Q3 2019 Earnings Call
Good morning, and welcome to Newell Brands' third quarter 2019 earnings conference call. At this time of all participants are any listen only mode. After a brief discussion by management, we will open up the call for questions.
Just staying within the time scheduled for the call. Please limit yourself to one question during the Q many session.
Reminder, today's conference is being recorded.
Live webcast of this call is available.
Our dot Newell brands Dot com.
I'll now turn the call over to Nancy O'donnell, Senior Vice President of Investor Relations Mr. Donald you may begin.
Thank you good morning, everyone.
Welcome to Newell Brands' third quarter earnings call.
On the call with me today, our Robbie Charlotte Graham, our President and CEO , Chris Peterson our CFO .
During the course of today's call, we will make forward looking statements before looking statements involve risks and uncertainties actual results or outcomes could differ materially from management's expectations.
I refer you to cautionary language available in our press release in the risk factor section of our latest Form 10-Q for further discussion of forward looking statements.
Please also recognize that we will refer to certain non-GAAP financial measures reconciliations between GAAP and these normalized measures can be found in today's earnings release cable that's wells on the Investor Relations website and in our latest Form 10-Q .
Now I'll turn the call over to Robby.
Thank you Nancy good morning, everybody and welcome.
Absolutely delighted to join new branch and I'm excited about the company's future.
The first 30 day, so my listening tool I visited our E Commerce group.
The design center.
Two manufacturing comps and all seven businesses during which had an opportunity to review our product lines. The state of the business as well, let's come back town halls, Fred I've addressed over a thousand employees and match with nearly 150 employees some small group settings.
Let me share.
On the company.
We have dedicated and passionate employees, who want to win.
And then resilience cultural law churn in the past two yes, we can maximize their potential and drive better outcomes, so strong leadership, and providing security and stability of direction and priorities.
An opportunity to optimize the organizational structure.
Better leverage our scale functional capabilities and provide continuity to our go to market approach would not top customers.
We need to find appropriate and harmonious balance between being centralized and de centralized without causing significant internal disruption.
We have an opportunity to better integrate all businesses and create a common unified go forward and winning new news culture.
We would work hard to create an external focus improve employee engagement and develop aligned cohesive teams.
And I will point, it's Steve Parsons that's on you.
Chr Roe.
And he joined a week outright steep but mean, turning around officemax and his skill that leveraging human capital.
Acting top talent.
Well I, Connie branch, which strong equity that our household names November 17th, we refreshed and rejuvenated through timely and meaningful innovation that appeal to today's consumer.
We'll also walk on strengthening channel management through appropriate bonds segmentation.
I'm excited about a foundation e-commerce capabilities at our E Commerce Center of excellence based in Hoboken.
He is very impressive to see that our global online sales in the very high teens as a percentage of total company sales, excluding our commercial business.
This percentage is much higher than the CPG and durables average.
We also have excellent sales teams that call on our Etailers and is very satisfying to see that their efforts had driven double digit sales growth in online sales and consumption.
We do have an opportunity to improve the digital Q of our individual businesses and become a truly digital first company.
Additional sector, but its common sense that towering strength and competitive advantage for the company in the long term.
In conjunction with E. Commerce will also be sharpening our skills in utilizing influencers and leveraging social media. This is an embryonic muscle, but it greatly to stretch our media dollars, especially given the more discretionary purchase pattern so far process.
I have lived in six countries and walked across 50, and I've been president of international into companies.
With Dod perspective.
I believe international is a tremendous growth opportunity funnel into long term.
Today, we do not have an integrated in new business in any country or region. Each business has its own international footprint and the recent exceptional Canada offices of Egypt pop businesses typically not even in the same sitting individual countries suffice it to say I international efforts a highly Frank.
Mentoring.
Next to the U.S., a largest countries, Canada and it has not yet achieved a half a billion dollars incentives in fact, only eight countries outside the U.S.. So sales over 200 million and one close to 100 million.
Footprint and operations extend to nearly 50 countries.
We do have pockets of strength.
We have an excellent poster business in last time that is growing Yankee candle in the UK, that's growing rapidly a strong brand reputation for Coleman in Japan, and strong writing franchises in Europe and lot Huh.
Our first step is to understand what we have right in terms of resources and capabilities prioritize drive countries and categories and lay down the foundation for becoming a truly global company.
This is a long term opportunity and we need to tackle it deliberately systematically and methodically.
Portfolio of businesses, though it's a tale of two cities, it's great to see that writing baby home fragrance and connected homes.
Growing core sales and demonstrating good operational health.
Although rubbermaid commercial products and food our country declining I believe these are good businesses and with the right strategic and Executional focus and driving innovation I'm confident that we'll get these businesses back on track.
Yeah, we're challenged by two businesses appliances, and cookware and outdoor recreation wherever we have been out innovated and diesel not shopped on fixes, we'll do deep dives into root causes in short we are the right level of domain knowledge and institutional memory.
And on top of consumer kids consumer trends shop, and not category focus and implement well thought out turnaround times.
I agree with the framework the turnaround plan the Christmas articulate it for you and we continue to relentlessly execute against its key tenants with a high sense of urgency.
It is happening to see the progress, we're making on reducing complexity in terms of SK, you reduction consolidating ERP systems and implementing productivity programs. The improvement in the cash conversion cycle is terrific and we'll continue to drive this lever to improved cash flow.
