ticker,year,quarter,text,speaker
AMCR,2023,4,"Ladies and gentlemen, thanks for standing by, and welcome to the Amcor Full Year 2023 Results Call. I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. Please go ahead.",Operator
AMCR,2023,4,"Thank you, Mandeep, and thanks everyone for joining Amcor’s fiscal ‘23 earnings call. Joining today is Ron Delia, our Chief Executive Officer; and Michael Casamento, Chief Financial Officer. Before I hand over, let me note the few items. On our website, amcor.com, under the Investors section, you will find today’s press release and presentation, which we will discuss on this call. Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the presentation. Remarks will also include forward-looking statements that are based on management’s current views and assumptions. The second slide in today’s presentation lists several factors that could cause future results to be different than current estimates. Reference can be made to Amcor’s SEC filings, including our statements on Form 10-K and 10-Q for further details. Please note that during the question-and-answer session, we request that you limit yourself to a single question and one follow-up, and then rejoin the queue if you have any additional questions. Over to you, Ron.",Tracey Whitehead
AMCR,2023,4,"Thanks Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor’s fiscal 2023 and June quarter results. We’ll begin with some prepared remarks starting as we always do with safety on slide 3. Safety is our most important value at Amcor and throughout fiscal 2023, we again made strong progress on our journey for continuous safety improvement across the Company. 69% of our sites remained injury-free for at least 12 months, and we reduced injuries globally by 31%. While we’re pleased with these results, ultimately, it’s not just the number of injuries we’re focused on, but also the severity of the injuries that do occur. Tragically, in June, a contractor’s employee lost his life at our Pondicherry site in India after falling from a roof. We immediately conducted a detailed investigation and we’re deploying the learnings across all Amcor sites with the goal of eliminating the risk of similar accidents in the future. We’re relentlessly focused on safety globally, and this tragic incident is a stark reminder of the importance of those efforts. Moving to our key messages on slide 4. First, Amcor delivered solid operating performance for the 2023 fiscal year. Adjusted EBIT was up 1% and we returned $1.2 billion to shareholders through share repurchases and our industry-leading dividend. Across the organization, our teams demonstrated agility by taking action to navigate highly challenging and volatile market dynamics characterized by ongoing inflation, softening consumer demand and customer destocking, particularly in the second half of the fiscal year. Our ability to modestly grow adjusted EBIT under these circumstances was the result of proactive and decisive actions to effectively manage the areas under our control, which is our second key message. Our teams did an excellent job prioritizing pricing to recover increases in raw materials and general inflation. And as we entered the 2023 calendar year, we stepped up the intensity of our cost reduction efforts to drive productivity benefits. Additionally, we invested in structural initiatives including strategic plant closures that will deliver meaningful cost savings in fiscal ‘24 and ‘25. Third, as a result of these comprehensive actions, Amcor’s well positioned to return to solid mid-single-digit earnings growth in the second half of fiscal ‘24, which also leaves us well-placed to grow at our long-term trend of high-single-digit rates thereafter. While we expect current market conditions to persist over the near-term for the entire industry, we’ll continue to recover inflation and are confident the benefits from our cost reduction and productivity initiatives will have a sustainable positive impact on earnings leverage. Additionally, we’ll be cycling weaker volume comparatives in the second half, and the headwinds we’ve faced from the sale of our Russian plants and significantly higher interest expense are largely limited to the first half of fiscal ‘24. All these known benefits are largely within our control and underpin our expectation of a return to solid earnings growth in the second half without having to rely on a significant change in the demand environment. And finally, as we and the entire CPG industry continue to navigate a dynamic operating environment, Amcor remains laser-focused on executing against our long-term growth and value-creation strategy. We’re well positioned as a recognized industry leader and we continue to pursue opportunities to invest in our strong underlying business, particularly through innovation and sustainability initiatives in faster growing higher value markets. We’re also actively pursuing value-creating M&A such as a deal announced last week to acquire Phoenix flexible packaging in the high growth Indian market, and we’re committed to returning cash to shareholders through a compelling and growing dividend and share repurchases. Moving to slide 5 for a summary of our financial results. Fiscal ‘23 and June quarter financial performance was well within our May guidance range as proactive cost and price actions helped counter ongoing inflation and increasingly soft and more volatile volumes as we progress through the year. Reported net sales for the year were up 1%, which includes an unfavorable currency impact of 3% and approximately $775 million of pricing to recover higher raw material costs. Organic sales were flat on a comparable constant currency basis as volumes were 3% lower, offsetting a price/mix benefit of around 3%. Full year adjusted EBIT of $1.6 billion was up 1% on a comparable constant currency basis, benefiting from strong operating leverage in the first half of the year and accelerated cost actions in the second half. Adjusted EPS of $0.733 per share was down 2% on a comparable constant currency basis. For the June quarter, sales were down 5%, positive price and mix of approximately 2% included recovery of $100 million of general inflation and volumes were at the lower end of our expected range, down 7%. Last quarter, we referenced accelerated demand weakness in March and April, and this persisted broadly through the June quarter due to a combination of lower consumer demand and continued customer destocking, including in priority categories, which also impacted mix compared with last year. While earnings were in line with our guidance, the June quarter is historically Amcor’s strongest of the year, making it more difficult to flex costs. As a result, weaker volumes had a more pronounced impact on earnings and adjusted EBIT of $436 million was 7% lower than the prior year on a comparable basis. We continued to execute well on our capital allocation priorities, returning approximately $1.2 billion of cash to shareholders during the year through a combination of dividends, which the Board increased to $0.49 per share, and the repurchase of approximately 41 million shares or 3% of shares outstanding for a total cost of $431 million. Since 2020, we’ve repurchased approximately 11% of our outstanding shares, and our industry-leading dividend currently yields around 5%. Our overall financial profile also remains robust with return on average funds employed at 15.4%. Slide 6 highlights the proactive actions we continue to take to manage the areas under our control. We’ve been successful in pricing for inflation throughout the year, passing through a total of $1.1 billion to compensate for higher raw materials and general inflation, including labor, energy, and freight. We also delivered more than $200 million in annual cost savings through productivity initiatives, including a reduction of more than 1,200 full-time employees. And we’re investing in structural initiatives that will deliver approximately $35 million in savings, primarily in the second half of fiscal ‘24 with an incremental $15 million benefit in fiscal ‘25. And importantly, we expect the benefits from these fiscal ‘23 cost actions and structural initiatives to have an ongoing favorable impact on earnings leverage. I’ll turn it over now to Michael to cover more of the financials.",Ron Delia
AMCR,2023,4,"Thanks, Ron and hi everyone. Beginning with the Flexibles segment on slide 7, fiscal ‘23 reported sales were in line with last year, which included recovery of higher raw material costs of approximately $515 million, accounting for 5% sales growth. Excluding the raw material impact and negative currency movements, sales grew 1% for the year, driven by price/mix benefits of 4%, reflecting our ability to continue to price to recover inflation across all Flexibles business groups. This was partly offset by 3% lower volumes. And while volumes in all regions were impacted by slower demand and destocking, particularly in the second half of the year, our strategic focus on higher value priority categories continued to drive solid sales growth for the year. Volumes in the pharmaceutical and pet care categories were especially strong, helping to limit the impact of broad-based lower volumes in other categories. As Ron mentioned, throughout the year, the business did a good job aligning operating costs with challenging market conditions, while pricing to recover inflation. This focus resulted in a 1% in adjusted EBIT for the year on a comparable constant currency basis. Margins remained strong at 12.8%, despite 100 basis-point dilution related to increased sales dollars from passing through higher raw material costs and general inflation. In terms of the fourth quarter, net sales on a comparable constant currency basis were down 5%, with positive price/mix of 2% more than offset by a 7% decline in volumes. This represents an accelerated volume decline compared with the March quarter, and was consistent trend across most regions. The greatest sequential declines continue to be seen in the North America and European markets, where overall June quarter volumes were lower by high single digits, consistent with softer retail scanner data, and with categories such as premium coffee, protein and healthcare also being incrementally impacted by customer destocking. Adjusted EBIT for the quarter of $387 million was 7% lower than the prior year on a comparable constant currency basis, reflecting the impact of lower volumes, unfavorable mix and ongoing inflation, partly offset by benefits from continued pricing and cost actions. Turning to Rigid Packaging on slide 8. Fiscal ‘23 reported net sales were 4% higher than the same period last year, including approximately $260 million or 8% of sales related to the pass-through of viral material costs. Organic sales declined 3%, reflecting 4% lower volumes, partly offset by a price/mix benefit of 1%. In North America, overall beverage volumes for the year were down 6%. Hot fill volumes were in line with the prior year as new business wins in key category offset unfavorable consumer demand and customer destocking. In specialty containers, volumes were lower than last year, with growth in the healthcare, dairy and nutrition categories offset by weaker volumes in food, home and personal care. And in Latin America, volumes were down low-single-digits versus last year, which reflects challenging macroeconomic conditions across the region. Fiscal ‘23 adjusted EBIT was down 7%, as strong earnings growth in the first half was more than offset by challenging market conditions that accelerated through the second half of the year. Adjusted EBIT margin of 7.5% includes an adverse impact of approximately 80 basis points from the increased sales dollars related to passing through higher raw material costs and general inflation. Looking at the June quarter, comparable constant currency net sales were down 4%. Price/mix benefits of 2% were more than offset by a 6% volume decline, as lower consumer demand and customer destocking continued to impact the business, particularly in North America. On a comparable currency basis, adjusted EBIT for the quarter of $73 million was down $22 million against the strong comparative period. As Ron mentioned earlier, the June quarter is typically the seasonally strongest of the year, and together with volatility in customer order patterns, this limits the ability to fully flex costs. In an environment where production volumes are weaker, fixed cost absorption is also significantly lower, and the combination of these factors amplifies the impact on earnings. The team continued to manage the cost under their control well with additional headcount reductions and more plant shutdown days, and we continue to focus on cost actions as we manage through this cycle of softer demand and destocking. Looking ahead to the September quarter, we do not anticipate market challenges to materially improve, which will have an unfavorable impact on earnings compared with the same quarter last year. Moving to cash and the balance sheet on slide 9. Our financial profile and investment grade balance sheet remain strong. Leverage of 3 times on a trailing 12-month EBITDA basis is modestly up from last year, but is aligned with our expectations given the software demand and broad-based destocking through the supply chain. Adjusted free cash flow of $848 million was in line with our updated outlook, though below last year. This reduction mostly reflects lower accounts payable balances as we moderated our purchasing activities, partly to reduce inventories, but also in response to the soft demand environment. This is a timing impact which we expect will abate as we progress through fiscal ‘24. And whilst we have made good progress bringing down our inventory balances, with the reduction of more than $400 million from the peak levels in November ‘22, we will continue to focus on reducing overall working capital to support increase in cash flow. Turning now to the outlook for fiscal 2024 on slide 10. For the ‘24 fiscal year, we expect adjusted EPS of approximately $0.67 to $0.71 per share. This includes expectations that organic growth from the underlying business will be in the plus or minus low-single-digit range, as volumes are expected to remain weak, particularly in the first half. Share repurchases will result in benefit of approximately 2% and currency translation is expected to add a further benefit of 2%, assuming current exchange rates prevail for the balance of the fiscal year. This is expected to be offset by a negative impact of approximately 3% related to the sale of our three plants in Russia in December 2022, and a negative impact of approximately 6% from higher interest and tax expense. As U.S. dollar and euro interest rates have continued to rise, we expect interest expense for fiscal ‘24 to be in the range of $320 million to $340 million. In terms of cash flow, we expect to generate significant adjusted free cash flow in the range of $850 million to $950 million in fiscal ‘24, which represents growth of up to a $100 million over fiscal 2023. We have planned to repurchase at least $70 million of Amcor shares in ‘24, and we have been active on the acquisition front and we’ll continue to pursue M&A opportunities. And as always, we’ll evaluate our uses of cash as we progress through the year. Slide 11 shows that Amcor has a long history of delivering solid and consistent earnings growth, and the phasing of the earnings across the year has also been relatively consistent year to year. For fiscal ‘24, it’s important to call out that phasing of comparable earnings growth is not expected to align with historical trends. We do not expect the challenging market dynamics we’ve seen in the last two quarters to meaningfully improve in the near-term. And in the first half, we assume mid to high single digit volume declines. Given this demand outlook and the unfavorable impact related to higher interest expense, which is expected to moderate in the second half, we anticipate adjusted EPS in the first half of fiscal ‘24 to be down in the high-single-digit to low-double-digit range on a comparable constant currency basis when compared to the prior year. While it’s more difficult to predict consumer demand, we do expect customer inventories will have largely normalized by the time we enter the second half of the fiscal year. Additionally, we have a number of tailwinds in the second half, all of which are within our control, including the benefit of approximately $35 million from structural cost saving initiatives building through the year, increased earnings leverage, resulting from ongoing benefits from price and cost actions, a reduced interest headwind and favorable prior year volume comparatives. The combination of these known factors supports our expectation that adjusted EPS grows mid single digits in the second half of fiscal ‘24 on a comparable constant currency basis. It also gives us confidence in resuming our long-term trend of high-single-digit earnings growth shortly thereafter. It’s also important to highlight here that we do not need to see a significant change in the demand environment to return to solid earnings growth in the second half and beyond. So in summary, we believe the current industry and Amcor specific challenges will primarily be limited to the 2023 calendar year. We remain laser-focused on doing all we can to mitigate the impacts of these challenging conditions while continuing to execute our long-term shareholder value-creation strategy, and we expect to return to our historic high-single-digital organic growth trajectory as we progress through calendar year 2024. So, with that, I’ll turn the call back to Ron to provide some longer term comments.",Michael Casamento
AMCR,2023,4,"Thanks, Michael. Turning to our long-term commentary. Slide 12 highlights our strategic areas for investment where we see faster growing higher value opportunities to drive sustainable growth. On prior calls, we’ve covered opportunities in healthcare and in M&A. And today I’ll take a few minutes to talk about protein and the opportunities we see to deliver strong growth in the high-value protein category. Moving to slide 13, the protein category for Amcor includes packaging solutions for processed and fresh beef, pork, poultry, and seafood. And we like this category because it’s a large addressable market, which historically has grown globally at attractive rates, driven mainly by an increasing percentage of the world’s population able to afford to add protein to their diet. We also like the fact that there are many ways to differentiate and add value for customers, since protein packaging requires specialized, more sophisticated and increasingly more sustainable solutions to preserve and protect these premium products. Amcor’s unique product offerings have enabled us to successfully grow our participation in the meat category over several years. Annual revenue from the sale of processed and fresh meat packaging now exceeds $1 billion. While inflationary impacts are currently creating challenging market conditions, looking forward, there are several reasons we believe Amcor can drive growth at a mid-single-digit CAGR over the medium term with margins accretive to our overall average. First, Amcor is well-positioned with a comprehensive product portfolio for processed and fresh meat applications, underpinning our development of better products, our strong capabilities, and significant investments in innovation, sustainability, and technical service. These are critical in an industry that relies on durable, high barrier solutions to preserve shelf life while providing convenience for the consumer in environmentally friendly formats. Second, we have a strong presence in North America, but our global scale and reach enables us to leverage our R&D network and installed capacity to transfer technical and process knowledge across regions as we actively pursue global growth opportunities. And third, there’s a unique go-to-market model in some parts of the world where equipment purchases drive the subsequent sales of packaging films and technical services. Our recent acquisition of Moda positions us well because we’re now able to provide a wholly-owned turnkey equipment solution aligned with this model, where efficiency and the ability to automate are some of the highest priorities for customers. With the recent investments to enhance our offering and go-to-market strategy, we’re well-positioned to grow in this high-value market, and we’re excited with the many opportunities to firmly establish Amcor as a preferred provider of fresh and processed meat packaging solutions globally. I just want to spend a minute on sustainability on slide 14. We continue to make excellent progress supporting the development of circular systems through the three pillars of our responsible packaging strategy, package design, waste management infrastructure and consumer participation. And we’ve made significant advancements on the innovation and design front by developing more sustainable packaging solutions and increasing our use of recycled materials. We’ll provide a more detailed update in our sustainability report, which is expected to be published in October. And we’ve continued to collaborate with other industry leaders in various ways across the value chain to help support the development of the infrastructure required for a circular economy. For example, in May, Amcor, Delterra, P&G and Mars formed a strategic partnership to help reduce plastic waste in the Global South by providing access to waste management and recycling systems and by enhancing consumer education. We’re also partnering with Licella and Mondelēz to help promote a circular economy by bringing on stream one of Australia’s first chemical recycling facilities. This is an exciting development in a market where Amcor’s portfolio of recycle-ready flexible packaging solutions is already well above 90% and will provide local access to food-grade recycled material. So closing on slide 15, our teams are doing a good job navigating challenging industry dynamics by continuing to recover inflation and proactively taking actions to align costs with market conditions. We’re confident in our long-term growth strategy. We have good visibility to factors well within our control that will see us returning to earnings growth aligned with our historic performance and our shareholder value creation model. And operator, with those opening comments, we’re now ready to open the line for questions.",Ron Delia
AMCR,2023,4,Thank you. [Operator Instruction] Our first question comes from the line of Ghansham Panjabi from Baird. Please go ahead.,Operator
AMCR,2023,4,Hey guys. Good day. You mentioned that volumes for the first half of fiscal year ‘24 will be down mid- to high- single digits on a year-over-year basis. I think Michael mentioned that. But what are you assuming at this point for fiscal year ‘24 in context of the 3% decline that you reported in fiscal year ‘23?,Ghansham Panjabi
AMCR,2023,4,"Yes. So look, we’re setting the business up to assume that the current market conditions essentially continue through the first half. So, we’re expecting first half to look a bit like the fourth quarter with volumes down mid to high single digits. That’s continued softening of demand and continued destocking pretty broadly across the geographies and segments that we participate in. But the second half, we’re expecting more normal rates of volumes, more like flat to up low single digits. And that’s really just assumes no more destocking and the fact that we’ll be cycling easier comps. So, we’re not baking in any big improvement in demand. And so all up, that would see volumes for the full year down sort of flat to down mid-single digits. That’s the sort of midpoint of our guidance range would see us down kind of low single digits for the full 12 months.",Ron Delia
AMCR,2023,4,"Got it. That’s helpful. And then in terms of the destocking, maybe you can just give us some insight as to the micro nuances between the major regions you have exposure to. And the categories that first started to see destocking, are you starting to see any sort of green shoots, if you will?",Ghansham Panjabi
AMCR,2023,4,"Yes. Look, the destocking has been relatively broad, and it’s -- we’ve been at it now -- we’ve been living with it for a couple of quarters. The earliest categories where we started to see some signs of excess inventory in the system were those that were impacted the most acutely by the supply chain challenges over the last 12 to 18 months. So, we saw -- we’ve seen destocking in the meat space. We’ve seen it in the premium coffee space in particular. More recently, in the fourth quarter, we started to see a little bit of destocking in the medical packaging space. And then, certainly, in North America, in the beverage part of our Rigid Packaging business, we’ve seen pretty pronounced destocking at a point -- at a seasonal high point in the year. Now we don’t have a crystal ball, but we do anticipate that the destocking will be largely behind us by the time we exit this calendar year. And certainly, it will have a less meaningful impact as we head into calendar ‘24. If you think about it, our volumes for the quarter were down 7%. We would estimate that about two-thirds of that volume decline is the market and our customer performance and the remaining one-third is we would attribute to destocking. So certainly, as we move forward, and destocking starts to abate through the rest of this calendar year, certainly, that will have less of a negative headwind on our growth rates going forward.",Ron Delia
AMCR,2023,4,Our next question comes from the line of George Staphos from Bank of America. Please go ahead.,Operator
AMCR,2023,4,"Hi. Good day, everybody. Hope you’re doing well. Thanks for the details. I guess, the first question is just a quick one on net interest. And I know qualitatively, what you said higher global rates, foreign exchange and the like. But the step-up even from the fourth quarter rate, which was $70 million, so $280 million run rate to the -- I think you’re saying $320 million to $340 million for fiscal ‘24 is pretty steep. And so, is there anything specific we should be understanding in terms of what’s behind that, Michael?",George Staphos
AMCR,2023,4,"Yes, sure. Look, I think overall, interest rates have continued to rise from this time last year, all through the year. So, we will be lapping higher rates as we exit. Using Q4 as a proxy is not the best quarter to use as a property for interest because that’s our highest cash flow quarter, obviously. So, our interest expense is lower in that quarter, typically in comparison to the rest of the quarters as the cash flow comes through. So, that’s really what we see. We are lapping some higher interest just by the way the rates increased as the year progressed. And there may be one or two further rate increases that we’ve factored into the range. So that’s where we get to that $320 million to $340 range.",Michael Casamento
AMCR,2023,4,"Understood. That’s helpful, Michael. And Ron, back to demand and the consumer. To the extent that Amcor produces high-value, high-quality packaging for -- maybe one could argue, sure, they’re staples, but more like affordable luxuries, if you will, premium coffee, protein, premium pet. I think we’ve talked about it in the past, but do you think there’s maybe a little bit more of a negative effect for your customers and therefore for you, given the environment we’ve been going through with inflation? Why? Why not? And are you seeing any signs at all from your customers now asking you to somehow find cost reductions give back so that they in turn can maybe be a little bit more competitive at retail and drive their volume? Thank you.",George Staphos
AMCR,2023,4,"Yes. Look, George, I think that we still believe the portfolio is really defensive and the categories are, for the most part, consumer staples. Now there are subsegments within segments where things might be a little bit more discretionary because of the premium attached to things like single-serve coffee systems or some of the premium pet food. But overall, across the portfolio, we still believe these categories are defensive. They’ve proven that out over a number of economic cycles. But I think that we’ve got a dislocation here that we haven’t seen in 40 years around inflation. And we convince ourselves of the defensiveness of the portfolio at large by looking at the scanner data, and it’s very broad-based, the weakness, in particular in Europe and in North America in the food business, where you see mid-single-digit declines. And I think generally speaking, others who’ve reported publicly have experienced the same sort of volume effects that we have. So I think, yes, we do aspire to play at the high end of the market, and many of our products are at the premium end. But generally, we’re in stable segments that will grow consistently through economic cycles.",Ron Delia
AMCR,2023,4,Our next question comes from the line of Brook Campbell from Barrenjoe. Please go ahead.,Operator
AMCR,2023,4,"Just one on the buyback. Obviously, there’s $70 million left on the existing program. But what’s the thinking about potentially a new program at some point through FY24? Is that the priority once you get through the $70 million, or are you leaving some cash flow there for M&A, or is the priority to sort of pay down some debt and reduce that leverage ratio? Thanks.",Brook Campbell
AMCR,2023,4,"Yes. Thanks, Book. I appreciate the question. Look, I think if you look at what we’ve done over the last couple of years, we bought back over $1 billion of shares. And in addition to that, we’ve certainly started to get back on the M&A approach as well. So, we’ve done three deals this year and in ‘23 and also announced another deal just recently. We’re planning to do the $70 million this year. So, we’ll close out that buyback. And I think if you think about our capital allocation approach, I mean, clearly, the priority is to invest back in the business through the CapEx for organic growth, which we’ve stepped that up over the years, and we’ll continue to do that this year. We grew the CapEx, and we’ll have a similar amount as we head into ‘24, taking into account the demand environment. Next year, we obviously pay the dividend and then that growth over time. And then we’ve got $300 million or $400 million left over for -- ideally to put the work on M&A or buyback. And so, think about the last couple of years, we’ve certainly covered that capital allocation on the buyback side and now putting a little bit more into M&A. So, we’ve got $70 million in the outlook for ‘24. As always, we’ll continue to model cash flow as we work through the year and we’ll get back to you if that changes.",Michael Casamento
AMCR,2023,4,"And just a question on espresso. Your customer there seems pretty keen to move product into, I guess, fiber compostable pods. Could you just confirm if you have the capability and products to perhaps offer that format as well, given, I guess, you’ve got already a lot of capital put into those plants that are co-located, I believe. And if that’s the way that that customer goes, can you sort of participate and offer a different format? Thanks.",Brook Campbell
AMCR,2023,4,"Yes. Look, we have a broad offering of fiber-based options for a number of different categories. And so, I think we’re going to be well covered as products move between substrates, whether it’s aluminum or plastic or plastic to fiber or whichever direction the segment evolves. But I would say that that is a niche at the moment. It’s about expanding the pie. Not every consumer will be willing or capable or interested in composting. And we know as well as our customer that the sustainability profile of the aluminum capsule is as attractive as any. It’s a product, it’s a capsule that can be made with 100% recycled aluminum and can be recycled over and over again. And there’s been a lot of investment in the recycling loop for that particular format. So, we’re not concerned about the long-term viability of that format.",Ron Delia
AMCR,2023,4,Our next question comes from the line of Cameron McDonald from E&P. Please go ahead.,Operator
AMCR,2023,4,"Can I just ask a question around the destocking that you’re talking about? And my understanding is also that not only are we getting destocking and consumer weakness, but we’re also seeing down trading in -- from sort of more premium products to more home brand type products. Is that having an impact on the packaging demand profile as well and -- either the price or margin that you generate from that premium product in more of the home brand space?",Cameron McDonald
AMCR,2023,4,"Yes. Look, thanks for the question. It’s a different story in North America from Europe. So, the private label in general has picked up a few percentage points of share broadly across the European market. It’s been -- it’s just slightly now ahead of where the share for private label was in 2019. In North America, we’re not -- we’re still not quite back to the share that private label had in 2019 at large. And ultimately, as products or as sales migrate to private label from branded or vice versa, we’re pretty well exposed. And so, we’ve got a reasonably broad participation in the store brand side of the business, such that those share shifts are not really going to have a material impact on our volumes. And the packaging is essentially the same. That’s part of the private label formula. And so from a margin profile perspective or differentiation perspective, we’re sort of indifferent.",Ron Delia
AMCR,2023,4,"Okay. Great. And just coming back to the previous question on sustainability of packaging, there seems to also be move to potentially be sort of fiber-based and alternative packaging for beverages. What work are you doing around that, please?",Cameron McDonald
AMCR,2023,4,"Yes. We have a pretty extensive platform that we call AmFiber, which is fiber-based packaging for a range of product categories, we see the opportunity, particularly in the confectionery space to move from plastic-based products to fiber-based products, culinary, some formats like spices and food additives. So, our work on the fiber side is pretty extensive. There’s a little less activity in the beverage space, to be quite honest. But generally speaking, AmFiber is a big platform for us, and we’re optimistic about the growth outlook.",Ron Delia
AMCR,2023,4,Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.,Operator
AMCR,2023,4,"Yes. Thank you. Good evening, everyone. I guess, the first question is I think about the quarter and then moving into ‘24. I just wanted to ask a question on mix. And I look at it in the Flexibles segment, mix is still a 2% positive contributor in the quarter, less than it had been earlier in the year, but still positive year-on-year, although I look at kind of some of the parts of Flexibles that I’ve historically thought had contributed to that mix in terms of healthcare and protein and pad and premium coffee. And those all were down kind of consistent with the overall segment volumetrically. So, just help us maybe dissect kind of what’s happening in mix and kind of where you see that trending through fiscal ‘24?",Adam Samuelson
AMCR,2023,4,"Yes. Look, we had unfavorable mix in both segments in the fourth quarter as you -- and you pointed out the reasons why. I mean, some of the categories that you would expect to be positive contributors to mix, were softer in the fourth quarter, in particular, pet care even slowed a bit in the fourth quarter as did medical. What you’re referring to is price and mix together. And I think you’ve got to bear in mind that we’re still experiencing reasonably high levels of inflation, and we still have been and continue to be actively pricing to recover inflation. So for the fiscal year, we priced up about $1.1 billion between raw materials and general inflation, about $300 million to $340 million of that was general inflation. And so, you’re seeing price and mix combined. So, you’ve got positive price offset by [Technical Difficulty].",Ron Delia
AMCR,2023,4,"Okay. That’s really helpful. And if I could just ask a follow-up on your -- kind of the move or just the focus on proteins and the investments in equipment. I mean you’ve got some pretty large incumbents when you think about that market, especially on the fresh meat side with equipment. I mean, what do you think the business needs to scale and grow more significantly there where you’ve got -- you do have a competitor who has a pretty significant incumbent market position?",Adam Samuelson
AMCR,2023,4,"Yes. Look, that’s clear. And most of our markets are pretty competitive, including that one. What we needed as a starting point was a full system offering, which we didn’t have. And so, the Moda acquisition allows us to offer the primary packaging equipment. It will offer -- will allow us to offer technical services and parts. And that all combines with what we believe is industry-leading film technology, including in that space. And the films in the protein space are amongst the most demanding of any that we produce. If you think about the functional requirements for meat packaging, there’s obviously a barrier that’s required to preserve shelf life. There also tends to be the need for function resistance. You got to run these packages through the lines, the packaging lines at high speed, so the processing requirement is quite high. And we believe we’ve got some advantaged film technology and the ability to now go to market with a full solution, including equipment and aftermarket service just completes the puzzle for us. So, we’re really excited about the market. It’s also one that we can leverage over our global footprint. And it really represents a pretty visible revenue synergy from the Bemis acquisition of several years ago now. So, we’re pretty -- we’re excited about it. And look, every segment is competitive, and we just have to -- we have to compete and earn the business, obviously. But we’re pretty optimistic we’ll be able to do that.",Ron Delia
AMCR,2023,4,Our next question comes from the line of Sam Seow from Citibank.,Operator
AMCR,2023,4,"Just I wanted to follow up on some earlier comments that you’ve got [Technical Difficulty] volume growth assuming in the second half of ‘24 kind of growth expectations. So just to confirm, you’re saying if volume growth starts to come back, you’d expect upside to that mid-single to high single digits in the second half?",Sam Seow
