Kenvue Earnings: Distribution Issues and Weak Demand Temper Results, but Recovery Underway

Wide-moat Kenvue reported mixed fourth-quarter results, ending the year on a soft note. Total sales of $3.7 billion came in roughly flat year over year and below our $3.9 billion forecast, but earnings per share of $0.26 ended up a touch above our expectation. Two factors behind the revenue underperformance were a weaker-than-expected cough and cold season, affecting self care, and a disruption in Kenvue’s China distribution network, affecting essential health and skin health and beauty. Self care and skin health and beauty both still delivered roughly 3% organic growth, but essential health was down about 1%. Management said organic growth for the firm, which was about 2% during the quarter, would have been around 4%—close to our original estimate—excluding these impacts. 2025 guidance, which partially bakes in these impacts as well as tough foreign-exchange headwinds, is for 3% organic sales growth and 1% EPS growth, both at the midpoint, and is slightly shy of our original assumptions. After updating our model, we've lowered our fair value estimate to $24.50 per share from $26. Still, we see some near-term headwinds as transitory and not severely affecting our favorable long-term view.