Q1 2020 Earnings Call
[music].
Good morning, and welcome to the Newell brands first quarter 2020, <unk> earnings Conference call.
This time, all participants are any listen only mode. After a brief discussion by management, we will open the call for questions.
In order to stay within the time scheduled for the call. Please limit yourself to one question during the Q any session.
As a reminder, today's conference is being recorded a live webcast of this call is available and I are dot Newell brands Dot com.
I will now turn the call over to Nancy O'donnell, Senior Vice President of Investor Relations Mr. Donald you may begin.
Thank you [laughter] good morning, everyone welcome to Newell Brands' fourth quarter earnings call on the call with me today, our Ravi Saligram, our president and CEO and Chris Peterson, our CFO and President this operation.
Oh, we began I'd like to inform you that during the course of today's call, we will be making forward looking statements, which involve risks and uncertainties.
Actual results and outcome may differ materially.
I refer you to the cautionary language and risk factors available in our press release and our form 10-Q for further discussion of factors affecting forward looking statements.
Please also recognize that todays remarks will work for certain non-GAAP financial measures, including those we referred to as normalized measures.
We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with gas.
Explanations of these non-GAAP measures reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and table as wells on the new <unk> Investor Relations website, [laughter] and now I'll turn the call over to Robby.
Thank you might see <unk>.
Good morning, everybody and welcome for the call.
We hope you and your family upside.
These are indeed extraordinary times.
All right good night.
My new oncology.
Excuse me, who stepped up actually bottled Corbett 19.
Defaults on foreign workers, you know manufacturing and distribution facilities as well as hot associates were working from home.
The teams have done a tremendous job of supporting those a need during this time Tom.
Now turning to [noise].
A lot, but I'd products globally, including drops moms spread volumes, maybe yeah. He's a blanket waterbottles foods parents can tell you know and writing in comp.
In fact, <unk> teams designed to face you well use by doctors and nurses, where in the process of dominating 30000 units to hospitals in their communities in which we walk ending.
I am impressed and humbled by the end time yours, how many Stephens.
Our call today.
How are the crime at 19 crisis is impacting our business.
Since we are taking to adapt to the current tomorrow I have to position ourselves for success, that's the coffee and well begin to reopen.
Great friend discuss I'll first quarter results for water supply chain outside and check from observations on I'll answer and stopped.
It's about Seakeeper on Easter position Youre supposed success I see modest would be stuff and I'm talking them. So sometimes the first is probably a focus on the safety and ramping up our employees.
People lobbying off work differently and that rising to the occasion, we've implemented a mandatory work from home policy for professional clerical an administrative a probably all long critical business travelers prohibitive.
And with temporary does all Yankee candle retail stores.
Support our frontline West coast, they've implemented a temporary hobby pay increase I mean, the bonus program for supervisors and additional emergency paid chick days in the U.S. insights and geography.
But also instituted more rigorous hygiene and cleaning protocols across all our manufacturing Boston DC.
I would even provision or face masks and shields temperature checks and implementation on social distancing protocols for possible. So these practices registrar entrenched in the old associates are safe when Dr. Hayward for did about a bar sekthree to the customer some consumers wanting to.
Our second priority during the crisis is working diligently to keep on manufacturing facilities operating where possible.
Across the globe, many <unk> factories and distribution centers have been deemed essential and remain open.
I'm happy to temporarily suspend operations and training facility, notably Yankee candle in Massachusetts, the writing Ponton Mexicali and his team and use either to comply with local government gone.
Supply disruptions have been a significant significant factor contributing to our April's house declines, we're working diligently to reopen all off bombs in DC chefs and place autos get you need.
Third priority is business continuity and sustaining that company financial and vitality without a laser focus on maximizing cash flow and ensuring strong agreed.
Let me provide some context.
We began the platform is good momentum coming off strong progress against top 10 around Wow in 2019 through February well ahead of plan.
All key financial matters metrics, and even recorded modest course algebra.
But I, sometimes place practices increased rapidly around but no beginning in March we began to see both significant pressure Islam, our retail customers and changes in consumer purchasing patterns. The biggest impact has been the speed being changed in the retail landscape on the positive side, our largest customers in mass and online.
So I actually seeing a surgeon cells at their retail locations remain open for the most spot and the shift to E. Commerce, so its et cetera, right dramatically our own sales for many of these customers are benefiting from these trends.
Our global ecommerce penetration went up from 13% in the first quarter, 2019% to 17% in Q3 in Q1 2000 trend.
Our online Pos penetration in Q1 was up.
30%, what's up to 30% of 500 bips versus prior year.
These trends have continued into the second quarter.
We estimate that April penetration reached approximately 37%.
Oh 900, Bips and the April online sales have all approximately 30 pertained buses, but yeah.
Yesterday through April online sales were off an estimated 20%.
The strength to the ability to E commerce is allowing us to leverage the accelerating channel shift our online scrub it.
How about on the negative side, most secondary and tertiary customers, especially these specialty retailers and department stores have gross their brick and mortar doors, but just translated to a sharp decline in retail all of his more than offsetting the growth in mass and E commerce.
At the same time consumer purchase patterns, but significantly disrupted shifting to us categories doesn't support stay at home consumer usage occasions.
So how brands have benefited.
Including ball fresh preserving.
Food save a vacuum sealing brands southwest small appliances and more in recently rubbermaid food storage.
We remain commercial products also saw an improved top line forget creep in the first for mid strong demand for washroom and combustion hand, sanitizer products as well as cleaning and make no mistake Brooklyn.
Our customer Masternaut shopping as frequently in the writing outdoor recreation home security and baby categories.
Shifting in some cases declines in double digits.
Just straight as Bonnie SASSA populous costs eat a down because people are mark driving as much.
In the month of April the supply chain disruptions, the retail flow issues and the consumer purchase pattern shifts.
But just to an estimated sales decline in that 25% sounds strange, which has informed our call out or a challenging second quarter.
Having said that.
On a positive from note overall, new Pos declines have been sequentially, reducing every week in the last four weeks inside this week.
As grew in the low teens.
This speaks trends may also be related to the issuance of federal stimulus checks.
Well as much uncertainty out there.
A quick station is that the second half of the topline that'd be much improved versus current trends as our manufacturing facilities reopened countries around the world to begin to lift restrictions and consumers for 10 to more normal purchase patterns.
Why do we believe that case.
Just a meaningful portion of the sales decline is due to the supply chain destruction.
Example, shipments in the home fragrance category were significantly curtailed in April in large part due to supply chain constrains caused by the closure of saw sorry, do you feel Yankee candle prompt and DC and Crozier Potito schools.
Pos but on Yankee candle, what bake in Chesapeake Bay offerings at the retail, but who remain open is growing dramatically.
And in some cases more than doubling indicating that consumer demand for software products is increasing this product misty.
Our social listening back problems indicate that many consumers budding counts for a lot longer to bring it back to San so calm.
Retail dot com across most retailers at our own duties on C. side is also gained significant.
So were optimistic that asked the country begins to reopen and we returned from production a home fragrance house trends, but improved sequentially buses a child in second quarter.
Assuming that dynamic is playing out and writing, but early Q2 sales suffered due to shortfalls gross.
Caused by school University and office closures. This was further exacerbated by the closure of our Mexicali writing facility.
As we gradually are able to come back to full capacity not facilitating the supply constrain supply chain constraint for be lifted the big sales season for writing is still in front of us and all of our retail customers I can currently planning for back to school.
And have already placed on us.
And that's that's a major second right.
You should expect students to return to school in the fall and West coast to return to offices sometime this summer and they want to stock up on supplies that they normally do.
We had seen them out encouraging data point in appliances and cookware business.
In past economic downturns, we have seen consumer spending on food shipped from our home to income, which has driven growth in small kitchen appliance categories, particularly value offerings.
Since mid March.
Six straight weeks of sequential improvement in our U.S. appliances, and cookware Pos trends with growth and Mr. coffee brand may cause you airfare requires heating patents and taker and.
And encouraging trend, which we hope is early sign this dynamic maybe playing out again.
And lastly in the past week or so we're seeing stay at home restrictions lifting in the U.S. and internationally and many businesses beginning to pan for reopening which has hockney.
Let's see how it played out.
Of course, we're encouraged by these early signs of what at a time to somewhat more normal times.
Why we're optimistic for sequential improvement.
Applying trends in the back half.
With Nevertheless, aware that there remains a lot of uncertainty about the strain and pay seven economic recovery.
Capital in light of that onset.
Ponting prudently.
Cementing strict cost control measures to protect profitability.
Approximately 5005 employees have been further.
Primarily in retail operations and in areas of supply chains that have been disrupted.
I will also institute at a hiring freeze for non critical roles.
Were tightening control or indirect and bought costs and are benefiting from reduced D and E. Spain as employees work from home.
On the supply chain from we're moving ahead full force on project fuel to drive productivity savings.
Importantly, we are applying even more rigorous discipline to conserve cash.
With the processes put in place last year as part of pop turnaround time, serving as a solid foundation to build up.
We continue to be a strong cash generator and we are confident in your brands strong financial position. We believe we have sufficient liquidity and flexibility to navigate through this volatile period.
In time, so crisis, we have to access we have to be agile and nimble does that and we have identified five levers to protect and bolster the companys financial vitality in 2000 printing despite the challenges and to position the company to emerge from this.
Prices as a stronger company.
The first levers that we are working diligently to maximize revenue in the retailers some categories that are growing.
For example, our food business has been the fastest growing category for the company over the past several months, specifically estimated yesterday, so to up mid teens and Pos is approximately 25%.
This momentum should continue into second half as a result of significant in distribution wins at several major retailers. We have expired we have expanded facings.
They also.
Have said several significant new products in food launching in the second half supported by Directv online video programming in social media.
A question business is also poised to have a strong second half they have a strong order book and we believe we'll be able to propel these orders in Q3 in Q4 as supply constraints.
We just learned that are fine tuning bone, Malaysia, which produces southbound products is a battery open.
Second leva is adjusting and optimizing our advertising and promotion spending.
We will touch spending in categories that are not growing and really shifted spending to later quarters and transfer at spine to online and digital and social vehicle.
But that is scrutinizing, our overheads, Spain and strict controlling expenses.
We were already implemented a hiring freeze canceled I intend to your programs and we'll evaluate ways of getting closer to overhead benchmark, we mentioned that cagney faster.