AMCR,2023,4,"Yes. We’re not banking on a much improved demand picture. We think it’s more prudent for us to set the business up to assume that volumes are going to be challenged through the year. So for the first half of the year, we’re expecting volumes to continue to be down mid single digits, mid to high single digits. Second half of the year, we would expect volumes to be flat to maybe up low single digits. And we believe that’s possible without much of an improvement in the underlying demand profile because we are pretty confident that we’ll be through the other end of the destocking cycle by the time we get to calendar year 2024. So yes, there’s no expectation of a dramatic improvement in the overall demand environment that’s baked into our guidance.",Ron Delia
AMCR,2023,4,"That’s helpful. And just a follow-up on potential volume growth. Looking through the year, it looks like Rigid [Technical Difficulty] decline followed by Flexibles as we think about potential [Technical Difficulty] logical to expect Rigid to come back quicker than Flexibles, or is there something to call out there?",Sam Seow
AMCR,2023,4,"Look, we would expect the volume trajectory to be roughly comparable. Now Rigid has got another strong -- another seasonally strong quarter to get through. And we’re not expecting the business to be all the way back from a demand perspective in the fiscal first quarter. In fact, we expect continued softness and continued destocking in the North American beverage business in particular. But generally speaking, if we take a 12-month view, our expectation is that the volume trajectory would be similar across the two segments. And look, as you pointed out, this is the swing factor in our guidance range. So, to the extent that the volume picture improves, that would be a driver of us getting to the higher end of our range or beyond. We’re just not setting the business up to expect that. We’re taking the cost actions that you’d expect us to take, and we’re going to be really prudent before we anticipate demand coming back.",Ron Delia
AMCR,2023,4,Our next question comes from Daniel Kang from CLSA. Please go ahead.,Operator
AMCR,2023,4,"First one, maybe to Mike. Just in regards to your FY24 guidance. Can you talk us through your assumptions and maybe expectations on price/mix and any input cost tailwinds?",Daniel Kang
AMCR,2023,4,"Yes, sure. I think if I take the raw material side first, we experienced in Q4, we saw raw materials pretty well across the board come down in that mid-single-digit range after a pretty benign Q3. And in Q4, we saw -- we just saw a modest tailwind as we’re still cycling through the higher inventories and also reduced purchases. So, as we look forward on the raw materials side, what we see into the first quarter really is a pretty benign environment, basically flat raw material, maybe slightly down, but that would translate into a relatively modest tailwind in the first quarter. After that, we’ll see where things go on the raw materials side. Look, on the price/mix, we’ll continue to price for inflation. So, as we’ve said in the remarks throughout, we expect to continue along the price and cost initiatives that we’ve already been taking. So inflation, albeit we’re still expecting inflation, perhaps maybe at slightly lower levels than we’ve been experiencing. But we will continue to see inflation as we work through ‘24. So we’d expect to see some price to offset that as well as cost. And then on the mix side, look, I think initially, we would expect some negative mix really as we saw in Q4, which we touched on the call already today. So things like healthcare, pet food, coffee, et cetera, as we’re just cycling, some stronger parities on that front, we would expect mix to be perhaps a negative particularly as we start the year.",Michael Casamento
AMCR,2023,4,Our next question comes from Richard Johnson from Jefferies. Please go ahead.,Operator
AMCR,2023,4,"Ron, one of the things we’re hearing quite consistently now from a lot of your major customers is some very significant SKU rationalization programs that they’re having. In particular, I believe I’m right in saying that Unilever taking the SKU is down by 25%, which is a huge number. I was just interested in getting your opinion on what that means, if anything, for yourselves.",Richard Johnson
AMCR,2023,4,"Yes. Look, it’s maybe not as pervasive as it might seem from some of the public comments. But to the extent that SKUs can get rationalized, it’s generally a good thing for us. There’s two things going on. There is a bit of SKU rationalization. The other thing that’s happening is the continued evolution towards more sustainable formats and more sustainable SKUs. And I think SKUs have proliferated across all the categories that we service. You think about the variety of the store shelves certainly here in the U.S., it’s really been explosive growth over a long period of time and the number of SKUs that are available. So, anything that simplifies the business and takes out unnecessary or non-value-adding complexity is generally a good thing. And then at the same time, helping that process along by introducing more sustainable formats is also advantageous to us, too. So I think we’re in lockstep with the customers that you probably have in mind, and on that journey or both of those journeys at the same time.",Ron Delia
AMCR,2023,4,"That’s helpful. Thanks. And then just finally, you referred to your volume pressure’s being more skewed to developed rather than emerging markets, which, of course, is pretty understandable. I was just interested if we get a bit more detail on where you sit in EM because others and there are reports that there’s been significant down-trading in emerging markets as well away from multinationals to local brands in particular, and then obviously for many large packaging company or global packaging companies, that might be unhelpful. So, I’m just trying to get a sense of why you may have outperformed in EM relative to others? Thanks.",Richard Johnson
AMCR,2023,4,"Yes. Look, it’s a good question. It feels more like the underperformance in the DMs relative to the EMs is the thing that’s not easy to understand. I mean we saw volume declines in Europe and North America, kind of high single digits in the fourth quarter, again, entirely consistent with what others have reported and the scanner data, et cetera. But the EM business has held up, but we had volumes in Asia, in the emerging part of Asia, basically flat in the quarter. Latin America was down mid-single digits. So both of those regions had better volume performance than the two big developed markets. Look, I don’t know. I think we have a pretty compelling value proposition in emerging markets generally as an innovation leader and a sustainability leader. And then our participation in our customer mix generally looks like the market. So, if I take a business like China, we actually have more of our sales to local customers than to multinationals. And basically, that reflects the market shares of those respective customer groups. So, I think we’re well balanced for the differential growth rates that you’re referring to.",Ron Delia
AMCR,2023,4,Our next question comes from the line of John Purtell from Macquarie. Please go ahead.,Operator
AMCR,2023,4,"I just had a couple of questions. Just first one for Michael, just in terms of interest expense. What percentage is fixed and floating now? And are you looking to fix more to essentially kind of lock in your interest expense?",John Purtell
AMCR,2023,4,"Yes. Look, John, so -- traditionally, we’ve been in that 50-50 fixed-floating mix but more recently, so over ‘23 and looking into ‘24 a more 70-30. So, would take a bit of the volatility out of the mix there on that front. So, that’s where we sit today in that 70-30 range, fixed-floating.",Michael Casamento
AMCR,2023,4,See that is pretty stable.,John Purtell
AMCR,2023,4,Yes.,Michael Casamento
AMCR,2023,4,"And just a second question, Ron, on acquisitions. Are you seeing more opportunities now that fit your criteria? And obviously, valuations are generally coming down. And will you sort of naturally play at the smaller to medium end? Obviously, we saw Constantia recently sold to private equity.",John Purtell
AMCR,2023,4,"Yes. Look, we have been more active. So we’ve done four deals in the last 12 months. They’re all of the small variety and single plant deals. So, the first comment I would make is, yes, there are more things that seem to be coming to market. I mean we went through a period of pretty pronounced market dislocation through COVID and then the supply chain constraints and now some softer volumes, but I think sellers are more likely to bring things to market now than they would have been, let’s say, two years ago. So the pipeline is relatively robust, and we’ve been able to convert four small deals in the last 12 months. The second part of your question about the size really just reflects the nature of the participants in our space. There’s just by number, and I hold a lot more smaller single plant businesses than there are large multibillion-dollar businesses like the one that you mentioned. So I think just generally, you’re going to see us execute more smaller deals. It doesn’t mean for a second that we would not love to deploy bigger amounts of capital. So, we would be on the lookout for medium and larger sized deals as well. I just think by the law of numbers, will suggest that most of the deals will be the smaller variety.",Ron Delia
AMCR,2023,4,Our next question comes from the line of Nathan Reilly from UBS. Please go ahead.,Operator
AMCR,2023,4,"Question about just the cost out program, how much flexibility you might have around that just in terms of whether that destocking trend continues a little bit longer than, I guess, what you’ve currently forecast, how much flexibility you might have just to sort of go a little bit harder around the cost base?",Nathan Reilly
AMCR,2023,4,"Yes. Look, we’re getting after it pretty good would be the first thing I would say. So we’re going after it reasonably hard. You have to remember also that the business has been optimized through the last several years, I mean, through the Bemis integration, we took a number of plants out of the network. A couple of years before that, we took a few out of the rigids network as well. So the business is reasonably well optimized. But that being said, there’s more opportunity. And we’ve announced 3.5 plant closures already. There’ll be more. The common with demand remains depressed, then there is the opportunity to do a little bit more, although I would also point out that the ultimate path to value creation for the Company is to grow, and we want to make sure that we’ve got the productive assets available when demand normalizes. We don’t see any of the demand challenges that we’re experiencing right at the moment, we don’t see a secular. We believe this is a cycle, and we believe it’s an inflation induced cycle and that volumes will return. And I mean, certainly, the destocking impact will abate. But we do preserve the flexibility here if we need to go after it harder on the cost side, we certainly will do that.",Ron Delia
AMCR,2023,4,"Okay. Thank you. And I guess, just following through in terms of historically, you’ve managed cost inflation quite well. But I guess -- and I’m talking about the general cost inflation in terms of being able to pass that through to customers with higher pricing. But in a period that’s characterized by a high level of destocking and lower demand, can you give us an update on how you’re going just in terms of recovering the general cost inflation and just around that, maybe just a comment around just how that sort of inflation has been trending recently?",Adam Samuelson
AMCR,2023,4,"Yes. Well, as far as the trend, I think we are starting to see inflation moderate. I’m not sure that we’re seeing prices fall anywhere, but we’re seeing the rate of increase certainly decline across most of the cost buckets. I’d say labor is still -- increase in kind of mid-single digits. We still have higher energy costs than we had a couple of years ago. Freight might be one area where we’ve seen some declines off of the peaks. So, it’s still a real fact of life, number 1. Number 2, I think we have been successful in pricing to recover. We remain kind of fully recovered, if you will. Last year, the general inflation running through the business was over $300 million, and we offset that with price. We’ll expect to continue to do that as we go into fiscal ‘24. We also reset prices with new contracts. And as you expect that probably two-thirds of the business is contracted, maybe three quarters of the business is contracted. The average duration is 2 to 3 years, maybe 4 years. So every year, you’re turning over a portion of the revenue base and having an opportunity to reset pricing to reflect the current dynamics in the current inflation conditions. So, it remains a fact of life. But I certainly feel like we’re coming out the other end of the inflationary cycle.",Ron Delia
AMCR,2023,4,Our next question comes from the line of James Wilson from Jarden Australia. Please go ahead.,Operator
AMCR,2023,4,I was just wondering if you could give us maybe a little bit more color firstly on how your inventory and working capital management is progressing heading into ‘24.,James Wilson
AMCR,2023,4,"Yes, sure. I can take that one there. Look, we were obviously building inventory this time last year, and that was back on -- there was supply constraints in the marketplace. A lot of different activity happening, and we certainly built inventory during that period as well as putting through over the last two years, put $3 billion roughly through the top line in terms of price to recover raw material and inflation. So, both of those factors have impacted working capital. But from November, we really worked down our inventory levels. And from the peak in November, we’ve taken nearly $400 million out and $200 million of that was just in Q4. We haven’t seen the full benefit of that really come through from a cash flow standpoint yet because at the same time in this -- particularly in the second half of the year, we’ve seen a much lower payables position. So our -- although our inventory has come down kind of point-to-point over the year around $200 million, our payables have also actually come down about $500 million. So, if you look at our working capital performance during the year, we had a cash outflow of around $230 million. Really, that’s the payables impact. So, as we’ve seen the lower demand signals we’ve started to reduce our purchasing in addition to that, taking inventory out of the system. And so, we did see a negative impact on working capital as a cash outflow in the year. As we look forward, we’ve still got work to do on the inventory side, and we’ll continue to focus on that. And I think the payable side will start to normalize as we work through some of this softer demand. So, as we work through ‘24, certainly not anticipating a cash outflow at the level that we had in FY23. And we hope to be able to get to a more neutral position by the year-end. From a working capital sales standpoint, we’re about 9.5% working capital sales at the moment. Typically, we would be more in the 8% to 9% range. So I think we’ve certainly got some opportunity there as well as you look forward over the next couple of years.",Michael Casamento
AMCR,2023,4,"And guys, just in terms of how much of that is sort of baked into your free cash flow guidance for next year, am I right in seeing that as sort of a buffer on the downside, or is that potentially already baked into what you’ve come out with today as guidance?",James Wilson
AMCR,2023,4,"Yes. So the cash flow guidance for ‘24 is $850 million to $950 million. So, it’s a $100 million range, which is really the working capital range in there. So, at the midpoint, probably still going to see a little bit of cash outflow, but we’ve obviously got some opportunity to do better than that, and that’s really the working capital is the key factor there.",Michael Casamento
AMCR,2023,4,Our next question comes from the line of Scott Ryall from Rimor. Please go ahead.,Operator
AMCR,2023,4,"Hopefully mine are quite quick questions. I was wondering if you could comment on what you’ve seen in terms of the changes of your customers in terms of their price expectations around responsible, sustainable packaging, please, and the willingness to pay a premium, I guess, over the virgin products? How that’s changed over the last 12 months, that’s what I’m asking. Sorry.",Scott Ryall
AMCR,2023,4,"Yes. Look, I don’t know that it’s changed much. I mean I think customers understand that there’s more value to be ascribed to a product that’s got a better sustainability profile. And I think consumers understand that as well. It’s another element of functionality that is now expected in consumer products. And that is the environmental profile is at least neutral, if not positive, overall. And there’s value associated with that. And so, most of these products do have a premium. There’s also the scale curve that we need to work through. We’re introducing new products and like any new product with less volume and less scale benefits typically tends to start out at a higher price point. It will evolve over time. But I think as brand owners look to meet their own commitments and you take the full range of different costs, including regulatory costs into consideration, the more sustainable products offer higher value and therefore, they tend to carry a bit higher price, particularly at the outset.",Ron Delia
AMCR,2023,4,"Okay. Great. Thank you. And then secondly, I just wanted to ask a bit more about the Licella plant in Australia. And just for a bit more detail, am I right, firstly, that you’ve invested directly in Licella, then can you just give us a few stage gates or timings around when that plant will come into operation? And I guess, thirdly, just discuss in the U.S. market where we’ve got a lot of advanced recycling facilities being built or already built. They tend to be linked with one of the major petrochemical companies. How do you think about the risk around using effectively the solution with a start-up, please?",Scott Ryall
AMCR,2023,4,"Yes. Look, there’s a lot there, and it’s a pretty exciting project. So I’m glad you asked. I mean, the investment we’ve made, firstly, I would just make sure it’s clear, it’s a modest investment, several million dollars that’s in the single digits of millions of dollars. We’re co-investing with Mondelēz and we’re investing in Licella as the technology provider for this particular plant that’s going to be built in the western suburbs of Melbourne and Altona. We’re pretty excited because it will bring recycled content -- chemically recycled material to the Australian market with local production, which is great because the collection of soft plastics as they’re referred to in Australia through the REDcycle program needs an outlet. This plant will be a perfect outlet for the recycled plastics that are collected. And then the brand owners in Australia are differentiating and are really advocates for more sustainable packaging, including packaging made with recycled content. So, there’s a captive supply of the primary input, which is waste plastic. And there’s a captive market, which is the brand owner and the Australian consumer looking for more sustainable packaging. So, we’re really excited about this. In terms of stage gates, look, it’s a pretty extensive build, as you’d imagine. It’s -- the site has been selected. If there’s a chance, the plant could be operational by the end of calendar ‘24, but it’s really an 18- to 24-month project.",Ron Delia
AMCR,2023,4,Our final question comes from the line of George Staphos from Bank of America. Please go ahead.,Operator
AMCR,2023,4,"Ron, I was asking earlier, just are you seeing any signs from your customers at all as they’re trying to find ways to stimulate growth? Maybe they’re considering more promotional activity at the request of their customers that they’re now coming back to their packaging suppliers and looking for your and other companies’ support perhaps with givebacks cost reductions, productivity, what’s happening there, if anything, on that front? Thanks. And good luck in the quarter.",George Staphos
AMCR,2023,4,"Yes. Thanks, George. Look, others have talked about potentially increased promotional activity. We really haven’t seen much of that of any great consequence. I mean, you see it a little bit more in the beverage space in the summer season. But really, I mean -- and there are pockets of promotions here and there, but nothing that’s pervasive enough that we would point to that’s got a material impact on our volume outlook. I mean, it would be great if it happens. That would be upside. We’re certainly not banking on increased promotional activity leading to higher volumes for Amcor. If it happens, as I said, it would be great. And the pricing dynamic is, as we’ve discussed on this call, I mean, there’s continued inflation recovery that’s necessary. And while it’s moderating, it’s still a fact of life that we’ve got to recover continued inflation through our cost base, and that’s what we’re busy doing.",Ron Delia
AMCR,2023,4,I would now like to turn the call over to Ron Delia for closing remarks. Please go ahead.,Operator
AMCR,2023,4,"Thanks, operator, and thanks for everyone’s interest in Amcor and for joining our call today. We appreciate it, and we’ll speak to you at the end of the first quarter. And we’ll end the call there. Thank you.",Ron Delia
AMCR,2023,4,"Ladies and gentlemen, this does conclude our [Technical Difficulty] today’s call. Please disconnect.",Operator
JNJ,2022,4,"Good morning and welcome to Johnson & Johnson’s Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the conference. This call is being recorded. If anyone has any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the conference call over to Johnson & Johnson. You may begin.",Operator
JNJ,2022,4,"Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company’s review of business results for the fourth quarter and full year of 2022 and our financial outlook for 2023. Joining me on today’s call are Joaquin Duato, Chairman of the Board and Chief Executive Officer; and Joe Wolk, Executive Vice President, Chief Financial Officer. A few logistics before we get into the details. As a reminder, you can find additional materials, including today’s presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that today’s meeting may include forward-looking statements related to, among other things, the Company’s future financial performance, product development, market position, and business strategy and the anticipated separation of the Company’s Consumer Health business. You’re cautioned not to rely on these statements, which are based on current expectations of future events, using the information available as of today’s date, and are subject to certain risks and uncertainties that may cause the Company’s actual results to differ materially from those projected. In particular, there is significant uncertainty about the duration and contemplated impact of the COVID-19 pandemic. A further description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2021 Form 10-K, which is available at investor.jnj.com and on the SEC’s website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or licensed from other companies. This slide acknowledges those relationships. Moving to today's agenda, Joaquin will open with a few comments highlighting his first year as CEO and his priorities for 2023. I will then review the fourth quarter sales and P&L results for the corporation and highlights related to the three segments as well as full year 2022 results for the enterprise. Joe will then close with additional business commentary before sharing an overview of our cash position, our capital allocation priorities and our guidance for 2023. The remaining time will be available for your questions. We anticipate the webcast will last approximately 75 minutes. I’m now pleased to turn the call over to Joaquin.",Jessica Moore
JNJ,2022,4,"Thanks, Jess. Good morning, everyone. I’m pleased to be here today to review our 2022 results and highlight my priorities for the business. I’m excited for the future of Johnson & Johnson. For over 135 years, people have counted on Johnson & Johnson to be at the forefront of healthcare innovation. This remains as true today as the day we were founded. And I’m honored to continue this legacy. In 2022, despite macroeconomic challenges, we delivered full year operational growth of over 6%. This is the result of the dedication and focus of our employees around the world, as well as the breadth and diversification of our business. There were many business achievements last year. Let me share some highlights. Our Pharmaceutical team achieved its 11th consecutive year of above market adjusted operational sales growth, excluding the COVID-19 vaccine, delivering nearly 7% growth as we continue to advance our innovation pipeline. I’m particularly excited about the progress made across our multiple myeloma portfolio. This includes the launches of CARVYKTI, our first cell therapy; and TECVAYLI, our BCMA CD3 bispecific antibody, along with the recent filing of Talquetamab, our GPRC5D CD3 bispecific. In MedTech, we generated above 6% full year operational growth, anticipating our second consecutive year outperforming our competitive composite. In terms of innovation, we accelerated the cadence of new product launches and significantly enhanced the quality of our MedTech pipeline, including more than doubling the number of programs with over $100 million of net present value potential. Notably, we completed the acquisition of Abiomed, which positions us as the global leader in heart recovery and immediately enhances MedTech revenue growth. This transaction will become accretive to earnings in 2024. Finally, we made significant progress towards the separation of Kenvue. We have begun operating our consumer business as a company within a company, and we filed our Form S-1 with the SEC, giving us the option to pursue an IPO as a potential step in the separation. Looking ahead, while we expect some of the headwinds that impacted 2022 to continue, we have proven that Johnson & Johnson is resilient in times of macroeconomic challenges. In this environment, our approach to 2023 can be best described as prudent, and our priorities for the year are clear and remain consistent. First, we are finalizing our plans for Johnson & Johnson to operate as a two-sector company, dedicated to competitive performance, both in Pharmaceutical and MedTech. This change will enable us to become simpler, faster and more focused. In Pharmaceutical, we will continue delivering top line growth annually, while driving towards $60 billion in revenue by 2025. We believe we will be able to achieve our market growth in 2023 for the 12th consecutive year, even in the face of the STELARA loss of exclusivity and macroeconomic challenges. Growth will be driven primarily by our existing portfolio, including DARZALEX, TREMFYA, ERLEADA, INVEGA SUSTENNA and UPTRAVI, and also continued uptake from new launches, including SPRAVATO, CARVYKTI and TECVAYLI. In MedTech, with the acquisition of Abiomed, we now have 12 platforms with over $1 billion in annual sales. We expect to continue to build on 2022’s momentum. We will do this by maximizing the commercial opportunity for recently launched innovations, continuing to advance the Abiomed pipeline and prioritizing investment in higher growth segments of our markets. This will be a transformational year for Johnson & Johnson, which brings me to my next priority, completing the successful creation of our new Consumer Health Company, Kenvue. We remain on track to complete the separation in 2023 as indicated in our initial announcement in November of 2021. As we look forward, our track record gives us the confidence that we can grow ahead of our peers and cement the foundation for long-term success. Following 2021, a year where we substantially increased R&D investment, we continue our commitment to organic innovation. We invested nearly $15 billion in R&D during 2022. Also, we increased our dividend for the 60th consecutive year. We instituted a share repurchase and we deployed over $17 billion in M&A, including the acquisition of Abiomed. Very few companies have the capability and the balance sheet to take such significant actions concurrently, especially in a year like 2022. I’m confident that we are well positioned for 2023 and beyond. In closing, I am energized about what is to come. As the largest and most diversified health care products company in the world, we will continue to use our scale and breadth to drive innovations, deliver for patients and shape the future of health care around the world. Now, let me turn it back to Jess.",Joaquin Duato
JNJ,2022,4,"Thanks, Joaquin. Starting with Q4 2022 sales results. Worldwide sales were $23.7 billion for the fourth quarter of 2022, a decrease of 4.4% versus the fourth quarter of 2021. Operational sales growth, which excludes the effect of translational currency, increased 0.9% as currency had a negative impact of 5.3 points. In the U.S., sales increased 2.9%. In regions outside the U.S., our reported sales declined 11.5%. Operational sales outside the U.S. declined 1.1%, with currency negatively impacting our reported OUS results by 10.4 points. Excluding sales from the COVID-19 vaccine, operational sales growth was 4.6% worldwide, 4.7% in the U.S. and 4.4% outside the U.S. As you will find in our supplemental sales schedule, acquisitions and divestitures had an immaterial impact on our results in the quarter. Turning now to earnings. For the quarter, net earnings were $3.5 billion and diluted earnings per share was $1.33 versus diluted earnings per share of $1.77 one year ago. Excluding after-tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $6.2 billion, and adjusted diluted earnings per share was $2.35, representing increases of 9.5% and 10.3%, respectively, compared to the fourth quarter of 2021. On an operational basis, adjusted diluted earnings per share increased 15.5%. For the full year 2022, consolidated sales were $94.9 billion, an increase of 1.3% compared to the full year of 2021. Operationally, full year sales grew 6.1%, with currency having a negative impact of 4.8 points. Sales growth in the U.S. was 3%. In regions outside the U.S., our reported year-over-year sales declined 0.6%. Operational sales growth outside the U.S. grew by 9.1%, with currency negatively impacting our reported OUS results by 9.7 points. As you will find in our supplemental sales schedules, acquisition and divestitures as well as sales from our COVID-19 vaccine had an immaterial impact on our results for the full year. Net earnings for the full year 2022 were $17.9 billion and diluted earnings per share was $6.73 versus diluted earnings per share of $7.81 a year ago. 2022 adjusted net earnings were $27 billion and adjusted diluted earnings per share was $10.15, representing increases of 3.2% and 3.6%, respectively, versus full year 2021. On an operational basis, adjusted diluted earnings per share increased by 9.2%. While not part of our prepared remarks for today’s call, we have provided additional information and backup for our full year 2022 sales by segment, consolidated statement of earnings and adjusted income before tax by segment, which can be downloaded from our website. I will now comment on business segment sales performance highlights for the quarter. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the fourth quarter of 2021 and therefore, exclude the impact of currency translation. Beginning with Consumer Health. Worldwide Consumer Health sales of $3.8 billion increased 1%, with an increase of 10.9% in the U.S. and a decline of 5.8% outside the U.S. Excluding translational currency, worldwide operational sales growth increased 6.4% and outside the U.S., operational sales growth increased 3.2%. Results were primarily driven by strategic price increases, growth in OTC due to a strong cough, cold and flu season, and growth in NEUTROGENA as well as strong new product introductions in Asia Pacific and Latin America. NEUTROGENA growth contributed to the second consecutive quarter of 5% operational growth for Skin Health/Beauty. Growth across the portfolio was partially offset by continued, although reduced supply constraints in the U.S. COVID-19 impacts in China, portfolio simplification and the suspension of personal care product sales in Russia. Moving on to our Pharmaceutical segment. Worldwide Pharmaceutical sales of $13.2 billion decreased 7.4% with declines of 0.6% in the U.S. and 14.9% outside of the U.S. Excluding translational currency, worldwide operational sales declined 2.5%, and outside the U.S., operational sales declined 4.5%. Excluding the COVID-19 vaccine sales, worldwide operational sales growth increased 3.9%, U.S. operational sales growth increased 2.4%, and outside the U.S., operational sales growth increased 6%. Pharmaceutical growth, excluding the COVID-19 vaccine, was driven by our key brands and continued uptake in our recently launched products, enabling us to continue to deliver above-market adjusted operational sales growth for the 11th consecutive year, including 7 assets with double-digit growth. Growth was driven by DARZALEX, ERLEADA, STELARA and TREMFYA, and was partially offset by REMICADE and ZYTIGA, due to loss of exclusivity along with a decrease in IMBRUVICA sales. Within our oncology business, DARZALEX and ERLEADA continued to drive strong sales growth, with increases of 33.9% and 48.6%, respectively. ZYTIGA sales declined 43.6% worldwide, predominantly due to loss of exclusivity in Europe in September. IMBRUVICA sales declined 12.3% worldwide due to competitive pressures and a suppressed CLL market due to COVID-19. Despite competitive pressures, IMBRUVICA maintains its market leadership position worldwide. In our immunology business, STELARA grew 6.2%, driven by market growth and share gains in Crohn’s disease and ulcerative colitis, with gains of 4 points and 5.4 points in the U.S., respectively, as well as a favorable prior period adjustment impacting worldwide results by approximately 460 basis points. Results in the quarter were partially offset by unfavorable patient mix and rebating in the U.S. as well as austerity measures in Europe and shipment timing in Asia Pacific. TREMFYA grew 12.5%, driven by share gains in psoriasis and psoriatic arthritis, with gains of 1.4 points and 2.9 points in the U.S., respectively, along with market growth. Q4 growth was partially offset by a net unfavorable prior period adjustment impacting worldwide results by approximately 1,150 basis points, unfavorable patient mix and a challenging prior year comparison. Beginning in Q1 2023, we anticipate that CARVYKTI, currently reported in other oncology, and SPRAVATO, currently reported in other neuroscience, will meet the threshold to be separately disclosed. I’ll now turn your attention to the MedTech segment. Worldwide MedTech sales of $6.8 billion decreased by 1.2%, with growth of 7.1% in the U.S. and a decline of 8.6% outside of the U.S. Excluding translational currency, worldwide operational sales growth increased 4.9%, and outside the U.S. operational sales growth increased 2.9%. Excluding the impact of acquisition and divestitures, worldwide adjusted operational sales growth was 4.4%. Q4 growth was driven by commercial execution, strong new product introduction performance as well as COVID-19 procedure recovery in many parts of the world. Partially offsetting growth in the quarter was the impact of value-based procurement, COVID resurgence in China as well as supply constraints predominantly in vision. Strong growth continued in the U.S., with dollar sales sequentially improving each quarter throughout 2022. OUS performance was adversely impacted by dynamics related to COVID-19, especially given our strong position in China. The Interventional Solutions franchise delivered another quarter of worldwide double-digit growth at 15.1%, driven primarily by strong new product introductions performance, commercial execution and continued market growth in electrophysiology. Abiomed sales are also reported in Interventional Solutions, and financial results were reflected as of December 22, the date the acquisition closed. Contact lens global growth of 7.7% reflects strong performance of our ACUVUE OASYS 1-Day family of products, including the recent launch of ACUVUE OASYS MAX 1-Day, strong commercial execution and market appropriate price actions. Growth was tempered by continued supply challenges. In the orthopedics franchise, digital and enabling technologies reported in spine, sports and other continued to accelerate and drive pull-through sales in areas like hips and knees. For additional context, selling days had approximately a 60 basis points positive impact on results in the quarter. Now turning to our consolidated statement of earnings for the fourth quarter of 2022. I’d like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold deleveraged by 70 basis points, primarily driven by onetime COVID-19 vaccine manufacturing-related costs, unfavorable currency impact in the Pharmaceutical business, inflationary pressures as well as unfavorable mix with the enterprise, with a lower portion of sales coming from the Pharmaceutical business. Selling, marketing and administrative margins leveraged by 150 basis points. This represents a 9% reduction versus the prior year, driven by phasing with higher spend earlier in the year as well as proactive management of costs given the current inflationary environment. We continued to invest strategically in research and development at competitive levels, investing 16.2% of sales this quarter. The $3.8 billion invested was an 18.6% reduction versus the prior year, driven primarily by phasing with higher spend earlier in the year. Interest income was favorable to prior year by just over $100 million, driven by higher rates of interest earned on cash balances. The other income and expense line was an expense of $1.2 billion in the fourth quarter of 2022 compared to an expense of $9 million in the fourth quarter of 2021. This was primarily driven by onetime COVID-19 vaccine manufacturing-related exit costs, higher Consumer Health separation-related costs, higher costs related to the Abiomed acquisition and lower gains on securities. As we announced in Q2 2022, we continue to have commitments and obligations related to the COVID-19 vaccine, including external manufacturing network exit cost and required clinical trial expenses, associated with the Company’s modification of its COVID-19 vaccine research program and manufacturing capacity to levels that meet all remaining customer contractual requirements. Regarding taxes in the quarter, our effective tax rate was 16.2% versus 2.1% in the same period last year. The increase was primarily driven by more income in higher tax jurisdictions versus the prior year. Additionally, the Company benefited from onetime tax items in the fourth quarter of 2021 that did not repeat in the current year. Excluding special items, the effective tax rate was 16.2% versus 10.4% in the same period last year. I encourage you to review our upcoming 2022 10-K filing for additional details on specific tax matters. Lastly, I’ll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now, let’s look at adjusted income before tax by segment. In the fourth quarter of 2022, our adjusted income before tax for the enterprise as a percentage of sales increased from 25.6% to 31.3%. Pharmaceutical margins improved from 33.9% to 38.2%, primarily driven by SG&A and R&D phasing, with higher spend earlier in the year, partially offset by the negative impact of currency and cost of products sold. MedTech margins improved from 18.1% to 25.3%, primarily driven by SG&A and R&D phasing, with higher spend earlier in the year, favorable portfolio mix and supply chain efficiencies, partially offset by inflationary pressures. Finally, Consumer Health margins improved from 18.6% to 22%, driven by brand marketing phasing with higher spend earlier in the year and supply chain efficiencies, partially offset by inflationary pressures. This concludes the sales and earnings portion of the Johnson & Johnson fourth quarter and full year 2022 results. I’m now pleased to turn the call over to Joe Wolk. Joe?",Jessica Moore
