Q3 2020 Newell Brands Inc Earnings Call

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Good morning, and welcome to Neil Brands third quarter 2020 earnings Conference call. At this time all participants are now in listen only mode. After a brief discussion by management. We will then open the call up for questions in order to stay within the time scheduled for this call. Please limit yourself to one question. During this couponing as a reminder, todays call.

Friends is being recorded and live webcast of this call is available at IR Dot Newell brands Dot Com I will now turn the call over to Nancy O'donnell Senior Vice President of Investor Relations Mr. Donald you may begin.

Thank you good morning, everyone welcome to Newell brands third quarter earnings call.

The line with me today are Ravi Saligram, our president and CEO, and Chris Peterson, our CFO and President business operations.

Before we begin I'd like to inform you that during the course of today's call, we will be making forward looking statements, which involve risks and uncertainties actual results and outcomes may differ materially.

I refer you to the cautionary language and risk factors are available in our press release, and our form 10-K and 10-Q for a further discussion of the factors affecting forward looking statements.

Please also recognize that today's remarks will 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 GAAP expert.

Explanations of these non-GAAP measures and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as on Newell's Investor Relations website.

Thank you and now I'll turn the call over to Rob.

Thank you and I'd say.

Good morning, everyone and welcome to todays call.

I want to start by expressing my sincere.

Thank you and your family started writing safe and well.

I also like to mention with mixed emotions that Nancy after trials Stella, Yes has decided to retire at the end of the year.

The board, Chris and I don't know all her teammates thank her for doing an excellent job.

This is her last call and water ready to retire in a blue our car. Thank you Nancy survey a sense from you all know very well that would be taking her work Nancy is a head of IR for <unk>.

I have the pleasure this morning.

Discussing an extraordinary quarter for Newell brands, a quarter in which we work ahead of expectations on all fronts, we delivered very strong financial results, including broad based core sales growth of 7.2% 7.2, driven.

Driven by strong consumer consumption across most of our categories. We also generate a significant improvement in operating margin and cash flow generation as the organization took decisive actions beginning to kill a set of objectives I'm extremely proud of the team's resilience and perseverance, everyone robbing around delivering.

Against our strategic priorities, while simultaneously ensuring that we successfully navigated the constantly evolving macro environment, we find ourselves and.

During that that core BP to accelerate the turnaround plan strengthening execution and exciting ecommerce growth, which enable much better than anticipated results through a rigorous operation tourism and decisive actions, we're making significant progress in building an organization that delivers on our long term goal.

[noise], including consistent sales growth core sales growth margin expansion and cash conversion cycle improvement.

Business units.

Seem committed to reducing complexity and laser focused on significant best gigabit adoption and delivering the savings through both productivity and efficiency initiatives.

Out of the Q3 results generated by the steam I'm have not just because of the growth was so strong but also because this is the first quarter. Since 2017 that newer brands has delivered positive core sales growth. So this represents an important milestone for our company. We believe we have started.

Turning the corner and reigniting consistent topline growth many of our categories are well positioned to capitalize on the stand from lifestyle with consumer spending more time in their kitchens and their families. We are leveraging insights from evolving consumer purchase patterns.

To fortify our innovation funnel and continue to see rejuvenate our brands for today's consumers.

In fact, we are developing a new and unique framework to drive breakthrough innovation and design thinking and breaking down organizational barriers to become more nimble and agile.

This should result in a stream of innovations over the next several years at the same time, we are making headway on closing distribution gap in food dollar and drug channels and migrating our business to EPS bidding channels and customers.

We saw very strong consumption growth in the U.S. across the majority of our portfolio throughout the third bar and thus far in October.

Third quarter momentum was broad based with seven out of eight business units posting core sales growth and six posting consumption growth. All eight business units saw sequential improvement in top line trends versus Q2 core sales grew in all geographies with our international business is accelerating.

More sharply in the U.S., especially in Latin America, the standouts in the third quarter, where our food appliance and cookware and commercial business units all of it generated impressive double digit core sales growth and it's not just sales growth over during the quarter, we drove market share gains in.

Uhhuh in outdoor camping gear in baby and in home fragrance as expected writing was challenged in the park, although we did see sequential improvement in consumption in the U.S. during the bar due to the timing of school openings varying across different regions.

Clark.

So thats a quick reminder, as to why the breadth of our portfolio has an advantage even though one of our strongest businesses writing took an outsized it from the Covis pandemic broad based strength in.

In other business units was more than enough to not only offset that headwind, but deliver extremely strong growth for the company as a whole.

To capitalize on the accelerating shift of consumers to online purchasing we continue to proactively leverage our E commerce capabilities and marketing investments, while bringing a deliberate focus to omni channel execution.

Online sales maintained a very strong double digit growth trajectory during.

During the third quarter online penetration as a percent of net sales was 21% versus 16% last year year to date, yet chroma E. Commerce penetration sales was also 21% almost double yesterday 2018 levels penetration in.

Crude meaningfully across our portfolio with the most noticeable acceleration in home fragrance, but it nearly doubled yet today.

Our growth in E. Commerce is further evidenced by the fact that our online sales have grown about 40%, 40% folks in third quarter and yesterday. We also continued to gain market share in the third quarter in many fast segments across Amazon mode.

Most recently in October we achieved excellent double digit growth on Prime day.

E Commerce team is doing an outstanding job in capitalizing on and leveraging evolving consumer behavior at the same time, we are building the digital by two and digital marketing capabilities of our business units and proactively evolving from a brick and mortar focus to a true omni channel focus so that we can create consists.

Sent an amazing brand experiences for our consumer no matter, which channel they shop, how they shop, when they shop and where they shop.

Romney count will become a competitive advantage from euro in an age of click and collect big Capex Cup side browsing online purchase in store and welcome. We're also successfully migrating our business to faster growing channels, which puts the company in a much stronger position long term during Q3 optimal largest challenge digital.

And mass each grew double digits more than offsetting declines in the specialty and office channels, which are becoming an increasingly small part of our overall business. Our food business continued to be a powerhouse this quarter with core sales and consumption, increasing a very strong double digit rates with core sales.

Growth and market share gains across all major food brands, including Rubbermaid food segment Wallace's steamer during Q3 Foodsaver was one of the largest contributors to the company's growth and the June launch of the latest back to the volumes via 3000 has been off to a strong start the ball can business results.

On far year to date sales are up 60% with a significant increase in millennials purchases were not just writing the wave of current category Tailwinds. We're also leveraging consumer insights on our new product lineup of Prime example is the launch of Rubbermaid brilliance class, which launched in August the biggest challenge in food recently has been.

Keeping up the demand from a supply chain perspective, and we expect to chase demand for the rest of the year, we're working hard to increase capacity across all four of our growth brands.

Home fragrance rebounded during the quarter and grew sales in both North America and EMEA with the reopening of many specialty retailers has brought us our own retail stores contributing to this outcome.

Assumption has remained quite strong in the us driving share gains in the track channels, we were particularly pleased to see double digit comps at I'd. Thank you cannot retail stores once they reopen demonstrating pent up demand for our home fragrance products in fact, the retail comps we sign our stores is the highest since 2000, we also.

We saw a significant increase in new consumers accessing identity panel dotcom platform for the first time driving robust growth.

Home fragrance business has gone through the interesting done this year, and Massachusetts production facilities and Dcs for crow's down in the second quarter due to corporate rock tax, which prevented us from pre building inventories for Q3 and Q4, we opened up our plant in Q3 and started ramping up supply why we encountered a significant.

Increase in demand and said Jim consumption model challenge, which is continuing in Q4. So we are continuing to chase demand and are going to fall out of kind to increase capacity.

Our appliance business grew core sales our whopping 17%.

EPS, 17% in the car with positive sales trends in all geographies, most notably in Latin America, we saw heightened consumption across most key categories as consumers continue to enjoy increased cooking at home benefiting not stay at home usage products. This team under the leadership of new business unit heads.

This province is working hard to build a consumer relevant innovation pipeline to position our volumes brand for sustained growth longer term.

We're seeing some green shoots we're quite pleased with the initial success of Mr. coffee iced coffee maker, which we launched at a major mass retailer in September and it's been flying off the shelves business sat out significantly ahead of expectations. We are encouraged by these strong results and excited for the opportunity ahead throughout the pandemic revenue.

We experienced strong consumption and blenders and recently launched a new series hosted texture select blandness, which takes the guess work are getting as just strike smoothie ourselves.

I'm not suggesting that appliance business has magically resolve all issues, but it's certainly helpful to have category tailwinds that enable investment behind innovation and brand support.

In order to drive share gains over the long term.

Outdoor recreation alternate done to core sales growth of 8% in Q3, the rebound and outdoor activity started to see at the end of Q2 as continue especially in camping gear, including tens stoves grills and showed US both in North America and international we are pleased to see that Coleman in its hundred 20 EPS.

Is beginning to return to its rightful place as a brand leader in the outdoor segment that we rejuvenating the offerings intense.

Great success in Marmot Superalloy chain, an award winning premium lightweight backpacking 10, we just launched this summer training training and has been a top performer on the new business units CEO, Jim Photonics leadership. The team is focused on capitalizing on these consumption trends and bailing out plans for Qinyuan and beyond.

Our commercial business that really Jim turned in its.

Consecutive quarter of course has growth benefiting from heightened focus on cleaning and sanitation and increased consumer traffic at home centers Q3 results et cetera. It has significantly driven by strength in washroom solutions refuse material handling and protection and outgoing garage organization. This business.

It is showing good momentum and product innovation distribution gains and strengthening customer relationship.

Really just recently we launch.

Pp disposable solutions, which are utility in decorative refuse containers with a dedicated pp waste stream to help patients and employees effectively dispose off of mass and goes.

We're also first to market, but the rubbermaid seven by seven storage shed that can be assembled by one person. They say, even sonic Dunkin' Donuts, we're confident that commercial will remain a growth driver for the company going forward.

Connected home and security rebounded to core sales growth in the quarter as well after the temporary supply chain disruption experienced last quarter, given the lock down some far as for our main Pontus located the team has worked hard to replenish inventories unfulfilled 'cause customer and consumer demands for our security products baby bounced back.

Core sales growth and third bar after experiencing temporary pressure in the second quarter largely as a result of markdowns. We saw strong consumption of the U.S. and our graco brand grow market share gains in baby gear, particularly the coffee category New Baby innovations included the Graco cases me for Enron carrier.

Drakos first entry into soft carrier category and Knox temperature control model. This model innovation has captured the leading market share spot in Germany, writing.

Writing is expected was the most challenged business this quarter the back to school season was negatively impacted by uncertainty surrounding timing of school and college, Reopenings, which has weighed on replenishment orders.

On a positive note Pos trends in the US improved as we progressed through the quarter rebounding to growth in September new we'll gain share and pence during the quarter driven in large part by over 900 basis point share gain in Japan due to the success of our new Sharpie SGN path Weve pen we have new.

Innovations that will be available in the fourth bar, including the sharp PS gel metal barrels had a new range of SQL design, some colors and a new lineup paper made center defense, although consumption of the core writing categories has remained positive thus far in October due to an elongated back to school season, we expect.