Fourth we have Pos tracking project fuel initiatives in 2000 Crane in an environment for Samsung pressured improving productivity becomes Panama got a laser focus on executing against existing plans to make our manufacturing.
Procurement and distribution center as even more efficient.
And lastly, we're currently assessing race to better leverage are already robust E commerce capabilities, where we believe we have a long runway for growth across our portfolio.
We believe we have a strong opportunities opportunity to grow with Amazon wherever gaining market share increasing penetration key retailer dot coms and expanding penetration into various specialty retailer about comps.
Let me now share news of a new executive appointments about is important for a long time agenda. My case has joined US as new owns chief customer officer.
This is a critical role I've been looking to fold since I arrived at all and with Mike I think we have found ideal candidate my joins us from jargon Pacific where he served as senior Vice President sales and sales strategy as Chief sales officer with the consumer business.
He ran a $6 million consumer Pos business comprising brands such as Angel soft quoted modern brawny Vanity Fair and Sparkle, Mike has a track record of strong leadership and driving strong taps and market share growth in highly complexity of categories. This near term priorities, our first to create a more.
Our unified enterprise growth market approach with our top customers and cement top to top relationships second to create an enterprise team to rapidly grows distribution gaps in the bottom dollar stores club grocery and drug channels.
To take omni channel skill set to the next level without salesforce and fourth to increase to use.
Data analytics.
In conclusion.
Signal a challenging quarter ahead.
I believe that we will sequentially improve in the second half of the yet.
Our brands have leading positions our trusted by consumers and performed well during the last for stage.
Our newly formed executive team is extremely capable and is committed to effectively leading neuro through the coated prices and its optima, while positioning the company for long term success and rebuilding shareholder value.
With that I'll now pass the call along to Chris.
Thanks, Robbie and good morning, everyone I.
I would like to join Ravi an expression gratitude to all of our employees, particularly laws on the front lines demonstrated courage extreme resilience and dedication in these unprecedented times.
Before discussing Q1 results I want to provide additional color on the company supply chain.
Proud of the job our teams have done in keeping facilities open your possible shoring up additional capacity where needed putting in place rigorous cleaning and safety protocols to keep our employees safe and ensuring continuity of supply on direct materials in sourced finished goods as well as protective gear for employees.
As it relates to China following a slower start up in factories. After the Chinese new year's we're pleased to share that need suppliers in the region have rebounded nicely and are now almost back to full capacity.
Well the company supply chain is largely operationally, we have been experiencing considerable disruption toward the end of Q1 and thus far in Q2.
Me brands operate hundred 35 manufacturing and distribution facilities around the world of which 20 were far temporarily closed due to government guidelines with another 11 experiencing high levels of disruption.
The most significant if these temporary closures include our home fragrance plant and distribution center in South Deerfield, Massachusetts, which has been shutdown as of late March and our Mexicali, writing facility was shut down about three weeks ago and is now on a phased reopening schedule.
Well diversified global supply chain helps to lessen the risk posed by these disruptions. Unfortunately as does not fully eliminates the impact to.
To mitigate supply chain risk and better meet the needs of our consumers. We have taken a number of significant actions, including improving employee safety and our facilities by restructuring work spaces to ensure associate distancing enhancing cleaning and safety protocols temperature monitoring revised sick pay Paula.
He is an increased use of personal protective equipment.
Engaging with local jurisdictions on all available options for factories and distribution centers that have been impacted by shutdowns, while adhering to the guidelines.
Pivoting, our supply chain to consumer and customer demand shifts by ramping up manufacturing capacity and inventory build on high velocity and be skews, while simultaneously reducing supply on lower velocity CMD skews to minimize working capital tied up.
In inventory, while improving customer service on the most in demand items.
And activating plans for accessing.
Alternate sources of supply to ensure fulfillment of critical material needs.
And what we know today, we expect supply chain disruptions to have a material short term impact on Q2, particularly in the writing and home fragrance businesses.
Now, let's switch gears to Q1 results. Despite a more significant headwind from cobot 19 than we anticipated the company's first quarter performance was in line with were ahead of guidance across all key metrics.
Q1 was truly a tale of two cities through the end of February we generated positive core sales growth due to a stronger than anticipated start to the year.
In March as the Cobot 19 pandemic spread globally countries increased social distant second shelter in place mandates that significantly impacted the company's business in three primary areas.
Actually disruption retail store closures and consumer and customer demand shifts.
Net sales for the quarter declined 7.6% versus year ago to $1.9 billion, driven by a 5.1% reduction.
And unfavorable currency, we estimate covert 19 to have negatively impacted core sales growth by about 3.5%.
There were some bright spots in the quarter three business units food commercial and baby group core sales in the quarter versus the prior year.
We drove strong double digit growth of E commerce as consumer shifted purchases online.
Normalized gross margin improved 110 basis points year over year to 32.8% as cost savings from productivity initiatives and pricing more than offset headwinds from mix tariffs inflation and foreign exchange.
Uplink focus on productivity overhead cost savings and complexity reduction more than offset planned higher advertising spending driver that driving a better than expected normalized operating margin in Q1, which contracted 10 basis points versus last year to 6.0%.
Debt pay down over the last 12 months reduce the company's net interest expense by $17 million versus last year.
Normalized tax rate was 7.1% normalized deluded earnings per share from continuing operations improved by a penny year over year to nine cents.
Since we completed the divestiture program in 2019, there was no contribution from discontinued operations this quarter as compared to four cents from year ago period.
Now, let's move to segment results.
Core sales for the learning and development segment declined 5.5% as growth in baby was more than offset by a reduction in core sales to writing, which was one of the hardest hit businesses in March.
Performance for the period and commercial segment was quite strong in Q1. This core sales increased 5.2% with both business units driving this result.
Third came into Q1 was solid momentum and experienced heightened demand, particularly within the fresh preserving and vacuum sealing categories as to shelter in place measure started to take hold.
The commercial business was also a beneficiary from increased consumption of sanitizing and cleaning supplies.
Core sales for the home and outdoor living segment declined 11.3%, reflecting challenges across all three businesses. The home fragrance unit was significantly impacted by the temporary closures of Yankee candle stores effective March 17th.
As well as many specialty retail customers.
Assumption behavior for connected home insecurity, and outdoor and recreation businesses was meaningfully disrupted in the first quarter on weight on the performance of each business.
Core sales for the appliance and cookware segment declined 8.5% as a recent pickup in us consumer demand to help me amplified at home cooking meat was more than offset by a pullback of orders from customers, who is brick and mortar doors have been temporarily closed and international markets were shelter in place orders were mandate.
Now, let's switch gears to cash flow, which was one of the highlights during the quarter as a result of our rigorous focus on all aspects of working capital management.
No branch generated positive operating cash flow of $23 million on the seasonally slow first quarter, which represents a 223 million dollar improvement versus last year with progress across receivables inventory and payables.
This represents a 27 day improvement to the company is cash conversion cycle compared to year ago and is the first time in a decade. The company delivered positive operating cash flow in the first quarter.
While last year as part of the turnaround plan, we put in place a disciplined and methodical approach to reducing the company's cash conversion cycle. These efforts have never been more imperative that meet our now.
Cash is king and we're doubling down on our actions to reduce complexity shrink working capital and enhance free cash flow across the organization.
In the first quarter, we took another 5% or about 4000 skews out of the system ending at less than 70000 or about a 31% reduction from the starting point in 2008 team.
We have passed the teams to push much harder on this going forward.
With a significant change in the demand profile across the businesses early on we modified our planning processes to ensure we are being agile and optimizing inventory purchase and build plans.
Focusing production on high velocity skews.
We're also looking at opportunities to more aggressively to liquidate excess and obsolete inventory. These efforts should help more effectively manage the supply chain and drive cash and we are continuing to push on extending payment terms with our suppliers.
We have taken decisive actions in terms of cost structure cash generation and complexity reduction.
Position Newell brands on a stronger footing as we emerge from the pandemic.
No brands ended Q1, and a strong liquidity position with $476 million in cash and cash equivalents, an increase of 127 million from last quarter end.
In addition, the company has a revolving credit facility with $1.2 billion of untapped capacity as of quarter end together. This gives the company about $1.7 billion of short term liquidity.
Thus far in the second quarter. The company remains a strong liquidity position, we have preemptively drawn 125 million on the revolver with remaining capacity of $1.1 billion and continue to hold an above average level of cash cash equivalents.
We are focused on maintaining normal strong liquidity position and believe we have sufficient flexibility to manage the company's cash needs and these unprecedented times.
Given the wide range of possible outcomes from the pandemic, we think it's prudent to regularly evaluate the company's capital structure and capital allocation strategy.
Our objective is to maximize value for shareholders, while ensuring the safe continuous operation of the company in a range of potential scenarios.
We plan to maintain the dividend for the upcoming quarter, we remain committed to de levering the company's balance sheet over time, although cobot 19 will put short term pressure on the company's leverage ratio.
The company has withdrawn its previously announced guidance for 2020 as there are simply too many unknowns at this time surrounding the severity and duration of cobot 19, as well as the trajectory and pace of economic recovery.
We currently expect a material negative headwind from covert 19 in the second quarter, both on the top and bottom line.
For context in April we estimate that sales were down approximately 25% with writing home fragrance and outdoor and recreation being the most significantly affected.
A little more than half of this decline was due to supply chain disruption and retail store closures.
On the bottom line and expected sharp revenue decline in the second quarter, we'll put significant negative pressure on operating margins due to fixed cost deleveraging. Despite the proactive actions, we're taking to reduce costs.
We expect results to improve sequentially following the second quarter as plants distribution centers and retail stores begin to reopen.
While consumer shopping patterns have certainly been disrupted in recent months and they continue to evolve daily we have noticed a sequential pickup in demand for more discretionary products in recent weeks. It is too early to call. This a trend, but we are cautiously optimistic.
Although the world has changed in recent months, we're staying close to our consumers and customers to ensure we are meeting their needs at the same time, we're taking significant and decisive actions to safeguard the health and wellbeing of our employees maintain business continuity and emerge from the crisis as a stronger company.
Nancy Please open it up for Q nine.
Okay. Thanks, Chris before we turn it over to the operator I just wanted to ask you give you to limit yourself to just one question, we're going to try to manage our time to wrap up and about an hour and fit in as many cars as possible. So we appreciate that and operator at this time are ready for the questions.
