Q3 2021 Newell Brands Inc Earnings Call

October 29, 2021

Good morning, and welcome to the Newell Brands' third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.

After a brief discussion by management, we will open up the call for questions.

Order to stay within the time scheduled for the call. Please limit yourself to one question during the Q&A session. As a reminder, today's conference is being recorded.

Like web cast of this call is available at IR Dot Newell brand's dotcom.

I will now turn the call over to stop he is sentenced vice president of Investor Relations.

You may begin.

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

With me today, Iraqi thorough Graham, 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 todays call well be making forward looking statements, which involve risks and uncertainty actual results and outcomes may differ materially and we undertake no obligation.

To update forward looking statements.

I refer you to the cautionary language and risk factors are available in our earnings release, our Form 10-K forms 10-Q, and other SEC filings are available on our Investor Relations website for a 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 refer to as normalized measures because they believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP explanations of these non-GAAP measures and available reconciliations between GAAP.

Our non-GAAP measures can be found in today's earnings release and tables that there was no other material Aneel Investor Relations website. Thank you and now I'll turn the call over to Ravi. Thanks, Joseph here. Good morning, everyone and welcome to our call. We delivered solid results in the third quarter, which reflect that.

The effectiveness effectiveness of our strategy was about the resilience and agility of our operating model and portfolio.

Yesterday Cross sales grew 15, 2% since 2010 as each business units contributed to such a terrific outcome normalized operating profit improved 21% and normalized earnings per share increased about 14%.

We further strengthened our track record.

Third quarter marked the fifth consecutive quarter of core sales growth and sixth straight quarter of domestic consumption growth for the company.

Courthouse in the quarter increased three 2% driven by excellent performance across five business units, writing baby home appliances home fragrance and not go into that creation.

This was no small feat given the difficult year ago comparison of 7.2, the same call sounds CRO, which embedded a recovery across the majority of new businesses.

To normalize the pandemic related chips, we think it's useful to compare this year's top line to 2019 on a two year stack basis.

Of course at group.

Low single digits in the third quarter. We also saw strong domestic consumption relative to 2019 across each of our business units a terrific result, and a testament to the significant progress that we've made in forging stronger relationships.

<unk> S a leveraged consumer insights and foresight and new product launches.

But it didn't say not writing business continue.

The team has done a.

Job during the important back to school season with outstanding performance in consumption and share momentum.

As anticipated topline trends moderated against elevated year about yourselves and our food and commercial businesses.

However, sales as well as domestic consumption for both business units remain about 2019 level.

Consumer behavior.

<unk> ball and categories will continue to normalize, but we believe that home at Hep mindset, but didn't go.

As I suppose a heightened interest in outdoor activities and five somebody would be this is also evidenced in the company's consumption trends as domestic D. O. S remains well ahead of 2020 in 2019 levels, both in the third quarter and yesterday despite supply constraints.

Courthouse in North America mirrored that of the total company outside North America, Latin America stood out once again, delivering another quarter of double digit growth despite elevated comparisons.

Im also delighted that the strength of our iconic brands continue to come through this year harnessing the benefits from the Florida fight innovation funnels, and our brand building efforts yesterday, many of our largest brands that are great, but with Goldman <unk> Yankee candle Sharpie Rubbermaid first a lot of paper.

Dimer export ball and Mr. Coffee delivered excellent top line growth.

<unk> has also helped us to successfully implement price increases.

We are laser focused on protecting the company's gross margin and if necessary.

We'll take additional pricing actions.

To ensure that we fully recouped the impact.

Fact of inflation over time.

Similarly to the second quarter E. Commerce topline grew mid single digits with digital penetration coaster trading 2% slightly above last year and significantly ahead of the mid teens level from 2018, we continue to invest behind our omni capabilities and are well positioned to capitalize on consumer demand.

So glad they shop.

Let me spend a few minutes on our business units, beginning with writing that quarter superstar core SaaS increased at a double digit rate driven by broad based strength in the U S and international markets core sales grew on a two year stack basis as well, even though the commercial channel that's not fully recovered yet.

This is a testament to the excellent helps apart writing business consumption in the U S has been strong through our training in 'twenty, one and accelerated sequentially in the third car as we leaned into the business momentum at higher A&P investment.

The vast majority of cases public schools in the U S to attend in person.

During the back to school season, we saw a strong rebound in everyday writing business, which benefited from innovation such as sharp <unk>, Joe and choppy S. Note strong merchandising plans and distribution gains.

We picked up considerable share during the bar in our writing business as a whole, including key back to school category, such as patents pencils group from an end market stride rites markers highlighters well over the past two years.

Meaningfully enhanced yields position independent category, where we've gained over 850 basis points of share.

Thus far in training framework within highlighted sharpie Aetna has tripled its share of the growing highlights our market segment.

<unk> sales for our baby business increased has had double digit rate supported by domestic consumption growth both relative to 2020 and 19 Q3 marked the fifth consecutive quarter of core sales growth driven by expanded points of distribution innovation continued strength in e-commerce.

As well as stimulus funding.

Babies, the most highly penetrated business online within your portfolio, we leveraged our only prowess to further boost our digital penetration in the corner into the mid fifties.

We believe child tax credits as well as increases in disposable income and durable goods consumption all benefited the gear market over the past several quarters, while the category is likely to moderate we expect it to remain healthy in the U S. Graco continued to gain momentum and picked up share in the rapidly growing market.

Home fragrance.

Dan its fifth consecutive quarter of cost outs improvement as core sales grew both but so the elevated 2000 trainee level as well as relative to 2019, driven in large part by EMEA in the U S. Yankee candle retail stores maintained their positive growth momentum benefiting from consumers increased.

<unk> <unk>.

We continue to expand our omni capabilities, we rolled out buy online and pickup in stores as well as ship from store options across our Yankee candle retail stores, which drove a favorable response from consumers and helped us to fulfill consumer demand.

As anticipated consumption moderated relative to the elevated base period, but it was significantly ahead of the 2019 level home fragrance, along with pricing and food our growth and value X accelerate their businesses and I see tremendous runway for growth ahead. The team is gearing up for the holidays.

As Q4 is a crucial period for the business.

In the third quarter, the food business lapped it stopped toughest double digit core SaaS growth comparison of 2000 and training and was exacerbated by supply challenges, including a COVID-19 related lockdown across the steam up onto New Zealand, resulting in core sales decline, however, both topline and domestic consumption.

<unk> were meaningfully ahead of the 2019 base, which highlights the stickiness of the habits of consumers develop throughout the pandemic, we expect the category to continue to normalize.

Thats been most evident on the credit side, we drove strong share momentum in food storage and preserving recent innovations such as rubber may take launch Neal.

The updated rubbermaid beverage line as well as brilliant Scott have been instrumental in driving market share improvement rubbermaid at the elevate the consumer experience and fresh preserving balk pantry storage latch and ball nesting gas have contributed to share gains football.

In home appliances close outs increased for the sixth consecutive quarter, even as we lap the toughest double digit comparison of the year Latin America. Once again led the charge in this market Lamido step Brian is spearheading the trend for multi cooking functions and recently launched <unk> toaster oven.

Aircrafts.

Rice cooker with their Fi throughout 2021 poster blenders celebrating the 70 <unk> anniversary in the U S and Latin America with brand activation and new product launches in each region domestic Pos remains significantly ahead of 2019 levels and only modestly below last year's level although.

The category continues to normalize relative to the outsized growth levels seen throughout the pandemic.

