50% 35.1% 32.7%\n50% 40%\n40% 30%\n30% 20% 32.2% 32.7%\n20% 31% 28% 10%\n0%\n10%\n2019 2022\n0%\n% of FY22 Sales % of FY22 Segment OI ORAL CARE BABY CARE OTHER ESSENTIAL HEALTH\nSource: Company reports. Source: Company reports.\nEssential Health has been the main area of focus of KVUE(cid:726)s transformation over the\n2019-2022 period when the new management team came in with a focus on active\nportfolio management and simplification and margin improvement. Specifically, since\n2019 the segment has seen a -$100M headwind from divestitures (around 2% of 2019\nsales) and another -$100M headwind from SKU rationalization. With that, the segment\nhas underperformed the category CAGR of +6.2% from 2019-2022 with organic growth\nCAGR of +0.9% from 2020-2022 and volumes ending 2022 over 5% lower vs. 2019.\nWith a lot of the portfolio cleanup now in the past, the segment should be able to return\nto growth more consistent with historical levels, aided by significant pricing actions\nwith modest elasticity and a couple of key marketing campaigns behind core brands\nListerine and Aveeno Baby. We model for Essential Health to grow +3.4% in 2023 and\nthen grow at a 2Y CAGR of +2.2% in 2024-2025.\nFigure 23: Essential Health Organic Growth Trends and Outlook Figure 24: Essential Health 2022/2023E Organic Growth by Halves\n10.0% 10%\n8.0% 8%\n6.0% 6%\n24 .. 00 %% 2.2% 1.4% 4.9% 8.9% 1.6% 0.8% 24% % 3.2% 6.7% 9.2% 8.5%\n0.0% 0.3% 0.6% 0.6% 1.6% 0%\n-- 42 .. 00 %% -6.2% -5.5% -- 42 %% -5.9% -6.6% -6.0% -5.0%\n-6.0% -6%\n-8.0% -8%\n2020 2021 2022 2023E 2024E 2025E 1H22 2H22 1H23E 2H23E\nVolume Price/Mix % volume % price/mix\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\nThe company sounds particularly optimistic around Listerine given the category\npenetration opportunity and marketing of new scientific claims. We noted before that\nmouthwash penetration is 1.8x higher in the U.S. and U.K. vs. other larger markets in\nROW, and the company is rolling out claims from a scientific study that Listerine is 5x\nmore effective at destroying plaque above the gum line vs. flossing (has led to 5 point\nincrease in share of healthcare professionals recommending Listerine to 63%).\nThe +LSD% top-line outlook for the segment appears reasonable, in our view, given the\nmature categories in which KVUE competes in the segment, although we note that\nKVUE(cid:726)s market share trends have been quite challenged over the past couple years,\nwhich management attributes in part to the SKU rationalization effort that likely led to\nsome lost points of distribution and shelf space. Typically we would view SKU\n16\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 17, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nrationalization as (cid:728)normal course of business,(cid:729) and we would be surprised if elimination\nof non-core SKUs with low velocity (as is typically the case in an SKU rationalization\neffort) led to that material market share losses as normally one would expect sales to\nflow back to the higher velocity, core SKUs. As such, perhaps the market share losses\ncould be more tied to less than ideal execution and differentiated offerings from\ncompetitors (e.g., CHD(cid:726)s TheraBreath in mouthwash).\n17\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 18, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nMargin Trajectory Improving Post-Strategic\nTransformation and Investments\nFollowing the current management team coming into the business around 2019, KVUE\nsaw improvement in margin trajectory driven by a strategic transformation and series of\ninvestments aimed at both improving profitability and also driving top-line momentum.\nSome of the actions we outlined above (e.g., 15 divestitures and 10 acquisitions to\nreshape the portfolio since 2016, SKU rationalization, investments in higher ROI digital\nmedia), but others included supply chain simplification (e.g., rationalizing smaller\nexternal manufacturers) and investments in supply chain digitization (e.g., automation,\nresiliency), and there was also a margin mix benefit from faster growth in the higher-\nmargin Self Care segment. Together these areas helped lead to a +290 bps expansion in\nKVUE gross margins from 2019 to 2021.\nKVUE(cid:726)s EBITDA margins improved +445 bps in 2020 (26.1%) vs. 2019 (21.6%) but\nfinished -78 bps YOY in 2021 given reinvestment behind advertising (-120 bps\nheadwind as advertising expense increased to 9.7% of sales) to 25.3% but still about 365\nbps ahead of 2019 levels. Pressure continued in 2022 driven by supply chain, inflation,\nand FX pressures with margins compressing another -119 bps YOY. Looking ahead,\nwith pricing actions now in place (mostly a 2H22 event) to begin to help offset\ninflationary cost pressures and incremental pricing in 2023 (we estimate ~45% of 2023\npricing is carryover from 2022), KVUE(cid:726)s EBITDA margins should begin to recover\neven after burdening the P&L with stand-alone company costs (e.g., transition services\nand manufacturing agreements, public company costs, incremental hires to support\nstandalone organization), which likely total ~$100M.\nDeliberate Portfolio Optimization Toward Core and Faster Growing Consumer\nHealth Categories\nM&A has played a significant role in shaping the KVUE portfolio with some of its\nlargest brands the result of acquisitions including Tylenol (1958), Neutrogena (1994),\nAveeno (1996), and Listerine (2006). More recently, the company has undertaken efforts\nto streamline its portfolio to core brands and (cid:728)local jewels(cid:729) (i.e., leveraging same active\ningredient/technology at platform brand) while exiting slower growth, lower margin\nbrands/categories and making acquisitions in faster growth, higher margin brand/\ncategories. As noted, since 2016 the company has actively shaped the portfolio by\ncompleting 15 divestitures and 10 acquisitions. Recent notable acquisitions include\nVogue International (OGX) in 2016, NeoStrata in 2016, Zarbee(cid:726)s in 2018, and Dr.\nCi:Labo in 2019; some notable divestitures include RoC and Nizoral in 2018 in the Skin\nHealth & Beauty segment and Compeed (2017) and Reach (2021) in the Essential\nHealth segment.\nBeyond M&A, KVUE also undertook an extensive SKU rationalization effort over the\npast few years that has resulted in a 21% reduction in the number of SKUs from 2019-\n2022 and was a roughly ~$100M headwind to the top line in the Essential Health\nsegment with some additional impact to Skin Health & Beauty as well.\nThe SKU rationalization and M&A efforts, while detrimental to the top line and the\ncompany(cid:726)s market share performance, helped to improve the margin structure by\nreducing complexity and eliminating lower profitability items as evidenced by Essential\nHealth segment adjusted operating income margins expanding approximately 340 bps\n18\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 19, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nfrom 2019 to 2022 despite organic sales CAGR of just +0.9% and reported sales down -\n6.7% from 2019 levels.\nFigure 25: Essential Health Segment Sales, OI, Margin 2022 vs. 2019 Figure 26: Essential Health Profit/Margin Improvement Despite Lower\n$ m Sales\n$6,000 $4,896 24.3% 25.0% 10% 8.7%\n$5,000 $4,570 24.0% 8%\n$4,000 23.0% 6%\n+340 bps\n$3,000 22.0% 4%\n2%\n$2,000 20.9% 21.0%\n$1,022 $1,111 0%\n$1,000 20.0% -2%\n$0 19.0% -4%\n2019 2022 -6%\nSales Segment OI Segment OI Margin -8% -6.7%\nSales 2022 vs. 2019 Segment OI 2022 vs. 2019 Segment OI Margin 2022 vs. 2019\nSource: Company reports. Source: Company reports.\nWe expect the company to continually evaluate opportunities to streamline its portfolio\nby eliminating tail SKUs (likely an annual exercise as it is with any CPG company),\nalthough from our perspective it appears that much of the (cid:728)heavy lifting(cid:729) of portfolio\noptimization is largely behind the company at this point. Looking ahead, M&A figures\nto continue to play a role in shaping of the portfolio, likely continuing in the higher\ngrowth/margin segments within Consumer Health (e.g., Self Care and Skin Health &\nBeauty), and we expect M&A to be more bolt-on in nature vs. transformational\ntransactions. With strong FCF generation and a healthy balance sheet (post-IPO net\ndebt-to-TTM EBITDA likely ~2.1x) KVUE should have ample dry powder to deploy to\nM&A if it deems fit, and we think management is likely earmarking $500-750M for\nacquisitions in the years ahead (vs. JPMe FCF $2.4B/$2.5B/$2.8B in 2023/2024/2025),\nalthough we note that we don(cid:726)t account for any M&A benefit within our P&L estimates.\nSupply Chain Optimization to Reduce Complexity, Increase Efficiency and\nResiliency\nWhile supply chain challenges plagued KVUE during 2022 given input shortages and\ntransportation challenges, the company has undertaken efforts since 2019 to structurally\nimprove its supply chain by investing in digitization to increase efficiency and resiliency\nand by reduced complexity through external manufacturer rationalization.\nPre-pandemic, KVUE(cid:726)s supply chain focus was mostly on operational excellence,\nquality control, and margin maximization, but COVID tested the resilience and\nflexibility of the supply chain and uncovered a lack of redundancy that impacted\nproduct availability and service. The company noted that in 2021/2022 64%/63% of its\nscheduled capital spend for supply chain investments was allocated to digitization\n(automation), which ultimately allows for better demand planning, capacity, and\nresilience. Some examples include 1) shift to conditions-based maintenance from\nscheduled maintenance given better monitoring capabilities allows for better capacity\navailability while also alleviating labor challenges; 2) complexity reduction through\nSKU rationalization and product design standardization (e.g., bottle types) and reducing\nthe number of small external manufacturers (e.g., company eliminated 60% of small\nexternal manufacturers); 3) increasing dual sourcing and reducing specification on\ncritical ingredients to improve availability/resilience; and 4) integrated business\nplanning to optimize forecasting and inventory management, leading to better\nprofitability and cash flow.\n19\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 20, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nAll in, the company(cid:726)s in-house manufacturing footprint of 25 facilities accounted for\n56% of production volume in 2022 while the remaining 44% of production was handled\nby seven JNJ facilities under transition manufacturing agreements and 230 external\nmanufacturers (as noted above, a 60% reduction since 2019). Within the segments, Skin\nHealth & Beauty tends to be more out-sourced while Self Care is more in house. The\ncompany also operates 114 distribution centers and 38 customer service centers globally,\nwith distribution often operated in partnership with third parties.\nDigital Marketing Improving ROI as Company Shifts to Omnichannel\nAbout 6% of KVUE(cid:726)s sales are through pure-play e-commerce, but mix more than\ndoubles to 13% including retailer.com (largely in line with CPG peers), and the\ncompany(cid:726)s online sales have grown at a +20% CAGR from 2020 to 2022. One of the\ndrivers beyond the general shift of consumption to online channels is the company(cid:726)s\nfocus on digital marketing, which has taken shape over the past several years. In North\nAmerica, for example, the digital marketing spend accounted for 73% of total marketing\nspend in 2022, which was up from 59% in 2020 and 49% in 2019 and drove a +29%\nincrease in media ROI as of October 2022 and collective 13 points increase in U.S.\nhousehold penetration from 2019 to 2021. The company has pointed to digital\ninvestments driving improved social media engagement including for Neutrogena a\n660% increase in followers from August to December 2021 as a result of its SkinU\ncampaign on TikTok, which generated over 300 million social media impressions. The\ncompany has also focused a lot of its digital efforts outside of the U.S., in particularly in\nAPAC, which accounted for 63% of global e-commerce sales in 2020. Investments\nbehind digital media are largely table stakes for CPG companies at this stage as a cost-\nefficient and effective way to engage with consumers. Digital focus is likely to continue\nto be important, especially for segments or brands appealing to younger digitally-native\nconsumers like within Skin Health & Beauty. The company does continue to invest in\ntraditional media, although it largely depends on where the consumer is in that particular\nmarket.\nOpportunity for Margin Expansion as KVUE Exits TSA/TMA\nLooking ahead, one of the bigger areas for margin expansion opportunity for KVUE\nwill likely be in exiting transition services agreements (TSA) and transition\nmanufacturing agreements (TMA) with JNJ post-separation, which run on a cost-plus\nmodel. Of the roughly $100M in incremental costs associated with being a stand-alone\ncompany, we estimate that the TSA and TMA could be roughly 50-60% of the\nincremental costs (i.e., 30-40 bps margin opportunity of roughly 130 bps EBITDA\nmargin expansion modeled for 2022-2025).\nThe TSAs generally run for 24 months following the separation, although some services\ncould be provided for a longer period of time (less than 60 months) in certain\ncircumstances such as if the functions are limited by regulatory approval. The company\nnoted that it plans on working with JNJ in establishing its own stand-alone IT functions,\nwhich would run concurrent to the TSA and could account for less than a 100 bps\nheadwind to profitability and decline post-2023.\nThe TMAs cover Self Care products including certain Tylenol, Zyrtec, Mortin, Benadryl\nand other OTC products that represented less than 10% of KVUE(cid:726)s 2022 sales. Within\nthe TMAs, KVUE is responsible for demand forecasting (both binding and non-\nbinding), and JNJ will be responsible for sourcing raw materials and manufacturing. The\nTMAs have different lengths depending on product but in all cases phase out over a\n20\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 21, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nfive-year period (could be extended for three additional 12-month periods under certain\ncircumstances), and the company aims to exit most of the TMAs within three years.\nGenerally speaking the TMAs take a longer time to exit vs. TSAs given the time line for\nregulatory approvals or marketing authorization transfers. The TMA periods are 3-60\nmonths for Tylenol products and 21-60 months for Zyrtec, Motrin, and Benadryl\nproducts.\nTo be fair, some of the potential savings opportunity could be eroded if KVUE opts to\nselect another third party to facilitate any G&A or manufacturing function, although it(cid:726)s\npossible that a different third-party fee could be lower than JNJs (because JNJ now has\nto make a margin on these contracts), and/or KVUE could look to drive efficiencies out\nof processes and manufacturing. Additionally, there is risk that KVUE standing up its\nown functions or in-sourcing manufacturing could run into challenges if it or third\nparties are unable to replicate JNJ processes.\n21\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 22, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFinancial Outlook\nPath to ~+4% Top Line over Next Few Years with Upside If\nElasticities Hold Up\nKVUE(cid:726)s long-term algorithm calls for organic top-line growth to be competitive with\ncategory growth rates, which the company expects to be around +3-4% per annum\nthrough 2025. This growth rate is consistent with the recent past where KVUE(cid:726)s\ncategories grew at a roughly +3.5% CAGR from 2018-2021 (although category organic\ngrowth CAGR accelerated in 2019-2022 given COVID tailwinds and pricing to +4.8%).\nFigure 27: KVUE Organic Growth Drivers by Year Figure 28: KVUE Historical and Forward 3Y CAGR Drivers\n10% 5%\n8% 5%\n4%\n6% 4%\n024 %%% -11 0.. .47 2%% -21 0.. 62 .3%% -4 0. .0 11% -7 1.6 .6% 12 .. 82 %% 21 .. 84 %% 12233 %%%% 2.3% 3.7%\n% % - 0 . %% % %\n-2% 1% 1.3% 1.0%\n-4% 0%\n2020 2021 2022 2023E 2024E 2025E L3Y (2020-2022) N3Y (2023-2025)\nVolume Price/Mix Other* Volume Price/Mix\nSource: Company reports and J.P Morgan estimates; *Other relates to carve-out financial Source: Company reports and J.P. Morgan estimates.\nadjustments\nThat said, based on historical data it appears that KVUE has been underperforming the\noverall category growth rate over the same period (we estimate organic growth CAGR\n+2.6% 2018-21), although the company has been transforming the business to put it on\na better footing for organic growth by sharpening resource allocation and optimizing the\nportfolio (e.g., SKU rationalization, acquisitions/divestitures). In fact, KVUE(cid:726)s organic\ngrowth trends have accelerated for three consecutive years since 2019 \u2013 ramping from\n+1.4% in 2019 to +3.8% in 2022 with the 2019-2022 CAGR +3.4%. As we noted,\norganic growth over the past few years has been hampered by supply chain disruptions,\nSKU rationalization, and COVID-19, and excluding these items the company estimates\nthat its organic growth CAGR from 2019-2022 would have been about +5.4%.\nFigure 29: KVUE Historical Sales Bridge\n$ m\n$16,000\n+4.0%\n$15,500 +1.5% $15,054 -0.1%\n+1.2% $14,950\n$15,000 +1.4% +1.7% $14,467 +2.6% -0.3% -0.9% -0.1% -4.2% -0.3%\n$14,500 $14,324 -0.2%\n-1.8% -0.1%\n$14,000\n$13,500\n$13,000\nSource: Company reports.\n22\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 23, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nKVUE Lagged Peers in OSG Due to Delayed Pricing, Improving Recently\nAs such, in the past three years KVUE(cid:726)s organic growth trends have underperformed\npeers with KVUE(cid:726)s +3.4% below the median of +5.2% and the average of +9.5%\n(+5.8% ex-OLPX). While adjusting for the aforementioned headwinds would have\nresulted in KVUE organic growth CAGR just slightly above the median (i.e., +5.4% vs.\nmedian +5.2%), we don(cid:726)t see it as a fair comparison as peer companies faced many of\nthe same headwinds as KVUE between supply chain disruptions and COVID-19.\nTiming is also a driver of the underperformance vs. peers over the last three years as\nKVUE was late vs. peers in putting through pricing actions and at a more moderate level\nvs. most of HPC (i.e., KVUE just in 2H22 began putting through pricing in the ~HSD\nrange overall while HPC peers took multiple rounds of pricing ranging from MSD-LDD\nin some cases), although we also aren(cid:726)t projecting KVUE to grow much faster vs. peers\nahead despite delayed pricing benefit.\nFigure 30: Organic Sales 3Y CAGR vs. Peers\nCY20-CY22\n25%\n20%\n15%\n10%\n5%\n0%\n-5%\nELF HNST RKT OR PG CL CLX HLN ULVR CHD BEI KMB KVUE NWL EL COTY\nOrganic 3Y CAGR Average Median\nSource: Company reports and J.P. Morgan estimates.; *OLPX 3Y Organic CAGR +68.1% removed for ease of comparison\n2023 Should Still Be Above Algorithm at ~6% OSG, Normalizing to Peer Average\n~+4% in 2024+\nLooking ahead, we see KVUE as well positioned for +6% organic top line in 2023 and ~\n+4% organic top-line growth over the following two years (3Y CAGR +4.7%) with\npotential for upside if elasticities hold up better than expected (we believe KVUE is\nmodeling internally for elasticities to revert to historical mean vs. relatively more\nlimited elasticities experienced thus far and positive volume growth of +2.4% in 1Q23\ndespite +8.8% price/mix). Underpinning the expected top-line growth is the underlying\ncategory growth trends, which we detailed earlier. Within KVUE(cid:726)s portfolio, we expect\ntop-line growth to be led by Self Care and Skin Health & Beauty segments, while\nEssential Health contributes relatively less given category dynamics.\nSpecifically, we estimate Self Care to grow at a three-year CAGR of +5.8% and\ncontribute ~50% to KVUE(cid:726)s organic growth through 2025, Skin Health & Beauty to\ngrow at a three-year CAGR of +5.4% and contribute ~33% to KVUE(cid:726)s organic growth\nthrough 2025, and Essential Health to grow at a three-year CAGR of +2.6% and\ncontribute ~17% to KVUE(cid:726)s organic growth through 2025. We note that in the prior\nthree years (2020-2022), Self Care grew at a +8.6% three-year CAGR and contributed\nnearly ~91% to KVUE organic growth, Skin Health & Beauty grew at a +0.1% three-\nyear CAGR and contributed ~1% to KVUE organic growth, and Essential Health grew\nat a +0.9% three-year CAGR and contributed around ~8% to KVUE organic growth.\n23\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 24, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 31: Segment Contribution to YOY Organic Growth Figure 32: Segment Contribution to L3Y and N3Y Organic CAGR\n7% 5.0%\n23456 %%%%% 1 31. ..0 27% 0.7% 223344 ...... 050505 %%%%%% 10 .. 68 %%\n1.5% 00 .. 03 %%\n0 3. .6 2% 00 ..7 9% 40 .. 12 %% %% 10 .. 56 %%\n%\n%\n1% 2.0% 1.9% 1.5% 3.1%\n0% -0.9% -0.5% 2.0% 1.0% 2.4%\n-1% 0.5%\n-2% 0.0%\n2020 2021 2022 2023E 2024E 2025E L3Y (2020-2022) N3Y (2023-2025)\nSelf Care Skin Health & Beauty Essential Health Self Care Skin Health & Beauty Essential Health\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\nFigure 33: Segment Organic Growth by Year Figure 34: Segment L3Y and N3Y Organic CAGR\n12% 10.9% 10% 8.6%\n10% 9.5% 9%\n8.1% 8%\n468 %%% 5.4% 4.6%4.8% 5.8%5.1%5.3% 2.9%3.5%3.8%6.0% 4.0%4.2% 4567 %%%% 5.8% 5.4% 4.7%\n2.8% 1.9%2.1% 3.4% 2.2%2.3% 2.6% 3.4%\n2% 0.5% 3%\n0% 2% 0.9%\n1% 0.1%\n-2% -1.4% 0%\n-4% -2.8% Self Care Skin Health & Beauty Essential Health Total\nSelf Care Skin Health & Beauty Essential Health Total L3Y (2020-2022) N3Y (2023-2025)\n2020 2021 2022 2023E 2024E 2025E\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\nExpect OSG to Be Mostly Driven By Pricing (as Peers) But Normalize Ahead\nWithin the top-line outlook, we expect 2023 growth to be driven exclusively by price/\nmix as the company benefits from carryover pricing actions put through in 2022 as well\nas some incremental pricing in 2023, partially offset by expected volume decline likely\nfrom elasticity and continued normalization post tailwinds from COVID-19 and recent\n(cid:728)triple-demic.(cid:729) 2022 organic growth was likewise driven entirely by price/mix, although\nvolumes were relatively flattish as volume growth in Self Care was offset by the other\nsegments, which was partially impacted by SKU rationalization, product exits in Russia,\nCOVID-19 lockdowns, and supply disruptions. Excluding these items management\nestimates 2022 volumes would have been up +1.7%. Historically, volume represented\naround two-thirds of KVUE organic growth with price/mix one-third, and looking ahead\npast 2023 we expect a return to this top-line growth mix as the company laps materially\nhigher pricing increases, likely by mid 2024.