Kenvue (KVUE, Financial) is again under pressure from an activist investment firm, following earlier scrutiny from Starboard Value. TOMS Capital Management has acquired an undisclosed stake in KVUE and is advocating for the company to either separate its business units or consider a full sale. Since its spin-off from Johnson & Johnson (JNJ, Financial) in August 2023, KVUE's financial performance has been disappointing, with the stock dropping 9% post-separation and five consecutive quarters of year-over-year revenue declines, attracting activist investor attention.
On March 5, KVUE appointed two new independent directors to its Board and announced that Jeffrey Smith, CEO and CIO of Starboard, would join the Board. This move satisfied Starboard, which withdrew its director nominees. However, TOMS Capital Management believes more drastic measures are necessary to improve KVUE's performance.
It's unclear which specific business units TOMS Capital Management wants JNJ to spin off or sell. In recent years, companies like General Electric (GE, Financial), 3M (MMM, Financial), DuPont (DD, Financial), and Honeywell (HON, Financial) have announced spin-offs, which can offer advantages such as valuations reflecting individual segment performance, streamlined operations, and strategic flexibility for acquisitions and partnerships.
Spinning off KVUE's struggling skincare and beauty businesses might be strategic. This segment, which includes brands like Neutrogena and Aveeno, saw a 2.6% increase in organic sales in Q4 but a 4.5% decline for FY24. In contrast, competitor Proctor & Gamble (PG, Financial), with brands like Olay and Dove, reported 3% organic sales growth and a low single-digit drop in FY24.
KVUE's Skin Health & Beauty segment faces challenges from competitors like Unilever (UL, Financial) and Haleon (HLN, Financial), sluggish demand, and distributor issues in China. The Self Care business, which includes Tylenol and Benadryl, is also experiencing soft demand and the impact of a stronger U.S. dollar. KVUE's "Vue Forward" program aims for $350 million in annual savings by 2026 and plans a 20% increase in brand investments, focusing on advertising and social media targeting Gen Z.
TOMS Capital Management remains skeptical about these measures' effectiveness. Separating the skincare business might boost shareholder value, but it's not guaranteed. For instance, after FedEx (FDX, Financial) announced its freight division spin-off on December 19, 2024, its shares fell by about 12%.
TOMS Capital Management is pushing for KVUE to further differentiate its operations post-JNJ separation, potentially leading to a more agile business if it opts for spin-offs. However, a separated KVUE might lose the sales and cost synergies it currently benefits from as a larger entity.
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