Despite the fact that people have come back to diamond restaurants consumers continue to show interest in cooking at home post the pandemic.

In our commercial business sales core sales declined versus the elevated base as the business cycled against a significant surge.

Serge.

Welcome solutions on a two year stack basis core sales increased nicely during third quarter. The team has done a great job in landing new wins, both on the <unk>.

Retail sites across a wide swath of categories, ranging from painting and refuse to material handling and others. We saw healthy Pos in track channels, but have been significantly challenge on the supply side. The team is diligently addressing these constraints as well as inflationary pressures.

During the third quarter core sales for connected home and security business were under pressure. Despite very strong consumption in the U S of course have softness reflects both the challenging year ago comparison, as we were restocking inventory at retail last year as well as component availability challenges in the current year, mostly.

You to develop publicized chip shortage.

Outgrowing recreation business delivered its third straight quarter of courthouse CRO at nearly 2% against a difficult year ago comparison of 8% courthouse improvement was fueled by the strength in the outdoor equipment and on the go beverage categories with the latter continues to rebound due to improved consumer mobile.

We are encouraged by the momentum in the outdoor in equipment unit.

Succeeding 2019 levels. The consumer continues to show interest in our goals a trend, which we think will enroll and one we will continue to leverage throughout our innovation goal.

Maintain it another quarter growth benefiting from enhanced product lineup in 2021 with strong plans in place for next year as well many of our carbon products such as the Sky dome turned cooler bag into bonus to our featured by USA today.

Perfect gifts for people, who love to travel so keep them in mind for the holidays.

Strong results thus far.

Gave us confidence to improve our outlooks on both topline and normalized earnings per share in 2000 and training work, despite significant inflationary and supply chain related pressures that continue to plague the industry, our updated guidance for 2021 implies that.

Normalized operating profit is expected to grow high single digits, a great outcome, particularly in the context of a difficult operating environment.

Although we are certainly not immune to the external forces.

Strategic decisions of actions over the past several years have substantially strengthened the company and made our portfolio much more resilient.

But we invested in omni channel capabilities that have been instrumental in capturing consumer demand across all channels and on the direct to consumer side recently completed migration of bought sites in North America. The one consolidated platform with a dedicated team focused on continuous improvement on <unk>.

You may experience with.

We substantially strengthened by innovation and marketing muscle leveraging consumer insights and four sites that we've sharpened brand positioning for many top brands.

We have established joint business plans and enhanced relationships with key strategic retail Park gosh.

We've instituted a new hybrid organizational model that brings to our domain experts closer to our customers and consumers, while leveraging the center core scale and efficiencies.

We have made productivity a way of life.

We have reduced complexity and overheads improved cash conversion cycle and strengthen the balance sheet.

2021 has been a turning point for Neil despite challenges posed by supply and inflation.

<unk> have done an incredible job executing in this environment and we are poised to deliver 10 plus percentage core sales growth this year.

First for our company in recent history.

Recognize that 2020, one has been a tale of two cities a first half and second half story.

Delivered 23% core sales growth in the first half and in the second half, we're lapping strong growth from gaining trend. The fact that the group three 2% in Q3.

On top of last year's growth, it's an indication that our brands are resilient or being rejuvenated and we have the ability to grow even in this context of strong comps.

The power of our diverse portfolio is coming through.

The macro issues and the pandemic has taught us that we just cannot be reactive.

<unk> focused on continuing to strengthen the fundamentals and reducing complexity, including lowering our SKU count improving forecast accuracy, simplifying our it infrastructure and making it easier for customers to do business with us they are creating an integrated one dealer distribution network through the consolidation.

Over 20 supply chains under the banner of project topic.

Looking forward, we expect supply challenges and inflation to persist.

Therefore, our stance is one our preparedness and realism and taking proactive actions to successfully navigate the macro environment.

If 2021 was the year of turbocharging the topline due entering Q2 will be focused on improving margins improving.

<unk> margins through five primary levers.

First an intense focus on pricing and optimizing promotional spending we've now taken price increases in 2020, one across all of our businesses and most geographies.

Jeff will be to maximize the impact of carryover pricing from 'twenty, one into 'twenty, two and we will be prepared to take further increases in 'twenty two based on inflationary trends to protect gross margin.

Of course, we will do this in consultation with our customers and ensure that our brands remain a great value for consumers.

Second we will accelerate our efforts to improve the profitability of our international business by reducing duplication consolidating operations and adopting a new approach.

Third we will price innovations to be margin accretive.

Fourth we will continue to be more efficient with overhead.

And finally, we'll continue to.

Strive to be best in class in our productivity efforts and drive about 3% to 4% improvement in Cogs as moved on over the last three years.

I'm extremely thankful to our 31000.

Hard working employees for their unwavering commitment commitment tenacity and perseverance.

I remain optimistic that <unk>.

Can create tremendous shareholder value and our best days are ahead of us onwards, and upwards and now over to Chris.

Thank you Ravi and good morning, everyone. During the third quarter, we delivered solid results as we continued to drive our strategy into action strong operational execution, coupled with financial discipline enabled us to generate better than anticipated operating profit and sustained progress on the cash conversion cycle we.

Pushed us in the context of a choppy operating environment as our teams did a terrific job navigating through a myriad of supply and logistical bottlenecks before getting into the details I want to provide a little color on the current operating environment and proactive choices, we are making.

Similar to other companies throughout the third quarter, we continued to experience significant inflation and supply chain disruption.

Escalation in cost has been an ongoing dynamic throughout 2021.

While inflationary pressures have been broad based the largest impact for us has been around commodities, particularly RASM ocean freight sourced finished goods and labor do.

The expected headwind from inflation on 2021 cost of goods sold is now forecast to be about $40 million worse relative to our expectations last quarter.

We currently expect inflation to represent 9% of our full year cost of goods sold as compared to our expectation of about 3% at the start of the year.

We have taken numerous actions to alleviate the headwind from inflation, including leaving in on our productivity initiatives.

I think price increases across all of our businesses with some announcing multiple rounds continuing to exercise disciplined control over expenses.

Driving efficiencies from promotional spend and leveraging strong topline growth.

The full benefit from the mitigating actions to offset the unprecedented inflationary pressures will not flow through.

Until next year, given the timing lag on pricing.

We do expect that Q3 represents the largest gap between the pricing and inflation impact through the P&L and expect this gap to narrow sequentially from here.

Despite this dynamic and the continued escalation in cost for Q4, we are raising our normalized EPS guidance for this year towards the higher end of the previous range, a strong outcome and a testament to the resilience and excellent execution by our teams.

Moving on to supply chain.

Lead times for sourced products, some components and raw materials have increased significantly from pre pandemic levels. As a result of port congestion limited container availability as well as shortages in the labor force and truck drivers.

This has been an ongoing challenge throughout 2021, however, the significant progress we have driven on SKU rationalization over the past few years, along with an early start on mitigating tactics tactics have put us in an advantage and allowed us to largely meet the strong demand.

Some of the actions we've taken early in 2021 and throughout the year include the following.

Building inventory on top selling and high priority skus, improving our forecasting process and adjusting it for longer lead times, diversifying our supplier base where feasible.

The accelerating automation across our factories and distribution centers.

And enhancing compensation benefits training opportunities and working conditions for our frontline employees in fact during the third quarter, we announced meaningful wage increases across many of our factories and distribution centers starting in Q4.

We do not expect the supply pressures to dissipate in the near term, but we are confident that we are taking appropriate steps to both effectively manage them and create more agility within our supply chain in the future.

