Kenvue Begins IPO Process; Seeks To Separate From Johnson & Johnson (KVUE)

A Quick Take On Kenvue

Kenvue (KVUE) has filed to raise an estimated $5 billion in an IPO of its common stock, according to an S-1 registration statement.

The firm designs and sells a wide range of consumer healthcare products worldwide.

KVUE will also execute debt financing transactions in conjunction with the IPO, sending proceeds to parent firm Johnson & Johnson (NYSE:JNJ) as part of its separation process.

I’ll provide a final opinion when we learn more IPO details from management.

Kenvue Overview

Skillman, New Jersey-based Kenvue was founded as a division within Johnson & Johnson to create and sell healthcare products globally to enhance consumer wellness.

Management is headed by CEO-to-be Thibaut Mongon, who has been with the firm since 2000 when he joined parent firm Johnson & Johnson as Director of Marketing for the Vision Care Group in France.

The company’s primary offerings include:

• Band-Aid

• Motrin

• Tylenol

• Listerine

• Aveeno

• Neutrogena

• Johnson’s

• Lubriderm

• Zyrtec

• Nicorette

• Others

As of October 2, 2022, Kenvue has booked fair market value investment of $25.2 billion from parent firm Johnson & Johnson.

Kenvue – Customer Acquisition

The company distributed its products via an omnichannel approach through retail distribution and online ecommerce sites.

Kenvue operates in three segments, with the following net sales percentage contributed in 2021:

• Self Care – 38%

• Skin Health and Beauty – 30%

• Essential Health – 32%

Selling, G&A expenses as a percentage of total revenue have risen slightly as revenues have increased, as the figures below indicate:

Selling, G&A	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended October 2, 2022	36.7%
FYE January 2, 2022	36.4%
FYE January 2, 2021	34.3%

Click to enlarge

(Source – SEC)

The Selling, G&A efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was 0x in the most recent reporting period, as shown in the table below:

Selling, G&A	Efficiency Rate
Period	Multiple
Nine Mos. Ended October 2, 2022	0.0
FYE January 2, 2022	0.1

Click to enlarge

(Source – SEC)

Kenvue’s Market & Competition

According to a 2022 market research report by Research and Markets, the global market for consumer healthcare products was an estimated $340 billion in 2021 and is forecast to reach $520 billion by 2027.

This represents a forecast CAGR of 7.34% from 2023 to 2027, although management estimates growth to be between 3% and 4% into the future.

The main drivers for this expected growth are demand from consumers for convenient products with a lower environmental impact and continued development of new product categories by manufacturers.

Also, the expected rapid growth of e-commerce and online pharmacy channels is expected to extend demand for consumer healthcare products in developed as well as emerging economies worldwide.

Major competitive or other industry participants include:

• Bayer (OTCPK:BAYRY)

• Haleon (HLN)

• Procter & Gamble (PG)

• Reckitt Benckiser Group (OTCPK:RBGPF)

• Sanofi (SNY)

• Beiersdorf (OTCPK:BDRFF)

• L’Oreal (OTCPK:LRLCF)

• Unilever (UL)

• Colgate-Palmolive (CL)

• Kimberly Clark (KMB)

• Private label brands

Kenvue’s Financial Performance

The company’s recent financial results can be summarized as follows:

• Fluctuating topline revenue

• Variable gross profit and gross margin

• Uneven operating profit

• Positive cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Nine Mos. Ended October 2, 2022	$ 11,183,000,000	-1.2%
FYE January 2, 2022	$ 15,054,000,000	4.1%
FYE January 2, 2021	$ 14,467,000,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Nine Mos. Ended October 2, 2022	$ 6,239,000,000	-3.1%
FYE January 2, 2022	$ 8,419,000,000	7.3%
FYE January 2, 2021	$ 7,848,000,000
Gross Margin
Period	Gross Margin
Nine Mos. Ended October 2, 2022	55.79%
FYE January 2, 2022	55.93%
FYE January 2, 2021	54.25%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Nine Mos. Ended October 2, 2022	$ 2,144,000,000	19.2%
FYE January 2, 2022	$ 2,920,000,000	19.4%
FYE January 2, 2021	$ (979,000,000)	-6.8%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Nine Mos. Ended October 2, 2022	$ 1,717,000,000	15.4%
FYE January 2, 2022	$ 2,031,000,000	18.2%
FYE January 2, 2021	$ (879,000,000)	-7.9%
Cash Flow From Operations
Period	Cash Flow From Operations
Nine Mos. Ended October 2, 2022	$ 1,881,000,000
FYE January 2, 2022	$ 334,000,000
FYE January 2, 2021	$ 3,397,000,000
(Glossary Of Terms)

Click to enlarge

(Source – SEC)

As of October 2, 2022, Kenvue had $797 million in cash and $7.1 billion in total liabilities.

Free cash flow during the twelve months ended October 2, 2022, was $2.6 billion.

Kenvue IPO Details

Kenvue intends to raise an estimated $5 billion in gross proceeds from an IPO of its common stock.

The company is beginning the separation process from parent firm Johnson & Johnson.

All the proceeds from the IPO will go to parent firm Johnson & Johnson.

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said that parent firm Johnson & Johnson ‘will agree to indemnify us for the Talc-Related Liabilities and any costs associated with resolving such claims. Such claims represent the vast majority of claims relating to harm arising out of, based upon or resulting from, directly or indirectly, the presence of or exposure to talc or talc-containing products. The Company will, however, remain responsible for all liabilities on account of or relating to harm arising out of, based upon or resulting from, directly or indirectly, the presence of or exposure to talc or talc-containing products sold outside the United States or Canada.’

The listed bookrunners of the IPO are Goldman Sachs and JPMorgan.

Commentary About Kenvue’s IPO

KVUE is seeking to go public as it separates from Johnson & Johnson.

The company’s financials have produced high and variable topline revenue, fluctuating gross profit and gross margin, variable operating profit and positive cash flow from operations.

Free cash flow for the twelve months ended October 2, 2022 was $2.6 billion.

Selling, G&A expenses as a percentage of total revenue have risen slightly as revenue has varied; Selling, G&A efficiency multiple was 0x in the most recent reporting period.

The firm currently plans to pay an undetermined dividend depending on a number of factors as decided upon by the company’s board of directors.

KVUE’s trailing twelve-month CapEx Ratio was 9.12, which indicates it has spent relatively lightly on capital expenditures as a percentage of its operating cash flow.

The market opportunity for selling mainline consumer healthcare products is quite large and is expected to grow at a moderate rate of growth in the coming years.

Goldman Sachs is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 50.4% since their IPO. This is a top-tier performance for all major underwriters during the period.

Risks to the company’s outlook as a public company include the connection of the firm with parent Johnson & Johnson in terms of its baby powder product liability exposure.

JNJ’s indemnification is only as good as its financial viability and multi-billion dollar awards so far have been concerning.

When we learn management’s valuation assumptions and details about its debt financing transactions to be finalized in conjunction with the IPO, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.