Post Spin-off Q2 (KVUE)
Kenvue reported Q2 EPS of $.32 vs. the $.30 consensus estimate on better margins. Organic revenues grew 7.7% with a price/mix of 9.4% offset by a volume decline of 1.7%. Volumes were flattish after adjusting for portfolio rationalizations and excluding the Russia business (anniversaried in Q2). 60% of the higher pricing came from price increases implemented in the 2H of last year.
- Self Care organic growth was 14.2% with price/mix of +10.6% and volume of +3.6%. Sun care products were a callout as well as a strong cough/cold carry through. Management does not believe there was pull forward in the cough/cold category.
- Skin Health & Beauty organic growth was 3.4% with price/mix of +6.6% and volume of -3.2%.
- Essential Health's organic growth was 3.8% with a price/mix of +10.7% and volume of -6.9%.
Adj. gross margins contracted 180bps YOY due to input cost inflation and Fx somewhat offset by higher prices and supply chain improvements. Adj. EBITDA margins contracted 230bps. Public company separation costs were $50-60M or 250bps, doubling from the prior year.
Management guided EPS for the year to $1.26-1.31 vs. the consensus of $1.25. Public company costs were front-loaded, but management expects them to be elevated in the near future.
The company initiated a $.20 dividend, representing a 3.2% annual yield. The dividend is one use of the company’s FCF to create shareholder value, the other will be targeted M&A. The company demonstrated its pricing power in a difficult consumer environment.
Johnson & Johnson announced its plans for a Kenvue exchange offer. Johnson & Johnson shareholders will be able to select how many, if any, shares they want of their current position in the company to be in Kenvue shares. JNJ owns 89.6% of Kenvue shares. The timing of the exchange depends on market conditions, but it could happen within days. One appeal of the exchange offer is that Kenvue will have shareholders who specifically want to invest in it rather than a full distribution to all JNJ shareholders.
New coffee partner (KDP)
Keurig Dr Pepper announced a strategic partnership with La Colombe for a long-term sales and distribution agreement. The partnership includes La Colombe coffee RTDs and K-Cups. Keurig Dr Pepper will make a $300M equity investment in La Colombe for a 33% stake in the company. The investment represents a valuation of 3x 2024 sales, similar to Keurig Dr Pepper’s current valuation. In November, Molson Coors and La Colombe prematurely ended their 10 year distribution agreement after just 1.5 years. Molson Coors had expanded La Colombe’s products to about 15,000 retail locations. C-store sales had increased 400% for La Colombe. The coffee roaster planned to consolidate distribution of other products alongside the RTDs including bagged coffee and multi-serve cold brew packages.
RTD coffee has been the fastest-growing product since the pandemic outbreak, lapping the surge in at-home food consumption and continuing to gain share in the post-pandemic/elevated inflationary environment.
Are wine sales bottoming? (NAPA)
Domestic table and sparkling wine off-premise sales decreased 1% YOY in the four week period ended June 17. Volumes decreased 4% to 8.2M cases with volumes for sparkling wines down 6% and table wines down 4%. Sales in dollars fell 1% for table wine and 3% for sparkling wines. Over the past 52 weeks wine sales decreased 2% to $12.2B and volumes fell 5% to 114.6M cases. The decline was even with the previous four week period. The Duckhorn Portfolio is one of only a handful of the largest winemakers posting growth. The industry has had challenges raising prices to cover inflationary cost pressures so volume declines need to reverse.
Vintage Wine Estates provided a business update and outlook (VWE)
Vintage Wine Estates guided revenue F2024 revenue to $250-270M vs. consensus of $270M. Over the past six months the company has cut its SKUs in half. Gross margins are expected to be in a range between 37-39%. That compares to F2023 revenue of $290M and gross margins between 30-32%. The company also has a plan to reduce SG&A by 15%.
The company appointed Seth Kaufman as CEO, who has been the President and CEO of Moet Hennessey North America. The company has challenges ahead of it, but being able to attract Seth Kaufman is a meaningful vote of confidence in the company’s future.