\nFor 2023, we estimate that roughly 45% of our +7.6% price/mix forecast results from\ncarryover pricing actions and that price/mix will contribute +8.2% to the top line in\n1H23 and +6.9% in 2H23. We estimate total volumes -1.6% for 2023 with 1H23\nvolumes roughly flat (+0.2%) and 2H23 volumes down around -3.4%. As noted above,\n1Q23 volumes came in +2.4% against +8.8% price/mix with strong volume\nperformance in Self Care (+7.1%) and Skin Health & Beauty (+4.3%) more than\noffsetting the decline in Essential Health (-5.5%). There were a number of drivers to the\nstronger than expected volume performance in 1Q23: 1) Self Care benefitted from a\nstrong cold, cough, and flu season in EMEA, driving higher incidence, and the segment\nalso benefitted from retailer restocking in the U.S. as most retailers exited 4Q22 with\nlower inventory levels; and 2) the Skin Health & Beauty segment benefited from easy\ncomparisons (lapped -8.6% volume decline in 1Q22) and inventory rebuild at retailers\n24\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 25, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nwith strength in Neutrogena (Hydro Boost) and Aveeno. Some of the tailwinds to 1Q23\ncould continue into 2Q23, including in Self Care as usage occasions likely remained\nelevated in EMEA in the weeks following quarter-end, and the company will also\ncontinue to lap material supply chain challenges. We model for a normalization in\nvolume trends in 2H23 as the comparisons get tougher and the company may not benefit\nas much from inventory replenishment and there remains uncertainty on consumer\nelasticities ahead, although more conservative 2H estimates could provide a source of\nupside should the consumer landscape hold up better than anticipated or if there are\nstrong allergy seasons in Self Care.\nFigure 35: KVUE 1Q23 Organic Growth Performance by Segment Figure 36: KVUE Organic Growth Drivers 1H23E vs. 2H23E\n20% 10%\n15% 8%\n10% 8.2% 8.9% 6%\n05 %% 7.1% 4.3% 9.4% 28 .. 48 %% 24 %% 8.2% 6.9%\n-5% -5.5% 0% 0.2%\n-10% -2% -3.4%\nSELF CARE SKIN HEALTH AND ESSENTIAL HEALTH TOTAL -4%\nBEAUTY 1H23E 2H23E\n% volume % price/mix % volume % price/mix\nSource: Company reports. Source: Company reports and J.P. Morgan estimates.\nFor 2024 we model for price/mix of +2.2% and volumes of +1.8% and for 2025 price/\nmix of +1.4% and volumes +2.8%. We see 2024 as benefiting early in the year from\ncarryover pricing from 2023 before the drivers of the top-line should normalize more\ntoward the company(cid:726)s longer-term algorithm of two-thirds volume and one-third price\nmix.\nFigure 37: KVUE Forward Estimated Sales Bridge\n$ m\n$17,500 +1.4% $16,973\n+2.8%\n$17,000\n+2.2% $16,289\n$16,500 +1.8%\n$16,000 +7.6% $15,662\n$15,500\n$14,950\n$15,000\n$14,500\n-1.6%\n$14,000\n$13,500\n$13,000\n2022 Volume Price/mix 2023E Volume Price/mix 2024E Volume Price/mix 2025E\nSource: Company reports and J.P. Morgan estimates.\n25\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 26, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nGross Margins Poised to Improve \u2013 Can Return to 2021 Peak\nby 2025\nKVUE(cid:726)s gross margins expanded by +125 bps in 2020 and another +164 bps in 2021\nbefore compressing -88 bps in 2022 to 58.1% as the company dealt with inflationary\ncost pressures seen throughout CPG (raw material inputs, freight, packaging) and supply\nchain challenges, primarily in the Skin Health and Beauty segment. Prior to 2022, gross\nmargin expansion over the past few years has been driven by productivity (e.g., ZBB),\nrationalization of smaller third-party manufacturers (60% of small external\nmanufacturers eliminated), portfolio optimization (21% SKU reduction), and favorable\nsegment mix (higher margin Self Care growth).\nFigure 38: KVUE Gross Margin Bridge\n62%\n1.7%\n61%\n60% 0.4%\n2.1% 59.0% 0.1%\n59% 0.5% 1.0%\n58% 1.1% 57.4% 0.4% 58.1%\n57% 0.7%\n56.1% 0.1% -1.2% -4.0%\n56% -0.6%\n55%\nSource: Company reports.\nWe model for +54 bps gross margin expansion in 2023, slight -6 bps compression in\n2024, and +38 bps expansion in 2025, which would return gross margins to 2021 levels\nat 59.0%.\nWe see a number of drivers of gross margin expansion: 1) further optimization of\nsupply chain and COGS efficiencies; 2) rollover of 2022 pricing actions as well as\nincremental pricing in 2023 and beyond; 3) abating cost headwinds; and 4)\nfavorable segment mix with continued faster growth in higher margin Self Care\nand Skin Health and Beauty segments (although some Skin Health and Beauty profit\ngrowth likely to be reinvested). Relating to our estimates, expectations for 2024 could\nadmittedly be conservative as we leave our margin assumptions unchanged despite a\nstronger than expected start to 2023 \u2013 the aforementioned drivers and abating\ninflationary pressures could lead to better gross margin performance than we have\nmodeled.\nInflation should remain a headwind in 2023 (perhaps roughly -240 bps to gross\nmargins), albeit to a lesser extent than 2022 where we estimate costs could have been a -\n400 bps headwind. On COGS, we estimate roughly 40% is in raw materials and inputs,\n30% in internal and external manufacturing costs, and the remaining 30% in other\noverhead, freight, and amortization. Within KVUE(cid:726)s cost buckets, raw materials are\nrelatively diversified, in our view, with resins, pulp and paper, agro chemicals (like\nethanol and glycerin), and packaging materials the largest exposures, although in total\nthese represent less than 20% of total COGS. From an FX perspective, the company\nhedges its transactional exposure for forecasted revenues, purchases, receivables, and\npayables, but it does not hedge translational risk. Key currencies include EUR, GBP,\nJPY, CNY, CAD, BRL, and INR.\n26\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 27, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nExit of TSA and TMA Is Another Source of Margin Improvement Longer Term\nWithin the cost outlook, we also note that KVUE entered into a Transition\nManufacturing Agreement (in addition to Transition Services Agreement that sounds\nmore related to operating services), which covers pharmaceutical products like Tylenol,\nZyrtec, Motrin, and Benadryl, among others. The company noted that the products\ncovered under the TMA accounted for less than 10% of its sales in 2022. The TMA is\nbased on a cost-plus model and ranges in terms from 3 to 60 months depending on the\nproduct (3-60 months for Tylenol, 21-60 months for Zyrtec, 21-60 months for Motrin,\nand 21-60 months for Benadryl), although the company notes that these terms could be\nextended for up to three additional 12-month periods if there are issues, which we think\nwould be mostly due to regulatory processes and facility validation. Management\nexpects to be out of the TMA within three years for most of the products. Exiting these\nTMA agreements should allow for better margin profile over time as the company no\nlonger pays the markup associated with the agreement.\nRelative to peers, KVUE(cid:726)s adjusted gross margins (including amortization of definite\nlife intangible assets to make more comparable) compare favorably to most HPC and\nconsumer health peers (ranks below only HLN, RKT, and BEI) but are well below those\nof more pure-play beauty names. Overall, KVUE(cid:726)s category exposure to OTC and\nbeauty lends itself to strong gross margin profile vs. HPC more exposed to everyday\nessentials, and many companies in the peer set have also faced greater inflationary cost\npressures given COGS exposure more weighted to the oil complex, pulps, and\ntransportation/logistics costs.\nFigure 39: Gross Margins vs. Peers\nCY22\n80%\n70%\n60%\n50%\n40%\n30%\n20%\n10%\n0%\nGross Margin Average Median\nSource: Company reports and J.P. Morgan estimates.; *KVUE adjusted gross margins including amortization of definite life intangibles;\n**CL adjusted gross margins adding back shipping & handling costs\nPost-2023 Leverage in Middle of P&L to Help Drive Solid\nEarnings Growth\nFollowing 2023, which will be burdened both by costs related to TSA and separation\ncosts, we see SG&A as a lever to help drive operating growth in the years ahead as the\ncompany 1) continues to exercise disciplined cost management with zero-based\nbudgeting practices; and 2) works to take out costs over time related to the ~$100M\nincremental costs associated with the separation from JNJ, including exiting transition\nservices agreements, primarily over the next two years as well as transition\nmanufacturing agreements, which we estimate account for roughly 60% of the\nincremental stand-alone costs. At the same time, we expect KVUE to further support its\nbrands through increased advertising spending in the near term following a period of\n27\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 28, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nbeing more selective in 2022.\nSpecifically, we are modeling for SG&A as a percent of sales to be 42 bps unfavorable\nYOY in 2023, roughly neutral in 2024, and 51 bps favorable in 2025, which would then\nput SG&A as a percent of sales just below 2022 levels. Within SG&A, advertising has\nbeen a bit lumpy and oscillated between favorable and unfavorable to margins over the\npast three years. Investments increased in 2021 to support top-line growth and key\nbrands but were lower in 2022 as the company made more discriminating decisions on\nadvertising given the supply disruptions and inflationary cost environment (balancing\ninvestment with profitability). We see the company stepping up investments in 2023 to\nsupport the top-line growth, primarily in the Self Care segment.\nFigure 40: KVUE Operating Expense Outlook Figure 41: KVUE Advertising Expense\n37% 250 10.5% 100\n333 456 %%% 2.7% 2.4% 2.5% 2.6% 2.6% 2.6% 5112 0 050 000 10 9..0 5% % 9.7% 9.5% 9-10% 050\n9.1%\n33% 2.2% 0 9.0% 8.8%\n33 12 %% 33.2% 33.6% 33.4% 33.9% 33.9% 33.3%-- 15 00 0 8.5% 8.5% -50\n30% 31.7% -- 21 05 00 8.0% -100\n29% -250 7.5% -150\n2019 2020 2021 2022 2023E 2024E 2025E 2019 2020 2021 2022 2023E Target\nSG&A % of Sales R&D % of Sales YOY Favorable/(Unfavorable) bps Advertising Expense % of Sales YOY Favorable/(Unfavorable) bps\nSource: Company reports and J.P. Morgan estimates. Source: Company reports and J.P. Morgan estimates.\nA&P Spend Is Up but Still Trails Most Peers, Yet...\nKVUE(cid:726)s advertising spend of about 9.1% of sales is a bit below close HPC peers like\nCL (11.1%) and PG (9.9%), although as we noted above we expect A&P spending to\nstep up 40 bps in 2023E to 9.5%. We note that some of the comparisons vs. peers are not\napples to apples as some companies account for go-to-market activities (e.g., sampling,\nsales force, etc.) within advertising expense, which makes spend appear elevated. Also,\nwe note that marketing productivity has been up, which helps explain the relatively\nhigher efficient ratio (lower A&P as a percentage of sales). Historically, the company\nhad made efforts to improve SG&A efficiency through organization redesign (reduced\nhead count 10% from 2019-2022) and also increasing ROI on media spend by 28% from\n2019-2021.\nFigure 42: Advertising Expense vs. Peers\nCY22 or Last Fiscal* where noted\n35%\n30%\n25%\n20%\n15%\n10%\n5%\n0%\nAdvertising % of Sales Average Median\nSource: Company reports and J.P. Morgan estimates.\n28\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 29, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nR&D Is Higher Than Peers\nOn the other hand, KVUE(cid:726)s R&D spending is in the top quartile vs. peers at 2.5%\n(average 2.0% and median 1.8%), which speaks to the company(cid:726)s commitment to\nspending behind developing innovation and driving unique claims for its products.\nFigure 43: Research and Development Expense vs. Peers\nCY22 or Last Fiscal* where noted\n3.5%\n3.0%\n2.5%\n2.0%\n1.5%\n1.0%\n0.5%\n0.0%\nR&D % of Sales Average Median\nSource: Company reports and J.P. Morgan estimates.\nLonger term, KVUE(cid:726)s financial algorithm calls for earnings growth ahead of sales\ngrowth, although given the burden of stand-alone company costs and incremental\ninterest expense, earnings per share growth will likely fall below this target in 2023 and\n2024 before seeing faster growth in 2025 as the company sees leverage throughout the\nP&L for the aforementioned reasons. From an EBITDA perspective, however, we do see\nKVUE generating profit growth ahead of sales growth from 2023-2025 with a three-\nyear CAGR of +6.1% vs. top-line CAGR of +4.3%, implying EBITDA margin\nexpansion to 25.4% in 2025 from 24.1% in 2022 (roughly +130 bps expansion) and\n25.3% in 2021.\nFigure 44: KVUE EBITDA Growth Outlook Figure 45: KVUE EBITDA vs. Sales Growth Outlook\n$$$5 44, ,,0 050 000 00 $3,77521.7% $3,810 $3,606 $3,797 $3,983 $4,308 225 0% % 67 %% 6.1%\n$3,500 $3,101 15%\n$3,000 10% 5% 4.3%\n$2,500 8.2% 4%\n$$ 12 ,, 50 00 00 0.9% 5.3% 4.9% 05 %% 3%\n$1,000\n$500 -5.4% -5% 2%\n$0 -10% 1%\n2019 2020 2021 2022 2023E 2024E 2025E\nEBITDA $ m (left-axis) EBITDA YOY Growth (right-axis) 0%\nEBITDA CAGR (2023-2025) Sales CAGR (2023-2025)\nSource: Company reports and J.P. Morgan estimates. Source: J.P. Morgan estimates.\nFor ease of comparison, we prefer to look at EBITDA as the primary profit KPI for\nKVUE as the company(cid:726)s adjusted earnings per share excludes the impact of\namortization of definite life intangible assets, which it treats 100% of brands/\ntrademarks, while competitors do not adjust this expense out. As such, KVUE(cid:726)s adjusted\nearnings appear higher than they otherwise would following the accounting convention\nacross our coverage universe. In our model we present adjusted earnings per share both\nwith and without the impact of amortization of intangible assets, but we think investors\n29\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 30, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nmay prefer to look to EBITDA.\nVersus the peer set, KVUE(cid:726)s EBITDA margins are in the top quartile at 24.1% vs.\naverage 21.3% and median 21.8% (ex-OLPX average 18.8% and median 20.9%), but\nstill trail closest peer HLN (25.1%), and are between PG (25.0%) and CL (23.5%). We\nsee opportunity for KVUE to expand EBITDA margins ahead as pricing flows through,\ninflation abates, and the company works to take out costs to stand up the company (e.g.,\nTSA, TMA).\nFigure 46: EBITDA Margins vs. Peers\nCY22\n30%\n25%\n20%\n15%\n10%\n5%\n0%\n-5%\n-10%\nRKT HLN PG KVUE CL OR CHD ELF EL COTYULVR KMB BEI CLX NWL HNST\nEBITDA Margin Average Median\nSource: Company reports and J.P. Morgan estimates.; *OLPX EBITDA Margin 60.9% removed for ease of comparison.\nBalance Sheet, FCF, CapEx\nFollowing the company(cid:726)s IPO, balance sheet leverage is around 2.1x net debt to trailing\n12-month adjusted EBITDA (or roughly 2.4-2.5x gross debt to trailing 12-month\nadjusted EBITDA) assuming roughly $9.0 billion in senior notes and commercial paper\nand roughly $1.2 billion in cash. With EBITDA growth and strong FCF generation, we\nsee KVUE deleveraging to around 1.8x net debt to BITDA by 2024 and 1.6x by 2025.\nThe company could potentially delever faster (or increase cash returns to shareholders)\nin the event it doesn(cid:726)t pursue acquisitions as we believe the company is building in\ncushion to its cash/balance sheet outlook to accommodate bolt-on M&A. Relative to its\npeer set, KVUE(cid:726)s balance sheet leverage is largely middle of the pack with PG (1.2x)\nand CL (1.6x) lower and HLN (3.6x) higher.\nFigure 47: KVUE Leverage Outlook\n3.0x\n2.4x\n2.5x 2.1x 2.2x 2.1x\n2.0x 1.8x 1.9x\n2.0x 1.6x\n1.5x\n1.0x\n0.5x\n0.0x\nPost-IPO 2023E 2024E 2025E\nGross Debt to EBITDA Net Debt to EBITDA\nSource: Company reports and J.P. Morgan estimates.\n30\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 31, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFrom a free cash flow perspective, the company is targeting >100% FCF conversion (%\nof adjusted net income) in each of 2023-2025, and we model for free cash flow to grow\nat a three-year CAGR of +11% to $2.8 billion in 2025. The free cash flow outlook is\nsupported by solid adjusted EBITDA growth (as described above) and some tailwind\nfrom working capital management as inventory normalizes following a step-up in 2022\n(more below), which more than offsets cash separation costs expected to be incurred\nfrom 2023-2025 (around $595M post-tax) and some step-up in capital expenditures.\nWe note that 2022 was a tougher year from a cash flow perspective (FCF conversion\n79% and overall FCF -27% YOY) as the company had a significant working capital\nheadwind due to supply chain disruption, inflation, and also building inventory ahead of\nthe JNJ separation (safety stock). As we mentioned, we expect inventory normalization\nto be a tailwind to free cash flow ahead, and we model for working capital as a percent\nof sales to decline from 16.8% in 2022 to 13.5% in 2025.\nFigure 48: KVUE Free Cash Flow Outlook\n$3,000 120%\n$2,500 100%\n$2,000 80%\n$1,500 60%\n$1,000 40%\n$500 20%\n$0 0%\n2021 2022 2023E 2024E 2025E\nFCF $m (left-axis) FCF % of adj. Net Income (right-axis)\nSource: Company reports and J.P. Morgan estimates.\nFigure 49: KVUE Working Capital Outlook\n$3,000 17.7% 20.0%\n16.8%\n15.2% 18.0%\n$2,500 13.6% 12.9% 14.0% 13.5% 16.0%\n$2,000 14.0%\n12.0%\n$1,500 10.0%\n8.0%\n$1,000 6.0%\n$500 4.0%\n2.0%\n$0 0.0%\n2019 2020 2021 2022 2023E 2024E 2025E\nNet Working Capital Net Working Capital % of Sales\nSource: Company reports and J.P. Morgan estimates.\nCapital expenditures begin to step up slightly in 2023 (we model for 2.7% of sales from\n2.5% in 2022 and 2.0% in 2021) and a bit more in 2024/2025 (3.0% of sales), although\nthe historical level is not necessarily apples to apples as the 2.0% range didn(cid:726)t allocate\nenterprise-level costs that are now incurred as a stand-alone company. Capital\ninvestments will likely continue to focus on digitization of the supply chain and also\nbuilding out capacity for growth.\n31\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 32, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nKVUE(cid:726)s capital expenditures are generally lower than peers historically, although we do\nexpect a step-up ahead as the company works to build capacity and capabilities as a\nstand-alone company. As of 2022, KVUE(cid:726)s 2.5% capital expenditures as a percent of\nsales benchmarks below peer average of 3.1% and median 3.3%, but we also note that\nKVUE is relatively more asset light vs. HPC peers with 44% of volumes produced\nexternally. For comparison CLX has returned to a more normalized 80/20 split between\nin-house and external manufacturing from around 50/50 during the pandemic.\nFigure 50: Capital Expenditures vs. Peers\nCY22\n7%\n6%\n5%\n4%\n3%\n2%\n1%\n0%\nBEI EL KMB CL PG COTY OR CHD NWL CLX RKT HLN ULVRKVUEENRHNST ELF OLPX\nCapEx % of Sales Average Median\nSource: Company reports and J.P. Morgan estimates.\nKVUE announced its intention to pay a quarterly dividend of $0.20 per share\nbeginning in 3Q23 (fiscal quarter ending October 1, 2023), which at the current price of\n$26.30 implies an annualized dividend yield of about 3.0% (at the IPO price of $22,\nthe annualized dividend yield was closer to 3.6%). Looking ahead, we expect the\ncompany to target an annual dividend payout ratio of around 55-65% (JPMe 2024E\n64%), and we model for 3% dividend growth in both 2023 and 2024 as the company\ntargets moderate growth in dividend per share.\nFigure 51: KVUE Dividend Yield Compares Favorably to Peers Even after Share Rally\n4.0%\n3.5%\n3.0%\n2.5%\n2.0%\n1.5%\n1.0%\n0.5%\n0.0%\nULVR KMB NWL KVUE CLX RKT PG CL HLN OR EL CHD BEI COTY ELF HNSTOLPX\nDividend Yield Average Median\nSource: Bloomberg Finance L.P. and J.P Morgan estimates.\nOther capital allocation priorities include likely bolt-on M&A. We see management\nbudgeting roughly $500-750M per annum for acquisitions, although we don(cid:726)t build in\nany benefit from M&A into our model, and as such the M&A (cid:728)placeholder(cid:729) could lead\nto increased cash returns to shareholders. At this point, we expect share repurchases to\nbe limited to offset share creep from stock-based compensation expense, although the\ncompany could look to evaluate opportunistic share repurchases over time.\n32\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 33, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nValuation\nKVUE Deserves Premium to HLN with Potential to Converge to\nCL over Time\nInitial Discount Is an Opportunity, in Our View Should Fade Post Spin/Split\nKVUE shares were priced at $22 at the IPO (toward the high end of initial $20-23\nrange) and closed +22.3% higher on its first day of trading on May 4, 2023. As of May\n26, KVUE shares remain +19.5% above the IPO price. From a valuation perspective, at\nthe IPO price KVUE shares implied around 13.3x/12.7x our 2023E/2024E EBITDA\nestimate and 19.9x/19.3x our 2023E/2024E EPS including amortization of definite life\nintangible assets (or 17.7x/17.4x 2023E/2024E EPS excluding amortization of definite\nlife intangible assets as the company reports its adjusted earnings). Following the IPO,\nKVUE now trades at 15.5x/14.7x our 2023/2024 EBITDA estimates and 23.8x/23.1x\nour 2023/2024 EPS estimates.\nWe view the discounted valuation implied at the IPO price and attractive dividend yield\n(~3.6% at IPO) as compensating investors for potential overhangs arising from 1) JNJ\nstill owning ~89.6% of KVUE shares post-IPO with the intention to make a tax-free\ndistribution of additional shares likely by the end of 2023 (i.e., reduce ownership below\n20%); and 2) KVUE retaining potential outside\u2013North America liabilities tied to talc\nlitigation. We also believe JNJ wanted to set KVUE up for a successful offering given it\nwould still own such a meaningful stake in the business (i.e., price the ~10.4% well so it\nwould have better monetization on remaining ownership).\nDe-Consolidation Process on a Tax-Free Spin-Off or Split\nOn the potential overhang from additional liquidity coming to the market, we highlight a\nfew items to consider: 1) there are a number of ways ways JNJ could effect reducing its\nstake \u2013 a spin-off (i.e., pro-rata distribution of KVUE shares to current JNJ shareholder)\nor a split-off (i.e., exchange of JNJ shares for KVUE shares often at a discount), with a\nsplit-off more of an (cid:728)active(cid:729) decision to hold KVUE shares and thus may limit selling\npressure; 2) JNJ could decide to delay and/or not pursue a distribution of shares pending\nmarket conditions; and 3) while there is a 180-day lock-up on selling/disposing of\nshares post-IPO, our understanding is that the provision can be waived by the\nunderwriters. There are a number of precedent transactions including recently the split-\noff of Elanco (ELAN) from Lilly (LLY) in 2019 whereby LLY offered exchange for\nELAN shares at a 7% discount and in 2013 the split-off of Zoetis (ZTS) from Pfizer\n(PFE) whereby PFE offered exchange for ZTS shares at a 7% discount.