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EMEA, India, and China (APAC is ~21% of sales, and China and India combined are
around 50% of APAC sales with China the #2 market globally and India the #6 market
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
11
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J PMORGAN
globally for KVUE). KVUE􀋖s e-commerce opportunity is largely consistent with the rest of CPG as KVUE􀋖s sales mix to pure-play e-commerce is around 6%, which about doubles to 13% when including retail.com. Looking from 2020-2022, KVUE􀋖s e-
commerce sales grew at a roughly +20% CAGR. KVUE is aiming to increase product availability in the e-commerce channel and increased investment in digital marketing
over the past few years to help accelerate e-commerce mix; for example, 71% of
KVUE􀋖s marketing spend was on digital in 2022, up from 44% in 2019. The company is
also expanding in the DTC channel with brands like Dr.Ci:Labo (63% of sales in Japan
DTC in 2022), although it is still early days.
3. Deliver Consistent Cadence of Consumer-Centric Innovation
The company􀋖s innovation strategy is centered on elevating the core brands, enhancing
the consumer experience, and solving for unmet needs. The company􀋖s innovation
agenda is supported by 1,500 dedicated R&D employees (R&D is ~2.5% of KVUE sales, which is above the peer average of ~2.0%); over the past several years the company has launched roughly 100 new products per annum, and innovation introduced
over the rolling preceding three-year period has accounted for about $1.5 billion in net sales each year since 2020 (about 10% sales mix).
The company􀋖s innovation leverages its relationships with healthcare professionals and
also relies on clinical claims. Recent examples include: 1) Listerine rolling out claims
that the product reduces 5x more plaque above the gumline vs. flossing; 2) Children􀋖s
Zyrtec Oral Chewables and Dissolve Tabs and Tylenol Dissolve Packs for adults and
children who find it difficult to swallow pills; 3) Neutrogena Rapid Firming Peptide Contour Lift Face Cream, which contains an anti-aging ingredient (acetyl dipeptide)
designed for sensitive skin; 4) sustainable packaging solutions that reduce plastic including Neutrogena Hydro Boost refillable pods, Aveeno Body Wash refill packs, and
Listerine concentrate kits; and 5) Aveeno Calm + Restore focused on the underserved
segment of consumers with sensitive, extra-dry skin.
4. Expand into New Product Adjacencies and Geographic Markets
The company is in 165 markets globally but prioritizes eight markets: the U.S. (#1
market), Canada (#3), the U.K. (#5), Germany (#7), Brazil (#4), India (#6), Japan (#8),
and China (#2). Back to the Listerine example, there is still has a significant household
penetration opportunity as the overall United States mouthwash category penetration
rate was only 50% as of December 2022, while in APAC, category penetration was only
29% in Japan and 15% in China, each as of 2022.The company does plan for growth
outside of these markets as well but will generally look to build scale behind core priority brands and then expand portfolio offerings or enter adjacencies by leveraging
priority brands. The company gave the example of launching Aveeno in Indonesia,
Malaysia, and the Philippines, and we think the company could follow the CPG
playbook of 􀋘lift-and-shift􀋙 successful products to additional geographies over time.
5. Continually Evaluate Acquisitions to Enhance Core Product Portfolio and
Capabilities
The company has undertaken a number of acquisitions and divestitures over the past seven years with 15 divestitures and 10 acquisitions since 2016. While not necessary to
achieve its growth outlook, the company plans to continue looking at M&A opportunities, although it sounds like management is intent on remaining focused
squarely on the consumer health space and would be looking more for tuck-in vs.
transformational M&A. We expect M&A to be focused on faster growing, premium This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP.
12
Andrea Teixeira, CFA AC
(1-212) 622-6735
andrea.f.teixeira@jpmorgan.com
North America Equity Research
29 May 2023 J P M O R G A N
categories, as has been the case with recent transactions (e.g., Dr.Ci:Labo and Zarbee􀋖s).
Balanced Portfolio Shaped through Strategic
Transformation
Self Care (40% of Sales, 53% of OI, OSG +8.6% 3-YR CAGR)
Self Care is KVUE􀋖s largest segment with $6.0 billion in sales (~40% of FY22 sales)
and $2.1 billion in adjusted operating income (34.6% margin and 53.4% of KVUE
segment-level adjusted OI). Categories represented in Self Care primarily include
cough, cold and allergy, pain care, digestive health, and smoking cessation. Key brands
include Tylenol, Nicorette, Zyrtec, Motrin, Rhinocort, Benadryl, Zarbee􀋖s, ORSL, and
Imodium.
Figure 13: Self Care 40% of Revenues and 53% of Segment OI
40% 53%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of FY22 Sales % of FY22 Segment OI
Source: Company reports.
Figure 14: Self Care Category Revenue Mix
% of FY Sales
35.7% 32.2%
26.7% 32.2%
37.6% 35.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2019 2022
COUGH, COLD AND ALLERGY PAIN CARE OTHER SELF CARE
Source: Company reports.
Self Care Has Been the Key Driver of KVUE􀋖s Improved Sales Trajectory in L3Y
Self Care has been aided by tailwinds from COVID and recent 􀋘tripledemic􀋙 (RSV, flu,
COVID) and resulting increased consumer focus on health (e.g., increased smoking
cessation attempts during the pandemic). In fact, from 2020-2022 Self Care drove ~91%
of KVUE􀋖s organic sales growth with the segment posting a 3Y CAGR of +8.6%