Kenvue, a device of Johnson & & Johnson’s customer health and wellness service.
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Company: Kenvue Inc (KVUE)
Business: Kenvue is a consumer health company. The company operates through three segments: Self Care, Skin Health and Beauty, and Essential Health. Self Care product categories include pain care; cough cold allergy; and “other self care.” The Skin Health and Beauty segment’s product categories include face and body care and hair, sun and others. The Essential Health segment’s product categories include oral care, baby care and other essential health. Its differentiated portfolio of brands includes Tylenol, Neutrogena, Listerine, Johnson’s, Band-Aid, Aveeno, Zyrtec and Nicorette. The company sells and distributes its product portfolio in more than 165 countries across its four regions. The four region consists of North America, Asia Pacific (APAC), Europe, Middle East, and Africa (EMEA), and Latin America (LATAM).
Stock Market Value: $43.36B ($22.64 per share)
Kenvue shares in 2024
Activist: Starboard Value
Ownership: n/a
Average Cost: n/a
Activist Commentary: Starboard is a very successful activist investor and has extensive experience helping companies focus on operational efficiency and margin improvement. Starboard has taken a total of 152 prior activist campaigns in its history and has an average return of 25.02% versus 13.65% for the Russell 2000 over the same period. In 51 of these situations, Starboard had an operational thesis as part of its activist campaign, and it made an average return of 36.19% versus 15.29% for the Russell 2000 over the same period.
What’s happening
Behind the scenes
Kenvue is a consumer health company specializing in Self Care, Skin Health and Beauty, and Essential Health, with world-class brands that are synonymous with these three categories such as Tylenol, Neutrogena and Neosporin. The company was spun out of Johnson & Johnson in May 2023, which by all accounts seemed like a smart move by management as the consumer health sector lacked synergies with J&J’s core competencies of pharma and medtech. Coupled with the fact that consumer health only made up 16% of total sales for J&J prior to the spin, it was hard to argue against the merit of this separation that now allows a separate company to prioritize these great brands and businesses.
At a glance, post-spin, the company seemed poised to flourish. It has stronger brand recognition than peers like Colgate-Palmolive, Haleon, and P&G. It also has lower threat from private-label alternatives than peers, with private labels only having a 6% share of Kenvue’s product categories compared to a peer median of 10%. Additionally, Kenvue operates in extremely attractive end markets with structural tailwinds, including an increasingly health-conscious consumer and a growing middle class in emerging markets, that provide a strong foundation for low to mid-single digit revenue growth. Despite their enticing market position and superior brand quality, the company has traded poorly since its spin with the lowest valuation multiple of its peers at 18-times – staggeringly lower than the peer median of 25-times. As a result, the company has delivered a -15% total shareholder return since the IPO compared to a peer median of 6% shareholder return over the same period.
Kenvue has struggled with its organic growth in a way that it seems to have not expected. The company missed its post spin FY23 guidance for organic growth by 75 basis points, even after previously lowering their guidance by 25 basis points. Kenvue expects a 3.3% compound annual growth rate compared to a 4% median for peers. This is not a huge difference, but an issue that can easily be identified and rectified. Self Care delivered a strong year of 8.4% organic growth, and Essential Health grew ahead of expectations at 3.6% organic growth, so these sectors are not the issue. The challenge for the company lies within Skin Health and Beauty, which delivered only 1.8% organic growth despite peers growing 4.4% from CY19-CY23. If you were to take Skin Health and Beauty out of the picture, Kenvue’s organic growth from FY19-FY23 would have been 5.1%, significantly outperforming the consolidated market growth of 4%.
Starboard’s path to value creation involves management adopting a “marketing first” strategy and embracing omni-channel and digital marketing. Skin Health and Beauty has been proven to be a marketing business whose growth can be greatly aided by social media. This can make marketing an extremely powerful and profitable tool for companies that know how to use it. L’Oreal’s acquisition of CeraVe in 2017 works as a solid instance of this. After getting CeraVe for $1.3 billion, L’Oreal released a hyper-focused electronic advertising and marketing project that consisted of legendary advertising and marketing product such as the amusing “Michael CeraVe” project. While it might appear silly, these approaches truly function: Just take a look at CeraVe’s sales development of 10-times over the initial 5 years after the purchase. Starboard intends to take on the concerns with the Skin Health and Beauty service directly, as it seems the crucial challenge stopping Kenvue from developing tremendous investor worth. There is no question regarding the toughness of Kenvue’s brand names and items in this field– highlighted by 2 radiating celebrities, Neutrogena and Aveeno– that continue to be extremely related to and extensively acquired. A much better advertising and marketing strategy will certainly not just enhance the leading line at Skin Health and Beauty yet likewise needs to enhance the operating margins, which are currently 12% versus a peer mean of 17%.
Kenvue appears to currently be making strides in the direction of this service version, as they enhanced FY24 advertising and marketing invest to 11.1% of sales contrasted to 8.7% for FY23. This budget plan boost mirrors a change towards a “marketing first” strategy, especially via social media sites, as shown by their current Neutrogena Collagen Bank item launch. First, the firm presented the item on TikTo k before in-store circulation. Next, it partnered with significant celeb Hailee Steinfeld to be the face of the product, that presently has more than 25 million social media sites fans. Lastly, the firm presented it in the very early innings of the Collagen Bank charm pattern.
As much as lobbyist projects go, there are 2 extremes. There are Herculean, heavy-lift projects, where the lobbyist can be found in promoting a full overhaul of the board, resources allotment, monitoring group and procedures. Then there is the “pushing an open-door” project– scenarios where the lobbyist and firm are straightened, there are clear courses to worth development and involvement is useful. By all accounts, this circumstance is the last. Kenvue has a strong service with legendary brand names and one underperforming sector in Skin Health andBeauty Starboard thinks this can be corrected by welcoming a marketing-driven society, and this is currently taking place. Management has actually devoted to focusing on advertising and marketing. They have actually currently started pressing a marketing-first mindset with enhanced social media sites projects and celeb collaborations. Starboard has actually not made any kind of public needs for board depiction, and we anticipate that they will certainly check Kenvue’s development as an energetic investor prior to making any kind of choices hereof. However, the company does not have that much time to save as the election home window for supervisors is in betweenNov 11 andDec 11. It is feasible that Starboard will certainly choose some supervisors simply to maintain its legal rights while it is speaking with monitoring and keeping track of the development.
Ken Squire is the owner and head of state of 13D Monitor, an institutional study solution on investor advocacy, and the owner and profile supervisor of the 13D Activist Fund, a common fund that purchases a profile of lobbyist 13D financial investments.
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