JNJ,2022,4,"Thank you, Jess, and thanks, everyone, for joining us today. As Jess shared, we reported solid results with competitive growth across our business segments in 2022. While macroeconomic challenges and lingering COVID-19-related impacts tempered our fourth quarter sales growth, we prioritized our top investments, while managing costs to yield slightly better margin performance than guided in October to meet our earnings expectations. The business is resilient, and we should be positioned well entering 2023. We are particularly proud of the advancements in our pipeline and portfolio to solidify the long-term, including the launch of TECVAYLI, the filing of Talquetamab in the U.S. and Europe, FDA clearance for our TELIGEN digital supply solution, the closing of the Abiomed acquisition and the tremendous progress made on separating our Consumer Health business. Let’s delve into the financials, beginning with our 2022 year-end cash position and execution against our capital allocation priorities. We generated free cash flow for the year of approximately $17 billion. And at the end of 2022, we had approximately $24 billion of cash and marketable securities and approximately $40 billion of debt for a net debt position of $16 billion. Despite macroeconomic uncertainty, we had a strong year deploying capital against all of our capital allocation priorities. These priorities remain unchanged. This past year, we invested more than 15% of sales for a total of nearly $15 billion in research and development. This investment has enabled the advancement of important programs, including strengthening our MedTech pipeline and progression of our multiple myeloma portfolio, which Joaquin referenced. Investment in R&D remains a top priority to support long-term growth and value creation. Our second priority is our commitment to dividends. 2022 marked the 60th consecutive year in which we increased our annual dividend. We know investors value our dividend. And as a part of the Consumer Health separation, we intend, at a minimum, to maintain that dividend. As you can appreciate, we will need more clarity on the type of separation to determine how that is best achieved. Our third priority is strategic acquisitions, which is intended to complement our organic activities. In 2022, we closed the acquisition of Abiomed, strengthening MedTech’s presence in higher growth segments, as well as more than 100 smaller early-stage acquisitions, licensing deals and partnerships. Finally, our Board authorized a $5 billion share repurchase program in the third quarter. And as of the end of the year, we’ve completed approximately 50% of that program. In combination with our dividend, we returned over $14 billion to shareholders in 2022. I’ll now provide our full year 2023 guidance. As we are still in the process of the Kenvue separation, our guidance represents the current Johnson & Johnson businesses, inclusive of Pharmaceuticals, MedTech and Consumer Health segments. We expect operational sales growth for the full year 2023 in the range of 4.5% to 5.5% or $96.9 billion to $97.9 billion. This guidance is provided on a constant currency basis, reflecting how we manage business performance. We estimate a favorable impact from net acquisitions and divestitures associated primarily with the Abiomed acquisition, and thus, are comfortable with your models reflecting adjusted operational sales growth in the range of 3.5% to 4.5%. Our sales guidance continues to exclude contribution from the COVID-19 vaccine, which, as your models already correctly anticipate, will decline in 2023. As you know, we don’t speculate on future currency movements, but utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.08 as well as other currencies, we estimate there would be no impact from foreign currency translation on reported sales for the year. Regarding other items on our P&L, we expect 2023 adjusted pretax operating margin to be flat driven by continued inflationary pressures and cost of goods sold, offset by continued operating expense leverage. Regarding other income and expense, the line on the P&L where we record royalty income, the return on assets and actuarial costs associated with certain employee benefit programs as well as gains and losses related to items such as investments by Johnson & Johnson Development Corp., litigation and balance sheet write-offs. On an adjusted basis, we expect this to be $1.9 billion, $2.1 billion for 2023. The majority of this income is associated with our employee benefits programs aligned with accounting disclosure requirements, rising interest rates, return on assets and program actions the team has implemented to derisk the plans have lowered our projected future benefit obligations. And based on current trends, we expect this benefit to continue through the next couple of years. We are comfortable with you modeling net interest expense between $250 million and $350 million. These figures include increased financing charges versus 2022 associated with the Abiomed acquisition. Finally, we are projecting an effective tax rate for 2023 in the range of 15.5% to 16.5% based on current tax laws and anticipated geographic income mix across our businesses. Considering all these factors, we are guiding adjusted earnings per share in the range of $10.40 to $10.60 on a constant currency basis, reflecting operational or constant currency growth of approximately 2.5% to 4.5% or 3.5% at the midpoint. While not predicting the impact of currency movements, assuming recent exchange rates I previously referenced, our reported adjusted operational earnings per share for the year would be favorably impacted by approximately $0.05 per share, resulting in adjusted reported earnings per share in a range of $10.45 to $10.65 or $10.55 at the midpoint, growth of 4% versus the prior year. While we do not provide guidance by segment or on a quarterly basis, I’d like to provide some qualitative considerations for your modeling. Some segment remarks, starting with Pharmaceuticals. We expect to again deliver above-market growth in 2023, driven by key assets such as DARZALEX, ERLEADA, TREMFYA, INVEGA SUSTENNA and UPTRAVI as well as continued uptake of recently launched products, such as CARVYKTI, SPRAVATO and TECVAYLI. This growth is despite lower Pharmaceutical market growth than experienced in recent years and considers the STELARA loss of exclusivity, which we anticipate occurring in late 2023 in the U.S. While we continue to expect volume growth for STELARA in the U.S. up to the LOE date, we expect this growth to be offset by pricing pressure. Further, we continue to expect a 2023 impact from other post-LOE products as well as potential increased austerity measures across Europe. In MedTech, we expect continued competitive growth fueled by market recovery and continued commercial uptake of recently launched products. We anticipate a relatively stable recovery in procedure volumes with health care staffing constraints remaining the most significant limitation on the pace of recovery. Specific to China, we anticipate continued pressure into 2023 related to the easing of the zero COVID policies as well as impacts from volume-based procurement. As we’ve said, we’re excited about the Abiomed acquisition, which accelerates our sales growth in 2023. In Consumer Health, we anticipate continued growth in line with the markets that we compete in. We also expect to continue to utilize strategic price increases across the portfolio to minimize the impact of ongoing inflationary pressures within the supply chain. Regarding quarterly phasing, it’s best summed up with a general theme that we expect the second half to be stronger than the first half and likely the second quarter is stronger than the first quarter. We are assuming the following to support these statements. In Pharmaceuticals, the first half of the year will be impacted by continued declines from LOE products in Europe that impacted Q4 2022 results, namely ZYTIGA and INVEGA SUSTENNA as well as continued pricing pressure. Also, we expect the ramp of new product launches will occur more prominently in the second half of the year. In MedTech, we expect second half operational sales growth to be higher than the first half of the year as we anticipate ongoing procedure recovery to improve as the year progresses. We also believe that some of the COVID impact felt in China in Q4 will carry over into early 2023. And similar to Pharmaceuticals, uptake of new product launches is assumed to be more pronounced in the second half. Given we are in the registration process, regulations limit what we can currently discuss around the planned Consumer Health Company. On the P&L, we also anticipate operating margin to be better in the second half than the first half. This is attributable to inventory built in 2022 at higher costs driven by inflation that will flow through the P&L in the first half of 2023 and a second half that accounts for cost leverage driven by mitigation efforts and higher sales reflected in the comments I just made. And finally, while we don’t speculate on future currency movements, utilizing the euro spot rate relative to the U.S. dollar as of last week at 1.08 as well as other currencies, foreign exchange would have a negative impact on our results in the first half of the year, but potentially a favorable impact in the second half. Turning to key events in 2023. As mentioned, we are limited in the information we can provide around the planned Consumer Health separation. We publicly filed a Form S-1 on January 4th with the Securities and Exchange Commission, giving us the option to pursue an initial public offering as a potential first step in the planned separation, and we have started to operate Kenvue as a company within a company. Consistent with our initial announcement in November of 2021, we continue to expect to complete the separation in 2023. And we expect that any interim steps, such as an IPO, would be consistent with that timing, subject to market conditions. We are estimating $1.8 billion to $2.1 billion in after-tax Kenvue standup costs, with $1.2 billion having already been incurred through the end of 2022. These estimates are in line with industry average for transactions such as this one, given Johnson & Johnson’s market cap. In terms of dissynergies to be incurred following the completion of the separation, we are estimating between $500 million and $750 million of annual after-tax impact. We are already executing on plans to address these dissynergies and expect to have them fully mitigated by the end of 2024. As we separate new Johnson & Johnson, we’ll also continue to reevaluate the level of ongoing financial information provided based on discussions with investors. While our financials will become simpler as we move from a three-segment company to a two-segment company, we will continue to look for ways to enhance our disclosures, such as providing quarterly R&D by segment and a patent expiry table in our Form 10-K. We also expect 2023 to be an important year of scientific innovations and readouts across our segments. In our Pharmaceutical business, some examples include the potential approval of Talquetamab, our GPRC5D CD3 bispecific antibody in relapsed/refractory multiple myeloma. Potential clinical data from CARTITUDE-4, a trial studying CARVYKTI, our BCMA CAR-T in patients with 1 to 3 lines of prior therapy. The potential for an interim analysis of the MARIPOSA study of RYBREVANT plus lazertinib in frontline non-small cell lung cancer with EGFR mutations versus Tagrisso as well as potential clinical data from the PAPILLON study in frontline non-small cell lung cancer in combination with chemotherapy. Early clinical data from the Phase 2 SunRISe-1 study of TAR-200, our drug eluting device in non-muscle invasive bladder cancer. Starting Phase 3 clinical program for milvexian, a Factor XI anticoagulant in partnership with Bristol-Myers Squibb. Potential Phase 2 clinical data from nipocalimab, our FcRn antagonist in rheumatoid arthritis and hemolytic disease of the fetus and newborn, potential Phase 3 clinical data from TREMFYA in Crohn’s disease and ulcerative colitis. And finally, TREMFYA, our IL-23 inhibitor, was recently added to the National Reimbursement Drug List in China, which will take effect later this year. In MedTech, we look forward to providing information on significant innovation programs across the business, including expansion of our digital solutions in orthopedics, our digital robotic solution, Ottava, our pulsed field ablation solutions for cardiac ablation and advancements in our pipeline and clinical studies for heart recovery associated with Abiomed. Overall, our approach to 2023 financial guidance should be viewed as responsibly cautious given the many external uncertainties. We are focused on delivering competitive growth for new Johnson & Johnson, while also completing a successful Consumer Health separation. We are confident that our current plans position us for long-term growth and value creation for shareholders. That concludes our prepared remarks. I am now pleased to open the line for your questions. Kevin, will you please provide the listeners with instructions if they’d like to ask a question?",Joe Wolk
JNJ,2022,4,Certainly. [Operator Instructions] Our first question today is coming from Terence Flynn from Morgan Stanley. Your line is now live.,Operator
JNJ,2022,4,"Great. Thanks so much. I appreciate the time this morning. Maybe a two-part question for me. I guess, Joe, first on the guidance, you mentioned it should be viewed as responsibly cautious. Just wondering any areas you’d call out in terms of conservatism as we think about the year? And then, on the pipeline side, obviously, myeloma -- sorry, excuse me, myeloma an important area for you guys. Just wondering if you can confirm the timing of the CARTITUDE-4 study and what you’re hoping to see from that readout? Thank you.",Terence Flynn
JNJ,2022,4,"Good morning, Terence. I’ll handle the first question, and then I’ll kick the question of CARTITUDE over to Joaquin. With respect to guidance, I would say, just given all the macroeconomic uncertainty, geopolitical uncertainty, we thought this was the right approach at this point in time to come out with guidance in the ranges that we did. I wouldn’t classify it as conservative per se. What I would say in terms of our outlook for the P&L, is that we’re assuming a lot of carryover, quite frankly, of the inflationary impact that we had in 2022. As you can imagine, the way the accounting would work, we built inventory at higher cost in 2022. That’s set on the balance sheet at year-end and will flow through mostly the first half of 2023. If there’s any element of conservatism, I would say, it probably resides in the fact that we’re not assuming any deflationary relief as we go throughout the year. So, we do think these costs will be at a higher level for some time. But as you saw with our fourth quarter results and really the outlook for 2023, we’re doing everything we can responsibly to prioritize our top investments for the long term as well as manage costs in the interim.",Joe Wolk
JNJ,2022,4,"Thank you. And with respect to CARTITUDE-4 and CARVYKTI, our multiple myeloma portfolio, Terence, is the most important driver of growth for our Pharmaceutical group moving forward. It’s about DARZALEX continued progression in first line; CARVYKTI, our best-in-class BCMA cell therapy; the recently approved TECVAYLI, our BCMA CD3 bispecific; and also, we are excited about the filing of Talquetamab, our GPRC5D CD3 bispecific. So all in all, this portfolio enables us to do something very significant, which is changing the treatment paradigm from treating to progression to treating to cure. And we’ll see these medicines being used in combination and in different sequences in order to achieve this treating to cure. Specifically, what you mentioned, CARTITUDE-4, which is the study that evaluates CARVYKTI in patients who have received one or three prior lines of therapy, it’s very important in achieving that goal. CARTITUDE-4 is an event-driven study, and we look forward to have some results of CARTITUDE-4 in 2023. We cannot give you the specific timing because it’s an event-driven study, and it will be very important in our ambition to move CARVYKTI into earlier lines of therapy.",Joaquin Duato
JNJ,2022,4,Thank you. Next question today is coming from David Risinger from SVB Securities. Your line is now live.,Operator
JNJ,2022,4,"Yes. Thanks very much. So, first of all, congratulations on the performance. I was hoping that you could please discuss the longer term prospects for the Pharmaceutical business. In the past, J&J has targeted $60 billion in Pharmaceutical revenue in 2025. I’m wondering if that’s still the target. And if so, what you believe consensus is under modeling because consensus is projecting sales below the $60 billion figure for 2025? Thank you.",David Risinger
JNJ,2022,4,"Thank you for the question. And turning to what you mentioned, our 2025 targets. We continue to work towards accomplishing our previously stated goals of on one hand, delivering growth every single year in our Pharmaceutical group through 2025 despite of the loss of exclusivity of STELARA, at the same time, continue to advance our differentiated pipeline and achieving $60 billion in revenue by 2025. So, we continue to work towards these goals. As we have discussed multiple times, the growth by 2025 is going to be driven mainly through the strength of our currently marketed portfolio as well as new indications of this marketed portfolio. Some examples, continuous growth of DARZALEX in first line, TREMFYA, which is gaining share, both in psoriatic arthritis and in psoriasis, and we expect a readout of our IBD studies in ulcerative colitis and Crohn’s in 2023 will provide a significant additional leg of growth for TREMFYA; ERLEADA, which is now in different indications in metastatic and non-metastatic prostate cancer will have some readouts of studies in high-risk localized prostate cancer in 2023, providing an additional leg of growth; our INVEGA SUSTENNA franchise in the U.S. as well as our pulmonary arterial hypertension franchise with UPTRAVI and OPSUMIT has been affected by COVID-19, but that we expect that will continue to deliver growth. So, that is the mainstay of our growth prospects towards 2025. And I will go later about the disconnect. Then connected with that, we are also excited about our new product launches, specifically growth of SPRAVATO, growth in CARVYKTI that I just mentioned before and also TECVAYLI, which we got the approval very recently; and as I commented, the filing of Talquetamab, everything in multiple myeloma. At the same time, we continue to make significant progress in some of the key products in our pipeline. A sample of them we commented that were opportunities of more than $5 billion. Example of them, milvexian, our oral anticoagulant, the combination of RYBREVANT plus lazertinib in non-small cell lung cancer, our TARIS platform in bladder cancer. And finally, nipocalimab in autoantibody-mediated diseases. So, those are the key drivers of our growth moving into 2025. If I think about the main disconnect between our forecast and the Street forecast, it’s our multiple myeloma portfolio. As I commented earlier, we see our multiple myeloma portfolio helping treat into cure rather than cannibalizing each other. And as a matter of fact, some of the studies that we have now in place show that ambition of combining our therapies. I mentioned CARTITUDE-4, moving CARVYKTI into earlier lines of therapy; TECVAYLI and Talquetamab, our two bispecific antibodies are being studied in combination with one another, and TECVAYLI or Talquetamab are also being a study in combination with DARZALEX. So, I see that as the major source of disconnect with the Street. Then further to that, I continue to see disconnects in SPRAVATO, our treatment for treatment-resistant depression; significant disconnects also in ERLEADA because of the indications in high-risk patients with localized prostate cancer that will read in 2023. We see a disconnect, as I commented in our pulmonary arterial hypertension franchise with UPTRAVI and OPSUMIT, which have been impacted by the pandemic, but we see strong growth moving forward. And then, finally, in the expectations for Xarelto loss of exclusivity, which we see that in the back half of this decade. So, those are elements that I have reflected as disconnect. So, as I said, we continue to drive towards our 2025 goal of $60 billion and posting growth every year. I think it’s a reflection of the strength of our current portfolio and how well we are executing in our pipeline.",Joaquin Duato
JNJ,2022,4,Thank you. Next question today is coming from Larry Biegelsen from Wells Fargo. Your line is now live.,Operator
JNJ,2022,4,"Good morning. Thanks for taking the question. Just a two-part one for me. Joe, can you provide a little more color on the cadence of operational sales growth in Pharma and devices? How much lower do you expect the first half to be versus the second half? And what are you assuming for market growth in each of the segments in ‘23? And Joaquin, just to follow up to David’s question there on the $60 billion, it implies a 6% CAGR between 2022 and 2025. How should we think about the ramp to $60 billion? 6% do you expect it to be more back-end loaded? Thanks for taking the questions.",Larry Biegelsen
JNJ,2022,4,"Good morning, Larry. So, let me start by -- as you know, we don’t provide guidance by quarter, but let me talk a little bit about market growth. With respect to MedTech, we anticipate pretty much what we typically see in any given year, 4% to 6%. As some of my earlier comments in the prepared remarks reflect, we anticipate that there will be a little bit of, I’ll call it, carryover from some of the COVID surges that we saw in the Asia Pacific region in the fourth quarter. But, other than that, a normal cadence of steady procedure recovery. The biggest challenge that hospital administrators are facing right now is really the staffing concern, but they’ve done a wonderful job in getting some sense of normalcy to that. With respect to Pharmaceuticals, again, we enjoyed our 11th consecutive year of above-market growth. We anticipate 2023 will be a 12th year, but it is off of a lower base. If you happen to see some of the IQVIA data from last week, they’re calling global and actually U.S. growth somewhere in that 2.5% to 4% range, depending on what region you’re looking at. So, while we will beat the market, we think it will be a lower number just by the dynamic of the market overall. And that’s kind of how we’re thinking of it. In terms of some of the cadence, maybe to elaborate on the comments that I had prepared earlier, we will see some of that generic erosion that we experienced in the fourth quarter in Europe with the long-acting injectables as well as ZYTIGA having a much more pronounced impact in the first and second quarter, bleeding over from the fourth quarter. And pricing measures likely will be consistent throughout the year. So hopefully, that helps give you a better sense of how we’re looking at it. But again, the general theme of second half stronger than first half and probably second quarter stronger than first quarter seems to hold intact based on top line as well as bottom line performance, given our expectations.",Joe Wolk
JNJ,2022,4,"Thank you. And regarding to your question, Larry, as we have discussed and commented, we see above market growth in 2023 for our Pharmaceutical group, which would be the 12th consecutive year of our market growth. And we continue to see positive growth in 2024 despite the loss of exclusivity in STELARA. And then we would see again pick up our growth above market in 2025. That’s the sequence that we will see. Certainly, the actual growth rate will be impacted by the FX and we don’t anticipate and we don’t project FX. And when we were establishing our $60 billion goal, we were thinking about the FX at the moment. We don’t change the $60 billion because we don’t know what the FX would be by 2025. But for purposes of you understanding how we see that, we see above market growth in 2023; we see positive growth in 2024; and then, we see a pickup of growth, a significant one, in 2025 above market.",Joaquin Duato
JNJ,2022,4,Thank you. Your next question today is coming from Chris Schott from JPMorgan. Your line is now live.,Operator
JNJ,2022,4,"Great. Thanks so much. Just one question and one quick clarification. I guess, on operating margins, and this is a question maybe beyond ‘23. I’m just trying to think through the balance of, I guess, on one hand, some of the inflation headwinds potentially decreasing as you work through some of this inventory, I guess balanced against the STELARA LOE and some of the dissynergies from the spin. So, I guess, as something kind of bigger picture about operating margins, is 2023 a decent proxy going forward, or could we see either modest erosion in margins or expansion, or is it too early to call? I’m just trying to get just some sense of how that plays out. And then my second question, which is just maybe a clarification on some of the immunology comments you made regarding 4Q. I think you mentioned unfavorable mix and rebate dynamics as headwinds. Should we expect those dynamics to continue in ‘23? And I guess, are they getting worse, or is this more just a continuation of what you’ve seen in the last few years that rebates are just kind of like gradually going up for that franchise as a whole? Thanks so much.",Chris Schott
JNJ,2022,4,"Great. Good morning, Chris. I’ll tackle the operating margin question, and then I’ll turn it over to Joaquin for some of the immunology references. So with respect to operating margin, I think, while we don’t give multiyear guidance, I think this year does portend to have a considerable achievement in terms of managing cost by the organization in addition to inflationary pressures. And again, that’s not combated with an assumption that we’ll see deflationary relief. We also have the dissynergies that come along with the consumer separation itself. As the comments indicated, we plan to address all of those, and we’ve already started in mid-2022 to mitigate some of those. They’ll be fully mitigated by 2024. So, I would think just looking out now qualitatively, ‘23 and ‘24 may look similar because you’ve got some different dynamics playing out, and we’ll certainly have to see how inflation plays out over the course of this year. And then, getting back on a more normal cadence, I would say, you would expect from Johnson & Johnson, you know that we like to grow income a little bit faster than sales growth. And you do that by improving your margin profile. We have $60 billion of resources in a given year. So, we’ve got a responsibility, we think, to continue looking at our prioritization, and our processes and technology to make sure that we are being not only as effective as we can be but also as efficient as we can be.",Joe Wolk
JNJ,2022,4,"Thank you. And Chris, regarding the dynamics in the immunology market, overall, what we see is that the patient mix is changing, putting more pressure in our overall net price by having a higher participation of some channels, we are lower priced. We see those situations continuing into 2023, but not getting worse. Simply the situation that we are now will continue into 2023, but will stabilize from where we are.",Joaquin Duato
JNJ,2022,4,Thank you. Our next question is coming from Matt Miksic from Barclays. Your line is now live.,Operator
JNJ,2022,4,"Hi. Thanks so much for taking the question. So, I had just one on -- a follow-up on guidance. Joe, if you could talk a little bit about following up on some of the conservatism and maybe the bright spots, the China assumptions that you’ve made for procedure disruption and maybe VBP, if you could give us a sense of how long into ‘23, you expect that to go? And then what you assume for the STELARA LOE? And then, on this sort of conservative side on the bright spot, I think you just kind of covered, I guess, the ortho trends. I understand you aim at this mid-single-digit range for performance, but you had a very, very strong back half in the U.S. And I’m just wondering does that kind of strength in ortho and the spine, for example, which is kind of well above sort of historical ranges. Does that kind of continue into ‘23, or are we assuming that we went into in some comp challenges there, or how -- what sort of elements are contemplated in your guidance, that would be helpful?",Matt Miksic
JNJ,2022,4,"Sure. Good morning, Matt. First of all, I guess let me follow up to Terence’s question with respect to how he positioned, conservatism. I probably did miss an opportunity to speak about some of the things that maybe could go better on our behalf. And some of that could be a quicker rebound in China, whether that be in both MedTech or Pharmaceuticals. Right now, we’re assuming there is some carryover effect from the COVID surges we saw in the fourth quarter. The teams on the ground seem to indicate that it’s still persistent, but if that rebounded a little bit quicker. I think also looking at the multiple myeloma portfolio, and the performance of CARVYKTI or TECVAYLI could be significant and opportunities or pockets for upside. We’re obviously excited by the Abiomed acquisition and what that could possibly mean. And bringing the capabilities of Johnson & Johnson, both in terms of scale and reach, presents some opportunity that maybe isn’t in the current projections. So, there are some opportunities for outperformance. Right now, we like where the number is at with respect to that. China and VBP specifically, I would say that is a dynamic that’s not really a new phenomenon for us. We had won a number of tenders at the end of 2021 that were persistent throughout 2022, and we continue to win tenders. And we think over time that the volume and the opportunity to help many more patients will be persistent with that. So, we are -- it’s part of the guidance that we see today that we’ve offered today, but it’s not really much more pronounced in terms of the impact it has on the business versus what we’ve experienced already.",Joe Wolk
JNJ,2022,4,Thank you. Next question today is coming from Trung Huynh from Credit Suisse. Your line is now live.,Operator
JNJ,2022,4,"Trung Huynh from Credit Suisse. Just a question on STELARA erosion expectations. So, I was hoping you can give us some thoughts about the cadence of biosimilar products that are going to be coming along this year. None are approved yet. But, can we expect the first company to enter with exclusivity for six months, something we’ve seen with HUMIRA, and then the rest coming in 2’4? Or should we expect all the players to come at once? So, any color on this patent answer would be helpful. Thanks.",Trung Huynh
JNJ,2022,4,"Thank you for the question. And it’s difficult for us to comment on some of your topics there. There’s no approved biosimilars at this time, and we are going to continue to monitor the situation. As we have commented, we expect the erosion curve of STELARA to be likely steeper than that of REMICADE, given the evolution of the biosimilar market and the fact that STELARA is a self-administered product, as well as potentially to your point, potentially interchangeability in the label. So, that’s how we see the STELARA loss of exclusivity. In 2023, when we think about the STELARA in the U.S., we see the sales of STELARA flat to declining, obviously, given the price pressures. That will be offset also by continuous volume growth that we see in STELARA. So, that’s the perspective that we have for STELARA in 2023. Overall, we have a very strong immunology franchise. I commented on TREMFYA before, the continuous progression in psoriasis, psoriatic arthritis, the readout of our ulcerative colitis and Crohn’s disease studies, which is exciting. And also, in 2023, we may have some data from our Phase 2 study of our oral IL-23, which we think it’s a very exciting underappreciated opportunity in our pipeline, too.",Joaquin Duato
JNJ,2022,4,Thank you. Next question today is coming from Chris Shibutani from Goldman Sachs. Your line is now live.,Operator
JNJ,2022,4,"Thank you very much. The multiple myeloma franchise, obviously, very central to your objective for 2025. Between the CAR-T sort of gradual launch that you have based upon supply and the bispecifics, can you talk about what that interplay has been since the approval and launch, and what you’re expecting through the year in 2023? Thank you.",Chris Shibutani
JNJ,2022,4,"As far as the demand for CARVYKTI, we see very strong demand for CARVYKTI and also for TECVAYLI. There’s a significant need for new therapies in this relapsed/refractory patient population. So, the demand for the products, the physicians and patient adoption has been really strong. So, that is really encouraging and pertains the unmet medical need for these types of patients. With CARVYKTI, we continue to scale our production capacity and expand our network of providers, and we are doing that in a phased approach. With TECVAYLI, we are off to a successful start and the early indications for this of the self-option are very, very positive, too, connected with the high unmet medical need that we see there. Moving into 2023, key elements of that would be, from a data perspective, the reading CARTITUDE-4, which would give us the opportunity to move CARVYKTI into earlier lines of therapy. Also the filing of Talquetamab, which will give us another line of therapy, because some of the studies of Talquetamab are done in patients who have failed BCMA, either cell therapy or bispecifics, and the continuous data that we’ll continue to provide to guide how to use this incredible portfolio in multiple myeloma.",Joaquin Duato
JNJ,2022,4,"Sorry. Sorry, Kevin. We have time for one last question.",Jessica Moore
JNJ,2022,4,Perfect. Our final question today is coming from Louise Chen from Cantor Fitzgerald. Your line is live now.,Operator
JNJ,2022,4,"Hi. Thank you for taking my question here. So I wanted to ask you about the timing of data readouts first half or second half and your expectations for a few products. First one is nipocalimab and rheumatoid arthritis. And then, your oral IL-23 I saw that a trial was finished and what your next steps are here and when you might have some data? And then lastly, just on your RYBREVANT and lazertinib, are you still expecting a potential interim readout for lung cancer here? Thank you.",Louise Chen
JNJ,2022,4,"So, regarding the main data readouts that you could expect in 2023, I mean, I commented already on CARTITUDE-4, which is a key one for us. Again, this is an event-driven study, so it’s difficult for us to give you exact timing, Louise. Importantly, we have the potential for an interim analysis on the Mariposa study, which is the study of RYBREVANT plus lazertinib in frontline non-small cell lung cancer with EGFR mutations in this study versus Tagrisso. And this is an important study for us. And also, we have the potential clinical data from the PAPILLON study, which is in frontline non-small cell lung cancer in combination with chemotherapy. So, those are important ones in non-small cell lung cancer. And then, staying in oncology, we also have the data for the -- from the Phase 2 SunRISe-1 study of our TAR-200 platform, our drug-eluting device in non-muscle invasive bladder cancer. And we continue to work on our high-risk localized prostate cancer with ERLEADA. So, that’s key elements in our oncology side. As far as nipocalimab, we are expecting data from our Phase 3 studies in RA, in rheumatoid arthritis, which I know has created significant attention from you and also in hemolytic disease of the fetus and the newborn. It will be towards the later part of the year. That’s when you can expect those data to come up. And then, keeping with important date targets next year, we’ll also have the data reads in our 2 IBD studies, ulcerative colitis and Crohn’s disease with TREMFYA. Finally, important progress in our pipeline is that we will be starting our Phase 3 clinical program with milvexian, our Factor XI anticoagulant with our partners at Bristol-Myers Squibb. So, I would say, a very important year for us in terms of data read. That will also include our Phase 2 study of our oral IL-23. It’s difficult for us to give you an exact time line, but we fully expect that to happen in 2023. So, many important data reads for us that will showcase the good execution that we’re having in our pipeline.",Joaquin Duato