Well I'll take this opportunity to congratulate kristie Petersen almost leadership not only a CFO , but as interim CEO I. Appreciate his calm logical monitoring rational approach to attacking problems and im having a short time to respect his business judgment.
I think his recommendation to the board to keep the rubbermaid commercial products business would have paid dividends in the long Tom.
We worked on the beach would be businesses for over 20, Yes, I think RCB could once again become a jewel in Newell's crown in the long term.
I'm pleased to let you know duck Rubbermaid was admitted to fortune's most admired company list in the eighties and also on the top 10 list from 1985 onwards for several years I'd say piece to let you know since I'm a few millennials on the call in all been born yet in the late eighties. Unlike me.
In fact in 1993 Rubbermaid was number one on fortune's, most admired list and known for its innovation.
Confident that we will restore the business to its cost glory.
Let me conclude with my team near term priorities first I want to compete my listening tour and meet GE external constituents, including customers suppliers and investors.
Second I want to ensure that we have the right leader and the right leadership teams in place in each of our businesses and functions.
Emphasis will be on inspirational leadership.
Domain and functional expertise teamwork and collaboration an ability to be nimble agile and how the appropriate level of mental toughness, given where in near term.
And last but not pleased I don't know obsessive focus on the consumer and customer.
Good.
Turning to aligned on the right level of resources to effect, the companys turnaround time and move forward, but didn't even greater sense of urgency.
Cash flow junkie, and Chris and I wouldn't continue to focus on reducing our cash conversion cycle.
Significantly accelerating operating free cash flow is very critical to reducing our debt and working aggressively to achieve our target leverage ratio.
Fault better understanding our portfolio brands categories and channels and developing a long term plan to win and drive costs outgrowth.
And the first priority better understanding the innovation pipeline and taking the necessary action to accelerate new product development and designed refreshes.
On the whole I'm extremely happy with my decision to join Newell brands I'm optimistic about our future I don't want to attack all 30004 employees for their warm outcome and embracing my leadership and their hard work in 2019.
Over the coming yes, we would be laser focused on driving sustainable profitable growth accelerating cash flow to reduce debt and systematically adding to shareholder value.
I'll now turn into what to Chris to talk about a third quarter results and the tangible progress we're making on the turnaround time.
Thanks, Ravi and good morning, everyone. The Q3 results, we announced this morning reflect a strong quarter progress, we're making decisive and strategic choices to turn the company around and drive shareholder value and we are encouraged with the results thus far in the building momentum within the organization.
It's still early days, but we have a number of positive proof points to share with you today.
The financial results were in line or ahead of our expectations across all key metrics for the second consecutive quarter four out of seven operating divisions delivered core sales growth.
We made further headway on productivity and cost controls, which translated into better than anticipated margins and earnings per share.
And year to date operating cash flow of 424 million more than doubled relative to the prior year, reflecting strong execution on working capital initiatives.
The organization is getting back into the rhythm up consistent delivery.
These strong results give us the confidence.
Raise our full year outlook for both normalized EPS and cash flow from operations.
From a strategic perspective, we're making progress on all five pillars of the turnaround plan to position Newell brands for long term success.
One of our most important strategic objective is to return the company into sustainable and profitable sales growth.
Just on five key things, including launching compelling and differentiated innovation.
Implementing omni channel marketing strengthening customer relationships driving ecommerce share gains and accelerating the international business, we believe that retooling and upgrading our innovation and marketing approach and moving to a digital first mindset are critical to returning the company to core sales growth.
As also key to increasing our brands relevance and ensuring that we are driving purchase intent across all channels where consumers shop.
We are revamping our innovation approach to increase our speed to market with a focus on insights and analytics social listening and artificial intelligence. We created a new process that is bringing external innovation into the company to complement internally generated ideas.
We have moved away from a channel specific marketing function toward an omni channel approach. We started the new digital Tech platform implementation this quarter with five sites currently leveraging the new technology.
Take us about six to 12 months to rolling it out across the portfolio, which will significantly improve the consumer experience with our brands while at the same time, reducing complexity driving cost savings and improving capabilities.
Although still early days, we're making strong progress on the topline writing baby home fragrance and connected home and security all delivered core sales growth this quarter.
Summer sales accelerated sequentially to a double digit growth pace with strong momentum across all divisions International markets grew core cells as well, although they are still punching below their weight, which presents a meaningful opportunity for growth going forward.
In total our two year stack core sales growth improved by 450 basis points from a second quarter.
Second strategic pillar, improving operating margins through productivity and overhead cost savings is also showing meaningful progress.
We have more than doubled our gross margin productivity bundle since a year ago from our beginning point of 90000, SK use which excluded the RCP business, we've taken out about 18000, skews today or 20% with concrete plans in place to get to the 50% target reduction by the end of next year. We're.
Good good progress on moving excess and obsolete inventory to which helps both SKU reduction efforts and working capital we remain on track to close three manufacturing plants and 10 distribution centers by the end of 2019, simplifying our supply chain footprint.
We have a number of initiatives in flight focused on overhead cost reduction for example, we are integrating the support functions of the food and RCP businesses, which we believe will better enable topline growth and cost efficiency.
We are centralizing and moving a meaningful portion of our consumer service function offshore we are on track to reduce our number of consumer service locations from 65 to six by the end of next year, we're on track to reduce our office footprint by about 10% by the end of next year. Additionally, we were on track.
