Q2 2020 Newell Brands Inc Earnings Call
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Good morning, and welcome to Newell Brands' second quarter 2020 earnings Conference call. At this time all participants are in eight listen only mode. After a brief discussion by management, we will open up the call for questions in order to stay within the time schedule for the call. Please limit your yourself to one question do you.
The Q in a session as a reminder, today's conference is being recorded.
I've webcast of this call is available at <unk> Dot Newell brands Dot Com I would now I'll turn the call ever to Nancy O'donnell Senior Vice President of Investor Relations Mr., Don you may begin.
Thank you I'm I'm good morning, everyone welcome to know brands second quarter earnings call.
Joining me today, our Ravi Saligram, our president and CEO, and Chris Peterson, our CFO and President business operation.
Oh, we began I'd like to inform you that during the course of today's call, we will be making forward looking statement, which involve risks and uncertainties.
Actual results and outcomes may differ materially.
I refer you to the cautionary language and risk factors are available in our press release and our forms 10-K and 10-Q for further discussion of factors affecting forward looking statements.
Please also recognize it today's remarks, we'll refer to certain non-GAAP financial measures, 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 and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release, and Paypal as well as on the Newell a investor relations website.
Thank you and now I'll turn the call over to Robby.
Thank you and I say, good morning, everybody and welcome to todays call.
I hope that everyone is continuing to stay healthy and say from these extraordinary times.
Since the outbreak of curve at 19, New York is taken decisive action.
Manage our business you factor leads for this crisis.
We entered the second part of a three key priorities that there's been diligent the executing against to position our company for long term success for managing through I'm pretty confident in Charleston conditions.
[laughter] key priorities remain as Polish.
First and foremost fair focused on ensuring the safety in ramping or bought employees.
Secondly, we have prioritized keeping our manufacturing and distribution facility open where possible and lastly energy has been director during shorting business continuity and sustaining the companys financial vitality without laser focus on maximizing cash flow and.
I'm showing strong liquidity.
I asked the Manchester put in place to address these key priorities for successfully implemented.
We believe it to accelerating in executing our turnaround plan pasta.
Position us to win in a recessionary environment.
[laughter] results, we announced today demonstrate being agile and nimble and acting decisively behind that kids at home objectors has enabled us to deliver a much better than expected outcome in the second for a period during.
Which the U.S. economy contacted the most it's best for history inexperienced ongoing globally more macro volatility and pandemic related challenges.
Well I lost back to Brian good.
Second quarter Coursera also performed significantly better than we expected going into the fall.
We're encouraged by the significant improvement we've seen in sequential poor sales performance each month.
April what's the crop month that sounds down over 25 per se.
May was better than April.
In June the company actually delivered.
Flat to modest sales growth lessens the yet okay.
The good news is that fair broadly seeing consumption growth rates.
Accelerate shockley incessant category, so the food commercial and appliance business.
We believe this is a function of both the fiscal stimulus package stimulus yeah, the U.S. as rather shifts in consumer behavior.
Significantly benefiting southpark categories.
Across our portfolio.
We've seen trials and I repeat trial consecutive weeks of U.S. point of sales growth.
In fact in the first trial Pos was up slightly.
We are proactively leveraged our ecommerce capabilities and marketing investments to capitalize on the accelerating shift or shopper behavior, So online channels.
Excuse me during the second quarter, our online Pos penetration.
Reached 33%.
An improvement of 800 basis points plus is last year.
Online as a percentage of sales.
Reached 24%. This yeah. This core an all time high up 1000 basis was his prior yeah and doubled second quarter 2018.
Penetration improved meaningfully.
For everything of business unit in some cases, doubling or tripling on a year over year basis.
Our E commerce theme in conjunction with the business units is doing a great job and capitalizing on the evolving consumer behavior.
Consumer take away in sales performance is widely diverged [laughter] across our business units.
Categories based on the demand supply and retail approaches.
Let me give you a quick problem through of each of our business is let's start with food.
Well that's been a rocket ship both in terms of strong double digit consumption growth as well as improved share momentum in the last six weeks.
All thoughtful major brands Foodsaver ball Rubbermaid Ansys steam.
We hope to continue to see growth momentum into second half as we launch rubbermaid brilliant glass in September.
We're also planning to launch rubbermaid food storage containers.
That's contain anti microbial product protection online with major retailers starting in the fourth quarter. This would represent.
Roughly six months to identify qualified and shipped this product in response to changing consumer needs.
Illustration of the new sense of urgency and spirit of innovation back at Newell.
Let's move to home fragrance us consumption was under pressure into second quarter, primarily due to the closure of all Yankee candle retail stores and most specialty retail, although we saw strong takeaways retailers that stayed open throughout the pandemic.
Online penetration more than tripled and look for as consumers, who are unable to purchase capital's install.
The headwinds for further exacerbated by significant supply constraints stemming from the shutdown of both our main.
Distribution Center and factory and how do you feel Massachusetts as supply and I'm spot ramps back up we expect trends to improve and are excited about the newpark pipeline, which in the second half includes home fragrance innovations such as Yankee County sleep diffuser would be.
<unk> auto reads and others.
No commercial after that inconsistent performance in the last few years the commercial business has now delivered.
Two consecutive quarters of core sales and profit growth.
The commercial team has driven very high double digit growth in skin care by mobilizing rapidly to enter the table top sanitizer business.
In April under the Rubbermaid Brown and scale the contactless sanitize a standard business in major accounts.
We've also seen strong growth in step on the containers garage micro fiber et cetera. This growth has been partially offset by challenges in the foodservice and hospitality verticals.
I'm very proud of this team for accelerating line review wins across a number of categories, including cost at garage organization refuse and sanitation, which we expect continued to growth momentum in the second half.
We believe that the rubbermaid Marshall men's how to Tyson solutions business is fast becoming a key filler to restore the commercial business as the growth driver for Neil.
A few a standalone connected home.
POS suppose challenge and decline in mid single digits in the quarter, primarily related to production challenges in our Mexico wise bonds, which was gross for nearly nine weeks due to stay dollar lockdowns.
Production is now back up but top 10 customers still have very low construal levels. Fortunately EBITDA covenant now.
To share some much needed stock fault October's fire safety month.
The team is also making significant progress towards a major restage of our entire far long product line do we launch next year.
So if this offline send cookware business.
Appliance and cookware has been at Rio beneficiary of the stayed home lifestyle during the pandemic.
It grew strong double digits in new SBO as is the second core and core sales grew mid single digits globally.
Despite retail challenges during the quarter.
We overcame retail approaches and Dropdowns in Latin America, and drove core sales growth through excellent direct to consumer web sales, especially in Brazil and Colombia.
The appliance and corporate team is rolling out the restage of all the key to cooking products with the Diamond Force Nonstate cooking surface beginning in the second floor and continue into the second half.
We're also excited about the launch of Mr. Coffees, New ice coffee makers in September this new product taps into a key consumer behavior and frustration.
Which is bringing great ice coffee at home, especially during code.
Thanks, This outdoor business outdoor recreation business Cobot had this business hot in Q2 as National box campsites et cetera were closed.
Beverage business was also unfavorably impacted due to lack of mobility and people working from home since Contigo and Bubba are on the go brands.
Ticker apparel business significantly decline as did the entire apparel category.
All right have note as rocked ounce began to lift.
We experienced a resurgence in USPI O us growth beginning in June which has continued into July the camping category, including stoves grilled stance and shelf. This has seen strong growth.
In June we also saw resumption of growth in Asia and important geography for the Coleman.
We're excited about the Coleman skydome redesigned tend and the hot cooler to fresh refresh that fair that for Dr launched earlier in the Oh.
How much will also be launching the award winning wanting to installation technology line in October.
We have stopped strong new leadership in outdoor recreation, but I believe it will take them some time to turnaround this business given the persisting challenges.
Next up is baby.
Despite a double digit decline in April Pos due to stay at home office Baby and then second quarter with a modest increase in U.S. Pos we continue to build on our online Provost and baby overall baby online sales penetration reached 51% in the second quarter up now.
800, bips versus prior year.
Greg co gained share in the car and maintained its leadership position.
We got off to a good stopped in the launching innovations, including the most netscouts system, which gained share.
Sandridge study light is driving share gains and in fact in coffee.
We launched no safe temperature models in March, which built our leadership position in Germany.
We're also excited about the launches a new BRCA could agree stroller in Japan.
This kroner has four spin archive fields, allowing for maneuvering easily inter tight spaces, including subsidies.
Last but not least very important profitable business for us Friday.
Riding experience significant softness around the growth.
The global Dropdowns that not only affected our supply chain, but also resulted in crozier schools colleges and people working from home in the second part both USPI Pos and core sales were down meaningfully. However, we gained share in everyday writing categories in the U.
Wes Australia and the UK.
Back to school display or I should that close to the same level since last year.
We are now watching bts so through.
The situation is very fluid with the recent covert 19, so just and it's more schools announced online classes and switch to either hybrid our input and classes later in the.
This may impact of penetrant autos in the second half.
We're seeing a reluctant and hesitant back to school shopper, given downturn and today and lack of commodity related to school starts and many schools have not even public schools. This this lack of visibility is contributing to continued softness.
In us consumption.
On a brighter note sharpie ESCO is off to a strong stop.
Picked up seven percentage points or shed the jelf end market in the U.S. since launch we.
We will continue to build on this momentum launching several new shop, the products, including SGR metal Barrow expanded color range and then you asked note.
Lineup creative Marcus for blood generally.
Companywide, our portfolio showing good momentum, although that a wide range or outcomes across business different business units as we head into the second half I am encouraged the five out of a businesses are posting on our sales growth in July and our sales in July are off to a solid stopped.
Let me now shift to the progress we've made on the people agenda.
I'm really proud of how our 30000 employees are managing through the challenges facing every day.
I truly believe that rallying to this momentum crisis has inspired 18 work and indiscreet core amongst our employees that has gone wrong way to us unifying the team.
In the last four years, we've had many issues with employee engagement and culture.
Today, we're in a different place.
Hi, genuinely believe our people are most valuable asset and very fostering a can do reeling culture.
Most recently, we brought Chris Robbins onboard to lead the appliances and come quite group.
Yes, it's hynix excellent CPG lead us with 20 asset SC Johnson and has so to US business unit CEO of three organizations, including Philips Sonicare and most recently Char broil, where she led to a strategic overhaul that included route positioning its brands and reinvigorating the innovation pipeline.