Back to business to remain under pressure for the remainder of this year. We continue to feel good about writing long term and have kicked off a major innovation initiative that takes into account the new normal of hybrid models of schooling and working we expect to come out of the pandemic with an even stronger market position for this important business.

It's been exactly one year since I joined Newell brands and water an interesting yet.

Despite all the chain challenges I'm really proud of the progress organizations made and restoring the growth momentum of the business in the third quarter, and then aggressively going after costs and working capital opportunities.

I'm equally proud of the excellent improvement in employee engagement and culture and focus on diversity inclusion and belong.

Pandemic is noncash behind us and much uncertainty remains regarding its magnitude and duration as such we remain vigilant in our focus on ensuring the safety and well being of our employees, keeping our manufacturing and distribution facilities operating safely, while we ramp up capacity and sustaining business.

Continuity and the Companys financial vitality.

We remain equally focused on accelerating the progress of the turnaround Janney.

Looking into the fourth quarter and beyond we are executing on five key strategic priorities first driving consistent topline growth.

I suspect, we may see choppiness from quarter to quarter in the near term as each business in a different stages of Janney, we chase demand searches. So it isn't select growth categories and the effect of the pandemic are very based on categories. I truly believe we are beginning to turn the call on our asset component.

Secondly, we continue to drive and invest behind consumer relevant customer supported innovation with an eye towards market share gains across our key brands.

E Commerce will continue to be our big bet and I'm confident Newell will build a strong reputation with consumers and customer asphalt customers for Omnichannel pros.

Fourth we will accelerate our efforts to drive our complexity.

While maintaining tight control of our cost sharing productivity and reducing SK use we're proactively working on optimizing our supply chain network to deliver excellent service for our customers and improve or Keith.

And last but not least we will continue to make cash flows a hallmark of our company in 2019, we generated over a billion dollars in operating cash flow in 2020, we hope to give an encore performance in fact, even do better and exceed a billion Chris when Mike formerly called a billion dollar on on video.

Choppy on the details the credit for our strong Q3 results goes to our leaders are Brandon marketing and sales teams our supply chain professionals. Most importantly, a real thank you and chat after frontline employees in the factories, Dcs retail stores and R&D labs for their dedication.

You keep us going do our heroes and to all our receivable collected thank you for bringing in the cash.

I'm, so thrilled to see the teamwork dedication and engagement of our people.

With all of the foundational work down today, not only enabling us to overcome the challenges posed by code 19, but also positioning newer brands for sustainable long term success I truly believe the best days for New all are ahead of us onwards, and upwards and at this point or.

Do you Chris Thank.

Thanks, Robin and good morning, everyone before going through the details of the quarter I want to provide some operational highlights.

When we put our turnaround plan together, a year and a half ago, we created an integrated set of strategies and initiatives designed to strengthen the company and accelerate financial performance.

We have made very strong progress on each area of the plan and taken together the strategies are playing out in a very powerful way in fact, the momentum is accelerating Robbie shared a number of the improvements we have made to strengthen the organization and return the company to core sales growth. In addition, we have made significant improvements on operating margins.

Cash generation and reducing complexity.

Im complexity reduction for example, we eliminated another approximately 10000 skews during this quarter, which is a year to date reduction of 23% or more than 40% reduction since we began the program about two years ago.

We've now put in place a systemic monthly process to drive SKU reduction and efficiency on an ongoing basis. We are quite encouraged by both the progress we have made and the opportunity still ahead of us, including the efficiencies that unlocks across the organization.

Every business unit and have plans in place to take more aggressive actions on SKU rationalization and as we move into 2021.

We also made a significant dent and reducing excess and obsolete inventory during the third quarter, taking advantage of strong consumer demand dynamics as a result, the quality of our inventory isn't the best shape. The company has been in recent history.

Operating margin expansion was another highlight of the quarter. We are laser focused on optimizing our cost structure and unlocking the full margin potential of the business.

Fuel productivity momentum continued to build on the success from the first half of the year we.

We drove savings from productivity that were more than 50% ahead of the year ago level, which in combination with overhead savings helped to mitigate the impact of unfavorable mix due to the writing business decline.

For the full year. Similarly to Q3, we expect gross fuel savings to contribute roughly a 4% reduction to our cost of goods sold base, which is the best annual results. The company has delivered since we started tracking the measure.

We have significantly strengthened our productivity performance over the past few years with visibility to a very robust on oil projects for next year.

We have come a long way in establishing and embracing a culture of productivity throughout the organization as everyone aligned around our common goal of driving efficiencies and simplification.

We also made very strong progress on overhead cost reduction we successfully converted the Coleman North America business to S&P on October Onest, continuing or rationalization of ERP systems.

We further simplified our IP footprint and have now reduced the number of IP applications from about 6000, a few years ago to less than 800 today we.

We largely completed completed the head count portion of the restructuring program that we implemented during the second quarter, which impacted about 4% of the company's professional employees.

And we implemented a new technology to consolidate and better control of the company is indirect overhead spending, which we expect to drive significant savings going forward.

We reported outstanding quarterly and year to date results and cash flow generation driven by strong working capital progress in Q3, we actually generated slightly more operating cash flow than we did during all of 2018.

I will now recap some of the financial results details.

Third quarter net sales increased 5.1% year over year to $2.7 billion as core sales grew 7.2% and currency was unfavorable by about a point.

Growth was broad based as seven of eight business units grew core sales as did all four geographic regions.

Normalized gross margin was 33.9% a 90 basis point contraction versus prior year and our strong productivity savings were more than offset by business unit mix cobot related cost and inflation.

Normalized operating margin of 14.9% was an improvement of more than 200 basis points versus last year, driven largely by overhead cost savings not.

Net interest expense declined by $4 million versus last year, reflecting progress on debt reduction we recorded a normalized tax benefit of 7% as compared to a benefit of 22% a year ago as we realized discrete tax benefits in both periods.

Normalized diluted earnings per share were 84 cents.

Core sales for the appliance and cookware segment grew 17%, reflecting strong consumption across all regions, particularly in Latin America core.

Core sales for the commercial solutions segment grew 13.3% driven by strong demand for Santander Sanitizing, Washroom Ham protection and organization products.

Core sales for the home solutions segment grew 19.5% the food business continued its impressive momentum as the increase in at home consumption of meals translated into heightened demand for food storage vacuum sealing and fresh preserving products.

Home fragrance core sales returned to strong growth this quarter as well with our factory closure behind us and the reopen meaning of most specialty retailers, including our own Yankee candle retail stores.

The outdoor and RAC segment generated core sales growth of 8.1% as the outdoor categories benefited from consumers' preference for vacation and close to home and spending time outdoors. The strong Q3 results also benefited from an acceleration of sales related to the implementation of S&P at Coleman North America on October Onest.

This impact will reverse and become a drag on top line growth for the outdoor recreation segment in Q4.

The learning and development segment was the only one that experienced topline softness in Q3 as core sales declined 9.5%, reflecting expected challenges in the writing business as a result of delayed reopening of schools and offices baby rebounded back to core sales growth driven by healthy consumption.

We continue to continue to drive a very strong momentum and operating cash flow during Q3 year to date cash flow from operations of 820 million almost doubled versus last year as the cash conversion cycle improved by about 30 days as the organization rallied behind initiatives to reduce complexity and free up cash from working capital.

While we are making progress across every facet of working capital the biggest driver of year to date improvement as accounts payable driven by more favorable payment terms following our negotiations with suppliers.

We ended Q3 in a lower than anticipated inventory position as SKU rationalization stronger than anticipated sales in two to three and a more efficient demand planning process drove our inventories down.

And we continue to make progress on receivable collections through operational improvements.

We remain in a very strong liquidity position has.

As a result of very strong operating cash flow generation. We ended Q3 with cash and cash equivalents of $858 million, we repaid a $305 million bond maturity in August, bringing the company's net debt balance down to 5.0 billion, a $500 million reduction compared with the end of the second quarter.

Peter.

Our credit revolver in a AR securitization facilities are currently undrawn and fully available.

We delivered a significant improvement in the company's net debt to normalized EBITDA leverage ratio in Q.

Driven by both net debt reduction and EBITDA growth.

Specifically Newell ended Q3 with a ratio of 3.9 times as compared with 4.6 times at the end of the second quarter.

Now, let me turn to guidance.

To help improve financial transparency, we are reinstituting, the practice of providing guidance as forecast visibility has improved in recent months our guidance ranges will be wider than what we have historically provided given the dynamic environment and uncertainty around the pandemic.

We expect to deliver flat to low single digit core sales growth in Q4, thus far in October consumption has remained strong.

We expect sustained progress on productivity and overhead savings to be more than offset by unfavorable business unit mix and higher and P. investment. So that normalized operating margin will contract 80 to 140 basis points year over year to a range of 9.9% to 10.5% our guidance implies that the second half of the year.

It will be much stronger than the first half both in terms of topline growth and margin delivery.

The tax rate is projected to be about zero in Q4 due to the expected tax benefits discrete tax benefits.

And we are guiding the normalized EPS in Q4 in a range of 40 to 46 cents. This brings our guidance for normalized EPS for the full year to a range of $1.63 to $1.69.

We expect to generate full year operating cash flow of $1.1 billion to $1.2 billion, which will Mark 2020 is the second year when the company's free cash flow productivity will exceed 100%.

This compares favourably to the initial cash flow outlook, we shared with our Q4 2019 results. Despite the fact of the World has changed dramatically. It is a testament to the meaningful progress we are making on our turnaround agenda and the resilience of our people who have come together to overcome the challenges presented by the pandemic.

Turning to 2021, while we are just starting the planning process I want to share some preliminary perspective of how we are viewing next year.

We expect to continue to make strong progress against each of our strategic priorities, we expect sustained efforts behind productivity and cost optimization to drive margin improvement a portion of which is expected to be reinvested behind brand support.

And we expect to continue to reduce the cash conversion cycle next year.

While we're not providing quantitative guidance for 2021 at this time, our long term model calls for low single digit core sales growth 50 basis points of annual operating margin expansion and free cash flow productivity in excess of a 100%.

We will share more prospective surrounding 2021 during our normal schedule of the Q4 earnings call in February.

In closing we are very encouraged by the progress we are driving through the turnaround plan.

We will remain agile and nimble so that we can quickly adapt to the dynamic environment, we're operating them, while simultaneously propelling the organization forward on its turnaround journey.

Operator, let's open up the Q and a session.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

The speaker phone please make sure that.

Yeah.

We'll now your signal to reach our.

Hello, everyone.

Right.

Yeah.

We'll take our first question.

Towers from Deutsche Bank.

Hey, thanks, Thanks, so much guys.

And Ravi I feel like you are so Adam and I feel like I want to jump over the phone and gives you a high fives. So congratulations.

I'll give you a bunch on about Steve.

Perfect perfect.

Hey, I guess I guess as they think about the pivot to the fourth quarter.

And the and the outlook Chris could you just talk through I guess, how how are you thinking about holiday consumption and the the.

Central that some of your category and some of the at home demand might have been pulled forward earlier.