We recently announced a new supply chain initiative oven, which is expected to transform newell as go to market capabilities and end to end customer experience in the U S.

Enhanced customer service levels and drive significant operational efficiencies.

We are planning to optimize the Companys distribution network in the U S by consolidating 23 business unit centric supply chain into a single integrated supply chain.

We expect it will take about 18 months to fully implement aman to minimize any potential disruption, we intend to roll it out in waves. During Q3, we passed an important milestone as we completed blueprinting and the integrated design phase we are now moving into the testing and.

Mentation phase upon completion of it is expected to streamline automate and digitize, our supply chain and position us as a reliable retailer partner of choice.

While <unk> was being contemplated prior to the recent events once implemented it should position us on a much stronger footing going forward.

Let's now move to third quarter results.

Net sales grew three 3% year over year to $2 8 billion.

Mostly driven by a core sales increase of three 2%. This was an excellent outcome as we cycled against seven 2% core sales growth in the year ago period with difficult comparisons across every segment, except for learning and development.

Normalized gross margin contracted 330 basis points year over year to 36% gains from fuel productivity savings.

Favorable business mix as well as pricing were more than offset by the inflationary headwind, which was nearly 800 basis points in the quarter.

Normalized operating margin came in at 11, 4% down from 14, 9% a year ago, reflecting gross margin pressure as well as a significant step up in advertising and promotion expense.

We continued to tightly manage costs and drive overhead to sales ratio lower year over year.

Net interest expense came down by $6 million year over year to $65 million, reflecting debt reduction of about $750 million relative to last year.

The normalized tax rate was 8% versus a normalized tax benefit of nearly 7% in the year ago period due to a lower contribution from discrete items.

Normalized diluted earnings per share amounted to <unk> 54.

As compared to 84 from Q3 of 2020.

The unfavorable move in the tax rate accounted for about 12% year over year.

Now turning to our segment performance core sales for the commercial solutions segment decreased nine 2% due to declines in both the commercial and connected home and security business units.

Which faced tough year ago comps.

Core sales for home appliances grew one 9% primarily driven by Latin America.

Core sales for the home solutions segment were down three 6% as core growth in the home fragrance business was more than offset by a decline in food, which lapped its toughest quarterly comparison of 2020.

Core sales for the learning and development segment grew 19, 6% as both the writing and baby business units delivered strong double digit increases.

Core sales in the outdoor recreation segment increased one 7%.

<unk> net sales were eight 5% above the third quarter of 2019 with each of the company's segments exceeding levels from two years ago.

On a two year stacked basis core sales increased in the low double digits during Q3 as well as year to date periods.

Year to date in 2021, the company's operating cash flow was $490 million versus $820 million in the year ago period.

This reflects an increase in working capital to support topline momentum and elevated in transit times for inventory, which more than offset significant operating income growth.

We continue to drive improvement in cash conversion cycle, which came down by another 10 days to 79 days.

At the end of the third quarter <unk> leverage ratio was three one times down from three nine times a year ago. The improvement reflects our proactive choice to pay down debt as well as a mid teen increase in trailing 12 month normalized EBITDA.

In Q3, the company redeemed approximately 300 million euros of at 375% notes that were due in October 2021.

Furthermore, in mid October we announced our intention to redeem the remaining $250 million of the Companys, 4% Senior notes next month.

We have significantly strengthened <unk> balance sheet over the past several years and recently indicated that we're targeting a leverage ratio of two five times below our prior goal of three times, we intend to grow our EBITDA and of this target with no immediate plans for additional new debt tender offers.

This morning, we updated our outlook for 2021 accounting for the stronger than anticipated performance in Q3 further escalation in cost in the fourth quarter.

<unk> of supply chain disruption as well as a relatively healthy consumer backdrop in the U S.

We are pleased to once again raise our top line forecast for 2021 as a result of healthy consumption and the early actions, we have taken to alleviate the supply chain constraints.

Our revised top line guidance implies that core sales are expected to grow versus 2019 during each quarter of 2021.

Our outlook also indicates the core sales will be up versus 2020, and the first and second halves of 2021 as well as for the full year.

Let's go through the details of the full year of 2021 outlook. We currently forecast net sales of $10 38 to 10, four 6 billion.

Up from 10, 1% to 10, three 5 billion previously.

This represents about 11% year over year growth, we are raising our core sales outlook to 10% to 11% from 7% to 10% previously with the majority of the upside in the fourth quarter.

While the U S. Dollar has strengthened recently currency favorability is still expected to modestly outweigh the impact from Yankee candle retail store closures and other minor business exits.

As a result of further escalation in cost, including our decision to raise wages for the frontline starting in Q4, we now expect full year normalized operating margin to be slightly down relative to 11, 1% in 2020.

Our updated forecast implies that normalized operating profit grows at a high single digit rate.

Solid result, when factoring in the unprecedented level of inflation.

We anticipate an increase in the absolute level of advertising and promotion spending.

This forecast assumes a mid teens normalized effective tax rate and a slight increase in shares outstanding.

We are pleased to improve our full year normalized earnings per share outlook to $1 69 to $1 73 from a previous range of $1 63 to $1 73.

There is no change in our full year operating cash flow guidance of approximately $1 billion as we continue to expect acceleration in Newell's cash conversion cycle.

Focusing on the fourth quarter, we are guiding for net sales of two six to $2 68 billion.

With core sales expected to be within a range of down 2% to up 1%.

Our guidance assumes normalized operating margin of eight 7% to nine 2% versus 11, 4% in the year ago period as inflation is expected to outweigh the continued benefits from productivity and pricing.

We are forecasting a normalized effective tax rate around 20% and normalized earnings per share in the 29% to 33% range.

While we are still early in our budgeting cycle for 2022 I wanted to provide a high level perspective on how we are approaching it.

We are encouraged by the progress our teams have made on the innovation side and have a strong funnel of new ideas planned for next year.

However, we anticipate a more muted topline delivery due to a very difficult comparison.

While inflation is expected to remain above normal levels. We are looking at significant benefits from carryover pricing as well as productivity.

This should result in stronger margin performance in 2022 relative to 2021.

We will continue to build operational excellence across the organization as we rollout additional automation projects and make strides with Amit implementation.

We intend to provide more specifics during the fourth quarter call as has been the norm in recent years.

We believe we have a strong path for value creation, and we will continue to diligently execute on our strategic agenda to ensure that we position newell brands for sustainable and profitable growth.

Operator, let's now open the call for Q&A.

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

If you are using a speaker phone. Please make sure. The mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Your first question comes from Bill Chappell with <unk> Securities.

Thanks, Good morning.

Good morning Bill.

Hey, just a question on writing in particular.

How that played versus your expectations in the quarter, whether theres still some carryover as you move into the next year.

Such that maybe contributed to the upside just I know you had a kind of a muted outlook really sure when kind of the tale of back to school and back to office. So any color there would be great.

Sure.

Hi, This is Ravi.

Look I think <unk> really performed very well I think the big thing was we werent sure.

When we went into the quarter, we knew we'd have a good back to school, but there was so worried about the <unk> I think what became evident for US. This was one of the issues keeping the schools opened in person learning with a fatty bipartisan view.

And so what.

<unk> should be five week and saw that the Super majority of schools opened and so that is great. But also a credit to our team because they really hit the ball out of the park on merchandising on e-commerce on getting distribution on innovation.

Had the whole package and this is as we've said before.

One of the businesses this business because we manufacture them.