\nTalc Liability Outside the US & Canada\nOn the potential talc liability, JNJ management on April 27 stated, (cid:728)As unequivocally\nand unambiguously stated, Johnson & Johnson has agreed to retain all the talc-related\nliabilities \u2013 and indemnify Kenvue for any and all costs \u2013 arising from litigation in the\nUnited States and Canada.(cid:729) KVUE will retain potential liabilities relating to talc\nlitigation outside of North America, but our understanding is that as of now there are\nonly a handful of active claims outside of the U.S. and Canada, but to date KVUE\nmanagement has not recorded any reserve liabilities relating to these claims, and the tort\nlaws and consumer protections outside of the U.S. and Canada are not as robust. KVUE\nplans to discontinue the sale of talc-based Baby Powder globally this year (already\ndiscontinued in the U.S. and Canada).\n33\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 34, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nBenchmarking Against Peers \u2013 HLN Anchor at Low End,\nAlready at CL Levels, PG Aspirational\nThe closest peer to KVUE, in our view, is Haleon (HLN, covered by Celine Pannuti)\ngiven similar category exposures (e.g., pain relief, cold, cough, allergy, oral), financial\nmetrics (e.g., sales, EBITDA, growth outlook), and geographic exposures (KVUE ~70%\ndeveloped markets vs. HLN roughly two-thirds). HLN was also formed as a result of a\ncarve-out from a larger pharma company (GSK in this case).\nThere are some differences between the companies. From a financial perspective,\nKVUE has a more attractive dividend yield (~3.0% vs. HLN 1.6%) and lower leverage\n(2.1x net-debt-to-EBITDA vs. HLN 3.6x). KVUE has exposure to faster growing\ncategories like Skin Health & Beauty, while HLN has exposure to (typically) faster\ngrowing categories like VMS (notwithstanding post-COVID normalization and\nsomewhat discretionary nature of products); while overall DM/EM exposure is similar,\nKVUE has higher exposure to North America (~50%) vs. HLN (~37%) and lower\nexposure to EMEA and LatAm (KVUE ~29% combined vs. HLN ~39%), while APAC\nexposure is similar (KVUE 21%, HLN 23%). The most important difference, in our\nview, is the stronger brand portfolio of KVUE with seven brands in a number 1 position\nglobally, while HLN claims a number 1 position in digestive health and therapeutic oral\nhealth (under sensitive franchise for Sensodyne). That said, overall it appears that in the\nU.S. at least in categories with direct competitive entries from both KVUE and HLN\nthat KVUE holds the edge in household penetration (e.g., allergy, cough, cough, and flu,\npain relief) based on Numerator data.\nPost-IPO, KVUE(cid:726)s valuation multiple has already migrated close to U.S.-based peer\nColgate-Palmolive (CL, OW-rated), which also has similar financial KPIs.\n34\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 35, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable 2: KVUE Key KPIs and Valuation vs. Direct Peer Set\nCompany Geographic and Segment Mix\nKenvue (KVUE) Haleon (HLN) Colgate-Palmolive (CL)* The Procter & Gamble Company (PG)\nGeographic Exposure (Sales)\nNorth America 50% 38% 21% --\nUS 44% 34% 33% 45%\nAPAC 21% 23% 16% --\nEMEA & LatAM 29% 39% 42%\nEMEA 21% -- -- --\nLatAM 8% -- -- --\nInternational 56% 66% 67% 54%\nPet -- -- 21% --\nSelf Care - 40% of sales - Tylenol, Zyrtec, Health Care - 14% of sales - Crest, Oral-B, Vicks,\nPain Relief - 23% of sales - Advil, Panadol, Oral Care - 43% of sales - Colgate, Sorriso,\nNicorette, Motrin, Zarbee's, Orsl, Benadryl, ZzzQuil, Pepto-Bismol, Clearblue, Align,\nVoltaren Tom's of Maine, elmex, hello\nRhinocort Metamucil\nSkin Health & Beauty - 29% of sales - Personal Care - 19% of sales - Softsoap, Speed\nBeauty - 18% of sales - Olay, SK-II, Native, Old\nNeutrogena, Aveeno, OGX, Dabao, Lubriderm, Respiratory Health - 15% of sales - Theraflu, Stick, Lady Speed Stick, Irish Spring, Tom's of\nSpice, Head & Shoulders, Herbal Essences,\nRogaine, Clean&Clear, Dr.Ci:Labo, Le Petit Otrivin, Flonase Maine, Filorga, eltaMD, Protex, Sanex, Palmolive,\nPantene\nMarseillais PCA Skin\nEssential Health - 31% of sales - Listerine, Band- Fabric & Home Care - 35% of sales - Tide, Gain,\nOral - 27% of sales - Sensodyne, Paradontax, Home Care - 17% of sales - Palmolive, Suavitel,\nSegment & Key Brands Aid, Johnson's, Neosporin, Stayfree, o.b., Bounce, Downy, Ariel, Dawn, Cascade, Febreze,\nPolident, Biotene Ajax, Fabuloso\nCarefree Swiffer, Mr. Clean\nBaby, Feminine, and Family Care - 25% of\nVMS - 15% of sales - Centrum, Emergen-C,\nPet - 21% of sales - Hill's Pet Nutrition sales - Pampers, Luvs, Bounty, Charmin, Puffs,\nCaltrate\nTampax, Always\nDigestive Health & Other - 19% of sales - Tums,\nGrooming - 8% of sales - Gillette, Braun, Venus\nPreparation H, Eno, Fenistil\nFinancial & Valuation Metrics\nKenvue (KVUE) Haleon (HLN) Colgate-Palmolive (CL)* The Procter & Gamble Company (PG)\nCY22 Net Sales ($B) $15.0 $13.4 $18.0 $80.3\nCY23-CY25 Organic Sales CAGR 4.7% 4.8% 4.9% 4.5%\nCY22 adjusted EBITDA ($B) $3.6 $3.4 $4.2 $20.1\nCY22 adjusted EBITDA Margin 24.1% 25.1% 23.5% 25.0%\nCY23-CY25 EBITDA CAGR 6.1% 6.2% 7.0% 8.4%\nNet-Debt-to-TTM EBITDA 2.1x 3.6x 1.9x 1.4x\nDividend Yield 3.0% 1.6% 2.7% 2.5%\n2023 EV/EBITDA 15.5x 14.0x 15.8x 17.8x\n2024 EV/EBITDA 14.7x 13.3x 14.7x 16.7x\n2023 P/E 23.8x 18.3x 24.3x 23.9x\n2024 P/E 23.1x 16.9x 22.2x 21.9x\nSource: Company reports, Bloomberg Finance L.P., J.P. Morgan estimates.; *CL North America ex-Pet but U.S. includes Pet\nBeyond HLN, CL, and PG, we also compare KVUE to additional companies with\nexposure to the Consumer Health space and also a broader basket of HPC and Beauty\ncompanies given KVUE(cid:726)s presence in the face care, body care, and sun care categories\nas well as baby care. KVUE sales growth and margin outlook are largely comparable\nacross the Consumer Health and HPC & Beauty peers on average (e.g., HPC & Beauty\nweighted average 2023-2024E sales CAGR +5.1% with 2023E EBITDA margins\n~23.2% and Consumer Health weighted-average 2023-2024E sales CAGR +3.1% with\n2023E EBITDA margins ~25.4% vs. KVUE 2023-2024E sales CAGR +4.4% with\n2023E EBITDA margins 24.2%).\n35\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 36, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable 3: Comparable Analysis for KVUE\nEnterprise\nJPM JPM Price (LC) JPM Price Dividend Market Cap Value EV/EBITDA Hist. Fwd EV/EBITDA Avg.\nCompany Ticker Analyst Rating 5/26/2023 Target Yield (USD mn) (USD mn) 2022 2023E 2024E 1-yr 2-yr 5-yr\nConsumer Health\nBeiersdorf 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\nBayer 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\nHaleon 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\nReckitt 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\nSanofi 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\nUnilever 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\nAVERAGE 12.4x 11.9x 11.2x 11.4x 11.7x 12.2x\nWTD. AVERAGE 11.6x 11.3x 10.6x 10.9x 11.1x 11.8x\nMEDIAN 13.5x 13.1x 12.3x 12.7x 12.7x 13.1x\nHPC & Beauty\nColgate-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\nProcter & 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\nChurch & 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\nKimberly-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\nClorox CLX Teixeira UW 159.09 158 3.0% 19,667 22,617 24.9x 32.2x 17.2x 18.5x 18.1x 17.4x\nNewell 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\nEstee 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\ne.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\nL'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\nOlaplex OLPX Teixeira UW 3.29 5 N/A 2,153 2,546 5.9x 9.4x 8.4x 12.4x 18.2x 18.2x\nReynolds 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\nCoty COTY Teixeira N 11.03 12 N/A 9,406 14,318 15.2x 14.1x 13.0x 12.4x 13.2x 12.6x\nAVERAGE 20.1x 19.7x 16.4x 16.4x 17.1x 16.3x\nWTD. AVERAGE 21.0x 20.3x 17.9x 18.0x 18.9x 17.9x\nMEDIAN 18.0x 16.8x 15.7x 16.4x 17.6x 16.9x\nKevnue KVUE Teixeira OW 26.30 29.00 3.0% 50,362 58,714 16.3x 15.5x 14.7x -- -- --\nJPM JPM Price (LC) JPM Price P/E Hist. Fwd P/E Avg. FCF Yield\nCompany Ticker Analyst Rating 5/26/2023 Target 2022 2023E 2024E 1-yr 2-yr 5-yr 2022 2023E 2024E\nConsumer Health\nBeiersdorf 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%\nBayer 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%\nHaleon 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%\nReckitt 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%\nSanofi 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%\nUnilever 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%\nAVERAGE 17.6x 17.5x 16.1x 16.4x 16.8x 17.3x 4.7% 5.5% 6.6%\nWTD. AVERAGE 15.6x 15.6x 14.4x 15.0x 15.4x 16.2x 5.3% 6.0% 7.1%\nHPC & Beauty\nColgate-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%\nProcter & 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%\nChurch & 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%\nKimberly-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%\nClorox CLX Teixeira UW 159.09 158 38.3x 30.2x 26.3x 30.4x 28.7x 26.3x 3.7% 3.9% 4.4%\nNewell 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%\nEstee 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%\ne.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%\nL'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%\nOlaplex OLPX Teixeira UW 3.29 5 7.3x 12.9x 10.9x 17.2x 26.1x 26.1x 11.8% 11.6% 10.4%\nReynolds 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%\nCoty COTY Teixeira N 11.03 12 31.5x 20.1x 22.6x 23.2x 28.4x 24.2x 4.8% 3.6% 5.7%\nAVERAGE 29.9x 28.1x 24.3x 25.4x 26.8x 25.2x 2.0% 5.1% 5.7%\nWTD. AVERAGE 30.3x 29.9x 25.8x 26.8x 28.4x 27.1x 2.8% 3.8% 4.2%\nMEDIAN 28.6x 24.1x 22.4x 23.7x 26.9x 25.2x 3.0% 3.9% 4.6%\nKevnue KVUE Teixeira OW 26.30 29.00 22.3x 23.8x 23.1x -- -- -- 4.0% 4.8% 4.9%\nSource: Company reports, Bloomberg Finance L.P., and J.P. Morgan estimates.\n36\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 37, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nPrice Target Derivation\nWe see investors gravitating toward EV/EBITDA to inform valuation for KVUE given\nthat the company(cid:726)s treatment of amortization of definite life intangible assets will make\nP/E less comparable to peers based on what the company will report as its adjusted\nearnings, although we will also present an EPS including amortization of definite life\nintangibles to make the comparison more apples to apples. We also added a discounted\ncash flow valuation to where the stock could trade over the medium to longer term as\nthe company continues to execute against its growth priorities and improves margins.\nTo determine our target multiples for KVUE we use a blended average based on the\ncomparable analysis discussed above. Given KVUE(cid:726)s characteristics similar to HLN, we\nview it as the most direct comparable company and see investors anchoring valuation\nagainst it for now \u2013 as such in our target multiple analysis we assign a one-third\nweighting to HLN(cid:726)s multiple. We ascribe a one-third weighting to other Consumer\nHealth peers and one-third weighting to HPC & Beauty peers (i.e., in total two-thirds\nweighting to Consumer Health and one-third to HPC & Beauty). The lower weighting to\nhigher-multiple HPC & Beauty seems fair to us given generally slower growth/margin\nprofile vs. Beauty peers historically and less everyday use vs. HPC peers. We then\nassign a 70% weighting to EV/EBITDA as the primary valuation metric and 30% to\nDCF as a secondary metric. As such, our Dec 2023 price target embeds an EV/EBITDA\nmultiple of 15.1x, which is 0.4x below the current 2023E multiple for KVUE.\nTable 4: EV/EBITDA Multiple for Peer Sets\nTarget Multiple Blend\nEV/EBITDA Weighting Multiple\nHaleon 33% 13.9x\nConsumer Health ex-Haleon 33% 11.2x\nHPC & Beauty 33% 20.2x\nTotal 100% 15.1x\nSource: Bloomberg Finance L.P. and J.P. Morgan.\nOur Dec 2023 price target of $29 is based on a blended average of the above multiples\nagainst our 2024 EBITDA estimate and a DCF value of $32 (based on perpetual growth\nmethod). Our target price implies 10% upside from the May 26 close on top of a ~3%\ndividend yield.\nTable 5: Method 1: EV/EBITDA Derivation\nPrice Target Methodology on EV/EBITDA Dec-23\nCY2024 EBITDA $ mn $3,983\nTarget Multiple 15.1x\n(-) Post IPO Net Debt $ mn $7,820\n# of shares 2023E mn 1 ,935\n2023 Implied Price Target $27\nUpside/Downside 2.4%\nSource: J.P. Morgan estimates.\n37\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 38, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable 6: Method 3: DCF Derivation\n$ m, except per share value\nTerminal Value (Perpetual Growth)\nCY2033E Unlevered Free Cash Flow $3,687\nLong-Term Growth Rate 1.0%\nTerminal Value $79,813\nEquity Value (Perpetual Growth)\nPresent Value of Terminal Value $44,541\nPresent Value of Unlevered Free Cash Flows $25,496\n-Net Debt $7,820\nEquity Value $62,217\nEquity Value per Share $32\nShares Outstanding 1,935\nSource: J.P. Morgan estimates.\nTable 7: Blended Price Target Implies ~10% Upside from Current Levels\nPrice Target Methodology Dec-23\nMix of EV/EBITDA 70%\nMix of DCF 30%\nBlended $29.00\nUpside from last price 10.1%\nSource: J.P. Morgan estimates.\nFor additional context, we offer the assumptions underlying our discounted cash flows\nanalysis through 2033 and sensitivity tables using both an EBITDA exit multiple and\nperpetual growth that points to meaningful upside potential in KVUE shares to the low-\nto mid-$30s range. Underlying our DCF analysis, we assume a weighted-average cost of\ncapital of around 5.7% based on a beta of 0.73, risk-free rate of 3.8%, market risk\npremium of 4.8%, a marginal cost of debt of 5.0%, low-single-digit organic top-line\ngrowth through 2033 (decelerating from 4.8% reported in CY2023E to 2% in\nCY2033E), with the company expanding margins at an average 25 basis points\nthereafter, modest headwind from use of working capital, and capital expenditures of 3-\n4% of sales annually.\n38\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 39, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable 8: KVUE DCF\n$ m\nWACC Calculation\nBeta 0.73\nRisk-free rate 3.8%\nMarket risk premium 4.8%\nCost of Equity 7.3%\nMarginal cost of debt 5.0%\nTax rate 25.6%\nAfter-tax cost of debt 3.7%\nEquity weight 55.2%\nDebt weight 44.8%\nWACC 5.7%\nUnlevered Free Cash Flow Analysis 0 1 2 3 4 5 6 7 8 9 10 11\n$ m CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033\nSales $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\nEBIT $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\nTax 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%\nAfter-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\n+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\n+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\n+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\nUnlevered 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\nYOY % 43.5% 1.4% 4.5% 1.9% 3.9% 3.7% 3.5% 3.5% 3.3% 3.1% 2.9%\nPresent 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\nAssumptions CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033\nSales 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%\nEBIT 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%\nCapEx % 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%\nChange 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%\nSource: Company reports, Bloomberg Finance L.P, Damodaran Online, and J.P. Morgan estimates.\n39\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 40, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nTable 9: KVUE DCF Sensitivity Based on Terminal EV/EBITDA Multiples\nDiscount Rate\n$31 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2%\n11x $32 $31 $29 $28 $27 $26 $24\nTerminal 12x $34 $33 $31 $30 $28 $27 $26\nValue 13x $36 $35 $33 $31 $30 $29 $27\nEBITDA 14x $38 $36 $35 $33 $32 $30 $29\nMultiple\n15x $40 $38 $37 $35 $33 $32 $30\n16x $42 $40 $38 $37 $35 $33 $32\nSource: J.P. Morgan estimates.\nTable 10: KVUE DCF Sensitivity Based on Perpetual Growth Rate\nDiscount Rate\n$32 4.2% 4.7% 5.2% 5.7% 6.2% 6.7% 7.2%\n0.0% $40 $35 $31 $28 $25 $23 $21\n0.5% $44 $38 $34 $30 $27 $24 $22\nLong-Term\n1.0% $50 $42 $37 $32 $29 $26 $23\nGrowth\n1.5% $58 $48 $41 $35 $31 $27 $25\nRate\n2.0% $69 $55 $46 $39 $34 $30 $26\n2.5% $87 $66 $53 $44 $37 $32 $28\nSource: J.P. Morgan estimates.\n40\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 41, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nMost Recent Point of Sales Trends in the\nU.S. (NielsenIQ)\nTracked Channel 4Y CAGR Accelerated Sequentially QTD in the U.S. Based on\nNielsenIQ\nThe most recent tracked channel data (QTD for 5-weeks ending 5/6) shows that\nKVUE(cid:726)s dollar takeaway (total company in tracked channel) was up +4.2% driven by\npricing (up +14.5%) while volumes were down -9.0%. This print shows a sequential\ndeceleration (only on the headline but when normalizing for the pandemic, it accelerated\non a 4-year CAGR) from 12-week period ending 4/1 (bracketing Q123) in which\nKVUE(cid:726)s dollar takeaway was up +5.5% (pricing up +11.9% while volume was down -\n5.7%). It also decelerated slightly from the 12-week period ending 12/31/22 (bracketing\n4Q22) which was up +4.4% (pricing up +11.0% but volume down -5.9%). On a 4Y\nCAGR basis, takeaway was up +4.1% for the 12-week period ending 12/31, +1.5% for\nthe 12-week period ending 4/01 and +2.3% in the 5-week period ending 5/06.\nFigure 52: KVUE(cid:726)s $ Takeaway in Tracked Channels Driven by Pricing\nRolling 12W Period Ending 5/06\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n-20.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ, J.P. Morgan\nBelow we lay out some of the most recent POS trends in the U.S. and how KVUE\nstacks up against peers among HPC companies. In the last 12 weeks, consumer\ntakeaway has been in the MSDs in the tracked channels measured by NielsenIQ in\nthe U.S., which places KVUE in the middle of the pack relative to peers, per the\ntables below.\n41\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 42, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 53: Takeaway Growth in Latest 4-Week Period (YOY change sorted by 4 weeks)\nYOY % Change in $ Takeaway 4-Yr CAGR\n$ Takeaway 1-Wk 4-Wk 12-Wk 52-Wk 1-Wk 4-Wk 12-Wk 52-Wk\nHNST 27.8% 24.7% 25.1% 19.8% 22.2% 18.6% 18.7% 17.0%\nCHD 6.1% 6.2% 7.8% 6.6% 5.7% 5.7% 5.7% 5.6%\nCLX 5.4% 5.2% 7.9% 4.8% 4.4% 4.6% 4.9% 4.3%\nPG 6.2% 4.9% 6.4% 6.2% 8.0% 7.1% 6.9% 6.9%\nUNLVR 4.1% 4.3% 6.2% 8.6% 5.6% 5.6% 6.0% 5.8%\nEPC -1.0% 4.0% 3.1% 4.7% 2.0% 3.0% 2.4% 1.7%\nKVUE 2.7% 3.8% 5.4% 1.1% 2.6% 2.3% 1.7% 2.8%\nKMB 4.2% 3.0% 3.4% 4.8% 3.3% 2.6% 2.2% 2.5%\nREYN 7.8% 2.7% 7.9% 11.2% 8.1% 6.3% 8.1% 7.9%\nENR 1.0% 1.3% 1.9% 6.6% 4.3% 3.8% 4.1% 4.5%\nCL 2.4% -0.2% 0.5% 4.8% 0.6% 1.0% 0.7% 2.0%\nNWL -24.6% -20.2% -16.8% -11.2% -4.7% -3.7% -3.7% -2.5%\nSource: NielsenIQ, J.P. Morgan. UNLVR (Unilever) is covered by Celine Pannuti.\nFigure 54: Weekly Growth Rates for HPC Companies (YOY change sorted by latest week)\nYOY % Change in Weekly $ Takeaway 4-Yr CAGR\n$ 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\nHNST 13.4% 38.6% 19.7% 27.8% 13.5% 23.5% 15.6% 22.2%\nREYN -0.8% 0.1% 4.1% 7.8% 5.3% 5.6% 6.3% 8.1%\nPG -0.8% 11.3% 3.1% 6.2% 5.6% 9.4% 5.6% 8.0%\nCHD 2.3% 11.9% 4.8% 6.1% 4.1% 7.6% 5.5% 5.7%\nCLX 4.5% 9.5% 1.4% 5.4% 4.2% 5.8% 3.9% 4.4%\nKMB -2.4% 9.4% 1.1% 4.2% 1.2% 4.1% 2.0% 3.3%\nUNLVR -2.6% 10.4% 6.0% 4.1% 3.8% 7.5% 5.8% 5.6%\nKVUE 0.8% 11.2% 1.1% 2.7% 1.6% 3.5% 1.6% 2.6%\nCL -5.8% 5.8% -2.9% 2.4% -0.9% 3.1% 1.2% 0.6%\nENR 0.0% 6.1% -1.8% 1.0% 3.5% 4.6% 3.0% 4.3%\nEPC 10.6% 14.3% -6.2% -1.0% 3.5% 4.7% 1.8% 2.0%\nNWL -27.4% -11.5% -16.9% -24.6% -6.0% -1.1% -3.1% -4.7%\nSource: NielsenIQ, J.P. Morgan. UNLVR (Unilever) is covered by Celine Pannuti.\nFigure 55: Company $ Takeaway Figure 56: Company Takeaway 2-Year Stack\nY/Y % Change ranked high to low in latest 4-week period Current 4-Week Period Takeaway + YAGO vs. Previous 4-Week + YAGO\n4-Wk 12-Wk 52-Wk Current Last Diff.\nHNST 24.7% 25.1% 19.8% ENR 4.0% -6.7% 1076\nCHD 6.2% 7.8% 6.6% KMB 16.1% 8.1% 797\nCLX 5.2% 7.9% 4.8% EPC 12.5% 5.9% 656\nPG 4.9% 6.4% 6.2% NWL -27.0% -31.6% 460\nUNLVR 4.3% 6.2% 8.6% REYN 17.4% 13.5% 395\nEPC 4.0% 3.1% 4.7% CL 5.2% 2.0% 320\nKVUE 3.8% 5.4% 1.1% KVUE -1.1% -3.1% 201\nKMB 3.0% 3.4% 4.8% CLX 5.7% 4.2% 147\nREYN 2.7% 7.9% 11.2% UNLVR 10.5% 9.2% 129\nENR 1.3% 1.9% 6.6% PG 11.9% 11.2% 72\nCL -0.2% 0.5% 4.8% CHD 11.5% 11.1% 41\nNWL -20.2% -16.8% -11.2% HNST 35.7% 43.4% (771)\nSource: NielsenIQ. J.P. Morgan Source: NielsenIQ. J.P. Morgan\n42\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 43, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 57: Y/Y % Change in Units Figure 58: Y/Y % Change in Price per Unit\nY/Y % Change ranked high to low in latest 4-week period Y/Y % Change ranked high to low in latest 4-week period\n4-Wk 12-Wk 52-Wk 4-Wk 12-Wk 52-Wk\nHNST 15.3% 12.6% 7.7% CL 15.5% 17.3% 14.8%\nCHD 1.8% 1.9% -0.7% CLX 15.1% 16.1% 15.9%\nPG -2.1% -0.8% -2.4% KVUE 14.5% 13.6% 10.6%\nKMB -3.6% -4.5% -2.5% REYN 14.3% 12.6% 15.6%\nUNLVR -5.3% -3.9% -4.8% EPC 11.0% 9.5% 9.4%\nENR -6.1% -8.5% -9.1% UNLVR 10.1% 10.5% 14.1%\nEPC -6.3% -5.8% -4.3% HNST 8.1% 11.1% 11.3%\nCLX -8.7% -7.1% -9.5% ENR 7.9% 11.3% 17.3%\nKVUE -9.4% -7.2% -8.6% PG 7.1% 7.2% 8.8%\nREYN -10.2% -4.1% -3.8% KMB 6.8% 8.3% 7.5%\nCL -13.6% -14.3% -8.8% CHD 4.4% 5.8% 7.4%\nNWL -21.7% -18.4% -15.1% NWL 1.8% 1.9% 4.6%\nSource: NielsenIQ. J.P. Morgan Source: NielsenIQ. J.P. Morgan\nFigure 59: Y/Y % Change in Velocity Figure 60: Y/Y % in Total Distribution Points\nY/Y % Change ranked high to low in latest 4-week period Y/Y % Change ranked high to low in latest 4-week period\n4-Wk 12-Wk 52-Wk 4-Wk 12-Wk 52-Wk\nKVUE 12.0% 12.1% 13.4% HNST 20.5% 21.2% 13.2%\nCLX 10.9% 11.7% 7.3% CHD 1.3% 2.3% 0.2%\nENR 10.8% 13.5% 19.5% REYN 1.2% 1.7% -0.8%\nKMB 7.2% 7.5% 6.8% PG 0.8% 1.8% 0.8%\nCL 6.0% 6.8% 8.5% EPC 0.6% -1.8% -3.2%\nUNLVR 4.9% 6.5% 14.2% UNLVR -0.5% -0.3% -4.9%\nCHD 4.8% 5.3% 6.4% KMB -3.9% -3.8% -1.9%\nPG 4.0% 4.5% 5.4% CLX -5.2% -3.4% -2.3%\nHNST 3.5% 3.2% 5.8% CL -5.8% -5.9% -3.4%\nEPC 3.4% 5.0% 8.2% KVUE -7.3% -6.0% -10.9%\nREYN 1.5% 6.2% 12.1% ENR -8.6% -10.2% -10.8%\nNWL -0.7% 0.1% 4.7% NWL -19.6% -16.9% -15.2%\nSource: NielsenIQ. J.P. Morgan Source: NielsenIQ. J.P. Morgan\nFigure 61: Y/Y% Change in TDP on Promotion Figure 62: Y/Y% Change in Promotional Efficiency\nY/Y % Change ranked high to low in latest 4-week period Y/Y % Change ranked high to low in latest 4-week period\n4-Wk 12-Wk 52-Wk 4-Wk 12-Wk 52-Wk\nHNST 3.5% 1.1% 0.0% NWL 6.0% 4.9% -0.2%\nENR 2.7% 1.8% 2.7% KVUE 5.3% 3.9% 0.2%\nKVUE 2.1% 1.4% 0.9% HNST 4.3% -1.9% -0.3%\nCHD 1.2% 0.7% 2.2% PG 2.9% 1.9% -1.6%\nEPC 0.4% -1.1% -2.0% CHD 1.7% 2.0% 2.8%\nCLX 0.2% 1.3% -0.3% CLX 1.6% 4.6% 3.0%\nPG -0.7% -0.5% -0.9% UNLVR 0.7% -1.5% -0.4%\nKMB -0.8% -0.3% -0.3% EPC 0.2% -0.7% -2.1%\nUNLVR -1.4% 0.6% 0.3% ENR -0.3% 1.5% 0.0%\nCL -1.5% -2.0% -1.3% CL -0.6% -1.6% -4.3%\nREYN -3.3% -0.3% -1.7% REYN -1.0% -1.1% 2.6%\nNWL -4.4% -0.9% 2.0% KMB -1.1% -2.8% -2.5%\nSource: NielsenIQ. J.P. Morgan Source: NielsenIQ. J.P. Morgan\n43\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 44, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nKey Brands POS Performance in the U.S.