At home demand that you might see the holidays gets pulled forward earlier, just because people are spending spending so much time at home you mentioned strong October consumption, but I'm I'm wondering if you built in allowances fruit for some of the consumption waning as the as the quarter progresses if.

And if you could make some commentary on what you expect that to Yankee specifically this holiday season that just was such an important category in the fourth quarter for you guys. I'm just curious given the channel dynamics, how you expect that to play out. Thanks, so much.

So let me.

Okay kick it off and then I think Chris can also add some perspectives. So I think all of the pundits have been saying that.

This year holiday, though stops on that Latvia and.

So.

Perhaps yeah, when we look at Q3 right.

I think has to look at Q4, you're probably looking at Q3, a lot of our production was closed in Q2. So we opened it up and we have been chasing demand. The good news is consumption has been leading sales, which is a very positive thing.

And so I think that.

And as I mentioned for Yankee candle in particular.

We didn't even get a chance to do much prebuilding because weve work goes in our factory and Thats been chasing so far in October consumption. It looks pretty positive and we discussed this speaks to just today and it looks positive so.

Our what we guided for Q4, we saw up off holistic view when we look at everything that we've got some increased NPD spend in Q4 E. Commerce is continuing to do great. Amazon, We had a great Prime day.

In October so and Yankee candle I think the big issue that is just chasing demand. So overall I think we've given a our best view of where Q4 is on a holistic basis.

And so as Chris do you want to add anything to that I think I think you've said it very well Ravi the only thing I would add is that.

The underlying fundamentals that are driving consumer demand, we think are likely to continue and sustain for some time, because we don't see a slowdown and at home behaviour or increased focus on sanitization and cleaning.

And those trends, which are driving consumer demand across a broad section of the company's categories.

We think our star likely to sustain for some period of time.

That's great I'm sure there are a lot of questions in the queue. So I'll pass it on but I will say that.

Thanks for all your help him and Doug Congratulations on your next phase and Sofia Congratulations to you as well thanks so much.

Thanks Lexi.

Thank you our next question from Lauren Lieberman from Barclays.

Hi, Adam I wanted to go from I think.

Thanks, Steve we tend to get at.

I'm still just a little bit perplexed and why you guys are expecting are forecasting so much deceleration sequentially.

The commentary that October remains strong.

Our conference can you still to core sales growth performance and the majority of your business.

There is a sense it was up that much.

But it was up so I'm just curious what you are kind of baking in or thinking about in terms of November and December, but there's such a significant implied deceleration in sales growth. Thanks.

Yes, Thanks, Lauren let me try to provide a little bit of color on that so first of all as Ravi mentioned were very excited that we've got the company back to core sales growth.

And we think we have turned the corner on.

Getting the company to consistent delivery of core sales growth. If you look specifically at Q3, there were three things that that benefited the quarter sales number in Q3.

That won't repeat or are unlikely to repeat in Q4. So one it was the SAP implementation that we've talked about on Coleman, North America, where we pre ships to be prudent in advance of that S&P implementation in Q3 that helped Q3 and will be a drag on Q.

For the second was the shift to Prime day.

From June of last year to October and those Prime day shipments, we shipped out in the third quarter.

And then the third was some of the replenishment of retail inventories as they are so as our supply chain recovered since.

Significantly during Q3 versus where we work in Q2, we estimate the total impact of all of those things as maybe a couple of points that Q3 benefited from.

And we don't that we don't see repeating in Q4 that being said the consumption trends remain very positive across the majority of our businesses.

And so that's why we're guiding to Q4 growth at the level that we're guiding it to.

In Q4, I'll just add a couple of quick things that are.

Look if we can sustain as those straight stats are somewhat longer term aspiration will model and.

I think you have people how soon they forget this been a company that has been declining for so long. So we actually think that the fact, we can continue to grow is a positive thing that few thing say specifics I just want to mention that we are gaining share.

In previous quarters, I talked about food, but now we are gaining in other businesses as well like outdoor camping et cetera, second and recognize that many good Q4, you have a bit of seasonality because outdoor stops slowing down and in Q3 outdoor for the reasons, Chris mentioned that was a real bump up.

On the camping side, but the tech apparel side is still a laggard and having continues to have challenges assets.

Our whole beverage business continue to et cetera, but that more because.

People are not long ago, so, whereas the Coleman business was able to offset things into three you don't have as much going in into Q4. So I think the seasonality is something to take into account on that and then we are chasing demand. So a lot depends on which is a great thing to have.

As I already mentioned on home fragrance. So all in all we still have we feel look if we can computer every quarter to get some growth. This will change the complexion of the company.

Yes.

Okay, that's really helpful and I definitely remember that [laughter].

And then there is this kind of growth.

And I guess another question I had though that I've really been curious about is in addition to yes, a lot of the work that's gone on this year olds enjoyment during the call right the complexity.

Building up.

E commerce capabilities quality of content.

The distribution opportunities.

Im curious whats kind of been going on in the background and this was originally this is the quote reset year, which implied.

More work to get I guess closer to consumers again, not just the innovation process, but actually getting closer to output in terms of innovation. So.

What can you share with us and where that stands as you look ahead into 21 and think about the innovation pipeline.

Anything that you can share whether it's qualitative work is broadly that needs to be but im curious about the progress made on that front during during this year.

Yes, I'll add quick hit that are.

A few things right this was yet to reset.

The most important thing in my opinion that has occurred is we formed a leadership team my leadership team with the exception of the E. Commerce grew that created the pros who are trying to bring in is complete.

We have some terrific leaders.

So.

Chris had articulated a great plan when he joined and then when I came out of data, but you also need to people to execute it and we now have the right people, who have both consumer focus and efficiency focus or beginning to execute specifically on the innovation side of some of these things it's going to be a modest.

Not a sprint it's dropped like next year suddenly you will have breakthroughs coming through but we are doing those things that are beginning to give the organization confidence like that ice coffee maker that was a bit of a sleeper. We looked at that page is exciting and then yes, the consumer trends during the cold weather has helped because.

People up and love this thing, they're similar things like our whole Sanitizer project and the walk from things that we've sold a mini in dispensers in the commercial business. Instead bar. That's incredible. So I think you will see that we are also marketing the two firms outside to build out our innovation losses to vary.

Leading firms to help us with the innovation, but the important thing is our leaders have a consumer customer focus on links that so they're going and saying, let's hamastan trends and make durable so I feel pretty comfortable that over time, you keep seeing this innovation stream it will not be.

We like Hey next year every single off because these things take time, you got to hit the line reviews Youve got to develop it and the Rubbermaid show the margins are okay, but long term I feel very good my vision for this company store to store it.

To 1994, when Rubbermaid was number one on fortune's most admired us why because they put out an innovation every day, that's why I want us to get to.

Hi, great. Thank you so much really helpful.

Our next question will be from Bill Chappell with true.

Thanks, Good morning.

Morning Bill.

I guess first.

Nancy Congratulations a few congratulations Nancy it's been an extraordinary 10 years. So hopefully you can have more rest to hedge we we finished finished this.

Thank you.

Yes going back to the looking to.

The fourth quarter.

Any reuse you got out of Amazon Prime day in terms of Oh.

Were prime days in terms of continued demand for home products continue man I know, it's it's typically I am zone properties have been kind of a focus of the company on all the different categories. So just anything that tells you for the upcoming holiday season would be interesting.

I think we've got a terrific left.

And it's really across many of the categories that are growing both so we're continuing to see those trends.

So I think a lot of some of the trends that we saw in the quarter were also reflected on Amazon Prime day, but good interest was any other specific you want to add I would just add a couple of other thoughts. So we were up double digits on Prime day, this year versus Prime day last year, even though it occurred at a different time during the year. So we we.

Grew share during prime day, and more broadly growing share on Amazon.

And post a prime day, we've continued to see strong consumption trends. So the consumption trends Weve shared is that were seeing weekly in October.

I had a had a big bump from prime day, but not as they did not we did not see any slow down post prime day.

Got it yeah that helps and then second just as I look at the learning.

Category.

Yeah, certainly impressive with all the kids work.

Going virtually but kind of what's your outlook as you move to the fourth quarter and early next year in terms of are you seeing.

It has it has that category bottomed out in the third quarter will it remain pretty weak for the next few months just trying to understand kind of what you're seeing on a sell through basis.

Now let me quickly hit some quick thing as we said in the prepared remarks, we expect it to.

We remain challenged in Q4, that's been elongated seasons so.

But I think look.

Trade inventories are.

The replenishment is not going to be as much. So we want to be careful on that I think on some of the good news is consumption continues to be.

We are seeing some growth, but it is developed with the hybrid models and even so even with the hybrid Mosul fit as online.

It is a bit of a challenge, but we see pockets of strength.

The whole chart BSG malware just in the general category 900, Bips showed increase.

Three percentage point increase expenses as a whole our dynamo business is doing very well both internationally and in the us So I think.

Current situation is so I think it's going to be the same.

The key thing is really dependent make has to be over but what we're preparing for a stroke. If some of these trends of hybrids remain how do we re imagine some of our products and stuff. So we're about great innovation drive on it.

And just a terrific business I think we continue to be strong with once we come out or pandemic.

Let me just add one other point, which is we.

We've made a decision to proactively pulled back on shipments into the trade on the writing category. During Q4, because we want to end Q4 with our retail inventories in a good position and so our guidance does reflect a pullback in writing sell into the trade and what we're seeing.

As Ravi mentioned from heightened consumption, we expect to get our retail inventories in a good position heading into the end of next year.

No that's great color. Thanks, so much.

Our next question from Jamie Feldman from Raymond James.

Thank you guys good morning.

Wanted to follow up on that last point you guys made about.

Replenishment I think it was at nine point Delta memory serves between Pos in core sales in the first half and while there was as you mentioned some replenishment that happened in Q3 I would think you didn't completely close that gap. So why wouldn't there be the potential for more inventory replenishment going forward outside of the writing category.

Yes, so the way to think about that Joe is that during July and August we saw a but a very significant reduction in Pos trends because the back to school season, which and the prior year happened fully didnt happen fully this year.

What happened in September and October so far as we are seeing Pos trends that are actually ahead of year ago, but the area under the curve in September and October is not as big as the area lost in July and August. So the retail inventories are still higher than what we would typically see at this time, that's why I need to.

Comment.

On bills question that we've decided we're going to pull back on proactive shipments into the trade.

In Q4, and that's fully reflected in our guidance. So that we end the year with a.

The retail inventories and a strong position.

Got it okay, that's very helpful and just a.

Second question as we think about our model for 21 years.

Normalized tax rate. This year, I think was about zero or there's going to be about zero. So what tax rate should we be using.

For next year.

Yes, so the way I the way I think about our tax rate and obviously, the I'm not going to comment on any outcome related to the election that could change that but.

In a in a stable environment are are going tax rate is probably close to 20% at this point.

Excluding discrete tax items.

We as a company we still have a significant opportunity ahead of us on discrete tax items.

Because of the number of legal entities because of the M&A activity that's happened historically.