JNJ,2022,4,"Thank you, Louise, and thanks to everyone for your questions and your continued interest in our company. We apologize to those that we couldn’t get to because of time, but don’t hesitate to reach out to the Investor Relations team with any questions that you may have. I would now like to turn it over to Joaquin for some brief closing remarks.",Jessica Moore
JNJ,2022,4,"So thank you, everyone, for your questions and interest in Johnson & Johnson. While we have highlighted some of the challenges that we have in the macro environment, we think that 2023 is going to be another exciting year for innovation, for patients. And you can rely on us on delivering strong financial performance for both, the near and the long term. Thank you very much.",Joaquin Duato
JNJ,2022,4,This concludes today’s Johnson & Johnson’s fourth quarter 2022 earnings conference call. You may now disconnect.,Operator
JNJ,2023,2,"Good morning, and welcome to Johnson & Johnson's Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the conference. This call is being recorded. [Operator Instructions] I will now turn the conference call over to Johnson & Johnson. You may begin.",Operator
JNJ,2023,2,"Good morning. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. Welcome to our company's review of the 2023 second quarter business results and full-year financial outlook. Joining me on today's call are Joaquin Duato, Chairman of the Board and Chief Executive Officer; Joe Wolk, Executive Vice President, Chief Financial Officer; and Erik Haas, Worldwide Vice President of Litigation. A few logistics before we get into the details. As a reminder, you can find additional materials, including today's presentation and associated schedules on the Investor Relations section of the Johnson & Johnson website at investor.jnj.com. Please note that today's meeting contains forward-looking statements regarding among other things, the company's future operating and financial performance, product development, market position and business strategy, and the anticipated separation of the company's consumer health business. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of today's date and are subject to certain risks and uncertainties that may cause the company’s actual results to differ materially from those projected. A description of these risks, uncertainties, and other factors can be found in our SEC filings including our 2022 Form 10-K, which is available at investor.j&j.com and on the SEC website. Additionally, several of the products and compounds discussed today are being developed in collaboration with strategic partners or license from other companies. This slide acknowledges those relationships. Moving to today's agenda. Joaquin will open with a few comments highlighting business performance achievements in the quarter and outlook for the remainder of the year. I will then review the second quarter sales and P&L results for the corporation and highlights related to the three segments. Joe will then provide additional business and financial commentary before sharing an overview of our cash position, capital allocation priorities, and updated guidance for 2023. Finally, Erik will provide comments regarding the talc litigation. The remaining time will be available for your questions. To ensure we provide enough time to address your questions, we anticipate the webcast will last approximately 75 minutes. I am now pleased to turn the call over to Joaquin.",Jessica Moore
JNJ,2023,2,"Thank you, Jess, and good morning, everyone. This was a strong quarter for Johnson & Johnson with market leading performance, important advances across our innovative pharmaceutical, our MedTech pipelines and a successful initial public offering of Kenvue. We delivered solid sales and earnings growth for the second quarter of 2023, reporting operational sales of 7.5% and adjusted operational EPS growth of 9.7%. These strong results contributed to our confidence in raising our expectations for this year. You may have seen this morning the announcement that we intend to split off Kenvue shares through an exchange offer as the next step in the separation of Kenvue. Joe will provide additional information later in the call. We're excited about entering a new era for Johnson & Johnson one built around science, innovation and technology and strategically focused on pharmaceutical and MedTech, while maintaining our position as the world's largest, most diversified healthcare products company with 25 platforms over $1 billion in annual sales. And on today's call, I would like to share recent highlights and achievements from across the business that have contributed to our year-to-date results, as well as upcoming catalysts that give me great confidence in our near and long-term future performance. Starting with MedTech, for the second quarter of 2023, we generated 14.7% operational and 9.9% adjusted operational growth, which excludes the impact of the Abiomed acquisition. On a pro forma basis using sales publicly reported by Abiomed prior to our acquisition, MedTech grew 10.2%. These strong results continue to show that our efforts to improve the growth of the MedTech business are working. Q2 highlights in Electrophysiology include the publication of clinical data supporting the safety and effectiveness of QDOT, our newest Ablation Catheter for Atrial Fibrillation. In fact, this study demonstrated a clinical success rate of 86%, as well as achieving shorter procedure and fluoroscopy times than ablation with conventional catheters. I'm also happy to share that this month, we completed enrollment in the third clinical study evaluating our pulsed field ablation solutions. The SmartfiRE study evaluates our dual energy catheter, which enables physicians to instantly switch energy source whether radio frequency or pulsed field based on patient needs. The Abiomed integration continued to deliver against planned milestones and is on track across all areas and regions with no disruption to commercial activities or pipeline progression. Second quarter sales of $331 million, compared to Abiomed's public reported sales in the same period last year as a standalone company reflects approximately 20% growth. We also continue to see strong enrollment in the ongoing pivotal clinical trials, which aim to expand the use of our products into new patient populations. We anticipate that heart recovery will become a significant multiyear growth platform for Johnson & Johnson. In orthopedics, the VELYS robotic assisted solution is poised for further acceleration, having recently received CE and CA Mark international approvals. In Surgery, we are pleased with our progression on Ottava, our next generation soft tissue surgical robotic system, and we look forward to providing an investor update later in the year. In Vision, we recently launched products such as ACUVUE OASYS MAX and TECNIS Eyhance and we are performing very well across both contact lenses and surgical vision. Now turning to pharmaceuticals. In the second quarter of the year, we delivered above market operational growth of 6.2%, excluding the COVID-19 vaccine. Of note, our multiple myeloma portfolio has grown more than 30% year-on-year, which includes the acceleration of our newly launched products CARVYKTI and TECVAYLI. These new launches along with SPRAVATO are performing very well and are expected to be important contributors to achieving our 2025 sales target. We also achieved important regulatory and operational milestones, including multiple readouts from our pipeline. A few things I’m particularly excited by include: first, the receipt of fast track designation from the U.S. FDA for all three prospective indications for Milvexian, our Factor XI oral anticoagulant in partnership with Bristol Myers Squibb, which has the potential to treat a broader set of patients such as those who currently have limited therapeutic options, due to bleeding risk. Second, the recent submission of a supplemental BLA for CARVYKTI to the FDA and European Commission supported by data from the CARTITUDE-4 study, seeking approval for a new earlier indication in treating relapsed or refractory multiple myeloma. Third, the presentation of initial TAR-200 data from the SunRISe-1 study in bladder cancer at the American Urological Association meeting. And finally, we announced positive top line results from the Phase 3 PAPILLON study evaluating RYBREVANT in combination with chemotherapy in patients with newly diagnosed lung cancer with Exon 20 Insertion Mutations. This is the first of several ongoing pivotal Phase 3 studies to read out for RYBREVANT based regimens in EGFR mutated lung cancer. In addition, I want to highlight the Phase 2 study data that we presented earlier this month at the World Congress of Dermatology for JNJ-2113, our Novel Oral IL23 Receptor Antagonist Peptide in Psoriasis. The finding suggests that JNJ-2113 has broad potential across the spectrum of IL23 mediated diseases, including inflammatory bowel disease. We are already advancing into Phase 3 in moderate to severe plaque psoriasis and initiating a Phase 2b in ulcerative colitis and will continue to assess additional opportunities. We are very excited about the potential of this asset and believe it represents $1 billion plus commercial opportunity. We also continue to defend the intellectual property associated with our medicines, including STELARA. In fact, we have reached settlements regarding our STELARA IP with both Amgen and Alvotech. We expect Amgen to launch in the U.S. on January 1, 2025 and Alvotech to launch in the U.S. on February 21, 2025. In all, our pharmaceutical business delivered very strong results. Our pipeline is progressing well and we continue to be confident in meeting our 2025 sales target of $57 billion. We are excited to enter the back half of the year from a position of strength, and we have high expectations as we evolve to a two sector Johnson & Johnson with a higher growth profile. I am now pleased to turn the call over to Jess to review our financial results in more detail. Jess?",Joaquin Duato
JNJ,2023,2,"Thanks, Joaquin. As a reminder on May 8, 2023, Kenvue, Inc., closed its initial public offering. Johnson & Johnson continues to own 89.6% of total outstanding shares of Kenvue’s common stock and remains the majority shareholder. Therefore, the following financial results continue to include the consumer health business with the 10.4% of consumer health's net earnings no longer attributed to Johnson & Johnson being adjusted for in other income and expense from the date of the IPO through the end of the quarter. Starting with Q2 2023 sales results. Worldwide sales were $25.5 billion for the second quarter of 2023, an increase of 6.3% versus the second quarter of 2022. Operational sales growth, which excludes the effect of translational currency, increased 7.5%, as currency had a negative impact of 1.2 points. In the U.S., sales increased 10.2%. In regions outside the U.S., our reported growth was 2.2%. Operational sales growth outside the U.S. was 4.7% with currency negatively impacting our reported OUS results by 2.5 points. Operational sales in Europe were negatively impacted by the COVID-19 vaccine and loss of exclusivity of ZYTIGA. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth with 6.2% worldwide, 8% in the U.S. and 4.4% outside the U.S. Turning now to earnings. For the quarter, net earnings were $5.1 billion and diluted earnings per share was $1.96 versus diluted earnings per share of $1.80 a year ago. Excluding after tax intangible asset amortization expense and special items for both periods, adjusted net earnings for the quarter were $7.4 billion and adjusted diluted earnings per share was $2.80, representing increases of 6.5% and 8.1%, respectively, compared to the second quarter of 2022. On an operational basis, adjusted diluted earnings per share increased 9.7%. I will now comment on business segment sales performance highlights. Unless otherwise stated, percentages quoted represent the operational sales change in comparison to the second quarter of 2022, and therefore, exclude the impact of currency translation. Beginning with the Pharmaceuticals segment. Worldwide Pharmaceutical sales of $13.7 billion increased 3.1%, with growth of 9.2% in the U.S. and a decline of 4% outside the U.S. Operational sales growth increased 3.8% as currency had a negative impact of 0.7 points. Excluding COVID-19 vaccine sales, Worldwide operational sales growth was 6.2% with growth of 9.9% in the U.S. and growth of 1.5% outside the U.S. Sales outside the U.S., excluding the COVID-19 vaccine, were negatively impacted by approximately 500 basis points, due to the loss of exclusivity of ZYTIGA in Europe. Pharmaceutical growth was driven by our key brands and continued uptake in our recently launched products with nine assets delivering double-digit growth. We continue to drive strong sales growth for both DARZALEX and ERLEADA with increases of 23.4% and 26.9%, respectively. STELARA grew 8%, driven by market growth and IBD share gains in the U.S., partially offset by unfavorable patient mix and increased rebates. TREMFYA grew 18.9%, driven by market growth and share gains in the U.S., partially offset by unfavorable patient mix. Growth of 16.5% in pulmonary hypertension was driven by favorable patient mix, share gains in the U.S. and market growth. Turning to newly launched products. We continue to make progress on our launch of CARVYKTI and continue to expand access and reimbursement for SPRAVATO. We are also encouraged by the early success of our launch of TECVAYLI, sales of which are included in other oncology. Total pharmaceutical sales growth was partially offset by the loss of exclusivity in REMICADE and ZYTIGA, along with a decrease in IMBRUVICA sales due to competitive pressures. IMBRUVICA maintains its market leadership position worldwide. I will now turn your attention to the MedTech segment. Worldwide MedTech sales of $7.8 billion increased 12.9% with growth of 14.6% in the U.S. and 11.3% outside of the U.S. Operational sales growth increased 14.7% as currency had a negative impact of 1.8 points. Abiomed contributed 4.8% to operational growth. Excluding the impact of acquisitions and divestitures, worldwide adjusted operational sales growth was 9.9%. Sales in the second quarter accelerated sequentially from Q1 for all MedTech businesses driven by global procedure growth, recovery in China, continued uptake of recently launched products and commercial execution, partially offsetting growth in the quarter was the impact of volume based procurement in China, as well as supply constraints. The Interventional Solutions franchise delivered operational growth of 56.9%, which includes $331 million related to Abiomed. Electrophysiology is a major contributor to the growth with a double-digit increase of 25.9%. This reflects strong growth in all regions, including Europe, driven by our comprehensive portfolio, including the most recently launched QDOT RS catheter. Orthopedics operational growth of 5.7%, reflects strong procedure recovery, success of recently launched products, such as the enhanced shorter portfolio, as well as global expansion of our digital solutions, such as VELYS Robotic assisted solution. Growth was partially offset by the impact of volume-based procurement in China and continued supply challenges primarily in hips. Operational growth of 8.4% and surgery was driven primarily by procedure recovery and strength of our biosurgery and wound closure portfolios. Growth was partially offset by the impacts of volume-based procurement in China and supply challenges. Global growth of 6.9% in vision was driven by price actions and contact lenses and other, as well as strength of new products, including ACUVUE OASYS 1-Day family of products and contact lenses and TECNIS Eyhance our monofocal intraocular lens and surgical vision. Growth of contact lenses was partially offset by strategic portfolio choices and supply challenges. Although these continue to improve. Moving to the Consumer Health segment. Worldwide Consumer Health sales of $4 billion increased 5.4% with growth of 6% in the U.S. and 5% outside the U.S. Operational sales growth increased 7.7% as currency had a negative impact of 2.3 points. Sales in the second quarter accelerated sequentially from Q1 for all consumer health franchises, primarily driven by strategic price increases and growth in OTC globally, due to strong pain performance, and cold, cough and flu season. Excluding the impact of strategic portfolio decisions and sales of personal care products in Russia, volume across all consumer franchises was relatively flat on strong price actions. For more detailed information, please visit investors.kenvue.com. Now turning to our consolidated statement of earnings for second quarter of 2023, I'd like to highlight a few noteworthy items that have changed compared to the same quarter of last year. Cost of products sold leveraged by 80 basis points, primarily driven by favorable patient mix and lower COVID-19 vaccine supply network related costs in the pharmaceutical business, partially offset by commodity inflation in the consumer and MedTech businesses. Selling, marketing and administrative margins deleveraged 20 basis points, driven by incremental costs to support the standalone consumer health business, partially offset by proactive management of costs. We continue to invest strategically in research and development at competitive levels, investing 15% of sales this quarter. The $3.8 billion invested was a 3.4% increase versus the prior year. The other income and expense line was income of $60 million in the second quarter of 2023, compared to an expense of $273 million in the second quarter of 2022. This was primarily driven by favorable litigation settlements, lower litigation expense, and lower unrealized losses on securities, partially offset by higher COVID-19 vaccine manufacturing exit related cost. And as previously mentioned, the 10.4% of consumer health earnings that are no longer attributable to Johnson & Johnson, which resulted in a $37 million reduction in consolidated earnings. Regarding taxes in the quarter, our effective tax rate was 23.9% versus 17.6% in the same period last year. This increase was primarily driven by 2023 tax cost incurred as part of the planned separation of the consumer health business, due to the internal reorganization of certain international subsidiaries. Excluding special items the effective tax rate was 16.6% versus 15.4% in the same period last year. I encourage you to review our upcoming second quarter 10-Q filing for additional details on specific tax matters. Lastly, I'll direct your attention to the box section of the slide, where we have also provided our income before tax, net earnings and earnings per share adjusted to exclude the impact of intangible amortization expense and special items. Now let's look at adjusted income before tax by segment. In the second quarter of 2023, our adjusted income before tax for the enterprise as a percentage of sales increased from 34% to 34.6%, primarily driven by favorable product and patient mix, partially offset by unfavorable segment mix and commodity inflation. Pharmaceutical margins improved from 42% to 42.7%, primarily driven by favorable patient mix, sales, marketing and administrative expense leverage, and R&D portfolio prioritization, partially offset by higher milestone payments. MedTech margins improved from 26.5% to 28.6%, driven by favorable intellectual property related litigation settlements and cost management initiatives, partially offset by commodity inflation. Finally, consumer health margins declined from 25.9% to 23.5%, due to incremental costs to support the standalone consumer health business, foreign exchange impacts, and commodity inflation, partially offset by supply chain efficiencies. It is important to highlight that the adjusted income before tax for the consumer health business as reported by Johnson & Johnson defers from the financial results reported by Kenvue Inc. this morning. The difference is primarily driven by incremental costs required to run Kenvue as an independent company. Additional differences also exist on an after tax basis, due to the application of different tax rates. This concludes the sales and earnings portion of the Johnson & Johnson second quarter results. I'm now pleased to turn the call over to Joe Wolk. Joe?",Jessica Moore
JNJ,2023,2,"Thank you, Jessica, and thanks, everyone, for joining us today. As previously shared, we reported particularly strong results across all segments for the second quarter and the first-half of 2023. During the second quarter, adjusted operational sales growth by pharmaceuticals excluding COVID-19 revenue accelerated 6.2% over the first quarter of 2023. Similarly, on a sequential basis, MedTech operational sales increased to 4.5% over an already strong first quarter. During the first-half of the year we executed against our long-term business strategy and achieved key clinical and regulatory milestones. These advancements provide a strong foundation for long-term growth and are a testament to the hard work and dedication of our talented colleagues around the world. We also made considerable progress toward the separation of Kenvue. On May 8th, as partial consideration for the transfer of the Consumer Health business, Kenvue paid $13.2 billion to Johnson & Johnson from the net proceeds of the initial public offering and debt financing transactions in connection with the separation. Today, we were pleased to announce an update on our next step toward the separation of Kenvue, subject to market conditions, our intention is to split off Kenvue shares through an exchange offer as our next step in the separation. As part of the proposed exchange offer, Johnson & Johnson's shareholders will have the choice to exchange all some or none of their shares of Johnson & Johnson common stock for shares of Kenvue common stock subject to the terms of an offer. We believe a split off is the most advantageous form of separation for Johnson & Johnson, Kenvue and our shareholders, specifically an exchange offer provides Johnson & Johnson the potential opportunity to acquire a large number of outstanding shares of Johnson & Johnson common stock at one time in a tax free manner for U.S. federal income tax purposes without reducing overall cash or future financial flexibility. Further, following the completion of the exchange offer, Kenvue would most likely have a shareholder base that would have made the election to own its shares. The exact timing of our decision to launch an exchange offer will, as stated earlier, depend on market conditions, but the launch of the tender could occur as early as the coming days. Offer terms for the exchange inclusive of applicable discounts, as well as the duration of the exchange tender period would be set upon launch. We understand that you may have questions on this process. At this point, there are no additional details about the contemplated split off to share, but we are committed to providing timely updates as appropriate. Let's now turn to cash and capital allocation. We ended the second quarter with approximately $29 billion of cash and marketable securities and approximately $46 billion of debt for a net debt position of $17 billion, inclusive of approximately $7 billion of 10 Kenvue net debt. Free cash flow through the second quarter was approximately $5.4 billion, compared to $8.1 billion in the prior year. The second quarter reflects elevated tax payments of approximately $2 billion related to TCJA and past audit related matters. Our capital allocation priorities remain unchanged with continued investment in our business being the highest priority to drive new and better solutions for patients, followed by dividends, increasing on an annual basis, adding strategic opportunities for inorganic growth, and share repurchases when attractive. Our R&D investment in the first-half of 2023 was $7.4 billion or approximately 15% of sales. This includes external investments such as our recently announced partnership with Cellular Biomedicine Group on two next generation CAR-Ts for the treatment of B-cell malignancies further broadening our cell therapy portfolio. In April, we announced our 61st consecutive year of dividend increases and in combination with the completion of our $5 billion share repurchase program authorized by the Board in September of 2022, and completed earlier this year, we returned $8.5 billion to shareholders in the first-half of 2023. Let's discuss our outlook for the balance of 2023. Before I get into the specifics of guidance, in light of the potential Kenvue split off transaction I will remind you that our updated full-year guidance today continues to include results from the Consumer Health Business given Johnson & Johnson remains the majority shareholder of Kenvue. I suspect you already know this, but it would not be accurate to subtract any guidance provided separately by Kenvue from total Johnson & Johnson guidance and assume that the resulting total reflects guidance for the new Johnson & Johnson. When Johnson & Johnson is no longer the majority shareholder of Kenvue, we will provide timely updated new Johnson & Johnson guidance that will reflect among other things the removal of Consumer Health's current contribution to Johnson & Johnson's performance, as well as any updates to Johnson & Johnson's outstanding share count. So with that context, moving on to our full-year guidance. Based on the strong results delivered in the quarter, like we did in April, we are again raising full-year operational sales and EPS guidance, despite some strategic items not accretive to EPS as detailed on this schedule. Specifically the lost income related to the approximate 10% non-controlling interest in Kenvue and the acquired in process research and development cost related to our investment in Cellular Biomedicine Group. We now expect operational sales growth for the full-year 2023 to be in the range of 7% to 8% or up $1.4 billion in the range of $99.3 billion to $100.3 billion on a constant currency basis and adjusted operational sales growth in the range of 6% to 7%. As you know, we don't speculate on future currency movements. Last quarter, we noted that we utilized the Euro spot rate relative to the U.S. dollar at $1.10. The Euro spot rate as of mid-last week remains at $1.10. However, the U.S. dollar has strengthened versus other select currencies such as the Won and the Yen. As such, we now estimate a negative impact of foreign currency translation of approximately 500 basis points resulting in estimated reported sales growth between 6.5% to 7.5%, compared to 2022 with a midpoint of $99.3 billion. Regarding other lines on the P&L, we now anticipate a slight improvement to our adjusted pretax operating margin driven by expense management. We have reduced our other income estimate to be in the range of $1.6 billion to $1.8 billion, primarily related to the company’s 10.4% non-controlling interest in Kenvue. Regarding interest income and expense, we now anticipate a reduction of net interest expense to the range of a $150 million to $250 million, due to interest income on the net proceeds linked to the Kenvue separation. And finally, based on current tax law, we are maintaining our effective tax rate estimate in the range of 15.5% to 16.5%. These changes result in us increasing our adjusted operational earnings per share guidance by $0.10 per share to a range of $10.60 to $10.70 or $10.65 at the midpoint on a constant currency basis. Constant currency growth of 5% at the midpoint. While not predicting the impact of currency movements, assuming recent exchange rates I previously referenced our reported adjusted earnings per share for the year assumes no additional foreign exchange impact. As such, our reported adjusted earnings per share for the year increases by $0.10 per share to a range of $10.70 to $10.80 or $10.75 at the midpoint, reflecting growth of 6% at the midpoint. While we do not provide guidance by segment or on a quarterly basis, let me offer some qualitative considerations to support your modeling. In MedTech, we continue to anticipate stable procedure volumes and healthcare staffing levels in the back half of the year with normal seasonality. We expect continued competitive performance attributable to commercial execution recently launched products and improvement in supply. Headwinds from volume based procurement in China, as well as potential impacts from international sanctions in Russia are expected to be higher in the second-half than the first-half of the year. In Pharmaceuticals, we continue to expect to deliver our 12th consecutive year of above market growth in 2023, driven by key assets and continued uptake of our newly launched products. We expect continued strong growth in the back half of the year slightly higher than the first-half. When modeling consumer health growth rates in 2023, it's important to take into consideration prior year comparisons with lapping price increases in the back half of the year. Given the strong momentum in our pharmaceutical business and the upcoming clinical milestones mentioned earlier we remain very confident in our ability to meet our 2025 pharmaceutical sales target of $57 billion. Looking ahead, we have many important catalysts for the remainder of the year that can drive meaningful near and long-term value. Beyond the separation, in the near-term, we are continuing to drive performance in MedTech with better commercial execution and recently launched innovative products being a significant factor in driving the continued higher growth trajectory across the MedTech business. Many of the solutions mentioned are early in their commercialization, which means there are still significant opportunity ahead. For example, in electrophysiology we are excited to begin the commercialization of the QDOT MICRO Catheter in the U.S. during the second-half of this year. In Orthopaedics, the VELYS robotic assisted solution, recently received regulatory approvals in Europe, and we plan to launch it in key European countries by the end of this year. And in Vision, we are seeing the benefits of our recently launched innovations such as ACUVUE OASYS 1-Day multifocal, which is driving Johnson & Johnson's market share growth in the large and growing presbyopia market. We look forward to continued growth from this and other recent Vision launches. Related to our pharmaceutical business, we are excited about upcoming advancements in our pipeline with a number of important regulatory and clinical milestones for our key future assets, including on the regulatory front there is expected approval of [daratumumab] (ph) in relapsed or refractory multiple myeloma. Clinically, we expect a Phase 3 data for TREMFYA for Crohn's disease and ulcerative colitis. The results of the MARIPOSA study of RYBREVANT plus lazertinib in front line non-small cell lung cancer with the opportunity to potentially present that data at an upcoming major medical meeting. Phase 1 data for TAR-210 in non-muscle invasive bladder cancer, and Phase 2 data for Nipocalimab in rheumatoid arthritis. A couple of other items to highlight. In case you missed them, we recently published our Health For Humanity report our U.S. Pharmaceutical pricing transparency report and our U.S. patent table, all of which can be found on our website. Also, a reminder that we will be hosting an enterprise business review featuring both Pharmaceutical and MedTech at the New York Stock Exchange on December 5th. I'll conclude my prepared remarks by reiterating that we have had a strong first-half of the year both financially and operationally and we expect to continue to build upon that momentum in the second-half of this year. With that, I will now turn the call over to Erik Haas.",Joe Wolk
JNJ,2023,2,"Thank you, Joe. On Tuesday, July 18th in the case of Valadez v Johnson & Johnson, a jury in Alameda County, California ruled in favor of the plaintiff on this talc product liability claims. We intend to pursue an appeal based on the erroneous rulings by the trial judge that prevented us from sharing with the jury critical facts that demonstrate that plaintiff's exceedingly rare form of mesothelioma was not caused by baby powder. Without the benefit of that evidence, the jury rendered a verdict that is irreconcilable with a decades of independent scientific evaluations confirming Johnson's baby powder is safe, does not contain asbestos and does not cause cancer. The research, clinical evidence in over 40-years of studies by independent medical experts around the world continue to support the safety of our cosmetic talc. The verdict award will not be paid, while the bankruptcy proceeding continues, and this decision has absolutely no impact on that process, which has the support of lawyers representing the majority of claimants. We remain focused on all claimants having the opportunity to vote and decide for themselves on a -- our plan to compensate them in a timely and efficient manner. Looking ahead with respect to the bankruptcy re-filing by LTL, the bankruptcy judge is expected to rule by August 2nd the motion to dismiss hearing that took place in the last week of June. In addition, a hearing on the motion for LTL's proposed, reorganization plan and voting procedures process, and the path forward is scheduled for August 22nd. As we previously stated, Johnson & Johnson stands by its physician that is talcum powder products are safe as confirmed through decades of numerous independent scientific tests and studies. I would now like to hand the call back over to Jess.",Erik Haas
JNJ,2023,2,"Thanks, Erik. This concludes the prepared remarks section of our call. I will now turn the discussion over to the Q&A portion of the call. Kevin, can you please provide instructions for those wishing to ask a question.",Jessica Moore
JNJ,2023,2,[Operator Instructions] Our first question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.,Operator
JNJ,2023,2,"Good morning. Thanks for taking the question and congratulations on another strong quarter here. For Erik, if Judge Kaplan dismisses the bankruptcy proposal, what's the backup settlement in mind that would proceed outside of bankruptcy that could ring fence the cost? And Joe or Joaquin, in MedTech, how are you thinking about the sustainability of the first half strength where you grew 8% organic? Do you still expect the MedTech market to grow 5% to 7% this year with J&J in that range, it seems conservative? Thanks for taking the question.",Larry Biegelsen
JNJ,2023,2,"Larry, hi it's Erik. Thanks for the question. If Judge Kaplan dismisses the bankruptcy, we will be back in the tort system, and in that scenario we intend to fight the claims aggressively. And indeed, based upon the indicated decades of scientific support for the safety of our talc products, the fact that our talc products do not contain asbestos and the fact that our talc products do not cause cancer, we feel very confident in our ability to continue to prevail in the vast majority of claims as we have done in the past in the tort system.",Erik Haas
JNJ,2023,2,"Thank you, Larry, and thank you for complimenting us on the results on the first quarter and also on the MedTech ones. When it comes to the MedTech results, the growth in the first-half of the year was north of 8%. So this is a continuation of the sustained improvement in our performance that we have had in the last couple of years in which we have grown at or above our competitive composite. When we think about the dynamics that are driving our growth, which are multiple. One is the recovery in the overall market procedures, which is helping our improved commercial execution and very especially the cadence and flow of new product launches that we are having in the market. We see our trajectory in MedTech in the first-half of the year continuing in the second-half of the year. So we expect a similar trajectory for MedTech in the second-half of the year.",Joaquin Duato
JNJ,2023,2,"Yes, Larry, maybe I might just add to Joaquin's comments. The only thing that is limiting the growth, I would say, in the back half of the year is China volume-based pricing, as well as some international sanctions in Russia, but those are already incorporated into our outlook for the balance of 2023. So we feel we have those well in hand. If there's a little bit of abatement on either of those fronts, it portends well for the future.",Joe Wolk
JNJ,2023,2,Thank you. Our next question is coming from Vamil Divan from Guggenheim Securities. Your line is now live.,Operator
JNJ,2023,2,"Great. Thank you so much for taking my questions. So maybe just one on the guidance commentary. So appreciate what you said around the Kenvue and Cellular Biomedicine dynamics. But I'm curious about STELARA, because you have the two settlements now. I don't think there's any chance for having a biosimilar enter this year. And I think before, you had expected that. So I'm curious what your expectations are now in terms of biosimilar entry before Amgen? And how does that impact sort of your guidance expectation for this year, and if you want to comment on sort of next year or sort of how it might impact 2025 with the $57 billion there? And then one also, other one if I could just on MARIPOSA, we've been getting a lot of questions just sort of what's changed there? I know before, the study is supposed to end next year. We obviously heard about the interim on your last earnings call. But then in the last few weeks, it sounds like there's a chance we'll get the data sooner this year than you may be able to present it. So kind of what's changed from April to now to give you a sense that the data may come a little bit earlier and give you a chance to present it this year? Thank you.",Vamil Divan
JNJ,2023,2,"Thanks for the questions, Vamil. I'll start with STELARA and then see if Erik can add anything from a legal perspective, and then we'll hand it over to Joaquin for your question on the MARIPOSA study. With respect to STELARA this year, there won't be a significant impact. As you can imagine, most of that business was contracted for the full-year about this time last year. So there really wasn't any material impact. And our current assumption based on some of the agreements you read about similar to what we've said previously is that we wouldn't expect anything before January 1, 2025. I don't know, Erik, from a legal perspective, anything to add?",Joe Wolk
