Kenvue Earnings: Ends 2023 on a Disappointing Note and Cites Near-Term Uncertainties

Wide-moat Kenvue reported fourth-quarter earnings that came in weaker than our expectations. Total sales were down 2.7% year over year as challenges in the skin health and beauty segment persist and normalization of cough and cold season led to tough comparisons against 2022 for self care. Price and mix, which contributed 5.8% of growth, weren’t didn't offset a volume loss of 8.2%. But we think idiosyncrasies during the quarter such as product discontinuation (negative 1% in sales) and pullback in retail inventory restocking (negative 1%) somewhat mask the underlying strength of the firm’s portfolio. We still expect certain challenges to create additional headwinds in 2024 and also model weaker pricing benefits as inflation has largely stabilized. After adjusting our near-term assumptions, we lowered our fair value estimate to $25.50 per share from $27.50.