We're not going to provide specific color, but I would say a 20% rate as sort of a going rate, but I expect that in every year for the foreseeable future. We're going to have discrete items that it would take that number down from there and we'll provide more specificity on that.

On the next on the next call Okay, great. Thank you guys.

Our next question will be from Wendy Nicholson.

And from Citi.

Hi, good morning.

My question actually has to do with the margins and specifically the operating margin improvement in the quarter was so much better than I was expecting.

And I guess there are two components I want to ask about first home solutions. The margin expansion was fantastic and I'm wondering how much of that is structural maybe just some of the changes you're making in the Yankee model versus just favorable operating leverage on the food side.

Number one how much of that is kind of here to stay and then just as I think about the negative mix in the business you know your highest margin business. The learning business. You know was so weak in the quarter that has there been a huge margin headwind. So as they look out towards next year, assuming that business normalize as you've gotten incredibly easy.

Comp.

You know it's hard for me not to get really excited about what kind of margin you could put up potentially you know in the back half of next year is that is that fair in terms of how much I'm thinking about margin expansion being a real part of the story now or am I getting too excited like Rodney.

Yes.

[laughter], let me try to provide some color on both topics. So.

On home solutions.

Theres no question that food was a bigger driver of the margin gain versus the home fragrance business, although the home fragrance business also had margin improvement.

I think the way to think about that is we do believe it's structural I don't think that given the the big jump up in margins in that home solutions segment. I don't think we're going to see that type of annual jump up but I do believe that that.

Higher margin is sustainable in that business going forward.

And we're getting effectively the benefit of a lot of different elements that are driving it strong topline growth, which is giving us volume leverage strong productivity savings.

And overhead leverage.

Are all contributing in that on the question on margin dynamics, let me provide a little bit more detail. This year and then talk next year. So this year really the story is the productivity fuel savings on gross margin are effectively offsetting the cobot cost and inflation.

Which is a which is which is a strong result, and then the region reason that gross margins are down is really due to the business unit mix. So you're right that when the writing business bounces back.

We should get a corresponding mix benefit.

That should allow us to recapture that.

And we're optimistic about that.

Then as the pandemic starts to ease and.

Offices reopened and schools return.

When that happens on the over the other thing that's happening on margins is the overhead cost savings and that we believe we're making structural improvements.

That should continue to carry through to the margin story. So we're we're optimistic about margin prospects for this business over the long term obviously, we're not in a position today to provide specific guidance for 21, but.

We will plan to do that on the on the Q4 call.

Yeah fair enough.

Yes, Randy get to create things.

Yeah, and I'd love to be as excited as I do but I think that's why we've provided this sort of evergreen our longer term less pressure model of 50, Bips improvement and it gives us confidence.

I think keep in mind, we also took out a big chunk of overhead this yet so.

So that we're going to be lapping solve that so it's not going to be continuous.

And.

But the long term model is the one that most important takeaway for me actually is what Q3 showed as we can we extend the shock of the writing business because a lot of people are very concerned and I think thats portfolio strength is the one that once it gets excited about stair.

Fair enough and did you quantify cobi costs in the third quarter versus second quarter, and what you're expecting for the fourth.

We have not quantified it but what I would say is that the.

What we I'll provide a little bit more color, we quantified that we're expecting our fuel productivity savings to take out about 4% of cost of goods. This year.

And that's effectively offsetting cobot cost and inflation and if you look at the gross margin impact of covert cost and inflation, there roughly equal to each other.

Great. Okay. Thanks, so much congratulations.

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Your next question will be from Andrea Teixeira from Jpmorgan.

Hi, yes. Thank you good morning, and congrats Cynthia Thank you enough for all the help and wish him well I wanted to ask more on the working capital control, which obviously has been one of the key highlights.

And as far as what crude sewage commenting about we've just seen the retail inventory is that is there anything.

So if he has anything to do with the consolidation of retail and the shift to online I'm. Assuming you are keeping your receivables side at this point. So I wanted to ask you said something you considered in your Q4 guidance.

And also can you just a clarification on the price mix and we have some comments you made.

So I'm, assuming the mix has been paused to us I mean granted that obviously the writing segment has been a drag but with prime day in a creative innovation are you what type of investment that you are planning to do is that more digital advertisement or has to do also with couponing to support innovation.

Okay, Let me start on the on the working capital P. So.

Certainly the consolidation of our the shift in the retail dynamics, we are seeing and we believe it's a positive for our portfolio because what's happening is.

And Ravi I think I mentioned this in his prepared remarks that.

The E Commerce channel and the mass channel are growing at double digit rates for us and the department and specialty channel.

Is declining and so the proportion of our business that are in the winning retailers is going up and we believe that that sets us up for a stronger growth going forward that dynamic doesn't really change.

Our working capital because we're the working capital doesn't.

For us doesn't really.

Isn't really driven by consolidation of retail the thing that's driving.

Working capital change for us.

Are the elements of negotiating extensions in our payment terms with suppliers accounts payable was the biggest contributor to working capital and in the year to date period also the SKU count reduction and the demand forecasting process that we put in place is allowing us to.

Significantly reduced inventory levels those were the two primary drivers and then with regard to.

The pricing mix advertising, we are planning in Q4 to have higher advertising spend versus year ago. Some of that is due to the prime day being in Q4, most of that advertising spend that were planning.

To be up in Q4 versus year ago is is digital and in nature.

And E Commerce focused.

That's helpful. No Couponing, you would think right no major kind of pricing investment.

Now, we're not seeing a big chain.

Change in promotional environment.

Significance to talk about.

All right great. Thank you.

Thank you. Our next question will be from Kevin Grundy Jefferies.

Thank you.

Good morning, everyone and just to echo the sentiment Nancy Sofia Congrats.

Revenue growth congrats to you and the team are considered.

Progress.

Two quick ones actually the first one is a quick one just a housekeeping one for Chris and I apologize if I missed this you mentioned Pos remains very positive what was the Pos in the quarter whats the trending in October.

That would be sort of helpful to compare that to the flat to low single digit core sales guidance for fourq.

And then Robert just a couple underwriting fees. So you commented on obviously.

Obviously, the good near term uncertainty related to the pet Dennis My question is sort of broader.

Could you feel good about it Chris you mentioned you expected to bounce back I think folks would agree with that given the easy comp my questions really beyond 21 can you address rather the longer term debate around the ability to grow that business given the wider adoption in schools chromebooks and laptops I see to my own household et cetera, what would you say the skeptics that have been calling for the demise of the.

Why does this industry go the way of Green cards, maybe you can frame that in sort of the building blocks here, we get people comfortable around household penetration frequency of use.

That are not particularly with the latter likely under pressure even beyond the pandemic. So thanks for that.

So very quickly on consumption, but not actually given out the numbers, but let's just put it this way.

Chasing and were contained to chase so that should tell you something that our consumption is always so far what we've seen is higher than our sales and.

So in October consumption continues to be up so let me go to the writing.

Piece look I think I have two perspectives tried one as a retailer about us an office facts and.

So we looked at all the categories and stuff and even at that time. This business was strong.

People talk about TV.

The death of the pen Blackrock.

They can keep innovating that is something so personal about the payment.

That people continue to use that and even during these times we are seeing.

Improvements I think though we should look at writing and learning as a bigger thing than just spends our pencils.

Yeah, we've got something like dogma, which is technologically base were looking at a lot of bio team innovations there.

Labeling for instance, I mean Dynamo is up because of all the packaging that's going out right now online and small businesses use this product like crazy. So this tremendous growth there. So that's a great focus for us and.

No I think slide slide.

It had to take a it's softened during the pandemic the little bit of bump, but then sort of flattened out work continuously look at innovation for children's activities to take if there is Stan.

Stay at home, how do we leverage that trend that's why we're putting a lot of innovation that but rather than bringing our hedge the San and saying everything and come back were actually proactively saying if the weather changes, let us get ahead of it they've got a very strong brands and all the innovation on putting sharpie pen.

Right itself is.

Indicative of that so we've got tremendous brands, we will just keep looking at digitizing the business and looking at the end margin. So I continue to feel that this is going to just be a powerhouse of a business temporary right now with the pandemic, but we will come out stronger.

So Rob it's fair to say that you're planning for growth beyond 21, it sounds like the courts is going to be on innovation.

Probably understands the personnel expenses that you talked about die mode, Sharpie et cetera, internal planning like on a three to five year basis is you think you can grow the business just just to be clear.

This is going to be a very important part of our business.

At least.

The next several years I have full confidence in it.

And we have a terrific management team by the way on this business.

Okay very good thanks, Robert I'll leave it there good luck.

Thank you.

Grab my last question.

Question from Olivia Tong from Bank of America.

Good morning, Congrats on the results.

Well.

That's the goal.

I wanted to ask a little bit about your expectations on the growth trajectory for your categories. So now Lo and Behold, we have to think about Comping. Some of these growth rates next year. So I'm curious how you think about the future because obviously household penetration is up dramatically.

Given you management and presumably your stewardship of the business.

Going forward.

We expect growth in your AD categories continued because of initiatives now in development and.

How does that step up in household penetration across at home categories influence. Your view on how you on what you think about these categories and what they can grow longer term. Thanks.

Okay.

Let me kick it off give a quick thing and then Chris I'm sure that some perspectives.

So let's take each others.

The.

Let's take food for instance.

Lot of innovations that we just launched the rubbermaid brilliance class so.

There is so many aspects and so many product categories that we can keep innovating well going to be a tough comp for sure. So.

There's no way you can expect that.

You will have similar stuff next year, especially the first half, but we think this is a growth business and just let me give you one thing our E commerce penetration in this business is lower than others and we've got a very ecommerce savvy CEO, Chris Mccaskey and already this year.

Since she's come on in the E. Commerce team achieved work on the penetrations increased dramatically, but there's still a long way to go. So I think that is a nugget home fragrance. It's not just candles that team is getting us into all kinds of new areas like Diffusers outdoor candles car.

Car aircraft partners et cetera. So there is growth there. So I think appliances, Chris Robbins is really looking at the root of the shoes and saying how do you get that going so yeah tough comps don't want to over promise, but the fundamentals are that they're going to attack the fundamentals and keep driving.

Chris you want to add some stuff there yes, the only other thing I would add is that.

We have some other businesses that are going to have easy comps next year and so I think what you're going to see is that the results are going to be a little bit choppy by quarter and by business.

But as we mentioned from an overall company standpoint, that's one of the strengths of the portfolio and we're excited that were.

Back to core sales growth.

And and we think we've got the opportunity to.

Really deliver against our long term model so.

And the last thing I would say is we don't anticipate the underlying consumer demand trends to change radically in the near term. So we do expect that from everything we're hearing and everything we're seeing that the at home.

Consumption trends are likely to be with us for some time.

As Robin mentioned in some of those businesses will comp.

Well face higher comps as we get into the back half of next year, but there are other businesses of ours, notably writing that we'll face easier comps.

And that's the benefit of the portfolio.

But thank you very much to everybody stay safe right Matt.

Appreciate your support almost an appliance that's our app. Thank you.

Thank you ladies and gentlemen.

The conference you may now disconnect.

[music].