To cut the number of IP applications across the company by 85% by the end of next year as we remove redundancy and simplifying.
We continue to make progress on reducing systems complexity and standardizing systems across the organization.
During the third quarter, we completed the S&P conversion of applying some cookware in Asia, which gets us to four completed S&P implementations in total for 2019.
Our third strategic pillar of strengthening the portfolio, we announced last quarter that we're retaining the rubbermaid commercial product business and work is underway to optimize its contributions to the portfolio.
This morning, we disclosed our decision to keep the map of spawn techs and quickie businesses as it became apparent that the economics of keeping them in the portfolio are more attractive than divesting them. Similarly to RCP mapa spawn techs and quickie generates strong cash flow with operating margins ahead of the total company average keeping these.
Businesses will be accretive to sales operating margins earnings per share and cash flow in 2020 and beyond.
Mapa spontaneous some quick you will be included in continuing operations as of the fourth quarter as part of our food and commercial business.
This means that upon the closing of the U.S. playing card transaction, which is currently expected to close by yearend, we will officially conclude our divestiture program.
We recognize that this decision puts pressure on the leverage ratio in the short term, we remain committed to substantially strengthening the balance sheet and reducing our leverage ratio.
We have a high degree of confidence in the cash generative ability of the company and we're comfortable that a short term deferral of our leverage target as outweighed by the benefits of higher cash flow expectations over multiple years.
With the completion of the divestiture program. It seems an appropriate time to make a change that we have wanted to make.
That is to talk about our leverage ratio as a calculation of net debt to EBITDA rather than gross debt to EBITDA as you know most consumer product companies calculate leverage using net debt and I believe net debt is a better measure since it recognizes the benefit of cash on the balance sheet.
So under that updated definition, we now expect to attain a leverage ratio of approximately four times by the end of this year.
Approaching three and a half times by the end of 2020.
We have spoken to the rating agencies about this change and shared with them the strategic rationale for the decision to keep map of spawn, Texas quickie as well as the financial ramifications.
And our view with the decision being accretive to sales margins earnings per share and cash flow the relatively short delay in reaching our target leverage ratio is a beneficial tradeoff longer term.
To that end the company successfully completed a 700 million debt tender offer during the third quarter and reduced gross debt by $425 million just last week, we announced plans to redeem another 300 million and outstanding debt, which we expect to complete in the fourth quarter.
So as you see we continue to make progress on strengthening the balance sheet.
The fourth plank of our turnaround plan focusing on accelerating our cash conversion cycle through better working capital management.
We are driving significant progress here with more to come year to date operating cash flow, a 424 million as more than doubled a year ago number. The team is doing a good job on clearing customer deductions faster extending payment terms and reducing inventory both through SKU reductions as well as improving our planning and forecasting processes. The result.
These are encouraging with higher than anticipated progress today, giving us confidence to raise the operating cash flow outlook for the full year to 700 850 million from 600 to 800 million previously.
The last of our five strategic pillars is building, a winning team and significantly improving employee engagement.
He has shared with you because aggressive onboarding schedule and his decision to bring in Steve Parsons as our new Chr Roe.
Steve will be instrumental and partnering with Ravi myself and the rest of the executive team to lead our people employee engagement agenda going forward just last week, we got the results of a pull pulse employee survey that showed significant improvement in employee engagement since the one performed in the fall 2018.
Which is consistent with the formal feedback we've been collecting from our town halls, while we still have lots of work to do on this front, it's encouraging to see that employees are feeling more excited about being part of Newell brands and more confident in the leadership of the company.
Let me turn now to a detailed review of our Q3 financial results.
Net sales declined 3.8% versus last year to two and a half billion dollars core sales were down 2.5% toward the higher end of our guidance range, writing baby home fragrance and connected home and security grew core sales.
Commerce groups grew double digits.
Normalized operating margin contracted 50 basis points to 12.7% better than our expectations due to strong traction on productivity and cost optimizing initiatives.
Normalized gross margin declined 40 basis points to 35.1% as productivity savings in combination with favorable mix and pricing were more than offset by headwinds from inflation tariffs and foreign exchange.
Yes, DNA to sales ratio moved up 20 basis points this quarter, reflecting significant progress on overheads offset by a planned increase in S&P spend.
Debt pay down over the past year resulted in net interest expense savings of $31 million versus last year.
We recorded a normalized tax benefit of $59 million, which was better than anticipated due to favorable discrete tax benefits.
Normalized net income from discontinued operations was $16 million below the $55 million in the year ago quarter, reflecting loss contribution from completed divestitures.
At the end of Q3, we had 423 million diluted shares outstanding.
The company delivered normalized diluted earnings per share of 73 cents, which was well ahead of our guidance range due to better than expected operational performance.
As well as a more favorable tax benefit.
Normalized diluted earnings per share from continuing operation increased 6% year over year to 69 cents.
Turning to segment results.
Please note that we have reorganized our reporting structure to accommodate the move of the rubbermaid commercial products business to continuing operations, our Q3 financials reflect for operating segments versus three previously.
Appliance and cookware is now its own Standalone segment, and we are reporting RCP and food as one segment called food and commercial there are no changes to the learning and development or home and outdoor living segments.
Core sales for the home and outdoor living segment grew 1.3%.