Thank you if you would like to ask your question. Please signal by pressing star one on your telephone keypad.
You are even in speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask your question, we will pause for just the moment, Hello, everyone and opportunity to signal.
Your first question comes from Bill Chappell with Suntrust Robinson Humphrey.
Thanks, Good morning Nope.
Everyone on the call as well.
Thanks Bill.
Hi, just.
I guess breaking down the near term weakness and then kind of how you look at it going forward any can you parse how much was supply disruption versus how much was retail closure and then on the retail closure you do you see any risk are you factoring any risk of some of those smaller tertiary.
Retail outlets, maybe going under over the next six months, just kind of any any exposure there.
Chris sign for data sure so.
I would say well versus what we saw in the month of April and what we're seeing since the pandemic started is as I mentioned, a little more than half of the impact.
The rest of the more recent revenue trend is really as a result of the supply chain disruption and the retail store closures within that the retail store closure impact a slightly bigger than the supply chain disruption I think we view. These both of these as temporary dynamics in nature, because if you look at.
The underlying consumption trend it is a much stronger picture than the shipment trends that we're seeing.
The other thing I would say is that although we expect these two impacts to have a material negative impact on Q2, we do expect.
To improve sequentially as we get to Q3.
And beyond and so we think that.
The impact that we're seeing it's hard to predict the duration, which is why we pulled guidance but.
We do believe it's temporary and we think that we're well positioned to come out of the pandemic.
A stronger footing.
And Chris you want to retail Hey, there was a follow up up and add on.
Specialty retailers you want me again, that's another one of the yes, Im just specialty retail side.
The specialty retail channel for us represents about a mid teens percent of our total revenue and what we're seeing there is that.
Business at a at our largest retailers is up as consumers are shopping more in those categories and we're growing in those categories. The order patterns that this specialty channel are down dramatically as many of them of at close stores, but we think our brands are strong enough where.
On the consumer has plenty of access to our brands across a multitude of channels in which we operate we also as Ravi mentioned I have recently hired a chief sales officer, and we think we're underpenetrated and have distribution opportunities and some of the.
Channels like dollar and drug and so forth. We don't believe that we have significant receivable collection risk from the specialty retailers that we're in and we're monitoring that very closely.
But typically our businesses in the specialty retailers that are in the strongest among.
Capital strongest capitalized within that sector.
Thank you.
You find that your question has been answered you may remove yourself from the question Q by pressing star Q.
Your next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Great.
Thanks for the detailed commentary upfront guys I guess stepping back from the here now I would think a lot of what you're doing things like things like leaning into online initiatives simplifying skew sets accelerating the focus on cash and cost.
All of those things.
Seem very consistent with what you are long term strategies and privatizations are still I guess to the extent, we hopefully bounce back from this on the faster side of expectations is there a scenario where you can actually emerged from this ahead of where you might have otherwise been operationally if not financially.
Again thinking about 21 22, if so is there we can put me parameters around that thanks.
So let me take that off.
So Steve absolutely so dark.
In factors first thing is.
I think we're going to be able to better navigate through this crisis.
Because of all of the foundational elements that we've put in place in the plan.
Second we have created a absolutely terrific leadership team.
And every one of them is used for turnaround start as part of the.
Criteria for selection, but also on people who have been fourq Tamara they're all here to leave a legacy of taking new over the next level.
So the crisis, though wanting does it bring even more sense of urgency to take the decisions that we are taking inputs in getting very focused.
And you asked me very decisive.
So at Cagney you may recall.
Outline some parameters and on on how investors can expect seller neutral in the long term.
And we still remain committed to that the fundamental tenants that in.
The timeframe will remain an appliance.
And we're going about this so were addressing every aspect the PML the balance sheet cash flow and yes temporarily some.
Co it creates issues.
We are out of our control, but we are putting a lot more focus.
On everything that we can control and going after them, so and the last thing Steve I'd say.
Instead is one rigging feature of this crisis.
It has brought.
The new employees together as you may recall, there was some cultural issues engagement issue. So we.
We saw see that.
As buys on guidance the comp our team our employees have gawk unified galvanized them and they're going to be a great saw some strength.
In order for us to drive.
Question to get costs in order to drive cash flow et cetera.
Thank you.
Your next question comes from repressed per week with Oppenheimer.
Good morning, Thanks, Thanks for taking my questions.
Chris I guess, just going back to your comment just on operating margins significant impact potentially in Q2 is there a better way to frame the impact on operating margin. If sales are down, let's just say, 25% for the quarter I guess I'm, just trying to get a better sensors.
Fixed versus variable costs more so on your gross margin line.
Yes, so just maybe to help on that.
We view all of our cost is variable in the long term, but obviously in the short term.
They're not variable and so to sort of help as a generic modeling exercise about 15% of our cost of goods are fixed in the short term it varies a little bit from category to category, but 15% has a pretty good rule of thumb to use and about two thirds of our SGN a cost is fixed in the short term.
And so.
If you use those as sort of the fixed numbers and flex.
The balance.
The with the sales line that that will get you pretty close to a.
[laughter].
Hey.
A margin impact.
Associated with deferred revenue scenarios, the only other thing I would add.
It may help in this exercises since we gave guidance at the beginning of the year Foreign exchange has gotten worse. The dollar has strengthened by about 200 basis points versus the guidance. We gave at the beginning of the year. So the difference between core sales growth and Paul in sales growth that we had.
Back to it at the beginning of the year of about 100 basis points is now about 300 basis points.
However, we don't expect ADAC will have a material impact.
On the on the margin line because although the FX impact is gone negative, it's largely been offset with reduction in inflationary and commodity prices and so that that impact is as more of a topline impact than eight than a margin impact.
Okay, great. Thank you.
Thank you. Your next question comes from Joe Altobello with Raymond James and Associates. Please go ahead.
Thanks, guys. Good morning, hopefully you would you ever say.
Good back the commentary regarding January February and who are sales being up modestly that trying to understand what businesses, we're doing well.
As opposed to.
The post go live and then maybe secondly.
Rob you mentioned earlier that that you are planning right.
Hopefully for example back to school season, I'm, just curious how your retailers or thinking about back to school is it fair assumption that that all schools are the U.S. will be open this fall.
So let me address.
The two questions and.
The January February, whereas the continuation.
The turnaround plan, we also got significant growth with online and we start at mitigating.
Declines in.
Other areas.
So far.
Bigger retailers, we were seeing some traction so I think really.
When fab.
Was continuation of got around the food business.
Doing extremely well.
For us.
And it has been at Rio source of strength.
So after call that strong growth baby recorded strong growth in John Fab, So those spots on the practice.
That.
Really added from it was even better than what we had expected so that should give you intend to when we come out of this crisis.
At the top down is having a positive impact that we are beginning to do the right things and then as we go towards the end of the enemy of innovations plans across many of our business is we're prioritizing though.
And our teams are continuing to drive residents line reviews with our intent I'd say doing it online. So we're pushing forward. So now let me answer your question about our back to school.
I've been in touch with all our major retailer some back to school up there I think the big issue for everyone is.
Renren schools will schools reopened that seems to be general cautious optimism that key schools.
Well go back and topic in California, We just had someone that they may even reopened a little less.
So nothing universities and slightly different.
Yesterday, Howard made some sort of announcement, but the work on our stock, but the main something about the major more base.
So it's the university scientists on but most people back to school the majority driven by schools. So.
The good news for Us is.
The retail auto assigned flights.
And.
Now normally we would have started shipping out.
In April because of some of the uncertainty that may get delayed event and usually you see.
So what might normally have come in June may now coming your line because most of the comes forward. After July 4th anyway. So right now I think a retail as I'm off cycle and we want to sort of the 64000 dollar question is Reynolds schools reopened Renmin University three open.
People are planning.
They will Sam.
Well that's a bit.
No absolutely as a part of two boys I certainly hope you're right. So thank you.
Hi, five Anthony hope in solve that I want to be right.
[laughter] I think it.
Not only.
From a business standpoint can you just one nominal fee to retire.
Thank you.
Your next question comes from Lauren Lieberman with Barclays capital.
Great. Thanks, good morning.
I was hoping we could talk a little bit more about the appliances in cookware.
The comments on Pos versus shipments are really answer.
[music].
So it's not a business where you talked about like you did talk more about retail closures.
But presumably like or just your suggestions in a lot of inventory at retail.
Just digging through I guess your innovation pipeline that this is a business.
Take longer comment rebuild.
In how you think your Exterran again in terms of relative not Jason makes your market share equally but relative outperformance versus the category.
In any industry you may be launching online.
With that business.
Let behaviors team I think we didn't talk about outdoor at all but that's another business that in a legal nine period. Those businesses then owned by Jarden actually performed pretty well because consumers want the implied into vacation in its really more simple outdoor as you sell.
Anything that you may be doing to support that accelerate innovation agenda.
Great. Thanks.
Sure So let me.
Separate the two questions and.
First question on appliances and cookware so.
A couple of factors, it's really sort of.
A tale of two geographies.
And.
The good news is the U.S., which was our most troubled business historically.
Has really picked up and the consumption that Pos that we've talked about the six consecutive weeks.
It is.
In the U.S.
And that bodes well longer term because we were challenged and so it's really good to see and kind of the numbers that we are beginning to say.
When I look at sort of.
We forward Matson them continuing onto we pour in April we really beginning to stopped getting into the double digits into us on Pos and Thats hard for me.
So that's being driven in certain categories button.
The us.
So smaller appliances, and we brought value brands like Mr. Coffee that go from any of that.
From the job in days and so on bridge as Don rather than recessionary times.
Mr is doing well.
Brent make as heating banquettes.
Et cetera, so the small appliances that is a boost and we're happy about it. So that we are suffering and why shipments have liked is really it's as I said to 10 of two geographies is international.
And international.
Latin America, which has always been a great source of strength products in appliances. Despite the U.S. having had this issue Latin America for instance, I think over the last thing, yes, we've doubled our business and.
Mr is a terrific.
But.
Got it suffering from read a country closures, whereas we may think about Sars shout for at home and protect Glenn States that approved for instance is totally plans.
And Brazil.
So we're seeing pots in Mexico, So big countries in Latin America, It's a big box as well as Europe, and then Australia, which has always been English Oklahoma for US that's had a even though it's not been closed its.