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[music].

Good morning, and welcome to <unk> Brands' third quarter 2020 earnings Conference call. At this time all participants are now in listen only mode. After a brief discussion by management well then open the call up for questions in order to stay within the time scheduled for this call. Please limit yourself to one question during the <unk>.

As a reminder, today's conference is being recorded and webcast of this call is available at <unk> Dot Newell brands Dot Com I will now turn the call over to Nancy O'donnell Senior Vice President of Investor Relations Mr. Donald you may begin.

Thank you good morning, everyone welcome to Newell brands third quarter earnings call.

On the line with me today are Ravi Saligram, our president and CEO and Chris Peterson, our CFO and President business operations.

Before we begin I'd like to inform you that during the course of today's call, we will be making forward looking statements, which involve risks and uncertainties actual results and outcomes may differ materially.

I refer you to the cautionary language and risk factors available in our press release, and our form 10-K and 10-Q for further discussion of factors affecting forward looking statement.

Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer to as normalized measure.

We believe these non-GAAP measures are useful to investors.

They should not be considered superior to the measures presented in accordance with GAAP EPS.

Explanations of these non-GAAP measures and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as on new <unk> Investor Relations website.

Thank you and now I'll turn the call over to Rob.

Thank you and I'd say.

Good morning, everyone and welcome to todays call.

I want to start by expressing my sincere.

Thank you and your families had remaining safe and well.

I also like to mention with mixed emotions that Nancy after trials Stella, Yes has decided to retire at the end of the.

Board, Chris and I and all of our teammates bankrupt work doing an excellent job.

This is her last call and water ready to retire in a low our car. Thank you Nancy Sofia send us when we all know very well that would be taking her work Nancy as the head of IR partners.

I have the pleasure. This morning discussing an extraordinary caught up on your promise a quarter in which we were ahead of expectations on all fronts.

We delivered very strong financial results, including broad based core sales growth of 7.2% 7.2.

Driven by strong consumer consumption across most of our categories. We also generated significant improvement in operating margin I didn't catch cogeneration at the organization took decisive actions beyond the capital objectives I'm extremely proud of the team's resilience and perseverance and everyone robbing around delivering.

Against our strategic priorities, while simultaneously ensuring that we successfully navigated the constantly evolving macro environment, we find ourselves in.

During that time for BP to take sides, the turnaround time strengthening execution unexciting ecommerce growth, which enable a much better than anticipated results should remind us operation hasn't been decisive actions, we are making significant progress in building an organization that delivers on our long term goal.

Including consistent sales growth core sales growth margin expansion and cash conversion cycle improvement.

Business units, 100% committed to reducing complexity and laser focused on significant EPS CAGR adoption and delivering the savings through about productivity and efficiency initiatives.

I'm proud of the Q3 results generated by the steep.

Not just the profile so strong but also because this is the first quarter since 2017 that newer brands has delivered positive core sales growth. So its represents an important milestone for our company.

We believe we are starting to turn the corner and reigniting consistent topline growth many of our categories are well positioned to capitalize on the statcom lifestyle with consumer spending more time in that kitchen submit their families were leveraging insights from evolving consumer purchase patterns.

To fortify our innovation funnel and continue to see these juvenate top brands Paradise consume us.

In fact, we are developing a new and unique frame work truck driving breakthrough innovation and design thinking and breaking down organizational barriers to become more nimble and agile.

This should result in us.

Patients over the next several years at the same time, we're making headway on crossing distribution, GAAP and <unk> dollar and drug channels and migrating our business to whats beneath channels and customers.

We saw very strong consumption growth in the U.S. across the majority of our portfolio throughout the third bar and thus far in October.

Third quarter momentum was brought back but seven out of eight business units posting core sales growth and six posting consumption growth on a business unit saw sequential improvement in topline trends west as Q2 core sales grew in all geographies with our international business is accelerating.

More sharply in the U.S., especially in Latin America, the standouts and that that Barbara food appliances, cookware and commercial business units all of it generated impressive double digit core sales growth and it's not just sounds growth over during the quarter, we drove market share gains in.

Food and outdoor camping gear in baby and in home fragrance as expected writing was challenged in the park, although we did see sequential improvement in consumption in the U.S. during the bar due to the timing of school openings varying across different regions.

Hi, Mark.

So that's a quick reminder, as to why the breadth of portfolio. It's an advantage, even though one of our strongest businesses writing outside it from the cobot pandemic broad base correct.

In other business units was more than enough to not only offset that headwind, but deliver extremely strong growth for the company as a whole.

To capitalize on the accelerating shift of consumers to online purchasing we continue to proactively leverage our ecommerce capabilities and marketing investments, while bringing a deliberate focus to omni channel execution.

Online sales maintained a very strong double digit growth trajectory.

During this that bought online penetration as a percent of net sales what Duane D, 1% West a 16% last year yesterday, Yes, Commerce E Commerce penetration samples also trading off the Sam almost double yeah.

Yesterday, 2018, and apples penetration improved meaningfully across our portfolio with the most noticeable acceleration in home fragrance, but it nearly doubled yesterday.

I promise any comments is further evidenced by the fact that our online sales have grown about 40%, 40% folks in that quarter and yesterday. We also continued to gain market share in that that bar in many parts segments across Amazon.

More recently in October we achieved excellent double digit growth on Prime day.

T E Commerce team is doing an outstanding job in capitalizing on and leveraging evolving consumer behavior. At the same time, we are building the digital Q and digital marketing capabilities of our business units and proactively evolving from a brick and mortar focus to a true omni channel focus so that we can paint concern.

An amazing brand experiences for our consumer no matter, which channel they shop, how they shop, when they shop and where they shop.

Omni channel they have become a competitive advantage for Neil in an age of click and collect big Capex Cup side browsing online purchase in store and whatnot were also successfully migrating our business to faster growing channels, which puts the company in a much stronger position long term during Q3 optimal largest challenge digital.

And mass each grew double digits more than offsetting declines in the specialty an office channels, which are becoming an increasingly small part of our overall business. Our food business continued to be at our house this quarter with core sales by consumption, increasing and very strong double digit rates, but of course.

From an end market share gains across all major brands encoding rubbermaid food segment wallet steamer during Q trade Foodsaver was one of the largest contributors to the company's prior and that June launch at the latest back to the volumes via 3000 has been Upto strong start.

All patent business is also on far yesterday, it sounds that up 60% a significant increase in millennials purchases were not just riding the wave of current category Tailwinds. We're also leveraging consumer insights on our new product lineup. A Prime example is the launch of Rubbermaid brilliance glass, which launched in August the biggest Chuck.

Good food resets he has been keeping up with demand from a supply chain perspective, and we expect to chase demand for the rest of the year where revenue.

Hi to increase capacity across all four of our growth brands.

Home fragrance rebounded during the quarter and grew sales in both North America, and EMEA, but the reopening of many specialty retailers has brought us our own retail stores contributing to this outcome consumption has remained quite strong and the U.S. driving share gains in the track channels. They work.

Particularly pleased to see double digit comps and I. Thank you kind of retail stores once they reopen demonstrating pent up demand for our home fragrance par in fact, the retail comps we saw in our stores is the highest since 2000. We also saw a significant increase in new consumers accessing Iraqi Pavel dotcom platform.

For the first time driving robust growth.

Home fragrance business has gone from an interesting again, this year and Massachusetts production facilities and Dcs what goes down in the second quarter, you to call the drop downs, which prevented us from pre building inventories, but Q3 in Q4, we opened up our plant in Q3 and started ramping up supply why we encountered a significant.

An increase in demand and said Jim consumption model challenge, which is continuing in Q4. So we are continuing to change their mind and are going all out of time to increase capacity.

I don't pants business grew core sales, our whopping, 17%, yes, 17% in the car with positive sales trends in all geographies, most notably in Latin America, we saw heightened consumption across most key categories as consumers continue to enjoy increased.

Looking at home benefiting us stay at home usage products. This team under the leadership of New business unit head, Chris Robinson is working hard to build a consumer relevant innovation pipeline.

This one offline brand for sustained growth longer term.

We're seeing some green shoots work high Q quite pleased with the initial success of Mr. coffee ice coffee maker, which we launched a major mass retailer in September and it's been flying off the shelves business that are significantly ahead of expectations. We are encouraged by these strong results and excited for an opportunity ahead throughout the pandemic.

We experienced strong consumption and blenders and recently launched a new series Austin, Texas Select Blenders restate, the guess work out or getting just tried smoothie ourselves.

I'm not suggesting that appliance business has magically resolved all the tissues.

Sadly helpful type category, Tailwinds that enable investment behind innovation and brand support.

And our market share gains over the long term.

Outdoor recreation alternate tend to call sales growth of 8% in Q3 revenue.

Bound and outdoor activity, we started to see at the end of Q2 as continue especially in camping gear encoding and stoves grills and chat with US both in North America and International we are pleased to see that Coleman in its hundred trained yet yeah is beginning to return to some rightful place as a brand leader in the outdoor.

Segment, that's been rejuvenating the offerings intense with great success in Marmot Superalloy 10, an award winning premium lightweight backpacking 10, we just launched this time about training training and has been a top performer on the new business units CEO, Jim Photonics leadership. The team is focused on capitalizing on these consumption trends.

And by running our plants, what kind of UAN and beyond.

Commercial business every other Jim done in its.

Consecutive quarterly calls has growth benefiting from heightened focus on cleaning and sanitation and increased consumer traffic at home centers Q3's results et cetera has significantly driven by strength in Washington solution refuse material handling and protection and outgoing garage organization. This this.

Thats is showing good momentum and product innovation distribution gains and strengthening customer relationship.

Just recently we launch.

Disposable solutions, which are utility in decorative refuse containers with a dedicated pp waste stream to help pay cuts and employees effectively dispose off of mass and others.

We're also faster market that the rubbermaid seven by seven starting to ship that can be assembled by one person. They say, even sonic Dunkin' Donuts, we're confident that commercial will remain a growth driver for the company going forward.

Connected home and security rebound that of course outgrowth in that bar as well after the temporary supply chain disruption experienced last quarter, given the markdowns and far as but our main Pontus truncated. The team has worked hard to replenish inventories unfulfilled because of customer and consumer demands processing coated products.

Maybe bounced back courthouse growth and thus far I think.

Experiencing temporary pressure into the second quarter largely as a result, our markdowns we saw strong consumption in the U.S. and our graco brand grow market share gains in baby gear, particularly the coffee category New Baby innovations included the Graco Crane is me for Enron carrier Greco first entry in the soft carrier.

Great and next.

Temperature control model. This model innovation has captured the leading market chess boxing Johnny writing is expected of us. The most challenged business. This quarter. The back to school season was negatively impacted by uncertainty surrounding timing of school and college, Reopenings, which has weighed on replenishment orders.

The dumb note Pos trends in the U.S. improved as we progressed through the quarter rebounding to growth in September no gain share and fans during the quarter driven in large part by over 900 basis point share gain in Jeff and it's due to the success of our new Sharpie SGN path Weve pen, we have new enough.