Fragrance business continued its momentum from Q2 with core sales growth driven by distribution gains and strong performance from E Commerce and Europe .
The connected home and security Division had a very strong quarter, partially due to timing of cell and prior to fire safety month in October which benefited Q3 at the expense of Q4.
Core sales for the outdoor and Recreation division were down year over year as expected our.
Our learning and development segment grew core sales a half a percent with both baby and writing contributing to this outcome.
We were pleased with writings performance it back to school, where our brands gained market share across the core writing category that strong performance was partially offset by softening trends and slime, which although still a meaningful business driver driver for Helmers is off from its peak levels.
Baby business also grew core sales driven by compelling innovation and the strength of our brands.
Core sales for the appliance and cookware segment declined to 3.7% as anticipated. The last time business is doing well, but the North America business continues to be challenged while we are certainly not satisfied with this outcome. It has a significant improvement in the trend versus where the business was in the first half of the year.
We are focused on rebuilding the innovation pipeline to drive sustainable profitable growth over the long term.
For sales for the food and commercial segment declined 11.3% this quarter.
Our food business was impacted by a timing shift and the sell in for Black Friday that will benefit Q4.
RCP.
That business has been run for EBITDA maximization, while being held for sale with product line rationalization and lower margin subcategories unfavorably impacting core sales, we believe that with a closer integration into the ongoing operations of the company and a renewed focus on sustainable and profitable growth we can rig.
Nine core sales growth in line with RCP is more attractive historical trends.
Moving on to cash the company generated 433 million and operating cash flow. In Q3 ahead of plan year to date operating cash flow 424 million as more than doubled a year ago level in spite of the loss contribution from divested business.
The improvement reflects stronger business performance as well as the benefits from strategic initiatives taken to improve working capital, including improving the customer deduction resolution process, extending payment terms closer to benchmark levels, taking out skew complexity and improvements in demand forecasting.
We continued to see a significant multiyear opportunity to improve the company's cash conversion cycle.
Before discussing our outlook I'd like to point out that in the tables to the press release, we provided supplemental information, which shows the impact of including map of spawn techs and quickie in continuing operations for Q4 and full year 2018.
This move increased both net sales and normalized operating margin, but reduced normalized EPS by a penny due to the recapture of depreciation expense on these businesses.
Similarly to our discussion last quarter on RCP, moving map of spawn techs and quickie from discontinued operations to continuing operations requires the company to restart depreciation expense because in accordance with gap assets held for sale or not appreciated.
The annualized noncash depreciation expense for Mapa spawn techs and quickie is approximately $10 million.
Our updated outlook for Q4 and full year 2019 will be based on a comparison with the metrics and this supplemental schedule.
With that frame of reference I'll walk through our updated outlook for Q4 and full year results for full year 2019, we expect the company expects to deliver net sales of approximately $9.6 billion to $9.7 billion, reflecting a low single digit core sales decline.
Normalized operating margin expansion of 30 to 50 basis points to 10.6% to 10.8%.
We are tightening the range on both the loss low and high end, we expect price increases productivity improvements and overhead cost reductions to more than offset the unfavorable impact from inflation tariffs and currency, while simultaneously funding additional NP investment.
We expect a normalized effective tax rate for continuing operations in the high single digit rate and we are raising our guidance for normalized diluted earnings per share for the total company to a range of $1.63 to $1.68.
We are flowing through some of the upside that we delivered in Q3 and fully covering an incremental $10 million of depreciation from the inclusion of Mapa spawn Texan quickly.
We are also raising our forecast for cash flow from operations by nearly 11% at the midpoint to $700 million to $850 million, reflecting improved operating performance better than anticipated progress on working capital and benefits from additional tax planning initiatives.
This forecast includes approximately $200 million of divestiture related cash taxes, and transaction costs and restructuring and related cost the outlook assumes no share repurchases.
As we look to the fourth quarter, we now expect net sales in the $2.5 billion to $2.6 billion range with core sales declining 2% to 4%.
Normalized operating margin will contract 10 to 50 basis points to 11.0% to 11.4% despite sustained progress on overheads and productivity as we plan to increase and piece spending versus 2018.
The normalized effective tax rate for continuing operations is estimated in the mid 20% range.
This yields normalized diluted earnings per share for the total company within a 35 to 40 cents range with the diluted share count similar to Q3.
Turning to 2020, while we're early in the budgeting process I want to share some preliminary perspective, how we're viewing next year.
We're closely monitoring the macros, particularly surrounding tariffs and currency movements.
We are targeting another year of some sequential improvement on topline growth with sustained efforts behind productivity and cost optimization driving margin improvement.
A portion of which is expected to be reinvested behind select capabilities and brand support to set the company up for the long term.
We are still in the early innings of going after the working capital opportunity and are optimistic we will continue to shorten our cash conversion cycle and improve total company operating cash flow year over year.
We will share more details surrounding our 2020 guidance during our normal schedule of the Q4 earnings call in February .
In closing we are encouraged by the progress we are driving through the turnaround plan and excited about the longer term opportunity for this company.
Before opening for Q and I, just want to say that it has been a real pleasure working with Ravi over the past 30 days and I'm looking forward to continuing the turnaround journey together.
Okay.
Thanks, Chris before we turn it over to the operator for Q1 day I just would like to remind you that we're going to ask each call to limit yourself to just one question is going to try to wrap it up on time and at the same time fit in as many colors as possible. So thanks for your cooperation and an operator, we're ready to take him.