It's been a bit of an issue. The good news. This morning, I just got notice that Australia. They saw a little bump up last week. So.
So in the main it's a 10 or two geographies. So we can come out of that.
We are hoping we can sustain some of the stop that is happening in the U.S., particularly if you're going to recessionary environment, and we did well in the previous rotation.
And then that international stuff for the pickup last comment I'll make is.
The appliance.
Business was was not fast to online as perhaps they should have been in the past, but theyve picked up the pace.
In the last several months and I'm going to help them quite event, because we are seeing tremendous improvement.
On online and.
On Amazon et cetera, and so I think overall.
We're hoping that this will continue.
I think we still need to do walk on innovations I don't want to make that Wow everything is hunky dory. So the comments I made a guidance to the hole that we still need to do work that.
I think we are seeing positive trends. So now let me address your question about our goal.
Right now outdoor is struggling because you've got really three businesses that you will go up.
And I think about.
Apparel business climate.
You got Coleman, and then you've got that contigo, and Bubba et cetera. The.
So what's happening is the technical apparel business really as Bob had hot not just for us but across the board apparel business has really been top.
Vince I think it's basically would stay at home and stuff, So I think that as Oh.
On Coleman, Randy the time instead ends of it stay at home people are not camping. The parks are codes. So that creates this a natural issue there.
But we are we're making good progress we've got I mentioned to Cagney give us honey.
We're going to be heading that business dots.
On Monday.
The new sales has that become cash sounds very good so they're beginning to get some traction on by then and then continue garbage yes, it the brand as well, but on the ground rules right now since people at home not as they can benefit and then into outdoor side, just the retailers that lot of the retail.
That said, but.
Adi Dick's sporting goods et cetera are all coal so.
I do think monitoring that is an opportunity for us to do better on the dotcom. So those businesses. Historically lives are focused on the big retailer Dot Coms and Amazon. So I think as I mentioned in my prepared remarks, we're going to drive penetration and lot of these specialty so youre right that in a recessionary time.
As we come out of that I think we should get better on that business.
Thank you sound like.
Your next question comes from Kevin Grundy with Jefferies.
Thanks, Good morning, everyone and I hope it you well Chris' question for you relating to your debt covenants into the dividend.
First I did want to congratulate you when you came on the improvement in.
Your cash conversion cycle.
If you guys are capitalizing on that because I think its long been an opportunity since the jarden mercury so congrats on that.
So we can appreciate you with your own guidance.
Can you comment on your level of comfort with your debt covenants I think there's two no interest coverage ratio three and a half times debt to capital a maximum 60% again without guiding maybe just comment on your level of comfort here as you think about most likely scenarios and then you mentioned your commitment to the dividend for the second quarter may.
Maybe you can put some guardrails around your level of commitment for the balance of the year and how you're thinking about cash flow priorities. Thanks for that.
Yeah, no problem, so I'll start with debt covenants. So you're right. There are two primary debt covenants the interest coverage ratio of three and a half times and the.
Debt to total cap of 5.6, the debt to total cap does allow an add back for goodwill.
We ended the first quarter in compliance with both.
Both covenants with significant headroom against both covenants and we've done a significant amount of modeling, we you sort of internally refer to it as alphabet soup because we're looking at the V. to you the w. the l. scenario et cetera.
And looking at all of those scenarios.
We're confident that in.
Unless something.
Really unforeseen happens.
That.
We got sufficient flexibility to navigate and comply with the debt covenants going forward. So we're not we're very competent and the company's liquidity position.
The debt covenants I should mention only applied to the revolver and our facility, which are the short term.
Liquidity facilities, they don't apply to the.
Unsecured notes.
Relative to the dividend.
As I mentioned in the prepared remarks.
And as we plan to maintain the dividend at the current level for the current quarter. As you know the dividend is a quarterly decision thats made by the board.
As we've done a scenario modeling and all of the scenarios that we've modeled the free cash flow expectation for the company has more than enough to both fund the dividend and reduce staff on an annual basis going forward, including this year.
That being said given the uncertainty of the severity in the duration of the crisis.
We do believe it's prudent to continue to evaluate the company's capital structure and capital allocation strategy.
Given the range of possible outcomes. So.
That's done that's the plan that we got that moment going forward.
Thanks, Chris Good luck guys.
Thank you.
Your next question comes from Olivia Tong with Bank of America Merrill Lynch.
Great. Thanks, everyone is now thanks to the detail in April I, just wanted to see you talk a little bit more about the divergence in growth across your portfolio.
Okay. Thank you for demand in some cases a job.
Somewhere probably to kind of impact on what's going on and then somewhere on the seems quite difficult to drive growth.
Right now what am I right.
So maybe just talk about the divergence in terms of all that maybe 25 from.
The bottom.
And then just overall are you seeing any shifts yet in terms of price points is there are down shifts in terms of.
What consumers are buying the are buying right now.
Got your portfolio brands.
Rubbermaid when it began shipping grieco.
As well.
And I know.
It doesn't seem to.
2008, if there's anything thank you.
Hi.
Hey.
Thanks.
Okay, Let me kick that off and then Chris if there's anything you want to add.
So you talked about how the divergence a in our portfolio.
Particularly related to April and so I think.
I think I talked about quite a bit of this in the prepared remarks, but I'd just reiterate sound does so clearly.
Our product went out for us.
Has been food and.
So that has a track.
Really done extremely well, both on Pos and on shipments, but actually Pos.
Is ahead of shipments into the same trends.
Continued in April if anything were beginning to continue to see that growth picking up because we originally we had growth a lot of growth and foodsaver on a ball and now we're seeing that picking up on rubbermaid.
Food storage as well, so and then commercial.
In the past quarter was clearly a big went up.
There I think where the trends the auto book is very full but there were a especially on things like sanitizer.
And stuff.
Certain supply constraints on how much we can meet them. So.
But as we are expanding capacity.
We think that over time, we'll be able to fulfill that.
I think I've already talked about home fragrance.
Where we are.
In the retail as we actually are.
In is doing extremely well and I think I mentioned, even that hey, someplace, a doubling so but were also affected by access because our own retail store sarcos and all the specialty retailers. So so we're getting a volume through wherever we are but I think.
It's not the growth is not enough to offset longer kosher because you've got a very significant bottom of access right now close but as we come out of this it could be very.
Very positive because capital consumption. That's what people are using a trial is actually up which is demonstrated by.
By the fact that we're doing well so baby.
More recently are you in the beginning of April we saw little slow down and back we've now seen an uptick on the.
Stimulus checks have gone out we're actually beginning to say.
Couple of weeks of good positive Pos so I.
I think company and then of course, writing we already I spent a long time on my prepared remarks, I think the big news that is how do they.
See us going forward on back to school. So there is about a little bit of supply constraints from Mexicali, but also people graduate students at home.
Remark working in their offices et cetera that affects that business.
Robert that one thing which is.
Sure.
We didn't go back and look at.
And we spent a lot of time in this scenario analysis going back and looking at the 2008 recession and we looked at obviously, the new business and the Jarden business during that time.
And what we saw was that in next time period, both companies were able to gain market share and it gets to your question on price points, because generally the company is pretty well positioned with opening price point and mid price point products. So if you believe that the company is headed into a more risk.
Fashion every time period.
We tend to be well represented in the.
In the air in the price latter for where consumers may trend to we have not yet seen I think it's too early to call any kind of a trend with consumers changing relative to price point, but we do believe we're well positioned in the other thing that we saw from the analysis that was notable about the 2008 reset.
And was that.
The strongest the stronger brands tend to do well and that type of an environment and as we mentioned a cagney.
The brands that are in our portfolio.
I think 80% of our business were either number one or two in the category. So we're well positioned from both the market.
Leading brand perspective, as well as from their price positioning standpoint.
Capitalize on the environment going forward.
Thanks, Chris I think let me add one thing I forgot to mention is in the portfolio probably the one business.
Outdoor recreation I already you can run off the question talked about it but that business.
Has had a negative impact.
In in.
That not only the quarter back more in April and then our connected home business again because of access.
Because lot of yeah. It's a question of how are people looking at it.
And then also Southpark plant site in Mexico that has in Juarez that has.
Been shut down temporarily.
Right. So I hope that gives you a good sense.
Thank you.
We do have time for Woodmark question. Your final question comes from Andrea Teixeira with JP Morgan.
Thank you and and hope you all well I appreciate the visibility on the it takes them and add to the commentary about possibly the supply chain. So he can clinical like breakdown a little bit of the optical assumption is shifting trends they were seeing it looks like loads.
See you said you need to wait and see that could normalize and that seems clinical positive, but he may and June. So what are you thinking on assumptions man fluid baby and small appliances should we expect those should remain elevated in the medium to long term as we get out of compete.
And on into the back from your hunting from your.
Customers.
We believe the open and do you think like in the medium term could outside the writing supply.
Well into the offices.
And or usage.
But that business remain under pressure and you can you can go just look like for instance, aligns question before about the retail inventory and receivables.
I understand a critical.
You're not seeing any any major issues, obviously again congrats on your.
Cash conversion, but I wanted to just real down it's Chris can comment on that as well. Thank you so much.
Okay.
So.
I think.
We really Khan.
Give you specifics on May and June I think we've given you a sense that we think the overall color will be challenged send us based on.
The April trends, which we've been pretty transparent about.
Having said that we're also seeing Ray I think I talked about the positive sequential improvements on Pos.
So you have to take that into consideration so part of the issue is its.
We just don't know sound. These things in terms of if I think we already dealt with the back to school Hi, random schools open Renren offices.
Even our own we've now we thought we'd be opening offices on Monday, we moved after many 26.
Could remove it again it all depends on this is true it so it's more of the uncertainty because the pandemic.
That.
But I think the thing that one has to take from this is.
There is no fundamental structural issues, we are just dealing with situational stuff in the bar, which deal with either supply chain constrains retail closures are some consumer shifts in behavior because of stay at home some effect, which is benefiting as Paul said at least some.
Negatively so I think the powered the gamut does that so I think really what we're looking at as happily come out of this and a much stronger that not only in the second half and we do have some confidence that sequentially, we will improve in the second half of the yeah, and then going forward.