Patients that would be available in the fourth quarter, including the sharp PS Kennametal Bearup had a new range of as Joe designs and colors and a new lineup paper mate Centerfire defense, although consumption of the core writing categories that are made positive thus far in October due to an elongated back to school season, we expect.

Business to remain under pressure for the remainder of this year. We continue to feel good about writing long time and have kicked off a major innovation initiative that takes into account the new normal of hybrid model. So schooling and working we expect to come out of the pandemic with an even stronger market position for this important business.

Better exactly why the EPS since I joined Newell brands and water an interesting yet.

Despite all the chain challenges.

To add a proud of the progress organizations made and restoring the growth momentum of the business in the third quarter, and then aggressively going after cost and working capital opportunities.

I'm equally proud of the excellent improvement in employee engagement and culture and focus on divesting pollution and velocity.

Pandemic has not kept behind us and much uncertainty remains regarding its magnitude and duration as such we learn to remain vigilant in our focus on ensuring the safety and well being of our employees, keeping our manufacturing and distribution facilities operating safely, while we ramp up capacity and sustaining business.

Continuity and the company five vitality.

We remain equally focused on accelerating the progress of the turnaround Janney.

Looking into the fourth quarter and beyond we are executing on five key strategic priorities.

Driving consistent top line growth.

I suspect, we may see choppiness from quarter to quarter in the near term as each business in a different stage of the Janney. We chase demand said just so this in select growth category and they affected the pandemic are very based on categories. I truly believe we are beginning to turn the corner ethic confident.

Secondly, we continue to drive and invest behind consumer relevant customer supported innovation with an eye towards market share gains across our key brands.

E Commerce will continue to be our big bet and I'm confident we will build a strong reputation with consumers same customer default customers for omni channel approach us.

Fourth we will accelerate our efforts for CGI bought complexity.

And while maintaining tight control of our costs showing productive at the introducing SK use we are proactively working on optimizing our supply chain that work.

To deliver excellent service for our customers and improve or Keith.

And last but not least we will continue to make cash flow. The hallmark of our company in 2019, we generated over $1 billion in operating cash flow in 2020, we hope to give an encore performance in fact, even do better and exceed a billion, Chris when Mike formally called billion dollars on video.

Choppy on the details the credit for our strong Q3 results goes to our leaders are Brandon marketing and sales teams our supply chain professionals. Most importantly, a real time to ensure kakaako frontline employees since the factories Dcs retail stores and R&D labs for their dedication.

Keep us going beyond our heroes and to all our receivables collected thank you for bringing in the cash.

I'm, so thrilled to see the teamwork dedication and engagement of our people.

With all of the foundational work down today, not already enabling us to overcome the challenges posed by code 19, but also positioning newer brands for sustainable long term success I truly believe the best days Fund you. All are ahead of us onwards, and upwards at this point or.

Do you have Chris thank.

Thanks, Robin and good morning, everyone before going through the details of the quarter I want to provide some operational highlights.

When we put our turnaround plan together, a year and a half ago, we created an integrated set of strategies and initiatives designed to strengthen the company and accelerate financial performance.

We have made very strong progress on each area of the plan and taken together the strategies are playing out in a very powerful way in fact, the momentum is accelerating Robbie shared a number of the improvements we have made to strengthen the organization and return the company to core sales growth. In addition, we have made significant improvements on operating margins.

Cash generation and reducing complexity.

Im complexity reduction for example, we eliminated another approximately 10000 skews during this quarter, which is a year to date reduction of 23% or more than 40% reduction since we began the program about two years ago.

We've now put in place a systemic monthly process to drive SKU reduction and efficiency on an ongoing basis, we're quite encouraged by both the progress we have made and the opportunity still ahead of us, including the efficiencies that unlocks across the organization every.

Every business unit and have plans in place to take more aggressive actions on SKU rationalization and as we move into 2021.

We also made a significant debt and reducing excess and obsolete inventory during the third quarter, taking advantage of strong consumer demand dynamics as a result, the quality of our inventory isn't the best shape. The company has been in recent history.

Operating margin expansion was another highlight of the quarter. We are laser focused on optimizing our cost structure and unlocking the full margin potential of the business.

Fuel productivity momentum continued to build on the success from the first half of the year, we drove savings from productivity that were more than 50% ahead of the year ago level, which in combination with overhead savings helped to mitigate the impact of unfavorable mix due to the writing business decline.

For the full year. Similarly to Q3, we expect gross fuel savings to contribute roughly a 4% reduction to our cost of goods sold days, which is the best annual result, the company has delivered since we started tracking the measure.

We have significantly strengthened our productivity performance over the past few years with visibility to our very robust funnel of projects for next year.

We have come a long way in establishing and embracing a culture of productivity throughout the organization as everyone aligned around our common goal of driving efficiencies and simplification.

We also made very strong progress on overhead cost reduction we successfully converted the Coleman North America business to S&P on October Onest, continuing or rationalization of ERP systems.

We further simplified our IP footprint and have now reduced the number of IP applications from about 6000, a few years ago to less than 800 today.

We largely completed completed the head count portion of the restructuring program that we implemented during the second quarter, which impacted about 4% of the company's professional employees.

And we implemented a new technology to consolidate and better control. The company is indirect overhead spending, which we expect to drive significant savings going forward.

We reported outstanding quarterly and year to date results and cash flow generation driven by a strong working capital progress.

In Q3, we actually generated slightly more operating cash flow than we did during all of 2018.

I will now recap some of the financial results details.

Third quarter net sales increased 5.1% year over year to $2.7 billion.

Core sales grew 7.2% and currency was unfavorable by about a point of.

Growth was broad based the seven of eight business units grew core sales as did all four geographic regions.

Normalized gross margin was 33.9% a 90 basis point contraction versus prior year as strong productivity savings were more than offset by business unit mix cobot related cost and inflation.

Normalized operating margin of 14.9% was an improvement of more than 200 basis points versus last year, driven largely by overhead cost savings net.

Net interest expense declined by 4 million versus last year, reflecting progress on debt reduction we recorded a normalized tax benefit of 7% as compared to a benefit of 22% a year ago as we realized discrete tax benefits in both periods.

Normalized diluted earnings per share were 84 cents.

Core sales for the appliance cookware segment grew 17%, reflecting strong consumption across all regions, particularly in Latin America core.

Core sales for the commercial solutions segment grew 13.3% driven by strong demand for Santander Sanitizing, Washroom Ham protection and organization products.

Core sales for the home solutions segment grew 19.5% the food business continued its impressive momentum as the increase in at home consumption of meals translated into heightened demand for food storage vacuum sealing and fresh preserving products.

Fragrance core sales returned to strong growth this quarter as well with our factory closure behind us and the reopen meaning of most specialty retailers, including our own Yankee candle retail stores.

The outdoor and RAC segment generated core sales growth of 8.1% as the outdoor categories benefited from consumers' preference for vacation and close to home and spending time outdoors. The strong Q3 results also benefited from an acceleration of sales related to the implementation of S&P at Coleman North America on October Onest.

This impact will reverse and become a drag on top line growth for the outdoor recreation segment in Q4.

The learning and development segment was the only one that experienced topline softness in Q3 as core sales declined 9.5%, reflecting expected challenges and the writing business as a result of delayed reopening of schools and offices baby rebounded back to core sales growth driven by healthy consumption.

We continue to continue to drive very strong momentum in operating cash flow during Q3 year to date cash flow from operations of 820 million almost doubled versus last year as the cash conversion cycle improved by about 30 days as the organization rallied behind initiatives to reduce complexity and free up cash from working capital.

While we are making progress across every facet of working capital the biggest driver of year to date improvement as accounts payable driven by more favorable payment terms following our negotiations with suppliers.

We ended Q3, and a lower than anticipated inventory position as SKU rationalization stronger than anticipated sales in Q3, and a more efficient demand planning process drove our inventories down.

And we continue to make progress on receivable collections through operational improvements.

We remain in a very strong liquidity position as.

As a result of very strong operating cash flow generation. We ended Q3 with cash and cash equivalents of $858 million, we repaid 305 million bond maturity in August, bringing the company's net debt balance down to 5.0 billion, a 500 million reduction compared with the end of the second quarter.

Under our credit revolver, and our securitization facilities are currently undrawn and fully available.

We delivered a significant improvement in the company's net debt to normalized EBITDA leverage ratio in Q.

Driven by both net debt reduction and EBITDA growth.

Specifically noble ended Q3 with a ratio of 3.9 times as compared with 4.6 times at the end of the second quarter.

Now, let me turn to guidance.

To help improve financial transparency, we are reinstituting, the practice of providing guidance as forecast visibility has improved in recent months our guidance ranges will be wider than what we have historically provided given the dynamic environment and uncertainty around the pandemic.

We expect to deliver flat to low single digit core sales growth in Q4, thus far in October consumption has remained strong.

We expect sustained progress on productivity and overhead savings to be more than offset by unfavorable business unit mix and higher and P. investment. So that normalized operating margin will contract 80 to 140 basis points year over year to a range of 9.9% to 10.5% our guidance implies that the second half of the.

There will be much stronger than the first half both in terms of topline growth and margin delivery.

The tax rate is projected to be about zero in Q4 due to the expected tax benefits discrete tax benefits.

And we're guiding the normalized EPS in Q4, and a range of 40 to 46 cents. This brings our guidance for normalized EPS for the full year to a range of $1.63 to $1.69.

We expect to generate full year operating cash flow of $1.1 billion to $1.2 billion, which will Mark 2020 is the second year when the company's free cash flow productivity will exceed 100%.

This compares favourably to the initial cash flow outlook, we shared with our Q4 2019 results. Despite the fact that the world has changed dramatically. It is a testament to the meaningful progress we are making on our turnaround agenda and the resilience of our people who have come together to overcome the challenges presented by the pandemic.

Turning to 2021, while we are just starting the planning process I want to share some preliminary perspective of how we are viewing next year.

We expect to continue to make strong progress against each of our strategic priorities, we expect sustained efforts behind productivity and cost optimization to drive margin improvement a portion of which is expected to be reinvested behind brand support.

And we expect to continue to reduce the cash conversion cycle next year.

While we are not providing quantitative guidance for 2021 at the time, our long term model calls for low single digit core sales growth 50 basis points of annual operating margin expansion and free cash flow productivity in excess of a 100%.

We will share more perspective surrounding 2021 during our normal schedule of the Q4 earnings call in February.

In closing we are very encouraged by the progress we are driving through the turnaround plan.

We will remain agile and nimble so that we can quickly adapt to the dynamic environment, we're operating them, while simultaneously propelling the organization forward on its turnaround journey.

Operator, let's open up the Q and a session.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker phone please make sure that assumption is.

I'll now your signal to reach our commitment.

On one to ask an audio question.

Question.

We'll take our first question Powell.

Power's from Deutsche Bank.

Hey, thanks, Thanks, so much guys.

And Robbie I feel like you are so Adam and I feel like I want to jump on the phone and give you a high five so congratulations on the quarter.

I'll give you a bunch on about Steve.

Perfect perfect.

Hey, I guess I guess is as they think about the pivot to the fourth quarter.