We're excited to have her lead the and see team and building recent momentum of course has coming on board, we now have Chris Peterson.
Small casking, Chris Robin sort of kind of figured out how do we address all the Chris.
We also recently announced lease and Mccarthy has the permanent president of the home fragrance business. Lisa has been really Yankee candle organization at CFO for many yes and has recently been serving as interim president. She has done a phenomenal job under very difficult circumstances and we are.
Sure absolutely confident choose the right individual to solidify those businesses in its rightful leadership roles in the category.
So these changes my new leadership team is largely in place and complete with one last higher pending for the ecommerce group.
All of Newell's leadership team, both new veterans and the newer additions on engaged and unified and focused on taking your brands for the next level.
In conclusion.
I'm encouraged that our financial results are demonstrating good on underlying momentum.
We're strengthening our market positions in a number of categories and we're managing through this crisis safely and effectively.
We continue to expect.
The back half results for the represents sequential improvement worse is our second quarter results.
For sure will be a much stronger company going to training 21.
Most importantly, we remain very optimistic about our opportunity to generate long term shareholder value as.
At this point I'll turn it over to Chris theaters, and my friend and partner for a detailed review of our financial results.
And a supply chain update.
To Chris.
Thanks, Robin and good morning, everyone.
Although Q2 was a difficult quarter results were ahead of our expectations as we move swiftly to address the challenges presented by supply chain disruptions retail store closures and consumer and customer demand ships, resulting from the cobot 19 pandemic.
During the Q1 call we signaled that we were facing significant supply chain challenges in Q2 with a number of our manufacturing and distribution facilities closed by government order.
We're pleased to share that since them conditions have improved meaningfully and we have reopened all of our plants and distribution centers. We are working hard to catch up with demand across several businesses, particularly in categories that have experienced accelerated growth through the pandemic.
We are leveraging consumer insights and selectively investing an additional capacity across a number of categories to capitalize on growth opportunities that have emerged in recent months.
We remain disciplined in our approach and continued to maintain focus on high velocity skews, which improves the efficiency of our operations and reduces working capital tied up in inventory.
As Rob you mentioned during the quarter, we pivoted to accelerate operational improvements across the enterprise inline with our turnaround plan.
Specifically, we accelerated progress on SKU count reduction taking out over 3000 skus during the quarter.
This brings our total reduction to about 35% since we started the program a year and a half ago.
We doubled down on the fuel productivity savings program, we're off to a strong start in the first half of the year with productivity in terms of year on year cost of goods savings of over 40% from the prior year.
This is being masked in the short term because of fixed costs deleveraging, but will position us well as the business improves.
We initiated and completed a zero based review of overhead costs as a result of the simplification agenda, we have been driving.
This led to a restructuring action, which impacted about 4% of professional headcount.
We continued to make progress rationalizing office space, I T applications and infrastructure and tightening overhead cost controls.
This allowed us to reduce overhead costs significantly in the second quarter and both dollar terms and as a percent of sales. Despite the revenue declined in the quarter.
We made excellent progress on the digital technology Rep. Replatforming project, we have now converted over 50% of our US web sites from disparate outdated legacy technologies to a single new platform that significantly improves consumer experience access to data and insights while at the same time reduce.
And cost.
We expect to have all the U.S. web sites on the new platform by mid next year.
And we continued our efforts to maximize cash flow by reducing the cash conversion cycle.
During the second quarter net sales contracted 14.9% year over year to $2.1 billion as core sales declined 12.6% and currency was unfavorable by about two points, we estimate that disruption related to covert 19 was roughly a 13 point headwind the core sales growth in the second.
Quarter.
Topline trends improved significantly throughout the second quarter as Lockdowns were lifted specialty stores started to reopen their doors and our supply chain began to recover April was the most challenging month and marked the trough for renewal with the rate of decline moderating significantly in may and the business returning to slightly positive core sales growth in June.
While many of Nols categories were negatively impacted by covert 19, three business units appliance and cookware food and commercial delivered core sales growth in the second quarter, reflecting heightened demand for at home cooking food storage sanitizer cleaning and organization products.
The ecommerce business delivered another quarter, our strong double digit growth ahead of Q1 levels as the pandemic continued to accelerate consumer shift toward online purchases.
Normalized operating margin contraction 200 basis points year over year to 10.2%, which was ahead of our expectations due to stronger than anticipated productivity gains and significant choices, we made to reduce overhead.
As anticipated topline softness resulted in fixed cost deleveraging, putting significant pressure on normalized gross margin, which declined to 31.6% from 34.9% a year ago, specifically fixed costs deleveraging due largely to plant closures negatively impacted gross margin.
As in the quarter by over 200 basis points.
In addition, incremental cobot costs related.
Negatively impacted gross margin by about 100 basis points.
Net interest expense came down by $7 million versus last year due to a lower debt balance the normalized tax rate was 11.2% below the year ago level as a result of discrete tax benefits.
Normalized diluted earnings per share or 30 stops.
Moving to segment results. Please note that with new leadership hires we updated the company's organization design, which necessitated changes on the company's segment reporting structure Q2 financials reflect five operating segments appliance and cookware commercial solutions home solutions learning and development and outdoor and.
Creation, there are no changes to the applying some cookware and learning and development segments outdoor and recreation business is now a standalone segment commercial solutions includes the commercial and connected home and security business, while home solutions comprises home fragrance and food.
Turning to results core sales for the appliance and cookware segment grew 6.1%, reflecting strong consumption across major markets as heightened demand for at home cooking products more than offset the headwinds from closed specialty retail doors and temporary countrywide shutdowns and select international markets.
Core sales for the commercial solutions segment declined 6.8% the commercial business unit delivered a second consecutive quarter of core sales growth largely driven by strong demand for sanitizing cleaning and protection and organization products.
But this growth was offset by topline pressure on the connected home and security business, which experienced supply chain constraints due to the temporary closure of the manufacturing facility in Juarez Mexico.
This facility reopened in early June and is now rebuilding inventory to catch up with demand.
Core sales for the home solutions segment decreased 1.9%.
The food business continued its very strong momentum with core sales growth accelerating sequentially in Q2 relative to Q1 as the increase and at home consumption of meals translated into heightened demand for rubbermaid food storage vacuum sealing and fresh preserving products.
Home fragrance core sales declined due to headwinds from retail store closures, including our own Yankee candle retail stores through most of Q2 as well as supply disruption from the temporary closing of our plant in distribution center in Massachusetts.
Both facilities began to ramp backup in the latter part of May.
The headwind from Coburn 19 was most pronounced than the learning and development segment as core sales contracted 23.5%, reflecting weakness across both writing and baby businesses.
Core sales softness consumption and baby products rebounded during the quarter.
In writing the category overall is seeing significant softness in consumer and commercial demand, particularly given the uncertainty surrounding the timing of school and office Reopenings.
Core sales for the outdoor Rec segment declined 21.5% has shelter in place mandates during the early part of Q2 weighed heavily on the business sell through in the outdoor category bounced back in June as those restrictions were lifted and consumers began spending more time outdoors.
Let's switch gears to cash flow now, which remained strong during the first half of the year year to date cash flow from operations increased $141 million versus last year and the cash conversion cycle improved by over 20 days as the organization rallied behind initiatives to reduce complexity and free up.
Cash from working capital.
Laser focus on every facet of working capital management is bearing fruit.
SKU rationalization actions in a more effective management of the supply chain by focusing on high velocity skews is driving improvement and inventory.
We are continuing to optimize inventory through them more robust planning process accounting for the dynamic shifts in consumer purchase behavior.
We drove faster receivable collections, despite pressure from Covidien team through operational improvements, but also took higher than normal bad debt reserves during the second quarter.
On payables, we continue to work with our suppliers on extending payment terms.
During the second quarter, we strengthened the company's liquidity position and exited June was 619 million dollar cash and cash equivalents on the balance sheet, which is $143 million ahead of the Q1 level. We completed a 500 million dollar debt offering repaying short term debt. So that at the end of the quarter, we did not.
Have any borrowings outstanding on the credit revolver or the accounts receivable securitization facility.
Including the quarter and cash balance Newell ended Q2 with over $2 billion in short term liquidity, which puts the company in a very strong position to manage its cast needs in this dynamic environment.
Although conditions have improved relative to a few months ago. We think it is prudent to continue to evaluate the company's capital allocation strategy as we gain more visibility into the trajectory and pace of economic recovery, we intend to maintain the dividend for the upcoming quarter and there is no change in our commitment to de lever the.
Balance sheet overtime.
Now turning to guidance, we are planning prudently for the balance of the year. So that we can swiftly adapt to shifting consumer behaviors and macro developments.
We continue to expect sequential acceleration and core sales trends for the company in Q3 relative to Q2.
We're off to a strong start in July with sales growth improving versus June and consumer take away continuing to increase year over year as the supply chain constraints are using a larger portion of the global economy, and our retailer base already has reopened including about 20% of our own retail stores.
And consumption has improved relative to the extreme lows experienced in April.
We do expect the writing business to be the most challenged business in Q3 as a result of delays and uncertainty regarding the timing of school and office Reopenings.
This will have a negative gross margin mix impact on the business in Q3 as the writing business has the highest gross margins in the company.
Importantly in Q2, we grew market share in everyday writing driven by paths.
And expect the business to recover strongly ones the pandemic subsides.
Stringent cost control measures remain in place with the savings from the organization restructuring program expected to contribute the back half results.
And we expect a more normal tax rate in Q3, this year compared to the large tax benefit in the year ago third quarter.
While visibility to the course of the pandemic and the pace and timing of an economic recovery is limited we're taking the necessary actions not just to manage the business through the immediate challenges, but the come out stronger afterwards with the turnaround efforts fully underway I.
I would like to join Robbie and thanking our employees, especially those on the front lines, who is unwavering dedication and tireless work is helping to propel the company forward and these precedent at times.
Operator lets open up for questions.
If you would like to ask your question. Please signal by pressing star one on your telephone keypad. If you are using his speakerphone. Please make sure. Your mute function is turned off to allow your signals to reach.
Again press Star one to ask a question.
We'll take our first question from Wendy Nicholson with Citi.
Hi, Hi, good morning, I guess.
Two things first on just big picture on the segment reclassification.