Into 2021, I think we'll law the steps were taking and that team. We're building and actions were thinking and what we're doing the brands and innovation should make us a strong player coming out along with us. So yes, the quarter to challenge, but really we're focused on how do we get through the rest of the yen involved with the right.
Chris maybe you can answer the question on the gas conversion Oh, Yeah. So I think the question was on the receivables. So we're obviously looking at our receivables.
Closer I've actually got have a meeting twice a week on this topic, what we're seeing so far specifically is that we're collecting receivables actually better than our forecast part of that as the process improvements that we've made and you can see but that came through in the first quarter.
It was a big enabler for us delivering the 27 day reduction in the cash conversion cycle that trend is continuing in April. So we continue to collect receivables at or ahead of forecast. We're also monitoring credit risk.
In a much tighter fashion, but again as I mentioned I think in one of the earlier questions.
The majority of the company's businesses with.
Well capitalized large retailers, we do have some business with specialty and department retailer. So about a mid teens percentage, we're monitoring those closely.
But we have not seen a.
Any type of a slowdown in our culture.
Receivables is as an aggregate.
Company, So we're but we're monitoring it closely as the situation evolves.
Increases from the inventory at the specialty retailers that are close can you comment on that.
Yes, so our largest specialty retail our largest retest specialty retail customers would be people like staples.
Office depot, and bed Bath and beyond it'd be at the top three.
And right now most of those retailers are open for their online business and continued to sell we are monitoring.
Both inventory at the retailer and credit that we've extended to those retailers.
And we're managing that to ensure that theres continuity of appropriate supply to consumers without over investing in inventory at those retail customers and I think we're managing that relatively well.
Very helpful. Thank you very much.
I think yeah, okay. So first and foremost I just want to thank.
All the analysts and investors who are on this call.
Appreciate.
Yes supporter of Neutrolin in these difficult times to listen to us and we truly pray that you in your family stay.
Okay. Thank you very much for being on the call.
Look forward to chatting with you next Barbara.
That's an outlet thank you.
Thank you.
Replay of today's call will be available later today on our website I, our dot Newell brands Dot Com. This concludes our conference you may now disconnect.
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Hello, and welcome to the Newell brands first quarter 2020, <unk> earnings Conference call. At this time, all participants are any listen only mode. After a brief discussion by now, but we will open the call for questions in order to stay within the time schedule for the call. Please limit yourself to one question during the Q any session.
As a reminder, today's conference is being recorded a live webcast of this call is available at I.R. Dot Newell brands Dot com.
Well 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 know brands first quarter earnings call.
On the call with me today, our Ravi Saligram, our president and CEO and Chris Peterson, our CFO and President this operation.
Well, we began I'd like to inform you that during the course of today's call, we won't be making forward looking statements, which involve risks and uncertainties.
Actual results and outcomes may differ materially.
Refer you to the cautionary language and risk factors available in our press release and our form 10-Q for further discussion of factors affecting forward looking statements.
Please also recognize that todays remarks, what we're focused on non-GAAP financial measure, including those we refer to as normalized measures.
We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with gap.
Explanations of these non-GAAP measures reconciliations between GAAP and non-GAAP measures can be found in today's earnings release, and Paypal as well down the Nols Investor Relations website <unk>.
And now I'll turn the call over to Robby.
Thank you last thing.
Good morning, everybody and welcome to recall, we hope you and your family upside.
These are indeed extraordinary times.
All right good night.
Hi, My new oncology.
[laughter] excuse me around stepped up I see Bob or corporate 19.
Out of pop on find work has you know manufacturing and distribution cost synergies as well, it's not a substantial working from about.
The teams have done a tremendous job by supporting those that need during this time Tom.
Now turning to.
A lot, but I'd products globally, I'm, turning drops mom spread volumes, maybe get each blanket waterbottles phone started to contain that and writing them comp.
In fact walk teams designed the thanks, you for use by doctors analysis, where in the process are dominating 30000 units to hospitals and the community in which we walk ending.
I am impressed and humbled by the end time, youre, probably going to happen.
Our call today.
Hi, discovered 19 crisis is impacting our business.
Actions, we're taking to adapt to the current environment I have to position ourselves for success.
And well begin to reopen.
Great spend that Scott first quarter results for water supply chain oxide and chat from observations on offline stopped.
We talked about 15 priorities took possession youre put success I see modest through these stuff at any time unsettling times.
Okay well quickly.
Yes on the safety and rather being a lot employees coffee lobbying off what differently and that rising to the occasion.
Im antenna monitoring what from Hong Kong thing.
First on clerical an administrative apart.
All long critical business topless productivity.
And with temporarily closed all I got in Calgary down strollers.
To support our front line work has implemented a temporary hobby pay increase I mean, the bonus program for supervises add additional emergency basic dice in the U.S. and type and geography.
We're also instituting more rigorous hygiene and cleaning protocols across a large amount of arching Boston DC, including prevention of face Matson shales temperature checks and implementation of sexual distancing protocols for possible.
These factors as restaurant franchise on the on associates are safe I'm, not very much and deliver products. Thank you to the customers some consumers wanting them.
Our second priority during the crisis is working diligently to keep our manufacturing facilities operating wrap possible.
Across the globe, many thought factories and distribution centers are being deemed essential and remain open.
Hi, Patrick temporarily suspend operations and training facility, notably Yankee candle in Massachusetts, the writing block and Mexicali and his team in New Zealand comply with local government guideline.
Supply disruptions have been a significant significant factor contributing to our April's house declines, we're working diligently to reopen all our Boston DC.
Yes, and place autos kit.
Our first priority is business continuity on sustaining the company Milan term vitality with unless that focus on maximizing cash flow and ensuring strong liquidity.
Let me provide some context.
We began the platform with good momentum coming off strong progress against our turnaround plan in 2019 through February we well ahead of plan.
All key financial metrics, and even recorded modest close outs growth.
But I shall templates practices increased rapidly around burgo beginning in March we began to see but a significant pressure from retail customized and changes in consumer purchasing patterns. The biggest impact has been the speed being changed in the retail landscape.
On the positive side, our largest customers in mass and online channels I actually seeing us sergeants house at their retail locations remain open the most bar and the shift to E commerce sites et cetera, and dramatically our own sales for many of these customers are benefiting from these trends.
At Roland ecommerce penetration went up from 13% in the first quarter, 2019% to 7% in Q.
Q1 2000 trend.
Our online Pos penetration in Q1 was up there.
30, parse what's up to 30% up 500 beps versus prior year.
These trends have continued into the second quarter.
We estimate that April penetration reached approximately 37%.
900, Bips and April online sales have up approximately 30 sustained by us as Bob Yes.
Yesterday through April online sales were off an estimated 20%.
The strength to the ability to E commerce is allowing us to leverage the accelerating channel shift our online scope it.
How about on the negative side, most secondary and tertiary customers.
Recipes specialty retailers and department stores have gross that brick and mortar dos which is translated to a sharp decline in retail auto has more than offsetting the growth in mass and E commerce.
At the same time consumer purchase patterns, but significantly disrupted shifting to us categories doesn't support stay at home consumer usage occasions.
So how brands have benefited.
Including balk fresh preserving foodsaver vacuum sealing brands southwest small appliances, and more recently rubbermaid food storage.
Rubbermaid commercial products also saw improved top line trajectory in the first part, but strong demand for walk from and commercial hand, sanitizer products as well as cleaning in may.
Our customers are not shopping as frequently in the writing outdoor recreation home security in baby categories, resulting in some cases declines in double digits.
Great Thats point sales are published CACI at down because people are mark driving as much.
In the month of April the supply chain disruptions, the retail closures and the consumer purchase pattern shipments.
But to do an estimated sales decline in that 25% sound strange, which has informed our call out or a challenging second quarter.
Having said that on a Boston from note overall, new Pos declines have been sequentially, reducing every week in the last four weeks.
This week Pos grew in the low teens.
This speaks trends may also made related to the issuance of federal stimulus checks.
Well thats much uncertainty out there.
Quick question is that the second half of the topline that'd be much improved less as current trends as our manufacturing facilities reopened countries around the world to begin to lift restrictions and consumers for tends to more normal purchase patterns.
Why don't we believe that to be the case.
Just a meaningful portion of the sales decline is due to the supply chain destruction.
Example, shipments in the home fragrance category were significantly cut count in April in large part you're just supply chain constrains caused by the closure of our sorry, do you feel Yankee candle, Boston DC add crozier upon retail stores.
Okay.
Yes, Brian Yankee Candle, what bank in Chesapeake Bay offerings at the retail, but remain open is growing come and methodically.
And in some cases more than doubling indicating that consumer demand for software products is increasing this product of nesting.
Social listening back problems indicate that many consumers opening comments from offline to bring about 10 cents or comp.
Retail dot com across most greentown. This at all of the diesel and see side is also grand significant.
So we're optimistic that asked the country begins to reopen and we returned from production our home fragrance house trends improve sequentially well assets a challenge second quarter.
Assuming that dynamic is playing out in writing, but early Q2 satellites suffered due to shortfalls gross.
Caused by school University and office closures. This was further exacerbated by the closure of our Mexicali Griping facility.
Assay gradually are able to come back to full capacity to facilitate the supply constrained supply chain constraint there have been lifted.
The big sales season for writing is still in front of us.
All of our retail customers account currency plan for back to school.
And have already placed on us.
Im estimating the second right.
I would expect students to return to school in the fall and welcome to return to offices sometime this summer and then want to stock up on supplies ethanol later.
We are seeing another encouraging data point in appliances and acquire business.
And ask to economic downturns, we have seen consumer spending on food ship from out of home.
Which is driven growth in small kitchen appliance categories, particularly value offerings.
Since mid March.
Team six straight.
Our sequential improvement in our us appliances, and cookware Pos trends with growth and Mr. coffee brand may cause you Eric requires heating patent tetra and.
An encouraging trend.
Hope is tied this dynamic maybe playing out again.
And lastly in the past week or so we're seeing stay at home restrictions lifting in the U.S. and internationally and many business since beginning to pan for reopening which is happening.
Let's see how to play out.
Costs, but we're encouraged by these early signs of what at a time somewhat more normal times.
We are optimistic for sequential improvement on topline trends in the back half.
With nevertheless of rather there remains a lot of itself.
About the strain and pay 70 economic recovery.
Dapple in light of thought on site.
We are planning prudently.
Implementing.
Cost control measures protect profitability.
