Johnson & Johnson to spin off consumer health business, tech earnings beat expectations
J&J announces IPO of Kenvue, US GDP growth slows, big tech reports earnings
Highlights:
Johnson & Johnson plans to IPO Kenvue this year.
US GDP growth slowed to 1.1% in the first quarter.
Tech earnings from MSFT 0.00%↑, GOOG 0.00%↑, META 0.00%↑, SNAP 0.00%↑, and AMZN 0.00%↑.
Johnson & Johnson unveils Kenvue’s IPO
In November of 2021, Johnson & Johnson JNJ 0.00%↑ announced its intention to split its consumer healthcare business from the main company, creating a new publicly traded company. At the time this business went unnamed.
Come September 2022 and the name had officially been announced, Kenvue.
“ken” – meaning knowledge, an English word primarily used in Scotland, and “vue,” referencing sight. With rich knowledge of human needs and deep consumer insights, Kenvue will deliver meaningful, personal health solutions.
Present day, Kenvue is months away from becoming its own entity. The most recent announcement from J&J this past Monday informed investors that Kevue would embark on a “roadshow for the initial public offering (“IPO”) of 151,204,000 shares of its common stock.”
Shares will be priced at $20 to $23 with the spinoff being valued at around $40 billion.
Goldman Sachs GS 0.00%↑, JPMorgan Chase JPM 0.00%↑, and Bank of America BAC 0.00%↑ are currently underwriting the IPO and J&J expects the separation to be complete by mid to late 2023.
After the split, Johnson & Johnson will still own roughly 91.9% of the new company but will look to sell its stake by late 2023.
Shares of Kenvue will trade on the New York Stock Exchange under the ticker symbol $KVUE.
Competition
Kenvue will step into the limelight and immediately compete with its established lineup of household staples like Aveeno, Band-Aid, Johnson’s, Motrin, Tylenol, and more.
Kenvue, despite its established brand names, will face a wave of competition rivaling the likes of consumer packaged goods giants like Procter & Gamble PG 0.00%↑, Unilever UL 0.00%↑, and more.
Will you be purchasing shares of Kenvue?
US GDP Growth Slows
The US economy grew at a slower pace in the first quarter of 2023, according to a report by the Bureau of Economic Analysis (BEA) on Thursday. Real gross domestic product (GDP) increased at an annual rate of 1.1%, down from 2.6% in the fourth quarter of 2022.
The slowdown in growth was driven by a number of factors, including a decline in inventory investment, a slowdown in business investment, and a trade deficit. However, consumer spending remained strong, rising at an annual rate of 3.7%.
The BEA report is the first official estimate of US economic growth in the first quarter. The report will be revised twice more in the coming months, as more data becomes available.
Analysts' Reactions
Analysts were generally disappointed with the report, as they had expected GDP growth to be closer to 2%. However, they noted that the slowdown was not unexpected, given the Federal Reserve's recent interest rate hikes.
"The slowdown in growth was largely due to the Fed's actions," said Michael Pearce, senior US economist at Capital Economics. "The Fed is trying to cool inflation, and that's going to slow the economy."
Other analysts said that the slowdown in growth was a sign that the US economy was nearing a peak.
"We're probably nearing the end of the expansion," said Mark Zandi, chief economist at Moody's Analytics. "The economy is still growing, but it's not growing as fast as it was."
Outlook for the US Economy
The BEA report does not change the overall outlook for the US economy. The economy is still expected to grow in 2023, but at a slower pace than in 2022.
"The economy is still on track to grow this year, but it's going to be a slower growth," said Pearce. "The Fed is going to continue to raise interest rates, and that's going to slow the economy."
Zandi said that the US economy could face a recession in 2024.
"There's a risk of a recession in 2024," he said. "The Fed is going to have to raise interest rates to a level that will slow the economy, and that could lead to a recession."
Big Tech Earnings
High-level overviews of earnings reports from some of the most notable publicly traded technology companies.
Microsoft MSFT 0.00%↑
EPS: $2.45 vs $2.23 expected
Revenue: $52.86 billion vs $51.02 billion expected
Revenue grew 7% year over year for the tech giant. Microsoft saw growth of 9% in net income, which came in at $18.30 billion.