Most of our products, except for <unk>, which comes from China.

In Tennessee.

And so we were able to have good supply.

So I think that really.

And this is still in the backdrop, because we had expected maybe offices start opening up but because of the best as they do.

As much so despite all of that the fact that the business did extremely well.

I think is positive and we're seeing that positive momentum continuing so we are very pleased and yes. It did probably a bit better than our expectation backdrop. When you have the highest margin business, we will take that any day.

Sure absolutely and then kind of on that theme in terms of supply chain is.

I don't think you really said anything there, but as you look at kind of home appliance and getting things from Asia going into the holiday season or are you is there any concerns you don't have enough inventory for what looks to be a pretty strong upcoming holiday season, I know home fragrance, who make it all here, but thank you.

Are you more of anything that youre, bringing overseas.

Yeah, So bill on that one we're actually in very good shape.

So one of the things that we did early on when we saw the supply chain pressure starting to to build and particularly with ocean freight as we adjusted our planning process to add expected lead time to the planning process, we did that probably about six months ago.

4% to six months ago, and as a result, we sort of early ordered a bunch of our top selling skus and that's why if you look at our balance sheet.

Part of the reason why our inventory levels are significantly higher.

Then.

Then they were last year and we've used cash to build inventory. So we feel particularly in the appliance category that we are well positioned.

To meet strong demand from an inventory standpoint.

That's great. Thanks, so much.

Thank you Bill.

Your next question comes from Andrea <unk> with J P. Morgan.

Well thank you.

And I wanted to just go back to what you just said Chris on building inventory ahead of the holidays.

And you had done.

Fantastic.

In terms of gaining market share in small appliances, but we also have to be cognizant of the cycle.

All of these projects right and some of these have been bought in and I would say household penetration probably.

So I was wondering what is your take on that and what are your customers, saying in terms of demand ahead of the holiday.

And I also wanted to double check when the cadence of pricing and what is the carryover that you mentioned before into 2022.

And you said that you wanted to take additional actions into 'twenty, two so I'm, hoping to see the cadence of your gross margin progression as we enter 2002.

Andrew I will split the question into two pieces I'll have Chris answer the pricing piece and I'll just give you a view on.

Appliances.

Really the number one.

One business for us.

When you're going into holiday the superbowl, if a home fragrances and we believe we are well poised on the fragrance side.

Not only with all our customers, but also in our own retail stores.

Small appliances goes but.

Sure.

<unk> been very I'm very pleased to see the progress the team has been making and.

So in each quarter, so growth, yes, clearly as we.

Look down the future Youll have to say is it.

Has that been some acceleration of consumer purchases.

But having said that I think there are several categories within appliances and.

We're driving a lot of innovation so when the whole Mr. Coffee iced, we now have.

Ice coffee, perhaps got.

Hot and cold So we've got a lot of new innovations coming into the market there.

Help us so.

<unk> actually brought in new users.

I think in the main.

Sure.

I feel we're in a good place, but at the end of the day you have to build new will not you cant look at it just as one particular business, but the entire portfolio and that has been the beauty of how we manage the portfolio in entirety to work each quarter and to work the long term to say how do you drive growth.

As a whole.

On the pricing front, let me try to provide a little bit of perspective. So at this point, we have announced pricing on every single one of our business units.

The inflation impact is affecting our business units a little bit differently. The two most significantly affected business units or the commercial business in the food business and then there are other businesses like.

Like writing and home fragrance for example that are much less affected by inflation, but everybody is affected because of that difference in terms of how the inflation is impacting.

The business units and because the inflation picture has continued during the year to get significantly.

More of a headwind, we've announced pricing on different timings and so the first set of pricing broadly that we put into place went into place kind of in the April may June time period.

Good news about that pricing is that pricing is now fully reflected in retails and at least to date, we have not seen any negative reaction to consumer demand from the pricing that we put in so far.

So that we take that as a very positive sign.

There is a second round of pricing broadly that's going into effect that we've already announced that.

And that largely is going into effect in either November or beginning of January and so when you look at the pricing impact in the P&L the pricing impact in the P&L is going to get significantly bigger as we go forward sequentially from here, so pricing will be a bigger help in Q4 then.

It was in Q3 and Q1 of next year pricing should be largely implemented and it will be a bigger help in Q1 of next year than it is in Q4 of this year at the same time inflation, we think Q3.

Spot right.

Spot rates stay where they are.

Sure.

Inflation will have been the biggest impact for us in Q3 of this year and will begin to mitigate as we lap base periods and so that gap. If you will between inflation pricing and productivity. We think Q3 was the biggest delta of that gap and we think that gap starts to.

Clothes and reduced sequentially each quarter going forward.

That's great Super helpful question on Paas.

Thanks.

Yeah.

Your next question comes from Olivia Tong with Raymond James.

Great. Thank you good morning.

My question is first around project.

I know this was planned before the clinical supply chain challenges.

Can you just talk about why now is the right timeframe, presumably there will likely be some disruption as you do switch overs and consolidate so could you just expand a little bit more on that and if you had to ask.

Expand the plan more recently, given all the logistics challenges globally.

Yes, let me try a couple of things so we kicked off project Ahmed.

About 10, or 11 months ago, we didn't announce it until Barclays, but we kicked it off 10 or 11 months ago and the reason why we thought now is the right time is because we've made a lot of progress on SKU rationalization. So if you recall at the end of 2018, when we started with a turnaround plan. The company was trying to sell over one one.

<unk> thousand Skus.

We've now reduced that through last year to 47000 as.

As of today, we're at 42000, and we're on our way down to 30000, so because we've taken that SKU count reduction out.

And improve the fundamentals of the operation. We believe we're now at a point, where we can take the next step which is to go from 23 unique supply chains into a single integrated supply chain. We think this is going to allow us to move from shipping less than truck.

Load shipments in small quantities enforcing our retailers to order from US 23 different ways into the ability to order from us in a single way and ship full truckloads.

And so from both a service and a cost standpoint, we think that this is going to be a major step forward for the company.

And really leverage the scale of Newell going forward now.

When we kicked project all at off the <unk>.

Supply chain constraints, we're not how they heart today and so.

We kicked the project off with that without.

That external backdrop in place I think the team has done a pretty amazing job of keeping on track. Unfortunately, we.

We secured the two big new mixing distribution centers prior to.

The.

The current supply.

Constrained dynamics and so on.

We're monitoring it we're going to be prudent on the implementation dates that we go and make sure that we execute the transition with excellence, but if anything the.

Savings from the project have only gotten bigger as transportation costs have gotten bigger. So in fact, we think the project is likely going to generate more value to us today than when we first started the project nine months ago or 10 months ago.

Chris if I could add some context.

We have to think about sort of the.

Noon journey.

Sure.

I've been here two years Chris.

Close to three.

Embarked on we started it at the time, but we're really talking about.

Transformation of the company in terms of capabilities and looking at the long term, while making sure that the short term is healthy and so if you think about sort of the first year. We spent a lot of time on stabilizing the organization getting the culture wrapping up the people, bringing the team and a hybrid structure et cetera.

<unk>. Our next phase is all about innovation about brands about e-commerce, and really getting the top line, which is why youre seeing that momentum. The next one is really all about how do we get our gross margins.

And in addition to the pricing the supply chain, whether it's automation or Amit. We think are critical because we have to be easier to do business with with our customers. This has been going on for years and yes, we have to make it easier product size of the company.

So with that and then the next one is buttons will be international. So all of this is about a journey of driving shareholder value.