Timothy 5005 employees have been further primarily in retail operations and then areas so supply chains that have been disrupted.
Well also continue to the hiding threes for non critical roles were tightening control or indirect and bought costs and are benefiting from reduce D and E. Spain as employees work from home.
On the supply chain from we're moving ahead for us on project fuel to drive productivity savings.
Importantly, we are applying even more rigorous discipline to conserve cash.
With the processes put in place last year as part of pop turnaround time, serving as a solid foundation to build off.
We continue to be a strong cash generation and we are confident that youre brands strong financial position.
We believe we have sufficient liquidity and flexibility to navigate through this volatile period.
In time, so crisis.
Asset we have to be agile and nimble does that and we have identified five levers to protect and bolster the companys financial vitality in 2000 printing despite the challenges and to position the company to emerge from this.
Prices as a stronger company.
Fast Levelized stock, we are working diligently to maximize revenue in the retailers some categories that are growing.
For example, our food business has been the fastest growing category for the company over the past several months.
Perfect Great estimated yesterday sales are up mid teens and Pos is approximately 25%.
This momentum should continue in the second half.
Result, significant distribution wins at several major retailers.
Revenue expanded facings.
We will also.
Have several significant new products and food launching in the second half supported by dollar TV online video programming in social media.
Question businesses also poised to have a strong second half debit strong order book and we believe we'll be able to our portfolio that you saw us in Q3 in Q4 as supply constraints.
We just learned that our content in Malaysia, which produced a south back our products is a battery open.
Second leva is adjusting and optimizing our advertising and promotion spending we will touch spending in categories that are not growing and will shift spending to later quarters and transfer at span online and digital and social vehicle.
That is scrutinizing, our overheads, Spain and strict in controlling expenses.
We have already implemented a hiring freeze cantos, our intention programs and we'll evaluate right. So getting close at the overhead benchmark, we mentioned that cagney faster.
Fourth we have Pos tracking project fuel initiatives into about some training in an environment press outside pressure improving productivity becomes pad.
Data focus on executing against existing plans to make our manufacturing.
Procurement and distribution center as even more efficient.
And lastly, we're currently assessing race to better leverage are already robust E commerce capabilities.
We have a long runway for growth across our portfolio.
We believe we have a strong opportunities opportunity to grow with Amazon, where we're gaining market share increasing penetration key retailers comps and expanding penetration into various specialty retailer about comps.
Let me now share news of a new executive appointments that it's important to our long term agenda. My case has joined US as new owns chief customer officer.
This is a critical role I've been looking to fold since I arrived at all and with Mike I think Weve found IPO Cabot I might joins us from Georgia Pacific where he served as senior Vice President sales and sound strategy as Chief sales officer with the consumer business.
You added $6 billion consumer Pos business, comprising brands, such as saying soft quoted mall that brought a lot at the fans Fokko, Mike has a track record of strong leadership and driving strong tabs and market share growth in highly complexity of categories. This near term priorities, our first to create a more.
Our unified enterprise go to market approach with our top customers and cement top to top relationships second to create an enterprise team to rapidly grows distribution gaps in the important dollar stores drop grocery and drug channels.
To take omni channel skill set to the next level with Salesforce and fourth to increase to use.
Thanks.
In conclusion.
Signal a challenging quarter ahead.
Hi believed that we will sequentially improve in the second half of the App.
Our brands have leading positions are concerned by consumers and performed well during the last for Sage.
Newly formed executive team is extremely capable and is committed to effectively leading neuro through the code prices and its optima, while positioning the company for long term success and rebuilding shareholder value.
With that I'll now pass the call long to Chris.
Thanks, Robin and good morning, everyone I.
I would like to join Ravi an expression gratitude to all of our employees, particularly lows on the front lines demonstrated courage extreme resilience and dedication in these unprecedented times.
Before discussing Q1 results I want to provide additional color on the company supply chain.
Proud of the job our teams have done and keeping facility. The open your possible shoring up additional capacity where needed putting in place rigorous claiming and safety protocols to keep our employees safe and ensuring continuity of supply on direct materials and sourced finished goods as well as protective gear for encore dish.
As it relates to China following a slower start up in factories. After the Chinese new year's we're pleased to share that may suppliers in the region have rebounded nicely and are now almost back to full capacity.
While the company supply chain is largely operationally, we have been experiencing considerable disruption toward the end of Q1 and thus far in Q2.
Main brands operates 135 manufacturing and distribution facilities around the world of which 20 were far temporarily closed due to government guidelines with another 11 experiencing high levels of disruption.
The most significant if these temporary closures include our home fragrance plant and distribution center in South Deerfield, Massachusetts, which has been shutdown as of late March and our Mexicali Randy facility was shut down about three weeks ago and is now on a phased reopening schedule.
Well diversified global supply chain helps to lessen the risk posed by these disruptions. Unfortunately, it does not fully eliminate the impact to.
To mitigate supply chain risk and better meet the needs of our consumers. We've taken a number of significant actions, including include improving employee safety and our facilities by restructuring work spaces to ensure associated distancing.
Enhancing cleaning and safety protocols temperature monitoring revised sick pay policies and increased use of personal protective equipment.
Engaging with local jurisdictions on all available options for factories and distribution centers that have been impacted by shutdowns, while adhering to the guidelines.
Pivoting our supply chain.
Consumer and customer demand shifts by ramping up manufacturing capacity and inventory build on high velocity and be skews, while simultaneously reducing supply on lower velocity CMD skews to minimize working capital tied up in inventory, while improving customer.
Service and the most in demand items.
And activating plans for accessing.
Alternate sources of supply to ensure fulfillment of critical material needs.
On what we know today, we expect supply chain disruptions to have a material short term impact on Q2, particularly in the writing and home fragrance businesses.
Now, let's switch gears to Q1 results. Despite a more significant headwind from cobot 19 than we anticipated the company's first quarter performance was in line with or ahead of guidance across all key metrics.
Q1 was truly a tale of two cities through the end of February we generated positive core sales growth due to a stronger than anticipated start to the year.
In March as the Cobot 19 pandemic spread globally countries increase social distant second shelter in place mandates this significantly impacted the company's business in three primary areas.
Hi chain disruption retail store closures and consumer and customer demand shifts.
Net sales for the quarter declined 7.6% versus year ago to $1.9 billion, driven by a 5.1% reduction in core sales and unfavorable currency.
We estimate covert 19 to have negatively impacted core sales growth by about 3.5%.
There were some bright spots in the quarter three business units food commercial and baby grew core sales in the quarter versus the prior year.
We drove strong double digit growth of E commerce as consumer shifted purchases online.
Normalized gross margin improved 110 basis points year over year, the 32.8% as cost savings from productivity initiatives and pricing more than offset headwinds from mix tariffs inflation and foreign exchange.
Supplement focus on productivity overhead cost savings and complexity reduction more than offset plan higher advertising spending driver the driving a better than expected normalized operating margin in Q1, which contracted 10 basis points versus last year to 6.0%.
Debt pay down over the last 12 months reduce the company is net interest expense by $17 million versus last year.
Normalized tax rate was 7.1% normalized diluted earnings per share from continuing operations improved by a penny year over year to nine cents.
Since we completed the divestiture program in 2019, there was no contribution from discontinued operations this quarter as compared to four cents a year ago period.
Now, let's move to segment results.
Core sales for the learning and development segment declined 5.5% as growth in baby was more than offset by a reduction in core sales to writing, which was one of the hardest hit businesses in March.
Performance for the period and commercial segment was quite strong in Q1 as core sales increased 5.2% with both business units driving this result.
Third came into Q1 was solid momentum and experienced heightened demand, particularly within the fresh preserving and vacuum sealing categories as to shelter in place measures started to take hold.
The commercial business was also a beneficiary from increased consumption of sanitizing and cleaning supplies.
Core sales for the home an outdoor living segment declined 11.3%, reflecting challenges across all three businesses.
We're ensuring that was significantly impacted by the temporary closures of Yankee candle stores effective March 17.
As well as many specialty retail customers.
Consumption behavior for connected home security and outdoor and recreation businesses was meaningfully disruption in the first quarter on weight on the performance of each business.
Core sales for the appliance and cookware segment declined 8.5% as a recent pickup in us consumer demand to help meet amplified at home cooking needs was more than offset by a pullback of orders from customers, who is brick and mortar doors have been temporarily closed and international markets were shelter in place orders were mandate.
[music].
Now, let's switch gears to cash flow, which was one of the highlights during the quarter as a result of our rigorous focus on all aspects of working capital management.
Branch generated positive operating cash flow of $23 million on the seasonally slow first quarter, which represents a 223 million dollar improvement versus last year with progress across receivables inventory and payables.
This represents a 27 day improvement to the company's cash conversion cycle compared to year ago and as the first time in a decade. The company delivered positive operating cash flow in the first quarter.
While last year as part of the turnaround plan, we put in place a disciplined and methodical approach to reducing the company's cash conversion cycle. These efforts have never been more imperative them and are now.
Cash is king and we're doubling down on our actions to reduce complexity shrink working capital and enhance free cash flow across the organization.
In the first quarter, we took another 5% or about 4000 skews out of the system ending at less than 70000 or about a 31% reduction from the starting point in 2018.
We have passed the teams to push much harder on this going forward.
With a significant change in the demand profile across the businesses early on we modified our planning processes to ensure we are being agile and optimizing inventory purchase and build plans.
Focusing production on high velocity skews.
We're also looking at opportunities to more aggressively to liquidate excess and obsolete inventory.
These efforts should help to have more effectively manage the supply chain and drive cash and we are continuing to push on extending payment terms with our suppliers.
We have taken decisive actions in terms of cost structure cash generation and complexity reduction.
Position Newell brands on a stronger footing as we emerge from the pandemic.
No brands ended Q1 in a strong liquidity position with $476 million in cash and cash equivalents, an increase of 127 million from last quarter end.
In addition, the company has a revolving credit facility with $1.2 billion of untapped capacity as of quarter end together. This gives the company about $1.7 billion of short term liquidity.
Thus far in the second quarter. The company remains in a strong liquidity position, we have preemptively drawn 125 million on the revolver with remaining capacity of $1.1 billion and continue to hold an above average level of cash and cash equivalents.
We are focused on maintaining normal strong liquidity position and believe we have sufficient flexibility to manage the company's cash needs and these unprecedented times.