It's kind of crazy just how many restatements, we see ofer kind of the last.
Five years on it and I get it that true to the divestiture process and all of that had been a lot of changes made.
But I guess my question is sort of for the people who are working in those segments are working in the line of business. If you can comment on kind of how they're reacting to all the new management.
Whether whether what we see from a piano segment reporting perspective impacts the chain of command within the company et cetera, et cetera that would be helpful. And then then just at specific question on the appliances cookware into food business given that we've seen such strong growth. They are not just for you guys did for the industry as a whole how are you thinking about.
That business in the back half I know you talked about a little innovation and just worried that everybody. So much.
Storage, Jonathan and new coffee makers that maybe we don't need them for as far as the accuracy. Thanks.
Thank you Randy.
Chris line on John So this segment.
I will talk a little bit more about.
How the leadership and I can talk about NC, Okay, I'll start with the segments. So.
As as we've hired new business unit presidents and brought them into the management of the company the way that we've organized the reporting relationships in the organization structure necessitated because of FCC rules a change to the segment structure.
So we continue to.
Have eight business units, but.
The key leadership and the reporting relationships with Ravi as what drove this segment reporting change.
That we made and announced this morning.
Thanks, Chris Randy I think a couple of things for us.
I share your pain on it and re no we didn't take it likely because the last thing we needed to do us among other changes segments by stroke. We also want to confirm with all applicable laws and I did feel that I.
From a reporting standpoint, we have CHS.
Which has some characteristics similar.
To our commercial business.
So we saw a connection there, though CH unexposed still the operation or should we still have a CEO Tom Roussos very confident he has reported to Mike Mcdermott and it will still be a freestanding units by the reporting relationships to Mike.
Which is why not have to be reclassified similar to that home fragrance.
Bob that Lisa who is very good as I mentioned in my prepared remarks prepared remarks.
Benefit from the experience for Chris Makowsky. These has just gotten to this position our training is refinance Chris is a great marketer and also credits in our loss job with arc.
Had been the biggest supply after Yankee candle. So we thought that would be a great connection and the two are doing beautifully so.
So that's really why it happened, but the home fragrance business still operates as a separate units in terms of its an operations. So this is it's not creating any kind of confusion or any.
Issues in terms of chain of command, so thats I think the elaboration on fees as far as appliance and cookware look we are pleased that it's getting some tailwind and momentum and if this redeeming feature to this horrible disease that.
People stay at home and bonds and Coke more they need more appliances. So the categories on fire and we are benefiting Katy our teams are doing a very good job capitalizing on it but.
We are losing share stone the categories growing off pasta only reason I say it is.
That it's not all hunky dory, there's still some east underlying issues, we talked about in the past. So this is not like it'll go on forever.
Now, having said that we brought increased Robbins, who hopefully we'll stop getting that innovation.
It's January and innovation Master consumer needs, we actually think the ice coffee launch is really a good launch because at the opening price points that isn't prolonged home.
Ice coffee maker right now and with all the coffee shops that have been goes to et cetera, or additions across a reopening people, especially millennials want to make coffee at home ice coffee at home. So I think its home trends and a good thing.
And then if I can just jump in on with your question on food on food, we see that as a sustainable trend and actually in the food business. We are as one of the businesses where were supply constrained. So just we're growing very strongly.
But we could sell more as supply becomes available and.
Given the dynamics associated with a pandemic, we are working hard to increase capacity in that business and I expect that we'll see that trend of strength continue in the in that business going forward I think thats, a great fun and Chris.
When you think about Wafi set of tag neither two businesses, which were a question marks food and commercial to me that has no question Mark I think it's exactly what you said and.
Great job by the team lost at both good foundations food now with coded we're just capitalizing on it but that team is just doing a great job and assets commercial.
Got it that's very helpful. Thank you.
Well thank you Andy.
Well take our next question from Lauren Lieberman with Barclays.
Great. Thanks, good morning.
Sorry learn.
Good morning, I was hoping to kind of Olympic a little bit the outdoor segment.
Hi, This is a business that I recall in the last recession really good benefit in the way that you described is starting to see on the people having different types of vacations and spending time differently.
But I think in doing years.
In there we have the strategy and require management and becoming brand that.
Kind of deal with opening price point competition at large retailer in otherwise like the margin structure on the brand in of the decision really came down dramatically and a lot of the equity it sort of the eroded and so I was just curious.
You kind of thrown into this environment in the middle knocking the turnaround plan, but I'd love to hear a little bit more about where you stand on repairing marine construction that is net.
Innovation and what's happening in terms of incremental distribution in.
More specialty channels.
But anything there would be really helpful. Because again. This is a business that I would think sort of like appliances and cookware should be something that really work you know.
Receivable features were all kind of sticking closer to home. Thanks.
So let me get started and then I can have Chris as Steve This any additional points.
So clearly the business was hit pretty badly by coated is coming out as we mentioned in June.
So, but Laura I think look there is some fundamental home this business that in the past recall screwed up.
And.
Especially on the Coleman size, Craig Bram great equity, but we've made mistakes. Unfortunately in the past and we're now working through them and.
There is I think greetings week, where squeezed on one hand with high end competition Ligeti on one side and then fiber cable from.
A very large screen data that you mentioned.
So walk with regard to do really Oncomed is how do we get the innovation pipeline going we started with the hot cooler refresh which is actually a pretty good good refresh Burger and we've got off to a new tensely type talked about which is a good thing and even that the large retailers.
Scepter and excited about those two new events so.
And now the category with ARX opening up and more subtle road trips and.
People are going to do camping more so it's in a good flights to take advantage of that and the Colburn brand is still a super brand, but my comments, if I sounded a little.
Pessimistic on the OSV prepared remarks, it was not meant to be it's just saying Oh thats. Some fundamentals we need to fix it it's going to take some time, we now have to great guys Stefko brought in from the outside.
Core crew outdoor people, Jim Astani and build kosher and they've already started having an impact. So I think we'll we'll get this right it's going to take us a little time and in the Meanwhile, we're pushing and by the way in Japan for instance, we have got our great franchise for the cold and BRAF premium brand, Chris and I visited.
There that's been really is doing a good job. So there's no structural issues, there and and Asia. Several as I mentioned is bouncing back up so it'll take us some time, but overall.
I am quite optimistic longer term, but it's not going to just happen immediately.
And remember with like something like food the fundamental started getting put in place and 19 and now the team just went and move forward, whereas in outdoor das spinoff indicates to US anything you want to add the only thing I would add on this is the outdoor indirect business is really three different businesses. There's the.
Outdoor business, which Rob you talked about which is Coleman, which you're right is benefiting from the stay at home and.
Outdoor trend and we're seeing that clearly in the point of sale data and if we look back at the last recession in 2008, we did gain market share because of the positioning of the brand. The second business is the contigo.
Container business and Robbie talk a little bit about this in his prepared remarks that business is really more about mobility and so that category as a little more under pressure than the outdoor business and then the third businesses. This is the technical apparel business and the apparel business has probably been the hardest hit of any of the businesses from a cash.
Mcgorry growth standpoint, so.
It's kind of a tail three cities in total for outdoor in rock.
And that outdoor piece the camping piece is actually beginning to bounce back in the U.S. as we look at Pos growth in June and July.
And I think thats nothing structurally wrong with the beverage business because I think we had good hunky goes but an innovative brand. It is just I think we need to wait for people to move Adam go back to the offices et cetera.
Okay next question.
We'll take our next question from Nik Modi with RBC capital markets.
Hi, good morning, everyone.
Robbie I was hoping you can.
Talk about the year dependent initiative I know that was.
The big deal.
This year.
Any thoughts around can you be purposes. You know are you can you scaled back the funds and redeploy will it go to the bottom line any thoughts around that and then I guess you could pick your question if you.
Even before the Jarden acquisition was was completed the thesis around Newell as you have a big company.
With.
Capabilities that can really is superior to those smaller competitors because the categories are very fragmented and I would suppose that situation like we're going through right now one of those smaller more fragmented players are coming into a lot more direct that you are so any thoughts around not I mean, you thought is that something that you're seeing in the marketplace.
Sure Nick.
So.
Yes.
Sometimes.
Command proposals, but Bob Disposes, and who would have thought that code of come about family. Nazi added the pain that doesn't but I think this had back is more temporary and I think the sharp PS Joe and all the things we did with other pans is quite remarkable.
The fact that sharpie Asciano Simon mentioned in my prepared remarks has been able to get a seven percentage point share increased status massive.
And.
Just credit to the innovation and a great.
Laurel and her team have done a remarkable job.
And so it's just it's unfortunate right now because people are working from home and colleges schools are close. So I think that's had an impact we did shift monies.
So that we had the earmarked.
To date of cars and so the team has done a very diligent drop of managing the spend.
And being very responsible and despite what we all about spend the fact that we've been able to get seven percentage points or share increase is quite remarkable and now we are launching some new stuff I mean, I just looked at the colored copy us gels and their beautiful.
So I.
And we've got to look at this us look.
Covis drop ship whatever hopefully at the end of this year.
And next year as we get into next year.
We will have a vaccine as this will be behind us.
And what is going to be interesting is.
Even if schools and offices are put off till the end of the next year I think we'll have a real nice bounce back so I am very bullish about the writing business longer time Im very bullish about our pans, yes second half will be challenged there's no doubt about it.
We have to look at along the tomcat.
And then to your question on competition, we are seeing.
Benefit as a result of the fact that we are the scale player in most of the categories versus subscale competition to place for that's probably the most prevalent isn't the E commerce space. Some Ravi talked about this in his prepared remarks, but.
In the second quarter about a third of our business was done.
From a Pos standpoint online and so to have a 33% penetration is pretty remarkable and what's even more remarkable about the position that were in is that we make the same or higher margins on business that we do through E commerce than we do through brick and mortar business and there.
Our very very few.
Consumer companies that can make that statement. So I think more competitively advantage, there and I think that.
Thats going to bode well for us as we go forward here.
Great. Thanks, Chris.
Okay.
We'll take our next question from Steve powers with Deutsche Bank.
Hey, thanks.
Well I think I think you indicated that point of sale was up slightly year to date versus your core sales running down 9% or so.
Give a sense of how much that gap is indicative of the kind of structural rebalancing and inventory as a cost about the value chain that works against you as a as a supplier versus just being indicative of than channel inventories that you will stand to make up it sounded like you expect some degree of catch up but I, just I guess I'm not fully clear on how much your how quickly you.