And the and the outlook Chris could you just talk through I guess, how how are you thinking about holiday consumption and the the butter.

Central that some of your category in some of the at home demand might have been pulled forward earlier.

Loan demand that you might see the holidays gets pulled forward earlier, just because people are spending spending so much time at home you mentioned strong October consumption, but I'm I'm wondering if you've built in allowances for for some of that consumption waning as the as the quarter progressive and.

And if you could make some commentary on what you expect out of Yankee specifically this holiday season, because it just is such an important category in the fourth quarter for you guys. I'm just curious given the channel dynamics, how you expect that to play out. Thanks, so much.

So let me.

Okay kick it off and then I think.

Chris can also add some perspectives. So I think all of the pundits have been saying that.

This holiday those stops on that.

And.

So.

Perhaps revenue.

Okay Q3 right.

I think has to look at Q4, you're probably looking at Q3, a lot of our production was closed in Q2. So we opened it up and we've been chasing demand. The good news is consumption has been leading sales space is a very positive thing.

And so I think that.

And as I mentioned for Yankee candle in particular.

We didn't even get a chance to do much prebuilding because weve work goes in our factory and Thats been chasing so far in October consumption. It looks pretty positive and we just got this speaks to just today and it looks positive so.

Our what we guided for Q4, we saw a holistic view when we look at everything up we've got some increased NPD spend in Q4 E. Commerce is continuing to do great. Amazon, We had a great Prime day.

In October so and Yankee candle I think the big issue that is just chasing demand. So overall I think we have given a our best view of revenue for us on a holistic basis.

And so Chris do you want to add anything to that I think I think you said it very well Ravi the only thing I would add is that.

The underlying fundamentals that are driving consumer demand, we think are likely to continue and sustain for some time, because we don't see a slowdown and at home behavior or increased focus on sanitization cleaning.

And those trends, which are driving consumer demand across a broad section of the company's categories. We.

We think our star likely to sustain for some period of time.

Thats great Im sure there are a lot of questions in the queue. So I'll pass on but I will say Nancy. Thanks for all your help him and Doug Congratulations on your next phase and Sofia Congratulations to you as well thanks so much.

Thank you our next question from Lauren Lieberman from Barclays.

Hi, Adam.

I wanted to go from there thanks, Steven tended to get at it but I'm still just a little bit perplexed why.

You guys seem to be expecting are forecasting so much deceleration sequentially.

Commentary that October remain strong at our conference and you spoke to core sales growth performance in the majority of your business.

There is a sense it was up that much.

But it was up so I'm just curious what you are kind of baking in or thinking about in terms of November and December that there is such a significant implied deceleration in sales growth. Thanks.

Yes, Thanks, Lauren let me try to provide a little bit of color on that so first of all as Ravi mentioned were very excited that we've got the company back to core sales growth.

And we think we have turned the corner on.

Getting the company to consistent delivery of core sales growth. If you look specifically at Q3, there were three things that that benefit as the core sales number in Q3.

Net.

Repeat or are unlikely to repeat in Q4. So one was the S&P implementation that we've talked about on Coleman, North America, where we pre ships to be prudent in advance of that S&P implementation in Q3 that helped Q3 and will be a drag on Q4.

The second was the shift to Prime day.

From June of last year to October and those Prime day shipments, we shipped out in the third quarter.

And then the third was some of the replenishment of retail inventories as our so as our supply chain recovered cigna.

Significantly during Q3 versus where we work Q2, we estimate the total impact of all of those things as maybe a couple of points that Q3 benefited from.

And we don't but we don't see repeating in Q4 that being said the consumption trends remain very positive across the majority of our businesses.

And so that's why we're guiding to Q4 growth at the level that we're guiding it to.

In Q4, I'll just add a couple of quick things that are.

Okay, we can sustain as those freight stops are solid long term aspiration will model and.

I think people have some they forget this has been a company that's been declining for so long. So we actually think that the fact, we can continue to grow is about the thing revenue thinks as specifics I just want to mention that were gaining share.

In previous quarters, I talked about food, but now we are gaining in other businesses as well like outdoor camping et cetera. Second then recognize that many good or Q4, you have a bit of seasonality because outdoor stops slowing down and in Q3 outdoor for the reasons, Chris mentioned that was a real bump up.

On the camping side, but the tech apparel side is still a laggard and having continues to have challenges assets.

Our whole beverage business, contego et cetera that more because.

People are not long ago, so, whereas the Coleman business was able to offset things in Q3, you don't have as much going in into Q4. So I think the seasonality is something to take into account on that and.

Then we are chasing demand so a lot depends on which is a great thing to have as I already mentioned on on home fragrance. So all in all we still have we feel look if we can computer every quarter and get some growth. This will change the complexion of the company.

Yes.

Okay, that's really helpful and I definitely remember that.

Along that its been since there is this kind of growth.

I guess another question I had though that I've really been curious about is in addition to yes, a lot of the work that's gone on this year all the things you mentioned on the call right the complexity.

Building up.

Commerce capabilities quality of content.

The distribution opportunities.

I'm curious, what's kind of been going on in the background. This was it originally this was the quote reset year, which implied.

More work to get I guess.

Closer to consumers again, not just the integration process, but actually getting closer to output in terms of innovation. So.

What can you share with us and where that stands as you look ahead into 21 and think about the innovation pipeline.

Anything that you can share whether it.

Qualitative or is as broad as it needs to be but im curious about the progress made on that front during during this year.

Yes, I'll quickly hit that there are a few things right. This first yes the reset.

The most important thing in my opinion that has occurred is we formed a leadership team my leadership team with the exception of the E. Commerce grew that created the pros took time to bring in is complete and we have some terrific leaders.

So Chris.

Chris had articulated a great.

And when he joined and then when I came on a day to that but you also need to people to execute it and we now have the right people of both consumer focus and efficiency focus or beginning to execute specifically on the innovation side. So some of these things it's going to be a modest modest spread and stoplight xps outlay.

We will have breakthroughs coming through but we are doing little things that are beginning to give the organization confidence like that ice coffee maker that us a bit of us deeper we looked at it and said Hey, this exciting and then yes, the consumer trends during the call that has helped because.

People Love this thing, they're similar things like our whole sanitizer project and the walk from thing, but we have sold a median dispensers in the commercial business in that bar. That's incredible. So I think you will see that we are also marketing the two firms outside to build our innovation muscle to vary.

Leading firms to help us with the innovation and the marketing is our leaders have a consumer customer focus on mindset, so they're growing and say, let's harvest and trends and make durable so I feel pretty comfortable that over time, you keep seeing this innovation stream they will not.

I'd like Hey, next year every single BOP because these things take time you have to hit the line reviews, you're going to develop it and you've got to make sure. The margins are okay, but long term I feel very good my vision for this company store to store it.

To 1994, when Rubbermaid was number one on fortune's most admired us why because they put out an innovation every day, that's why I want us to get to.

Okay, great. Thank you so much really helpful.

Our next question from Bill Chappell with true.

Thanks, Good morning.

Hi, Annabel.

I guess first.

Nancy Congratulations Sofia congratulations Nancy it's been extraordinary 10 years. So hopefully you can have more rest to hedge we would finish finish this job.

Thank you.

Yes going back to the looking to.

The fourth quarter.

Any reuse you got out of Amazon Prime day in terms of.

Were prime days in terms of.

Can you demand for home products continue to me and I know, it's it's typically Amazon Prime day, it's been kind of a focus of the company on all the different categories. So does anything that tells you for the upcoming holiday season would be interesting.

I think we've got a terrific left.

It's really across many of the categories that are growing both so we're continuing to see those trends.

So I think a lot of saw the trends that we saw in that quarter were also reflected on Amazon Prime day, but could have Chris was any other specific you want to add I would just add a couple of other thoughts. So we were up double digits on Prime day, this year versus Prime day last year, even though it occurred at a different time during the year. So we.

We grew share during prime day, and more broadly growing share on Amazon.

And post Prime day, we've continued to see strong consumption trends. So the consumption trends Weve shared is that were seeing weekly in October.

Had a had a big bump from prime day, but not that they did not we did not see any slowdown post prime day.

Got it yeah that helps and then second just as I look at the learning.

Category, Yes.

Yes, certainly impressive with all the kids.

Going virtually but kind of what's your outlook as you move in the fourth quarter and early next year in terms of are you seeing.

It has it has that category bottomed out in the third quarter will it remain pretty weak for the next few months just trying to understand kind of what you're seeing on a sell through basis.

Let me quickly hit some quick thing as we said in the prepared remarks, we expect it to.

We remain challenged in Q4 this.

Thats been the as long as season so.

But I think look.

Trade inventories.

The the replenishment. This RBS months, so we want to be careful on that I think on some of the good news as consumption continues to be.

We are seeing some growth, but it is with the hybrid models and even so even with the hybrid most will fit us online.

It is a bit of a child and but we see pockets of strength.

The whole choppy EPS, Delaware just in the general category 900, Bips share increase.

Three percentage point increase expenses Soho, our Dynamo business is doing very well both internationally and in the us So I think.

Current situation is so I think it's going to be the same.

The key thing is really dependent I make has to be over but what we're preparing for a stroke. If some of these trends of hybrids remain highly to the re imagined some of our products and stuff. So we're about great innovation drive on that I think this is a terrific business I think we continue to be strong once we come out or pandemic.

Let me just add one other point, which is.

We've made a decision to proactively pulled back on shipments into the trade on the writing category. During Q4, because we want to end Q4 with our retail inventories in a good position and so our guidance does reflect a pullback in writing sell into the trade and what we're seeing.

As Ravi mentioned from heightened consumption, we expect to get our retail inventories in a good position heading into the end of next year.

No that's great color. Thanks, so much.

Our next question from Jamie Feldman from Raymond James.

Thanks, guys good morning.

Wanted to follow up on that last point you guys made about.

Replenishment I think it was at nine point Delta memory serves between POS core sales in the first and while there was as you mentioned some replenishment that happened in Q3, I would think you didnt completely close that gap and so why wouldn't it be the potential for more inventory replenishment going forward outside of the writing category.

Yes, so the way to think about that Joe is that during July and August we saw a very significant reduction in Pos trends because the back to school season, which and the prior year happened fully didnt happen fully this year.

What happened in September and October so far as we are seeing Pos trends that are actually ahead of year ago, but the area under the curve in September and October is not as big as the area lost in July and August. So the retail inventories are still higher than what we would typically see at this time, that's why I made.

Comment.

On bills question that we've decided we're going to pull back from on proactive shipments into the trade in.

In Q4, and Thats fully reflected in our guidance. So that we end the year with a.

The retail inventories and a strong position.

Got it okay thats very helpful.

Second question as we think about our models were 21.

Your normalized tax rate. This year I think was about zero or is going to be about zero. So what tax rate should we be using for next year.

Yes, so the way I the way I think about our tax rate and obviously that im not going to comment on any outcome related to the election that could change that but.

In a in a stable environment are are going tax rate is probably close to 20% at this point.

Excluding discrete tax items, we as a company still have a significant opportunity ahead of us on discrete tax items.