And we obviously.

Manage very carefully the execution burden on our team and make sure that we don't slip up but I think these have been managed a good cadence and we're very confident that all of these.

We'll go along quite well as we progress forward.

Okay helpful. Thanks, if I could just ask a follow up on sales.

So you mentioned this in the first quarter, where every sub segment wasn't Mark 2019. So do you think this is the right base now off of which to grow our or were there any comp issues that make this not the right way to think about it and then just specifically for Q4.

The sales outlook assumes a pretty big deceleration on a two year stack. So is this more the uncertainty in the environment or <unk>.

Relative success of recent pricing or is there something else that's going into that.

Yes, So let me just give a quick view on that Olivia.

2019 is sort of a good way, we think about that as sort of a pre pandemic and that serves as a good guide, but over time that will.

Change so but 2019 is good base. So having said that book as we approach Q4 recognize a couple of things one is that we've had.

Our baby business that has just been growing fantastically like.

And in the teens.

And for all the reasons I mentioned in the prepared remarks, but.

One of the things Thats happened, the stimulus dividend and so and without a huge rise in birth rates, there's only so many.

And there's a huge comp last year into Q4, which was also very strong so where the baby business is comping very high.

On Q4, so that clearly we don't have that we still have writing which is growing in pretty well in some of the businesses. So I think we shouldnt get hung up about any particular part of our business because we've got puts and takes the overall thing is what we.

We're striving to do Olivia is to get to sustainable profitable growth over time, and I really think that we are well on our way to do that the only thing I would add to that Olivia is that last year. In Q4, there was Amazon Prime day, which moved to Q2 of this year and so we are in Q4 lapping.

The loss of Amazon Prime day.

Great. Thank you.

Your next question comes from Peter Grom with UBS.

Hey, Hey, good morning, everyone.

So good morning, I just wanted to ask about around the phasing of margin progression as we think about next year, because when I look at the guidance Youre still kind of exiting this year with operating margins down north of 200 basis points year over year, and Chris like I totally understand the commentary that the pricing benefits important themes that will ramp in Q1, but.

Is it still fair to assume that you think margins will be under pressure in the first half of the year.

Kind of going back to Rob. These initial comments around 2022 being the year of margin expansion. How should we think about your ability to hit your long term target of 50 basis points for next year. Thanks.

Yes, I think it's.

So thanks for the question I think it's premature for us to give quarterly.

Quarterly guidance for next year, but what I would say is that we certainly believe that next year is going to be a year of margin growth for the company.

And the reason for that is what I said earlier, which is.

A lot of the inflation impact that hit us this year.

There is a timing lag between pricing and inflation in.

Even if you look at the two business units that.

We have suffered the most inflation, which are commercial and food were on LIFO accounting, which means in those businesses that the inflation hits us immediately.

And those businesses and those have been the two biggest impacts so we've probably taken the big inflation impact from the move in resins already in the P&L the lag in pricing.

Creates a drag in the short term, but when we get into next year.

We're expecting the benefit of carryover pricing plus.

Productivity.

To be higher than the inflation impact next year.

Based on our current forecast, which is based on spot rates.

Going forward by the way. We're also as we think about the planning for next year. We are not assuming that inflation is going to be transitory and we are assuming that inflation is going to be significantly above normal next year and we are building our plan assuming that and we are still confident despite that that we're going to have significant.

<unk> growth next year.

Just one quick add.

Chris did a great job of.

Given your view on it.

When we started this process on taking price increases when way back when.

I think the whole world, including us thought that inpatient what's going to be concentrated so some initial pricing moves were more on that because the <unk> productivity and pricing. We may not have tried to cover it over time as <unk> seen this will become very realistic and now our pricing posture is very clear we are going to.

<unk> inflation and that stance.

<unk> into 2022, and so I think that should give some reassurance on the margin.

Great. Thanks.

Your next question comes from Chris Carey with Wells Fargo Securities.

Hi.

I guess, it's still morning on East coast and good morning.

So just I just wanted to follow up on that.

Pricing commentary, if I could pricing and productivity will be higher than your forecast for inflation next year.

Significant margin progression.

And that when you say margin progression Youre speaking about the full year.

<unk> will grow over over time. So this is more just a clarification question Tonight.

Good luck.

Yeah.

Yes.

I think it's premature for us to give quarterly guidance for next year.

We're just in the middle of our budget plan, but for the full year, that's what we're expecting.

Okay, alright, thanks for that and then.

It's.

It's connected to the prior questions, but I guess.

Historically, a criticism or perhaps an observation of the business is that it's.

Quite disparate.

Clearly thats improves with SKU rationalization, and some businesses that have been sold.

I guess with this.

August is done.

Year that these businesses can all actually makes sense together to create a.

A more scaled efficient platform or.

Historically this combination of an opco and platform company come together.

Creating a more scaled organization that makes sense together over time or are there still going to be decisions that need to occur over time about <unk>.

Pruning and improving the portfolio, which I suppose is always an observation but.

More on the context of the supply chain initiatives that youre doing to try and create a more scaled organization of one I suppose.

Yes, I think thats exactly exactly the vision is and as <unk> said in your question. If you look at our at our businesses the businesses we have today.

The place, where we have a lot of commonality is in the top retailers.

So if you look at the top four retailers that the company does business within the U S.

Walmart target Amazon and Costco.

<unk> top four retailers are pretty consistent across every one of our business units and the and the thing. That's good about that is that's why that's integrated supply chain network makes a lot of sense, because we're shipping to the same customers the same location.

Instead of forcing those retailers to give US 23 separate orders and then we ship from 23 locations and we have 23 invoices of our shipping 23 small part less than truckload shipments. If we can have them give us one order on one set of terms and ship wonderful truck.

That is a huge efficiency for both us and for the retailer and I think it allows us to create.

Our competitive advantage versus many of our subscale competitors.

So.

That's largely the thinking behind that on the portfolio pruning point I think we've been pretty consistent there which is.

We think we've got strong organic growth opportunities in both top and bottom line in each of our business units. It doesn't mean that we're not going to do some portfolio moves in the future, but we're likely going to be more on the tuck in or acquisition or tuck out divestiture side.

But.

We're going to be driven by a shareholder value creation as we think about any portfolio moves.

One connection that book as we think about it and then the pandemic has helped that truly Neal is all about the home both indoors and outdoors.

<unk> really cater to that.

So whether it is.

Demand whether it is the kitchen, there are a lot of connections and we've just not.

In the past so it's more of a holding company approach not we're really integrating the backend as Chris said, but also the front, you'll see us do more connections between our brands more promotional opportunities because we think that there is a lot of connections, which we have just not exploit it and I think we're going to do that as we become.

More and more mature on the turnaround and go forward.

Yes.

Okay. Thanks, so much.

Yeah.

Your next question comes from Kevin Grundy with Jefferies.

Great. Thanks, good morning, everyone.

Two from me. This morning, if I may the first one on Amit for Chris.

Can you comment now on the margin and working capital opportunity, there, but particularly within the context of what you've already outlined Chris So that would be the gross margin benchmarks and the overhead benchmarks, which in aggregate are some 500 to 700 basis points of opportunity can you just comment on <unk>.

Be incremental to that or do you see it more as an accelerant to reaching those targets over time. So that's the first question and then just the second question.

I didn't hear any commentary I guess on share repurchases. I think you guys have kind of left the door open for that in the past I think your updated thoughts or the board's kind of updated thoughts there and whether Chris that the small tweaks to your capital structure target now down to two and a half from three if that changes your thinking at all with respect to returning cash.