Yes, ma'am thank him if he would like to ask a question. Please.
Pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question.
Calls for just a moment to allow everyone an opportunity to signal.
Our first question comes from Wendy Nicholson with Citi investment research.
Hi, Good morning My question.
Picks up Chris on on what you were just talking about what 2020.
Robs comments there was a lot of discussion about how there's a need for more innovation, there's a need for a lot of work.
But I know the turnaround is it started in full swing on and we've been talking about bringing more innovation to some of these categories for awhile. So bottom line do you think 2020 is going to see core sales growth or do we have another year of declines on pain core sales. Thanks.
Yes, I think as we think about 2020.
I think what I said is that we're expecting to show sequential improvement in 2020 versus 2019, but consistent with Ravi in my view, we have a couple of businesses, notably appliance and cookware and outdoor and rack that I think are going to be multiyear turnarounds, because we need to rebuild the innovation pipeline.
And in those businesses and those businesses are both competing and about 35 product categories. So I think it's too early for us to give numerical guidance.
Guidance, but I expect that you'll see us deliver sequential improvement versus this year I don't expect us to be to the full potential off the company until we get the appliance and cookware and outdoor and rack business has turned around.
Importantly, though I do think we're also going to make progress on operating margins as I mentioned and I think that that you'll see us from an operating cash flow standpoint, do even better next year than this year.
And I guess.
Yes, sorry Wendy.
I don't want you to take my comments I Miss in the sense I.
I think Chris articulated it very clear the that period of continuing to improve.
But the tale of two cities has a very real issue and that also applies when you think about where not sort of an 80 20 rule company. We've got tail channels tail customers tail categories. So we either need to really start growing very fast in the businesses that we are growing.
And we'll continue to push on that and then find ways to mitigate the declines. So I think it'll just be a matter of its not if it's just vein and because we're very confident that this will we will get to growth. It's just a matter of win and but all our efforts are laser focused on that but in the mean.
Meanwhile, I think all the things Chris said this is a very good picture of continuing improvements on lot of metrics not just on the growth side, you should look at the cash flow and the operating margins and delight.
And fair to say, though this the stuff you were talking about with the international opportunity, which is very exciting and it's something I think we've been waiting for ethanol for a long time, but logically that type of growth is is more like a 2021 and longer term, that's not something where lights, which can be turned on and add much to the top line next year is that.
Fair.
I think look we've got I think Chris referred to this in his remarks already does there are pockets of growth, where we are growing and a in Latin America, and I think I.
Plateaued in my remarks, as well, but you're right that's the big international opportunity.
Which is more long term Yukon just suite, Tom something having.
Been president of international.
In couple of different companies the biggest thing with international as people capabilities, making sure you pick the right drive countries. So that you don't have flags on maps and really driving foot DECT, rather than Brett. So it'll take us time, but I do think our brands have well suited for the international opportunity.
That is very key that whether you think about India, China and the kinds of businesses, we have with baby and writing. These are all tremendous places where population growth is occurring and I think long time this as a five and this opportunity.
Got it thank you very much.
Funding.
Our next question comes from build Chapelle with Suntrust Robinson Humphrey.
Thanks, Good morning.
Bill.
Hey, I, just kind of a a thought on the outlook for the upcoming holiday season.
Just trying to understand it, especially some of your seasonal businesses like home fragrance like appliances. I mean do you feel you are set up fairly well I guess and in particular do you expect home fragrance continue that growth.
As you go into the holiday season, and or is this more of a theres a lot of things that are in transition you probably weren't fully prepared to get ready for this holiday season. So we'll see more step change going into next year.
I think on the home fragrance business, we've really turned to corner so home fragrance.
As it has delivered core sales growth both in Q2 in Q3, I think we're very well positioned for the fourth quarter and you can see that we're gaining distribution at at our major retailers as we're transitioning the business away from.
A purely retail store focus business to more of an omnichannel model with wholesale playing a bigger bigger role. So I expect on home fragrance that we're very well positioned in you'll you'll see us.
Well positioned to have a strong holiday season in that business.
Well I just had a quick team to that.
I did my review there and.
This was a great.
Example.
Leadership works and the team that very quickly so.
What I like to assess strategic shift to redefine the business from Yankee candle to rail home fragrance business and they're looking at different opportunities and so I think we can I think that business has a lot of lakes.
So I don't know just thing.
Go ahead, Bill obviously it just it just to follow up I mean, theres been transition risk of moving you still have a fair amount of stores would you say that's largely behind you.
Yes. So this year, we're going to we've closed 75 stores to date, we generally closed stores after the holiday period, because the way to maximize value was not to close stores going into the holiday period I.
I would expect that we'll continue to close underperforming stores at the beginning of next year.
And focus on the stores that are profitable, but what's exciting is that the growth that we're seeing in wholesale is more than offsetting.
That from a from a core sales perspective, and so I think that businesses.
It is well positioned were also back to growth on e-commerce in that business and so both on our direct to consumer side.
And through.
Retailers.
We're back to core sales growth. So I think we're navigating that shift well and the other piece on that shift. In addition to the topline is that the margin improvement in that business is substantial because the business. We're shifting out of underperforming stores is shifting to.
Channels, where we make significantly higher operating margins and so.
That business this year will be up.
And operating.
Income very strong double digits.