\nBelow we have added the latest POS trends in the U.S. as per NielsenIQ data for some\nof KVUE(cid:726)s iconic brands.\nFigure 63: Summary of $ Takeaway in Tracked Channel\n$ Takeaway (YOY) 4Y CAGR $ Takeaway (YOY)\n12W Ending 5W Ending 12W Ending 5W Ending\n12/31/2022 4/1/2023 5/6/2023 12/31/2022 4/1/2023 5/6/2023\nKVUE 4.4% 5.5% 4.2% 4.1% 1.5% 2.3%\nListerine -0.3% 7.4% 10.7% 1.4% 0.2% 1.5%\nTylenol 13.7% 14.6% 4.8% 14.7% 8.5% 10.5%\nZyrtec 3.5% 3.3% 6.8% 7.8% 5.2% 4.8%\nBenadryl 2.0% 4.5% 7.4% 6.3% 3.9% 4.4%\nAveeno -0.1% -0.9% 1.9% 2.0% 0.2% 0.9%\nNeutrogena -0.3% 4.4% 5.8% -2.2% -3.1% -1.8%\nBand Aid -0.2% 3.2% 7.2% 4.1% 3.8% 4.8%\nSource: NielsenIQ. J.P. Morgan\nThe latest NielsenIQ data shows that Listerine(cid:726)s dollar takeaway was up +10.7% driven\nby pricing, which was up +15.2%, while volume was down -3.9% in the latest five-\nweek period ending May 6. This is a sequential acceleration from the brand(cid:726)s dollar\ntakeaway for the 12-week period ending 4/1/23 (bracketing Q123), which was up +7.4%\n(pricing up +10.7% while volume was down -2.9%) and also improved from the 12-\nweek period ending 12/31/22, where the headline takeaway was flat (-0.3%), broken out\ninto pricing up +8.1% but volume down -7.7%. We note that the uptick may be\nattributable to easier comps in the base period, where headline takeaway was down -\n7.7% (pricing up +2.3% but volume down -9.8%) in the five-week period ending 5/7/22.\nNormalizing for the pandemic, takeaway was up +1.4% for the 12-week period ending\n12/31, flat (+0.2%) for the 12-week period ending 4/01, and +1.5% for the five-week\nperiod ending 5/06 on a four-year CAGR basis.\n44\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 45, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 64: $ Takeaway in Tracked Channels - Listerine\nRolling 12W Period Ending 5/06\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n-20.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nThe most recent tracked channel data shows that Tylenol(cid:726)s dollar takeaway was up\n+4.8% driven by pricing (up +12.8%) while volume was down (-7.1%) in the latest 5-\nweek period ending May 6. This print is a sequential deceleration on the headline (but\naccelerated on a four-year CAGR) from the 12-week period ending 4/01, where\nTylenol(cid:726)s takeaway was up +14.6% (pricing +14.4%, volume flat or +0.2%). It also\ndecelerated from the 12-week period ending 12/31/22 in which the brand(cid:726)s takeaway\nwas up +13.7% (pricing up +12.8% and volume slightly up +0.9%). As it relates to four-\nyear CAGR, takeaway was up +14.7% for the 12-week period ending 12/31, +8.5% for\nthe 12-week period ending 4/01, and +10.5% for the five-week period ending 5/06.\nFigure 65: $ Takeaway in Tracked Channels - Tylenol\nRolling 12W Period Ending 5/06\n50.0%\n40.0%\n30.0%\n20.0%\n10.0%\n0.0%\n-10.0%\n-20.0%\n-30.0%\n-40.0%\n-50.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nThe latest NielsenIQ data points to Zyrtec(cid:726)s consumption up +6.8% (pricing up +10.2%\nwhile volume down -3.1%) in the latest five-week period ending May 6. This print is an\nacceleration from dollar takeaway up +3.3% (pricing up +7.3%, volume down -3.8%) in\nthe 12-week period ending 4/01, and consumption up +3.5% (pricing up +7.6% but\nvolume down -3.8%) for the 12-week period ending 12/31/22. However, we note that\n45\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 46, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nthere has been a sequential deceleration on a four-year CAGR basis where Zyrtec(cid:726)s\ntakeaway was up +7.8% for the 12-week period ending 12/31, +5.2% for the 12-week\nperiod ending 4/01, and +4.8% for the five-week period ending 5/06.\nFigure 66: $ Takeaway in Tracked Channels - Zyrtec\nRolling 12W Period Ending 5/06\n30.0%\n25.0%\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n-20.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nThe most recent tracked channel data shows that headline consumption for Benadryl\nwas up +7.4% (pricing up +16.3% but volume down -7.7%) for the five-week period\nending 5/06, which sequentially accelerated both on a headline and on four-year CAGR\nbasis. Benadryl(cid:726)s dollar takeaway was up +4.5% (pricing up +12.5%, volume down -\n7.1%) for the 12-week period ending 4/1/23 and was up +2.0% (pricing up +11.2% but\nvolume down -8.3%) for the 12-week period ending 12/31/22. As it relates to four-year\nCAGR, takeaway was up +6.3% for the 12-week period ending 12/31, +3.9% for the\n12-week period ending 4/01, and +4.4% for the five-week period ending 5/06.\nFigure 67: $ Takeaway in Tracked Channels - Benadryl\nRolling 12W Period Ending 5/06\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n-20.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nAs per the most recent data from NielsenIQ, Aveeno(cid:726)s dollar takeaway was slightly up\n+1.9%, with pricing (up +18.2%) being the main driver, while volume was down -\n46\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 47, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\n13.8% in the five-week period ending May 6. This is a sequential acceleration from the\n12-week period ending 4/1/23, where headline consumption was slightly down -0.9%\n(pricing up +13.9% while volume was down -13.0%). Dollar takeaway was flat (-0.1%),\nbroken out into pricing up +9.7% but volume down -8.9% in the 12-week period ending\n12/31/22. The brand appears to have easier comps in the prior period, when headline\nconsumption was down -6.7% (flat or +0.3% pricing and -7.0% volume) in the five-\nweek period ending 5/7/22. On a four-year CAGR basis, takeaway was modestly up\n+2.0% for the 12-week period ending 12/31 and was flat (+0.2%) for the 12-week\nperiod ending 4/01, while it was slightly up sequentially by +0.9% for the five-week\nperiod ending 5/06.\nFigure 68: $ Takeaway in Tracked Channels - Aveeno\nRolling 12W Period Ending 5/06\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nThe latest tracked channel data point to Neutrogena(cid:726)s dollar takeaway improving with\nconsumption up +5.8% (pricing up +11.2%, volume down -4.9%) in the latest five-week\nperiod ending May 6 and compares to dollar takeaway down -10.0% (pricing +0.5%,\nvolume -10.5%) in the prior period. As mentioned, this is a sequential acceleration from\nthe 12-week period ending 4/1/23 where the data shows that dollar takeaway was up\n+4.4% (pricing was up +8.6% while volume was down -3.9%), and this too was a\nsequential improvement from consumption slightly down (-0.3%, broken out into\npricing up +8.2% but volume down -7.8%) in the 12-week period ending 12/31/22.\nLooking at longer term trends, four-year CAGR consumption was down -2.2% in the\n12-week period ending 12/31/22 and decelerated to -3.1% in the 12-week period ending\n4/01 but was less negative (down -1.8%) in the five-week period ending 5/06.\n47\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 48, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 69: $ Takeaway in Tracked Channels - Neutrogena\nRolling 12W Period Ending 5/06\n30.0%\n20.0%\n10.0%\n0.0%\n-10.0%\n-20.0%\n-30.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\nThe most recent tracked channel data shows that Band Aid(cid:726)s dollar takeaway was up\n+7.2%, with pricing (+16.8%) being the main driver, while volume was down -8.3%,\nwhich improved from both consumption up +3.2% (pricing +12.1%, volume -7.9%) for\nthe 12-week period ending 4/1/23 and flat (-0.2%, pricing up +11.4% but volume down\n-10.4%) in the 12-week period ending 12/31/22. The brand(cid:726)s four-year CAGR for\nconsumption was up +4.1% in the 12-week period ending 12/31/22, +3.8% in the 12-\nweek period ending 4/01, and +4.8% in the five-week period ending 5/06.\nFigure 70: $ Takeaway in Tracked Channels - Band Aid\nRolling 12W Period Ending 5/06\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\n-5.0%\n-10.0%\n-15.0%\n1111111111111222222222222233333\n2222222222222222222222222222222\n/6/3/3/0/8/5/3/1/8/5/3/0/8/5/2/2/9/7/4/2/0/7/4/2/9/7/4/1/1/8/6\n1111000322221111000032221111100\n/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5/6/7/7/8/9/0/1/2/1/2/3/4/5\n0000000000111000000000011100000\nSales Volume Pricing\nSource: NielsenIQ. J.P. Morgan\n48\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 49, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFinancial Statements\nIncome Statement Historical & Estimates\nTable 11: KVUE Income Statement\n$ million, except per share values\nIncome Statement 2019 2020 2021 2022 2023E 2024E 2025E\nRevenue 14,324 14,467 15,054 14,950 15,662 16,289 16,973\n% change 1.0% 4.1% -0.7% 4.8% 4.0% 4.2%\nCost of goods sold 6,633 6,585 6,587 6,610 6,800 7,050 7,246\nAmortization of definite life intangible assets 344 415 414 348 324 305 283\nGross profit, adjusted 8,035 8,297 8,881 8,688 9,186 9,544 10,010\nas a % of revenue 56.1% 57.4% 59.0% 58.1% 58.7% 58.6% 59.0%\nChange as % of revenue (bps) 125 164 (88) 54 (6) 38\nGross profit, adjusted incl.-Amortization of definite life intangible assets 7,691 7,882 8,467 8,340 8,862 9,239 9,727\nas a % of revenue 53.7% 54.5% 56.2% 55.8% 56.6% 56.7% 57.3%\nChange as % of revenue (bps) 79 176 (46) 80 14 59\nSelling, general and administrative expenses 4,760 4,588 5,061 5,000 5,305 5,515 5,659\nas a % of revenue 33.2% 31.7% 33.6% 33.4% 33.9% 33.9% 33.3%\nChange as % of revenue (bps) (152) 191 (17) 42 (1) (51)\nResearch & development 391 320 355 375 412 421 434\nas a % of revenue 2.7% 2.2% 2.4% 2.5% 2.6% 2.6% 2.6%\nChange as % of revenue (bps) (51) 14 15 12 (4) (3)\nStock-based compensation expense (0) (0) (0) (0) 1 (0) 0\nOther expense/(income) 149 (55) (28) 3 (19) (40) (40)\nOperating Income, adjusted 2,736 3,444 3,493 3,310 3,487 3,648 3,957\nas a % of revenue 19.1% 23.8% 23.2% 22.1% 22.3% 22.4% 23.3%\nChange as % of revenue (bps) 471 (60) (106) 13 13 91\nOperating Income, adjusted incl.-Amortization of definite life intangible assets 2,392 3,029 3,079 2,962 3,164 3,344 3,674\nas a % of revenue 16.7% 20.9% 20.5% 19.8% 20.2% 20.5% 21.6%\nChange as % of revenue (bps) 0.0% 42385.1% -4798.0% -6439.7% 3872.1% 3297.9% 11168.4%\nInterest income 0 0 0 0 46 39 27\nInterest expense 0 0 0 0 329 418 395\nOther income/(expense) - - - - - - -\nPretax Income, adjusted 2,736 3,444 3,493 3,310 3,204 3,270 3,589\nas a % of revenue 19.1% 23.8% 23.2% 22.1% 20.5% 20.1% 21.1%\nPretax Income, adjusted incl.-Amortization of definite life intangible assets 2,392 3,029 3,079 2,962 2,881 2,965 3,307\nas a % of revenue 16.7% 20.9% 20.5% 19.8% 18.4% 18.2% 19.5%\nTaxes, adjusted 679 741 782 721 800 819 896\nAdjusted Tax Rate 24.8% 21.5% 22.4% 21.8% 25.0% 25.0% 25.0%\nTaxes, adjusted incl.-Amortization of definite life intangible assets 667 703 731 676 739 761 843\nAdjusted Tax Rate incl.-Amortization of definite life intangible assets 27.9% 23.2% 23.7% 22.8% 25.6% 25.7% 25.5%\nNet Income adjusted (non-GAAP) 2,057 2,703 2,711 2,589 2,404 2,451 2,693\nas a % of revenue 14.4% 18.7% 18.0% 17.3% 15.4% 15.0% 15.9%\nNet Income adjusted incl.-Amortization of definite life intangible assets 1,725 2,326 2,349 2,286 2,142 2,204 2,464\nas a % of revenue 12.0% 16.1% 15.6% 15.3% 13.7% 13.5% 14.5%\nDiluted EPS, adjusted $1.06 $1.40 $1.40 $1.34 $1.24 $1.27 $1.39\n% change 31% 0% -5% -7% 2% 10%\nDiluted EPS, adjusted incl.-Amortization of definite life intangible assets $0.89 $1.20 $1.21 $1.18 $1.11 $1.14 $1.27\n% change 35% 0% -3% -6% 3% 12%\nAverage Shares Outstanding - Diluted 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1 1,935.1\nAdjusted EBITDA 3,101 3,775 3,810 3,606 3,797 3,983 4,308\nas a % of revenue 21.6% 26.1% 25.3% 24.1% 24.2% 24.5% 25.4%\nChange as % of revenue (bps) 445 (78) (119) 13 21 93\nSource: Company reports and J.P. Morgan estimates.\n49\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 50, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nBalance Sheet Historical & Estimates\nTable 12: KVUE Balance Sheet\n$ million\nBalance Sheet 2019 2020 2021 2022 2023E 2024E 2025E\nCash and cash equivalents 7 52.0 6 17.6 7 40.0 1 ,231.4 1 ,014.1 1 ,012.8 9 80.9\nTrade 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\nInventories 1 ,779.3 1 ,685.1 1 ,701.8 2 ,226.3 1 ,957.5 1 ,852.3 1 ,818.7\nPrepaid expenses & other current assets 3 35.1 2 75.3 2 54.2 1 70.7 1 78.9 1 87.6 1 93.8\nOther current assets 1 17.4 1 61.6 1 54.0 1 23.4 1 23.4 1 23.4 1 23.4\nTotal Current Assets 5 ,142.5 4 ,597.6 4 ,923.7 5 ,873.7 5 ,554.8 5 ,546.3 5 ,588.2\nPP&E, net 2 ,147.2 1 ,956.6 1 ,826.6 1 ,820.2 1 ,926.7 2 ,074.1 2 ,226.6\nIntangible assets, net 1 1,490.0 1 1,610.4 1 0,701.2 9 ,853.5 9 ,904.9 1 0,100.3 1 0,567.4\nGoodwill 9 ,726.4 1 0,326.1 9 ,810.1 9 ,184.6 9 ,184.6 9 ,184.6 9 ,184.6\nDeferred taxes on income 1 82.4 1 93.3 1 88.7 1 43.9 1 43.9 1 43.9 1 43.9\nOther assets 5 22.4 4 95.9 4 01.4 4 04.3 4 04.3 4 04.3 4 04.3\nTotal non-current Assets 2 4,068.4 2 4,582.3 2 2,927.9 2 1,406.4 2 1,564.3 2 1,907.1 2 2,526.7\nTotal Assets 2 9,210.9 2 9,179.8 2 7,851.6 2 7,280.0 2 7,119.1 2 7,453.4 2 8,115.0\nAccounts payable 1 ,408.5 1 ,579.3 1 ,826.5 1 ,829.4 1 ,853.3 1 ,936.9 2 ,000.6\nAccrued liabilities 8 02.5 1 ,014.0 1 ,023.6 9 06.3 9 39.6 9 85.3 1 ,017.7\nAccrued rebates, returns and promotions 9 30.9 8 74.6 8 34.4 8 62.2 9 00.9 9 36.2 9 76.3\nAccrued taxes on income 4 83.1 4 09.7 3 66.4 3 36.1 3 54.8 3 68.7 3 84.5\nOther current liabilities - - - - - - -\nTotal Current Liabilities 3 ,625.1 3 ,877.7 4 ,051.0 3 ,934.0 4 ,048.6 4 ,227.1 4 ,379.1\nLong-term debt, net of current maturities - - - - 8 ,512.1 8 ,309.8 8 ,121.7\nEmployee related obligations 3 03.4 3 45.0 3 02.2 2 13.5 2 13.5 2 13.5 2 13.5\nDeferred taxes on income 2 ,467.2 2 ,781.7 2 ,729.0 2 ,462.8 2 ,462.8 2 ,462.8 2 ,462.8\nOther long-term liabilities 7 26.7 8 04.7 7 54.0 7 27.0 7 27.0 7 27.0 7 27.0\nTotal Non-current Liabilities 3 ,497.3 3 ,931.4 3 ,785.2 3 ,403.3 1 1,915.4 1 1,713.0 1 1,525.0\nTotal Liabilities 7 ,122.4 7 ,809.1 7 ,836.2 7 ,337.2 1 5,964.0 1 5,940.1 1 5,904.1\nTotal Equity 2 2,088.5 2 1,370.7 2 0,015.4 1 9,942.8 1 1,155.2 1 1,513.3 1 2,210.9\nTotal Liabilities and Equity 2 9,210.9 2 9,179.8 2 7,851.6 2 7,280.0 2 7,119.1 2 7,453.4 2 8,115.0\nSource: Company reports and J.P. Morgan estimates.\n50\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 51, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nCash Flow Historical & Estimates\nTable 13: KVUE Cash Flow Statement\n$ million\nCash Flow Statement 2019 2020 2021 2022 2023E 2024E 2025E\nOperating Activities\nNet income 1 ,724.8 2 ,325.8 2 ,348.8 2 ,286.0 2 ,142.1 2 ,203.8 2 ,463.9\nPost-tax amortization 3 32.1 3 77.2 3 62.4 3 02.7 2 80.9 2 64.4 2 45.5\nDepreciation 3 65.1 3 31.3 3 17.4 2 96.0 3 10.2 3 34.9 3 51.7\nTax impact on amortization 1 2.1 3 8.0 5 1.1 4 5.3 4 2.7 4 0.2 3 7.3\nStock-based compensation expense 1 02.4 1 15.5 1 41.3 1 37.1 1 41.8 1 46.0 1 50.4\nOther operating activities 1 46.0 2 4.0 2 0.3 1 3.0 - - -\nDeferred income taxes 1 60.9 1 09.1 ( 159.2) ( 104.9) - - -\nOther current and non-current assets 5 1.4 2 9.9 3 0.2 7 5.9 ( 8.1) ( 8.7) ( 6.2)\nAccrued liabilities 4 0.6 1 23.0 4 9.8 ( 17.0) 7 2.1 8 1.0 7 2.5\nEmployee related obligations 3 .4 0 .2 1 3.7 2 .0 - - -\nAccrued taxes on income 1 66.1 ( 82.9) ( 26.7) ( 6.8) 1 8.7 1 3.9 1 5.8\nOther liabilities 1 15.4 8 5.0 ( 22.7) 4 9.7 - - -\nSeparation Costs - - - - ( 312.4) ( 222.0) ( 59.5)\nTrade receivables 4 0.2 2 64.8 ( 303.1) ( 142.0) ( 159.2) ( 89.3) ( 101.1)\nInventories 1 80.0 1 08.9 ( 76.8) ( 582.0) 2 68.9 1 05.2 3 3.6\nAccounts payable 2 .6 1 54.0 3 30.5 5 2.0 2 3.9 8 3.6 6 3.7\nNet change in operating working capital 2 22.7 5 27.7 ( 49.4) ( 672.0) 1 33.5 9 9.4 ( 3.8)\nNet 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\nInvesting Activities\nPurchase of property, plant and equipment ( 288.9) ( 229.0) ( 294.9) ( 374.8) ( 416.7) ( 482.2) ( 504.2)\nAcquisitions, investments, and proceeds from disposal of assets/businesses/investments ( 1,866.1) 1 45.5 1 23.4 ( 14.9) ( 375.0) ( 500.0) ( 750.0)\nOther - - - - - - -\nNet cash (used in) provided by investing activities ( 2,155.0) ( 83.4) ( 171.5) ( 389.6) ( 791.7) ( 982.2) ( 1,254.2)\nFinancing Activities\nProceeds from loans and notes payable - - - 1 4.3 8 ,995.0 - -\nRepayments of debt ( 40.2) ( 11.4) ( 7.0) - ( 482.9) ( 202.3) ( 188.0)\nNet share issuance - - - - ( 72.0) ( 198.5) ( 238.7)\nDividends paid - - - - ( 774.1) ( 1,571.3) ( 1,618.5)\nNet transfer from (to) the parent ( 1,090.6) ( 4,052.1) ( 2,735.7) ( 1,478.8) ( 9,913.0) - -\nOther - - - - - - -\nNet 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)\nEffect of exchange rate changes ( 10.6) 8 .7 ( 40.6) ( 61.5) - - -\nNet (dec)/increase in cash and equivalents 1 46.6 ( 134.4) 1 22.4 4 91.5 ( 217.3) ( 1.4) ( 31.9)\nCash at beginning of period 6 05.4 7 52.0 6 17.6 7 40.0 1 ,231.4 1 ,014.1 1 ,012.8\nCash at end of period 7 52.0 6 17.6 7 40.0 1 ,231.4 1 ,014.1 1 ,012.8 9 80.9\nFree Cash Flow 3 ,154.2 3 ,774.8 2 ,782.4 2 ,032.4 2 ,404.7 2 ,470.7 2 ,763.3\nFCF Conversion 153% 140% 103% 79% 100% 101% 103%\nSource: Company reports and J.P. Morgan estimates.\n51\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 52, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nStrong, Global Management Team\nKVUE has a strong, seasoned management team that will benefit from continuity as\nmany of the c-level executives ushered in the strategic transformation beginning in the\n2019 time frame through the IPO. Moreover, the consumer segment largely operated\nindependently within JNJ historically, and as such, even after the separation, the\norganization should be well positioned to continue life as a public company. The\nmanagement team has around 18 years of experience in consumer goods and healthcare\non average and is a diverse group including over 58% women and representing nine\ndifferent nationalities. Below, we highlight some of the key members of the executive\nteam.\n\u2022 Thibaut Mongon, CEO \u2013 Mr. Mongon served as Executive Vice President and\nWorldwide Chairman, Consumer Health at Johnson & Johnson since 2019 and had\nbeen with the company since 2000. Mr. Mongon joined the Consumer Health\norganization in 2014 as Group Chairman Asia-Pacific and prior to that joined the\nPharmaceutical sector in 2012 as Global Commercial Strategy Leader for the\nNeuroscience therapeutic division.\n\u2022 Paul Ruh, CFO \u2013 Mr. Ruh joined Johnson & Johnson in 2017 as Chief Financial\nOfficer, Consumer Health. Prior to Johnson & Johnson, Mr. Ruh held several\nfinancial leadership roles at PepsiCo, including CFO of Latin America, CFO of\nPBA, and CFO PepsiCo Foodservice. Prior to PepsiCo, Mr. Ruh held roles at\nProcter & Gamble and McKinsey. All together, Mr. Ruh has over 30 years\nexperience in the consumer goods sector.\n\u2022 Jan Meurer, Chief Growth Officer \u2013 Mr. Meurer joined Johnson & Johnson in\n2015 and most recently served as Global Head of Strategy, Consumer Health. Prior\nto that, Mr. Meurer held the roles of President, Johnson & Johnson Southeast Asia\nand Area Managing Director Central Europe, Consumer Health. Prior to Johnson &\nJohnson, Mr. Meurer spent time at Procter & Gamble, PGT Healthcare, and Siemens\nTechnologies. All together, Mr. Meurer has over 25 years experience building\nconsumer brands.\n\u2022 Meredith (Meri) Stevens, Chief Operations Officer \u2013 Ms. Stevens joined Johnson\n& Johnson in 2015 and most recently served as Worldwide Vice President,\nConsumer Health Supply Chain and Deliver. Prior to that, Ms. Stevens led Supply\nChain Strategy and Deployment at Johnson & Johnson. Prior to Johnson & Johnson,\nMs. Stevens held roles at Newell Rubbermaid (Chief Supply Chain Officer) and\nTyco, Bertelsmann, Knoll, and General Electric in operations and procurement\nleadership positions. All together, Ms. Stevens has over 30 years of operations\nexperience.\n52\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 53, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nGlobal and U.S. Sales and Market Share\nTrends\nWe did a deep dive into the various categories pertinent to KVUE using a few data\nsources including Euromonitor, which includes a global perspective; NielsenIQ, mainly\nfor market share analysis and sales trends within the U.S.; and independent consultant\nNumerator data for U.S. household penetration. Below we delve further into our\nanalysis by the different categories and brands. We also highlight the global note we\ncollaborated on last year (link).\nConsidering KVUE(cid:726)s key categories globally, including analgesics, allergy care,\nmouthwash, digestive remedies, baby care, body care, sun care, and smoking cessation,\nthe company has the largest global market share in mouthwash and smoking cessation,\nabove 30% each, with allergy care and baby care following in the mid to high teens,\ndigestive remedies, analgesics, and adult mass sun care in HSDs, and mass skin care\n(including face care and body care) at about MSD global market share as per data from\nEuromonitor. We explore KVUE(cid:726)s global market share in depth under the three\nsegments below.\nFigure 71: Global Market Share by Category\n40.0%\n35.0%\n30.0%\n25.0%\n20.0%\n15.0%\n10.0%\n5.0%\n0.0%\nBaby Care Mouthwash Skin Care Smoking Digestive Sun Care Analgesics Allergy Care\nCessation Remedies\nSource: Euromonitor, J.P. Morgan\nLooking further into each of these key categories(cid:726) market share performance in crucial\nmarkets including the U.S., UK, China, India, and Brazil gives us a better sense of how\nKVUE(cid:726)s market share is doing in these geographies, as per Euromonitor data. Starting\nwith the mouthwash category, KVUE has a market share of about ~45% in the U.S. and\n~40% in the UK, with market share of roughly 30% in both Brazil and China. Although\nKVUE has an extremely high market share of over 70% in the Indian market, it is\ncomparatively a much smaller region in terms of revenues for the company. Overall,\nKVUE has a market share of 35.1% globally. For smoking cessation, KVUE has 31.4%\nglobal market share, and we note that KVUE distributes the brand Nicorette only\noutside the U.S., where the company has a market share above 40% in both the U.K.\nand Brazil, among the regions we are analyzing.