JNJ,2023,2,"Yes. Thanks, Joe. From a litigation perspective, I could say that no other biosimilar is better positioned in our view than Amgen or Alvotech would be. So we would not anticipate any other biosimilar having the opportunity or ability to enter the market before those two.",Erik Haas
JNJ,2023,2,"Thank you. And with respect to MARIPOSA, nothing has changed. We -- this is an event-driven study with a final analysis expected as we said by the end of 2023 with a potential to be presented at a major medical meeting in 2023. We remain excited about the potential of RYBREVANT in combination with lazertinib to become a new standard-of-care in first-line non-small cell lung cancer with EGFR mutations. And we are looking forward to be able to present these results in due time in a medical meeting potentially this year.",Joaquin Duato
JNJ,2023,2,Thank you. Next question today is coming from Joanne Wuensch from Citibank. Your line is now live.,Operator
JNJ,2023,2,"Good morning and thank you for taking the questions. I'm trying to think about two things as I look forward to, given the strength in the first half of the year in MedTech, does this create, in your opinion, a new base from which we grow from? Or are we going to be writing about difficult comps next year? And second of all, with Kenvue's splitoff by within days or by the end of this year, I anticipate, how do we think about different investments in the MedTech and Pharmaceutical franchises either through pure R&D internally or externally? Thank you.",Joanne Wuensch
JNJ,2023,2,"So as I commented in the earlier question, we are pleased with the strength of our MedTech business in the first-half of the year with 8% growth. We -- this is driven by market growth, which we believe it's also slightly elevated this year due to the clearing of the COVID-19 backlog. And at the same time, as I commented to our improved commercial execution and the introduction of new products. Of note, of our $12 billion platforms in MedTech, all of them have grown during the first-half of the year. And we are being quite successful in introducing some important new products in all segments of our business. For example, if I start with electrophysiology, that grew north of 25% in the quarter. We have introduced a new mapping catheter OCTARAY and also a new treatment catheter QDOT, which, as you know, Joanne, we presented results about QDOT. So we increased efficacy and procedure efficiency, too. If we move into Vision, we are in the middle of the launch of ACUVUE OASYS MAX, which is doing well and also the launch of our TECNIS Eyhance, the first mono-focal intraocular lens, which is progressing also very well. Moving into Orthopaedics. The good news is that we have received CE Mark and CA Mark for our Robotic-Assisted System VELYS. And we continue to have an enhanced portfolio of knees and hips with our Cementless knees, the Medial Stabilized and in the area of hips with hip navigation and the recent addition of CUPTIMIZE and we see our market position there also progressing. And moving forward, we will continue to see good evolution also in Orthopaedics. Finally, in Surgery, we continue to enhance our endocutter and our energy portfolio with the launch of ENSEAL jaw curved and also with the launch of ECHELON 3000 in the stapler side. So overall, good reception of our new products. That portend well for a continuation of growth, as I said before, in the second half of the year. And we look forward also to the different readouts of our PFA pipeline, which as we have announced, we have completed the enrollment of our dual energy catheter, which is going to be offering the physicians the comfort of a catheter that is the most well used with the option of having both radio frequency and PFA to adapt to every patient anatomy. And then on the robotic side, we will provide you more updates on our progress on OTTAVA, our soft tissue robotics system, before the end of the year as we committed. And we have also good news on our Monarch system that has already started with the first patient treated in removal of kidney stone. So overall, good progress during the year. Clearly, our MedTech business is doing well, delivering competitive growth. And we have good news in innovation as the year moves forward.",Joaquin Duato
JNJ,2023,2,"And Joanne, with respect to your second question and completing the Consumer Health separation, our capital allocation priorities aren't changing. So we're going to continue to invest organically in our own pipeline. You saw that we pretty much have kept our percent to sales, which is -- leads across industries as a top 10 investor in R&D on an annual basis. We prioritize that. We realize that, that is underpinning our future success. As we have demonstrated, the dividends and the share repurchases that we've done this year has already returned a significant amount back to shareholders. And then we'll always be on the hunt for real good strategic opportunities that fit with either the clinical or science expertise we have or commercial capabilities that we can offer that drive more value out of a potential asset in our hands than where it currently resides. So we are looking feverishly as we always do across both MedTech and Pharm.",Joe Wolk
JNJ,2023,2,Thank you. Next question is coming from Chris Schott from JPMorgan. Your line is now live.,Operator
JNJ,2023,2,"Great. Thanks so much for the questions. Just the first one is, would love just some additional views on the $57 billion pharma target by 2025. It seems like between the pipeline progress we've seen this year and the STELARA settlements, you've had some clear positive updates over the past few months. And I'm just wondering, just level of confidence in that target, and has that increased as we've gone through this year? And then my second question was just for Erik on talc. Is there any update in terms of the number of plaintiffs where you have an agreement on the settlement terms relative to where we stood with the comments in April? And just where you stand right now relative to that 75% threshold you ultimately need? Thanks so much.",Chris Schott
JNJ,2023,2,"Thank you, Chris. And let me start with your first question. We have always been confident on the fact that we will reach our $57 billion target by 2025 as we announced back in 2021. And certainly, what we are seeing now increases and reinforces and enhances our confidence. On one hand, you're seeing the progression of our pharmaceutical portfolio and our existing products with excellent results in DARZALEX, TREMFYA and ERLEADA, also in our pulmonary hypertension franchise and in our long-acting injectable antipsychotic franchise, which are key products in this period. We are very pleased with the trajectory of our new product launches, including CARVYKTI, TECVAYLI and SPRAVATO. If I focus on CARVYKTI, you see a clear improvement quarter-over-quarter in CARVYKTI, which reflects improvements in supply. In TECVAYLI, you see also a clear improvement of note. When we look at the TECVAYLI launch, align data with DARZALEX in the addressable patient population. TECVAYLI it’s having a faster introduction. And finally, SPRAVATO, which is doing well. And now we see SPRAVATO as a $1 billion plus product, and you're seeing the results this quarter also reaching close to $170 million. If we look at our pipeline and the products of the pipeline that are going to impacting this period, we are expecting the PDUFA date of talquetamab, our GPRC5D CD3 bispecific antibody, which is going to give another option in the treatment of multiple myeloma. And we continue to progress and execute well in some of the key products in our pipeline. I commented on RYBREVANT and the combination of Lazertinib, as you know. We received fast track destination for the three key indications of milvexian, our Factor XI oral anticoagulant that we are working in collaboration with Bristol-Myers Squibb. We presented very positive data about TAR-200 in non-muscle invasive bladder cancer in meeting in the American Urological Association. And we also -- when it comes to CARVYKTI, we were very pleased to show the data on CARTITUDE-4. We are filing the BLA now, both in Europe and in the U.S. And we are expecting to show you some data on nipocalimab in rheumatoid arthritis. We also have already presented in hemolytic disease of the features of the new wall. So in every angle of the products that we highlighted as the core products of our pipeline, we are executing well. Plus we recently presented in the World Congress of Dermatology our data in our oral IL-23 receptor antagonist peptide, which show great efficacy in psoriasis. And we have announced plans to continue developing into psoriasis and also a Phase 2 study in ulcerative colitis. So overall, when I look at the picture for 2025, we have increased confidence based on our portfolio, in our new product launches and how we are executing on our pipeline. But now I would like to look even beyond ‘25 if you allow me, Chris, because 2025 is very close. It's only three years from now. So what I think is what you are seeing with this renewal of our portfolio is a very strong position for Johnson & Johnson in Pharmaceuticals beyond 2025. And that's something that we need to highlight, and I think it's important for everybody to recognize. This is going to put us in a great position beyond 2025.",Joaquin Duato
JNJ,2023,2,"Turning to the question with respect to the number of claimants. Good and important question. The most recent update comes from the hearing on the motions to dismiss that finished on June 30th. And I would refer you to the post-trial findings of fact and conclusions in law that were filed last night that really detailed the evidentiary record that was elicited during the hearing. Based upon that testimony that was elicited and the evidence that went in, we are now looking at approximately 60,000 claimants in support or lawyers who represent 60,000 claimants in support of the plan and lawyers who represent about 40,000 claimants in opposition. So the numbers right now show that the vast majority of claimants support the proposed plan. Based upon the testimony during that hearing from the lawyers that support those claimants, we are confident that, that support will not waver. And we do anticipate that additional support will be coming forward.",Erik Haas
JNJ,2023,2,Thank you. Our next question is coming from Trung Huynh from Credit Suisse. Your line is now live.,Operator
JNJ,2023,2,"Oh, hi. Thanks for the questions. Just two if I may. So just on -- thanks for your thoughts on the talc outcome. Should we just expect any more similar suits like the one in Alameda in the near future? And then secondly, do you know just a clarification on MARIPOSA if another interim passed for MARIPOSA? Thanks very much.",Trung Huynh
JNJ,2023,2,"So let me start with the MARIPOSA. No, I mean, we are -- as we communicated, we are moving into a final analysis by the end of the year, potentially presenting the data at the end of the year.",Joaquin Duato
JNJ,2023,2,"And with respect to the talc suits, we don't anticipate additional individual actions to go up for it outside the bankruptcy. Judge Kaplan lifted the stay only with respect to that one particular case, the Valdez case. Indeed, subsequent to that, he denied a request from the same counsel to lift the stay on another case. So currently, I would not anticipate any other case to go forward in advance of a ruling on the motion to dismiss.",Erik Haas
JNJ,2023,2,Thank you. Next question is coming from Terence Flynn from Morgan Stanley. Your line is now live.,Operator
JNJ,2023,2,"Great. Congrats on the quarter. Thanks for all the color. I had two, I was wondering, Joaquin, we've talked a lot about the myeloma market evolution over the last decade or so. J&J has been a leader there. This is a $20 billion market. You obviously have a number of different options now for patients, including TECVAYLI most recently and talquetamab with upcoming PDUFA date. So I guess my question is just top down, what prevents you from capturing a majority share of that $20 billion market? And then, Joe, a question for you on margins post Kenvue. Any early idea you can give us in terms of how that structure could evolve post the full separation?",Terence Flynn
JNJ,2023,2,"Yes. So thank you for the question. And the answer is nothing prevents us from doing that. As a matter of fact, our aspiration in myeloma is that with the portfolio that we have today with DARZALEX, TECVAYLI, talquetamab and CARVYKTI, we would be in a position to have three out of every four patients starting in Janssen containing regimen by the end of this decade. So that's our aspiration in myeloma. Our aspiration is that there is a Janssen regimen for every line of therapy and a Janssen treatment for every patient irrespective of their characteristics. And that's the way we are planning our development. Certainly, DARZALEX being a backbone of therapy, first line and also in combination with multiple agents and then sequencing into CARVYKTI and talquetamab and TECVAYLI, which we are studying in combination with DARZALEX and also in combination among each other and sequencing among them. So ultimately, our goal when it comes to multiple myeloma is to be able to sequence our medicines, combine them in a way that we are changing the treatment paradigm from treating to progression to treating to cure. And that is a big, big, big plus in our portfolio. And as I have commented often, multiple myeloma is the core of our Pharmaceutical franchise and the number one growth driver that is going to be for 2025 and beyond. There's more factors that give us optimism about the business potential of this area is that as we combine and as we seek those treatments, the treatment duration itself is going to be significantly increased. So we overall foresee great patient and growth opportunity as we look to combine all these modalities, as I said, in order to be able to convert multiple myeloma into a chronic disease.",Joaquin Duato
JNJ,2023,2,"And Terence, thanks for the question regarding margins. And specifically, I think you're getting at the heart of the potential deleverage that could occur with the separation once Kenvue is on its own entirely. You may recall a couple of quarters ago on one of these calls, we said that there was potentially $500 million to $750 million of deleverage in SG&A. We embarked on an initiative, and I guess the benchmarks would suggest companies usually take about two to three years to get those costs out of their system. Last summer, we really embarked on a project to eliminate those costs in a much faster cadence. And I would say of that $500 million to $750 million, there's a small fraction that may remain, and we're still working to eliminate that. So you should expect as you're modeling no deleveraging or very, very little deleveraging from the Kenvue separation.",Joe Wolk
JNJ,2023,2,Thank you. Next question today is coming from Danielle Antalffy from UBS. Your line is now live.,Operator
JNJ,2023,2,"Good morning, everyone. Thank you so much for taking a question. Just a follow-up on some of the capital allocation commentary. Joe, I appreciate what you're saying that things haven't changed. But I'm just curious now that you guys have integrated Abiomed, you're seeing some success there, how your appetite for specifically within medical devices and MedTech, how your appetite for potentially larger deals may have changed? And are there any specific areas you would call out within cardiology now that you do have Abiomed or just with -- throughout medical devices as areas of interest or where you feel underscaled and you might benefit from building out there? Thanks so much.",Danielle Antalffy
JNJ,2023,2,"Yes. Good to speak with you Danielle. And I know you directed the question to me, and I'll answer with one word. I would say our appetite is pretty voracious at this point. But I'll leave it to Joaquin with respect to the size of the deals. I don't think it -- unequivocally doesn't change, whether it's big or small, it has to be a really good strategic fit utilizing the expertise and capabilities that we have and has to provide financial value. Joaquin, maybe you want to comment on any specific areas that [Indiscernible]?",Joe Wolk
JNJ,2023,2,"Yes. Thank you, Danielle. And before I go there, let me say that the Abiomed integration is progressing really well. The growth of Abiomed, it's been 20% on the quarter and we continue to move forward with the enrollment in the key PMA studies, PROTECT and STEMI DTU as well as the Impella ECP. So everything is moving well according to plan in the Abiomed integration. And we are increasingly convinced that this is going to be a key component of our MedTech strategy in becoming a leader in heart recovery. So when it comes to M&A, look, we continue to look for opportunities. And our number one criteria in looking for opportunities is the medical innovation, how they improve patient care, how do we see the science behind the product. So we are agnostic in that sense to MedTech and Pharmaceuticals. It's all about identifying areas that are going to have a significant impact in patient care. When it comes to MedTech, certainly, as we have commented, we are continuing to look forward for opportunities to grow into areas that are close to where we are today. Vision, cardiovascular obviously, surgery too and also opportunities in certain high-growth segments of Orthopaedics. And we normally will continue to look for these opportunities, trying to have a good return on capital, as well as things that are close to our existing expertise. When it comes to Pharma, our history in tuck-ins, in license and collaboration has been very successful. As a matter of fact, external innovation represents about 50% of our pipeline. And while we will continue to look for opportunities like we have done now with Cellular Biomedicines and the agreement that we have too in CAR-T, we are not averse to other transactions of larger size. Evidently both in MedTech and in pharma, we are very disciplined with our capital allocation. And all our transactions will have to clear certain financial milestones for us to be able to move on. But M&A and also licensing acquisition collaborations remains a key factor in our growth moving forward.",Joaquin Duato
JNJ,2023,2,Thanks. We have time for one more question.,Jessica Moore
JNJ,2023,2,Thank you. Our final question today is coming from Louise Chen from Cantor Fitzgerald. Your line is now live.,Operator
JNJ,2023,2,"Hi, congratulations on the quarter. And thank you for taking my questions here. So I wanted to ask you where your latest thoughts on IRA are and the potential impact to the drug industry and also to J&J? And second question was just on CARVYKTI. Just curious how you expect to enter into earlier lines of treatment and then more widely into the community? Thank you.",Louise Chen
JNJ,2023,2,"Yes. So let me start with the IRA. Obviously, we remain very concerned about the government price-setting environment that the IRA creates, which we believe creates a significant disincentive to innovation without addressing the core problem, which is patient access. So it is a significant concern for us. And that's one of the reasons, as we commented earlier, that we have filed a lawsuit versus the IRA. So that's important for us. Then when it comes to the actual business impact, I think it's still early to be able to calculate it, given the fact that many of the rules and procedures are still in flux. So it would be too much to be able to try to anticipate that. In our case, when we look at Johnson & Johnson, relatively speaking towards the industry based on our diversification between MedTech and Pharma and also the diversification of our Pharma portfolio, we feel that we are well positioned competitively to continue to grow way beyond the second-half of this decade. So we remain concerned. But at the same time, we think we are prepared to be able to manage successfully any situation coming from that relative to other industry players. The second question was about CARVYKTI. As I commented earlier, we are working to improve CARVYKTI supply, which is very important. You've seen that improvement in our sales in the second quarter. We are working in different ways. One is we are increasing capacity. We have internalized the production of lentivirus now. And also, we are in the process of increasing the number of slots internally. And also, we have reached agreements with other companies like Novartis to continue to increase capacity. So we are going to be in the trajectory of increasing capacity gradually in order to be able to eventually meet the demand that exists in CARVYKTI. As far as reaching to other patient populations, the CARVYKTI 4, it's already been filed. And it's moving CARVYKTI into earlier lines of therapy, and we are also working in first line with CARVYKTI 5 and CARVYKTI -- excuse me, with CARTITUDE-5 and CARTITUDE-6. So we are clearly intending to move CARVYKTI through CARTITUDE-4, CARTITUDE-5, and CARTITUDE-6 into earlier lines of therapy. And we are increasingly convinced of the potential of CARVYKTI to be one of our more than $5 billion assets that we announced back in 2021.",Joaquin Duato
JNJ,2023,2,"Thank you, Louise, and thanks to everyone for your questions and your continued interest in our company. We apologize to those we couldn't get to because of time, but don't hesitate to reach out to the Investor Relations team with any questions you may have. I will now turn the call back over to Joaquin for some brief closing remarks.",Jessica Moore
JNJ,2023,2,"Thank you, Jess, and thank you to all of you for joining this call today. I'm extremely proud of the performance that we have achieved in the first-half of 2023. We are entering the back half of the year from a position of strength with numerous catalysts, including the fact that we are going to be a two-sector company focused on Pharmaceutical and MedTech recent development and innovation. We look forward to having future engagements with you to update you on our continued progress. Thank you very much, and enjoy the rest of your day.",Joaquin Duato
JNJ,2023,2,Thank you. This concludes today's Johnson & Johnson second quarter 2023 earnings conference call. You may now disconnect.,Operator
MGM,2022,4,"Good afternoon, and welcome to the MGM Resorts International Fourth Quarter and Full Year 2022 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer and Treasurer; Hubert Wang, President and Chief Operating Officer of MGM China; and Andrew Chapman, Director of Investor Relations. [Operator Instructions] Please note, this conference is being recorded. Now I would like to turn the call over to Andrew Chapman. Please go ahead.",Operator
MGM,2022,4,"Good afternoon, and welcome to the MGM Resorts International fourth quarter and full year 2022 earnings call. This call is being broadcast live on the internet at investors.mgmresorts.com. We've also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle.",Andrew Chapman
MGM,2022,4,"Thank you, Andrew, and thank you all for joining us today. I'm proud to announce that MGM Resorts International drove record fourth quarter adjusted property EBITDAR for Las Vegas and regional resorts. What's more, our full year Las Vegas Strip adjusted property EBITDAR increased by more than 80% year-over-year. These outstanding results are evidence of our focus on optimizing growth in our business and operations as well as our strategic vision of becoming the world's premier gaming entertainment company. These outcomes are also a testament to our employees who will go above and beyond every day to take care of our guests and create an amazing, great experiences, which drive loyalty among our customers. Our employees are true heroes of this story, and we need to be celebrated. I couldn't be proud of them for delivering these financial results alongside the steady improving guest and record employee satisfaction scores we are enjoying. As we look forward, we expect many of the drivers for our 2022 performance to continue into 2023. Importantly, we are well positioned on weathering a variety of environments, given the inherent long-term benefits of MGM's diverse portfolio. In fact, we have the most diverse offerings in the gaming space. And as such, we are a well-balanced organization that benefits from both scale and a host of premier brand offerings. This distinction -- the distinct pieces of our business that creates this diversification are number one, our number of nine Las Vegas Strip and eight regional domestic properties in the U.S. that cater to all market segments and produced consistently strong profitability; two, our two integrated resorts in Macau, the pre-pandemic generated EBITDAR of over $700 million and are just now beginning to see a very real return to profitability; three, our digital strategy with 50% ownership of BetMGM, one of the leading U.S. digital sports betting and gaming operators. BetMGM is the leader in what is financially the most important segment in the nation, iGaming, and is making overall progress towards its profitability. And our ownership of LeoVegas, which we're using to grow our digital business internationally and extend both MGM's brand and content reach. And ultimately, our balance sheet, allowing significant flexibility to invest in areas with the highest return on capital including New York, Japan, further expanding our digital footprint via LeoVegas and other substantive international opportunities we're pursuing in that space as well as funding and continued share repurchases. In fact, as you know, we have just announced that our Board approved another $2 billion repurchase program. Looking ahead, we see multiple opportunities for growth and momentum in our business, coupling these opportunities with a relentless focus on free cash flow per share, our operating model, our margin control and disciplined expense management, which we believe gives us a great confidence that our best days are ahead of us. Let me walk through the business case for '23, starting with our U.S. properties. First, we are encouraged by the early success of The Cosmopolitan of Las Vegas as we migrate the business into MGM Resorts infrastructure. On an annualized basis, we have double-digit growth in revenue and EBITDAR compared to the reported 12-month period prior to the acquisition. We are already beginning to produce cross-property play with hundreds of high-end players from The Cosmopolitan database attending MGM Resorts customer events and driving millions and win at our other sister properties. This is a trend that we saw continued for the Lunar New Year celebration at our properties in Las Vegas, and we expect to expand to the mass market as we integrate MGM Rewards into The Cosmopolitan system. Next, we have a strong event calendar in Las Vegas. CES has a 115,000 attendees last month, up from 45,000 in 2022. CONEXPO and CON/AGG next month is setting up to be the best ever. And March Madness, Sweet Sixteen and the Elite 8 games are coming to Las Vegas. Together, the calendar in March is positioned to have us have the best hotel revenue month, we believe, in our history. Additionally, Formula 1 is expected to bring $1 billion in economic value to the city, which we believe we are the best positioned to take advantage of. Las Vegas also has Allegiant Stadium, which has brought 40 events and over 1.5 million visitors to Las Vegas in 2022 and is expected to bring even more visitors, even higher quality events in 2023, driving significant spend, particularly at our South end properties. Another tailwind is the ongoing growth in visitation. The LVCVA expects domestic flight growth capacity to reach 120% of 2019 in the first quarter of 2023, and international recover further with 80% of 2019 available seats. Harry Reid Airport hosted a record 52.6 million passengers in 2022. Outside of our domestic business, we also see tremendous opportunities for growth. Starting with China, fully stated Macau is back. As you well know, COVID restrictions impacted our Macau operations in 2022, causing an operational loss that negatively impacted our overall results. But we are experiencing a rebound in 2023 as our guests are returning in force just that they did in Las Vegas when restrictions were lifted here. In fact, quarter-to-date, we are excited to report that MGM China's combined properties are the highest earning businesses within our company. As part of the concession renewal process, we committed to bring nongaming entertainment events to Macau. Those events were strong drivers to visitation to our property during the Lunar New Year and at the end of January. We see these early results as validation and our confidence in Macau markets recovery and the long-term viability upon which we are retendering commitments were built. And unique to MGM China, we have secured 200 additional tables as part of our new gaming concession, which combined with our premier mass positioning, should allow us to drive market share into low to mid-teens. In fact, during the month of January, our market share was 16%, which compares to high single-digit market shares pre-pandemic. This outstanding performance was driven by the MGM Chinese team, strategic focus delivering full gaming floor renovation, a complete hotel product mix for our targeted customers various marketing efforts in producing strong nongaming events, shows and promotions plus our team's improvement in service levels and operational efficiencies. These collective efforts position us for a long-term growth story in Macau. We've also reason to be optimistic about the growth prospects of our business well into the remainder of this decade, especially in light of the two new gaming licenses that we hope to receive in the near future. We expect to submit our RFA in New York in the first half of this year, and we hope for response in the near future. One advantage we have over the competition in this market is our ability to add tables to our existing casino floor and thus incremental tax revenue for the state almost instantly once approved for license. We expect to spend about two bed in New York inclusive of the license fee. We will fine-tune our program and planning. But right now, we're expecting extensive property improvements such as a significant entertainment offering, new food and beverage opportunities, covered parking and an overall increase in the casino floor space. As you may recall, we also submitted our RFP in Japan for an integrated resort license to operate in Osaka approximately 10 months ago. Unfortunately, I'm still waiting for the response from the government, but we are being patient and believe we will hear so soon. MGM Resorts has presented a compelling offer with our partner, ORIX, to develop an integrated resort, which will develop international tourism and growth to that region. We're extremely excited for the ROI opportunity in a market in which we may be the sole operator for some time in the future. Each of the projects I just mentioned are expected to generate returns well above our current free cash flow yield. These are all future capital investment decisions, we weighed upon that same standard. In closing, 2022 was a phenomenal year for MGM Resorts, and we're confident we will see progress into 2023 and beyond.  With that, I'll turn this over to Jon for more color on the fourth quarter and the year.",Bill Hornbuckle
MGM,2022,4,"Thanks very much, Bill. Before I dig into the financial results, let me also thank my colleagues here at MGM Resorts for an outstanding quarter and a truly amazing year. I'll now share with you some of the exceptional financial results that we achieved. Las Vegas Strip same-store revenues, and so that's excluding The Cosmopolitan and The Mirage, grew 11% and adjusted property EBITDAR grew 6% in the fourth quarter compared with last year. Fourth quarter occupancy of 91% was up 500 basis points year-over-year and ADR was $260 in the fourth quarter, which grew 30% over last year. Several volume metrics for us set records as well as our Las Vegas slot handle set its seventh consecutive quarterly record in the fourth quarter. Demand in Las Vegas remains strong across all segments, driven by our exceptional entertainment offerings and other customer demand drivers. The strength continued into January, where occupancy was 90% and rooms booked during the month were on record pace with rates up double digits to last year. In the regions, fourth quarter revenues grew 10% and adjusted property EBITDAR grew 3% year-over-year. While EBITDAR was down 1% versus the third quarter, this sequential decline is in line with normal seasonality for the fourth quarter. Importantly, labor expense as a percentage of revenues was flat sequentially and our current headcount remains approximately 20% below 2019 levels, all while we achieved historic highs in NPS and other indicative customer satisfaction. In the fourth quarter, corporate expense, excluding stock compensation, was $113 million, which includes $5 million related to MGM China, global development costs of $6 million and transaction costs of $2 million. Going forward, we expect corporate expense for the full year 2023 to be approximately $380 million to $400 million, a decrease of approximately $30 million to $50 million from 2022. Included in MGM's corporate expense this year is $44 million for MGM China and approximately $37 million in anticipated development expense related to Japan and New York. We intend to invest approximately $800 million in domestic CapEx in 2023, and this compares to the $727 million in CapEx invested in 2022. Maintenance capital will be approximately $600 million of this spend this year. And this year, it includes room remodels in the Bellagio Spa Tower, Borgata's Water Club and the completion of our New York-New York room renovation. Since 2019, we've reduced the average age of our room since renovation by roughly 3.5 years, and our room age will continue to decrease over the coming years as we refresh our room offerings. The remaining CapEx in 2023 is growth capital, projects that include the Mandalay Bay Convention Center remodel, a new pedestrian bridge connecting The Cosmopolitan to Vdara and investments in technology to drive better customer experience, ease and engagement. Finally, on the development front, we expect to contribute $70 million -- $75 million to BetMGM in 2023 and the only material investment in New York this year will be the $500 million license fee, depending upon the timing of the license awards. I'll conclude with just a few comments on our strategy for capital allocation. First and foremost, we'll maintain a strong balance sheet by sustaining adequate liquidity for our enterprise. And as you can see in the presentation that we posted today, we concluded 2022 with $5.3 billion of domestic cash against domestic debt of $4.5 billion. Our resources this year were bolstered by the disposition of The Mirage in December for $850 million in net cash proceeds after tax. Next week, we expect to close on the sale of the Gold Strike in Tunica, which will be in $350 million in net proceeds after tax. Next, we'll prioritize capital investment to deliver the highest return for our shareholders. Our acquisition of The Cosmopolitan of Las Vegas expanded our reach into the high end of the Las Vegas market. Our acquisition of LeoVegas jump-started our international iGaming strategy. Our new President of Interactive, Gary Fritz and his team are evaluating a number of opportunities in this area, and our shareholders should expect that we'll be deploying more capital to grow the MGM brand internationally in iGaming and in digital content development. And finally, we're going to return capital to shareholders. During 2022, we repurchased 76 million shares for $2.8 billion. Since the beginning of 2021 through yesterday, we've repurchased $124 million for a total of $4.7 billion and have reduced our share count to 375 million shares. And we're not done. As Bill mentioned, our Board of Directors yesterday approved an additional $2 billion share repurchase program. In evaluating our share repurchase strategy, I consider a number of factors, including the liquidity profile of the company as well as the development and M&A opportunities that are before us. But I also consider the free cash flow yield available in our own shares.  So as I conclude, consider the following: adjusted property EBITDAR from Las Vegas last year was approximately $3.1 billion and from our regional operations was $1.3 billion. From that, we had adjusted domestic corporate expense of $400 million and cash rent of $1.7 billion on an annualized basis. Consolidated cash interest was $574 million, but that includes $205 million related to MGM China. And cash taxes and domestic CapEx totaled about $750 million. But our company also has significant reservoirs of value that did not contribute cash earnings in 2022. This includes excess cash of over $2.5 billion; our ownership position in MGM China, which yesterday had an approximate value of $2.6 billion; and of course, our stake in BetMGM. It's a lot of numbers, but when taking all of this into account, I see a double-digit yield opportunity in our shares, which is why I see share repurchases as a responsible and accretive use of our capital. Bill, back to you.",Jonathan Halkyard
MGM,2022,4,"Thanks, Jonathan. I hope the comments that -- you've conveyed the excitement that we all have towards our business this year and ultimately beyond. In all my time with the company, I've never been more excited about our present and future as I am right now. I think we're stronger, more agile, more focused and more determined than ever to win. And with that, we're happy to take your questions.",Bill Hornbuckle
MGM,2022,4,[Operator Instructions] And our first question will come from Joe Greff from JPMorgan. Our next question then will be from Shaun Kelley from Bank of America.,Operator