I think that might occur.
Yes, Steve Thanks for the question as you know, we're in Australia, providing guidance and I don't want to get too deep into it I'll just talk conceptually to it which is that.
Yeah, we had lot of supply challenges and so retailer has used up their inventories and.
And in some places even safety stocks have been a bit of an issue now that we're opening up where the process of ramping up but that doesn't mean, we're to bright were wrapping up and getting it out there and then we have to see how consumption flows so.
But at least in July EPS.
Both Chris and I noted in our prepared remarks, we're off to a solid stopped on sales and.
But we'll have to just see where consumption goes because that's it does.
Because remember those one important there are two things there was that federal stimulus.
And.
There was on unemployment 600 dollar checks, which are all coming to an end and so it'll be interesting to see the inflection points.
And how that consumption will go which we really don't know and we have to watch and see.
Okay. Thank you appreciate it.
We'll take our next question from Bill Chappell with Suntrust.
Thanks, Good morning.
Right.
Yes, just want to dig a little bit more into the the term challenged for back to school and.
And just trying to understand like.
As you look at it.
From a from a.
Manufacturing standpoint in building inventory standpoint, like what are you expecting I mean is there a certain percentage of your base, it's going back regular versus virtual are you assuming those virtual come back sales come back at some point of just might be three months it might be six months from now are you assuming some of the sales just don't ever come back.
At all because you missed Kennedy event of back to school and then maybe how much of your total business is actually tied to back to school I I think theres, just kind of a perception that you being the largest player in pins and paper and everybody's going virtual that you know the next couple of quarters.
Are going to be towards and so just trying to understand what you're doing if that's the case or or if that's not even the case.
Yes, So let me.
Kick it off and then I'd also how Chris or provide any detailed steadymed buys from us so.
Clearly is back to school is an important part of our business, but not the only part of harp business.
So and what you see is you start seeing sen in occurring usually in June July and you also then stop seeing consumption in July and by that start speaking in August towards the end of August Labor day is when you see it so this month.
August is an important month.
The interesting thing is that.
What we are seeing is cities. Our estimates is that even half at probably only about half of the schools will be shoots clueless.
That's an estimate for us and so that is sort of the what you're seeing is shopper behavior is because of lack of clarity there being a bit hesitant and are locked up.
So I think that is a one of the issues for US. Our said is when 10 normally pretty much grows to work with Don which I said so in my remarks, the issue would now be sell through.
And then the fact underpass issuance, which.
Occur later in August.
In the August time faded and we'll just have to see walk we think could happen is that unlike typical.
Back to school, yes, this year it may be elongated.
And ER and also we just have to see online how has that ergo because online seems to be okay.
But whether this would have just sort of instead of one big bump, which ucaas. This may just sort of dribble truly yet.
And it's very possible that is schools and everyone says stroke, Hey, we're going to all open up in January or universities and this a massive back to offices in late fall or in January you may see a new type of bump occurring towards the end of the yeah, which mean replicate kind of.
Back to school, and so and rather that occurred in December and January we have to see but that's a possibility that has not yet and usually there is a little bump, but this maybe a bigger bump than than usual so I think.
The second half I wish I could we had a crystal ball to tell you exactly.
What's happening because we're our team is trying to keep every bid on call last comment and then I'll see if Chris Fund Stratton thing.
Our focus right now a share and really being the leader driving share where we are outstanding relationships with all the big retailers, where in concept with them talking to them and figuring out because they too are looking at this and seeing where is this going to go and.
And look it's really the kinds of things that are affected by schools.
Sure so things like dry erased markers horrible glu this afternoon categories that get affected by this.
At Highlighters in southeast we are really we are quite strong leadership positions.
Next is quite a bit so we just have to say, Chris anything that you might want to yeah. The only the only other two points that I might mention is the first one is the back to school.
Season represents about 25% of the writing business for the year and so 75% of the business is not related to back to school is more ongoing business.
So although back to school is meaningful and we talk about it all the time, it's it's not.
It's it's it's 25% of the business second thing I would say is that as we think forward.
Robin talked about the the dynamic in terms of how this year might play out, but if we think forward.
The 2021 or 2022, we do view the impact that we're likely to see this year as temporary and onetime in nature and we believe that as we get through to the other side of the pandemic, we're going to see a major bounce back in this business that will benefit the company goal as we get passed the path.
Demick, the challenges going to be navigating from where we are today to that period and I think thats why weve put in place sort of a nimble and agile planning process. So that we do that in a way that that allows us to grow market share. So we've come out stronger on the other side.
And Bill wondering thanks.
One thing we are looking into it as.
If there is fundamental shifts in how people who work in offices or the online looking sort of ahead.
I've already Pan top our innovation and use to look at what does this mean for a whole learning and development business and we're quite excited about that and so.
So that we're always to the pull from this is our most profitable business. We intend to keep is backed by we're very excited about this yes temporary setback, but long term growth profile.
Thank you.
We'll take our next question from Olivia Tong with Bank of America.
Good afternoon.
Wanted to ask one when you come question into your longer term ones first in terms of the corner can you talk about the how much in the decline you think was related to supply disruptions orders come in but you can satisfy them. If you think maybe coming back or you can satisfy ongoing.
Versus I think we calculations were canceled.
And then when we can you know obviously a few retailers.
Chapter 11.
So how much exposure team had to those retailers.
And then just last month for.
For rating, where we're going to be working from home for longer remote learning for longer all these things and to your question. You said that 20 Macrogenics channels is back to school, but I.
I present isn't.
As more people potentially shifting to working from home permanently or into next year. How are you thinking about.
Tend to longer term changes to the category to adapt Matt.
I'm, not just everyday writing, but potentially expanding into new.
Jason categories or something like that and.
That would be helpful. Thank you.
That's fine to tackle run into yes, so on the.
The impact of covered in the quarter, we estimate the supply chain disruption coupled with retail store closures represented about 75% of the of the negative impact of the 13 points to core sales growth that we talked about so there was a much more significant impact from supply.
And retail store closure than the consumer purchase behavior in the category is sort of the answer to the first question.
Second question Miami.
The retail there was a retailers come out on but Jeff.
On the retailers.
That have come out of chapter 11, we've put a very rigorous process in place I have a meeting once a week to go through that we're in pretty good shape. There. We did take as I mentioned in the prepared remarks, a higher bad debt reserve.
In the second quarter. It was it was sort of about 5 million bucks or something that we that we took as as an incremental reserves. So it was not a huge and that was largely for retailers that declared bankruptcy, but.
But we've been ahead of the curve on this and we've been very aggressive at putting retailers that we think are in trouble on credit hold so that we limit our accounts receivable exposure. So I feel very good about the quality of our accounts receivable and I don't think we have significant risks from a.
Bad debt or collection standpoint, and you've seen not in our accounts receivable numbers, where our days outstanding have come down significantly versus year ago in the second quarter as Weve managed receivables more tightly.
So let me let me.
Address your last question.
Which is.
A lot if.
Stay at home trends are there forever.
Look there's been lots of noise about this settle they will have some tech companies, which have talked about.
Working through fall with some through the end of the one most recent from said July of next year, Yeah. There's some of those but you also don't care about lot of others.
Who actually.
Star going back to a compact Rio opened up many of far offices on a voluntary basis candidate.
So there is also as we have done a lot of work on this feature.
Just as much as people long too.
Right now, there's some factors, especially because of school openings and stuff.
Not being able to find ways to take the kids most companies have been pretty flexible.
So, but it is I think I'm not sure I'd say that this would be a complete sea change.
Forever on boats on schools universities and offices.
And for Us schools.
All three play an important role.
As opposed to just one segment drove the other.
So thats sort of point number one.
Point number. So we think this is hey, a second half for this mine is at 20 shoe, but not a permanent but secondly, we are looking at just us we're capitalizing on the stay at home trends.
From a food standpoint, our pine standpoint on the writing and the whole lighting business. We're looking at are there to your point adjacent categories are there new innovations, we're doing a lot of work, which we're not ready to publicize yet and but trust me on that the this alarm.
Going on looking at that's because we've got amazing brands.
And so saying hey are there Jason cities do actually capitalize on this so that we're not being ostriches as well so.
More become down the road.
Well take our next question from Joe Altobello with Raymond James.
Great. Thanks, guys good afternoon.
A couple of quick sort of pick that your questions I guess first for for Chris You mentioned the Covidien pack.
Encore sales in the quarter was about 13.2, we expect any lingering impact in Q3, it sounds like there's still a little bit left I guess.
Okay.
Joe did we lose your hi, do you hear me.
Yeah, we're getting area, okay, great sorry, I don't know how much of that you thought but want to go back to the 13 points.
Of course, they'll go there got impacting Q2.
I was just curious.
Is there any lingering impact in Q3 as it does sound like you mentioned earlier, there's just a little bit left in food.
Yeah, So I'm not one I think we're as we mentioned, we're not going to provide guidance, but what I will say is that we do expect Q3 to be sequentially significantly better than Q2, and I'm not 13 points of the cobot impact. The reason why we think Q3 is going to be better as the supply chain is.
Now back in full operation and so we're entering Q3 with a supply chain that as a full capacity, we still havent rebuilt safety stocks are fully and we havent caught up with demand everywhere, but we are doing that.
Quickly as we speak the retail store openings.
Our and much better shape as we head into Q3 versus where we were in Q2, although we do expect traffic, particularly at malls and things like that to be lower than typical which which would be continued headwind at the biggest probably headwind. We see that's cobot related as we mentioned on the outside is.
In the writing business, just because of the uncertainty with regard to the school and office Reopenings.
But.
But certainly the covered headwinds are significantly.
Behind us.
Relative heading into Q3 versus what we saw when we were heading into Q2.
And that assumes that.
You won't have a whole set of new Knockdowns in Casey said just persist so.
Just a follow up on that given your commentary on June July it sounds like shipment him at the POS have finally converged to some degree and so without should we expect shipments to at least track we fill in aggregate and the second half.
Yes, again, we're not we're not going to give specific guidance, but were.
The pandemic is still impacting our business and I think we've we've tried to provide as much as we as we see right now but.
Relative to the impact on each of the different categories. We've got a number of categories that are that are benefiting and we've got some that are that are being negatively impacted.
Okay understood. Thanks, guys.