\n53\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 54, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 72: Market Share by Country - Mouthwash Figure 73: Market Share by Country - Smoke Cessation\n80.0% 42.0%\n70.0% 41.8%\n41.6%\n60.0%\n41.4%\n50.0%\n41.2%\n40.0%\n41.0%\n30.0%\n40.8%\n20.0%\n40.6%\n10.0% 40.4%\n0.0% 40.2%\nBrazil China India UK USA Brazil UK\nSource: Euromonitor, J.P. Morgan Source: Euromonitor, J.P. Morgan\nFrom the regions we are considering, KVUE has the largest market share in the U.S.\n(~27%) followed by China at about 15% and the UK with 9% in the allergy category,\nwhereas globally it is 17.2%. KVUE(cid:726)s baby care category is more prevalent outside the\nU.S., especially with its iconic brand, Johnson(cid:726)s. As such, the Euromonitor data\nunsurprisingly points to higher market share in emerging markets with India of 32.5%\nand Brazil of 23.1%. KVUE has a total market share of 14.4% globally.\nFigure 74: Market Share by Country - Allergy Figure 75: Market Share by Country - Baby Care\n30.0% 35.0%\n25.0% 30.0%\n25.0%\n20.0%\n20.0%\n15.0%\n15.0%\n10.0%\n10.0%\n5.0% 5.0%\n0.0% 0.0%\nChina UK USA Brazil China India UK USA\nSource: Euromonitor, J.P. Morgan Source: Euromonitor, J.P. Morgan\nEuromonitor shows that KVUE has higher market share in the U.S. (10%) and the UK\n(9.9%) in the digestive remedies category, while the company has a market share of\n7.2% in the category globally. For OTC analgesics/pain relief, KVUE has a global\nmarket share of 7.1%, with the largest market share in the U.S. of 20.5% followed by\nthe UK of 11.3%.\n54\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 55, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 76: Market Share by Country - Digestive Remedies Figure 77: Market Share by Country - Analgesics\n12.0% 25.0%\n10.0%\n20.0%\n8.0%\n15.0%\n6.0%\n10.0%\n4.0%\n5.0%\n2.0%\n0.0% 0.0%\nBrazil China India UK USA Brazil China UK USA\nSource: Euromonitor, J.P. Morgan Source: Euromonitor, J.P. Morgan\nTurning to beauty, KVUE has global market share of 8.2% in mass adult sun care and\n4.4% in skin care (including market share of 6.3% in mass body care and 4.1% in mass\nface care \u2013 more below under segment analysis), according to data from Euromonitor.\nThe company has market share of 37.4% in Brazil and 16.0% in the U.S. in the sun care\ncategory and 12.4% in the U.S. and 6.1% market share in Brazil in the mass skin care\ncategory.\nFigure 78: Market Share by Country - Sun Care Figure 79: Market Share by Country - Body Care\n40.0% 14.0%\n35.0% 12.0%\n30.0%\n10.0%\n25.0%\n8.0%\n20.0%\n6.0%\n15.0%\n4.0%\n10.0%\n5.0% 2.0%\n0.0% 0.0%\nBrazil China India UK USA Brazil China India UK USA\nSource: Euromonitor, J.P. Morgan Source: Euromonitor, J.P. Morgan\nAdditionally, we looked at five-year CAGR growth rates (2017 to 2022) of KVUE(cid:726)s\ncategories. The Euromonitor data shows analgesics/pain care (+9.1%), pediatric\nconsumer health (+7.5%), digestive (+6.0%), and allergy (+5.1%) had the highest five-\nyear CAGR growth rates globally. Similarly in the U.S., categories with the largest five-\nyear CAGRs include pediatric consumer health (+13.3%), analgesics/pain care\n(+12.6%), and digestive (+12.3%). This is in line with management(cid:726)s commentary that\nthe company concentrated on products that were in high retail demand, especially\nduring the pandemic. Based on KVUE(cid:726)s largest categories as per the Euromonitor data,\nskin care grew +2.9%, baby/child products increased by +1.0%, and oral care increased\n+2.8% on a five-year CAGR globally, and in the U.S. the data shows that the largest\ncategories include mass skin care, including mass body care and facial care (+2.5%),\nand allergy care (+5.3%) besides analgesics/pain care (+12.6%) as mentioned above.\nSee below scatter plots for market share both globally and in the U.S.\n55\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 56, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 80: Global Market Share Growth by Category\nY-Axis: KVUE Market Share change (2017 - 2022); X-Axis: KVUE Category 5Y CAGR\n300\nSmoke Cessation Allergy\n200\n100 Bath/ Hygiene Analgesics\nHaircare\nShowerWound\n0\nCare\nDigestive\n-100 Paediatric Consumer\nHealth\n-200 Sun Care\n-300 Dermatologicals\nBaby/Child\n-400\nProducts\n-500\n-2% 0% 2% 4% 6% 8% 10%\nSource: Euromonitor, J.P. Morgan\nFigure 81: U.S. Market Share Growth by Category\nY-Axis: KVUE Market Share change (2017 - 2022); X-Axis: KVUE Category 5Y CAGR\n1200 Paediatric Consumer\n1000 Health\n800\n600 Analgesics\n400\n200 Oral Dermatologicals Allergy Digestive\nCare\nWound Care\n0Baby/Child Hygiene\nProducts\n-200\nSun Care\n-400 Eye\n-600 Care Skin\nCare\n-2% 0% 2% 4% 6% 8% 10% 12% 14%\nSource: Euromonitor, J.P. Morgan\nHousehold Penetration in the U.S. Is Strong in Key Brands Yet Can Grow Further\nTo analyze the household penetration (HHP) of some of KVUE(cid:726)s iconic brands in the\nU.S., we looked at an independent data vendor, Numerator. The sequential changes are\nvaluable to check, but we caveat the data in absolute terms may not be very reliable\ngiven that it is based on consumers providing receipts, which we feel tends to skew\ntoward younger consumers, although the company notes matching to U.S. Census.\nUsing the HHP trends for the 52-week period ending 4/30, Tylenol (32.1%), Listerine\n(28.9%), and Neutrogena (25.6%, in the face care category) appear to have some of the\nhighest household penetration in the U.S., although the data shows a deceleration in\nHHP especially for the latter two brands. Note that Listerine(cid:726)s HHP has been worse\nrecently, while UW-rated Church & Dwight(cid:726)s TheraBreath HHP has improved (more\nbelow under NielsenIQ). Additionally, the data points to high private label HHP,\nespecially in the categories pertaining to the Self Care segment that we examined below.\nAs such, management noted that the U.S. Self Care business has higher private label\nexposure of about 25-30%, although this is much lower (~10%) for the overall company\nin aggregate. We have provided more details in the tables below.\n56\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 57, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 82: Household Penetration - Allergy Care Figure 83: Household Penetration - Pain Relievers\n52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23 52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23\n2019 2020 2021 2022 2023 2019 2020 2021 2022 2023\nPrivate Label 62.6% 65.5% 59.3% 60.7% 59.4%\nPrivate Label 42.9% 45.2% 41.7% 43.2% 42.3%\nTylenol 24.9% 32.2% 29.3% 32.4% 32.1%\nBenadryl 13.3% 14.1% 13.6% 14.5% 13.0%\nAdvil 19.6% 20.7% 18.2% 18.8% 19.4%\nClaritin 10.5% 10.9% 10.3% 11.1% 10.0% Aleve 18.0% 17.5% 14.6% 14.2% 12.3%\nZyrtec 9.2% 9.1% 9.4% 10.0% 9.7% Motrin 9.2% 10.3% 7.2% 9.7% 9.8%\nBayer 10.8% 10.7% 12.0% 11.6% 9.7%\nFlonase 7.0% 6.7% 6.0% 6.8% 6.8%\nExcedrin 10.8% 9.7% 7.3% 8.6% 7.7%\nAllegra 6.2% 6.0% 5.8% 6.3% 6.2% Midol 2.5% 2.8% 2.9% 3.2% 3.1%\nSource: Numerator, J.P. Morgan Source: Numerator, J.P. Morgan\nFigure 84: Household Penetration - Cold, Cough & Flu Figure 85: Household Penetration - Digestive Remedies\n52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23 52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23\n2019 2020 2021 2022 2023 2019 2020 2021 2022 2023\nPrivate Label 58.6% 61.7% 42.2% 54.0% 56.6% Private Label 54.7% 56.6% 54.4% 55.0% 53.6%\nVicks 27.8% 31.9% 21.9% 34.3% 36.9% Tums 19.2% 21.2% 21.2% 21.8% 20.9%\nHalls 32.0% 32.7% 20.2% 28.8% 31.1% Pepto-Bismol 12.1% 13.3% 13.1% 15.3% 15.2%\nMucinex 21.8% 22.1% 13.6% 23.8% 27.5% Dulcolax 6.9% 7.3% 8.4% 9.1% 9.6%\nRicola 17.2% 18.4% 10.7% 18.2% 21.1%\nMiralax 7.4% 6.6% 7.3% 8.6% 8.2%\nRobitussin 10.9% 11.6% 5.7% 10.4% 11.9%\nImodium 6.2% 6.1% 5.3% 6.8% 6.5%\nTheraFlu 6.4% 7.0% 3.5% 5.8% 7.0%\nAlka-Seltzer 6.7% 7.0% 8.1% 7.1% 5.9%\nSudafed 5.9% 6.5% 4.1% 6.3% 6.1%\nPepcid 2.5% 3.8% 4.6% 5.0% 4.3%\nZarbee's 4.9% 6.0% 3.4% 5.3% 5.3%\nSource: Numerator, J.P. Morgan Source: Numerator, J.P. Morgan\nFigure 86: Household Penetration - Mouthwash Figure 87: Household Penetration - Sun Care\n52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23 52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23\n2019 2020 2021 2022 2023 2019 2020 2021 2022 2023\nListerine 32.1% 33.0% 32.3% 31.9% 28.9% Banana Boat 19.8% 19.3% 17.7% 21.4% 21.7%\nCrest 21.8% 23.6% 23.4% 24.4% 23.0% Private Label 22.3% 21.2% 19.3% 20.4% 19.7%\nPrivate Label 24.9% 25.2% 23.7% 21.6% 20.1% Coppertone 15.6% 14.0% 13.1% 15.2% 15.5%\nACT (Oral Care) 9.0% 9.1% 8.7% 8.0% 8.3% Neutrogena 13.9% 13.7% 15.0% 14.4% 15.2%\nColgate 9.7% 8.4% 7.1% 7.0% 5.8% Jergens 5.4% 5.3% 4.7% 5.6% 5.4%\nTheraBreath 1.3% 1.5% 3.0% 3.4% 4.9% CeraVe 1.8% 2.0% 2.8% 3.3% 5.2%\nAveeno 2.8% 2.6% 3.3% 2.8% 2.2%\nL'Oreal Paris 1.7% 1.5% 1.4% 1.5% 1.5%\nSource: Numerator, J.P. Morgan Source: Numerator, J.P. Morgan\n57\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 58, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 88: Household Penetration - Body Care Figure 89: Household Penetration - Face Care\n52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23 52W-period ending 5/5/19, 5/3/20, 5/2/21, 5/1/22 and 4/30/23\n2019 2020 2021 2022 2023 2019 2020 2021 2022 2023\nGold Bond 14.6% 14.7% 14.6% 15.2% 14.5% Private Label 39.4% 41.0% 36.3% 34.5% 32.9%\nBath & Body Works 22.3% 22.0% 19.1% 20.0% 14.1% Neutrogena 28.7% 28.5% 27.5% 27.5% 25.6%\nPrivate Label 19.2% 17.8% 15.6% 13.9% 13.1% CeraVe 3.9% 5.3% 11.0% 13.6% 15.4%\nVaseline 11.9% 11.8% 12.6% 12.3% 12.4% Cetaphil 7.9% 9.1% 10.4% 11.1% 10.6%\nL'Oreal Paris 8.8% 8.4% 8.8% 7.6% 7.9%\nNivea 11.4% 12.5% 13.4% 12.9% 11.6%\nClean & Clear 14.5% 13.2% 11.1% 10.1% 7.1%\nAveeno 11.2% 11.2% 11.7% 11.0% 11.4%\nAveeno 6.6% 6.0% 6.1% 6.4% 4.8%\nCeraVe 4.7% 5.9% 8.9% 10.4% 11.1%\nEucerin 6.0% 6.7% 7.3% 7.8% 6.8%\nOlay 1.3% 1.4% 1.8% 1.9% 2.2%\nNeutrogena 2.2% 2.2% 2.3% 2.3% 1.8%\nSource: Numerator, J.P. Morgan Source: Numerator, J.P. Morgan\nMarket Share Improving in the U.S. Based on Tracked Channels\nWe carried out an in-depth analysis of some of KVUE(cid:726)s pertinent categories using\ntracked channel data (NielsenIQ) to gauge how the company(cid:726)s market performance\n(value and volume share as well as price) evolved over time, specifically in the U.S.\nHowever, base period dynamics limit the degree of read-through from tracked channel\ndata. We carried out a YOY analysis of the recent NielsenIQ data available (ending\n5/6/23) and also analyzed YOY data as of 12/31/22 (we will refer to this as prior year-\nend or (cid:728)PYE(cid:729)) to see how KVUE categories performed YTD as well as YOY data as of\n5/7/22 (we will refer to this as prior-year or (cid:728)PY(cid:729)) to see how KVUE performed in the\ncategories from a year ago (as of 5/6/23). These additional charts for PY and PYE are\nadded to the appendix for reference. Below we elaborate more on our findings.\nIn the four-week period ending May 6, KVUE posted modest positive dollar share\nperformance (+15 bps vs. -45 bps in the four-week period ending 12/31/22 or (cid:728)PYE(cid:729)\nand -152 bps four-week period ending 5/7/22) as the company gained dollar share in 11\nout of 19 categories (vs. eight categories as of PYE and six categories as of PY \u2013 both\nout of 19 categories) that we track for the company. As we show in the table below, the\nlargest share gains occurred in antiseptic (+456 bps vs. +418 bps as of PYE and +558\nbps as of PY) and baby bath (+408 bps vs. losing -18 bps as of PYE and -645 bps as of\nPY), besides the outsized growth in baby powder (+1,138 bps vs. losing -107 bps as of\nPYE and -377 bps as of PY), but this category makes up a very small percentage of\nsales in the U.S. as per the tracked channels. Conversely, the largest share loss occurred\nin baby lotion (-252 bps vs. -322 as of PYE and -49 bps as of PY) and facial skin care (-\n197 bps vs. -266 bps as of PYE and -291 bps as of PY), with more moderate share loss\nin cold & flu (-133 bps vs. -113 bps as of PYE but gained +159 bps as of PY). Given\nthat the 19 categories below account for roughly 78% of KVUE(cid:726)s sales in the tracked\nchannels, on a weighted basis, we estimate KVUE gained +15 bps (vs. losing -45 bps as\nof PYE and -152 bps as of PY) of overall value share but lost -54 bps (vs. -32 bps as of\nPYE and -83 bps as of PY) on a volume share basis in the latest four-week period\nending 5/6/23. KVUE retail price realization was up by ~15%, 15%, and 11% in the last\nfour, 13, and 52 weeks YOY.\nValue Share Improved Sequentially Driven by Pricing as Volume Share\nDeteriorated YTD\nSequentially, on a YOY four-week period basis, value share improved, but volume share\nappears to have deteriorated YTD, although the metric improved from PY especially as\n58\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 59, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\npricing at retail increased tremendously during the time line observed. More\nspecifically, KVUE gained +15 bps of value share in the four-week period ending\n5/6/23, improving from losing -45 bps in the four-week period ending 12/31/22 and -\n152 in the four-week period ending 5/7/22 as mentioned above. Similarly, the company\nlost -54 bps of volume share in the four-week period ending 5/6/23, or 22 bps lower\nfrom -32 bps volume share loss in the four-week period ending 12/31/22, but improving\nfrom -83 bps volume share loss in the four-week period ending 5/7/22. During this time,\npricing at retail increased tremendously by +14.7% in the four-week period ending\n5/6/23 and compares to up by +8.5% in the four-week period ending 12/31/22 and\n+2.3% in the four-week period ending 5/7/22, as the company took pricing in 2H22 and\nagain in 1Q23.\nFigure 90: KVUE Value & Volume Share Change by Key Categories \u2013 U.S.\nContribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share\nFor Periods Ending 5/06/23\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY $ Share Change (bps) YOY EQ Share Change (bps)\nL4W L13W L52W L4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.6% 2.7% 2.7% 50 58 20 (29) (18) (19)\nAllergy 13.9% 12.8% 11.1% 89 124 66 (64) (53) (63)\nAntibiotic 2.2% 2.3% 2.4% 158 55 (92) (22) (134) (267)\nAnti-Diarrhea 2.4% 2.4% 2.3% (101) (42) 76 (266) (187) (26)\nAntiseptic 0.1% 0.1% 0.0% 456 410 482 437 396 485\nBaby Bath 3.0% 3.2% 3.2% 408 206 (78) 244 2 (141)\nBaby Lotion 0.8% 0.8% 0.8% (252) (312) (273) (28) (140) (260)\nBaby Oil 0.5% 0.6% 0.5% 32 (47) (246) (55) (59) 24\nBaby Powder 0.4% 0.4% 0.5% 1,138 572 175 1,594 713 150\nBaby Soap 1.0% 1.0% 1.0% 198 102 (104) 257 303 50\nBandages 4.5% 4.5% 4.5% (72) (39) (64) (176) (127) (143)\nBody Wash 2.2% 2.3% 2.3% (32) (28) (12) (50) (27) 4\nBody Lotion 3.1% 3.4% 3.2% (87) (87) (100) (57) (32) (20)\nCold & Flu 1.1% 1.2% 1.4% (133) (6) 32 (3) (0) (1)\nDigestive Aid 0.6% 0.7% 0.7% 102 19 (22) (322) (332) (199)\nFacial Skin Care 9.7% 10.2% 10.2% (197) (215) (296) (191) (207) (255)\nMouthwash 8.3% 8.8% 9.1% (102) (61) (256) (109) (59) (151)\nPain Relief 16.2% 16.1% 16.9% 76 218 137 (35) (14) 13\nSun Care 5.1% 3.7% 4.0% 38 99 (148) 81 187 6\nWeighted Total 77.6% 77.1% 76.8% 15 41 (53) (54) (53) (85)\nSource: NielsenIQ, J.P. Morgan\n59\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 60, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 91: KVUE Pricing Change by Key Categories \u2013 U.S.\nChange in Pricing in Latest 4, 13 & 52-Weeks\nFor Periods Ending 5/06/23\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY EQ Price Change (%)\nL4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.6% 2.7% 2.7% 16.8% 13.8% 10.2%\nAllergy 13.9% 12.8% 11.1% 13.7% 13.7% 10.8%\nAntibiotic 2.2% 2.3% 2.4% 13.7% 13.0% 12.7%\nAnti-Diarrhea 2.4% 2.4% 2.3% 16.5% 15.3% 11.0%\nAntiseptic 0.1% 0.1% 0.0% 22.2% 42.8% 55.8%\nBaby Bath 3.0% 3.2% 3.2% 18.1% 16.1% 13.7%\nBaby Lotion 0.8% 0.8% 0.8% 16.2% 13.7% 12.3%\nBaby Oil 0.5% 0.6% 0.5% 13.1% 11.4% 10.7%\nBaby Powder 0.4% 0.4% 0.5% 15.6% 17.0% 15.2%\nBaby Soap 1.0% 1.0% 1.0% 16.2% 11.8% 13.0%\nBandages 4.5% 4.5% 4.5% 12.5% 12.7% 10.5%\nBody Wash 2.2% 2.3% 2.3% 19.6% 14.5% 7.8%\nBody Lotion 3.1% 3.4% 3.2% 11.1% 9.3% 7.2%\nCold & Flu 1.1% 1.2% 1.4% -0.9% 11.9% 19.7%\nDigestive Aid 0.6% 0.7% 0.7% 21.3% 17.4% 9.7%\nFacial Skin Care 9.7% 10.2% 10.2% 17.7% 17.1% 15.2%\nMouthwash 8.3% 8.8% 9.1% 16.9% 14.1% 8.9%\nPain Relief 16.2% 16.1% 16.9% 14.8% 21.2% 13.4%\nSun Care 5.1% 3.7% 4.0% 8.4% 0.4% -1.9%\nWeighted Total 77.6% 77.1% 76.8% 14.7% 15.0% 11.2%\nSource: NielsenIQ, J.P. Morgan\nBelow we provide an in-depth discussion of the three segments \u2013 Self Care, Skin Health\n& Beauty, and Essential Health \u2013 and examine the categories within each of these\nsegments further using data from Euromonitor, mainly for global market share/trends,\nand NielsenIQ for U.S. market share/trends. As it specifically relates to NielsenIQ, we\ncarried out a YOY analysis of the recent NielsenIQ data available (ending 5/6/23) and\nalso analyzed YOY data as of 12/31/22 (we will refer to this as prior year-end or\n(cid:728)PYE(cid:729)) to see how KVUE categories performed YTD as well as considering YOY data\nas of 5/7/22 (we will refer to this as prior-year or (cid:728)PY(cid:729)) to see how KVUE performed in\nthe categories from a year ago (as of 5/6/23). We have not provided the charts pertaining\nto PYE and PY data points but have only referred to the data in our analysis. Below, we\ndelve into some of the specific categories within each of KVUE(cid:726)s three segments.\n60\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 61, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nGlobal Category Market Share\nSelf Care\nOur analysis of the tracked channel data for some of the major categories within the Self\nCare segment are laid out below from various tracked channel data sources including\nEuromonitor and NielsenIQ.\nPaincare. We utilized Euromonitor to assess how KVUE(cid:726)s market share fared globally\nboth at the company and brand level within the OTC paincare category. KVUE has a\nglobal market share of 7.1% in this category. Looking further at the brand level, we get\nthe sense that KVUE(cid:726)s brands (both Tylenol and Motrin) have been gaining market\nshare globally. More specifically, the data shows that Tylenol grew market share\ntremendously from 2.5% in 2013 to 4.6% in 2022, and Motrin also grew but at a lower\nmagnitude, from 0.9% in 2013 to 1.4% in 2022. Note that some of the other major\nbrands in the category, including Advil (Haleon), Aspirin (Bayer), and Aleve (Bayer),\nlost market share during this time frame.\nFigure 92: Paincare - Global Market Share by Company\n18.0%\n16.0% 15.2% 15.2%\n14.0%\n12.0%\n10.0%\n8.0% 5.9% 7.1%\n5.5% 5.6%\n6.0% 5.9% 5.4%\n4.0%\n4.0% 3.3%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nHaleon Kenvue Sanofi Bayer Reckitt\nSource: Euromonitor, J.P. Morgan\n61\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 62, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 93: Paincare - Global Market Share by Brands\n5.0% 4.6%\n4.5%\n3.9%\n4.0%\n3.5%\n2.9%\n3.0%\n2.5%\n2.0%\n1.4%\n1.5%\n1.0%\n1.2%\n0.5%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nTylenol Advil Aspirin Motrin Aleve\nSource: Euromonitor, J.P. Morgan\nLooking specifically in the U.S. employing NielsenIQ, due to the iconic Tylenol and\nMotrin brands, paincare makes up the largest component for both the overall company\nand within the Self Care segment (as per category weight based on sales calculated\nusing data from NielsenIQ). The tracked channel data for the four-week period observed\nshows that KVUE(cid:726)s dollar value share has remained consistent through the time line\nconsidered with value share gain of +76 bps for the four-week period ending 5/6/23 (vs.\n+75 bps in the four-week period ending 12/31/22 or PYE and +76 bps in the four-week\nperiod ending 5/7/22 or PY). We note that private label (PL) lost -30 bps of value share\nin the four-week period ending 5/6/23; however, PL gained +148 bps as of PYE and\ngained more modestly (+53 bps) as of PY. As it relates to volume share, KVUE lost -35\nbps in the four-week period ending 5/6/23 while PL gained +69 bps during this period.\nBelow we show how both value and volume share performed for the 4, 13, and 52\nweeks ending 5/6/23 for KVUE and some of its competitors.\n62\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 63, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 94: Paincare - U.S. Value Share Figure 95: Paincare - U.S. Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n250 218 150\n111\n200\n100\n150 137 69 58\n47\n50\n100 76 13\n50 -\n14 (4) (0) (0) (1)\n- (14) (17)\n(50) (19) (11) (34)(36) (30) (26)(30) (4) (50) (35) (69) (30)\n(59) (100)\n(100) (87) (83)\n(123)\n(150) (150)\nKENVUE BAYER AG SANOFI PRIVATE LABEL HALEON KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nAllergies. In the allergies category globally, KVUE leads with market share of 17.2% as\nmentioned above, followed by Bayer (13.1%) and Sanofi (11.8%). As it relates to\nbrands, both of KVUE(cid:726)s brands, Zyrtec and Benadryl, have gained global market share\nslightly during the time frame considered.\nFigure 96: Allergy - Global Market Share by Company\n20.0%\n17.2%\n18.0%\n15.8%\n16.0%\n14.0% 13.1%\n12.3% 11.8%\n12.0% 11.8%\n10.0%\n8.0%\n6.0%\n4.1%\n3.8%\n4.0%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nKenvue Bayer Sanofi Haleon\nSource: Euromonitor, J.P. Morgan\n63\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 64, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 97: Allergy - Global Market Share by Brands - KVUE Absolute Leader Combining Zyrtec and Benadryl\n14.0%\n11.8%\n12.0%\n10.0%\n8.3%\n8.0%\n7.9%\n6.0%\n6.2%\n4.0%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nClaritin Zyrtec Allegra/Telfast Benadryl\nSource: Euromonitor, J.P. Morgan\nIn the U.S., NielsenIQ tracked channel data shows that KVUE gained +89 bps of value\nshare in the four-week period ending 5/6/23, which is slightly below gain of +96 bps as\nof PYE but improved from losing -37 bps as of PY. However, KVUE(cid:726)s volume share has\nbeen pressured, losing -64 bps in the four-week period ending 5/6/23 (and compares to\nlosing -69 bps as of PYE but gaining +20 bps as of PY). We note here that private label\ngained +85 bps of volume share in the four-week period ending 5/6/23 (vs. +88 bps as\nof PYE but losing -90 bps as of PY). Below we show how both value and volume share\nperformed for the 4, 13 and 52 weeks ending 5/6/23 for KVUE and some of its\ncompetitors.\nFigure 98: Allergy - U.S. Value Share Figure 99: Allergy - U.S. Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n150 120 109\n124\n100 85\n100 89 66 78 80 68\n60\n50 27 31 12 40 33 31\n- 20 16 13\n(10) (20) (19) (2) -\n(50)\n(42) (20)\n(59) (15)\n(100) (85) (40) (30) (30)(30)(28)\n(60) (53)\n(150) (136) (80) (64) (63)\nKENVUE BAYER AG SANOFI PRIVATE LABEL HALEON KENVUE BAYER AG SANOFI PRIVATE LABEL HALEON\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n64\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 65, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nCough & Cold. In the cold, cough (and allergy) remedies category as per Euromonitor\ndata globally, KVUE leads with market share of 7.3% followed by Haleon (6.7%) and\nReckitt (5.7%). We note here KVUE(cid:726)s global brands including Sudafed (0.7%) and\nBenylin (0.6%) market share compared to competitors including Vicks (4.7%, owned by\nOW-rated Procter & Gamble), Halls (3.4%, owned by Mondelez International) and\nMucinex (2.5%, owned by Reckitt), among others.