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Just over one year ago, Johnson & Johnson (JNJ) spun off its consumer health business in an IPO, which is now known as Kenvue (KVUE), and it's been a rough ride for both stocks since then. Today, however, KVUE shareholders are enjoying a nice rally after the company beat Q1 EPS expectations, reaffirmed its FY24 guidance, and announced a reduction of its workforce of approximately 4%. The job cuts are expected to result in annualized pre-tax gross savings of about $350 mln, most of which will be realized in FY26, enabling KVUE to reinvest the savings into its fifteen priority brands.

• Those fifteen priority brands are mainly concentrated in KVUE's Self-Care segment, account for roughly two-thirds of the company's growth, and include names like Tylenol, Benadryl, Motrin, and Zyrtec. In Q1, the Self Care segment generated net sales of $1.70 bln, up 3.5% yr/yr, entirely driven by favorable price/mix as volume decreased by 1.4%. In fact, volumes were down in each of KVUE's three segments (Self Care, Skin Health & Beauty, Essential Health), decreasing by 3.1% on a consolidated basis.
• Approximately two points of that volume decrease was related to retailer inventory buildups in the year-ago period and the effects of associated inventory drawdowns in this quarter. Unfortunately, the company expects these inventory reduction efforts to continue through 2Q24.
• The good news, though, is that supply chain improvements, some easing of cost inflation, and pricing are enabling KVUE to mitigate the negative effect of the volume contraction. These factors drove adjusted gross profit margin higher by 290 bps yr/yr to 60.2%.
• We also believe that investors were relieved to see KVUE reaffirm its FY24 EPS guidance of $1.10-$1.20, revenue guidance of $15.59-$15.90, and organic growth forecast of 2-4%. These guidance ranges were below analysts' expectations last quarter, so it would have been especially discouraging if KVUE had cut its guidance this time around.

By no means did KVUE knock it out of the park with its Q1 results and outlook, and the volume declines across each of its segments leaves much to be desired. Expectations remained muted to say the least, though, with shares down by 25% versus its IPO opening price, setting the stage for a rebound on a better-than-feared performance. KVUE delivered just that, while tacking on a cost-savings initiative, providing the stock with a much-needed boost.