MGM,2022,4,"Thank you for all the detail and color. So a lot of different places we could start, but I want to start with a high-level, strategic one. Jonathan, you ended on walking through a really robust liquidity position, still a lot of cash on the balance sheet that's either collecting interest at a better yield than before, but not a huge yield. So the question we get all the time remains kind of that ownership interest in upping the stake in maybe one of those areas that you discussed, BetMGM being the big one. And obviously, we know there's a partner there, but if you could give us your latest thoughts around the strategic value there and how you fold that in with your comments around maybe a more organic or stand-alone international online expansion?",Shaun Kelley
MGM,2022,4,"Thanks, Shaun, for the question. And I'll just step in and kind of give the first part of it because I think it's time to be definitive and give a little direction. The simple answer on Entain is no, we've moved on. While we remain highly focused on BetMGM's business through our partnership with Entain and making sure that, that business continues to grow, we see great potential in LeoVegas expansion capabilities. I've said before, we like their technology platform and their leadership team. We're also interested in the content studio business, we think there's a real play there. We've seen that proven effective with brand when we combine great product in our brands at BetMGM. And over time, we like the live dealer business and the expansion of other global markets and frankly, and directly under our own purview. So for now, the answer is no, not within Entain. We're going to go down our own direction, and we begin to allocate capital. We think Gary Fritz has got the right motive, the right drive and the right person to help us lead this forward. We value the relationship with Entain. We value BetMGM. But as it comes to rest of the world, we're going to move forward with a different proposition.",Bill Hornbuckle
MGM,2022,4,"And Shaun, just a couple of comments, the broad strokes around capital allocation as we look forward. We do have a maturity in March, $1.25 billion at 6%. So present plan is to, of course, redeem those bonds and that will capture about $75 million of free cash flow for the business. We were active share repurchases just in the past three quarters. We spent almost $2 billion at a price of about $33 to $34. So we'll continue to be repurchasers of our shares, but we'll moderate that depending upon market conditions. And then, of course, funding what Bill described, which is our interactive ambitions, which will be predominantly through M&A but we're reserving a significant amount of capital for those activities as well.",Jonathan Halkyard
MGM,2022,4,"And I'll -- I don't want to be greedy with my time here, but just the follow-up to stay on the same theme then, Jonathan, you directly hit it kind of M&A. Or could you just give us some parameters around are we thinking more bolt-on options? Or are there still platform-level investments that could be made to drive up and expand that opportunity to be meaningful to the base business?",Shaun Kelley
MGM,2022,4,"It's a combination thereof. When you talk studio business or even live dealer, the technology aspect of that is on our scale, relatively de minimis. When you talk about stepping up to other marketplaces, whether it's South America over time or rest of Europe, we'll have to take a different view on that as these opportunities unfold. But for now, it's more bolt-on and relatively small.",Bill Hornbuckle
MGM,2022,4,"And for the next question, we'll move back to the line of Joe Greff from JPMorgan.",Operator
MGM,2022,4,Can you hear me okay now?,Joseph Greff
MGM,2022,4,"Hi, Joe.",Bill Hornbuckle
MGM,2022,4,"All right. Nice speaking with you. In Las Vegas, can you talk about how you're thinking about FTE count and payroll expenses and how they'll trend this year? Maybe you could break it up between both sort of on a same FTE basis as well as just wages. And what kind of revenue growth do you need to offset wage expense growth in Las Vegas? I’ve got another one.",Joseph Greff
MGM,2022,4,"I will open it and I'll kick it to Corey. If you go back and you look at FTEs, particularly in Las Vegas against 2019, we're down anywhere from 12% to 15%, depending on the property. Obviously, wage inflation since '19 has crept. And just so we're all on the same page, looking forward, we have substantive labor negotiations later this year with about 28,000 of our colleagues, which we're going to have to contend with and work our way through. And so Corey, maybe the second part of it, just scale...",Bill Hornbuckle
MGM,2022,4,"I think from the standpoint of levels of FTEs, from a fixed cost perspective, there will be no increases. It will all be on variable. So if there's additional catering and banquet business, it would match that revenue component of it. But I think we're pretty comfortable that we could service our properties, service our guests at the levels we're at today. And then I don't know, Jonathan, if you want to take the revenue.",Corey Sanders
MGM,2022,4,"Yes, I think on the revenue growth side, if we're running now with occupancies that are basically full on the weekends. There's a bit of room during the weekdays. So really, it will need to come through pricing as opposed to occupancy gains largely in Las Vegas. And I think if that's in the low single digits, we should be able to cover any increases in payroll adequately.",Jonathan Halkyard
MGM,2022,4,"I mean, overall, I think we think our margins are going to sustain is really the guide, I think the answer to that.",Bill Hornbuckle
MGM,2022,4,"And then Bill, we're dealing with another earnings call and release today as well, so I want to make sure I understood your comment -- your prepared comments you talked about Macau being back that in the month of January, it led the company in profitability or something along those lines. Can you just explain that? Or give a little bit more detail on that?",Joseph Greff
MGM,2022,4,"Yes, I can put a little color around it, and then we have Hubert on the line, these guys have worked hard at this for three years. So I'll let him talk a little bit about the business. But look, the rebound was, interestingly come January 8, fairly instant. I think we peaked during Chinese New Year, making a little over 5 million a day. I mentioned in my prepared comments, 16% share. And for us, for all the reasons I mentioned, our mass piece, volumes were 100% over our '19 levels. Now we're talking about a whopping 30 days here. But for the company, particularly from where we have come from, we activated 150 to 200 new tables we have. We're very excited about what's happened in the first 30 days. And so Hubert, maybe any other color would be helpful.",Bill Hornbuckle
MGM,2022,4,"Sure. Thanks, Bill. Thanks, Joe, for the question. For -- since the beginning of the year, I think the market has been growing back and has exceeded the expectations of many participants and observers. For us, in January, on the gaming side, we have seen very healthy, above the market average recovery in both mass and direct VIP segments. And for the month of January, as Bill has mentioned, our market share reached 16%, which is a record high for us. Our daily mass GGR was on par with the 2019 level for the month of January during Chinese New Year, far exceeded last year's Chinese New Year level actually. And we are also encouraged to see that direct VIP segment in terms of rolling volume far exceeded 2019 level as well. It is also very encouraging to see that January run rate extend into the first week of February so far. So all in all, we are very confident in a solid and sustainable recovery of Macau market this year and beyond.",Hubert Wang
MGM,2022,4,The next question will be from David Katz from Jefferies.,Operator
MGM,2022,4,"This is Cassandra on David's behalf. I want to expand on Macau's margin longer term. As we think about the shift in VIP mix from junket to direct, I believe your competitors have also called out increased labor costs and some labor shortage and increased utility. So how should we think about the margins in Macau longer term? A - Bill Hornbuckle  Well, again, I'll kick this to you, but my only initial comment is -- I believe everyone knows this, the junket business, I mean, when it was all said and done, it was a 20% margin business. And so while there was a great deal of volume in that business and we all -- was accretive to us and obviously, a vehicle for capital into the market, it didn't help the margin, I can assure you. So over, I don't know if you want to talk about more generally what you think will happen there. But I do like where we're positioned for VIP, Mass VIP. Remembering our branch environment and system is broader than almost anybody else is in the market. We've been doing it for 30 years into Las Vegas, and we've now taken that network and put it to work directly to the benefit of Macau. Hubert?",Cassandra Lee
MGM,2022,4,"Yes. I think that in terms of margins, I think that we expect in this year and beyond, probably we'll at the high end of -- in the 20s, but in the higher side of the 20s. And in terms of junket to direct, certainly, there are some conversion in that space, but it's really too early to give you any concrete numbers. But from the strength we have observed in January and Chinese New Year in our direct business, I think that we're still very confident in the growth of the direct business and particularly given the wide network of MGM Resorts in terms of global reach of high-end customers.",Hubert Wang
MGM,2022,4,"Great. And for the follow-up, if I may shift here on Las Vegas. There were a lot of very bullish or favorable commentaries. The ADR has been substantially higher than pre-COVID levels. Do you think that is sustainable? And looking beyond '23 and especially if we're thinking about a recession, how resilient do you think that ADR should be?",Cassandra Lee
MGM,2022,4,"Yes, this is Corey. Yes, I think it's sustainable. As we look at the event calendars on weekends and our forward-looking pacing and what we're booking rates at now, we have pretty good visibility further out. On the midweek, we see our -- not only our convention business getting better, but the whole city's convention business getting better. So the pricing that we're seeing today, we should be able to sustain, given where the economy is today.",Corey Sanders
MGM,2022,4,The next question is from Carlo Santarelli from Deutsche Bank.,Operator
MGM,2022,4,"Just looking at some of the disclosure in Las Vegas and trying to decipher what is kind of the delta between gaming revenue and your net casino revenue has widened in the last few quarters. I'm assuming that is kind of all mix related with Cosmo coming online? And is that kind of a range, that delta, that pretty much will hold firm moving forward?",Carlo Santarelli
MGM,2022,4,"Yes, Carlos, hi, Bill, I think the answer to the question is yes. We got a -- we needed to through COVID because obviously, the group segment of note went away. Very active with our casino market, entertained marketing database, personalization and other things we might do in that sector, and we've sustained it. And so it's helped that tremendously. Obviously, now convention business is going to come back and carryout 18%, 19% of our mix this year. But I think it is sustainable is the way to think about the business.",Bill Hornbuckle
MGM,2022,4,"Great. And then, Corey, just on that, on the topic of convention mix, you made a comment earlier, I believe that the bookings that were done, were done at double digits. If you look at kind of the entirety of the group business on the books or the targeted group business on the books from a pricing perspective, how does that look year-over-year or relative to 2019, however, you guys kind of want to think about it?",Carlo Santarelli
MGM,2022,4,"Yes, I think -- look, many of those contracts were in place over 2019, 2020. I think they have price escalators in there. It's probably an area of opportunity for us in the future as we look at future convention bookings. But just as a reminder, it's 18% of our business. The new business is getting booked based on where rates are today.",Corey Sanders
MGM,2022,4,"Okay. And do you believe, like when you think about it overall, just that taking the pricing aside, thinking about the visibility that it provides you do you believe as you look through 2023, all things equal economically and from a macro perspective that there should be pricing power year-over-year on a same-store basis?",Carlo Santarelli
MGM,2022,4,Yes. I think there should be some pricing power based on the amounts we have on the book and the foundation we have in our bookings.,Corey Sanders
MGM,2022,4,"And remember, Carlo, one thing we have strategically decided to do is push more business out of weekends and back into midweek. And so that has an overall play in ADR. Obviously, it brings down the convention ADR, but it raises the overall company's ADR because it gives us more opportunity we where we see, frankly, and continue to see real upside, particularly in the luxury segment, across Cosmo, MGM, Mandalay, Aria, Bellagio.",Bill Hornbuckle
MGM,2022,4,The next question is from Stephen Grambling from Morgan Stanley.,Operator
MGM,2022,4,"Maybe turning to Japan, that was another one that you referenced is still out there. You're waiting on some approval but still looking for a return that's above it sounds like your free cash flow yield. Wondering if you could just elaborate on any of your updated expectations for that market and anything that's either evolved from the terms of the transaction, even the timing of when construction could start and when the proper to be coming out of the ground..",Stephen Grambling
MGM,2022,4,"Yes. Steve, we got to be a little careful because some of this is NDA with the government, et cetera. But having said that, we had hoped to hear in October. Obviously, we sit here now in February not having heard. The process lies today with MLIT, the government agency that is going through and consistently asking us questions about the project, about the contract with the government of Osaka, et cetera. Time to tell whether we get through that efficiently over the next 30 days. We would like to think and believe we might, but we've been thinking that for a while now. As it relates to macro, look, I'm excited to think that we may be the only player. And so instead of a market of 19 million people, we're talking about a much larger market. Having taken the journey many times from Tokyo, it's only 2.5 hours away by high-speed train, et cetera, so we see upside. Inflation has not hit Japan like it's in other places, and particularly for us, at our end of the partnership, the value of the yen has gone tremendously in our favor, but we're still looking at a $10 billion project. We're looking at a return on that project, we think can bring 15% plus in cash flow and then maybe then some, but it has to mature. And overall timing, the goal was -- now we're going to be challenged with that if we don't hear soon to get this thing open before the decade close in 2029. But since -- there's a bridge to getting there.",Bill Hornbuckle
MGM,2022,4,"That's helpful. And maybe a follow-up on BetMGM, just to make sure I understand you correctly. I guess, are you anticipating far out, but any additional capital being put into that JV beyond this year, given the targets for kind of profitability or standalone at this point?",Stephen Grambling
MGM,2022,4,"No, none substantively. If BetMGM gets into the M&A business for some particular product, maybe. But generally, no. It's the $50-odd million, I think we've -- well, collectively, but call it, our $35 million or $45 million we've identified. It gives us every reason to believe it should hit its target this year, starting to make profitability in the second half of the year. We all have to be rational players. There is growth left. There are six additional states yet to go that have been identified. But no, there's no large-scale capital. That business should begin to mend and take care of itself.",Bill Hornbuckle
MGM,2022,4,Next question is from Chad Beynon from Macquarie.,Operator
MGM,2022,4,"Bill, Jonathan, another one on Vegas, just given your diverse portfolio with luxury and core. Can you just kind of help us think about broadly how these segments compared to against each other in '22? Bill, I think you said obviously, a lot of the group events and the city-wides in '23, just those compression nights should help probably a little bit more in luxury, but just trying to see -- I know you're not breaking it out, but kind of where the -- which way the wave is moving luxury and core.",Chad Beynon
MGM,2022,4,I think Corey you're best...,Bill Hornbuckle
MGM,2022,4,"Yes. In 2022, the majority of the growth here in Las Vegas was driven by the Bellagio, Aria, Cosmopolitan and the MGM Grand. Mandalay Bay had a fantastic year as they, of course, capitalized on the return of the group business to Las Vegas. I mean in the fourth quarter, just as an example, our group room nights were up about 50% versus the fourth quarter of 2021. So it certainly has skewed to the luxury properties. But I will tell you, from a portfolio strategy perspective, all of these properties here in Las Vegas are really important role players. We've invested some capital in the Luxor in the last year. We just -- we're doing the rooms in New York-New York right now. And those businesses, we expect, are going to be very solid cash flow generators over the next several years. But no question, the growth is coming from the luxury segment.",Corey Sanders
MGM,2022,4,"And then can you just talk a little bit more about the omnichannel opportunities with driving your players from BetMGM back to Las Vegas, given it's probably one of the more important years of your players wanting to come out and see some of the events, kind of where that stands now and how that should progress in '23?",Chad Beynon
MGM,2022,4,"So I think simple answer is more. And when I say that in the context, it's now becoming thousands of players that have obviously touch both brands. It's interesting. The combination of the two, the players spend about 40% more. Now that's kind of intuitive but 40% more is interesting. The other thing that plays to the events, whether it's sports or otherwise, sporting events, is that 85% of the players are under 49 years old. And so that network and that combination is bringing us a younger player, bringing us people who have to date have the propensity to spend more when combined with both brick-and-mortar and digital activity. And we're now reaching thousands of them coming in. We've set up fairly elaborate CRM systems, both at BetMGM and ultimately, a hosting program here that captures them. And so there's one-to-one dialogue about certain VIP players and what their needs, wants and desires are. And so we've treated that network like we would treat any of our branch offices, if you will, when the phone rings and they have somebody of substance, we're set up to take care of them. So excited by it. We need over time to automate it more, so that there's true connectivity between BetMGM and its loyalty system and ultimately MGM Rewards system. But for now, focused on the high end between the spend, the use and the numbers, all pretty exciting.",Bill Hornbuckle
MGM,2022,4,The next question is from Robin Farley from UBS.,Operator
MGM,2022,4,I wanted to ask a little bit about -- you showed the breakdown of same-store gaming revenue in Vegas being down about 10%. And I think it was down a little bit in Q3 as well. I wonder if you could give us some sort of color on what's happening with the gaming consumer in the last two quarters. Is that kind of fewer trips year-over-year because there are more options in the world? Or is it just lower spend per trip? Or kind of what do you think is driving that in the last few quarters?,Robin Farley
MGM,2022,4,"No. We've seen same-store handle and drop and win growing modestly in Las Vegas. Although there's no question, the majority of the growth that we've seen in this quarter on a same-store basis, it's been on the hotel side. So the gaming customer is healthy here in Las Vegas, the -- it is driven mostly by our higher-value gaming customers, but it's very healthy on a same-store basis.",Jonathan Halkyard
MGM,2022,4,"With -- are the declines -- just to sort -- Jon, you're saying it's coming from the higher-end gaming player? Or you mean they're holding up, it's the sort of broader market player where the with the same-store decline?",Robin Farley
MGM,2022,4,"No, we're -- what I'm talking about our slot handle and table game drop and and slot win and table game win increasing.",Jonathan Halkyard
MGM,2022,4,"Okay. I was looking at your slide showing casino revenues down 10% on a same-store basis in Q4. Kind of know there were some properties and in properties out, but I was just using the number from your slide.",Robin Farley
MGM,2022,4,"Yes, some of that will be on a net basis after accounting for the cost of hotel rooms that are comped against those players. And so that is having an impact on what we're describing is that gaming revenue. But in terms of the way I consider the health of the gaming customer is to look at the volume metrics and the gross gaming revenue, which are growing on a same-store basis. Does that make sense, Robin? That's kind of when I think about what the behavior of these customers actually is, it's on the gross basis.",Jonathan Halkyard
MGM,2022,4,"Okay. Okay. I was just trying to clarify that number, that's helpful. Also, I was just curious, given obviously the strength of your liquidity and cash position and what you have going, why suspend the dividend? And I realize it was a small dividend only remaining at this point. But I'm just curious why suspend that when you -- liquidity is certainly not the issue?",Robin Farley
MGM,2022,4,"Yes, it's not. It was really an administrative issue. It was burdensome. It was complex. And that measured against the size of the of the dividend itself, which was de minimis and just how much capital we've returned, and we expect to continue to return through the form of share repurchases. We just felt that it was a practice that we did not need to continue. That doesn't mean that we wouldn't reconsider it or our Board wouldn't reconsider it at some point, and in so doing, would make it a more substantial dividend than a de minimis dividend, but it was mostly an administrative solve.",Jonathan Halkyard
MGM,2022,4,The next question is from John DeCree from CBRE.,Operator
MGM,2022,4,"Maybe just, Jonathan, a quick follow-up on Robin's question regarding casino revenues. So just to clarify, with the higher ADR now essentially the dollar amount that you need to net against casino revenue is what's causing that kind of accounting decline?",John DeCree
MGM,2022,4,"Yes. That is the major issue that -- that's the major dynamic which is causing this topic that we are talking about. And it's not just ADR, but also the size of the casino segment generally.",Jonathan Halkyard
MGM,2022,4,"Okay. Understood. Thank you for that additional clarity. Maybe just for a follow-up question. Bigger picture, I think it was pretty clear as to where you target growth investments, digital international, but the last 24 months or so, you've moved a lot of chairs and upgraded the asset base in Las Vegas and opportunistically, I think, divested Gold Strike. Curious if you could give us some comments on how you feel about the domestic portfolio today, both regionally and in Las Vegas? And if there's potential opportunities you'd consider, more on the M&A side? And we kind of know plans in New York and if other big markets were to open. But on the M&A front, either buy or sell, anything that you'd think about doing or might make sense.",John DeCree
MGM,2022,4,"Well, let me kick it off. A, I think, particularly after the moves that we've made, we've truly enjoyed the portfolio we have. In terms of Las Vegas, obviously, we own 40-odd percent of this marketplace, and we love the properties that we have here. We love the positioning. And what's happened at the south end of the strip, particularly via Allegiant has been productive. When it comes to our regionals, obviously, we're in a different regional game in most of our markets, A, whether it's Detroit, Atlantic City or Mississippi, we lead in a big fashion. We're market leaders there. We tend to want to do that and try to tie out the product offering, integrated resort to integrated resort. We just think there's an opportunity to get the right kind of customers to transition to Las Vegas and otherwise. I would never say never on any M&A acquisition. There's always, I suspect an asset here or there that might be of interest, but I don't think we have any immediate designs or plans on anything substantive sitting here today. I think our growth will come through the development opportunities we've defined, through the digital opportunities that we have defined to date and are going to seek. And yes, we've always got an eye and an ear open, but there's nothing specific that -- nor would I actually tell you if there was.",Bill Hornbuckle
MGM,2022,4,"Fair enough. Fair enough. Just engaging the strategy. Appreciate it, Bill.",John DeCree
MGM,2022,4,And the next question is from Barry Jonas from Truist.,Operator
MGM,2022,4,"Guys, given the strong strip outlook for '23, is the high end of that 400 basis point to 600 basis point margin expansion, the right place to think about how the year could shake out? Or could you still go higher? And then just with that, can you remind me what the starting point is here? Is it the reported pre-COVID 2019 number or based on sort of a pro forma portfolio?",Barry Jonas
MGM,2022,4,"Yes, when we use that 400 basis points to 600 basis points sustainable margin improvement, we're referencing the 2019 year. So we're not trying to adjust it for acquisitions or dispositions just because we're getting pretty far back in the past at that point. We're very comfortable that for across all of our domestic properties that we can be within that range or possibly exceed it. And exceeding it will be driven mostly by our -- the pricing environment. but we're comfortable with that and that compares to 2019.",Jonathan Halkyard
MGM,2022,4,"Great. Great. And then just a follow-up. I think iGaming, we're hearing that the industry is taking more of a push. I'm curious how you think about the impact that iGaming is having on land-based gaming. Not sure if you're able to quantify what you've seen more recently and say, Michigan, but you could -- can you help us understand some of the puts and takes with what would seem to be some cannibalization threat?",Barry Jonas
MGM,2022,4,"Yes, I'll take that. Obviously, in Michigan, to your point, is the best example where we have market-leading brick-and-mortar, and we have obviously a market-leading digital. The digital business now has outsurpassed the brick-and-mortar by about 25%-ish. They're both doing well over 300 million GGR. Digital is approaching almost 400 million in GGR. It's an interesting market when you look at it because it's gone through smoking and nonsmoking. COVID lasted longer there in terms of its policies than anywhere else. I will tell you, there was some concern early in the middle part of last year. The last three months in Detroit, now that we've come off of most of those COVID restrictions, we've made allocations for smoking and some smoking opportunities for customers who still want to do that. Our numbers have not only stabilized, but it continued to grow in Detroit. So while it's obvious that there's a subset amount of play going on in digital, the chance to connect that with brick-and-mortar and ultimately reward and recognize. And simple things like bonusing or jackpots that I leave -- that I'm playing at home, I can come pick up in the brick-and-mortar where I left off as a player and have a contiguous experience is things that we're highly focused on. And so we think it's been a great opportunity. We think it can continue to be one. And we are -- we've seen nothing -- Michigan, we have the best laboratory in that. Michigan gives us confidence that going forward, we can replicate some of that in any of these other states, I think we'll be in great shape.",Bill Hornbuckle
MGM,2022,4,The next question is Steve Wieczynski from Stifel.,Operator
MGM,2022,4,"So actually I want to ask about your regional assets. And obviously, there's a fear out there in the investment world that at some point, some of these consumers could start to slow down. And we've heard from a lot of your peers so far that there really hasn't been any softness as of yet. And I just want to understand, have you guys seen the same fundamentals there, meaning no real weakening? And then also, margins were impacted by the inclusion of nongaming amenities in the quarter. I'm just wondering, how much more of that potential margin headwind could those present going forward?",Steven Wieczynski
MGM,2022,4,"So let me take the top end of that and Corey, you can speak to the margins. We have several different kinds of regional properties. And so Maryland this year had an all-time record and then some. It was fantastic. We always dream at that property making over $300 million, and it did. And I know I'm getting dirty looks some of my folks, but -- and it did. Atlantic City, given all of the competitive set and the reawakening of Hard Rock and what happened with Oceans, it's a highly competitive market, and we're holding our own and that property continues to do the same kind of EBITDA. It's done traditionally no matter where the marketplace has been. It's kind of interesting. Detroit, as I just mentioned, continues to do well. We saw a little softening with Empire as it came out of COVID. Springfield has enhanced and been improving. Look, obviously, it will be the place that I think any major recession activity shows. But I will say, to date, particularly up until and through January, we haven't seen it. So Corey...",Bill Hornbuckle
MGM,2022,4,"Yes. On the other regional properties, mainly in the third quarter, we increased on many of our nongaming amenities. And I think we're to the level where we're comfortable with what we have for our guests. So from an additional margin impact on that, I don't think there's much there. And then just on the business. December had a little bit of softness, as Bill mentioned, but what we're seeing in January and February so far as all of our regional markets are performing extremely up.",Corey Sanders
MGM,2022,4,"Got you. Good to hear. And then second question real quick, and it's more of a follow-up here. But going back to Macau, it sounds like, Bill, I think you said -- or Hubert said this, you were doing about 5 million a day during Chinese New Year. And again, I'm not sure if this was you, Bill or Hubert, but did I hear you say that even after Chinese New Year, which, look, I know it's only, let's call it, 7 days or so, but you're still somewhere in that ballpark?",Steven Wieczynski
MGM,2022,4,"Yes, it was me. I said 5 million during Chinese New Year, but no -- but we are at a great pace and a great place. And so no, but that's extreme. Having said that, it's still very profitable, and this last -- it's been 5 days or 6 days, whatever it's been, but it's been good. And so -- but no, I mean, Chinese New Year is one -- it's a unique environment, it happens once a year.",Bill Hornbuckle
MGM,2022,4,"Okay. Yes, I was just making sure I was not going to...",Steven Wieczynski
MGM,2022,4,Don't do 5 million a day times 365.,Bill Hornbuckle
MGM,2022,4,"It's already done. Thanks, guys.",Steven Wieczynski
MGM,2022,4,And our next question will be from Dan Politzer from Wells Fargo.,Operator
MGM,2022,4,"So first question, just on Macau. It's a two-part question. The 16% share you guys called out, to what extent do you think that's sustainable? And if you can maybe parse that out, how much of that step-up has been driven from growth in mass or premium mass or direct VIP versus pre-COVID. And then that quarter-to-date comment about the MGM China properties, the highest earning business in the company. I mean should I -- if I kind of go back and piece together some math, should I interpret that that they're pacing well over $100 million of EBITDA for the first quarter?",Daniel Politzer
MGM,2022,4,"No, no. For the month. Not the quarter, for the month. So you could think about it -- if we put them together, it would be the highest EBITDA property we had for the month in our system. Way to think about it. And so Hubert, you can kick in here. Obviously, you're living this every day on the continuity of going forward.",Bill Hornbuckle
MGM,2022,4,"Yes, Dan, in terms of the market share question you asked, it's too early, but to give you a definitive answer or whether it's sustainable or not, but they are the things that ahead of us because as you know, we have additional tables, almost 200 additional tables. And we haven't fully deployed all these tables yet. We're in the process of doing that, along with some casino floor reconfiguration. So we plan to deploy all these tables by the end of first quarter. And I think that, that's number one. Number 2 is that in the retendering commitment in terms of investment, we also have a lot of, I think, earning accretive projects. And I think that these offerings that will drive additional traffic. I mean just to give you some color on the nongaming side for Chinese New Year, I mean, our own occupancy approached 100% and our restaurant covers actually exceeded 2019 Chinese New Year level. And a lot of that was because of all the nongaming events and concerts that do a lot of incremental visitors to us. And we're also seeing a longer stay by our hotel customers. I think that as we invest more in these nongaming amenities, well, that will help with our market share growth down the road or sustain at that level.",Hubert Wang
MGM,2022,4,"Got it. And then just for my follow-up, this is for Jon. On the pace of buybacks, obviously, you have the new $2 billion authorization, I mean, it sounds like trends are very stable, if not outright encouraging. I mean to what extent would you feel more comfortable giving kind of a quarterly pace of buybacks. And then also, I think it was last quarter or maybe a couple of quarters ago, you mentioned kind of a decelerating pace of buybacks. So given the outlook on Vegas, is there kind of a run rate we can think about here?",Daniel Politzer
MGM,2022,4,"I don't want to give a quarterly pace. I do think you can look at our pace over the preceding four quarters. I think we actually did a bit more in the fourth quarter than we did in the third quarter. And so all I would say is that we have a healthy authorization from our Board. I hope I was able to communicate during the prepared remarks, the value we see in the shares. And despite all of the opportunities we have before us, the liquidity position the company has is going to allow us to continue to be an active share repurchaser. Beyond that, Dan, I just don't want to give any more specific outlook.",Jonathan Halkyard
MGM,2022,4,And our final question will be from Jordan Bender from JMP Securities.,Operator
MGM,2022,4,Can you just talk about the contribution from Far East play during the quarter in Las Vegas? And then what do bookings look like from Far East play for this point -- or for this year at this point?,Jordan Bender
MGM,2022,4,You're referring to the fourth quarter or Chinese New Year?,Bill Hornbuckle
MGM,2022,4,"Fourth quarter and then, I guess, quarter-to-date as well.",Jordan Bender
MGM,2022,4,"I can -- I know the Chinese New Year number fairly well. Corey, I'll lean on you for the fourth quarter. Last year, Chinese New Year, we had about 35 million in sale. This year, that number was just under 100. And so the opportunity and what that opportunity provided us this year was 3x what it was last year. And so while not back at the '19 levels or '18 levels. It was meaningful.",Bill Hornbuckle
MGM,2022,4,"And the Far East play during the fourth quarter, it was up about at least 1/3 over the fourth quarter of 2021 and constituted pretty much all of the growth in our international play during the fourth quarter. So very encouraging.",Jonathan Halkyard
MGM,2022,4,"Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Hornbuckle for any closing remarks.",Operator
MGM,2022,4,"Thank you, operator. I just want to thank everyone for joining us today. I know it gets late back on the East Coast. Just a couple of thoughts. Obviously, we continue to show organic growth here in Las Vegas, particularly in our premium product, our luxury brands. If you think about Aria and Bellagio last year that made over $1.2 billion in cash flow, and we see hopefully that sustaining. You think about now Macau and the returning and I think our 200 extra tables will make a difference throughout the course of this year. You think about our development pipeline. You think about both brick-and-mortar digital. I would say, without any disparaging comments to our competitors, that we think about the balance of regional location, domestic location, Las Vegas, international, digital, we are the most well balanced and prepared for growth. We have no net debt. We have -- we're sitting at about $5.3 billion of cash liquidity. And since Jonathan and I have joined the senior roles, the company has bought back over 25% of its shares, and all of it on the back of an amazing team that we've put together here that's got extensive experience over many decades in many different jurisdictions. And so to say I'm excited by our future would be an understatement. I thank you all for your attention and most importantly, your support. So thank you.",Bill Hornbuckle
MGM,2022,4,"Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.",Operator
PEP,2023,1,"Good morning, and welcome to PepsiCo's 2023 First Quarter Earnings Question-and-Answer session. [Operator Instructions]. Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin.",Operator
PEP,2023,1,"Thank you, operator. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website.  Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans and updated 2023 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 25, 2023, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.  Please refer to our first quarter 2023 earnings release and Form 10-Q available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.  Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's Vice Chairman and CFO, Hugh Johnston. We ask that you please limit yourself to one question.  And with that, I will turn it over to the operator for the first question.",Ravi Pamnani