Asked the shareholders. So thank you for both of those.

Good thanks, Kevin So on Harvard certainly, we expect <unk> to be a significant contributor to gross margin improvement I think that we view it not incremental to the 37% 38 target that we had put out previously I think we view it as a building block to getting to that target over time.

Tim.

On the overhead part we do not expect <unk> to have a material impact on overhead what I will say is that embedded in this year's guidance is a pretty significant overhead investment that we've made and the team and consulting cost et cetera for the <unk> project, but that's already embedded in.

Our existing guidance and when we actually.

Complete the project that cost will come out and so eventually that that sort of above above going cost that we've got built in this year on overhead is likely to go away as we get to 2023.

On the share repurchase question just to be clear.

As I mentioned in the prepared remarks.

We retired about 300 million euro of debt in Q3, and Q4, we've called our June 'twenty, two notes of $250 million, which.

Which we expect to retire in Q4 of this year.

From as we go into next year, we do not expect any more reduction in the level of our gross debt.

And we think that as we move into next year.

Going to move to our leverage target through EBITDA growth not through debt reduction.

And as a result, we.

Think that as we move into next year, it's going to open up the opportunity for share repurchase as we expect to generate more than enough cash to cover.

Investment in the business.

And the dividends.

Fully.

And so we are moving into a period next year, where the capital allocation begins to get freed up.

Very clear. Thank you guys. Good luck.

The final question comes from Lauren Lieberman with Barclays.

Great. Thank you.

I just had one question on.

Our relative competitive positioning because I think the fact that you were so forward thinking in.

Building inventory ahead of the holiday season, knowing what you know that the length of your supply chain and ocean freight et cetera et cetera. I was just curious how your in stock positions are comparing in key categories.

And I know market share is a very tough thing to measure on a lot of your businesses, but just even qualitatively how would you describe that environment the degree to which you're picking up.

Sure or it's already enhancing your relationship with retailers because of your service levels during the upcoming holiday season. Thanks.

Hi, Lauren.

Thank you.

Because out of shock I think it really varies it's not a one size fits all because.

Despite building up the inventory solve the businesses, where we are.

Importing that has an impact but I was just steady on shares.

The writing business as I mentioned really big winner on the share from not just events, but overall, we think throughout the year this year.

Year to date basis, our camera business.

I'd hate to use the word saying, it's been on fire, but its been doing amazingly well and.

We do believe that we're making a lot of traction the baby business.

<unk> been gaining share so I think we've got different businesses, where we are gaining share.

But there are some businesses, where the demand has been so high and unexpected that.

And also defense of the price points, we plan like in appliances, while we've had terrific growth.

We operate more on the opening price points and so there were so on a dollar basis, even though we've had good growth we may not be seeing the shed improvement. So I think it varies.

Outdoor we bring stuff I mean, we're really pleased to see the good growth that is happening.

And I think we're beginning to really get <unk>.

Supply right.

<unk> had some issues during.

July August, but I think we're now back on track there and outdoor the beverage side, especially we're getting back on track. So I think it varies.

Our food business some of the demand has been so high on things like ball certainly that has been challenged for us and.

But all that is really the.

It's got such a dominant share of that business.

So that sort of that has been complicated for us from <unk>.

<unk> bottles etcetera, so it varies and but let's put it this way everything we can do to maximize the top line opportunity.

Working in close collaboration with our customers.

It's been tough on service levels, because I wish our service levels were better but every competitor today I think wishing there'll be better. So so I can't say, it's nirvana, but I do think that we're doing our best and I really feel the one thing I can tell you and Laura our brands are in a better shape and rejuvenate that far.

Today than they were and I know one of your favorite businesses. So far says baby I would tell you, but you Didnt ask me, but I'll tell you because you usually asked about our baby innovation. So I'm very excited about the baby jogger.

City turn where you can turn the car seat to have the baby face you.

Now I wish I had <unk> $5 going get mined so hopefully I can stop using that someday, but that in the <unk>.

John Strollers.

So I think baby jogger, we're doing a lot to rejuvenate that business. So Brian sat in good shape. So we don't get the top line and the share count.

That's great. Thank you for such a thorough candid answer have a great weekend.

You too Lauren thank you.

This concludes our call today, a replay of the call will be available later today on our website IR Dot Newell brand's dotcom. Thank you you may now disconnect.

[music].

Okay.

Yes.

[music].

Good morning, and welcome to the Newell Brands' third quarter 2021 earnings conference call. At this time, all part participants are in a listen only mode.

After a brief discussion by management, we will open up the call for questions in order to stay within the time scheduled for the call. Please limit yourself to one question during the Q&A session. As a reminder, today's conference is being recorded.

Like web cast of this call is available at IR Dot Newell brand's dotcom.

I'll now turn the call over to <unk>, Vice President of Investor Relations. Mr. Ennis you may begin.

Thank you good morning, everyone welcome to Newell Brands' third quarter earnings call on the call with me today are Rob Vitale, Graham, 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 todays call well be making forward looking statements, which involve risks and uncertainties actual results and outcomes may differ materially and we undertake no obligation to update forward looking statements.

For you to the cautionary language and risk factors are available in our earnings release, our Form 10-K Form 10-Q, and other SEC filings available on our Investor Relations website 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 who are referred to as normalized measures. These non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP explanations of these non-GAAP measures and available reconciliations between GAAP.

Our non-GAAP measures can be found in today's earnings release and tables as well as in the other material on your Investor Relations website. Thank you and now I'll turn the call over to Ravi. Thank you Sophie and good morning, everyone and welcome to our call. We delivered solid results in the third quarter, which is reflected.

The effectiveness effectiveness of our strategy was the benefit is enhanced and agility of our operating model and portfolio yes.

Yesterday Cross sales grew 15, 2% versus 2000 trend as each business units contributed to such a terrific outcome normalized operating profit improved <unk>, 1% and normalized earnings per share increased about 14%.

We further strengthened our track record.

This quarter marked the fifth consecutive quarter of core sales growth and sixth straight quarter of domestic consumption growth for the company.

Courthouse in the quarter increased three 2% driven by excellent performance across five business units, writing baby home appliances home fragrance and now go on to our creation.

This was no small feat given the difficult year ago comparison of seven 2% core sales growth, which embedded a recovery across the majority of the <unk> businesses.

To normalize the pandemic related shifts we think it's useful to compare this year's top line to 2019 on.

On a two year stack basis yields courthouse grew low single digits in the third quarter. We also saw strong domestic consumption relative to 2019 across each of our business units.

Terrific result, and a testament to the significant progress.

That we've made in forging stronger relationships with charters as deleverage consumer insight and foresight and new product launches.

The resurgence in our writing business continue perhaps that team has done a superb job during the important back to school season with outstanding performance in consumption and share momentum as anticipated topline trends moderate and against elevated year ago results.

And our food and commercial businesses.

However, sales as well as domestic consumption for both business units remain about 2019 levels.

Consumer behavior.

<unk> evolve and categories will continue to normalize we believe that home at hub mindset.

As well as the heightened interest in outdoor activities and passionate about being there is also evident in the companys consumption trends as domestic Pos remains well ahead of 2020 and 2019 levels both in the third quarter and yesterday despite supply constraints.

Cost outs in North America mirrored that of the total company outside North America, Latin America stood out once again, delivering another quarter of double digit growth despite elevated comparisons.