We'll take our next question from Kevin Grundy with Jefferies.
Hey, Thanks, good morning, everyone.
First a housekeeping question then a bigger question productivity a housekeeping question probably for Chris can you just remind us how much of your writing business goes through Nielsen channel. It seems like that's going to be a key swing factor here certainly in Threeq Q. So I think that'd be helpful for folks who kind of look to the Nielsen data as a potential barometer.
And then broadly just on a little bit more maybe on project fuel in the role of productivity. So while we all appreciate the significant volatility here in this environment.
Chris can you comment maybe on the size of the opportunity what the contribution was in the first half the year would it could be this year and beyond I think that will help folks with their modeling.
And then Ravi just it'd be great to get your thoughts as well just the process in place organizationally to drive to sort of behavior down into your business unit leaders in terms of drive these productivity and thinking about it as an enabler to drive reinvestment and balancing that with margin expansion. So thanks for all that.
Yeah. So let me try to let me start with the the first two so on on writing the Nielsen covers probably about a quarter to a third of our writing business. So it is apples to apples, but it is not fully indicative of the trends because of Mrs. Big segments of the writing business, particularly.
The international part of the business.
Office part of the business and a number of the specialty and online retailers.
So.
We have Pos data that is more extensive than that because we get Pos data from some retailers that aren't reported a Nielsen which is why when we talk Pos it's generally a little bit broader than that but thats the Nielsen coverage on writing.
Relative to gross margins and fuel you're right, we feel very very good about the progress, we're making there and we're generating significant productivity as I mentioned, our productivity through the first half of this year is up 40% versus where we were the first half of last year and thats sustainable progress over time.
If I were talking about the gross margin results in Q2, there were really for things that were negative that impacted the gross margin in Q2, which is why we wound up down 330 basis points.
The first was the fixed costs de leveraging associated with plant closures, which I mentioned is a little over 200 basis points of headwind that should really be more of a onetime item and should not repeat going forward because as the manufacturing plants and distribution centers reopened.
We should be largely through that.
Cost so I view that more as a one timer.
The incremental cobot cost so I mentioned, which is about 100 basis points in the quarter that wasn't as a result of.
Social distancing expedited freight.
Additional PPV that likely will continue for some period of time going forward. So I think that probably is here to stay at least in the short term.
The third impact as the business unit mix, which is negative as a result of the temporary reduction in the writing business.
Generally and I expect that as we said in our prepared remarks that the writing business will likely continue to be a source of mixed drag on gross margin going forward.
And then foreign exchange tariffs and inflation is a headwind, but productivity is more than enough to offset that and so.
We're encouraged by the progress that we're making.
On productivity and we think.
You'll see our gross margin trends.
Improve versus what we saw in the second quarter, because the fixed cost deleverage is behind us, but still we're going to be facing headwinds going forward because of the covered cost.
The Bu mix and the FX tariff and inflation.
So let me address the last piece of.
Your question, Kevin, which was I think on.
How are we driving the behavior and cascading readiness and get wall ship.
This is one of the we talked about Cagney does make sense has that point.
This is.
CEO one other things that I have sort of set is going to be one of our big Ross one of the big things that we're going to do and.
And while we think it's going to be quite significant or four or five year period of time.
And we've got.
Dominated very good job, both getting ought to be used to embrace it and in fact, so much. So thats been revised our short term incentive for the second half were foot to operational measures. One is SK your reduction.
Now that is productivity. So it's got a lot of attention and.
And even without that I think thats been a strong embrace but our teams know about fuel our views nobody that we talk about it did that Reoperation operational review and so there's a lot of commitment.
Okay I appreciate the color. Thanks, guys. Good luck.
We'll take our life last question from Andrea Kiera.
With JP Morgan.
Well. Thank you for squeezing me and then follow up on the supply chain disruptions in the comments that the Pos data is up year to date by about one point.
And of course based on some of your loss. He is essential competitors and what you lost its obviously difficult to me.
Which is just say the PRB demand is striking now in July and as you opposed to sceptical assumption.
And lastly, what are the clinic, whereas it will most impacted by the supply chain disruptions I can see point some of the commentary that you, but I just want to make sure I understood correctly.
Yes, the categories that were the most impacted by the supply disruption, where the connected home and security business because we have.
Basically a single manufacturing location in Juarez, Mexico that was closed for almost two months the home fragrance business, which had its largest and most significant facility in Massachusetts closed for about six to eight weeks.
And then the writing business had one of our major packing centers.
That was in Mexicali that was that was temporarily closed for a period of time. So those were the businesses that were the most impacted by the supply chain disruption as I mentioned, we're excited that that we have now reopened all of our facilities were back to full capacity largely across.
The supply chain and now we're in process of rebuilding safety stocks, both internally and with retailers.
With regard to your question on market share.
We are growing market share in a number of categories and there are other categories.
We're not yet growing market share as we mentioned and Robbie went through in the prepared remarks broadly, we're not losing market share broadly what I would say is the dynamics where experience are more associated with category growth rates and they are with a major shifts in market share.
In terms of the company in total.
Okay, and then Chris it's just a little bit more color on when you. When you were looking into July so if you're shipping you're saying you're shipping July we've consumption and I'm, assuming July is actually stronger than one weight consumption that you gave on the fuel rod.
Is that the way Tennessee.
No I, but I think what we said.
Relative to July is that we if you look at the sequential trends. We said April was the worst month in the trough at about minus 25% sales may was better than April June was better than May and June we actually got to modestly positive core sales guy.
Growth in July is better than June.
So that's that's what we're seeing so far but obviously.
That's early days in the quarter, and we're not going to give guidance beyond that point and we did not make any specific comments on the relationship between sales and kind assumption in July or beyond.
Okay and then July July is not the bulk of Youre back to school stands right now.
That would be that would be nonsense.
Yeah. So if you if you look at back to school typically what you see is that in June and July are the shipments in for the season and generally in back to school about two thirds of the back to school season is is the setup for back to school and that shift in about in line with our exit.
Patients and and.
Relatively similar to prior year Theres about a third of back to school that is replenishment orders and those replenishment orders typically happen in August and September and so that's sort of how to think about the.
Back to school and as Robin mentioned, what weeks, what we what we think May happen is there may be in a long dated back to school season as some school start virtually and then don't start physically until later and that may shift to the replenishment orders.
Out later in the year.
Or in the early next year.
Okay. Thank you, Okay, I think that so that's what app stay healthy.
As safe.
After next quarter. Thank you very much.
A replay of today's call will be available later today on our website I aren't that Newell brands Dot com.
This concludes our conference you may now disconnect.
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Welcome to Newell Brands' second quarter 2020 earnings conference call. At this time, all participants are in a listen only mode. After a brief discussion by management, we will open up the call for questions in order to stay within the time schedule for the call. Please limit your yourself to one question during the Q when they session as or am I.
During today's conference is being recorded.
Webcast of this call is available at <unk> Dot Newell brands Dot com.
I'll now turn the call ever to Nancy O'donnell, Senior Vice President of Investor Relations you.
You may begin.
Thank you good morning, everyone welcome to know brands second quarter earnings call.
Joining me today, our Ravi Saligram, our president and CEO, and Chris Peterson, our CFO and President business operation.
Before we begin I'd like to inform you that during the course of today's call, we will be making forward looking statement, which involve risks and uncertainties.
Actual results an outcome may differ materially.
Our according to the cautionary language and risk factor available in our press release, and our form 10-K and 10-Q four further discussion of factors affecting forward looking statements.
Please also recognize it today's remarks, we'll refer to certain non-GAAP financial measures, including those we refer to as normalized measures.
We believe these non-GAAP measures argued well conductors, although they should not be considered superior to the measure presented in accordance with gap.
Explanations of these non-GAAP measures and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and table as well as on the new all our Investor Relations website.
Thank you and now I'll turn the call over to Robby.
Thank you and I'd say good morning, everybody.
Today's call.
I hope that everyone is continuing to stay healthy and say from these extraordinary times.
Since that outbreak of private 19, New York is taken decisive action.
Manage our business you factor nature of this crisis.
Yeah, that's the second quarter of a three key priorities pepper been diligent the executing against her position our company for long term success, while managing through unprecedented chalktown conditions.
[laughter] key priorities remain that's Polish.
Let's turn full must have focused on ensuring the safety in ramping O'connor. Please.
Secondly, we have prioritized, keeping our manufacturing and distribution facilities.
Where possible and lastly energy has been directed trade show in the business continuity and sustaining the Companys financial White collar take that doesn't laser focus on maximizing cash flow and I'm showing strong liquidity.
Perhaps the match has put in place to address these key priorities by successfully implemented.
I mean.
To accelerating in executing our turnaround plan Boston.
Position us domain in a recessionary environment.
The results, we announced today demonstrate being agile and nimble and acting decisively behind that can't handle objectors has enabled us to deliver a much better than expected outcome in the second for a period during which.
The U.S. economy contracted our most and thus far history.
Very energized ongoing global macro volatility and pandemic related challenges.
Well I'm not back to back yet.
Second quarter course, I also performed significantly better than we expected going into the fall.
We're encouraged by the significant improvement that we've seen in sequential or sounds footballers each month.
Hey, prevalent across more let's have a down over 25%.
May was better than April.
In June the company actually did that but flat to modest sales growth licensing yet okay.
The good news is that fair broadly think consumption growth trends.
Accelerate shockley does happen patterns on the food commercial and appliance business.
We believe this is a function of both the fiscal stimulus package stimulus yeah.
You asked as rather shifts in consumer behavior that are significantly benefiting southpark categories.
Across our portfolio.
We've seen trials and either be trial consecutive weeks Oh, you at this point of sales growth.
In fact in the past trial Pos was up slightly.
We have proactively leveraged our ecommerce capabilities and marketing investments to capitalize on accelerating Schechter shopping yeah, yeah, no online channels.
Excuse me during the second quarter, our online Pos penetration.
33% on.
An improvement over 800 basis points, plus it's lost yeah.
Online as a percentage of sales.
Reached 24%. This yeah. This core an all time high.
1000 basis was his prior yeah and doubled second quarter 2018.
Penetration improved meaningfully.
For every single business unit in some cases, doubling or tripling on a yeah over yet basis.
Our E commerce theme in conjunction with the business units is doing a great job and capitalizing on the evolving consumer behavior.