Given the wide range of possible outcomes from the pandemic, we think it's prudent to regularly evaluate the company's capital structure and capital allocation strategy.
Our objective is to maximize value for shareholders, while ensuring the safe continuous operation of the company in a range of potential scenarios.
We plan to maintain the dividend for the upcoming quarter.
We remain committed to de levering the company's balance sheet over time, although cobot 19 will put short term pressure on the company's leverage ratio.
The company has withdrawn its previously announced guidance for 2020 as there are simply too many unknowns at this time surrounding the severity and duration of cobot 19, as well as the trajectory and pace of economic recovery.
We currently expect a material negative headwind from cobot 19 in the second quarter, both on the top and bottom line.
For context in April we estimate that sales were down approximately 25% with writing home fragrance and outdoor and recreation being the most significantly affected.
A little more than half of this decline was due to supply chain disruption and retail store closures.
On the bottom line and expected shark revenue decline in the second quarter, we'll put significant negative pressure on operating margins due to fixed costs deleveraging. Despite the proactive actions, we're taking to reduce costs.
We expect results to improve sequentially following the second quarter as plants distribution centers and retail stores begin to reopen.
While consumer shopping patterns have certainly been disrupted in recent months and they continue to evolve daily we have noticed a sequential pickup in demand for more discretionary products in recent weeks. It is too early to call. This a trend, but we are cautiously optimistic.
Although the world has changed in recent months, we're staying close to our consumers and customers to ensure we are meeting their needs at the same time, we're taking significant and decisive actions to safeguard the health and wellbeing of our employees maintain business continuity and emerge from the crisis as a stronger company.
Nancy Please open it up for QNX.
Okay. Thanks, Chris before we turn it over to the operator I just wanted to ask.
Limit yourself to just one question, we're going to try to manage our time to wrap up and about an hour and did in as many cars as possible. So we appreciate that and.
Operator at this time array of for the questions.
Thank you if you would like to ask your question. Please signal by pressing star one on your telephone keypad.
You are using speakerphone. Please make sure your mute assumption is turned off to allow your signal to reach our equipment.
Again press Star one to ask your question, we will pause for just the moment, Hello, everyone and opportunity to signal.
Your first question comes from Bill Chappell with Suntrust Robinson Humphrey.
Thanks, Good morning.
Everyone on the call as well.
Thanks Bill.
Hi, just.
I guess breaking down the near term weakness and then kind of how you look at it going forward any can you parse how much was supply disruption versus how much was retail closure and then on the retail closure.
Do you see any risk or are you factoring any risk of some of those smaller tertiary retail outlet maybe going under over the next six months just kind of any any exposure there.
Chris I answered thanks.
Sure so.
I would say well versus what we saw in the month April and what we're seeing since the pandemic started is as I mentioned, a little more than half of the impact.
The rest of the more recent revenue trend is really as a result of the supply chain disruption and the retail store closures within that the retail store closure impact us slightly bigger than the supply chain disruption I think we view. These both of these as temporary dynamics in nature, because if you look at.
The underlying consumption trend it is a much stronger picture than the shipment trends that we're seeing.
The other thing I would say is that although we expect these two impacts to have a material negative impact on Q2, we do expect.
To improve sequentially as we get to Q3.
And beyond and so we think that.
The impact that we're seeing it's hard to predict the duration, which is why we pulled guidance but.
We do believe it's temporary and we think that we're well positioned to come out of the pandemic.
Stronger footing.
And Chris you want to retain there was a follow up up and add on.
Specialty retailers, you Armageddon Adriatica, yes, Im just specialty retail side.
The specialty retail channel for us represents about a mid teens percent of our total revenue and what we're seeing there is that.
Business at a at our largest retailers is up as consumers are shopping more in those categories and we're growing in those categories. The order patterns that this specialty channel are down dramatically as many of them event close stores, but we think our brands are strong enough where.
On the consumer has plenty of access to our brands across a multitude of channels in which we operate we also as Ravi mentioned have recently hired a chief sales officer, and we think we're underpenetrated and have distribution opportunities in some of the.
Channels like dollar and drug it and so forth. We don't believe that we have significant receivable collection risk from the specialty retailers that we're in and we're monitoring that very closely.
But typically our businesses in the specialty retailers.
In the strongest among.
Capital strongest capitalized within that sector.
Thank you.
You find that your question has been answered you may remove yourself from the question Q by pressing star Q.
Your next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Great.
Thanks for the detailed commentary upfront guys I guess stepping back from the here now I would think a lot of what you're doing things like things like leaning into online initiatives simplifying skew sets accelerate in the focus on cash and cost.
All of those things.
Seem very consistent with what you are long term strategies and privatizations are so I guess to the extent, we hopefully bounce back from this on the faster side of expectations is there a scenario where you can actually emerge from this ahead of where you might have otherwise been operationally if not financially.
In thinking about 21, 22, and if so is there where you can put any parameters around that thanks.
So let me kick that off.
So Steve absolutely so dark.
In factors first thing is.
I think we're going to be able to better navigate through this crisis.
Because of all the foundational elements that we've put in place in the cloud.
Second we have created a absolutely terrific leadership team.
And every one of them is used for turnaround start as part of the.
Criteria for selection, but also on people who are battling for tomorrow. They are all here to leave a legacy of taking new over the next level.
So the crisis, though wanting does bring even more sense of urgency.
I'll take the decisions that we are taking inputs in getting very focused.
And you have to be very decisive.
So at Cagney you may recall.
Topline some parameters and on on how investors can expect seller new all in the long term.
And we still remain committed to that the fundamental tenants that in.
Does that framework remain an appliance.
And where were going about this so were addressing every aspect of DNL the balance sheet cash flow and yes temporarily some.
Co it creates issues.
Which are out of our control, but we are putting a lot more focus.
On everything that can control.
Im going up to them, so and the last thing Steve website.
Is instead is wondering feature of this crisis.
It has brought.
The new employees together as you may recall, there were some cultural issues engagement issue. So we.
We saw the that.
As bygone guidance the comp are deemed employees have gawking unified weve galvanized and they're going to be a great saw some strength.
In order for us to drive.
Question.
To get costs in order to drive cash flow et cetera.
Thank you.
Your next question comes from repressed per week with Oppenheimer.
Good morning. Thanks, Thanks for taking my questions. So Chris I guess, just going back to your comment just on operating margins.
Again impact potentially in Q2 is there a better way to frame the impact on operating margin.
Sales or Dallas is say, 25% for the quarter I guess I'm, just trying to get a better sensors.
Fixed versus variable costs more secondary gross margin line.
Yes, so just maybe to help on that.
We view all of our cost is variable in the long term, but obviously in the short term.
They're not variable and so to sort of help as a generic modeling exercise.
About 15% of our cost of goods are fixed in the short term it varies a little bit from category to category, but 15% has a pretty good rule of thumb to use and about two thirds of our SGN a cost is fixed in the short term and so.
If you use those as sort of the fixed numbers and flex.
Balance with the with the sales line that will get you pretty close to a.
Hey.
A margin impact associated with different revenue scenarios. The only other thing I would add.
That may help in this exercises since we gave guidance at the beginning of the year Foreign exchange has gotten worse. The dollar has strengthened.
200 basis points versus the guidance, we gave at the beginning of the year. So the difference between core sales growth and hall in sales growth that we had expected at the beginning of the year of about 100 basis points is now about 300 basis points.
However, we don't expect that that will have a material impact.
On the on the margin line, because although the FX impact has gone negative.
It's largely been offset with reduction in inflationary and commodity prices.
So that that impact is as more of a topline impact than a than a margin impact.
Okay, great. Thank you.
Thank you. Your next question comes from Joe Altobello with Raymond James and Associates. Please go ahead. Thanks, guys. Good morning.
We USA.
Well go back to the commentary regarding January February and core sales being up modestly that I understand what businesses, we're doing well we feel that as opposed.
Post go live.
Then maybe secondly.
Rob you mentioned earlier that that you are planning for eight.
Hopefully if it does go back to school season, I'm, just curious how your retailers or thinking about back to school is it fair assumption that that all schools in the us will be opened this fall.
So let me address.
The two questions and.
The January February.
The continuation of the turnaround plan, we also got significant.
With online and we start at mitigating.
Declines in.
The areas.
Tom far.
Bigger retailers, we were seeing some traction so I think really.
Fab.
Was continuation or got around the food business.
Doing extremely well.
For us.
And it has been avrio source of strength.
South Africa audit strong growth babies are quite a strong growth in Jan fab. So.
As far as Tom a practice.
That.
Really added from it was even better than what created expected so that should give intense when we come out of this crisis that then takedown is having a positive impact that we are beginning to do the writings and then SPD towards the end of the enemy of innovations plans.
Across many of our business is we're prioritizing them.
And our teams are continuing to drive revenue line reviews with our antenna they're doing it online. So we're pushing forward. So now let me answer your question about back to school, we have been in touch with all our major retailer some back to school.
There I think the big issue for everyone is.
Renren schools will schools reopened.
Seems to be general cautious optimism that key schools.
Well go back and traffic in California, We just had someone that near me when reopened our lab.
So nothing universities and slightly different.
Yesterday, Howard made some sort of announcement that they work on our stock, but the main something about we made to occur more base.
So it's the university sinus on but most of our back to school.
Garcon driven by schools so.
The good news for Us is.
The retail auto assigned flights and.
Now normally we would have started shipping out.
In April because of some of the uncertainty that may get delayed event and usually you see.
So what might normally upcoming driven may now coming July because most of this comes forward. After July 4th anyway. So right now I think.
I'm also and we want us sort of the safety profile. In dollar question is Reynolds Goulds reopened Rutgers University three open but people are planning.
They will soon.
Well as with other midway.
Not low as a father to boards and certainly hope you're right. So thank you.
Hi file Anthony.
And solve that I want to be right.
I think.
Not only.
From a business standpoint can you just won novelty to retire.
Thank you.
Okay.
Your next question comes from Lauren Lieberman with Barclays capital.
Great. Thanks, good morning.
I was hoping we could talk a little bit more about the appliances in cookware.
The comments on.
Now versus shipments are really answer.
So it's not a business, where you talked about like you disruptions more about retail closures.
But presumably rankers judgments suggestions in a lot of inventory at retail.
So just digging through I guess your innovation top line. This is a business.