Notable business segments include:
Intelligent Cloud, which captured $22.08 billion in revenue and is made up of Azure public cloud, Enterprise Services, and SQL and Windows Servers.
Productivity and Business Processes, which include LinkedIn and Office, generated $17.52 billion in revenue.
More Personal Computing notched $13.26 billion in revenue from sources such as Bing, Windows, Surfaces, and Xbox.
Microsoft sees revenue from a vast number of business segments, below is the year-over-year growth in each respective segment.
Alphabet GOOG 0.00%↑
EPS: $1.17 adjusted vs $1.07 expected
Revenue: $69.79 billion vs $68.9 billion expected
YouTube advertising revenue: $6.69 billion vs $6.6 billion expected
Google Cloud revenue: $7.45 billion vs $7.49 billion expected
Traffic acquisition costs (TAC): $11.72 billion vs $11.78 billion expected
Alphabet, comprised mostly of Google, saw revenue rise from $68 billion a year earlier to $69.79 billion, growth of 3%. The bottom line was not so favorable, net income fell to $15.05 billion from $16.44 billion in the first quarter of 2022.
Google Cloud, a segment of Google that has been battling the likes of AWS (Amazon’s Cloud) and Azure (Microsoft’s Cloud), posted its first profit.
The technology conglomerate also authorized a $70 billion stock buyback plan.
Meta Platforms META 0.00%↑
EPS: $2.20 vs $2.03 expected
Revenue: $28.65 billion vs $27.65 billion expected
Daily active users (DAUs): 2.04 billion vs 2.01 billion expected
Monthly active users (MAUs): 2.99 billion vs 2.99 billion expected
The “year of efficiency” for Meta Platforms has boosted the stock by over 113% in the past six months. All the while 21,000 employees lost or will lose their job. That upward trend continued to the tune of a 9% share price increase after the tech giant released its first-quarter earnings.
Meta saw revenues climb 3% year over year while net income fell 24%. The company has seen a 10% increase in expenses over the past year but lowered its expected expense range for 2023 by $2 billion.
Reality Labs, the company’s metaverse division, has been consistently losing money as Meta seeks growth in the space. The first quarter was no exception as the division saw a loss of $3.9 billion, up over $1 billion from a year ago.
Snap Inc. SNAP 0.00%↑
EPS: $0.01 adj vs ($0.01) expected
Revenue: $989 million vs $1.01 billion expected
Global Daily Active Users (DAUs): 383 million vs 384 million expected
Average revenue per user: $2.58 vs $2.63 expected
Snap revenue fell 7% year over year. The company guided investors towards another year over year decline for the second quarter, telling investors it expects $1.04 billion in revenue, a 6% decline.
Snap continues to operate in a tough environment for advertising. Snap CEO Evan Spiegel said, “We are working to accelerate our revenue growth and we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners.”
Amazon AMZN 0.00%↑
EPS: 31 cents vs 21 cents expected
Revenue: $127.4 billion vs $124.5 billion expected
Amazon Web Services: $21.3 billion vs $21.22 billion expected
Advertising: $9.5 billion vs $9.1 billion expected
Revenue rose 9% from $116.4 billion a year earlier. Net income, which was negative in last year’s first quarter, was $3.2 billion in Q1. AWS, the company's growth darling, grew another 16% in the first quarter of 2023. This is down slightly from the 20% growth reported last quarter.
Second-quarter total revenue is projected to fall between $127 billion and $133 billion, analysts expected Q2 guidance to fall around $129.8 billion.
Shares went for a while ride post earnings, peaking around 11% in the green before finishing down 2% due to a weak outlook on the company’s cloud service.
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Thanks for the info Brendan
Crazy to see the market cap of Kenvue compared to competitors. I think with the split I’ll get shares in Kenvue since I have J&J stock. I’m not fully certain though.
Earnings have seemed solid for the tech sector with Microsoft showing some strong numbers, but as usual Snap falls behind when it comes to earnings.