Consumer take away and sounds performances widely diverged [laughter] across our business units.
Category based on demand.
Apply and retail coaches.
Let me give me a quick on true of each of our business is not stop at food.
Well, it's been a rocket ship both in terms of strong double digit consumption growth as well as improved share momentum in the last six weeks.
On a thoughtful major brands Foodsaver fall, Rob I might add sustiva.
We hope to continue to see growth momentum in the second.
As we launch Rubbermaid brilliance glass in September.
We're also planning to or non traveler, many food storage container.
That's good obtain anti microbial product protection online with major retailers stopping in the fourth quarter. This would represent.
36.
Yes to identify.
Qualified and shipped this product.
In response to changing consumer needs, an illustration of the new sensor Biogen say and spirit of innovation Bakken no.
That's motor home fragrance us consumption was under pressure and the second floor, primarily due to the closure of all Yankee candle retail stores and manage specialty retail, although we saw strong takeaways retailers that stayed open throughout the past Debbie.
Online penetration in more than tripled in the car as consumers who are unable to purchase catalogs install.
The headwinds, but further exacerbated by significant supply constraints stemming from the shutdown of both our main.
Distribution Center and factory and how do you have seen Massachusetts.
Supplier on spot ramps back up we expect trends trim crew and are excited about the new product pipeline, which in the second half includes home fragrance innovations such as Yankee candle sleep diffuser motivate auto rates and office.
No commercial.
Inconsistent performance in the last few yes, the commercial business has now delivered.
Two consecutive quarters of core sales and profit growth.
The commercial team has driven very high double digit growth in skin care my mobilizing rapidly entered the paper tops out or types of business.
In April under the Rubbermaid Brown and scale the contactless sonatide the standard business in major accounts.
We've also seen strong growth in step on the containers garage micro fiber et cetera. This growth has been partially offset by challenges in the food service and hospitality Michaels.
I'm very proud of this team for et cetera, I think line review wins across a number of categories, including cost the garage organization refuse and sanitation, which we expect kind of continue their growth momentum in the second huh.
We believe that Rubbermaid marks comments had a type of solutions business is fast becoming a key bidder to restore the commercial business at the growth driver for Neil.
A few us down connected health.
POS suppose challenge and decline in mid single digits in the quarter, primarily related to production challenges in our Mexico wireless bond, which was grows for nearly nine weeks due to stay daughter Lockdowns.
Production us out backup, but top 10 customers still have very low can stop levels. Fortunately EBITDA covenant now.
To share some much needed stock for October fire safety.
The team has also making significant progress duets a major restage of our entire far long product line to be launch next year.
So if the topline Sinclair business.
Appliance central whereas minute, rather beneficiary of the stay at home lifestyle during the past Debbie.
It grew strong double digits in U.S. Pos in the second core and core sales grew mid single digits globally.
Despite retail challenges in the car.
We are came retail approaches and write downs in Latin America, and drove core sales growth ex other direct to consumer web sales, especially in Brazil and Colombia.
The plants and corporate team is rolling out the restate the wrong you take cooking products with the Diamond forced nonstick cooking sourpuss beginning in the second foreign continuing into the second huh.
I would say excited about the launch of Mr. Coffee, you ice coffee makers in September this new product taps into a key consumer behavior on the frustration.
Which is really in great ice coffee at home, especially your encode.
Thanks, This outdoor business.
Doing recreation business covert had this business hot.
In Q2 as fashion box campsites et cetera were closed our beverage business was also unfavorably impacted due to lack of mobility and people working from home since contigo and Bubba or on the go brands.
Ticker apparel business significantly decline as did the entire apparel category.
All right had note as rock dance began to lift.
We experienced a resurgence in usbs growth beginning in June which has continued into July the capping category encoding stereos grow status and share with us at seeing strong growth.
In June we also saw resumption of growth in Asia and important geography for the column.
We're excited about the Coleman skydome redesigned tent and the hot Koolaire crash refresh that better.
Dr loss to India.
How much will also be launching the award winning wanting to installation technology line in October.
This is not strong new leadership in outdoor recreation.
But I believe it will take them some time to turnaround this business given the assisting challenges.
Next up is baby.
Despite a double digit decline in April Pos through to stay at home Office Baby and then second quarter with a modest increase in new Spls, we continue to build on our online progress and baby.
Overall baby online sales penetration reached 51% in the second part up 900, Bips bus is probably yeah.
Greg co gained share in the car and maintained its leadership position.
We got off to a good stopped in the launching innovations, including the most test power system, which gained share.
Stockbridge study light is driving check guidance and in fact in coffee.
We launched no safe temperature models in March, which better thought leadership position in Germany.
We're also excited about the launch of the new BRCA coronary stroller in Japan.
This kroner has four spin archive fields, allowing for maneuvering easily inter tight spaces, including sub base.
Last but not least varying on profitable business for us right.
Riding experience significant softness around the growth.
The global Dropdowns that not only affected our supply chain, but also resulted in could show schools colleges and people working from home in the second part both you SBO Aesynt cost sales were down meaningfully. However, we gained share in everyday writing categories in the.
Yes, Australia and the UK.
Back to school display on I should that rose to the same level since last year.
We are now watching bgs south.
The situation is very fluid with every 10 Cobot 19 said is and that's more schools announce online classes and switch to either hybrid our input and classes they tend to use.
This may impact of punishment audits in the second half.
We're seeing a reluctant at hesitant back to school shopper, given down to and today and lack of commodity related to school starts.
Many schools have not even publish coolness.
This lack of visibility is contributing to continuing softness.
In U.S. consumption.
On a brighter NAV sharpie ask Joe is off to a strong stop.
Picked up seven percentage points or shed, the Japan market and the U.S. since launch we.
We will continue to build on this momentum launching several new shop, you products, including SGR meadow barrel expand that color right and then U.S. note.
Lineup creative Marcus for blood generally.
Companywide, our portfolio showing good momentum out of it that wide range of outcomes across business different business units as we head into the second half I'm encouraged that five out of a businesses are posting on our sales growth in July and our south in July are off to a solid stop.
Let me now shifted the progress we've made on the people agenda.
Pretty proud of how our 30000 employees are managing through the challenges facing every day.
I truly believe that are adding to this momentum prices has inspired a team work and then Esprit de corps amongst our employees that has gone wrong way towards unifying the team.
In the lab for you guys have had many issues with employee engagement and culture.
Today, we're in a different pace.
Hi, genuinely believe our people our man valuable asset as their fostering a 10 new rating culture.
Most recently, we brought Chris Robbins onboard to lead appliances and quite group.
Base is hynix excellent CPG leader with 20 asset SC Johnson has set us business units CEO of three organizations, including Philips Sonicare and most recently chop broad where she led to a strategic overhaul that included route positioning is France and reinvigorating the innovation pipeline.
We're excited to have her lead the and see team and bending recent momentum across have pets coming on board. We now are Chris Peterson.
Okay, asking cause province, or kind of figured out how we address all the Chris.
We also recently announced Lisa Mccarthy at the permanent President of the home fragrance business.
Lisa has been the Yankee candle organization at CFO for many yes and has recently been serving as interim president. She has done a phenomenal job under very difficult circumstances, and we're absolutely confident she is that right individual to solidify those businesses in its rightful leadership roles.
In the category.
So these changes my new leadership team as largely in place and complete with one last higher spending for the E Commerce group.
All of Neonodes leadership team, both veterans and the newer additions on aged and unified and focused on taking your brands to the next level.
In conclusion.
I'm encouraged that our financial results demonstrating good on underlying momentum.
We're strengthening our market positions in a number of categories and we're managing through this crisis safely and effectively.
We continue to expect.
Back half results for the represents sequential improvement worse is our second quarter results.
For sure will be a much stronger company going to training 21.
Most importantly, we remain very optimistic about our opportunity to generate long term shareholder value.
At this point that Endo after Chris Theater said in my friend as Barker for a detailed inovio apart financial results.
Then a supply chain update.
Q Grace.
Thanks, Ravi and good morning, everyone.
Although Q2 was a difficult quarter results were ahead of our expectations as we move swiftly to address the challenges presented by supply chain disruption retail store closures and consumer and customer demand chefs, resulting from the code 19 pandemic.
During the Q1 call we signaled that we were facing significant supply chain challenges in Q2 with a number of our manufacturing and distribution facilities close by governmental order.
We are pleased to share that since then conditions have improved meaningfully and we have reopened all of our plants and distribution centers. We are working hard to catch up with demand across several businesses, particularly in categories that have experienced accelerated growth through the pandemic.
We are leveraging consumer insights and selectively investing an additional capacity across a number of categories to capitalize on growth opportunities that have emerged in recent months.
We remain disciplined in our approach and continued to maintain focus on high velocity skews, which improves the efficiency of our operations and reduces working capital tied up in inventory.
As Rob you mentioned during the quarter, we pivoted to accelerate operational improvements across the enterprise inline with our turnaround plan.
Specifically, we accelerated progress on SKU count reduction taking out over 3000 skews during the quarter.
This brings our total reduction to about 35% since we started the program a year and a half ago.
We double down on the fuel productivity savings program, we're off to a strong start in the first half of the year with productivity in terms of year on your cost of goods savings of over 40% from the prior year.
This is being masked in the short term because the fixed cost deleveraging, but will position us well as the business improves.
We initiated and completed a zero based review of overhead cost as a result of the simplification agenda, we have been driving.
This led to a restructuring action, which impacted about 4% of professional headcount.
We continued to make progress rationalizing office space, IP applications, and infrastructure and tightening overhead cost controls.
The allowed us to reduce overhead cost significantly in the second quarter and both dollar terms and as a percent of sales. Despite the revenue declined in the quarter.
We made excellent progress on the digital technology Rep. Replatforming project, we have now converted over 50% of our US web sites from desperate outdated legacy technologies to a single new platform that significantly improves consumer experience access to data and insights while at the same time reduced.
Cost, we expect to have all the U.S. web sites on the new platform by mid next year.
And we continued our efforts to maximize cash flow by reducing the cash conversion cycle.
During the second quarter net sales contracted 14.9% year over year to $2.1 billion as core sales declined 12.6% and currency was unfavorable by about two points, we estimate that disruption related to covert 19 was roughly a 13 point headwind the core sales growth in the.
Second quarter.
Topline trends improved significantly throughout the second quarter that lockdowns were lifted specialty stores started to reopen their doors and our supply chain began to recover April was the most challenging month and mark the trough or renewal with the rate of decline moderating significantly in may and the business returning to slightly positive core sales growth in June.
While many of Nols categories were negatively impacted by Cobot 19, three business units appliance and cookware food and commercial delivered core sales growth in the second quarter, reflecting heightened demand for at home cooking food storage sanitizer, claiming an organization products.
Ecommerce business delivered another quarter, our strong double digit growth ahead of Q1 levels as the pandemic continued to accelerate consumer shift toward online purchases.
Normalized operating margin contracted 200 basis points year over year to 10.2%, which was ahead of our expectations due to stronger than anticipated productivity gains and significant choices, we made to reduce overhead.
As anticipated topline softness resulted in fixed costs deleveraging, putting significant pressure on normalized gross margin, which declined to 31.6% from 34.9% a year ago, specifically fixed costs deleveraging due largely to plant closures negatively impacted gross me.
Margins in the quarter by over 200 basis points.
In addition, incremental cobot costs related.
Negatively impacted gross margin by about 100 basis points.
Net interest expense came down by $7 million versus last year due to a lower debt balance the normalized tax rate was 11.2% below the year ago level as a result of discrete tax benefits.
Normalized diluted earnings per share or three steps.
Moving to segment results. Please note that with new leadership hires we updated the company's organization design, which necessitated changes in the company's segment reporting structure.
Two financials reflect five operating segments appliance and coat, where commercial solutions home solutions learning and development and outdoor recreation. There are no changes to the appliance and cookware and learning and development segments.
Outdoor and recreation business is now a standalone segment commercial solutions includes the commercial and connected home and security business, while home solution comprises home fragrance and food.
Turning to results.
Core sales for the appliance and cookware segment grew 6.1%, reflecting strong consumption across major markets as heightened demand for at home cooking products more than offset the headwinds from closed specialty retail doors and temporary countrywide shutdowns in select international markets.
Core sales for the commercial solutions segment declined 6.8% the commercial business unit delivered at the second consecutive quarter core sales growth largely driven by strong demand for sanitizing cleaning and protection and organization products.
But this growth was offset by topline pressure on the connected home and security business, which experienced supply chain constraints due to the temporary closure of the manufacturing facility in Juarez Mexico.
This facility reopened in early June and is now rebuilding inventory to catch up with demand.
Core sales for the home solutions segment decreased 1.9%.
The food business continued its very strong momentum with core sales growth accelerating sequentially in Q2 relative to Q1 as the increase and at home consumption of meals translated into heightened demand for rubbermaid food storage vacuum sealing and fresh preserving products.
Home fragrance core sales declined due to headwinds from retail store closures, including our own Yankee candle retail stores through most of Q2 as well as supply disruption from the temporary closing of our plant and distribution center in Massachusetts.
Both facilities began to ramp backup in the latter part of May.
The headwind from Coker 19 was most pronounced in the learning and development segment as core sales contracted 23.5%, reflecting weakness across both writing and baby businesses.
Despite core sales softness consumption of baby products rebounded during the quarter.
In writing the category overall is seeing significant softness in consumer and commercial demand, particularly given the uncertainty surrounding the timing of school and office Reopenings.
Core sales for the outdoor Rec segment declined 21.5% has shelter in place mandates during the early part of Q2 weighed heavily on the business sell through on the outdoor category bounced back in June as those restrictions were lifted and consumers began spending more time outdoors.
Let's switch gears the cash flow now, which remained strong during the first half of the year year to date cash flow from operations increased $141 million versus last year and the cash conversion cycle improved by over 20 days as the organization rallied behind initiatives to reduce complexity and free up.
Cash from working capital.
Laser focus on every facet of working capital management is bearing fruit.
SKU rationalization actions on a more effective management of the supply chain by focusing on high velocity excuse is driving improvement and inventory.
We're continuing to optimize inventory through a more robust planning process accounted for the dynamic shifts in consumer purchase behavior.
We grow faster receivable collections despite pressure from code my team through operational improvements, but also took higher than normal bad debt reserves during the second quarter.
On payables, we continue to work with our suppliers on extending payment terms.
During the second quarter, we strengthens the company's liquidity position and exited June was 619 billion dollar cash and cash equivalents on the balance sheet, which has $143 million ahead of the Q1 level. We completed a 500 million dollar debt offering repaying short term debt. So that at the end of the quarter, we did not.
I have any borrowings outstanding on the credit revolver or the accounts receivable securitization facility.
Included in the quarter and cash balance Newell ended Q2 with over $2 billion in short term liquidity, which puts the company in a very strong position to manage its cast needs in this dynamic environment.
Although conditions have improved relative to a few months ago, we think it as prudent to continue to evaluate the company's capital allocation strategy as we gain more visibility into the trajectory and pace of economic recovery, we intend to maintain the dividend for the upcoming quarter and there is no change in our commitment to de lever but.
Balance sheet overtime.
Now turning to guidance, we are planning prudently for the balance of the year. So that we can swiftly adapt to shifting consumer behaviors and macro developments.
We continue to expect sequential acceleration and core sales trends for the company in Q3 relative to Q2.
We are off to a strong start in July with sales growth improving versus June and consumer takeaway continuing to increase year over year as the supply chain constraints are using a larger portion of the global economy, and our retailer base already has reopened including about 20% of our own retail stores.
And consumption has improved relative to the extreme lows experienced in April.
We do expect the writing business to be the most challenged business in Q3 as a result of delays and uncertainty regarding the timing of school and office Reopenings.
This will have a negative gross margin mix impact on the business in Q3 as the writing business has the highest gross margins in the company.
Importantly in Q2, we grew market share in everyday riding driven by paths.
And expect the business to recover strongly one pandemic subsides.
Stringent cost control measures remain in place with the savings from the organization restructuring program expected to contribute the back half results.
And we expect a more normal tax rate in Q3, this year compared to the large tax benefit and the year ago third quarter.
While visibility to the course of the pandemic and the pace and timing of an economic recovery is limited we're taking the necessary actions not just to manage the business through the immediate challenges, but to come out stronger afterwards with the turnaround efforts fully underway I.
I would like to join Ravi and thanking our employers, especially those on the front lines, whose unwavering dedication and tireless work is helping to propel the company forward and these president at times.
Operator lets open up for questions.
If you would like to ask your question. Please signal by pressing star one on your telephone keypad. If you are using his speakerphone. Please make sure. Your mute function is turned off to allow your signals reach.
Again press Star one to ask a question.
We'll take our first question from Wendy Nicholson with Citi.
Hi, good morning, I guess.
Thanks.
First on just big picture on the segment.
Classification.
Kind of Crazy just how many restatements, we see per kind of the last.
Five years, and I get it that through the divestiture process and all of that they've been a lot of changes made.
But I guess my question is sort of for the people who are working in those segments are working in the line of business. If you can comment on kind of how they're reacting to all the new management.
Whether whether we see from a piano segment reporting perspective impacts the chain of land within the company et cetera, et cetera that would be helpful. And then then just did specific question on the appliances cookware into food business given that we've seen such strong growth there not just for you guys, but for the industry as a whole how are you thinking about.
That business in the back half I know you talked about a little innovation I'm, just worried that everybody, but so much.
Storage softened and new coffee maker is that maybe we don't need them for as far as the accuracy. Thanks.
Thank you Randy.
Chris by our John So this segment.
I will talk a little bit more about.
The leadership.
And talk about NC, Okay, I'll start with the segment so.
As we've hired new business unit presidents and brought them into the management of the company delay that we've organized the reporting relationships and the organization structure necessitated because of FCC rules a change to the segment structure.
So we continue to.
[music].
Have eight business units, but.
The key leadership and the reporting relationships with robbing as what drove this segment reporting change.
That we made an announced this morning.
Thanks, Chris.
Andy I think.
Things for us.
Hi, Shadow paying on that and re no. We didn't take is likely because the last thing we needed to do us among other changes segments backdrop. We also want to conform with all applicable laws and I did feel that I.
From a reporting standpoint, we have CH Ns.
Which has some characteristics similar.
To our commercial business.
So we saw a connection there those CHP net flows so the operation or hit we still have a CEO, Tom Roussos, very competent Geo reported new Mike Mcdermott and it'll still be a freestanding units by the reporting relationships to Mike.
Which is why not have to be reclassified similar to that home fragrance.
That Lisa.
Very good as I mentioned in my prepared remarks prepared remarks.
Benefit from the experience focused multitasking. These has just gotten to this position our training is refinanced Chris has a great marketer and also Chris in our loss job with arc.
Had been the biggest supply after Yankee candle. So we pop back would be a great connection and the two are doing beautifully.
So.
So thats really why it happened, but the home fragrance business still operates as a separate units in terms of goods and operations. So this is it's not creating any kind of confusion or any.
Issues in terms of chain of command, so thats I think the elaboration on fees as far as appliance and cookware look were pleased that it's getting some tailwind and momentum and if this redeeming feature to this horrible disease that.
People stay at home and bond that more they need more appliances. So the categories on fire and were benefiting Katy our teams are doing a very good job capitalizing on it but.
We are losing share stone with categories growing off pasta only read them I'd say it is.
That it's not all hunky dory, there's still some meat underlying issues, which I talked about in the past. So this is not like it'll go on forever.
Now, having said that we brought in Chris Robbins, who hopefully we'll stop getting that innovation.
Genuine innovation Master consumer needs, we actually think the ice coffee launch is really a good launch because at the opening price points that isn't one home.
Ice coffee maker right now and with all the coffee shops that have been goes to et cetera, or just in the process of reopening people, especially millennials want to make coffee at home ice coffee at home. So I think it's on trend and the good thing.
And then if I can just jump in on your question on food on food, we see that as a sustainable trend and actually in the food business. We are as one of the businesses where were supply constrained so.
We're growing very strongly.
But we could sell more as supply becomes available and.
Given the dynamics associated with a pandemic, we are working hard to increase capacity on that business and I expect that we'll see that trend of strength continue in that business going forward.
Thats a greg on Chris.
When you think about coffee set attacking those two businesses, which were question Mark who wouldn't come ashore two means at ASCO question, Mark I think it's exactly what you said and.
Great job by the team lost at both good foundations food now with co Ed We're just capitalizing on it but that team is just doing a great job assets commercial.
Got it that's very helpful. Thank you.