PEP,2023,1,[Operator Instructions]. Our first question comes from Dara Mohsenian with Morgan Stanley.,Operator
PEP,2023,1,"So very impressive price mix result in the quarter at 16%. Can you just give us an update on the competitive environment you're seeing in your key business segments and geographies, both in terms of just price increases but also promotion and if that's picking back up to more normalized levels? And if that favorable environment is continuing. And just as you look going forward, obviously, very strong levels of pricing, how do you think about the of that back to more normalized levels going forward the next few quarters and the ability of volume to recover as that pricing dissipates on a year-over-year basis?",Dara Mohsenian
PEP,2023,1,"Yes. Thank you, Dara. Let me cover that and then Hugh can add some comments. We're seeing a competitive environment. We're all trying to protect the health of the categories and then make sure that our brands are participating in those categories in a competitive way. We are investing in our innovation, investing in our brands, investing obviously in value in different ways, pricing, sizing in mostly.  So we're seeing a good positive competitive environment in the U.S., in Europe, and also in our developing markets consistently across the world. When it comes to pricing, as we said earlier in February, we have mostly taken the pricing already this year that we needed to cover for our cost increases. And that is where we stand at this point. We're seeing a deceleration of inflation, not a reduction of cost, but a deceleration of inflation.  And we think that with the pricing that we've taken already most of our business around the world, that should be sufficient. Obviously, there are some markets, highly inflationary markets around the world where we might have to take additional pricing. If you think about Argentina, Turkey, Egypt though those kind of markets where the currencies are suffering, but the majority of our pricing is already done.",Ramon Laguarta
PEP,2023,1,"Yes. And the only thing I'd add to that, Dara, as a reminder, you know we tend to buy commodities 9 to 12 months out. So to the degree that the rate of inflation decreases, and it will be a decrease in the rate of inflation, not deflation, by any stretch of imagination that's going to happen very slowly over the course of '23. I think that's more of a '24 thing to the degree it happens even then.",Hugh Johnston
PEP,2023,1,Our next question comes from Andrea Teixeira with JPMorgan.,Operator
PEP,2023,1,"I wanted to go back to a little bit of what you spoke in the prepared remarks that you were -- and you also on an earlier interview Hugh that you gave, that you're not seeing the fact that inflation is still high throughout the 6 to 9 months that you're seeing here. And it doesn't look like you're seeing the need for promotional environment, but more in the context of what has happened in LatAm, I think it's the only region that you haven't seen a reacceleration and every other region, you've seen an acceleration.  And I'm seeing -- I'm talking -- I'm asking this question more of the point of strength rather than a point of weakness. Of course, it's really hard not to like the numbers here. Just thinking of how to think of the volume decline you saw in snacks and to think about how to parse it out or it's more about the comparison getting tougher?",Andrea Teixeira
PEP,2023,1,"Yes, Andrea. A couple of things. Just for clarity, in terms of the snack food or the community food volume, Pioneer was a big driver of that. There are challenges with the power grid down in South Africa. And obviously, Pioneer makes a lot of heavy products. Ex-Pioneer Snacks volume was basically flat for the quarter and beverages obviously was up a small amount for the quarter.  In terms more broadly of sort of the rate of growth of all of the businesses. From a revenue standpoint, I think generally speaking, you see the consumer continuing to buy our products. Elasticities are still holding up quite well across most of the globe. And then despite the fact that we're taking pricing driven by the inflation that we're facing into.  In terms of operating performance, I think what you're seeing more than anything is a reflection of the productivity initiatives that we've put into place, whether they be automation in the supply chain or digitalization across the company, we're leveraging global business services. So when we talk about sort of an acceleration in the operating income performance, I think it's a consumer that's responding to the brand advertising we're doing. And in addition to that, the productivity that we're driving.",Hugh Johnston
PEP,2023,1,Our next question comes from Kevin Grundy with Jefferies.,Operator
PEP,2023,1,"Great. Just picking up on some of your prior commentary there. And just the decision to raise the EPS guidance at this juncture of the year, which I think is noteworthy because the company's delivery against guidance has historically been quite good, as you're well aware, but historically, the tax has been to maintain it and then as the year moves on to edge it higher.  So I -- just some context here. Was it that the first quarter was that good relative to your expectations, just came in that much better? Because it's noteworthy within the context of all the prognostication around potential recession and market volatility for the raise at this juncture of the year, so maybe just some historical context around it and relative to the first quarter results, I think, would be helpful.",Kevin Grundy
PEP,2023,1,"Yes, Kevin. I think you're right. Your assessment is right. We're seeing both better elasticities than some of the worst-case scenarios we were planning for. And also, we're seeing the teams delivering better productivity. So we're seeing the -- in general, the flow of materials, the availability of labor, transportation, all those elements that were making us a suboptimal company if you just to call it somehow in terms of operating metrics, that's getting better, which is giving us the opportunity to improve some of the metrics in our operations faster than what we thought.  So it's both an improvement in productivity on the cost side and better elasticity. I think the commercial programs were strong. You saw that we've increased A&M again in the first quarter. And I think the commercial plan, the innovation plans are very strong. So we feel comfortable that even -- and we always play out a lot of scenarios before we give a -- give you guys a guidance. We feel comfortable that even at this early point in the year, we can raise our top line and bottom line estimates.",Ramon Laguarta
PEP,2023,1,Our next question comes from Bonnie Herzog with Goldman Sachs.,Operator
PEP,2023,1,"I had a question on organic revenue growth at PBNA. Your price mix in the quarter was incredibly impressive, but your volumes were down slightly again. So could you touch on where you're primarily [Technical Difficulty] pressure. And then maybe what you're seeing from the consumer. Also, it seems that incremental pricing may be a bit harder to come by and promotional levels may need to increase in beverages this year. So could you touch on that as well as maybe your key initiatives to stabilize or turn your volume trends around that PBNA -- is your Pepsi rebranding or the new logo and visual identity for the brand, one of those key initiatives, for instance?",Bonnie Herzog
PEP,2023,1,"Thank you, Bonnie. We don't see -- actually, we see the momentum in the beverage category, very strong in terms of demand. We're seeing away from home, very strong. We're seeing the convenience channel, very strong, and we're seeing most of the in-home channels also quite strong. So we don't feel that there is a competitive environment that is getting worse in beverages. There's some one-off in the first quarter because we're -- as you know, we're moving Gatorade from a warehouse system to a DSD system and in that transition, there is some inventory reduction overall in the system that is impacting Q1.  But we don't think that the competitive environment in beverages in the U.S. is getting worse and that we need to do anything special. We have a very strong commercial program, both innovation, brands, commercial execution and customer programs. So that will be the way we're planning to continue to compete vigorously in the market.",Ramon Laguarta
PEP,2023,1,Our next question comes from Lauren Lieberman with Barclays.,Operator
PEP,2023,1,"Great. So you've already been asked about raising the guidance early in the year, and it would sort of be mechanically hard not to, given how strong the quarter was. But your prior outlook you had baked in what we thought was one of the more conservative set of assumptions around the macro environment at least for the second half of the year across our coverage anyway. And so I was just curious if you're seeing anything more recently that has you more optimistic on the macro trajectory. Anything in terms of that broader market outlook or consumer outlook that's informing your ability to raise the guidance? Or is it really more tied to just the momentum in your own business?",Lauren Lieberman
PEP,2023,1,"Yes, Lauren, it's mostly related to the fact that we're already 1/3 of the year is passed, and we have better information on our costs and everything else that complex operating. There are a few things we're still concerned about. One is where is the consumer going to be in second half of the year. We continue to be -- have multiple scenarios. And some of the scenarios are more optimistic, some best, and we continue to have various scenarios.  The second one, geopolitics and that might impact the business, and therefore, we want to be cautious there as well. And the third one, as I mentioned earlier, there are some currencies in some emerging and developing markets that we don't know where some of those markets will go in the second half of the year. And we also want to make sure that we have the right financial scenarios around those options.  So those are the three variables that could define where the business goes. As I said earlier, operationally, the business is better. We're seeing better labor availability, better flow of materials, suppliers are obviously getting better as well. Transportation is getting better. So operationally, the business is in a better place than it was in 2022.",Ramon Laguarta
PEP,2023,1,Next question comes from Bryan Spillane with Bank of America.,Operator
PEP,2023,1,"Hugh, I wanted to ask about accounts payable. Just it was a pretty meaningful shift year-over-year. I understand there's a sequential or a seasonal piece to it. But I think it's up more than $1 billion versus the first quarter last year. So is that tied to the Gatorade DSD distribution change? Or I don't know, if there is something else going on with accounts payables that just is driving such a meaningful change?",Bryan Spillane
PEP,2023,1,"Yes. Bryan, it's really two things. One is a seasonal inventory build on the Gatorade thing, as you mentioned. The second is, we've got a number of significant capital projects that are in flight right now and the timing of the payables on the capital equipment is what drove that number. So I would take it as a one-off, not a change in trend by any stretch of the imagination. It's just a one-off when the quarter ended.",Hugh Johnston
PEP,2023,1,Our next question comes from Chris Carey with Wells Fargo.,Operator
PEP,2023,1,"Can you maybe just touch on how investment and priorities will evolve in 2023. I think one of the key takeaways from 2022 was distribution costs between shipping, handling and merchandising activity was a key driver of SG&A inflation, but I'm conscious of double-digit increases with added marketing spending out of the gates into Q1. So can you maybe just frame how overall investment will be evolving over the course of this year in the context, maybe some easing on inflation and certain SG&A buckets and an ability to put more spending in others.",Christopher Carey
PEP,2023,1,"Yes, Chris. Listen, I think the framework of investment is similar to what we expressed in the past. We mean #1 priority for us is to make sure that our categories remain highly visible in consumers' minds in a complex consumer choices environment. And our brands do very well in those categories. So that's priority number one, make sure that we continue to be a preferred brand with our consumers.  Second, we continue to invest in transformation of the business, digitalization and productivity at the center of the strategy systems. We've been investing on that for quite a while. That continues to be an enabler of all the data strategy that we have in the business.  And those are the two big projects, we continue to invest in capacity. There is good volume growth across many of our markets around the world, and that continues to be a priority in enabling the brands to continue to grow. So those are the principles. I don't know, Hugh, if there's anything else.",Ramon Laguarta
PEP,2023,1,"No, I think that's the only thing -- and I think where Chris is going with the question from his perspective as well. Chris, I think you'll see more of the financial impact of those investments in SG&A significantly less selling cost of goods. So as you're modeling it out, SG&A is a place where you'll see all the items that Ramon referenced will be hitting.",Hugh Johnston
PEP,2023,1,Our next question comes from Peter Grom with UBS.,Operator
PEP,2023,1,"So I was hoping to get more color on the international performance in the quarter. But maybe specifically in China. I know it was called out in the prepared remarks is a market where you gained share, and maybe I missed this, but I don't think it was mentioned when discussing growth in the quarter. So can you maybe share a view on the current environment in China how that evolved through the quarter and kind of how you see that progressing from here?",Peter Grom
PEP,2023,1,"Yes. Yes, we're seeing, obviously, in China, a optimism in consumers and optimism in the customers and that's driving volume for us across the -- across both our food and our beverage business. The organic share, especially in snacks. Snacks has been performing very well through the pandemic and continues to outgrow the category. And in beverages as well, we're seen competing quite well in Colas and sports hydration. So yes, obviously, this is going to be a tailwind for us as the year progresses both in away from home and in-home consumption.",Ramon Laguarta
PEP,2023,1,Our next question comes from Robert Ottenstein with Evercore ISI.,Operator
PEP,2023,1,"Great. Given the strong start to the year and your confidence in the year, I thought I'd ask a longer-term question. And that is, as you look at the categories that you're in, over time in the past, you've expanded in certain countries a little bit outside of beverages and snacks either for reasons of scale or growth opportunities or maybe that's just what was available as part of an acquisition. Over the next, call it, next 5 years or so, do you believe that you're in the right categories to drive your algorithm? Or do you see potentially the need or desirability to expand and do some adjacent areas. And given the advances that you've made in IT and logistics, perhaps that's even a greater opportunity than in the past?",Robert Ottenstein
PEP,2023,1,"It's a great question. Listen, we believe our categories are large and growing at a very fast pace, around 5% globally. I think our main responsibility is to maintain the innovation and make sure that the portfolio evolves with consumers, the brands continue to be super relevant. And that is where we want to focus our efforts. We're making some small moves, as you saw, for example, when we're going into low alcohol here in the U.S., expanding the brands. We're making small moves like Cheetos going into Mac and Cheese. So we're expanding some of our brands organically into some new spaces that make sense from the consumer point of view that we believe our categories are large, global, healthy, and we -- our responsibility is to give them healthy and growing very fast.",Ramon Laguarta
PEP,2023,1,Our next question comes from Vivien Azer with Cowen.,Operator
PEP,2023,1,"I wanted to ask about Pepsi Zero Sugar given the reformulation and the broad-based international distribution. Can you offer some perspective on how that's performing relative to expectations? And as well, could you possibly update us on how the organization is tracking towards your 2025 ESG target to drive 60, 70% of volumes from lower added sugar beverages?",Vivien Azer
PEP,2023,1,"Great question. And it's essential to our strategy, continue to drive low sugar and nonsugar products as kind of the portfolio transformation. In the case of Pepsi, obviously, that is very relevant for us given the size and scale of Pepsi brand for us. The relaunch in the U.S. with a new formula is very -- it's been very well received by consumers based on our early data of repeats and preferences. The brand is growing 60%, if I remember correctly, in the first quarter, and that's driven a little bit by distribution, but it's mostly velocity. So clearly, the consumers are -- they like the product and they're coming back to the product. Globally, we also see big growth of the nonsugar segment in the category 2, 3x, the average of the category in most of the markets. And we are driving that growth along with some of our key competitors. I think it's a strategy that is working and it's keeping the category very relevant for consumers. We'll continue to invest in nonsugar as a driver of growth for our brands.",Ramon Laguarta
PEP,2023,1,Our next question comes from Gerald Pascarelli with Wedbush.,Operator
PEP,2023,1,"In U.S. measured channels for salty snacks, we've seen private label products gained share of the overall category for the past few months now. This has obviously have seen in tandem with very strong performance and market share gains for Frito as well, which is great. But I was just curious if you've seen any near-term changes, some broad consumer purchase patterns in this category relative to maybe a few months ago? Any thoughts there would be helpful.",Gerald Pascarelli
PEP,2023,1,"Yes. In general, we're seeing private label growth in some of the categories where we participate, especially waters, juices that we used to participate in some categories in salty snacks as well as you mentioned. As you will say, Frito-Lay is -- I think it's growing share of market at the fastest pace that we've seen in the last, maybe 10 years, if I recall, as a consequence of the great work the team is doing in terms of execution, but mostly innovation and brand building.  So I think we see both private label increasing, although from a very low base in salty snacks. But most importantly for us, we're seeing our brands continue to gain loyalty, expand their consumer base and be preferred in that segment. But yes, private label is slowly increasing and in -- from a very, very low base as I said, in some subsegments of the salty snacks business.",Ramon Laguarta
PEP,2023,1,Our next question comes from Brett Cooper with Consumer Edge.,Operator
PEP,2023,1,"With about a year in of and Hard Mountain dew, I was hoping you could provide some color on your view of the performance of the brand and the operation to date, any learnings? And then how you think about proceeding from here?",Brett Cooper
PEP,2023,1,"Yes. Listen, we're happy with the learnings that we're taking, both in the operation of this category, which is new to us and also in how we create consumer demand and consumer loyalty, and we continue to find partners to create new solutions for consumers with our brands. We just launched a tea version, a hard tea version with Lipton and FIFCO Company. They developed a great product, which we're going to start distributing through our system in the next few weeks. So we're going to go into the summer with 2 main products, Mountain Dew -- Hard Mountain Dew and Hard Lipton.  As I said, our intention is not to build a large portfolio of products and complex portfolio, but is to focus on a few good brands developed with strategic partners and then leverage our distribution capabilities to give it to consumers all across the country. That's our journey. We're not rushing. We're going at a speed that we learn and we make this business solid with the right margins and the right consumer propositions.",Ramon Laguarta
PEP,2023,1,Our next question comes from Filippo Falorni with Citi.,Operator
PEP,2023,1,"Question on the Pepsi Beverage North America business. It seems clearly this year, you're making a lot of investments. The Pepsi Logo change, the Starry launch, a lot of other launches, with expansion of Pepsi Zero Sugar and Hard Mountain Dew. Just bigger picture, what are your expectations from kind of a market share standpoint in the business? What would you consider a success for this year? And then secondly, how do you balance these investments that you're making with your target of getting back to a mid-teens margin for the business?",Filippo Falorni
PEP,2023,1,"Yes. I mean we've expressed this in the past. We want to have a business that grows and the category pace or above and expand its margins to the mid-teens levels that we have mentioned as well in the next 2 to 3 years. So that is the strategic intent for this business. I think the team is executing very well. The way we measure our share is full LRB. So it's the full set of brands that we have in our portfolio, not just small segments within the category. And obviously, I think we're progressing well against that growth target for the year, whilst also expanding the margins for the business. We feel good about the margin expansion this year.",Ramon Laguarta
PEP,2023,1,Our last question comes from Charlie Higgs with Redburn.,Operator
PEP,2023,1,"I was just wondering if you could talk a little bit more about the Frito-Lay North America division and the volume growth there. How did Lays, Doritos, Cheetos perform? Is there any color you can give on a single-serve pack versus multi-packs? And then just how you see the very strong margin growth in Q1 progressing throughout the year would be useful.",Charlie Higgs
PEP,2023,1,"Yes. Great. Listen, as I said earlier, Frito-Lay, I think, it's in the U.S. and -- but also the whole snack business globally is doing extremely well. But if we focus on the U.S., I think the team is doing a fantastic job growing the large brands, as you mentioned, Lays, Doritos, Ruffles, Tostitos, Cheetos. And at the same time, building peripheral brands that cover some spaces that we're not covering with the big brands. Let's call it, PopCorners or SunChips [indiscernible]. We're really building a portfolio of brands that covers different cohorts and different need stays in a unique way.  We're also innovating in new formats. You mentioned multipack, which has been a great hit for us in terms of variety and empowering consumers for personalization. But this year, a few months ago, we launched Minis, which is also an incredible innovation. If you think about the convenient -- the additional convenience it gives consumers and putting our best brands in that format opens a whole set of new occasions for the business.  So we feel very good about the innovation strategy and how we keep capturing new occasions into our brands. As I said earlier, I think the business is becoming better operationally as the supply of materials is getting better, labor availability is getting better. So we should see operational metrics improving, and that's what you're seeing in the margins, although the Q1 margin was a little bit elevated. The strategic intent with Frito-Lay is growing it very, very fast and keeping the margins at those high levels because that's super accretive for the PepsiCo overall business.  Okay. I think this is the last question. So really appreciate the conversation this morning, and thank you, everyone, for joining today and especially for the confidence that you're all placed in our company and the investments you're making in our company. Thank you very much, and have a great day.",Ramon Laguarta
PEP,2023,1,"Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.",Operator
ULTA,2023,4,"Good afternoon, and welcome to Ulta Beauty's conference call to discuss results for the fourth quarter 2023 earnings results. [Operator Instructions] As a reminder, this conference is being recorded. 
 It is now my pleasure to introduce Ms. Kiley Rawlins, Vice President of Investor Relations. Ms. Rawlins, please proceed.",Operator
ULTA,2023,4,"Thank you, Camilla. Good afternoon, everyone, and thank you for joining us for our discussion of our fourth quarter and fiscal 2023 results. Dave Kimbell, CEO, will begin the call with key highlights from our quarter and full year results and share our priorities for fiscal 2024. Then Scott Settersten, CFO, will review our quarterly financial results in more detail. And Paula Oyibo, SVP of Finance and incoming CFO, will discuss our fiscal 2024 outlook. After our prepared comments, we will open the call for questions. Kecia Steelman, President and Chief Operating Officer, will join us for the Q&A session. 
 As a reminder, our fourth quarter and full year fiscal results include an extra week as compared to fiscal 2022. Comments regarding comp sales are based on a comparable number of weeks from the prior year. 
 Before we begin, I'd like to remind you of the company's safe harbor language. The statements contained in this conference call, which are not historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today, March 14, 2024. We have no obligation to update or revise our forward-looking statements, except as required by law, and you should not expect us to do so. 
 Today's prepared remarks will be longer than usual. [Operator Instructions] As always, the IR team will be available for any follow-up questions after the call. 
 Now I'll turn the call over to Dave. Dave?",Kiley Rawlins
ULTA,2023,4,"Thank you, Kiley, and good afternoon, everyone. We appreciate your interest in Ulta Beauty. The Ulta Beauty team delivered strong performance again this quarter with sales, operating margin and EPS all exceeding our internal expectations. Our traffic trends remained healthy. Our brand awareness reached all-time highs, and we drove strong member growth and retention. 
 For the quarter, net sales increased 10.2% to $3.6 billion. Operating profit was 14.5% of sales, and diluted EPS was $8.08 per share. Comparable sales increased 2.5%, driven by high single-digit growth from digital channels. Store comp sales increased slightly as we lapped high-teen growth last year. 
 A thoughtfully curated assortment, engaging marketing strategies and new fulfillment and technology capabilities, enabled our teams to deliver mid-single-digit comp growth for the holiday period. Our holiday campaign this year centered around the gift is just the beginning, which underscored our belief in the power of beauty and Ulta Beauty. To support the campaign, we created relevant storytelling, which inspired authentic connection, leading to record breaking impressions, significant growth in share of voice and strong social engagement. 
 These successful marketing efforts complemented our engaging in-store messaging and events, which focused on bringing beautytainment to guests and building the basket. Compelling content, combined with successful promotional strategies, drove strong new member acquisition and reactivation while increasing shopper -- shopping frequency and retention. 
 From a market share perspective, we continue to outpace the growth of the mass market for the 14 weeks ended February 3, 2024, according to Circana data. Our marketing share -- our market share of prestige beauty was more challenged as we lapped strong share growth in 2022 and continue to face pressure from the expansion of beauty -- distribution points in prestige. While competitive intensity has increased, we remain confident our differentiated model and sales-driving strategies will support our ability to capture additional market share over the long term. 
 Turning to performance by category. Skincare was our fastest-growing category, delivering double-digit comp growth. Brands leading into relevant trends like BIOMA, Bubble and Good Molecules, which is exclusive to Ulta Beauty, delivered strong growth. Dermatologist-recommended brands also continue to appeal to consumers looking for efficacious products from trusted brands, fueling growth for La Roche-Posay, Dermalogica and Cetaphil. 
 The fragrance and bath category also delivered low double-digit comp growth again this quarter. Newness from Valentino, Burberry and Tree Hut and holiday gift sets from consumer favorites, YSL, Gucci and Billie Eilish contributed to strong performance. In addition, in January, we welcomed Sol de Janeiro, a Brazilian-inspired body care brand, to the Ulta Beauty family. Available in 700 stores and online, Sol de Janeiro has quickly become a guest favorite, driving growth in the category. 
 Comp sales for the makeup category decreased in the low single-digit range. Softness in prestige cosmetics was partially offset by growth in mass makeup. Lip layering and blush proliferation continue to resonate with beauty enthusiasts. And brands leaning into these trends, including e.l.f., NYX and exclusive brand Juvia's Place, delivered strong growth. While prestige makeup was challenged in totality as we lapped strong growth last year, luxury brands, Dior, NATASHA DENONA and Pat McGrath continue to engage guests. And HOURGLASS, Tarte and Lancôme saw success with compelling holiday offerings. 
 Finally, comp sales for the hair care category decreased in the mid-single-digit range, primarily due to a decline in hair tools and the lapping of strong brand launches in 2022. Products focused on silane and foundational routines drove growth for professional brands Redken, Kenra and Biolage, and interest in hair health and treatments drove increased guest engagement with OUAI, Mielle and Divi. Newer brands, including Shark Beauty and LolaVie also resonated with guests. 
 Our services businesses delivered high single-digit growth for this quarter, driven by an increase in transactions. In addition to core styling services, specialty offerings, including extensions, hair treatments, texture services and ear piercing, drove strong engagement with guests. 
 Turning now to the full year. Net sales for the year increased 9.8% to $11.2 billion. Comp sales increased 5.7%. Operating profit was 15% of sales. And diluted EPS increased 8.4% to a record $26.03 per share. 
 In addition to delivering strong financial results, we also made meaningful progress against our strategic priorities. Let me share highlights of advances made this year. Reflecting our efforts to drive growth through all things beauty, we strengthened our assortment with compelling newness and the expansion of strategic cross-category platforms. Using the consumer lens of how guests experience Ulta Beauty through all of our touch points, we estimate we maintained our share of the total U.S. beauty product industry. 
 We launched customer favorite brands, including Dior, Beautycounter and Sol de Janeiro, and introduced emerging and exclusive brands, including Half Magic and Polite Society. We launched Luxury at Ulta Beauty, a strategically curated luxury beauty experience, and we expanded our cross-category platforms. We ended the year with more than half of our brand portfolio certified in at least one Conscious Beauty pillar and continue to drive greater awareness and discovery through unique sample kits and greater marketing support. 
 We expanded our Black-owned or founded brands to 50 brands, and welcomed to the second cohort of BIPOC brands to our MUSE Accelerator program, a program designed to help early-stage BIPOC brands prepare for retail readiness. Additionally, we expanded the wellness shop to nearly all stores and refreshed the presentation to inspire and educate guests how to integrate wellness into their everyday lives. 
 Turning to our second strategic pillar, All In Your World, we improved the guest experience across all of our touch points. We enhanced our physical footprint, opening 33 new stores and renovating or relocating 25 stores. Our services business delivered double-digit comp growth for the year, increasing frequency with members who already engaged in services while also introducing new members to our offering. And we drove greater experiential shopping through more in-store events focused on engaging and educating the guest about new products, new techniques and the latest beauty trends. 
 We also delivered significant improvements in our digital store experience. We successfully transitioned key guest-facing and commerce elements to a new modern architecture, delivering a fresh guest experience across both ulta.com and our app and providing our teams with new tools to optimize the guest experience. These enhancements, combined with our efforts to drive omnichannel member penetration, resulted in high single-digit growth in e-commerce sales and a 30% increase in member utilization of our app. 
 To support stronger omnichannel experiences, we continue to improve our buy anywhere fill anywhere capabilities. We expanded same-day delivery to all stores and increased our ship-from-store capabilities to 450 stores. Between BOPIS, same-day delivery and ship-from-store, 37% of our digital orders this year were fulfilled by stores, up from 31% last year. 
 Finally, we strengthened our partnership with Target with the introduction of new brands and the opening of 155 additional Ulta Beauty at Target locations, ending the year with 510 shops. And we deepened guest engagement as reflected in growth of new member conversions, reengagement of labs guests and greater loyalty account linkage as well as increased bounce back to Ulta Beauty stores. 
 Moving to our third strategic pillar, expanding and deepening guest engagement and loyalty by operating at the heart of the beauty community. Our marketing strategies, media investments and brand-building efforts resulted in record level unaided awareness, brand love and loyalty. To drive awareness and spark deeper connection engagement, we launched the Joy Project, a multiyear brand equity initiative to make beauty and the world a more joyful place. 
 We expanded our social media engagement across multiple platforms with new trendsetting series and compelling content, which drove strong engagement, positive social sentiment and share of voice. And we achieved an important milestone. In December, we surpassed 1 million followers on TikTok, reinforcing our position as a social brand leader in beauty. 
 With improved member retention, strong new member acquisition and healthy reactivation of lapsed members, we expanded our loyalty program by 8%, ending the year with 43.3 million loyalty members who shopped more frequently and spent more with us on average. Leading into the power of our best-in-class loyalty program in January, we rebranded the program to Ulta Beauty Rewards, featuring a stronger birthday experience and a refreshed look in stores and online and across social to drive greater awareness and deepen connection with our members. We are excited to reward our members with even more of what they love and showcase how much we appreciate them. 
 Finally, UB Media, our retail media network, continued to deliver value. This year, we expanded the team, introduced new on-site products and launched an innovative omnichannel solution, which supports the measurement of campaigns across both digital and physical stores. 
 Our fourth strategic pillar is to drive operational excellence and optimization to enable us to capture additional market share, fund guest experience enhancements and deliver future profitable growth. 
 I am very proud of what our teams accomplished in fiscal 2023, which was an ambitious year of foundational transformation for Ulta Beauty. We completed the retrofit of our Greenwood distribution center, began the retrofit of our Dallas distribution center, opened our Greer market fulfillment center and began work on our Bolingbrook market fulfillment center. We successfully transitioned our Jacksonville, Greer and Chambersburg distribution facilities and key merchandising processes to our new enterprise resource planning platform. And we converted key merchandising and commerce elements of our digital store to a new architecture while maintaining digital operations. 
 We built a new enterprise data platform on Google Cloud infrastructure, establishing a modern ecosystem for future analytics and data-driven decision capabilities. And we completed our rollout of new POS systems, including mobile checkout in all stores. 
 Our teams enable our success, and we continue to invest and protect and cultivate our world-class culture and talent. This year, we introduced a new leadership competency model, redesigned our succession planning and talent review processes, expanded our associate development offering and completed enterprise-wide training to reinforce inclusivity and address unconscious bias. Associate retention improved across stores, distribution centers and our corporate team. And our 2023 culture survey results reinforce that our overall associate engagement remains strong. 
 Finally, we made progress against our sixth strategic pillar to expand our environmental and social impact. We continue to improve the energy efficiency of stores through LED lighting retrofits, HVAC retrofits and energy management system upgrades and established 2030 emissions reduction goals approved by the Science Based Targets initiative. 
 I am incredibly proud of what our teams accomplished in 2023. Our teams worked through unexpected challenges with agility and grace, and I'm grateful for their steadfast commitment to deliver value for all stakeholders while also enabling new capabilities for future growth. 
 As we look forward, we remain optimistic about the strength and resiliency of the beauty category. Over the last 3 years, the beauty category has experienced unprecedented growth. In 2024, we expect the category will remain healthy, but the growth will moderate to the mid-single-digit range, barring a major economic event. 
 Beauty is an attractive category, and competitive intensity continues to increase as channels blur and distribution expands. To protect and expand our leadership position, this year, we expect to advance our transformational agenda with the completion of key projects while also investing in core traffic and experienced drivers to strengthen engagement and enhance the guest experience. 
 Starting with our go-to-market strategic pillars, we will innovate, evolve and expand All Things Beauty to excite and engage the beauty enthusiast. To strengthen our differentiated position, we will continue to expand our assortment with compelling and relevant brand launches like Sol de Janeiro and Charlotte Tilbury while also building exclusive emerging brands in our pipeline yet to be announced. 
 In addition, this year, we will refresh Ulta Beauty Collection and position the brand as the cornerstone of our conscious beauty platform. And we will continue to enhance and amplify Luxury at Ulta Beauty and across category platforms. 
 Reflecting the importance of omnichannel engagement, we will invest in the guest experience across all of our touch points. We will further expand and enhance our physical footprint through additional new stores, remodels and relocations. In all stores, we will focus on enhancing the guest experience through friendly and helpful associates, fast and frictionless fulfillment and engaging services and events while also improving operational excellence through simplification, prioritization and optimizing our store teams. 
 We also plan to drive growth across digital platforms as we leverage new capabilities to amplify brand launches and events, drive greater digital discovery and conversion and expand personalization across our digital platforms. And we will expand and enhance our partnership with Target as we support new Ulta Beauty at Target shops, evolve the assortment and deepen member engagement through targeted loyalty strategies. 
 Operating at the heart of the beauty community, we intend to expand and deepen guest loyalty and engagement. To support long-term brand equity and drive deeper emotional connection with consumers, we will amplify the Joy Project with a continuous rhythm of engaging activations and drive community through an expanded creator network and affiliate program. We will support brand activations and events to drive new member acquisition while also leveraging our unique data insights to expand our targeting and member engagement. We will evolve our strategic promotional events to inspire and engage our beauty community, drive trips and encourage omnichannel engagement. And we plan to expand the impact and value of UB Media. 
 Turning now to our operational excellence and optimization efforts. In fiscal 2024, we plan to complete many of the foundational elements of our transformational agenda, including Project SOAR, Digital Store and the upgrade of our data management capabilities. We also plan to invest in a new martech stack to support our personalization, retail media and overall e-commerce efforts. 
 Our supply chain optimization journey will continue as our Bolingbrook market fulfillment center is completed, we continue to retrofit our Dallas distribution center, and we began the retrofit of our remaining full-service DCs in Chambersburg and Fresno. In addition, we intend to leverage our established continuous improvement capabilities to drive additional cost efficiencies with a priority on improving processes to reduce shrink. 
 To protect our culture and cultivate our talent while also enabling future business performance, we will continue to invest in our associates and team. We intend to focus on enrichments to the frontline associate experience, enhanced associate learning and development and deepen our DEI impact. 
 Turning to our final strategic pillar. We intend to stay focused on our environmental and social impact. Building on progress made in 2023, we plan to implement our road map to achieve our emission reduction goals. 
 Finally, I want to share an update on how we are approaching expansion opportunities outside the U.S. International expansion represents an incremental long-term opportunity for Ulta Beauty to extend our reach and leverage our differentiated value proposition. Today, we are excited to announce our planned market entry into Mexico. 
 The Mexican beauty market is sizable, growing and has significant beauty opportunity. Our research suggests there is a healthy awareness of the Ulta Beauty brand with local beauty enthusiasts, and we also see strong engagement in stores located in geographically adjacent markets. After extensive evaluation, we prioritized an asset-light partnership approach to enable us to move quickly. And I am excited to announce we have formed a joint venture with Axo, a highly experienced operator of global brands, to launch and operate Ulta Beauty in Mexico in 2025. 
 As a result of this partnership approach, we do not expect this venture to be material to our financials in fiscal 2024. For competitive reasons, we're not sharing more details today, but we'll provide updates as appropriate. 
 In closing, the Ulta Beauty team delivered strong financial performance in fiscal 2023 while also achieving meaningful progress against our strategic priorities. As we look to 2024, I remain excited about the opportunity to enhance our market leadership and drive profitable growth. We operate in a growing category with strong consumer engagement, and I am confident that our proven differentiated business model, strategic priorities and outstanding, passionate team will enable us to move beauty forward in ways that create values for our shareholders and have a positive impact on our guests, associates and the communities we serve. 
 Now as many of you know, this will be Scott's last earnings call. And I want to recognize and thank Scott for his many contributions to Ulta Beauty. He has been an exceptional partner to me and an inspirational leader for our entire team. 
 Now today, you will also hear from Paula Oyibo, who will become our CFO on April 1. Paula joined Ulta Beauty in 2019 and is a dynamic finance executive with broad industry experience. She understands our business and our guests, and I know she will have a strong impact on our business going forward. 
 And now I will turn the call over to Scott for a discussion of our financial results. Scott?",David Kimbell
ULTA,2023,4,"Thanks, Dave, and good afternoon, everyone. I will review our fourth quarter financial results before turning it over to Paula Oyibo, who will walk through the outlook for fiscal 2024. 
 Financial results for the fourth quarter came in ahead of our expectations across the top and bottom line, reflecting strong holiday performance, growth in other revenue and healthy traffic trends as well as strong execution and focused expense management. Net sales for the quarter increased 10.2%, driven by 2.5% growth in comp sales, strong new store performance, a $25 million increase in other revenue as well as the impact of the 53rd week in fiscal 2023. Net sales for the 53rd week were $181.9 million. The growth in comp sales was driven by a 4.5% increase in transactions. 
 Average ticket declined 1.9%, driven by lower units per transaction, which were partially offset by higher average selling price. Reflecting a more normalized pricing environment, we estimate that product price increases contributed about 100 basis points to the overall comp increase. 
 Looking at the cadence of sales through the quarter, comp sales were solid in November and December, reflecting strong holiday performance. As expected, sales were more challenged in January as we lap the exceptional results from our strongest month in fiscal 2022. 
 During the quarter, we opened 13 new stores, relocated 2, remodeled 2 stores and closed 2 stores. For the quarter, gross margin increased 10 basis points to 37.7% of sales. The increase was driven by strong growth in other revenue, lower shipping rates and leverage of supply chain costs, which were largely offset by lower merchandise margin. Our efforts to grow other revenue continue to yield benefits with performance driven by increased credit card income, greater loyalty point redemptions and royalties earned through our Target partnership. 
 At the same time, we realized benefits from our supply chain optimization efforts as our carrier diversification strategy drove improved profitability. As anticipated, merchandise margin was pressured during the quarter, reflecting the lapping of benefits from price increases, increased promotionality as well as the impact from brand mix. These pressures were partially offset by ongoing category management efforts. The impact of promotional activity was above last year but continues to be well below 2019 levels. 
 Notably, shrink was flat during the quarter, slightly better than our expectations, reflecting the impact of our investments this year in training, labor and new fragrance fixtures. For the full year, shrink as a percentage of sales increased 40 basis points. 
 Moving to expenses. SG&A increased 7.6% to $820 million. Overall, SG&A spend was better than planned due to focused expense management and a shift in timing of certain strategic investments. As a percentage of sales, SG&A decreased 50 basis points to 23.1% compared to 23.6% last year, primarily due to lower incentive compensation and leverage of marketing expenses and store payroll and benefits, which was partially offset by deleverage of corporate overhead and store expenses. 
 Incentive compensation drove 40 basis points of leverage in the quarter, reflecting operational performance that was more in line with our internal targets compared to last year's significant outperformance. In addition to the impact of higher sales, marketing expense leverage was driven by the timing of advertising expenses, while store payroll and benefits leverage reflected fewer payroll hours per store, which more than offset ongoing wage rate pressures. 
 Offsetting these benefits, corporate overhead expense deleveraged during the quarter, primarily reflecting investments related to our strategic priorities, including Project SOAR, Digital Store and other IT capabilities and UB Media. For the full year, we invested $62 million of incremental spend to support our strategic initiatives, which was at the lower end of our expectations, reflecting the shift in timing of certain projects into 2024. 
 Finally, store expenses also deleveraged, driven by investments to support merchandising initiatives as well as ongoing inflationary pressures across the business. Operating margin was 14.5% of sales compared to 13.9% last year. The company's tax rate decreased to 24.2% compared to 24.6% in the fourth quarter last year. The lower effective tax rate is primarily due to benefits from a decrease in state income taxes. Diluted GAAP earnings per share increased 21% to $8.08 compared to $6.68 last year. The EPS impact of the 53rd week was $0.46. 
 To recap the full year, net sales increased 9.8% to $11.2 billion. Comp sales increased 5.7%, driven by a 7.4% increase in transactions and a 1.5% decrease in average ticket. We estimate that product price increases contributed about 200 basis points to the overall comp increase for the year. Operating profit was 15% of sales, with deleverage coming evenly from gross margin and SG&A. And diluted EPS increased 8.4% to a record $26.03 per share. 
 Moving on to the balance sheet and cash flow statement. Total inventory increased 8.6% to $1.7 billion compared to $1.6 billion last year. In addition to the impact of 30 net new stores, the increase reflects inventory to support new brand launches, the new market fulfillment center in Greer, South Carolina as well as the impact of product cost increases. 
 Our well-established business model continues to generate significant cash from operations, including nearly $1.5 billion in fiscal 2023. Our capital allocation approach remains consistent. Our first priority is to reinvest in our business to drive future growth, followed by returning excess cash to our shareholders. 
 In fiscal 2023, we invested $435 million in capital expenditures, including approximately $178 million for new stores, remodels and merchandise fixtures; $124 million for IT; $73 million for supply chain; and $60 million for store maintenance and other. Depreciation for the year was $244 million compared to $241 million last year and primarily reflects the ongoing shift of IT investments from capital to cloud expense. 
 During the fourth quarter, we repurchased 352,000 shares at a cost of $159 million, bringing total share repurchase to 1 billion for the full year. Since launching our stock buyback program in 2014, we've purchased more than 18 million shares at a weighted average price of $313, effectively returning $5.8 billion to shareholders while continuing to invest in strategic growth drivers. 
 Before I turn the call over to Paula, I want to take a moment to express my sincere gratitude to our teams for delivering these strong results for our shareholders this year and throughout my tenure with Ulta Beauty. It has been an honor to serve as the company's CFO and a privilege to lead and serve alongside such talented associates. I'm excited to pass the baton to Paula, who I know will be an excellent leader and steward of Ulta Beauty's business going forward.",Scott Settersten
ULTA,2023,4,"Thank you, Scott. I am honored and humbled to be assuming the position of Chief Financial Officer at Ulta Beauty, and I am excited to lead our talented finance organization and to drive Ulta Beauty's next phase of growth. I want to thank Scott for his mentorship over the years and wish him all the best in his well-deserved retirement. I look forward to working with those on the call today and meeting those of you I have not yet met. 
 Before we talk about our expectations for fiscal 2024, I want to share 2 capital allocation update. First, yesterday, we amended our revolver agreement to $800 million and extended the term to 2029. Reflecting the current rate environment, we reduced the size of the revolver to lower the impact of higher fees but retain flexibility to upsize the capacity if needed. Second, having essentially completed the authorization announced in March 2022, today, we announced a new share repurchase authorization for $2 billion. 
 Now turning to our outlook for fiscal 2024. We expect net sales will be in the range of $11.7 billion to $11.8 billion with comp sales growth expected to be between 4% and 5%. We anticipate comp growth will be in the low single-digit range in the first half and then increase to mid-single-digit growth in the second half of the year. We expect operating margin will be between 14% and 14.3% of sales, primarily driven by SG&A deleverage as we complete many of the foundational elements of our transformational agenda and move to investments to enable growth, operationalize the investments made in 2023, manage ongoing wage pressures and support core traffic and experienced drivers. 
 In total, we expect SG&A growth for the year will moderate into the high single-digit range from 12.5% growth in fiscal 2023. We expect SG&A growth in the first half will be in the low double-digit range as we annualize investment spend in 2023 and complete key milestones of our transformational agenda and then slow to mid-single-digit growth in the second half. We expect gross margin for the year will be down modestly as lower merchandise margin and deleverage of supply chain costs are partially offset by other revenue. 
 Our assumptions result in a diluted earnings guidance in the range of $26.20 to $27 per share. We are planning EPS to decline in the first half and then accelerate to high single-digit growth in the second half of the year. For modeling purposes, we expect operating margin to be the most challenged in the first quarter with meaningful deleverage across SG&A and gross margins. 
 Finally, we plan to spend between $415 million and $490 million in CapEx, including approximately $270 million to $282 million for new stores, remodels and merchandise fixtures; $120 million to $155 million for supply chain and IT; and $45 million to $53 million for store maintenance and other. We expect depreciation for the year will be between $275 million and $280 million. 
 We believe the outlook for the beauty category is bright, and we are confident our strategic framework and strong financial foundation will enable us to drive long-term growth and shareholder returns. 
 Before we take your questions, I want to announce that we plan to host an investor event here in Chicago this fall to share our longer-term plans and outlook. We will share more of the logistical details later this summer. 
 And now I'll turn the call back over to our operator to moderate the Q&A.",Paula Oyibo
ULTA,2023,4,[Operator Instructions] Our first question comes from the line of Rupesh Parikh with Oppenheimer.,Operator
ULTA,2023,4,"Also, Scott, best wishes on retirement. So I wanted to start out just with the prestige cosmetics category. As you look towards this fiscal year, we're seeing a lot of newness in stores. You're moving past, I think, pretty difficult comparisons. So just curious if you guys expect to return to share gains within the prestige cosmetics category.",Rupesh Parikh
ULTA,2023,4,"Rupesh, thanks for your question, and thanks for calling out, Scott, well deserved. Yes. I'll say on makeup, and I'll even speak a little bit more broadly across all our categories, we are focused on driving growth in every part of our business. Our makeup business in 2023, particularly in the second half, we saw healthy growth on the mass side and more challenges on the prestige side. So we have a strategy to drive performance within all parts of our makeup business. It is our largest segment and obviously important in the beauty category. 
 Our efforts are holistic. We've got a number of new brands that we believe will either already are or will add value to the category, including the launch of Charlotte Tilbury, which just rolled out recently, also exclusive brands like Half Magic and Polite Society, Rabanne, innovation from our existing big brands that we'll continue to see that have been so important to our business like Tarte and Benefit and Clinique and Lancôme on the prestige side. 
 Our luxury proposition really launched last year to -- with a lot of success. And as we continue to grow and build our presence in that space, we see that as a contributor. And then through our holistic efforts, we're going to try to find ways to lean into the important trends. Makeup is -- of course, has a key trend component. So whether it's blush, shade, proliferation, lip layering, matte makeup, nail is an important opportunity, we're going to continue to drive that. 
 And the last thing I'd say is we continue to revamp and elevate our events that play an important role in mass migration, the number of mass consumers that we've acquired over the years, continuing to introduce them to prestige for the first time. So we're focused on driving that business. We are confident over time that we'll be able to deliver the growth that we expect, and we're working hard to deliver across all parts of that business.",David Kimbell
ULTA,2023,4,Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler.,Operator
ULTA,2023,4,"Congrats on the quarter. I'd like to touch a little bit on the decision to enter into Mexico. I mean previously, we've been talking about potentially going into Canada. Just would like to understand your thought process of going or doing Mexico versus Canada. And what kind of opportunity do you really see there over the longer term?",Korinne Wolfmeyer
ULTA,2023,4,"I'm just going to say we're really excited about this announcement and really, as I said in the prepared remarks, see Mexico as a great opportunity that's tailor-made for the Ulta Beauty experience. Kecia is leading this effort among many things that she does. So I'm going to ask Kecia to give some more color on it.",David Kimbell
ULTA,2023,4,"Yes, absolutely. Well, after careful evaluation of many market opportunities, we really felt like the Mexican market is the next step for Ulta Beauty for us to have this partnership with Axo. And we're really excited about this. I know that the future is going to be really bright in this partnership. We've spent a lot of time with their teams from a cultural perspective, also just even from the best-in-class performance with global partners that they've brought to the Mexico consumer -- the Mexican consumer. 
 Our border stores are performing really, really well. And I just think it's the next natural step for us as we continue to expand internationally. So we are really excited about this. Again, we are planning to be operational in 2025. The cost of this is built into the guidance in '24. So we don't feel like it's very material. But we're super excited and feel that Axo is the right partner for us to launch in this next new territory for us.",Kecia Steelman
ULTA,2023,4,Our next question comes from the line of Ike Boruchow with Wells Fargo.,Operator
ULTA,2023,4,"This is Juliana on for Ike. I just wanted to ask in regards to thoughts on the beauty categories moving forward, particularly the balance of prestige and mass, and maybe in addition, how we can see that driving merchandise margin given the benefit that we've seen.",Juliana Duque
ULTA,2023,4,"Well, for the overall category, as I mentioned in the remarks, we're fortunate to be in a category that continues to be healthy, that is highly connected to our consumers, a high level of engagement, that there's an emotional connection that's driving the category and has been for a very long time, and then certainly coming out of COVID, has been exceptionally strong. 
 All indicators, as we look at the consumer landscape, is a continued level of engagement. When we look into this year, though, of course, we are evaluating and anticipating and preparing for consumer behavior to continue to evolve. We know there's external pressures on the consumer. We know we're entering into a dynamic time with an election year. 
 And what we've seen in this category is strong growth, but as expected, some moderation in that growth. Still above historical trends but some moderation. Simply put, we think consumers, highly engaged in the category but still -- and still passionate about the category but will continue to be thoughtful in all of their spending. But fortunately, we know that beauty is an important one. 
 And as a reminder, Ulta Beauty is well positioned to manage through really any kind of economic disruption or challenge given our unique portfolio, all price points, all categories that allow us to meet our consumers' needs if there is a time that they feel more pressure or have other changes. But overall, category healthy. Paula, as it relates to any potential margin changes?",David Kimbell
ULTA,2023,4,"Yes. What I would say is our merchandise margin, I would remind, we are meaningfully higher and better, our merchandise margin since 2019. And really that has a lot to do with we are a much healthier business now, and we have -- our mix in our business between our categories as well as prestige and mass through category performance efforts over the years has really helped us be able to be flexible as the consumer shifts between various categories as well as between mass and prestige. And so we believe that our -- we're able to manage that dynamic.",Paula Oyibo
ULTA,2023,4,Our next question comes from the line of Susan Anderson with Canaccord Genuity.,Operator
ULTA,2023,4,"I wanted to maybe ask about the store expansion. It looks like it picks up this year. I guess how should we think about timing throughout the year? And then also, should we expect these to be the full-size stores? Or are you going to roll out any of the smaller test stores that you've been looking at? And then also, just how do you think this helps to maybe win back some of the share from other competition?",Susan Anderson
ULTA,2023,4,"Thanks, Susan. We are planning to open between 60 and 65 net new stores in fiscal 2024. That puts our growth between the 2-year period at 90 to 95, which is generally in line with the 100 that we had communicated. And so our thinking hasn't materially changed there. 
 We remain confident in our ability to open and operate between 1,500 and 1,700 traditional Ulta Beauty freestanding locations in the U.S. And we're optimistic the small format store prototype could give us an opportunity for additional growth, as does the partnership with Target and then similarly as we're excited about the additional opportunity with our international expansion into Mexico. Related to the small geographies, we are planning to open 10 small store formats in 2024.",Paula Oyibo
ULTA,2023,4,Our next question comes from the line of Ashley Helgans with Jefferies.,Operator
ULTA,2023,4,"So we just wanted to ask for an update on UB Media. Anything you can share about the number of brands that are currently on the platform, maybe demand for the platform? And then any color to help us model as UB starts to scale?",Ashley Helgans
ULTA,2023,4,"Yes. We're really pleased with the progress that we've made. As a reminder for those on the call, this really does represent a way for us to generate positive impact on our business by leveraging the first-party data and insights that we have in partnering with our brands. We're not sharing, we haven't shared and we don't plan to share specific on a number of brands or even specific financial impact at this time. 
 But what I will say is we're really pleased with the progress that we've made in 2023 and are confident that we'll continue to grow this part of the business. The network that we have offers advertising access via off-site display, video, social influencers as well as on-site sponsored products. Our on-site display inventory is one of the actually new core offerings that we activated just in 2023. 
 So we've got a full suite of ad inventory experiences, value-added services. And as I said, we're confident in its impact going forward. And the support, engagement, reaction from brands has been very positive. As you know, the advertising world continues to evolve. So the value that we can bring through first-party data with 43 million beauty enthusiasts is very meaningful. And we continue to work with our brand partners, and they have demonstrated to us that they see a positive return. And we're continuing to grow that business.",David Kimbell
ULTA,2023,4,Our next question comes from the line of Olivia Tong with Raymond James.,Operator
ULTA,2023,4,"Congrats, Scott, and looking forward to working with you, Paula. I wanted to ask you a little bit about your thoughts on new product contribution this year because it does seem like certainly starting off with the momentum with Charlotte Tilbury and Sol de Janeiro. We did some store tours in New York recently, and the team is very energized around these brands. So was wondering if you could talk about contribution this year versus previous years and then helping us understand sort of -- I think you mentioned Sol de Janeiro that -- a portion of the doors. Maybe can you give the same statistics for Charlotte Tilbury? 
 And then on the margin, I would just love a little bit more detail in terms of what's driving the margin outlook to the 14% to 14.3% end of the longer-term range, whether there's anything, sort of higher investment or what have you that's sort of dragging that to that end of the range?",Olivia Tong Cheang
ULTA,2023,4,"Okay. Thanks, Olivia. Yes, I'll talk about new product at our newness pipeline, and then Paula can pick up on your question around margins. So we're -- well, first, I'll say newness is always a critical part of our business and historically has been between 20% to 30% of our sales. And that's an important part of the category and one of the best things about the category. There is a large desire from our beauty enthusiast guests from our members to discover what's new and exciting across all of our categories. 
 And so we do have what I believe is a well-balanced portfolio of new brands between big, recognized brands like Charlotte Tilbury as well as a steady stream of emerging brands that are unique or exciting within the Ulta Beauty environment. And so we don't -- we're not going to give any specific numbers about newness this year versus last year. But I will give you a couple of highlights. 
 First, you mentioned Charlotte Tilbury. And just to reiterate, that is in 600 stores and online, and we're excited about that. It was one of the top requested brands from our members, and we're pleased to be partnering with them to bring a unique and powerful experience to life. Sol de Janeiro is in 700 stores and also online and also was highly requested and brings just a terrific experience in-store and online and has been very well received since we launched that in January. 
 But there's a whole range of products that we're going to continue to launch and bring to life. We do focus, as I said, on emerging brands. And while I'm not going to, for competitive reasons, share some in the pipeline that are ahead of us, I'd highlight some of the brands that we launched last year like LolaVie, Polite Society, Half Magic, a brand like Live Tinted, which has been with us for a little bit, important brands playing an exciting role in driving growth in various categories that we're excited about. And our luxury business that I talked about, we continue to add brands to that throughout the year and see growth. 
 So newness is important. We see -- we like the balance that we have. We're excited about the brands that we've launched so far, and I look forward to rolling out more partnerships and bringing newness across our portfolio throughout 2024. Paula, on the margin question?",David Kimbell
ULTA,2023,4,"Yes. So from an operating margin perspective, we shared 14% to 14.3% of sales. And that is mostly deleverage coming from SG&A as we complete many of our foundational elements of our transformation agenda and move to investments to enable growth as well as we operationalize the investments that we made to date and those go into one state. We also are managing ongoing wage pressures, which is assumed in the guidance. And we also will continue to support core traffic and experienced drivers. 
 And so as you think about SG&A growth for the year, it will moderate into the high single-digit range from the 12.5% growth we saw in fiscal 2023. And then we do expect gross margin to be down modestly as lower merchandise margin and deleverage from supply chain costs are partially offset by the growth we see and expect in other revenue.",Paula Oyibo
ULTA,2023,4,Our next question comes from the line of Michael Baker with D.A. Davidson.,Operator
ULTA,2023,4,"Really just a follow-up on what you just said. The -- can you tell us where you are in this investment -- these foundational investments? I think you said $62 million in 2023, which was below plan, and shift some into 2024. So what should it be in 2024? And even working backwards, can you remind us what it was in '21 and 2022? It was sort of supposed to have a 3-year investment plan that is rolling off. It sounds like it's still rolling off and -- although there will be some lingering costs in 2024. So just trying to conceptualize what 2024 investments will look like versus 2023.",Michael Baker
ULTA,2023,4,"Yes, Michael, I'll start with some of the numbers and then turn it over to Kecia so she can give a little bit more flavor for where we are. So we had an incremental $55 million in 2022 related to our transformational strategic investments. We communicated $62 million incremental in 2023. As you think about 2024, we expect limited incremental investment as we complete the foundational elements of our transformational agenda. Think about Project SOAR, Digital Store and other IT projects. 
 But as I communicated, once we complete those particular systems, these upgraded systems roll into our core operations and become a part of our base, and there's run costs associated to that. So there is run cost associated with those foundational investments. We will continue to invest to enable growth as well as the other items that I mentioned regarding wage pressures and investing in traffic and experienced drivers. Kecia?",Paula Oyibo
ULTA,2023,4,"Yes. So in regards to like where we are on the investments and where we are in the projects for our ERP upgrade or what we're internally calling as Project SOAR, just this week, we completed our Dallas DC. And we have plans to wrap up Greenwood and Fresno and open up our new MFC in Bolingbrook, which is a relocation of the existing FFC in Romeoville before peak this year. Part of the ERP upgrade, we're also transitioning our store systems and our merchandising systems. And we have those plans to be completed before the second half, again prior to peak. 
 For supply chain in '24, we are continuing to invest in our automation capabilities. And I mentioned already the MFC in Bolingbrook hits on our supply chain lines and then also finishing out that retrofit in Dallas -- the Dallas DC. And then for the Digital Store of the Future, so our Digital Store platform, we expect that to be completed in the first half of 2024. And we're wrapping up all of our upgrades around our analytical tools and reporting capabilities. So bottom line, we continue to be on track and on our budget, and we are all in on wrapping these foundational enabling systems up this year.",Kecia Steelman
ULTA,2023,4,Our next question comes from the line of Anthony Chukumba with Loop Capital Markets.,Operator
ULTA,2023,4,"Let me add my congratulations to Scott as well. It's been a pleasure working with you all these years. So my question was on the luxury brands. I guess just 2 parts to the same question, both pretty quick. First off, how did they perform relative to your expectations in 2024? And what are your expectations in terms of additional brand rollouts -- luxury brand rollouts in 20 -- sorry, in 2023? And then what are your expectations for additional luxury brand rollouts in 2024?",Anthony Chukumba
ULTA,2023,4,"Great. Well, thanks for the question. And yes, luxury, as I said, was one of our -- one of many initiatives last year to drive engagement. And we're really pleased with establishing that more firmly with some of our existing partners, including Chanel, but Dior, NATASHA DENONA, Pat McGrath. And so we see strong performance, and we're really pleased with how our guests are engaging in that part of the business. 
 We had a lot of confidence going in because of existing relationships with brands like Chanel. And then by elevating and expanding it, it has really, we believe, met our guests' needs. And they're excited about it. And it further demonstrates our ability to deliver all things beauty from all price points, including luxury. 
 We're not sharing any specific launches of anything beyond what I've already shared today. More broadly, as I said, with newness, we have a steady stream of newness throughout the year, and we'll continue to innovate. Specifically within luxury, our focus is continuing to grow in partnership with the brands that we've launched and find new ways to expand those businesses and delight our guests with them. And we're really pleased and proud to have that experience in our stores.",David Kimbell
ULTA,2023,4,"Operator, can we have the last question, please?",Kiley Rawlins
ULTA,2023,4,"Our final question comes from the line of Adrienne Yih with Barclays. 
Adrienne Yih-Tennant: Scott, congratulations. It's been great, and thanks for all the help over the years. This question is maybe for Dave or Kecia. Can you talk about the promotional environment that your guidance is under for 2024? Is it expected to sort of remain in maybe the first half and then abate or kind of preexist all year long and whether it was more from prestige? Are you concerned that there perhaps is a longer-term shift to mass or masstige from younger or more price-sensitive consumers? 
 And then Scott and Paula, just a quick one. In your 4% to 5% comp, what are you expecting in terms of any ASP increases this year? And what's the rationale behind the low single-digit to mid-single-digit comp in the back half? What's going to drive the acceleration?",Operator
ULTA,2023,4,"So yes, just on the promotional environment, what -- I probably won't answer every one of your detailed questions because we're not going to break it out that way exactly. What I'll say more broadly is we're not expecting that the promotional environment is going to significantly intensify or become irrational. We are in a competitive environment. That's for sure. And we are focused on ensuring that we're delivering on our leadership position. 
 So as we look forward, we would anticipate and we have in our plans the ability to drive our business, which includes marketing, store labor, digital experiences and promotional activity as appropriate. But not an expectation more broadly for a significant step. And we do anticipate, as we saw in 2023, that it will still remain well below 2019 levels. 
 The mass to mass prestige question, we see opportunity across both parts of the business. Yes, consumers are engaged, and young consumers are engaged in mass, but they're also engaged in prestige. They're loving our luxury experience. So it's really not so much about price or promotion necessarily as what brand is really delivering great innovation, great marketing, engaging with them in social media. Those brands will win and -- regardless of the price points. Paula, do you want to give a little color on some of the 4% to 5%?",David Kimbell
ULTA,2023,4,"Sure. Adrienne, on your question with regards to expectation around ASP, what I would share is that we are planning for a more normalized pricing environment in 2024.",Paula Oyibo
ULTA,2023,4,"Great. Thank you, and thanks, everyone, for joining today. I'd like to close by thanking our 55,000 associates for delivering a strong 2023. Together, I know we will continue to unleash the unique power of beauty and keep moving our business forward in exciting ways. I'm optimistic about the future of Ulta Beauty and confident we will continue to create significant shareholder value. 
 I do want to take 1 second to thank Scott again. Scott, as I said, has been an amazing partner to all of us, and I so appreciate his impact and his leadership. And I want to thank those on the call that have the chance to thank him yourself. I know he loved spending time in all of our meetings and all of our earnings calls. It was -- I know he appreciated partnership with all of you, and I do want to thank Scott for everything you've done for our company. Thank you, Scott. 
 We look forward to speaking to all of you again when we report results for the first quarter of fiscal 2024 on May 30. Thank you again, and have a great night.",David Kimbell
ULTA,2023,4,This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.,Operator