In a surprising turn of events, TOMS Capital Investment Management has taken a stake in Kenvue Inc (NYSE:KVUE), the consumer health giant spun off from Johnson & Johnson in 2023, and is now pressuring the company to consider a full sale or the separation of certain assets. This move comes on the heels of Kenvue narrowly avoiding a proxy battle with Starboard Value by appointing its CEO Jeffrey Smith to the board earlier this month. The company's stock has gained 13% over the past year, but concerns remain about sluggish top-line growth and increasing competition in the U.S. skincare market. At the recent CAGNY 2025 conference, Kenvue's leadership outlined a sweeping transformation agenda, including a new "extraordinary powers" framework and a plan to boost innovation, cost efficiency, and digital capabilities. While management remains focused on long-term profitability, TOMS Capital appears to be betting that more drastic action—like a sale or breakup—might unlock quicker shareholder value. Here are four reasons why their thesis might have merit.
Underwhelming Top-Line Growth Despite Operational Efforts
Kenvue’s leadership has acknowledged a key shortcoming: the company’s top-line performance in 2024 fell short of expectations. Despite meeting guidance on margins and EPS, revenue growth has remained sluggish, even as management implemented significant structural and cultural changes. At CAGNY 2025, executives detailed how they exited over 2,000 transition service agreements with Johnson & Johnson, rebuilt the operating model with a new brand development structure, and revamped marketing using AI-powered content factories. They also shifted to a consumer insight-led innovation model and restructured their R&D pipeline. However, all these efforts have yet to translate into significant acceleration in revenue. The 2025 outlook targets organic sales growth of just 2% to 4%, only marginally above the 1.5% delivered in 2024. Furthermore, Kenvue’s acknowledgment of pricing resets, trade inventory disruptions, and a weak first-half outlook further tempers expectations. In this context, TOMS Capital's demand for a more dramatic corporate action—such as asset divestitures or a sale—may stem from a belief that internal transformation alone might be insufficient to deliver outsized returns. When top-line growth lags despite massive internal investment and strategic overhauls, the question naturally arises whether a different ownership structure or a leaner portfolio could deliver more immediate value. For investors and activists alike, a low-growth consumer health portfolio—especially one that includes legacy brands like Tylenol, Band-Aid, and Listerine—may be better monetized in parts or under a more agile parent company than under a single public entity. TOMS may be viewing Kenvue’s slow growth trajectory as a strategic weakness that can be turned into a financial opportunity.
Valuation Disconnect & Conglomerate Discount Risk
As of the last market close, Kenvue was valued at around $45 billion. While this may appear substantial, it masks potential inefficiencies in how the market is valuing its collection of iconic consumer health brands. With 37 #1 market positions across categories and geographies, including household names like Neutrogena, ZYRTEC, Tylenol, and Aveeno, the brand equity within Kenvue is unquestionable. However, conglomerate structures often suffer from valuation discounts because investors struggle to assess the true worth of disparate units bundled under one roof. TOMS Capital’s push for asset separation or a complete sale could be an attempt to remove this "conglomerate discount" and allow standalone segments to be valued more appropriately. For example, Kenvue’s self-care segment, which includes Tylenol and has outpaced category growth, could command a higher multiple as a pure-play OTC pharmaceutical company. Similarly, its skin health and beauty division, despite current challenges, could attract strategic buyers in the beauty or dermatology space who see synergies or growth opportunities. Even its essential health business, including BAND-AID and Listerine, might appeal to hygiene-focused firms seeking scale. Importantly, Kenvue itself has demonstrated internal awareness of its segment-wise performance, with Self Care gaining market share in over 80% of revenue sources and Essential Health recording its best growth in six years. However, the underperformance of its skin care unit in the U.S. highlights the disparity between brand strength and segment execution. TOMS Capital may believe that this valuation gap cannot be bridged under the current umbrella structure and that a separation could unlock hidden value for shareholders.
Competitive Pressures In U.S. Skincare & Beauty Markets
One of the more pressing issues facing Kenvue is the competitive erosion in its U.S. skin health and beauty segment, especially among younger consumers. Brands like Neutrogena have struggled to maintain relevance amid a surge in competition from digitally native, influencer-backed skincare startups and clean beauty labels that resonate more with Gen Z and Millennials. Although Kenvue is taking steps to modernize its brand strategy, including collaborations with dermatologists and celebrities like Tate McRae, and launching viral TikTok campaigns, the company’s own leadership admits that it is “not where we want to be” in this segment. Even with Neutrogena regaining the #1 face care spot in Q4 2024 and early 2025, management has recognized the uphill battle in maintaining that momentum. TOMS Capital may be factoring in the risk that legacy brands could continue to lose mindshare in fast-evolving beauty categories, thereby weakening long-term competitiveness. Additionally, the internal complexity of managing innovation, marketing, and retail presence across such a broad portfolio could hinder the ability to react quickly to changing consumer trends. By advocating for asset separation, TOMS might believe that a more focused, nimble ownership could better compete in the hyper-dynamic skincare and beauty landscape. For example, spinning off or selling the skin health unit could attract buyers with deep expertise in consumer beauty or even private equity players looking to revitalize mature brands. The slow recovery and inconsistent performance of this segment could justify a restructuring, particularly if internal turnaround efforts fail to outpace market disruptions.
Heavy Investment Requirements & Margin Pressures
While Kenvue has successfully improved its gross margins—reporting a 200 basis-point increase in 2024 to 60.4%—the company’s roadmap to long-term profitability is laden with heavy capital requirements. As part of its post-J&J independence, Kenvue has undergone an aggressive transformation involving the buildout of a new IT stack, exiting over 2,000 TSAs, modernizing supply chains, and investing in brand marketing and innovation pipelines. The company expects to generate $350 million in annualized savings by 2026 through its “view forward” plan, which includes cost rationalization, footprint optimization, and system automation. However, these gains are being reinvested heavily into R&D, sales force expansion, and AI-driven marketing and commerce tools. While this could theoretically boost long-term competitiveness, it also means that near-term free cash flow and operating leverage may remain under pressure. In fact, Kenvue admits that both 2024 and 2025 are investment-heavy years, with elevated CapEx due to TSA exits and working capital normalization. This financial profile may not align with investor expectations of a lean, cash-generating consumer health business. From TOMS Capital’s perspective, the ongoing cash outflows and reinvestment cycle may limit the stock’s near-term re-rating potential and justify a structural shakeup. If cost savings are perpetually reinvested instead of being returned to shareholders, the rationale for staying the course diminishes. Moreover, in a higher interest rate environment, capital-intensive restructuring efforts might reduce investor appetite, creating a window for activism. A strategic divestiture could allow Kenvue to reduce capital intensity and possibly unlock cash for buybacks or debt reduction, aligning more closely with shareholder interests.
Final Thoughts
Source: Yahoo Finance
Kenvue stock has had a rather flat trajectory over the past 6 months even though the management has taken bold steps to transform itself into a focused consumer health leader following its spin-off from Johnson & Johnson. Its ambitious operational overhaul, strategic brand investments, and innovation-centric approach all point toward a long-term vision of sustainable, profitable growth. However, the challenges of underwhelming sales growth, structural inefficiencies, competitive pressures, and heavy reinvestment needs present a case that supports TOMS Capital’s push for more immediate value creation through asset sales or a broader strategic shift. It is to be seen how the management responds to this push and what lies ahead for Kenvue in 2025 and beyond.