Because of the number of legal entities because of the M&A activity Thats happened historically we're.

We're not going to provide specific color, but I would say a 20% rate as sort of a going rate, but I expect that in every year for the foreseeable future. We are going to have discrete items that it would take that number down from there and we'll provide more specificity on that.

On the next on the next call Okay, great. Thank you guys.

Our next question will be from.

And from Citi.

Hi, good morning.

My question actually has to do with the margins.

Specifically the operating margin improvement in the quarter was so much better than I was expecting.

And I guess there are two components I want to ask about first home solutions. The margin expansion was fantastic and I'm wondering how much of that is structural maybe just some of the changes you're making in the Yankee model versus just favorable operating leverage on the food side.

So number one how much of that is kind of here to stay and then just as I think about the negative mix in the business your highest margin business. The learning business was so weak in the quarter that hasn't been a huge margin headwind. So as I look out towards next year, assuming that business normalize as you've gotten incredibly easy.

Tom.

It's hard for me not to get really excited about what kind of margin you could put up potentially in the back half of next year is that is that fair in terms of how much I'm thinking about margin expansion being a real part of the story now or am I getting too excited like Robby.

Yes.

[laughter], let me try to provide some color on both topic. So.

On home solutions.

Theres no question that food was the bigger driver of the margin gain versus the home fragrance business, although the home fragrance business also had margin improvement.

I think the way to think about that is we do believe it's structural I.

I don't think that given the the big jump up in margins in that home solutions segment. I don't think we're going to see that type of annual jump up but I do believe that.

Higher margin is sustainable in that business going forward.

And we're getting effectively the benefit of a lot of different elements that are driving it strong topline growth, which is giving us volume leverage strong productivity savings and overhead leverage.

Are all contributing in that on the question on margin dynamics, let me provide a little bit more detail. This year and then talk next year. So this year really the story is the productivity fuel savings on gross margin are effectively offsetting the cobot cost and inflation.

Which is a which is which is a strong result, and then the region reason that gross margins are down is really due to the business unit mix. So you're right that when the writing business bounces back.

We should get a corresponding mix benefit.

That should allow us to recapture that.

And we're optimistic about that.

Then as the pandemic starts to ease and.

Offices reopened and schools return.

When that happens on the over the other thing that's happening on margins is the overhead cost savings and that we believe we're making structural improvements that.

That should continue to carry through to the margin story. So we're we're optimistic about margin prospects for this business over the long term obviously, we're not in a position today to provide specific guidance for 21.

But we will plan to do that on the on the Q4 call.

Right.

Yes, Randy just a quick thing.

That I'd love to be as excited as you, but I think that's why we have provided this evergreen our longer term less pressure model of 50, Bips improvement and it gives us confidence.

I think keep in mind, we also took a big chunk of overhead this yet.

So that we're going to be lapping solve that so you start going to be continuous and.

But the long term model as to why that most important takeaway for me actually is what Q3 showed as we can withstand the shock of the writing business because a lot of people are very concerned and I think the portfolio strength is the one that once it gets excited about.

Fair enough and did you quantify cobi costs in the third quarter versus second quarter, and what you're expecting for the fourth.

We have not quantified it but what I would say is that.

What we I'll provide a little bit more color, we quantified that we're expecting our fuel productivity savings to take out about 4% of cost of goods. This year.

And that's effectively offsetting cobot cost and inflation and if you look at the gross margin impact of covered cost inflation, there roughly equal to each other.

Great. Okay. Thanks, so much congratulations.

Thanks.

Our next question from Andrea Teixeira from Jpmorgan.

Hi, yes. Thank you good morning, and congrats man Cynthia. Thank you for all that how can we should well I want to talk more on the working capital control, which obviously has been one of the key highlights.

And that's part of what creates the whats commenting about we've been seeing W. Two inventory is that is there any change there.

He has anything to do with the consolidation of retail and the shift to online I'm. Assuming you are keeping your receivables side at this point. So I wanted to ask you said something you considered in your Q4 guidance and Opex I can maybe just a clarification on the price mix and Weve Rathman comments you made.

So I'm, assuming the mix has been pause here. So I mean granted that obviously the writing segment.

It has been a drag but weve prime day and create innovation are you what type of investment that you're planning to do is that more digital advertising in or has to do also with couponing to support innovation.

Okay, Let me start on the on the working capital fee. So.

Certainly the consolidation of our the shift in the retail dynamics, we are seeing and we believe it's a positive for our portfolio because what's happening is.

And Ravi I think I mentioned this in his prepared remarks that.

The E Commerce channel and the mass channel are growing at double digit rates for us and the department and specialty channel is declining and so the proportion of our business that are in the winning retailers is going up and we believe that that sets us up for a stronger growth.

Going forward that dynamic doesn't really change our.

Our working capital because we're the working capital doesn't.

Ross doesn't really isn't really driven by consolidation of retail the thing that's driving work.

In capital change for Us are.

Are the elements of negotiating extensions in our payment terms with suppliers accounts payable was the biggest contributor to working capital and in the year to date period also the SKU count reduction and the demand forecasting process that we've put in place is allowing us to.

Significantly reduced inventory levels those were the two primary drivers and then with regard to.

The pricing mix advertising, we are planning in Q4 to have higher advertising spend versus year ago. Some of that is due to the prime day being in Q4, most of that advertising spend that were planning.

To be up in Q4 versus year ago.

As is digital and in nature.

And E Commerce focused.

That's helpful. No Couponing, you would think right no major kind of pricing reinvestment.

Now, we're not seeing a big chain.

Change in promotional environment.

Significance to talk about.

All right great. Thank you.

Thank you. Our next question will be from Kevin Grundy with Jefferies.

Hey, good.

Good morning, everyone and just to echo the sentiment.

Congrats.

Great Congrats on the deal with continued progress.

Two quick ones actually the first one is a quick one just a housekeeping one for Chris and I apologize if I missed it you mentioned Pos remains very positive what was the Pos in the quarter whats the trending in October.

To be sort of helpful to compare that to the flat to low single digit core sales guidance for Fourq and.

And then Rob we just pick up on the writing for you. So you commented on.

Obviously, the near term uncertainty related to the pad Dennis my.

My question is sort of broader he could you feel good about it Chris you mentioned you expected to bounce back I think folks would agree with that given the easy comp well my questions really beyond 21 can you address rather the longer term debate around the ability to grow that business given the wider adoption in schools chromebooks and laptops I've seen in my own household et cetera, what would you say.

Skeptics that have been calling for the demise of the pet why does this industry go the way of Green cards, maybe you can frame that in sort of the building blocks here, we get people comfortable around household penetration frequency of use et cetera, particularly with the latter likely under pressure even beyond the pandemic. So thanks for that.

So very quickly on consumption, but not actually given out the numbers, but let's just put it. This way we've been chasing and were contained to chase. So that should tell you something that.

Assumption has always so far what we have seen us it's higher than our sales and.

So at October consumption continues to be up so let me go to the writing piece.

Yes look I think I have two perspectives type one as a retailer and us on an office facts and.

So we looked at all the categories and stuff and even at that time. This business was strong.

People talk about TV.

The death of the patent Blackrock.

Vending keep innovating that something so personal about the payment.

That.

People continue to use that and even during these times, we are seeing improvements I think though we should look at writing and learning as a bigger thing than just spend so pencils.

Yes, good got something like dogma, which is technologically banks, we are looking at a lot of Io team innovations there.

Labeling for instance, I mean Dynamo is up because of all the packaging that's going out right now online and small businesses use this product like crazy. So this tremendous growth there so thats a great focus for us and so.

Things like slide.

It had to take a softening.

During the pandemic the little bit of bump, but that has sort of flattened out work.

Continuously look at innovation for children's activities to take if there is still.

Stay at home, how do we leverage that trend that's why we're putting a lot of innovation efforts, rather beating our heads in the sand and saying everything and come back were actually proactively saying if the weather changes, let us get ahead of it they've got very strong brands and all the innovation on putting sharpie pen.

Right, it's up as.

Indicative of that so we've got tremendous brands, we will just keep looking at digitizing the business and looking at their margin. So I continue to feel that this is going to just be a powerhouse of a business temporary right now.

But we will come out stronger.

So robin fair to say that you're planning for growth beyond 21, it sounds like the courts is going to be on innovation.

Probably understands the pressure on terms that you talked about dimer, sharpie et cetera, internal planning like on a three to five year basis is you think you can grow the business just to be clear.

This is going to be a very important part of our business.

At least.

The next several years I have full confidence in it.

And we have a.

Management team by the way on this business.

Okay very good thanks, Robert I'll leave it there good luck.

Thank you.

Great. My last question is on.

Next question will be from Olivia Tong from Bank of America.

Good morning.

On the results.

Well.

First of all.

I will ask a little bit about your expectations on the growth trajectory for your categories. So.

Loan Behold, we have to think about Comping completed late next year. So I'm curious how you think about the future because obviously household penetration is up dramatically.

Thanks.

Given new management and presumably.

Each of these businesses going forward should we expect growth and you're at home category continued because of initiatives now in development and.

How does that step up in household penetration across.

Categories in Burlington view on how you on what you think about these categories and what they can grow longer term.

Okay.

But I can take it off give a quick thing and then Chris I'm sure that some perspectives.

So let's take each others.

Let's take food for instance.

Lot of innovations that we just launched the rubbermaid brilliance class.

So.

There is so many aspects and so many product categories that being keep innovating well going to be a tough comp for sure. So.

There's no way you can expect that.

You will have similar stuff next year, especially the first half, but we think this is a growth business and just let me give you one thing our ecommerce penetration in this business is lower than others and Theyve got a very ecommerce savvy CEO, Chris Mccaskey and already this year.

She's come on in the E. Commerce team achieved work on the penetration has increased dramatically, but there's still a long way to go. So I think that has done that get home fragrance. It's not just cabinets that team is getting us into all kinds of new ideas like Diffusers outdoor candles.

Car aircraft partners et cetera, so that is growth there. So I think appliances, Chris Robinson is really looking at the root of the shoes and saying how do you get that going so yes tough comps don't want to our promise, but the fundamentals are that they're going to attack the fundamentals and keep driving.

Chris you want to add some stuff there yes, the only other thing I would add is that.

We have some other businesses that are going to have easy comps next year and so I think what you're going to see is that the results are going to be a little bit choppy by quarter and by business.

But as we mentioned from an overall company standpoint, that's one of the strengths of the portfolio and we're excited that were.

Back to core sales growth.

And and we think we've got the opportunity to.

Really deliver against our long term model so.

Okay and the last thing I would say is we don't anticipate the underlying consumer demand trends to change radically in the near term. So we do expect to that from everything we are hearing and everything we're seeing that the at home.

Consumption trends are likely to be with us for some time.

As Robin mentioned some of those businesses will comp.

We will face higher comps as we get into the back half of next year, but there are other businesses of ours, notably writing that we'll face easier comps.

And that's the benefit of the portfolio.

Thank you very much to everybody stay safe right Matt.

Appreciate your support online set up for us that's our app. Thank you.

Thank you ladies and gentlemen.

Conference you may now disconnect.