Kenvue’s (NYSE: KVUE) recent results aren’t pretty, but recovery may be coming

Johnson & Johnson (NYSE: JNJ) represented one of the world’s great companies during its first 100+ years, beginning in 1886. 

But it has faced problems for quite some time now. Over the past 30 years, J&J’s stock has gained 809%, far behind the 1,016% ascent for the S&P 500. The company suffered from new drug failures, drug production problems and troubled medical devices.

In 2023 J&J spun off Kenvue (NYSE: KVUE), creating the world’s biggest pure-play consumer health company by revenue. Kenvue’s storied brands include Band-Aid, Listerine and Tylenol. So what do you get when an underperforming company gets rid of perhaps its least-wanted asset? 

The answer to that question is mixed in Kenvue’s case. Since its May 4, 2023 debut, Kenvue’s stock has sagged 5.3%, greatly lagging the S&P 500’s 54.6% return. But over the last 12 months, Kenvue has climbed 18.4%, beating the S&P 500’s 12.4% increase.

Kenvue just ousted its CEO Thibaut Mongon July 14. That’s generally a sign of a company with woes. Kenvue’s revenue dropped 4% in the second quarter. The big issue for the company is its skin health and beauty (SHB) segment. 

Reasons for SHB weakness

Retailers have been destocking inventories of those items, as they await the impact of tariffs. Also, inflation has sparked a shift by consumers to lower-price private label competition. Finally, Kenvue has struggled to create new products.   

SHB hasn’t generated any volume growth since Kenvue spun off from J&J, says Morningstar analyst Keonhee Kim. “We think the most value-accretive strategy is to divest struggling brands, or the segment overall, and focus on core categories in self-care and essential health.”

The CEO switch may be a positive in this regard, he noted. “A new leader who can better focus on Kenvue’s strengths and optimize the portfolio could unlock better margins and higher growth.” The company named Kirk Perry, a Kenvue director and veteran consumer brand strategist, as interim CEO while it searches for a permanent replacement. The stock has climbed 2.2% since the executive change was announced.

Perhaps a sale of the company

Investors, including Toms Capital, have urged Kenvue to contemplate strategic change – possibly a sale of the company or at least part of it, sources told Reuters. The board announced last week that it already has begun a strategic review.

And it is looking at the sale of some of its skin health and beauty brands, Reuters said. RBC Capital Markets analyst Nik Modi says Kenvue could sell some large brands and streamline its beauty portfolio, according to CNBC.

To be sure, the news isn’t all bad for Kenvue. It had a 58% gross profit margin in the first quarter and plans $350 million in annualized savings by 2026. In addition, its iconic products give the company brand power.

Coming into independence as a rejected child of the J&J family, Kenvue started with a handicap. Yet it may have the ability to overcome its difficulties.