\nFigure 100: Cold & Cough Global Market Share by Company\n8.0% 7.5%\n7.3%\n6.7% 6.7%\n7.0%\n5.1%\n6.0% 4.6% 5.7%\n4.5% 5.0%\n5.0% 4.6% 4.6%\n4.5%\n3.6%\n4.0% 3.5%\n3.0%\n2.0%\n1.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nKenvue Haleon Reckitt Procter & Gamble Bayer Sanofi Mondelez\nSource: Euromonitor, J.P. Morgan\n65\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 66, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 101: Cold & Cough Global Market Share by Brands\n4.7%\n5.0%\n4.5%\n4.0%\n3.4%\n3.5%\n3.0%\n2.5%\n2.5%\n2.0%\n1.6%\n1.5%\n1.5%\n1.0% 1.0%\n0.7%\n0.5%\n0.6%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nVicks Halls Mucinex Ricola\nStrepsils Sudafed Robitussin Benylin\nSource: Euromonitor, J.P. Morgan\nAs per NielsenIQ, KVUE lost -133 bps of value share in the four-week period ending\n5/6/23, sequentially worse from losing -113 bps as of PYE while gaining +159 bps as of\nPY. As it relates to volume share, the company seems to have (cid:728)improved(cid:729) YTD,\nalthough it lost -3 bps in the four-week period ending 5/6/23 vs. -13 bps PYE but\nslightly gained +6 bps as of PY. Below we show how both value and volume share\nperformed for the 4, 13, and 52 weeks ending 5/6/23 for KVUE and some of its\ncompetitors.\nFigure 102: Cough & Cold - U.S. Value Share Figure 103: Cough & Cold - U.S. Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n1,000 7828 13 40\n800 539 30 28 25\n46 00 00 1843 43 419 401 1982 78 20 17\n22 00 - 00 (133)(6)32 12 (94)36 14 1 -0 8 5 7 9 9 6 1 0 2 3\n( ) (156) (148) (93)\n(400) (230) (3)(0)(1) (2) (0) (1) (3)\n(600) (10)\n(800)\n(20)\n(1,000)\n(940) (22)\n(1,200) (30)\nKENVUE PROCTER & BAYER AG RECKITT PRIVATE CHURCH & HALEON KENVUE PROCTER & BAYER AG RECKITT PRIVATE CHURCH & HALEON\nGAMBLE LABEL DWIGHT GAMBLE LABEL DWIGHT\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n66\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 67, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nDigestive Remedies. Globally, data from Euromonitor points to KVUE holding the\nsecond largest market share position (7.2%) in the digestive remedies category, while\nHaleon has the highest market share with 7.8% market share. As it relates to brands,\nKVUE(cid:726)s larger brands include Imodium (2.4% global market share) and Pepcid (1.5%\nmarket share on a global basis), while Dulcolax (Sanofi) has the largest market share\n(2.5%). We have included charts below showing how KVUE stacks up against\ncompetitors in the digestive remedies category globally overall. (KVUE has a few other\nbrands with small market share that are too small to show here.)\nFigure 104: Digestive Remedies Global Market Share by Company\n9.0%\n8.0%\n7.8%\n8.0%\n6.8% 7.2%\n7.1%\n7.0% 6.5%\n5.9%\n5.8%\n6.0%\n5.0%\n4.0%\n3.0% 2.6% 2.4%\n2.3%\n2.3%\n2.0%\n1.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nHaleon Kenvue Sanofi Bayer Procter & Gamble Reckitt\nSource: Euromonitor, J.P. Morgan\n67\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 68, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 105: Digestive Remedies Global Market Share by Brands\n3.0%\n2.5%\n2.5%\n2.4%\n2.2%\n2.0%\n1.7%\n1.5%\n1.5%\n1.0%\n0.5%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nDulcolax Imodium Tums Gaviscon Pepcid\nSource: Euromonitor, J.P. Morgan\nNielsenIQ data shows that KVUE gained +50 bps of value share in the four-week period\nending 5/6/23 in the acid relief category, which is an improvement from slightly gaining\n+4 bps as of PYE but losing -6 bps as of PY. We also looked at the anti-diarrhea\ncategory, where the company(cid:726)s performance is worse, losing value share of -101 bps in\nthe four-week period ending 5/6/23 (vs. gaining +217 bps as of PYE and +165 as of\nPY). In the digestive aid category, KVUE gained +102 bps value share in the four-week\nperiod ending 5/6/23 (vs. losing -265 bps PYE but gaining +51 bps PY) while PL lost -\n49 bps value share during this time period and compares to gaining +319 as of PYE and\n+77 bps as of PY. Below we show how both value and volume share performed for the\n4, 13, and 52 weeks ending 5/6/23 for KVUE and some of its competitors for acid relief,\nanti-diarrhea, and digestive aid categories.\n68\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 69, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 106: Acid Relief - Value Share Figure 107: Acid Relief - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n80 100\n60 50 58 60 56 80 75\n40 40 26 60 49\n20 20 40 21 26\n20\n-\n(1) -\n((( 642 000 ))) (36)(26)(16) (10) ((( 642 000 ))) (20)(15)(11) (17)(4)\n(36)(39)(28) (29)(18)(19)\n(45) (36) (38) (44)(35)\n(58)\n(63)\n(80) (72) (80) (70)\nKENVUE PROCTER & BAYER AG SANOFI PRIVATE LABEL HALEON KENVUE PROCTER & BAYER AG SANOFI PRIVATE LABEL HALEON\nGAMBLE GAMBLE\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 108: Anti-Diarrhea - Value Share Figure 109: Anti-Diarrhea - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n250 229 400\n200 166 300 289\n150\n200 160\n100 76\n100\n50\n7 -\n- (26) (15) (16) (15) (14)\n(100)\n(50)\n(42)\n(100) (89) (200) (187)\n(101) (100) (108)\n(150) (300) (266)\nKENVUE PROCTER & GAMBLE PRIVATE LABEL KENVUE PROCTER & GAMBLE PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 110: Digestive Aid - Value Share Figure 111: Digestive Aid - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n120 102 400 326 335\n100 94 300\n80 200 200\n60 49\n100\n40\n19 -\n20\n(100)\n-\n(20) (200)\n(199)\n(40) (22) (300)\n(60) (49) (400) (322) (332)\nKENVUE PRIVATE LABEL KENVUE PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nSkin Health & Beauty\nOur analysis of the tracked channel data for some of the major categories within the\nSkin Health & Beauty segment are laid out below using Euromonitor to gauge how\nKVUE is performing globally and NielsenIQ for U.S. performance.\n69\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 70, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFace Care. Looking at the mass face care category on a worldwide basis, data from\nEuromonitor shows that KVUE has market share of 4.1%, while L(cid:726)Oreal Groupe\n(covered by Celine Pannuti) has the highest global market share of 12.5%. By brands,\nNeutrogena has the fourth highest market share (2.7%), while Clean & Clear has a very\nsmall global market share (0.7%).\nFigure 112: Mass Face Care Global Market Share by Company\n14.0%\n12.5%\n12.0%\n10.0% 9.3%\n8.0%\n5.2%\n5.6%\n5.2% 5.1%\n6.0%\n4.9% 5.0%\n4.3%\n4.1%\n4.0%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nL'Or\u00e9al Beiersdorf Unilever Procter & Gamble Kenvue\nSource: Euromonitor, J.P. Morgan\n70\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 71, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 113: Mass Face Care Global Market Share by Brands\n7.0%\n6.0%\n4.9%\n5.0%\n4.8%\n4.0%\n2.8%\n3.0%\n2.7%\n2.0% 2.5%\n0.7%\n1.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nL'Or\u00e9al Paris Olay CeraVe Neutrogena Nivea Clean & Clear\nSource: Euromonitor, J.P. Morgan\nFace care makes up the largest component within the Skin Health & Beauty segment,\nspecifically in the U.S. (as per category weight based on sales calculated using data\nfrom NielsenIQ). The tracked channel data for the four-week period observed shows\nthat KVUE(cid:726)s dollar value share has improved, albeit negative, through the time line\nconsidered, with value share loss of -197 bps for the four-week period ending 5/6/23\n(vs. -266 bps as of PYE and -291 bps as of PY). We note that L(cid:726)Oreal (covered by\nCeline Pannuti) has been a clear value share winner also in the U.S., gaining +426 bps\nin the four-week period ending 5/6/23, +419 bps as of PYE and +183 bps as of PY. On a\nvolume share basis, KVUE lost -191 bps in the four-week period ending 5/6/23 (vs. -\n194 bps as of PYE and -136 bps as of PY), while L(cid:726)Oreal gained +411 bps of volume\nshare in the same period (compares to +484 bps as of PYE and +318 bps as of PY).\nBelow we show how both value and volume share performed for the 4, 13, and 52\nweeks ending 5/6/23 for KVUE and some of its competitors.\n71\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 72, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 114: Face Care - Value Share Figure 115: Face Care - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n500 426 414 500 411 419 433\n400 370 400\n300 300\n200\n200\n100\n100\n- 15 9 11 2\n(( 21 00 00 )) (109)(130)(85) (58)(55)(29) (53)(54)(40) 0- (8) (10)\n(1 0)\n(86)\n(197)(215)\n(300) (200) (191) (182)\n(296) (207)\n(400) (300) (255) (236)\nKENVUE PROCTER & GAMBLE L'OREAL SA UNILEVER GROUP PRIVATE LABEL KENVUE PROCTER & GAMBLE L'OREAL SA UNILEVER GROUP PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nBody Care. With a global market share of 6.3% in the mass body care category, KVUE\nhas a long way to catch up with Beiersdorf, which has the largest global market share of\n14.1% in this category according to the Euromonitor data. Turning to brands, Aveeno(cid:726)s\nmarket share of 2.0% and Johnson(cid:726)s of 1.2% globally as of 2022 are also far behind in\nmarket share from the #1 brand (Nivea owned by Beiersdorf with market share of 12%)\nin this category.\nFigure 116: Mass Body Care Global Market Share by Company\n16.0%\n14.3% 14.1%\n14.0%\n12.0%\n10.3%\n9.9%\n10.0%\n8.7%\n8.3%\n8.0%\n6.9%\n6.3%\n6.0%\n4.0% 3.4%\n2.0%\n1.5% 1.4%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nBeiersdorf Unilever Natura&Co Kenvue L'Or\u00e9al Procter & Gamble\nSource: Euromonitor, J.P. Morgan\n72\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 73, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 117: Mass Body Care Global Market Share by Brands\n14.0%\n12.0%\n12.0%\n10.0%\n8.0%\n6.0%\n4.5%\n4.0%\n2.6%\n2.3%\n2.0% 2.0%\n1.4%\n1.2%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nNivea Vaseline Dove CeraVe\nAveeno Eucerin Olay Johnson's\nSource: Euromonitor, J.P. Morgan\nFor the U.S. alone, the NielsenIQ data for both body lotion and body wash categories, as\npart of the analysis for body care in the U.S., show that KVUE(cid:726)s value share in the body\nlotion category has (cid:728)improved(cid:729) YTD in comparison, while that of body wash has\ndeteriorated YTD, albeit both categories are losing value share. More specifically,\nKVUE lost -87 bps of value share in the four-week period ending 5/6/23 in the body\nlotion category, where L(cid:726)Oreal gained +63 bps during this period) and is an\n(cid:728)improvement(cid:729) from losing -224 bps as of PYE, but performance is worse from a year\nago when KVUE slightly lost -9 bps of value share in the four-week period ending\n5/7/22. For body wash, in the four-week period ending 5/6/23, the data suggests KVUE\nlost -32 bps of value share, while OW-rated PG gained +189 bps during the same\nperiod, and compares to KVUE gaining +38 bps as of PYE. For volume share, KVUE\nlost -57 bps in the four-week period ending 5/6/23 in the body lotion category, while\nprivate label gained +81 bps during this period and is an (cid:728)improvement(cid:729) from KVUE\nlosing -138 bps as of the four-week period ending 12/31/22. KVUE lost -50 bps of\nvolume share in the four-week period ending 5/6/23, while OW-rated Procter & Gamble\ngained +225 bps of volume share in body wash during the same period, and compares to\nKVUE gaining +56 bps in the four-week period ending 12/31/22. Below we show how\nboth value and volume share performed for the 4, 13, and 52 weeks ending 5/6/23 for\nKVUE and some of its competitors for both body lotion and body wash categories.\n73\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 74, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 118: Body Lotion - Value Share Figure 119: Body Lotion - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n100 150\n74\n68 00 63 55 100 74 81 98\n44\n40 31 30 50 23 25 17\n20 5 1\n- -\n(20) (18) (2) (50) (32)(20) (24)(26) (11) (36)\n(40) (57) (56)\n(60) (49) (41) (54) (100)\n1(8 000) (63)(70)\n( ) (87)(87) (74) (150) (137) (141)\n(120) (100) (200) (158)\nKENVUE BEIERSDORF AG L'OREAL SA SANOFI UNILEVER PRIVATE LABEL KENVUE BEIERSDORF AG L'OREAL SA SANOFI UNILEVER PRIVATE LABEL\nGROUP GROUP\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 120: Body Wash - Value Share Figure 121: Body Wash - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n300 300\n225\n189\n200 151 142 200 151 142\n100 100\n- -\n(100) (32) (28) (12) (52) (100) (50) (28) (12) (52) (66)\n(136)(106) (122) (106) (122)\n(200) (200) (163)\n(300) (300)\n(281)(279) (279)\n(400) (400)\nKENVUE PROCTER & GAMBLE COLGATE UNILEVER GROUP KENVUE PROCTER & GAMBLE COLGATE UNILEVER GROUP\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nSun care. KVUE has the third place in global market share (8.2%) according to data\nfrom Euromonitor, far behind Beiersdorf (15.2%) but more comparable with L(cid:726)Oreal\n(8.5%; covered by Celine Pannuti). KVUE competes in the sun care market with brands\nincluding Neutrogena (4.7%), Johnson(cid:726)s (1.9%), Piz Buin (1.0%), Aveeno (0.5%), and\nmuch smaller Dabao (0.1%).\n74\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 75, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 122: Mass Adult Sun Care Global Market Share by Company\n16.0% 15.2%\n14.7%\n14.0%\n12.0%\n8.8%\n10.0% 9.5% 8.5%\n8.2%\n8.0% 7.3%\n6.6%\n6.0%\n4.3%\n4.0% 3.3%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nBeiersdorf L'Or\u00e9al Kenvue Edgewell Kao Corp\nSource: Euromonitor, J.P. Morgan\n75\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 76, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 123: Mass Adult Sun Care Global Market Share by Brands\n12.0%\n10.3%\n10.0%\n8.0%\n6.0%\n4.7%\n4.0%\n3.5%\n2.6%\n2.0% 1.9%\n1.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nNivea Banana Boat Garnier Neutrogena\nCoppertone L'Or\u00e9al Johnson's Piz Buin\nSource: Euromonitor, J.P. Morgan\nFor the U.S. alone, the tracked channel data for the four-week period observed shows\nthat KVUE(cid:726)s dollar value share deteriorated YTD but is a big improvement compared to\nPY, with KVUE gaining +38 bps in the four-week period ending 5/6/23 (vs. +172 bps as\nof PYE but losing -550 bps as of PY). As it relates to volume share, KVUE gained +81\nbps in the four-week period ending 5/6/23 (vs. +343 bps as of PYE but losing -310 bps\nas of PY). Below we show how both value and volume share performed for the 4, 13,\nand 52 weeks ending 5/6/23 for KVUE and some of its competitors.\nFigure 124: Suncare - Value Share Figure 125: Suncare - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n150 124 200 187\n99\n100 87 82 150\n54\n50 38 39 20 31 9 36 100 81\n(5 - 0) (14) (24)(33) 50 6 16 9 11 8 51 26 42 18 42\n-\n(100)\n(150) (50) (43) (37)(29)\n(148)\n(200) (100)\nKENVUE PROCTER & GAMBLE BEIERSDORF AG L'OREAL SA PRIVATE LABEL KENVUE PROCTER & GAMBLE BEIERSDORF AG L'OREAL SA PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n76\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 77, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nEssential Health\nOur analysis of both Euromonitor (for global performance) and NielsenIQ (for U.S.\nperformance) tracked channel data for some of the major categories within the Essential\nHealth segment are laid out below.\nMouthwash. In the mouthwash category, KVUE clearly leads with market share of\n35.1% globally, albeit decelerating in recent years, and nearly 3x larger than its closest\ncompetitors \u2013 OW-rated Colgate-Palmolive (11.9%) and OW-rated Procter & Gamble\n(9.6%). As we mentioned earlier, we believe KVUE has superior science, and the recent\nclaim of plaque removal 5x better than flossing alone will likely help household\npenetration globally and market share improvement.\nFigure 126: Mouthwash Global Market Share by Company\n40.0%\n36.5%\n35.1%\n35.0%\n30.0%\n25.0%\n20.0%\n15.0%\n11.6% 11.9%\n9.6%\n9.9%\n10.0%\n4.5% 4.5%\n5.0% 3.1% 3.0%\n0.9% 2.6%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nKenvue Colgate Procter & Gamble Haleon Sanofi Church & Dwight\nSource: Euromonitor, J.P. Morgan\n77\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 78, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 127: Mouthwash Global Market Share by Brands\n40.0%\n34.9%\n35.0%\n30.0%\n25.0%\n20.0%\n15.0%\n10.1%\n10.0%\n5.2%\n5.0%\n3.0%\n0.0% 2.1%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nListerine Colgate Crest Aquafresh\nACT TheraBreath Oral-B Scope\nSource: Euromonitor, J.P. Morgan\nFor the U.S. alone, the NielsenIQ tracked channel data for the four-week period shows\nthat KVUE(cid:726)s dollar value share has (cid:728)improved,(cid:729) albeit negative, through the time line\nconsidered with value share loss of -102 bps for the four-week period ending 5/6/23 (vs.\n-344 bps as of PYE and -394 bps as of PY) in the U.S. It is worth noting that UW-rated\nChurch & Dwight (CHD) has been gaining value share in all three periods, with gain of\n+499 bps in the four-week period ending 5/6/23, +375 bps in the four-week period\nending 12/31/22 (PYE) and +203 bps in the four-week period ending 5/7/22 (PY) in the\nU.S. as per NielsenIQ, but globally Euromonitor points to market share of 2.6%. As it\nrelates to volume share, KVUE lost -109 bps in the four-week period ending 5/6/23 (vs.\nlosing -235 bps as of PYE and -202 bps as of PY), while CHD gained +260 bps in the\nfour-week period ending 5/6/23 (vs. gaining +181 bps as of PYE and +89 bps as of PY).\nBelow we show how both value and volume share performed for the 4, 13, and 52\nweeks ending 5/6/23 for KVUE and some of its competitors.\n78\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 79, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 128: Mouthwash - Value Share Figure 129: Mouthwash - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n600 300 260\n499\n500 250 210\n408\n400 320 200 155\n150\n300\n100\n200\n100 22 26 5 -0 17 6 12 1 16 0 5 23\n- (50) (25)(17)\n(100) (102( )61) (21) (16) (51)(44) (48)(27) (90)(62)(17) (39) (22) (100) (59) (71)(41) (66)\n(200) (180) (150) (109) (115)(108)\n(300) (256) (209) (200) (151)\nKENVUE PROCTER & COLGATE SANOFI PRIVATE CHURCH & HALEON KENVUE PROCTER & COLGATE SANOFI PRIVATE CHURCH & HALEON\nGAMBLE LABEL DWIGHT GAMBLE LABEL DWIGHT\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nWound Care. KVUE has the largest global market share in the wound care category\nwith 19.2%, with a large gap from the next couple of competitors, Beiersdorf (11%) and\n3M (5.3%). This is also evident in the brand share analysis as shown below with\nKVUE(cid:726)s Band-Aid well above the others.\nFigure 130: Wound Care Global Market Share by Company\n25.0%\n19.4% 19.2%\n20.0%\n15.0%\n11.0%\n10.7%\n10.0%\n5.5% 5.3%\n5.0% 3.6% 3.6%\n3.1%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nKenvue Beiersdorf 3M Yunnan Baiyao Paul Hartmann\nSource: Euromonitor, J.P. Morgan\n79\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 80, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 131: Wound Care Global Market Share by Brands\n18.0%\n16.1%\n16.0%\n14.0%\n12.0% 10.8%\n10.0%\n8.0%\n6.0%\n3.8%\n4.0%\n2.5%\n2.0%\n1.5%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nBand-Aid Hansaplast Nexcare Johnson's Dermaplast\nSource: Euromonitor, J.P. Morgan\nFor the U.S. alone, we analyzed the NielsenIQ data for both bandages and antiseptic\ncategories as part wound care. Within bandages, KVUE lost -72 bps of value share in\nthe four-week period ending 5/6/23 (vs. flat of -1 bp as of PYE but gaining +181 bps as\nof PY) and lost -176 bps of volume share in the four-week period ending 5/6/23 (vs. -\n111 bps as of PYE but gaining +260 bps as of PY) in the bandages category. There are\nother competitors outside of KVUE(cid:726)s main peers in the bandages category that we did\nnot capture in our U.S. analysis. KVUE(cid:726)s antiseptic category in the U.S. appears to be\nmuch smaller in comparison as per total category sales data from tracked channel. The\ncompany gained +456 bps value share in the four-week period ending 5/6/23 (vs. +418\nbps as of PYE and +558 bps as of PY) and +437 bps volume share in the four-week\nperiod ending 5/6/23 (vs. +463 bps as of PYE and +676 bps as of PY). Below we show\nhow both value and volume share performed for the 4, 13, and 52 weeks ending 5/6/23\nfor KVUE and some of its competitors for both the bandages and antiseptic categories.\n80\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 81, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 132: Bandages - Value Share Figure 133: Bandages - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n10 2 200 181\n- 150 138\n(10) 100\n(20)\n(20) 50\n(30)\n-\n(40)\n(39) (50) (26)\n(50)\n(60) (100)\n(70) (64) (63) (150) (127) (143)\n(72)\n(80) (200) (176)\nKENVUE PRIVATE LABEL KENVUE PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 134: Antiseptic - Value Share Figure 135: Antiseptic - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n600 600\n500 456 410 482 500 437 396 485\n400 400\n300 300\n200 200\n100 100 51\n5\n- -\n(100) (6) (6) (100) (13) (14)\n(200) (200)\n(300) (279) (276) (300) (253)\n(400) (319) (400) (338) (327)\nKENVUE RECKITT PRIVATE LABEL KENVUE RECKITT PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nBaby Toiletries. The baby care and child-specific categories point to KVUE having the\nlargest market share globally, but it appears to be deteriorating with time. Looking\nfurther at the brand data cut, there is a clear deceleration in the global market share for\nthe Johnson(cid:726)s brand.\n81\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 82, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 136: Baby Care Global Market Share by Company\n25.0%\n20.0%\n16.6%\n14.4%\n15.0%\n10.0%\n6.7% 6.7%\n4.4% 4.6%\n5.0%\n2.1% 2.1%\n1.9% 1.8%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nKenvue Kimberly-Clark Procter & Gamble Beiersdorf Unilever\nSource: Euromonitor, J.P. Morgan\n82\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 83, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 137: Baby Care Global Market Share by Brands\n20.0%\n18.0%\n16.0%\n14.0%\n11.4%\n12.0%\n10.0%\n8.0%\n5.9%\n6.0%\n4.1%\n4.0%\n1.3%\n2.0%\n0.0%\n2013 2014 2015 2016 2017 2018 2019 2020 2021 2022\nJohnson's Huggies Pampers Aveeno Nivea\nSource: Euromonitor, J.P. Morgan\nWe analyzed the NielsenIQ data for baby bath, baby lotion, baby oil, baby powder, and\nbaby soap categories in the U.S., but we note that baby toiletries makes up a smaller part\nof KVUE(cid:726)s business in the U.S. while international geographies are a larger source of\nrevenues. We have added below value and volume share performance charts for the 4,\n13, and 52 weeks ending 5/6/23 for KVUE and some of its competitors.