Well, thank you revenue.
We'll take our next question from Lauren Lieberman with Barclays.
Great. Thanks, good morning.
Sorry learn.
Good morning, I was hoping because I want to look a little bit the outdoor segment.
Hi, This is a business that I recall in the last recession Lilly did benefit in the way that you described is starting to see on the people having different types of vacations and spending time differently.
But I think in the ensuing years.
In there really.
Strategy and acquire management and the common brand that.
Kind of deal with opening price point competition and at a large retailer and otherwise like the margin structure of the brand of the division really came down dramatically.
And a lot of the equity and sort of load and.
So I was just curious.
Kind of rolling into this environment in the middle enacting a turnaround plan.
The here a little bit more about where you stand on repairing marine construction that business.
Innovation and what's happening in terms of incremental distribution in.
More specialty channels.
But anything there would be really helpful. Because again. This is a business that I would think sort of like appliances, and cookware shouldnt be something that really work.
You know in for the foreseeable future as well kind of speaking closer to home. Thanks.
So let me get started in that and I can have Chris so Steve visiting additional points.
So clearly the business was hit pretty Bob any by co Ed is coming out as we mentioned in June.
So, but Laura I think there's some fundamentals on this business that in the past really got screwed up.
And.
Actually on the call Moatize, Craig Bram great equity.
We have made mistakes unfortunately in the past and we're now working for them.
And.
There is I think green week, whereas squeezed on one hand with high end competition Ligeti on one side and Thats private cable problem.
Radar screen data that you mentioned.
So walk Mint product, Duke Realty Oncomed is how do we get the innovation pipeline going we started with the hot quoted refresh which is actually a pretty good good refreshed.
We will talk to that and new tensely type talked about reaches a good thing and even that the large retailers accepted and excited about those two new events.
So.
And now the category with ARX opening up and more subtle road trips and.
Our going on to camping more so it's in that group flights to take advantage of that and the Colburn brand is still a super Brad but my comments, if I sounded a little.
Pessimistic on the aftermarket was not meant to be it's just saying that's some fundamentals we need to fix it it's going to take some time, we now have to great guys step of brought in from the outside.
Core crew outdoor people, Jim assigning and build kirschner and they've already started having an impact. So I think we'll we'll get this right it's going to take us a little time and in the Meanwhile, we're pushing and by the way in Japan for instance, we've got great franchise for the Golden Brown premium brands, Chris and I visit.
Good there that being really is doing a good job. So there's no structural issues, there and and Hs a whole as I mentioned is bouncing back up so it'll take us some time, but overall.
I'm quite optimistic longer term, but it's not going to just happen immediately.
And remember of its like something like food the fundamental started getting put in place and 19 and now the team just rent and move forward, whereas in outdoor.
That said often the case because anything you want to add the only thing I would add on this is the outdoor rec businesses really three different businesses, there's the outdoor business, which Ravi talked about which is Coleman, which you're right. It is benefiting from the stay at home and.
Outdoor trend and we're seeing that clearly in the point of sale data and if we look back at the last recession in 2008, we did gain market share because of the positioning of the brand.
Second business is the contigo.
Container business and Robbie talked a little bit about this and his prepared remarks that business is really more about mobility and so that category is a little more under pressure than the outdoor business and then the third businesses the technical apparel business and the apparel business has probably been the hardest hit of any of the businesses from a cash.
Great growth standpoint, so.
It's kind of a tail three cities in total for outdoor and rock.
And that outdoor piece the camping piece is actually beginning to bounce back in the US as we look at Pos growth in June and July.
I think thats nothing structurally wrong with the beverage business because I think we had good encore has been an individual brand. It is just I think we need to wait for people to move about him go back to the offices et cetera.
Okay next question.
We'll take our next question from Nik Modi with RBC capital markets.
Hi, good morning, everyone.
Robbie I was hoping you can.
Pop about the year dependent initiative I know that was.
Seems to be big deal.
For this year.
Any thoughts around can you be purposes are you can you scaled back the funds and redeploy will it go to the bottom line any thoughts around that and then I guess bigger picture question is.
Even before the Jarden acquisition was was completed.
Keith it's around Newell as you have a big company.
With.
Capabilities that can really is superior to those smaller competitors because the categories are very fragmented and I would suppose that in a situation like we're going to right now lot of those smaller more fragmented players are coming into a lot more direct that you are so any thoughts around that I mean, you thought is that something that you're seeing in the marketplace.
Sure Nick so.
Yes.
Sometimes.
Command proposals, but crop disposes send who would have thought that code of come about FNB Nazi out of the pain that doesn't but I think the fact is more temporary and I think.
The sharp PS, Joe and all the things we did with other pans is quite remarkable.
The fact that Sharpie Asciano Simon mentioned my prepared remarks has been able to get a seven percentage point share increased goddess massive.
And.
Just credit to the innovation and a great.
Laurel and her team have done a remarkable job.
And so it's just it's unfortunately Africa people are working from home and colleges schools Arcos. So I think that's had an impact we did shift monies.
So that we had the earmarked.
Who made acquirers and so the team has done a very diligent journal of managing.
Spend.
And being very responsible and despite what we all about spend the fact that they've been able to get seven percentage points or share increase is quite remarkable and now we are launching some new stuff I mean, I just looked at the colored sharp PS gels and their beautiful.
So.
And we've got to look at this us look.
Quotes drop ship whatever hopefully at the end of this yet.
And next year as we get into next year.
We will have a vaccine and this will be behind us.
And what is going to be interesting is.
Even if schools and offices are put off does ended the year next year I think we'll have a real nice bounce back so I'm very bullish about the writing business longer Tom Im very bullish about our hands, yes second half would be challenged this no doubt about it.
We have to look at along the tomcat.
And then to your question on competition, we are seeing.
Benefit as a result of the fact that we are the scale player in most of the categories versus subscale competition. The place for that's probably the most prevalent isn't the E commerce space and Ravi talked about this in his prepared remarks, but.
In the second quarter about a third of our business was done from a Pos standpoint online and so to have a 33% penetration is pretty remarkable and what's even more remarkable about the position that were in is that we make the same or higher margins on business that we.
Do through E commerce than we do a true brick and mortar business and there are very very few.
Consumer companies that can make that statement. So I think more competitively advantage, there and I think that.
That's going to bode well for us as we go forward here.
Great. Thanks, Chris.
Okay.
We'll take our next question from Steve powers with Deutsche Bank.
Hey, thanks.
Well I think I think you indicated that point of sale was up slightly year to date versus your core sales running down 9% or so.
Give a sense of how much that gap is indicative of a kind of structural rebalancing of inventories are no across about the value chain that works against you as a as a supplier versus just being indicative of than channel inventories that you will stand to make up it sounded like you expect some degree of catch up but I, just I guess I'm not fully clear on how much or how quickly you.
I think that might occur.
Yes, Steve Thanks for the question as you know where an alternative providing guidance and I don't want to get too deep into that I'll just talk conceptually.
Rich is that.
Yes, we had lot of supply challenges and so retailers used up their inventories and.
And in some places even safety stocks have been a bit of an issue now that we're opening up square the process of wrapping up but that Doesnt mean were comprised were wrapping up and getting it out there and then we have to see how consumption flows so.
But at least in July as.
Both Chris and I noted in our prepared remarks, we're off to us haul it stop on sales and.
But we'll have to just see where consumption goes because thats. It does because remember those one important there are two things there was that federal stimulus.
And.
This unemployment 600 dollar checks, which are all coming to an end and so it'll be interesting to see the inflection points.
How that consumption will go over which we really don't know and we have to watch and see.
Okay. Thank you appreciate it.
We'll take our next question from Bill Chappell with Suntrust.
Thanks, Good morning.
Hey.
Rob I guess, just wanted to dig a little bit more into the the term challenged for back to school and.
And just trying to understand like.
As you look at it.
From a from on.
Manufacturing standpoint, and building inventory standpoint, like what are you expecting I mean is there a certain percentage of your base, it's going back regular versus virtual are you assuming those virtual come back sales come back at some point of just might be three months you might be six months from now are you assuming some of the sales just don't ever come back.
At all because you've missed Kennedy event back to school and then maybe how much of your total business is actually tied to back to school I think theres, it's kind of a perception that you being the largest player in pins and paper and everybody is going virtual that the next couple of quarters.
Are going to be torched and so just trying to understand what you're doing if that's the case or or if that's not even the case.
Yeah, let me.
Kick it off and then I'd also how Chris or provide any details that I might less so.
Clearly back to school is an important part of our business, but not the only part of our business.
So and what you see is you stop seeing sell in.
Occurring usually in June July and you also then stop seeing consumption in July and by that stopped speaking in August towards the end of August Labor day is when you see it. So this month August is an important month.
The interesting thing is that what we're seeing is cities are estimates is that even half.
The only about half of the schools have issued school bus that's an estimate for us and so that is sort of the what you're seeing is shopper behavior is because of lack of clarity there being a bit hesitant and are locked.
So I think that is.
One of the issues for US our said is when 10 normally pretty much gross to work with Don which I said so in my remarks, the issue will now be sell through.
And then the fact onto attachments, which.
Occur late in August.
In the August time faded was just have to say walk we think could happen is that unlike typical.
Back to school, yes, this year it may be elongated.
And.
And also to just have to see online how that'll go because online seems to be okay.
But whether this would have just sort of instead of one big bump, which ucaas. This may just sort of drew will truly yet and it's very possible that is schools and everyone says.
Hey, we're going to all open up in January our universities and this a massive back to offices in late fall or in January you may see a new type of bump occurring towards the end of the yet, which mean replicate kind of back to school and so I'd rather not acus in December.
But in January we have to see but that's a possibility that has not.
And usually there is a little bump, but this maybe a bigger bomb than than usual so I think.
The second half I wish I could we had a crystal ball to tell you exactly.
What's happening because we're our team is trying to keep every bid on call last comment and then obviously youve Chris phone Stratton thing.
Our focus right now a share andretti being the leader driving share where we are outstanding relationships with all the big retailers, where the concept with them talking to them and figuring out because they too are looking at this as seeing whereas this kind of go and.
No it's really the kinds of things that are affected by schools.
Closure, so things like dry race markers horrible drew the 70 categories that get affected by this.
At Highlighters in southeast we are really we are quite strong leadership positions.
Texas quite a bit so we just have to say.