Got it sorry from a one plus question.
No problem.
Your next question comes from rupees per week.
Hi, there.
Good morning, and thanks for taking my question. So I want to go back to Robert your comment on that brand refreshes, how those I was curious which brands do you think.
You know have the most urgency from a refreshed perspective and then it was also curious in terms of how you think about the timeline in terms of how long it could take for brand refresh.
Yeah out or fish good morning, good to hear your voice again.
Several pace I think look the two businesses that are challenged our outdoor.
And ER the appliance business clearly they've got some brands that.
We're really very prominent and yester year, we need to update them Coleman would be one definitely and it's a great brand with a great reputation, but I just think that but the competition that we have had both at the higher end with Yankee and lower end, but you do we just need to get on top but the brand equities great consumer.
As long as the Ron.
We are doing good marketing things in terms of going to festivals and stuff, but we need a little bit more product innovation and.
We've already got that going but I think that's more work to be Dom I think.
On the upon side, if you take a look at like something like Mr. Coffee I think that's another brand that while we put out different things out there I think that's a brand that we need to think through.
Think calphalon, some great brand and it's a terrific.
Brian we just need to get the channel segmentation right and just figured out how we take it to the next level. So those would be just a handful that outside the last one I'd say is.
Kigo, which is a terrific brand I remember it from my Officemax days when it was a pioneering in that segment I just think they have a lot of potential there and.
So we need to drive that a lot hot and lot faster.
Great. Thank you best of luck with the efforts.
Thank you.
Your next question comes from Steve powers with Deutsche Bank.
Yes, thanks, good morning.
First off Ravi welcome and thanks for your opening comments I.
I guess as you would Chris think about the path ahead. It just seems listening to your prepared remarks, and accuen, a thus far that theres. So much change in flight lots of discrete needs across numerous.
Lots of the screen needs a numerous.
Initiatives underway across.
You know just all of the company's various business lines and add to your point geography by geography overseas I guess the question as to what extent are you able to step back and view the company's turnaround as one cohesive program versus just a huge program office of smaller turnarounds.
And to the extent that there is one program how would you summarize the most critical variables towards continued success as you think about 20 to 20.
So I'll, let me start for that and then I'll, let Chris steak, a shot at it as well.
So Steve I think one thing I'll stop at your underlying payments about lot of change that is no question that this company has gone through a lot of China and chain and lot of disruption so as I coming you.
The thing that I'm tending myself and all our employees and management team is if we decide to make any change we need to think about the price with is with a Z and the price stepping pay for it. So is the price that we are going to get by making any change what the price step will pay so the cost benefit.
So really we will not be making will not be making changes for the sake of changes.
And so I.
I think that would be very critical I do think that you know when youre in a turnaround there different levers who need to pull and but central to this really to me is that hey, they've got if you think about three buckets, we've got to get growth and that growth will come through innovation, you got to get cost down and efficiency.
He switched on how the margins so a lot of the things in terms of simplification.
Whether its SK use.
Systems all of that just goes into becoming a more efficient organization and then cash flow. So really those how the buttons were just trying to there may be different initiatives, but I think we're very clear that there is a cohesive program here and it is not just a.
Project Management office that is just changing out because look one of the things one big change that Hes already started and I'm going to continue this is not going to be a consultant driven organization. This is going to be run by operators, who have a very clear view of both the shop and a long time.
The only thing I would add to that Steve is that when we when I came in about a year ago.
I went through a listening to our similar to what Ravi is doing and we put in place of turnaround plan.
That we've been executing against for probably the last nine months and that turnaround plan, which which I laid out at a.
In previous earnings calls and conferences.
As folk is very focused on the five things that are that we talked about here and that Ravi.
And as well and I think we've had consistency and that turnaround plan over the last nine months and so it hasn't been a student bodies laughter student body right. The tactics underneath it we're continuing to monitor and we're driving a lot of different change with regard to complexity reduction.
Productivity initiatives.
The change in how we.
Develop innovation and interact with the consumer but I. Thank all of those things are in the right direction and what I'm excited about is that with Ravi coming in I think we'll make it even sharper.
And I.
I think we can.
Move forward in a very positive way and and we're already seeing the results. You know this is the third quarter in a row that we've met or B.
Our plan and expectations on all financial metrics and so were three for three which begins to rebuild credibility as we go forward here. So I just had two quick points when I came in and and during the course of time as I was interviewing had a chance to look at that.
Turnaround time, I really think gets very sound its and its just back to basics. This is not rocket science and no. One can say hey, do need to Highfalutin strategy and all that we've got good brands. We have good people, we just need to execute and beef laser focused on a few things and do them about my job when I come in part of it.
It is to really inspire our employees to do their best that I think I am a phone can you believe that employees at our at the heart of business and Vietnam, I think yet today galvanized the full potential of our employees and how do we get them to believe that there is a great future and that.
It's additive and that 30000 employees is actually equivalent to 300000, because you're taking all of their power and getting them very focused on a few things and my job is to with the management team help explain bringing it down to the basics, so and that stops, but let's get folks.
On the consumer get focused on the customer let's understand the trends get on top of it quickly speed is very critical in all of this and be ahead of the cap and over time once we get the turnaround infected look we'll look at the next phase then we may one two for the next growth phase, but right now back.
For the basics done around as what we need to do.
Okay. Thanks, so much for all that I'll pass it off.