\nFigure 138: Baby Bath - Value Share Figure 139: Baby Bath - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n500 300\n408 250 244\n400\n200\n300 150\n206\n200 100\n50 2 11 17 18 14 11\n100 35 46 38 37 -\n- 2 (50) (3) (8) (29)\n(62)(50)\n(23)(23) (12) (13) (100) (78)\n(100) (78) (68) (79) (150)\n(141) (141)\n(200) (158) (200)\nKENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n83\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 84, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 140: Baby Lotion - Value Share Figure 141: Baby Lotion - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n300 200 172 177\n200 180 170 150\n100 73 69\n100 94 71 78 93 50 38 53\n12 25 2 3\n- -\n(50) (28) (10)\n(100) (100)\n(200) (150) (140) (150)\n(200)\n(300) (252) (273) (250)\n(312)\n(400) (300) (260)\nKENVUE L'OREAL SA UNILEVER GROUP PRIVATE LABEL KENVUE L'OREAL SA UNILEVER GROUP PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 142: Baby Oil - Value Share Figure 143: Baby Oil - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n100 50 24 27\n54\n50 32 -\n(50) (28) (24)\n- (100) (55) (59)\n(14)\n(50) (47) (34) (28) (150) (148)\n(100) (200)\n(100)\n(150) (137) (250) (233)\n(300)\n(200)\n(350)\n(250) (246) (400) (391)\n(300) (450)\nKENVUE UNILEVER GROUP PRIVATE LABEL KENVUE UNILEVER GROUP PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\nFigure 144: Baby Powder - Value Share Figure 145: Baby Powder - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n1,500 2,000\n1,138 1,594\n1,500\n1,000\n572 1,000 713\n500\n175 500 150\n- -\n(500) (180) (500) (361)\n(603) (1,000) (856)\n(1,000)\n(1,500)\n(1,153)\n(1,500) (2,000) (1,811)\nKENVUE PRIVATE LABEL KENVUE PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n84\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 85, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 146: Baby Soap - Value Share Figure 147: Baby Soap - Volume Share\nFor Periods Ending 5/06/23, YOY (bps) For Periods Ending 5/06/23, YOY (bps)\n250 400\n303\n200 198 300 257\n200\n11 05 00 102 110 93 86 1 0 -0 50 47 24 64 54 47 38 50 69\n50 32 (100) (32)\n4 9\n- (200)\n(12) (300)\n(50)\n(38) (400)\n(100) (74)(71) (500) (441)(417)\n(150) (104) (133) (127) (600) (514)\nKENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL KENVUE BEIERSDORF AG L'OREAL SA UNILEVER GROUP PRIVATE LABEL\n4W 13W 52W 4W 13W 52W\nSource: NielsenIQ, J.P. Morgan Source: NielsenIQ, J.P. Morgan\n85\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 86, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nU.S. Pricing, Share and Volume by Category\n- Tracked Channels\nFigure 148: KVUE Value & Volume Share Change by Key Categories - U.S. (Prior Year-End)\nContribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share\nFor Periods Ending 12/31/22\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY $ Share Change (bps) YOY EQ Share Change (bps)\nL4W L13W L52W L4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.8% 2.9% 2.6% 4 (0) 31 (18) (21) 3\nAllergy 9.3% 9.9% 10.9% 96 120 13 (69) (58) (35)\nAntibiotic 2.1% 2.2% 2.4% (169) (130) (118) (282) (245) (254)\nAnti-Diarrhea 2.4% 2.4% 2.2% 217 21 170 131 (76) 99\nAntiseptic 0.0% 0.0% 0.0% 418 373 394 463 418 411\nBaby Bath 2.9% 3.1% 3.3% (18) (27) (324) (15) (19) (374)\nBaby Lotion 0.7% 0.7% 0.8% (322) (282) (162) (100) (121) (155)\nBaby Oil 0.5% 0.5% 0.6% (33) (72) (402) 286 281 (53)\nBaby Powder 0.4% 0.4% 0.5% (107) 58 (104) (101) 2 (188)\nBaby Soap 0.9% 1.0% 1.1% 64 11 (303) 532 320 (339)\nBandages 4.1% 4.3% 4.5% (1) (33) 15 (111) (146) 1\nBody Wash 2.3% 2.3% 2.3% 38 10 (14) 56 25 15\nBody Lotion 3.8% 3.5% 3.2% (224) (192) (68) (138) (96) (2)\nCold & Flu 2.6% 2.1% 1.2% (113) 8 154 (13) (13) 4\nDigestive Aid 0.7% 0.7% 0.6% (265) (159) 130 (530) (255) 104\nFacial Skin Care 10.1% 10.4% 10.6% (266) (297) (299) (194) (251) (217)\nMouthwash 9.1% 9.5% 9.3% (344) (293) (322) (235) (179) (173)\nPain Relief 20.1% 18.7% 16.3% 75 205 129 48 41 61\nSun Care 6.5% 4.5% 3.8% 172 187 (162) 343 371 30\nWeighted Total 81.3% 79.1% 76.4% (45) (18) (80) (32) (51) (70)\nSource: NielsenIQ, J.P. Morgan\n86\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 87, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 149: KVUE Value & Volume Share Change by Key Categories - U.S. (Prior Year)\nContribution to Total Sales in Latest 4, 13 & 52-Weeks, Weighted Change in Value Share & Dollar Equivalent Unit (EQ) Share\nFor Periods Ending 5/7/22\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY $ Share Change (bps) YOY EQ Share Change (bps)\nL4W L13W L52W L4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.5% 2.5% 2.7% (6) 50 56 5 29 39\nAllergy 13.6% 12.4% 10.9% (37) (48) 14 20 15 54\nAntibiotic 2.4% 2.4% 2.6% (222) (127) 30 (380) (220) 6\nAnti-Diarrhea 2.0% 2.0% 2.1% 165 231 189 176 212 234\nAntiseptic 0.0% 0.0% 0.0% 558 286 79 676 356 103\nBaby Bath 3.3% 3.6% 3.6% (645) (625) (396) (673) (737) (592)\nBaby Lotion 0.8% 0.9% 0.9% (49) (42) (127) (89) 74 23\nBaby Oil 0.6% 0.6% 0.6% (540) (579) (207) (124) (230) (132)\nBaby Powder 0.5% 0.5% 0.5% (377) (521) (303) (463) (704) (524)\nBaby Soap 1.1% 1.1% 1.2% (541) (486) (351) (811) (825) (498)\nBandages 4.2% 4.2% 4.5% 181 213 83 260 282 206\nBody Wash 2.2% 2.3% 2.4% (50) (49) (14) (5) (1) 19\nBody Lotion 3.0% 3.3% 3.2% (9) (31) 36 16 1 5\nCold & Flu 0.8% 0.8% 0.8% 159 191 333 6 11 18\nDigestive Aid 0.5% 0.6% 0.6% 51 136 397 80 175 501\nFacial Skin Care 10.1% 11.1% 11.5% (291) (258) (203) (136) (138) (17)\nMouthwash 8.7% 9.3% 9.7% (394) (423) (129) (202) (250) (101)\nPain Relief 15.3% 15.2% 14.7% 76 72 250 72 82 86\nSun Care 6.2% 4.4% 4.1% (550) (505) (426) (310) (322) (255)\nWeighted Total 77.8% 77.1% 76.5% (152) (139) (29) (83) (85) (20)\nSource: NielsenIQ, J.P. Morgan\n87\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 88, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 150: KVUE Pricing Change by Key Categories - U.S. (Prior Year-End)\nChange in Pricing in Latest 4, 13 & 52-Weeks\nFor Periods Ending 12/31/22\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY EQ Price Change (%)\nL4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.8% 2.9% 2.6% 8.7% 8.5% 6.3%\nAllergy 9.3% 9.9% 10.9% 11.2% 12.3% 6.7%\nAntibiotic 2.1% 2.2% 2.4% 10.6% 11.1% 9.1%\nAnti-Diarrhea 2.4% 2.4% 2.2% 11.0% 10.8% 7.8%\nAntiseptic 0.0% 0.0% 0.0% 72.0% 68.1% 55.7%\nBaby Bath 2.9% 3.1% 3.3% 10.5% 11.5% 12.8%\nBaby Lotion 0.7% 0.7% 0.8% 9.1% 10.8% 11.2%\nBaby Oil 0.5% 0.5% 0.6% 10.8% 11.0% 9.8%\nBaby Powder 0.4% 0.4% 0.5% 13.8% 15.0% 14.3%\nBaby Soap 0.9% 1.0% 1.1% 6.3% 11.7% 16.4%\nBandages 4.1% 4.3% 4.5% 11.0% 10.9% 7.3%\nBody Wash 2.3% 2.3% 2.3% 5.5% 7.7% 4.3%\nBody Lotion 3.8% 3.5% 3.2% 5.9% 7.0% 5.9%\nCold & Flu 2.6% 2.1% 1.2% 36.1% 61.3% 19.2%\nDigestive Aid 0.7% 0.7% 0.6% 9.5% 7.4% 5.3%\nFacial Skin Care 10.1% 10.4% 10.6% 10.8% 14.0% 10.8%\nMouthwash 9.1% 9.5% 9.3% 9.1% 9.2% 5.3%\nPain Relief 20.1% 18.7% 16.3% 5.2% 14.8% 4.3%\nSun Care 6.5% 4.5% 3.8% -2.4% -5.6% -3.6%\nWeighted Total 81.3% 79.1% 76.4% 8.5% 12.3% 6.8%\nSource: NielsenIQ, J.P. Morgan\n88\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 89, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nFigure 151: KVUE Pricing Change by Key Categories - U.S. (Prior Year)\nChange in Pricing in Latest 4, 13 & 52-Weeks\nFor Periods Ending 5/7/22\nJOHNSON & JOHNSON % $ Mix % $ Mix % $ Mix YOY EQ Price Change (%)\nL4W L13W L52W L4W L13W L52W\nKVUE\nAcid Relief 2.5% 2.5% 2.7% 1.6% 1.2% -0.4%\nAllergy 13.6% 12.4% 10.9% 0.4% 1.4% 2.2%\nAntibiotic 2.4% 2.4% 2.6% 7.4% 3.6% 0.1%\nAnti-Diarrhea 2.0% 2.0% 2.1% 5.1% 4.6% 2.7%\nAntiseptic 0.0% 0.0% 0.0% 52.3% 27.4% 5.4%\nBaby Bath 3.3% 3.6% 3.6% 7.1% 10.4% 11.0%\nBaby Lotion 0.8% 0.9% 0.9% 8.7% 8.7% 8.1%\nBaby Oil 0.6% 0.6% 0.6% 7.6% 8.4% 7.7%\nBaby Powder 0.5% 0.5% 0.5% 12.9% 14.6% 10.1%\nBaby Soap 1.1% 1.1% 1.2% 14.4% 19.0% 11.9%\nBandages 4.2% 4.2% 4.5% 5.1% 3.4% 2.7%\nBody Wash 2.2% 2.3% 2.4% 2.6% 2.1% 0.4%\nBody Lotion 3.0% 3.3% 3.2% 6.6% 5.2% 9.8%\nCold & Flu 0.8% 0.8% 0.8% 12.4% -2.7% -8.0%\nDigestive Aid 0.5% 0.6% 0.6% 0.9% 2.6% 2.9%\nFacial Skin Care 10.1% 11.1% 11.5% 4.0% 3.4% 1.3%\nMouthwash 8.7% 9.3% 9.7% 1.6% 2.4% 6.3%\nPain Relief 15.3% 15.2% 14.7% -2.8% -5.1% 6.7%\nSun Care 6.2% 4.4% 4.1% 2.5% 8.4% 12.6%\nWeighted Total 77.8% 77.1% 76.5% 2.3% 2.2% 4.8%\nSource: NielsenIQ, J.P. Morgan\n89\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 90, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nInvestment Thesis, Valuation and Risks\nKenvue (Overweight; Price Target: $29.00)\nInvestment Thesis\nWe rate Kenvue (KVUE) Overweight. As the largest pure-play consumer health company\nin the world, reaching 1.2 billion consumers daily, KVUE benefits from participating in\nlarge categories where reliability and performance matter for consumers. As such, we\nhighlight five KVUE attributes that underpin our positive view: (1) resilient top-line growth\nexpected, (2) room for margin expansion, (3) high cash flow conversion and shareholder-\nfriendly capital allocation, (4) management has a strong background not only with JNJ but\nwith other blue-chip CPGs with solid relationships with key customers, and (5) attractive\nvaluation.\nValuation\nDespite the strong share performance since the IPO, we view current valuation as attractive.\nOur Dec 2023 target price of $29 is based on a blended average of EV/EBITDA (based on\nblended average of HLN, Consumer Health, HPC & Beauty peers) and a DCF based on\nperpetual growth method. We assign a 70% weighting to EV/EBITDA as the primary\nvaluation method embedding 15.1.x EV/EBITDA off our 2024E EBITDA estimate of\n$4.0B (implies $27 per share) and 30% weighting to DCF as the secondary valuation method\nembedding $32 per share. KVUE currently trades at 15.5x our 2023E EBITDA and was\npriced at the IPO at 13.3x our 2023E EBITDA.\nRisks to Rating and Price Target\nWe believe the key risks to our OW rating and price target for Kenvue are (1) execution risk\ntied to the separation from JNJ, (2) potential talc litigation outside North America, (3)\nseasonality of cold & flu and allergy medicines, (4) inflation and supply chain volatility, (5)\nrisk of trade-down to private label due to deteriorating macroeconomic outlook or pricing\nactions (elasticity), and (5) share overhang from JNJ announced intention to de-consolidate\nKVUE, which may include a spin-off or split-off KVUE shares, leading to potential short-\nterm excess supply of shares.\n90\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 91, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nKenvue: Summary of Financials\nIncome Statement - Annual FY21A FY22A FY23E FY24E FY25E Income Statement - Quarterly 1Q23A 2Q23E 3Q23E 4Q23E\nRevenue 15,054 14,950 15,662 16,289 16,973 Revenue 3,851A 3,947 3,911 3,953\nCOGS (6,587) (6,610) (6,800) (7,050) (7,246) COGS (1,726)A (1,738) (1,666) (1,671)\nGross profit 8,467 8,340 8,862 9,239 9,727 Gross profit 2,125A 2,209 2,245 2,283\nSG&A (5,061) (5,000) (5,305) (5,515) (5,659) SG&A (1,316)A (1,337) (1,310) (1,343)\nAdj. EBITDA 3,810 3,606 3,797 3,983 4,308 Adj. EBITDA 867A 940 1,007 983\nD&A - - - - - D&A - - - -\nAdj. EBIT 3,493 3,310 3,487 3,648 3,957 Adj. EBIT 796A 861 928 903\nNet Interest 0 0 (283) (379) (367) Net Interest (1)A (90) (96) (95)\nAdj. PBT 3,493 3,310 3,204 3,270 3,589 Adj. PBT 795A 770 832 808\nTax (731) (676) (739) (761) (843) Tax (150)A (181) (205) (203)\nMinority Interest - - - - - Minority Interest - - - -\nAdj. Net Income 2,711 2,589 2,404 2,451 2,693 Adj. Net Income 630A 574 611 590\nReported EPS 1.05 1.08 1.11 1.14 1.27 Reported EPS 0.29A 0.26 0.28 0.27\nAdj. EPS 1.40 1.34 1.24 1.27 1.39 Adj. EPS 0.33A 0.30 0.32 0.30\nDPS 0.00 0.00 0.40 0.81 0.84 DPS 0.00A 0.00 0.20 0.20\nPayout ratio 0.0% 0.0% 36.1% 71.3% 65.7% Payout ratio 0.0%A 0.0% 71.0% 73.9%\nShares outstanding 1,935 1,935 1,935 1,935 1,935 Shares outstanding 1,935A 1,935 1,935 1,935\nBalance Sheet & Cash Flow Statement FY21A FY22A FY23E FY24E FY25E Ratio Analysis FY21A FY22A FY23E FY24E FY25E\nCash and cash equivalents 740 1,231 1,014 1,013 981 Gross margin 56.2% 55.8% 56.6% 56.7% 57.3%\nAccounts receivable 2,074 2,122 2,281 2,370 2,471 EBITDA margin 25.3% 24.1% 24.2% 24.5% 25.4%\nInventories 1,702 2,226 1,957 1,852 1,819 EBIT margin 23.2% 22.1% 22.3% 22.4% 23.3%\nOther current assets 408 294 302 311 317 Net profit margin 18.0% 17.3% 15.4% 15.0% 15.9%\nCurrent assets 4,924 5,874 5,555 5,546 5,588\nPP&E 1,827 1,820 1,927 2,074 2,227 ROE 13.1% 13.0% 15.5% 21.6% 22.7%\nLT investments - - - - - ROA 9.5% 9.4% 8.8% 9.0% 9.7%\nOther non current assets 21,101 19,586 19,638 19,833 20,300 ROCE 13.1% 13.0% 13.2% 13.9% 14.8%\nTotal assets 27,852 27,280 27,119 27,453 28,115 SG&A/Sales 33.6% 33.4% 33.9% 33.9% 33.3%\nNet debt/equity NM NM 0.7 0.6 0.6\nShort term borrowings - - - - -\nPayables 1,827 1,829 1,853 1,937 2,001 P/E (x) 18.8 19.7 21.2 20.8 18.9\nOther short term liabilities 2,224 2,105 2,195 2,290 2,378 P/BV (x) 2.5 2.6 4.6 4.4 4.2\nCurrent liabilities 4,051 3,934 4,049 4,227 4,379 EV/EBITDA (x) 13.3 14.0 15.7 12.7 11.8\nLong-term debt 0 0 8,512 8,310 8,122 Dividend Yield 0.0% 0.0% 1.5% 3.1% 3.2%\nOther long term liabilities 3,785 3,403 3,403 3,403 3,403\nTotal liabilities 7,836 7,337 15,964 15,940 15,904 Sales/Assets (x) 0.5 0.5 0.6 0.6 0.6\nShareholders' equity 20,015 19,943 11,155 11,513 12,211 Interest cover (x) - - 13.4 10.5 11.7\nMinority interests - - - - - Operating leverage 35.2% 756.1% 112.5% 115.6% 201.2%\nTotal liabilities & equity 27,852 27,280 27,119 27,453 28,115\nRevenue y/y Growth 4.1% (0.7%) 4.8% 4.0% 4.2%\nBVPS 10.34 10.31 5.76 5.95 6.31\nEBITDA y/y Growth 0.9% (5.4%) 5.3% 4.9% 8.2%\ny/y Growth (6.3%) (0.4%) (44.1%) 3.2% 6.1%\nTax rate 22.4% 21.8% 25.0% 25.0% 25.0%\nNet debt/(cash) (740) (1,231) 7,498 7,297 7,141\nAdj. Net Income y/y Growth 0.3% (4.5%) (7.1%) 1.9% 9.9%\nEPS y/y Growth 0.3% (4.5%) (7.1%) 1.9% 9.9%\nCash flow from operating activities 3,077 2,407 2,821 2,953 3,268\nDPS y/y Growth - - - 103.0% 3.0%\no/w Depreciation & amortization 680 599 591 599 597\no/w Changes in working capital (49) (672) 134 99 (4)\nCash flow from investing activities (171) (390) (792) (982) (1,254)\no/w Capital expenditure (295) (375) (417) (482) (504)\nas % of sales 2.0% 2.5% 2.7% 3.0% 3.0%\nCash flow from financing activities (2,743) (1,465) (2,247) (1,972) (2,045)\no/w Dividends paid 0 0 (774) (1,571) (1,618)\no/w Net debt issued/(repaid) (7) 14 8,512 (202) (188)\nNet change in cash 163 553 (217) (1) (32)\nAdj. Free cash flow to firm 2,782 2,032 2,405 2,471 2,763\ny/y Growth (26.3%) (27.0%) 18.3% 2.7% 11.8%\nSource: Company reports and J.P. Morgan estimates.\nNote: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which\n91\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 92, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nAnalyst Certification: The Research Analyst(s) denoted by an (cid:728)AC(cid:729) on the cover of this report certifies (or, where multiple Research Analysts\nare primarily responsible for this report, the Research Analyst denoted by an (cid:728)AC(cid:729) on the cover or within the document individually certifies,\nwith respect to each security or issuer that the Research Analyst covers in this research) that: (1) all of the views expressed in this report\naccurately reflect the Research Analyst(cid:726)s personal views about any and all of the subject securities or issuers; and (2) no part of any of the\nResearch Analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the\nResearch Analyst(s) in this report. For all Korea-based Research Analysts listed on the front cover, if applicable, they also certify, as per KOFIA\nrequirements, that the Research Analyst(cid:726)s analysis was made in good faith and that the views reflect the Research Analyst(cid:726)s own opinion,\nwithout undue influence or intervention.\nAll authors named within this report are Research Analysts who produce independent research unless otherwise specified. In Europe, Sector\nSpecialists (Sales and Trading) may be shown on this report as contacts but are not authors of the report or part of the Research Department.\nImportant Disclosures\nMarket Maker/ Liquidity Provider: J.P. Morgan is a market maker and/or liquidity provider in the financial instruments of/related to\nKenvue.\nManager or Co-manager: J.P. Morgan acted as manager or co-manager in a public offering of securities or financial instruments (as such\nterm is defined in Directive 2014/65/EU) of/for Kenvue within the past 12 months.\nDirector: An employee of J.P. Morgan or an executive officer or director of J.P. Morgan Chase & Co. is an officer, director or advisory board\nmember of Johnson & Johnson, a parent company of Kenvue.\nClient: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Kenvue.\nClient/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking\nclients: Kenvue.\nClient/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies)\nas clients, and the services provided were non-investment-banking, securities-related: Kenvue.\nClient/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the\nservices provided were non-securities-related: Kenvue.\nInvestment Banking Compensation Received: J.P. Morgan has received in the past 12 months compensation for investment banking services\nfrom Kenvue.\nPotential Investment Banking Compensation: J.P. Morgan expects to receive, or intends to seek, compensation for investment banking\nservices in the next three months from Johnson & Johnson, a parent company of Kenvue.\nNon-Investment Banking Compensation Received: J.P. Morgan has received compensation in the past 12 months for products or services\nother than investment banking from Kenvue.\nDebt Position: J.P. Morgan may hold a position in the debt securities of Kenvue, if any.\nJ.P. Morgan and/or its affiliates is acting as financial advisor to Johnson & Johnson Inc (JNJ) in connection with the separation of Kenvue Inc\nas announced on November 12th 2021. This research report and the information contained herein is not intended to provide voting advice, serve\nas an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security\nholder.\nCompany-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium\nreports and all J.P. Morgan\u2013covered companies, and certain non-covered companies, by visitinghttps://www.jpmm.com/research/disclosures,\ncalling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request.\n92\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 93, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nThe chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period.\nJ.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated\nExplanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:\nJ.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average\ntotal return of the stocks in the analyst(cid:726)s (or the analyst(cid:726)s team(cid:726)s) coverage universe.] Neutral [Over the next six to twelve months, we expect this\nstock will perform in line with the average total return of the stocks in the analyst(cid:726)s (or the analyst(cid:726)s team(cid:726)s) coverage universe.] Underweight\n[Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst(cid:726)s (or the\nanalyst(cid:726)s team(cid:726)s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock\nbecause of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the\nprice target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India)\nand U.K. small- and mid-cap equity research, each stock(cid:726)s expected total return is compared to the expected total return of a benchmark country\nmarket index, not to those analysts(cid:726) coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying\nanalyst(cid:726)s coverage universe can be found on J.P. Morgan(cid:726)s research website, https://www.jpmorganmarkets.com.\nCoverage Universe: Teixeira, Andrea: Becle, S.A.B. de C.V. (CUERVO.MX), Brown-Forman Corp (BFb), Central Garden & Pet (CENTA),\nChurch & Dwight (CHD), Clorox (CLX), Coca-Cola (KO), Colgate-Palmolive Co (CL), Constellation Brands (STZ), Coty Inc (COTY),\nEnergizer Holdings (ENR), Hydrofarm (HYFM), Keurig Dr Pepper Inc (KDP), Kimberly Clark Corp (KMB), Molson Coors Beverage Co\n(TAP), Monster Beverage (MNST), Newell Brands Inc (NWL), Olaplex (OLPX), PepsiCo (PEP), Primo Water Corp (PRMW), Reynolds\n(REYN), The Duckhorn Portfolio (NAPA), The Estee Lauder Cos (EL), The Honest Company (HNST), The Procter & Gamble Company (PG),\ne.l.f. Beauty Inc (ELF)\nJ.P. Morgan Equity Research Ratings Distribution, as of April 01, 2023\nOverweight Neutral Underweight\n(buy) (hold) (sell)\nJ.P. Morgan Global Equity Research Coverage* 47% 38% 15%\nIB clients** 47% 44% 34%\nJPMS Equity Research Coverage* 46% 41% 13%\nIB clients** 66% 65% 53%\n*Please note that the percentages might not add to 100% because of rounding.\n**Percentage of subject companies within each of the \"buy,\" \"hold\" and \"sell\" categories for which J.P. Morgan has provided\ninvestment banking services within the previous 12 months.\nFor purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls\ninto a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation\nare not included in the table above. This information is current as of the end of the most recent calendar quarter.\nEquity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies,\nplease see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P.\nMorgan representative, or email research.disclosure.inquiries@jpmorgan.com. For material information about the proprietary models used,\nplease see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are available to download on\nthe company pages of our client website, http://www.jpmorganmarkets.com. This report also sets out within it the material underlying\n93\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 94, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nassumptions used.\nA history of J.P. Morgan investment recommendations disseminated during the preceding 12 months can be accessed on the Research &\nCommentary page of http://www.jpmorganmarkets.com where you can also search by analyst name, sector or financial instrument.\nAnalysts' Compensation:The research analysts responsible for the preparation of this report receive compensation based upon various factors,\nincluding the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.\nOther Disclosures\nJ.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide.\nUK MIFID FICC research unbundling exemption: UK clients should refer to UK MIFID Research Unbundling exemption for details of\nJPMorgan(cid:726)s implementation of the FICC research exemption and guidance on relevant FICC research categorisation.\nAll research material made available to clients are simultaneously available on our client website, J.P. Morgan Markets, unless specifically\npermitted by relevant laws. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research\nmaterial available on a particular stock, please contact your sales representative.\nAny long form nomenclature for references to China; Hong Kong; Taiwan; and Macau within this research material are Mainland China; Hong\nKong SAR (China); Taiwan (China); and Macau SAR (China).\nJ.P. Morgan Research may, from time to time, write on issuers or securities targeted by economic or financial sanctions imposed or administered\nby the governmental authorities of the U.S., EU, UK or other relevant jurisdictions (Sanctioned Securities). Nothing in this report is intended to\nbe read or construed as encouraging, facilitating, promoting or otherwise approving investment or dealing in such Sanctioned Securities. Clients\nshould be aware of their own legal and compliance obligations when making investment decisions.\nAny digital or crypto assets discussed in this research report are subject to a rapidly changing regulatory landscape. For relevant regulatory\nadvisories on crypto assets, including bitcoin and ether, please see https://www.jpmorgan.com/disclosures/cryptoasset-disclosure.\nThe author(s) of this research report may not be licensed to carry on regulated activities in your jurisdiction and, if not licensed, do not hold\nthemselves out as being able to do so.\nExchange-Traded Funds (ETFs): J.P. Morgan Securities LLC ((cid:728)JPMS(cid:729)) acts as authorized participant for substantially all U.S.-listed ETFs. To\nthe extent that any ETFs are mentioned in this report, JPMS may earn commissions and transaction-based compensation in connection with the\ndistribution of those ETF shares and may earn fees for performing other trade-related services, such as securities lending to short sellers of the\nETF shares. JPMS may also perform services for the ETFs themselves, including acting as a broker or dealer to the ETFs. In addition, affiliates\nof JPMS may perform services for the ETFs, including trust, custodial, administration, lending, index calculation and/or maintenance and other\nservices.\nOptions and Futures related research: If the information contained herein regards options- or futures-related research, such information is\navailable only to persons who have received the proper options or futures risk disclosure documents. Please contact your J.P. Morgan\nRepresentative or visit https://www.theocc.com/components/docs/riskstoc.pdf for a copy of the Option Clearing Corporation's Characteristics\nand Risks of Standardized Options or http://www.finra.org/sites/default/files/Security_Futures_Risk_Disclosure_Statement_2018.pdf for a copy\nof the Security Futures Risk Disclosure Statement.\nChanges to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future\nbecome, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please\nconsult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates\nPrivate Bank Clients: Where you are receiving research as a client of the private banking businesses offered by JPMorgan Chase & Co. and its\nsubsidiaries ((cid:728)J.P. Morgan Private Bank(cid:729)), research is provided to you by J.P. Morgan Private Bank and not by any other division of J.P. Morgan,\nincluding, but not limited to, the J.P. Morgan Corporate and Investment Bank and its Global Research division.\nLegal entity responsible for the production and distribution of research: The legal entity identified below the name of the Reg AC Research\nAnalyst who authored this material is the legal entity responsible for the production of this research. Where multiple Reg AC Research Analysts\nauthored this material with different legal entities identified below their names, these legal entities are jointly responsible for the production of\nthis research. Research Analysts from various J.P. Morgan affiliates may have contributed to the production of this material but may not be\nlicensed to carry out regulated activities in your jurisdiction (and do not hold themselves out as being able to do so). Unless otherwise stated\nbelow, this material has been distributed by the legal entity responsible for production. If you have any queries, please contact the relevant\nResearch Analyst in your jurisdiction or the entity in your jurisdiction that has distributed this research material.\nLegal Entities Disclosures and Country-/Region-Specific Disclosures:\nArgentina: JPMorgan Chase Bank N.A Sucursal Buenos Aires is regulated by Banco Central de la Rep\u00fablica Argentina ((cid:728)BCRA(cid:729)- Central\nBank of Argentina) and Comisi\u00f3n Nacional de Valores ((cid:728)CNV(cid:729)- Argentinian Securities Commission(cid:729) - ALYC y AN Integral N\u00b051). Australia:\nJ.P. Morgan Securities Australia Limited ((cid:728)JPMSAL(cid:729)) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by the Australian\n94\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 95, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nSecurities and Investments Commission and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. This material is\nissued and distributed in Australia by or on behalf of JPMSAL only to \"wholesale clients\" (as defined in section 761G of the Corporations Act\n2001). A list of all financial products covered can be found by visiting https://www.jpmm.com/research/disclosures. J.P. Morgan seeks to cover\ncompanies of relevance to the domestic and international investor base across all Global Industry Classification Standard (GICS) sectors, as well\nas across a range of market capitalisation sizes. If applicable, in the course of conducting public side due diligence on the subject company(ies),\nthe Research Analyst team may at times perform such diligence through corporate engagements such as site visits, discussions with company\nrepresentatives, management presentations, etc. Research issued by JPMSAL has been prepared in accordance with J.P. Morgan Australia(cid:726)s\nResearch Independence Policy which can be found at the following link: J.P. Morgan Australia - Research Independence Policy. Brazil: Banco\nJ.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Ombudsman J.P. Morgan:\n0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com. Canada: J.P. Morgan Securities Canada Inc. is a registered investment dealer, regulated\nby the Investment Industry Regulatory Organization of Canada and the Ontario Securities Commission and is the participating member on\nCanadian exchanges. This material is distributed in Canada by or on behalf of J.P.Morgan Securities Canada Inc. Chile: Inversiones J.P. Morgan\nLimitada is an unregulated entity incorporated in Chile. China: J.P. Morgan Securities (China) Company Limited has been approved by CSRC\nto conduct the securities investment consultancy business. Dubai International Financial Centre (DIFC): JPMorgan Chase Bank, N.A., Dubai\nBranch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - The\nGate, West Wing, Level 3 and 9 PO Box 506551, Dubai, UAE. This material has been distributed by JP Morgan Chase Bank, N.A., Dubai\nBranch to persons regarded as professional clients or market counterparties as defined under the DFSA rules. European Economic Area\n(EEA): Unless specified to the contrary, research is distributed in the EEA by J.P. Morgan SE ((cid:728)JPM SE(cid:729)), which is subject to prudential\nsupervision by the European Central Bank ((cid:728)ECB(cid:729)) in cooperation with BaFin and Deutsche Bundesbank in Germany. JPM SE is a company\nheadquartered in Frankfurt with registered address at TaunusTurm, Taunustor 1, Frankfurt am Main, 60310, Germany. The material has been\ndistributed in the EEA to persons regarded as professional investors (or equivalent) pursuant to Art. 4 para. 1 no. 10 and Annex II of MiFID II\nand its respective implementation in their home jurisdictions ((cid:728)EEA professional investors(cid:729)). This material must not be acted on or relied on by\npersons who are not EEA professional investors. Any investment or investment activity to which this material relates is only available to EEA\nrelevant persons and will be engaged in only with EEA relevant persons. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE\nnumber AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong, and J.P.\nMorgan Broking (Hong Kong) Limited (CE number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. JP Morgan\nChase Bank, N.A., Hong Kong Branch (CE Number AAL996) is regulated by the Hong Kong Monetary Authority and the Securities and\nFutures Commission, is organized under the laws of the United States with limited liability. Where the distribution of this material is a regulated\nactivity in Hong Kong, the material is distributed in Hong Kong by or through J.P. Morgan Securities (Asia Pacific) Limited and/or J.P. Morgan\nBroking (Hong Kong) Limited. India: J.P. Morgan India Private Limited (Corporate Identity Number - U67120MH1992FTC068724), having its\nregistered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East, Mumbai \u2013 400098, is registered with the Securities and\nExchange Board of India (SEBI) as a (cid:725)Research Analyst(cid:726) having registration number INH000001873. J.P. Morgan India Private Limited is also\nregistered with SEBI as a member of the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited (SEBI\nRegistration Number \u2013 INZ000239730) and as a Merchant Banker (SEBI Registration Number - MB/INM000002970). Telephone: 91-22-6157\n3000, Facsimile: 91-22-6157 3990 and Website: http://www.jpmipl.com. JPMorgan Chase Bank, N.A. - Mumbai Branch is licensed by the\nReserve Bank of India (RBI) (Licence No. 53/ Licence No. BY.4/94; SEBI - IN/CUS/014/ CDSL : IN-DP-CDSL-444-2008/ IN-DP-NSDL-285-\n2008/ INBI00000984/ INE231311239) as a Scheduled Commercial Bank in India, which is its primary license allowing it to carry on Banking\nbusiness in India and other activities, which a Bank branch in India are permitted to undertake. For non-local research material, this material is\nnot distributed in India by J.P. Morgan India Private Limited. Compliance Officer: Spurthi Gadamsetty; spurthi.gadamsetty@jpmchase.com;\n+912261573225. Grievance Officer: Ramprasadh K, jpmipl.research.feedback@jpmorgan.com; +912261573000.\nInvestment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration\ngranted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of\nreturns to investors.\nIndonesia: PT J.P. Morgan Sekuritas Indonesia is a member of the Indonesia Stock Exchange and is registered and supervised by the Otoritas\nJasa Keuangan (OJK). Korea: J.P. Morgan Securities (Far East) Limited, Seoul Branch, is a member of the Korea Exchange (KRX). JPMorgan\nChase Bank, N.A., Seoul Branch, is licensed as a branch office of foreign bank (JPMorgan Chase Bank, N.A.) in Korea. Both entities are\nregulated by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). For non-macro research material, the\nmaterial is distributed in Korea by or through J.P. Morgan Securities (Far East) Limited, Seoul Branch. Japan: JPMorgan Securities Japan Co.,\nLtd. and JPMorgan Chase Bank, N.A., Tokyo Branch are regulated by the Financial Services Agency in Japan. Malaysia: This material is issued\nand distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X), which is a Participating Organization of Bursa Malaysia\nBerhad and holds a Capital Markets Services License issued by the Securities Commission in Malaysia. Mexico: J.P. Morgan Casa de Bolsa,\nS.A. de C.V.and J.P. Morgan Grupo Financiero are members of the Mexican Stock Exchange and are authorized to act as a broker dealer by the\nNational Banking and Securities Exchange Commission. New Zealand: This material is issued and distributed by JPMSAL in New Zealand\nonly to \"wholesale clients\" (as defined in the Financial Markets Conduct Act 2013). JPMSAL is registered as a Financial Service Provider under\nthe Financial Service providers (Registration and Dispute Resolution) Act of 2008. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a\nmember of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Philippines: J.P. Morgan\nSecurities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the\nPhilippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Russia: CB J.P. Morgan\nBank International LLC is regulated by the Central Bank of Russia. Singapore: This material is issued and distributed in Singapore by or\nthrough J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 060/08/2022 and Co. Reg. No.: 199405335R], which is a member\nof the Singapore Exchange Securities Trading Limited, and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore), both of\n95\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 96, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nwhich are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors,\nexpert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not\nintended to be issued or distributed to any retail investors or any other investors that do not fall into the classes of (cid:728)accredited investors,(cid:729) (cid:728)expert\ninvestors(cid:729) or (cid:728)institutional investors,(cid:729) as defined under Section 4A of the SFA. Recipients of this material in Singapore are to contact JPMSS or\nJPMCB Singapore in respect of any matters arising from, or in connection with, the material. As at the date of this material, JPMSS is a\ndesignated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities may be the securities\ndiscussed in this material. Arising from its role as a designated market maker for such structured warrants, JPMSS may conduct hedging\nactivities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of\nstructured warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited:\nhttp://www.sgx.com. South Africa: J.P. Morgan Equities South Africa Proprietary Limited and JPMorgan Chase Bank, N.A., Johannesburg\nBranch are members of the Johannesburg Securities Exchange and are regulated by the Financial Services Board. Taiwan: J.P. Morgan\nSecurities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures\nBureau. Material relating to equity securities is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited, subject to the\nlicense scope and the applicable laws and the regulations in Taiwan. According to Paragraph 2, Article 7-1 of Operational Regulations\nGoverning Securities Firms Recommending Trades in Securities to Customers (as amended or supplemented) and/or other applicable laws or\nregulations, please note that the recipient of this material is not permitted to engage in any activities in connection with the material that may\ngive rise to conflicts of interests, unless otherwise disclosed in the (cid:728)Important Disclosures(cid:729) in this material. Thailand: This material is issued\nand distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by\nthe Ministry of Finance and the Securities and Exchange Commission, and its registered address is 3rd Floor, 20 North Sathorn Road, Silom,\nBangrak, Bangkok 10500. UK: Unless specified to the contrary, research is distributed in the UK by J.P. Morgan Securities plc ((cid:728)JPMS plc(cid:729))\nwhich is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial\nConduct Authority and the Prudential Regulation Authority. JPMS plc is registered in England & Wales No. 2711006, Registered Office 25\nBank Street, London, E14 5JP. This material is directed in the UK only to: (a) persons having professional experience in matters relating to\ninvestments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) (Order) 2005 ((cid:728)the FPO(cid:729)); (b)\npersons outlined in article 49 of the FPO (high net worth companies, unincorporated associations or partnerships, the trustees of high value\ntrusts, etc.); or (c) any persons to whom this communication may otherwise lawfully be made; all such persons being referred to as \"UK relevant\npersons\". This material must not be acted on or relied on by persons who are not UK relevant persons. Any investment or investment activity to\nwhich this material relates is only available to UK relevant persons and will be engaged in only with UK relevant persons. Research issued by\nJPMS plc has been prepared in accordance with JPMS plc's policy for prevention and avoidance of conflicts of interest related to the production\nof Research which can be found at the following link: J.P. Morgan EMEA - Research Independence Policy. U.S.: J.P. Morgan Securities LLC\n((cid:728)JPMS(cid:729)) is a member of the NYSE, FINRA, SIPC, and the NFA. JPMorgan Chase Bank, N.A. is a member of the FDIC. Material published by\nnon-U.S. affiliates is distributed in the U.S. by JPMS who accepts responsibility for its content.\nGeneral: Additional information is available upon request. The information in this material has been obtained from sources believed to be\nreliable. While all reasonable care has been taken to ensure that the facts stated in this material are accurate and that the forecasts, opinions and\nexpectations contained herein are fair and reasonable, JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) make\nno representations or warranties whatsoever to the completeness or accuracy of the material provided, except with respect to any disclosures\nrelative to J.P. Morgan and the Research Analyst's involvement with the issuer that is the subject of the material. Accordingly, no reliance should\nbe placed on the accuracy, fairness or completeness of the information contained in this material. There may be certain discrepancies with data\nand/or limited content in this material as a result of calculations, adjustments, translations to different languages, and/or local regulatory\nrestrictions, as applicable. These discrepancies should not impact the overall investment analysis, views and/or recommendations of the subject\ncompany(ies) that may be discussed in the material. J.P. Morgan accepts no liability whatsoever for any loss arising from any use of this material\nor its contents, and neither J.P. Morgan nor any of its respective directors, officers or employees, shall be in any way responsible for the contents\nhereof, apart from the liabilities and responsibilities that may be imposed on them by the relevant regulatory authority in the jurisdiction in\nquestion, or the regulatory regime thereunder. Opinions, forecasts or projections contained in this material represent J.P. Morgan's current\nopinions or judgment as of the date of the material only and are therefore subject to change without notice. Periodic updates may be provided on\ncompanies/industries based on company-specific developments or announcements, market conditions or any other publicly available\ninformation. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections, which\nrepresent only one possible outcome. Furthermore, such opinions, forecasts or projections are subject to certain risks, uncertainties and\nassumptions that have not been verified, and future actual results or events could differ materially. The value of, or income from, any\ninvestments referred to in this material may fluctuate and/or be affected by changes in exchange rates. All pricing is indicative as of the close of\nmarket for the securities discussed, unless otherwise stated. Past performance is not indicative of future results. Accordingly, investors may\nreceive back less than originally invested. This material is not intended as an offer or solicitation for the purchase or sale of any financial\ninstrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not\nintended as recommendations of particular securities, financial instruments or strategies to particular clients. This material may include views on\nstructured securities, options, futures and other derivatives. These are complex instruments, may involve a high degree of risk and may be\nappropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. The recipients of\nthis material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek\nadvice from such independent financial, legal, tax or other adviser as they deem necessary. J.P. Morgan may trade as a principal on the basis of\nthe Research Analysts(cid:726) views and research, and it may also engage in transactions for its own account or for its clients(cid:726) accounts in a manner\ninconsistent with the views taken in this material, and J.P. Morgan is under no obligation to ensure that such other communication is brought to\nthe attention of any recipient of this material. Others within J.P. Morgan, including Strategists, Sales staff and other Research Analysts, may take\n96\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}
{"page_number": 97, "text": "Andrea Teixeira, CFAAC North America Equity Research JPMORGAN\n(1-212) 622-6735 29 May 2023\nandrea.f.teixeira@jpmorgan.com\nviews that are inconsistent with those taken in this material. Employees of J.P. Morgan not involved in the preparation of this material may have\ninvestments in the securities (or derivatives of such securities) mentioned in this material and may trade them in ways different from those\ndiscussed in this material. This material is not an advertisement for or marketing of any issuer, its products or services, or its securities in any\njurisdiction.\nConfidentiality and Security Notice: This transmission may contain information that is privileged, confidential, legally privileged, and/or\nexempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any disclosure, copying,\ndistribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED. Although this\ntransmission and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is\nreceived and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by JPMorgan Chase &\nCo., its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you received this transmission in\nerror, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy format. This message is\nsubject to electronic monitoring: https://www.jpmorgan.com/disclosures/email\nMSCI: Certain information herein ((cid:728)Information(cid:729)) is reproduced by permission of MSCI Inc., its affiliates and information providers ((cid:728)MSCI(cid:729))\n\u00a92023. No reproduction or dissemination of the Information is permitted without an appropriate license. MSCI MAKES NO EXPRESS OR\nIMPLIED WARRANTIES (INCLUDING MERCHANTABILITY OR FITNESS) AS TO THE INFORMATION AND DISCLAIMS ALL\nLIABILITY TO THE EXTENT PERMITTED BY LAW. No Information constitutes investment advice, except for any applicable Information\nfrom MSCI ESG Research. Subject also to msci.com/disclaimer\n\"Other Disclosures\" last revised May 13, 2023.\nCopyright 2023 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or\nredistributed without the written consent of J.P. Morgan. #$J&098$#*P\nCompleted 27 May 2023 11:52 AM EDT Disseminated 29 May 2023 12:15 AM EDT\n97\nT h is d o c u m e n t is b e in g p r o v id e d f o r t h e e x c lu s iv e u s e o f D A V I D W A N G a t M A R L O W E P A R T N E R S L P ."}