Take longer comment rebuild.
How you think your Exterran again in terms of relative.
Jason measure market share equally but relative outperformance versus the category.
And any indication you may be launching online.
With that business.
Consumer behaviors team I think we didn't talk about outdoor at all but that's another business that in.
A little nine period. Those businesses then owns by Jarden actually performed pretty well because consumers were driving to vacation in its really more simple outdoor as yours. So.
Anything that you may be doing that accelerate innovation agenda will be great. Thanks.
Sure So let me.
Separate the two questions and.
First question on appliances and cookware so.
A couple of factors, it's really sort of.
A tale of two geographies.
And.
The good news is the US which was our most troubled business historically.
Has really picked up and the consumption that Pos that we've talked about the six consecutive weeks.
It is.
In the U.S.
And that both of our longer term because we were challenged and so it's really hope to see and kind of the numbers that we are beginning to say.
When I look at sort of.
We forward Matson them continuing onto we pour in April we really beginning to stop getting into the double digits into us on Pos and Thats hard for me.
So that's being driven in certain categories button.
The us.
So smaller appliances, and we have brought value brands like Mr. Coffee that go from any of that.
From the job in days, and so on which has done rather than recessionary times.
Posters doing well.
Brent may cause heating banquettes.
Et cetera, so the small appliances that is a boost and we are happy about it. So that we are suffering and why shipments have lacked is really it's as I said the 210 of two geography.
Is international and International Latin America, which has already spent a great source of strength products in appliances. Despite the us having cadence issue Latin America for instance, I think over the last in yen as we've doubled our business and poster is a terrific but that is.
Suffering from read a country closures, whereas we may think about Sars shelter at home in particular that states that group for instance is generally plans.
And Brazil.
So we're seeing pots in Mexico, So top big countries in Latin America, It's a big box as well as Europe, and then Australia, which has always been a critical Walmart for US that's had.
Even though it's not been closed its.
It's been a bit of an issue. The good news. This morning, I just got notice that Australia. They saw a little bump up last week. So.
So in the main it's a tad or two geographies somebody income item for that.
We are hoping we can sustain some of the stop that is happening in the US a takes NDP going to recessionary environment, and we did well in the previous rotation.
And then that international start for the pickup last comment how make is.
The appliance.
Business was was not fast to online as perhaps they should have been in the past, but theyve picked up the pace.
In the last several months and does help them quite event, because we are seeing tremendous improvement.
On online and.
On Amazon et cetera, and so I think overall.
We're hoping that this will continue I think we still need to do walk on innovation. So I don't want to make that Wow everything is hunky dory. So the comments I made a guidance still hold that we still need to do what that.
I think we are seeing positive trends. So now let me address your question about outdoor.
Right now outdoor is struggling because your GAAP really three businesses that you will go up.
The technical pattern.
Our business model.
You've got Coleman, and then you've got contigo, and Bubba et cetera.
So what's happening is the technical apparel business really as pocket hot not just for us but across the board apparel business has really been top.
Vince.
I think especially when stay at home and stop sizing that.
On Coleman, Randy the time instead ends of it stay at home people are not camping that parks arcos. So that creates this a naturally shoe that.
But we are we're making good progress we've got I mentioned to Cagney give us honey.
To be heading that business dots.
On Monday.
New sales has that become cash sounds very good so they're beginning to get some traction on data and then contigo isn't yes is the brand as well, but on the ground rules right now since people at home that has taken.
And then into outdoor side, just the retailers that lot of the retailers.
[music].
Adi Dick's sporting goods et cetera are all so and I do think monetize that as an opportunity for us to do better on the dot com. So those businesses. Historically lives are focused on the big retailer Dotcom Sen bonds. So I think as I mentioned in my prepared remarks, we're going to drive penetration and low.
All of these specialty so youre right that in a recessionary time as we come out of and I think we should get better on that business.
Thank you sound like.
Your next question comes from Kevin Grundy with Jefferies.
Thanks, Good morning, everyone and I hope it too well.
Chris question for you relating to your debt covenants into the dividend.
First I did want to congratulate you when you came on the improvement in.
Your cash conversion cycle.
Do you guys were capitalizing on that because I think its long been an opportunity since the yard mercury. So congrats on that.
So we can appreciate you with your own guidance.
Can you comment on your level of comfort with your debt covenants I think there's two no interest coverage ratio three and half times debt to capital a maximum 60%.
Yes, so without guiding maybe just comment on your level of comfort here as you think about most likely scenarios and then you mentioned your commitment to the dividend for the second quarter, maybe you can put some guardrails around your level of commitment for the balance of the year and how you're thinking about cash flow priorities. Thanks for that.
Yes, no problem, so I'll start with debt covenants. So you're right. There are two primary debt covenants the interest coverage ratio of three and a half times and the.
Debt to total cap of 0.6, the debt to total cap does allow an add back for goodwill.
We ended the first quarter in compliance with both.
Both covenants with significant headroom against both covenants and we've done a significant amount of modeling, we sort of internally refer to it as alphabet soup because we're looking at the to you the w. the l. scenario et cetera.
And looking at all of those scenarios.
We're confident that in.
Unless something.
Really unforeseen happens.
That.
We've got sufficient flexibility to navigate and comply with the debt covenants going forward. So we're not we're very competent and the company's liquidity position.
The debt covenants I should mention only applied to the revolver and our facility, which are the short term.
Liquidity facilities, they don't applied to the.
Unsecured notes.
Relative to the dividend.
As I mentioned in the prepared remarks.
And as we plan to maintain the dividend at the current level for the current quarter as you know the dividend as a quarterly decision Thats made by the board.
As we've done this scenario modeling and all of the scenarios that we've modeled the free cash flow expectation for the company has more than enough to both found the dividend and reduce debt on an annual basis going forward, including this year.
That being said given the uncertainty of the severity in the duration of the crisis.
We do believe it's prudent to continue to evaluate the company's capital structure and capital allocation strategy.
Given the range of possible outcomes. So.
That's done that's the plan that we've got.
Going forward.
Thanks, Chris Good luck guys.
Thank you.
Next question comes from Olivia Tong with Bank of America Merrill Lynch.
Great. Thanks, everyone Tomorrow.
Thanks to the detail in April I, just wanted to see you talked a little bit more about the divergence in growth across your portfolio.
Big demand in some cases results.
Where probably to kind of impact.
What's going on and then somewhere.
And drive growth.
Right now or.
So maybe talk about the divergence in terms of that maybe 25 from.
The bottom.
And then just overall are you seeing any shifts yet in terms of price points is there are down shifts in terms of.
Consumers offline.
Our buying right now.
Across your portfolio of brands.
Domain, whether it be going down to grieco.
As well.
And I know.
It doesn't seem.
2008.
Thank you.
Parents and since 2008 to help provide.
Thanks.
Okay, Let me kick that off and then Chris if there's anything you want to add.
So you talked about how the divergence.
In our portfolio.
Particularly related to April and so I think.
I think I've talked about quite a bit of this in the prepared remarks, but I'd just reiterate some does so clearly.
Our product went up for us.
Has been food and.
So that as.
Really done extremely well, both on Pos and on shipments, but actually Pos.
Yes, I head of shipments in the same trends.
Continued in April if anything were beginning to continue to see that growth picking up because from a regional day, we had growth a lot of growth and foods Haven.
Ball and now we're seeing that picking up on rubbermaid.
Hi, good storage as well so.
And then come rational.
The first quarter was clearly a big went up.
There I think.
The trends the auto book is very full but there were.
Specially on things like sanitizer.
And stuff.
Certain supply constraints on how much we can meet them. So.
But as we are expanding capacity.
Things that over time, we'll be able to fulfill that.
I think I've already talked about home fragrance.
That where we are.
In the retail as we actually are.
In.
Is doing extremely well and I think I mentioned, even that hey, someplace that dominating so but were also affected by assets because our own retail store cybercoders and all the specialty retailers. So so were getting volume through wherever we are but I think it stopped the growth is not.
On enough to offset longer kosher because you've got a very significant bottom of access right now close but as we come out of this it should be.
Very positive because capital consumption what people are using a trial is actually up which is demonstrated by.
By the fact that may very well so baby.
More recently are.
In the beginning of April we saw little slowdown and back we've now seen an uptick on the.
Stimulus checks have gone out we are actually beginning per se.
Couple of weeks of good positive Pos so I.
Income from me and then across writing we already I spent a long time on my prepared remarks, I think the big news that is how to the.
CS going forward on back to school. So there is.
Little bit of supply constraints from Mexicali, but also people grad students at home depot.
People not working in their offices et cetera that affects that business.
Robert I'll, just add one thing which is.
Sure.
We did go back and look at.
And we spent a lot of time in this scenario analysis going back and looking at the 2008 recession and we looked at obviously, the new business and the Jarden business during that time.
And what we saw was that in next time period, both companies were able to gain market share and it gets to your question on price points, because generally the company is pretty well positioned with opening price point and mid price point products. So if you believe that the company is headed into a more risk.
Fashion every time period.
Tend to be well represented in the.
In the air in the price latter for where consumers may trend to we have not yet seen I think it's too early to call any kind of a trend with consumers changing relative to price point, but we do believe we're well positioned in the other thing that we saw from the analysis that was notable about the 2008 risk.
Session was that.
The strongest the stronger brands tend to do well and that type of an environment and as we mentioned Academy.
The branch that are in our portfolio I think 80% of our business were either number one or two in the category. So we're well positioned from both a market.
Leading brand perspective, as well as from their price positioning standpoint.
Capitalize on the environment going forward.
Thanks, Chris I think one thing I forgot to mention is in the portfolio probably the one business.
Outdoor and recreation I already been runoff the question talk about it but that business.
Has had a negative impact.
In that not only the quarter back more in April and then our connected home business again because of access.
Because lot of.
A question of how are people looking at it.
And then also South Park Plaza in Mexico that has acquired as has.
Been shut down temporarily.
Right. So I hope that gives you a good sense.
Thank you.
We do have time for Woodmark question. Your final question comes from Andrea Teixeira with JP Morgan.
Thank you and hope you all well I appreciate the visibility on the 82.
The commentary about possibly exceed supply chain. So you can clinical like breakdown a little bit of the principal assumption is shifting trends that you're seeing it looks like low teens, you said, hey, good morning to keep that could normalize.