Im also delighted that the strength of our iconic brands continue to come through this year harnessing the benefits from the Florida, five innovation funnel and our brand building efforts yesterday, many of our largest brands such as Gregg Lowe and <unk>.

Thank you, Kevin with Sharpie Rubbermaid first pillar Papermate dimer export BARDA, Mr. Coffee delivered excellent top line growth. Our brands team has also helped us to successfully implement price increases we are laser focused on protecting the company's gross margin and if necessary.

We will take additional pricing actions.

To ensure that we fully recruit the impact of inflation over time.

Similarly to the second quarter E. Commerce topline grew mid single digits with digital penetration closer trading 2% slightly above last year and significantly ahead of the mid teens level from 2018, we continue to invest behind our omni capabilities and are well positioned to capitalize on consumer demand <unk>.

So where they shop.

This is a testament to the excellent held for firefighting business consumption in the U S has been strong throughout 2021 and accelerated sequentially in the third bar as we leaned into the business momentum that higher A&P investment the.

The vast majority of K 12 schools in the USA in person.

During the back to school season, we saw a strong rebound in everyday writing business, which benefited from innovation such as sharp as Joe and choppy as note strong merchandising plans and distribution gains.

We picked up.

<unk> sure during the bar in our writing business as a whole, including key back to school category, such as patent expenses grew permanent market strategize markers and highlighters below the Pasco, yes, meaningfully enhance <unk> position as the pen category, where we have gained.

Over 850 basis points of share thus.

Thus far in training framework within Highlighters sharply S. Note has tripled its share of the growing highlights our market segment.

Core sales for our baby business increased double digit rate supported by terrific domestic consumption growth both relative to 2020 and 19 Q3 marked the fifth consecutive quarter of core sales growth driven by expanded points of distribution innovation continued strengthening.

As well as stimulus funding.

Babies, the most highly penetrated business online within <unk> portfolio, we leveraged our omni prowess to further boost our digital penetration in the quarter into the mid fifties VEBA.

We believe child tax credits as well as increases in disposable income and durable goods consumption have all benefited the gear market over the past several quarters, while the category is likely to moderate we expect it to remain healthy in the U S. Graco continued to gain momentum and picked up share in the rapidly growing market.

Home fragrance.

Its fifth consecutive quarter of Cogs improvement as core sales grew both versus the elevated 2000 trainee level as well as relative to 2019, driven in large part by EMEA in the U S. Yankee candle retail stores maintained their positive growth momentum benefiting from consumers increased <unk>.

<unk> as.

<unk> continued to expand our omni capabilities, we rolled out buy online and pickup in stores as well as ship from store options across our Yankee candle retail stores, which drove a favorable response from consumers and helped us to COVID-19 consumer demand.

As anticipated consumption moderated relative to the elevated base period, but was significantly ahead of the 2019 level home fragrance, along with writing and food our growth and value X accelerates, our businesses and I see tremendous runway for growth ahead.

<unk> team is gearing up for the holidays as Q4 is a crucial period for the business.

In the third quarter the business lapped it stopped toughest double digit core sales growth comparison of 2000 and was exacerbated by supply challenges, including a COVID-19 related lockdown across the steam up line to New Zealand, resulting in core sales decline, however, both topline and domestic consumption.

Were meaningfully ahead of the 2019 base, which highlights the stickiness of the habits of consumers developed throughout the pandemic, we expect the category to continue to normalize.

And that's been most evident on the <unk> side, we drove strong share momentum in food storage and preserving recent innovations such as rubber may take a launch there.

The updated rubbermaid beverage line as well as brilliant Clos have been instrumental in driving market share improvement rubbermaid as the elevate the consumer experience and fresh preserving balk pantry storage latch and ball nesting yards have contributed to share gains football.

And home appliances core sales increase for the sixth consecutive quarter, even as we lap the toughest double digit comparison of the year Latin America. Once again led the charge in this market <unk> brand is spearheading the trends for multi cooking functions and recently launched <unk> dos <unk>.

Their products as well as opposed to Reits compare with their products throughout 2021 poster blenders are celebrating the 70 <unk> anniversary in the U S and Latin America with brand activation and new product launches in each region.

Domestic Pos remains significantly ahead of 2019 levels and only modestly below last year's level. Although the category continues to normalize relative to the outsized growth levels seen throughout the pandemic.

Despite the fact that people have come back to diamond restaurants consumers continue to show interest in cooking at home post the pandemic.

In our commercial business sales core sales declined but the elevated base as the business cycled against a significant surge.

Serge.

Washroom solutions on a two year stack basis core sales increased nicely during third quarter. The team has done a great job in landing new wins, both on the <unk> and.

Our retail sites across a wide swath of categories, ranging from painting and refuse to material handling and others.

<unk> healthy POF in track channels, but have been significantly challenge on the supply side. The team is diligently addressing these constraints as well as inflationary pressures.

Due to develop publicized chip shortage.

Outdoor recreation business delivered its third straight quarter of core sales growth at nearly 2% against a difficult year ago comparison of 8% core sales improvement was fueled by the strength in the outdoor equipment and on the go beverage categories with the latter continue to rebound due to improved consumer mobility.

We are encouraged by the momentum in the outdoor in equipment unit.

POS exceeding 2019 levels. The consumer continues to show interest in our doors, a trend, which we think will endure and one we will continue to leverage throughout our innovation.

<unk> had another quarter of growth benefiting from enhanced product lineup in 2021 with strong plans in place for next year as well many of our carbon products such as the Sky.

<unk> turned cooler bag into bonus to our featured by USA today.

Perfect gifts for people, who love to travel so keep them in mind for the holidays.

Strong results thus far.

Normalized operating profit is expected to grow high single digits, a great outcome, particularly in the context of a difficult operating environment.

Although we are certainly not immune to the external forces.

Strategic decisions with action over the past several years have substantially strengthened the company and made our portfolio much more resilient.

First we invested in omni channel capabilities that have been instrumental in capturing consumer demand across all channels and on the direct to consumer side recently completed migration of phosphate in North America. The one consolidated platform with a dedicated team focused on continuous improvement on costs.

You may experience.

We substantially strengthened our innovation and marketing muscle leveraging consumer insights and four sites.

We've sharpened brand positioning for many of our top brands.

We have established joint business plans and enhanced relationships with key strategic retail parks gosh.

We have instituted a new hybrid organizational model that brings to our domain experts closer to our.

Customers and consumers, while leveraging the center core of scale and efficiencies.

We have made productivity a way of life.

We have reduced complexity and overheads improved cash conversion cycle and strengthen the balance sheet.

2021 has been a turning point for Neil despite challenges posed by supply and inflation.

Our teams have done an incredible job executing in this environment and we are poised to deliver bandwidth plus percentage core sales growth this year.

First for our company in recent history.

We recognize that training 21 has been a tale of two cities a first half and second half story, we delivered 23% core sales growth in the first half and in the second half we're lapping strong growth from gaining trend. The fact that the group three 2% in Q3.

On top of last year's growth, it's an indication that our brands are resilient or being rejuvenated and we have the ability to grow even in the context of strong comps.

The power of our diverse portfolio is coming through.

The macro issues and the pandemic has taught us that we just cannot be reactive we're laser focused on continuing to strengthen the fundamentals and reducing complexity, including lowering our SKU count improving forecast accuracy, simplifying our it infrastructure and making it easier for customers to do business with us.

Theyre, creating an integrated one dealer distribution network through the consolidation of all of our trading supply chains under the banner of project Ahmed.

Looking forward, we expect supply challenges and inflation to persist.

Therefore, our stance is one of preparedness and realism, and taking proactive actions to successfully navigate the macro environment.

If 2021 was the year of turbocharging the topline due on entering Q2 will be focused on improving margins improving margins through five primary levers.

First an intense focus on pricing and optimizing promotional spending we've now taken price increases in 2020, one across all of our businesses and most geographies.

Chad will be to maximize the impact of carryover pricing from 'twenty, one into 'twenty, two and we will be prepared to take further increases in 'twenty two based on inflationary trends to protect gross margin.

Of course, we will do this in consultation with our customers and ensure that our brands remain a great value for consumers.

And we will accelerate our efforts to improve the profitability of our international business by reducing their application consolidating operations and adopting a one neural approach.

Third we will price innovations to be margin accretive.

We will continue to be more efficient with overhead.

And finally, we will continue to.

Strive to be best in class and our productivity efforts and drive about 3% to 4% improvement in Cogs as move down over the last three years.

I'm extremely thankful to our 31.

<unk> employees for their unwavering commitment commitment tenacity and perseverance.

I remain optimistic that <unk> can create tremendous shareholder value and our best days are ahead of us.

<unk> set outputs and now over to Chris.

Thank you Ravi and good morning, everyone. During the third quarter, we delivered solid results as we continue to drive our strategy into action strong operational execution, coupled with financial discipline enabled us to generate better than anticipated operating profit and sustained progress on the cash conversion cycle we.

Push this in the context of a choppy operating environment as our teams did a terrific job navigating through a myriad of supply and logistical bottlenecks before getting into the details I want to provide a little color on the current operating environment and proactive choices, we are making.

Similar to other companies throughout the third quarter, we continued to experience significant inflation and supply chain disruption.

Escalation in cost has been an ongoing dynamic throughout 2021.

While inflationary pressures have been broad based the largest impact for us has been around commodities, particularly RASM ocean freight sourced finished goods and labor the expected headwind from inflation on 2021 cost of goods sold is now forecast to be about $40 million worse relative to our expectations.

Patients last quarter.

We currently expect inflation to represent 9% of our full year cost of goods sold as compared to our expectation of about 3% at the start of the year.

We have taken numerous actions to alleviate the headwind from inflation, including leaving in on our productivity initiatives.

In implementing price increases across all of our businesses with some announcing multiple rounds.

<unk> to exercise disciplined control over expenses.

Driving efficiencies from promotional spend and leveraging strong topline growth.

Full benefit from the mitigating actions to offset the unprecedented inflationary pressures will not flow through.

Until next year, given the timing lag on pricing.

We do expect that Q3 represents the largest gap between the pricing and inflation impact through the P&L and expect this gap to narrow sequentially from here.

Moving on to supply chain.

This has been an ongoing challenge throughout 2021.

However, the significant progress we have driven on SKU rationalization over the past few years, along with an early start on mitigating tactics tactics have put us in an advantage and allowed us to largely meet the strong demand.

Some of the actions we've taken early in 2021 and throughout the year include the following.

Building inventory on top selling and high priority skus, improving our forecasting process and adjusting it for longer lead times, diversifying our supplier base where feasible.

Accelerating automation across our factories and distribution centers.

We recently announced a new supply chain initiative oven, which is expected to transform Newell go to market capabilities and end to end customer experience in the U S.

Enhanced customer service levels and drive significant operational efficiencies.

We are planning to optimize the Companys distribution network in the U S by consolidating 23 business unit centric supply chain into a single integrated supply chain.

We expect it will take about 18 months to fully implement aman to many minimize any potential disruption we intend to roll it out in waves. During Q3, we passed an important milestone as we completed blueprinting and the integrated design phase we are now moving into the testing and.

Mentation phase upon completion of it is expected to streamline automate and digitize, our supply chain and position us as a reliable retailer partner of choice.

While <unk> was being contemplated prior to the recent events once implemented it should position us on a much stronger footing going forward.

Let's now move to third quarter results.

Net sales grew three 3% year over year to $2 8 billion.

Normalized gross margin contracted 330 basis points year over year to 36% gains from fuel productivity savings.

Favorable business mix as well as pricing were more than offset by the inflationary headwind, which was nearly 800 basis points in the quarter.

Normalized operating margin came in at 11, 4% down from 14, 9% a year ago, reflecting gross margin pressure as well as a significant step up in advertising and promotional expense.

We continued to tightly manage costs and drive overhead to sales ratio lower year over year.

Net interest expense came down by $6 million year over year to $65 million, reflecting debt reduction of about $750 million relative to last year.

The normalized tax rate was 8% versus a normalized tax benefit of nearly 7% in the year ago period due to a lower contribution from discrete items.

Normalized diluted earnings per share amounted to <unk> 54.

As compared to 84 in Q3 of 2020.

The unfavorable move in the tax rate accounted for about 12 year over year.

Now turning to our segment performance core sales for the commercial solutions segment decreased nine 2% due to declines in both the commercial and connected home and security business units.

Which faced tough year ago comps.

Core sales for home appliances grew one 9% primarily driven by Latin America.

Core sales for the learning and development segment grew 19, 6% as both the writing and baby business units delivered strong double digit increases.

Core sales in the outdoor recreation segment increased one 7%.

<unk> net sales were eight 5% above the third quarter of 2019 with each of the company's segments exceeding levels from two years ago.

On a two year stacked basis core sales increased in the low double digits during Q3 as well as year to date periods.

Year to date in 2021, the company's operating cash flow was $490 million versus $820 million in the year ago period.

This reflects an increase in working capital to support top line momentum and elevated in transit times for inventory, which more than offset significant operating income growth with.

We continue to drive improvement in cash conversion cycle, which came down by another 10 days to 79 days.

At the end of the third quarter <unk> leverage ratio was three one times down from three nine times a year ago. The improvement reflects our proactive choice pay down debt as well as a mid teen increase in trailing 12 month normalized EBITDA.

In Q3, the company redeemed approximately 300 million euros of at 375% notes that were due in October 2021.

Furthermore, in mid October we announced our intention to redeem the remaining $250 million of the Companys, 4% Senior notes next month.

This morning, we updated our outlook for 2021 accounting for the stronger than anticipated performance in Q3 further escalation in cost in the fourth quarter.

Continuation of supply chain disruption as well as a relatively healthy consumer backdrop in the U S.

We are pleased to once again raise our topline forecast for 2021 as a result of healthy consumption and the early actions, we have taken to alleviate the supply chain constraints.

Our revised top line guidance implies that core sales are expected to grow versus 2019 during each quarter of 2021.

Our outlook also indicates the core sales will be up versus 2020, and the first and second halves of 2021 as well as for the full year.

Let's go through the details of the full year of 2021 outlook. We currently forecast net sales of $10 38 to 10, four 6 billion.

Up from 10, 1% to 10, three 5 billion previously.

This represents about 11% year over year growth, we are raising our core sales outlook to 10% to 11% from 7% to 10% previously with the majority of the upside in the fourth quarter.

While the US dollar has strengthened recently currency favorability is still expected to modestly outweigh the impact from Yankee candle retail store closures and other minor business exits.

Our updated forecast implies that normalized operating profit grows at a high single digit rate.

Solid result, when factoring in the unprecedented level of inflation.

We anticipate an increase in the absolute level of advertising and promotion spending.

Forecast assumes a mid teens normalized effective tax rate and a slight increase in shares outstanding.