Your next question comes from Joe Altobello, with Raymond James and Associates.
Thanks, Good morning, I think you Robbie for your high level thoughts earlier on the opportunities.
Yeah Newell.
Besides the deeper stability in the organization, obviously and so just to be clear.
Should we interpret that as there is unlikely to be any major changes the transformation plan and again I I realize it's early days, but.
Perhaps than me course, tweaks here and there over the next few quarters.
Hi, Jeff. Thank you for that I think I would not because they're two plants down I think there was an old pass formation plan.
That is not what I'm, referring to I am being very crystal clear that it's the turnaround plan that Chris as articulated and talked about each component, which is a back to basics hey, let's get this company on the rights footing.
So because transformation is too high flowed into work for me I'm going to be very careful about that we ended the throws a turnaround get the basic stride and yeah I think all the tenants. So if that makes a lot of sense. So there is no pointing changing when there's no need to and we're making terrific progress now some of the execute.
And we'll end the tactics over time, we'll learn and would improve so for instance, social media. We just started nascent we got started dominant now how we do it we may want to change.
They make some structural tweaks, but they're tweaks, they're not going to be wholesale changes leadership team. They have a good leadership team I may make changes, where I feel it's necessary, but what you're not going to see is a complete upside down because I don't think that is right for the company at this stage. We're on a go to Pat we just need to build on that moment.
That's very helpful. I guess, just shifting gears in North America.
Core sales were down 3.8% in the quarter I think that was pretty similar to that that number that we saw last quarter.
The increase at the investment.
This strong growth that you guys saw in E. Commerce was that just a tougher compare what was that also due to the inclusion of rubbermaid commercial in the quarter.
It was it was a little bit of both so let me just address that so if you look at the total company is core sales growth.
Negative 2.5%.
While we're not satisfied with that number it did represent on a two year stack basis about a 450 basis point improvement in Q3 versus Q2 speaking to your point on the tougher compare and that's certainly true in North America as well if you look at our guidance for Q4.
That represents about a 200 into another 250 basis point improvement and the two year stack core sales growth trend versus Q3, so although we're still guiding in Q4 down two to four we're cycling through tougher compares and were making sequential progress on our two year stack to grow.
Trends.
Hiring MP in Q3 was largely spent behind the writing business and I think we were very happy with with the results from that because Q3 is the all important back to school season.
For the right and category and we won the writing category during the back to school season. So we grew market share.
In the back to school season in the core writing business.
And grew core sales for the division the core sales for the Division doesn't show the extent completely of how much we won during the back to school season, because it was somewhat masked by the slime trend coming off but the NPS spend certainly.
Played a big role in that in that effort. So I think we were pleased with the results from that doesn't mean, we're we're not going to look at how do we make it better and more effective going forward.
But you know core sales came in at the high end of our guidance range.
And we're excited about the sequential progress, we're making and expect to continue to make on a two year stack basis.
Okay. Thank you guys.
Your next question comes from Lauren Lieberman with Barclays capital.
Great. Thanks, good morning.
Have you talked about this is you know what's not turn it over complicate. This in terms of what we need to do and not have a big Highfalutin sagging sell 'em, we can't really appreciate thats execute on these brands.
One other things and I look back over the last couple of years that is they think hi. These great brands by surprise and is the right. It's just competition you know sort of that Newell wasn't the only company, giving attention to these categories and your innovation through you know the dressing emerging consumer needs. So.
Ravi how are you thinking about that seem to have sort of beefing up the.
Consumer and competitive insight and intelligence capabilities.
And to really make sure that you don't fall behind again, because that's that's where the whole you're digging out right from that from the growth standpoint. Thanks.
Yeah, there and thank you for the Dot look I think the most important thing for this.
You got a how your organization in your teams Havent external focus versus an internal focus these problems stopped when youre looking very inwards and the last several years with the acquisition, but structural changes, which might not have made sense. There was also divisions on a development delivery.
And my thought of optimize things I just think that.
We have gone to get our teams to have that winning spirit.
Im just get on top of.
Trends because lot of these trends we should have seen it Burns me up that we miss some of them and I only been hit them on and I wanted to every employee to feel that way because in consumer brands you have to obsessed obsession that you want to delight. The consumer you always going to be identical so insights.
Become very important social listening becomes very important and not being steeped in the past so you've got to get a 360 degree view of how the consumers moving and anticipate and make sure that Youre innovation cycle is speeding up towards that the second part part of it is focus because.
As you got every innovation is not going to be a needle mover. So you got to also have new news, sometimes it may just be a packaging grief refresh sometimes it may be.
Just how you talk about the brands, but there's always going to be new news any category in a business. We read this discretionary purchase patterns. So.
We're going to wrap this up it's going to take us a little bit of time, and we entered in different stages in different businesses for instance, writing where they have the yet or the pen I'm very excited about the things that doing and especially the charpie and stuff like that so I just think Dan in different stages, we will get this cranked and go forward because I.
To lose after the competition because that means we would asleep at the switch and we're not going to lead that it'll take us time to get there, but we're going to address this organization to really have that competitive spirit and data obsession with the consumer and customer because you've got to make sure. You innovations are as embarking then favored by the.
Customer and not just for the consumer so if you get the price point rights this hedge channels segmentation right et cetera.
Your next question comes from Nik Modi with RBC capital.
Yeah. Thanks, good morning, everyone.
Robbie I just was hoping you can provide some thoughts on your background Officemax and Ritchie brothers and maybe some best practices are learnings from from your experience those companies, especially as a new customer add officemax.
And then and how you think you can apply those experiences to what you see at Newell today.
Thank you Nick and it's a good hearing your voice again.
So I think I'd say, it's a product a few things the experiences so I have been in.
Lived in six countries worked across six different categories and ours six totally is sectors both between B to C SC Johnson.
Mike Consumer package goods came in backlog. The key thing for me is when you get into a company do always stops at the clean slate and say what does the situation here versus due Oh I did not devastation don't be formulaic in your approach. That's number one this a second philosophy, which is people come fast you truly god.
We believe that your people are your biggest asset and to me. It's not about always eight you got to how only the best people, but how do you bring out the best people because Dante is very very important and I don't think they have really maximize type potential that newell, we've got to break down the silos and break down all of this quarter.
Culturally integrate the company and I did that at Ritchie brothers, when we bought Officemax. The third is to make sure that especially if these companies for one successful leadership complacency sets in and you stop thinking you believe in your own stuff and that's when you missed the innovate.
Question, it's the someone in the garage, who comes up but things and you how set paradigms that as the person outside his thinking in a different lens for me. The fact that I've worked in so many categories helps me look at patterns and say, how do you take disparate things and we need them into one single pattern. So I'd say the other thing I'm.
Very respectful I think it's very important for domain expertise.
Institutional memory and knowledge, so that if everything.
Only have generalists running places you lose a lot of momentum unique people, who have dwell time in their jobs, especially in marketing in sales because you want to continuity with customers, but your top customers. The same people, calling you also need a cohesive autos awkward view. So today, we are I think a little bit too.
How much will get from two on centralization to maybe a little bit much on the division focus how do you harmonized that so if any present yourself in front of all the big top customers. There's also a newer voice in there. So I think a lot of these things that for me the new things very exciting because it's the combination of.
My career for all of the experience I've had to bring to bear and the last one I'd say is today any company that does not think of itself as digital first is doomed so and for US we already has a foundation.
Lets you got into Tom just be the central excellence in E. Commerce, then hired company has to think digital social media. So gone on today's for you just said Oh, it's all TV you Gotta look I know one of the surprise US let me when I came in was that maybe couple of years ago, we didn't really allow social media and influence.
There's just shocking Chris corrected that who we are now got a nation initiative going so I just think stopped.
They're not a lot of ingredients in our company for successful gone proven brands, they've just falling behind a bit but I'm very confident we'll get them back to that possibly Laurie.
Very helpful. Thank you.
Your next question comes from Kevin Grundy with Jefferies.
Thanks, Good morning, everyone and welcome Robby.
Robbie I wanted to come back to a portfolio question. It sounds like you are reasonably comfortable with the portfolio as it. Currently stands you also mentioned, though that the company will be in the process of doing a deep dive on appliances and cookware as well as the outdoor in Iraq. So I'm just curious does that leave the door open for.
Centrally some strategic considerations there at that point at that point, when you're done with their strategic review is it possible that you do decide to divest those businesses. How do you view the attractiveness of those categories now and the brands positioning there in it you know sort of begs the portfolio questions company should be in the business is that they're in and not necessarily the ones that they are in if the company has been.
Balance sheet was in a different position today would you buy either one of those businesses.
Arguably the answer to that maybe no sobi I'd be curious to get your thoughts there and then a quick housekeeping Robbie is it your intent to provide long term targets.
Sales profit earnings growth et cetera, and if so when no one should investors expect that thank you.
Okay I'll answer the first question and then I think Chris mentioned that the divestiture program is down and look I think at this point, we're quite happy that the portfolio overall.
Within the portfolio because we've got so for instance, appliance and go private 36 categories. So and we're kind of leaders overall, but we've got to look at hey can we really.
Have best in particular segments and are there certain things that we may want to evaluate did they make sense to still be and because it's very tough when you say we've got to conquer all 36. So we may want to we'll evaluate that seven categories should we prune. Some there's also some things that just don't make.
Since like in Germany, I've, just length of got a condom bran and really that small strategic to us. So those are the kinds of things that remain want to sharpen our focus so it's a sharpening of to focus I think it's premature for us to really come to any conclusions that just because these two Q2 businesses are at this stage.
Page not fighting on all cylinders.
That's right they shouldn't be a conclusion that they're not part of the portfolio.
We have to look at it gets a turnaround plans because they have good brands. These are all highly reputable brands and look I worked in my past with a lot of round stuff, where icons holiday Inn as an example, and so.
It is just how do we restore them and how do you make them relevant and current Chris do you want to after that yeah, just say on the guidance point.
Provide guidance for next year for 2020 on the next earnings call, which is our normal cadence and I think we laid out at cagney sort of long term aspirations.
Last year, and I don't think relative to the benchmarks I don't think anything has really changed versus that.
So that'll be our plan relative to updating guidance for next year and beyond.
Okay. Thank you both good luck.
Thanks, a reader that is all the time, we have today for question and answer session. I will now turn the call back to Mr. Saligram for closing remarks.
Thank you very much everyone I really appreciate your being on the call and your interest in you know I believe that our future is bright and with that on Watson up but thank you.
Thank you everyone. This concludes today's teleconference. You may now disconnect.