Kenvue Inc (KVUE)- Riding the Initial Wave of the Spine-Off
Temporary tailwinds may give way to operational headwinds
Kenvue (KVUE) was spun out of Johnson & Johnson in 2023. Its product portfolio consists mainly of JNJ's old consumer OTC products, such as Tylenol, Band-Aids, and Nicorette gum. The company's goal is to increase the penetration of its well-known brands, develop brand extensions, and expand margins. Return on investment stands at 17% (excluding any adjustment for amortization of intangibles), and debt is 2.2 times adjusted EBITDA. Additionally, the GAAP treatment of goodwill—specifically, not expensing it—is boosting earnings per share by approximately three cents per quarter. There's not much to knock there.
The company ended 2025 with a forecast for 2026 organic growth of 2%-4% and growth in adjusted operating margin, leading to 0%-2% adjusted EPS growth. Following the Q1 results, this forecast was revised to a lower adjusted operating margin and flat EPS growth. Management also expects the year to be back-loaded now.
We see several items worth monitoring. One of the bigger issues is that KVUE appears to have come out of the spin-off taking substantial pricing gains with lower promotional spending that helped drive revenue gains and margin improvement. Both of those former benefits are running in reverse now, which is squeezing margins. The company has also barely beaten or matched forecasts with earnings beats of 1 cps, 0 cps, and 1 cps in the last three quarters, respectively, despite multiple tailwinds that we believe are temporary. Let's dig deeper: