Q1 2022 Newell Brands Inc Earnings Call

April 29, 2022

Please standby.

Good morning, and welcome to Newell Brands' first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After a brief discussion by management, we will open the call for questions.

Order to stay within the time schedule for the call. Please limit yourself to one question during the Q&A session. As a reminder, today's conference is being recorded a live webcast of this call is available at IR Dot Newell brand's dotcom.

I will now turn the call over to Sofia fitness, Vice President of Investor Relations. Mr. <unk>. Please go ahead.

Thank you good morning, everyone and welcome to Newell Brands' first quarter earnings call on the call with me today are Robert colleague 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 today's call, we will be making forward looking statements, which we love risks and uncertainty 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 is 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.

Those are referred to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP explanations of these non-GAAP measures and available or completions between GAAP and non-GAAP measures can be found in today's earnings release in table as well as in other.

Our new Investor Relations website.

And now I'll turn the call over to Robbie Thank you Sofia.

Good morning, everyone and welcome to the neuro Neal first quarter call.

We are pleased with the strong start to 2022.

Building on the momentum from the prior quarters as our team remains laser focused on executing with excellence in a challenging environment.

Core sales grew 6.9% against a difficult 29% comparison, while normalized operating income and normalized earnings per share increased 10, 4%.

And 20% respectively.

It's quite significant.

Yeah.

Excuse me ongoing inflation.

This demonstrates the power of our diversified portfolio.

And the nimbleness of our models were significantly better today at leveraging our brands to scale growth and efficiency.

He is working.

And we have put a strong foundation in place for sustainable and profitable growth.

Q1 marked the seventh consecutive quarter of course has growth on your brands in Q1, our core sales growth was driven by pricing as volume was relatively flat.

Wholesales grew in five of seven business units, including food driving outdoor recreation baby and commercial.

Outdoor recreation and <unk> businesses led the charge with double digit increases versus the prior year period, despite difficult comparisons.

Our presence in home appliances declined in the first quarter as they lapped a significant surge in demand in the year ago period due to the pandemic and the passage of stimulus in the U S. Importantly on both a two year and three year stack basis core sales increased in the double digit rate.

Hey.

All seven business units a fantastic achievement.

As we shared last quarter, given the ongoing supply chain challenges setup as has the industry retailers accelerated orders some seasonal products into the first quarter, particularly in the outdoor recreation and driving businesses, which contributed to the strong top line results.

We are proud of the fact that we were able to fulfill these orders despite external obstacles showing the team's resilience and agility as well as the power one Neil.

As anticipated, we experienced normalization in category and consumption trends relative to last year, which established charged by the stimulus in the U S. While domestic Pos was below the elevated year ago base. It remains well ahead of 2019 and <unk> levels showing that the behavioral shifts.

<unk> tried to pandemic are enduring.

Our diverse all weather portfolio is well positioned to capitalize on the evolving consumer trends surrounding hybrid what commerce hub as well as increased focus on wellbeing outdoor activities in sustainability.

We continue to shop, and brand positioning and enhance our marketing and innovation muscle and improve our execution in the marketplace substantially strengthening our iconic purpose driven brands.

These actions have unlocked another quarter of strong growth.

And many of our largest brands such as Goldman Brightcove Rubbermaid Rubbermaid commercial products Sharpie paper mate and ball.

14 of our top 20 brands grew in Q1 versus last year.

We're continuing to elevate the digital IQ of the organization and believe our early investments behind Omnichannel execution are driving stronger connections with our customers and consumers.

Early April we launched a new creative kitchen in Hoboken, New Jersey, which is a new dream kitchen space and inspiring.

It's an incubator that will settle up a steady stream of recipes and tips connecting people with the latest kitchen and innovations food and kitchen trends together with our partner over produce cutting edge and inspiring content for all digital platforms showcasing our innovations hosting live events.

The studio audience, and partnering with Influencers and customers to engage with media. This is really exciting.

Great way to showcase our new and differentiated innovations in food and appliances that satisfy consumers' unmet needs. One such product is that a recently launched rubbermaid jewelry bakeware.

And all in one bakeware solution or broadening banking freezing server and storage innovation is the lifeblood of every consumer products company and we have been hard at work reigniting the growth engine.

Leveraging consumer and shopper insights for sites analytics and latest trends.

Okay.

From a geographic perspective sales in North America grew at nearly twice the rate of international markets.

EMEA softened against a difficult comparison.

The impact on consumer sentiment from the unfortunate or.

In UK.

Let me now shed some light on business unit results, starting with driving where we saw continued momentum both on top line and market share as the fundamentals remained in excellent shape <unk> SaaS growth for the fifth straight quarter of lapping a strong double digit increase in the year ago period, driven by North America, Latin America and Asia Pacific.

While the commercial Slash office channel still remains below pre pandemic levels, we are winning there as well and we're seeing year over year growth in this channel as people return to offices, albeit in a hybrid environment.

Arriving and creative expression <unk> and fine writing all growing in the quarter, helping to offset the decline in lengthening labeling due to chip shortages.

Given the ongoing supply challenges across the industry retailers and accelerated some of our back to school orders into Q1, which contributed to the strong results. We believe we are well positioned for the upcoming back to school season, and whether how strong marketing and merchandising plans in place to capture consumer demand.

And maybe the core sales increase was driven by North America, and APAC markets from a category perspective, both baby gear and baby care grew core sales, even as the business lapped the double digit comp that was aided by the stimulus in the U S.

This is particularly impressive given the pervasive supplier challenges that have been pressuring availability of products.

Food delivered.

Excellent quarter core sales grew at a low double digit pace, even as it lapped a very difficult double digit year ago comparison.

Selecting strong growth across the fresh preserving cookware and bakeware as well as food storage and kitchen organization categories.

March marked the largest global sales in over five years volt fresh preserving.

Fantastic results fueled by strong consumption and innovation.

This business goes from strength to strength and our teams continue to leverage favorable trends and new product launches to draw consumers into this category.

Even as mobility continues to improve and more people are returning towards in office kitchen remains an integral part of consumers' lives.

In the context of a hybrid work environment in a highly inflationary backdrop, we believe that food consumption at home will remain ahead of pre pandemic levels with our leading brands well positioned to capitalize on these trends.

Home fragrance core core SaaS and consumption declined against a record first quarter performance a year ago with pandemic driven demand and category trends have slowed down as expected modest core growth.

It was not enough to offset declines in North America.

On a two and three year stacked basis core sales grew in the strong double digit rate.

Similar to home appliances.

We expect the category to continue to normalize through the balance of the year, but feel good about brand health and new product pipeline, both within and outside the capital category.

Core sales growth for home appliances declined low single digits as the business lapped a significant surge in consumption last year when it grew nearly 39%.

Core sales in Latin America were more than offset by declines in other regions. Both two and three year stack core growth rates when the strong double digit rate given the challenging comparisons we expect the slowdown in consumption to continue in this category as shopping behavior normalizes.

The outdoor recreation business continued its excellent momentum and stole the show once again, that's core sales increased 22, 9% on top of 7% in the year ago period with Q1, marking the fifth consecutive quarter of growth. The strong performance was broad based across all.

All regions and major businesses driven by retail our optimism regarding the upcoming season with outdoor participation expected to remain robust.

Customers place some of their orders for Argo equipment earlier than usual due to the unpredictable supply chain environment to the seasonal nature of the category.

Strong topline and share momentum in the beverage business.

Persisted in Q1, <unk> innovation and brand building efforts behind configure and Bubba continues to gain traction with the category further benefiting from increasing consumer mobility.

Core SaaS growth for the commercial business accelerated to seven 4% against its toughest comparison of the year led by North America Latin America.

<unk> momentum in the quarter was supported by pricing.

We're also seeing improved product availability and view our portfolio diversity across both commercial and retail verticals as an advantage.

Cleaning material handling refuse and recycling outdoor and organization and Washington was a major driver so call sales growth, helping to offset softness in disposable gloves, which are lapping a high base periods due to COVID-19 .

We are encouraged by a strong order book and believe that return to office bodes well for the commercial categories.

The external environment has remained quite difficult in the first quarter as prevailing headwinds surrounding supply chain and inflation.

Further exacerbated by the unfortunate in Ukraine.

Even as inflationary pressures have gotten more onerous than we previously anticipated due to the ongoing political situation and its impact on cost our resolve to restore gross margin and drive operating margins to remain higher than ever despite.

Despite the significant impact from inflation.

Normalized operating margin improved about 50 basis points versus last year ahead of our expectations, largely reflecting incremental pricing actions and stronger management of overhead costs. We are proceeding swiftly with mitigating actions, giving us confidence to reiterate our <unk>.

Outlook for the year in spite of about $18 million of incremental inflation.

We still expect 2022 to be your margins, even though inflation has continued to move against us.

Our outlook calls for top and bottom line growth, despite a challenging and uncertain macro backdrop.

For 2022.

We remain focused on five key priorities first improving gross margins as we continue to double down on our efforts to offset.

The significant inflationary pressures and supply chain challenges, while improving customer service levels. The strength of our brands has allowed us to take the appropriate pricing actions on all of our businesses, while ensuring they remain a good value for consumers. In addition, we will continue to optimize promotional.

Spain price innovation to be gross margin accretive.

The A&P spend towards higher gross margin categories and drive productivity.

Second continue to drive core sales growth and the innovations.

Focus on mass training, the 360 degree consumer and shopper journey, and delight consumers and customers that each touch point and shoppers at each touch point with compelling storytelling focused on consumer value and brand uniqueness.

Capture consumer demand by directing and B to the brands with the highest margins and growth potential.

<unk> target appropriate consumer segments to maximize conversion.

There are turbocharged international to expedite growth and profits fourth continued investing in transforming our supply chain. So we project Calvin and automation.

And last but not least continuing to strengthen the one year old culture and build on our employee engagement and momentum.

We remain committed to driving sustainable and profitable growth and building operational excellence throughout the organization, while being a force for good.

We recently announced a carbon neutrality goal by 2044, all scope, one and scope two emissions.

We'll also continue to address existing macro headwinds.

And forge ahead with our strategic initiatives, such as project Talbot automation and realizing the potential of international straw.

Strong results in Q1.

Building on our track record of following through with our commitments and we are confident in our outlook for 2022.

I am thankful to our employees for always rising to the occasion and helping us to successfully navigating through the ever changing operating environment.

Continue to believe that fuels best days are ahead of us and we have a significant opportunity to drive shareholder value onwards, outputs and now I'll turn it over to Chris.

Thank you Ravi and good morning, everyone.

During the first quarter, we built on the business momentum driving a better than anticipated outcome on both top and bottom lines through swift and decisive actions to mitigate the impact of inflation and supply chain challenges are.

Our actions over the past three plus years to drive sales growth reduced complexity and overhead cost double down on productivity improved working capital management and build supply chain agility have put us in a much stronger position to effectively address today's challenges.

Before we get into the quarterly discussion, let me provide some perspective on the current operating environment.

Inflation remains stubbornly high and our expectation for the full year has moved up slightly since February .

The warranty Ukraine took up energy prices, which in turn resulted in higher than initially anticipated cost for resin and transportation. We now expect inflation to account for about 9% of cost of goods sold in 2022, similar to last year and about 1% above our previous forecast.

We continue to anticipate that ocean freight sourced finished goods and wages, we will see the largest year over year increases.

We remain laser focused on offsetting the inflationary pressure and improving the companys gross margin by implementing the following actions.

Driving productivity on self manufactured operations taken.

Taking the necessary pricing actions across each business unit, reducing overhead costs.

Optimizing the effectiveness of promotional spend.

And executing on the previously communicated product line exit from low margin categories, primarily in home appliances, and outdoor <unk> recreation businesses.

We realize that the consumer is seeing higher prices across every facet of their lives and we will remain disciplined with our pricing actions, while continuing to carefully monitor elasticities. The contribution from pricing has continued to build sequentially with additional actions expected to be implemented in Q2 for the.

Full year, we still expect pricing and productivity to more than offset the impact of inflation.

The external supply chain dynamics have remained challenging as the industry continues to grapple with longer lead times for source products due to ongoing shipping delays port congestion limited container availability and constraints on components labor and trucking capacity.

China's zero Covid policy also resulted in temporary lockdowns in Shenzhen, and Shanghai regions, which further exacerbated these issues.

These challenges are not new nor are they unique to newell brands and our teams have continued to do an incredible job navigating through this operating backdrop.

To deal with this we made a series of decisions that have significantly strengthened our supply chain performance.

For example, we made a proactive decision to build inventory on top selling and high priority Skus.

We strengthened our labor force through enhanced compensation benefits training opportunities and working conditions, we accelerated automation efforts across our facilities and with <unk>, we are creating a scaled distribution and transportation platform to further drive operational excellence, while we do not expect the.

External supply chain pressures to ease during the balance of the year, our fill rates are improving and we believe that we are well positioned to meet consumer demand and the majority of our businesses.

Now, let's turn to first quarter performance.

These results include contribution from the connected home and security business, which was divested on March 31, the only metric that excludes CHF. This core sales growth.

Net sales increased four 4% to $2 $4 billion as core sales growth and higher net sales in the CHS business were partially offset by unfavorable foreign exchange as well as category and retail store exits core sales growth grew six 9% on top of a challenging 29% comparison.

From last year.

Core sales increased in five of seven business units as we lapped difficult comps.

On both a two and three year stock basis core sales increased in every business unit.

Pricing was the primary driver of core sales growth as unit volume was relatively flat to year ago.

Core sales growth was ahead of our expectations due to timing of customer seasonal orders and improved supply chain performance.

Normalized gross margin contracted 100 basis points versus last year to 31, 2%, reflecting over 700 basis points of pressure from inflation and the unfavorable impact from foreign exchange, which offset the benefits from pricing and fuel productivity savings.

The gross margin performance improved sequentially from Q4, largely due to a higher contribution from pricing.

Normalized operating margin expanded 50 basis points year over year to 10, 6% as SG&A cost leverage, particularly in overheads more than offset the impact of gross margin contraction.

Net interest expense declined by $8 million year over year to $59 million as we reduced the company's gross debt by $609 million since March of 2021 <unk>.

The normalized tax rate was 18, 4% below last year's tax rate of 22, 4% largely due to a higher contribution from discrete tax benefits.

We reported normalized diluted earnings per share of <unk> 36 or <unk>.

20% increase from 30, a year ago upside relative to the outlook. We provided was driven by higher sales growth.

Cost control and a slightly lower than expected tax rate.

Turning to segment results core sales for the commercial solutions segment grew seven 4% on top of a double digit comparison from a year ago.

Core sales for home appliances declined one 9% as the business lapped 38, 9% growth in the year ago quarter. Its toughest comparison of the year.

Core sales for the home solutions segment grew one 4% on top of a 33, 8% last year.

As growth in the food business unit more than offset a decline in home fragrance due to a difficult comparison.

Core sales for the learning and development segment increased seven 4% on top of 17, 3% last year driven by growth in both the writing and baby businesses.

Core sales for the outdoor recreation segment grew 22, 9% on top of 7% last year as retailers ordered inventory earlier this year to prepare for the spring summer season.

Moving onto cash flow and balance sheet.

Q1, operating cash flow was a use of $272 million as compared to a use of $25 million last year, driven by increased working capital to support sales growth.

We continued to strategically build inventories on top selling skus to mitigate the impact of supply chain obstacles and accommodate the shift in timing of customer orders cash.

Cash conversion cycle moved up slightly mostly due to higher inventory.

At the end of the quarter, we completed the divestiture of the <unk> business to <unk> technologies for a purchase price of $593 million.

Subject to customary working capital and transaction adjustments. We also used $275 million of the company's $375 million share repurchase authorization to buy back shares from Carl Icahn uncertain of his affiliates.

We ended Q1 with a leverage ratio of three one times slightly below three three times in the year ago period, reflecting both debt paydown and normalized EBITDA growth.

Before going through the outlook for Q2, and the full year 2022, let me provide some context for the forecast too.

2022 is off to a strong start with the implementation of the pricing actions that we've announced driving both topline growth and better margin performance. Thus.

Thus far our volume elasticities have been below historical levels for most of the categories. We compete.

This is something we will continue to monitor and evaluate by category.

Within the company's outlook, we continue to assume a moderate level of volume elasticity from price increases.

While consumption patterns vary by business and moderation continues in some categories overall, they remain above pre pandemic levels.

Q1 results as well as the outlook for the balance of the year do reflect a shift in customer order patterns. As a result of the ongoing supply chain constraints. This is benefiting the first half of the year at the expense of the back half.

Given the recent move in inputs, our inflation assumption for the year has gotten slightly worse as we now expected to account for about 9% of cost of goods sold in 2022.

Going forward, we will continue to act with speed to address both inflationary and supply related dynamics, we will maintain disciplined cost and cash management.

And continue to build operational excellence as we accelerate automation and move into the implementation stage of oven.

Strong Q1 results give us confidence to reaffirm the full year 2022 outlook, despite macro uncertainties and external headwinds.

For the full year 2022, and we continue to expect net sales of 993% to <unk>, one 3 billion.

Reflecting flat to 2% growth in core sales and an over 6% headwind from the divestiture of the CHS business category exits closure of some Yankee candle retail stores as well as unfavorable foreign exchange risk.

This guidance contemplates normalized operating margin improvement of about $50 to 80 basis points versus last year to 11, 5% to 11, 8%.

Pricing productivity and mix optimization actions are expected to more than offset a nearly 600 basis point unfavorable impact from inflation as well as higher investment in advertising and promotion.

Normalized earnings per share outlook remains unchanged at $1 85 to $1 93 versus $1 82 in 2021, and currently reflects a mid teens normalized effective tax rate and a 2% decline in diluted shares outstanding.

There is also no change in the operating cash flow forecast of $800 million to $850 million, which included a year over year headwind from the loss of profits on <unk>, starting in Q2 and onetime cash tax payment on this deal.

Although we have made strategic investments in inventory our forecast does assume that the cash conversion cycle improves year over year we.

We still anticipate about $350 million in capital expenditures for the year with the increase versus 2021, reflecting onetime capital costs supporting infrastructure build for project often.

For Q2, we are forecasting net sales of 252% to $2 $5 7 billion with.

With low single digit core sales growth being offset by greater than 8% headwind from the sale of the CHS business Foreign exchange category exits as well as closure of some Yankee candle retail stores.

Similar to Q1, we are assuming some acceleration of customer orders from Q3 to Q2 as retailers look to secure inventory earlier in the season and we have an oven implementation wave planned for early July .

We expect normalized operating margin to contract 50 to 90 basis points year over year to 11, 7% to 12, 1%, reflecting a meaningful step up in advertising and promotion spending during the quarter and incremental inflation.

We are forecasting a normalized effective tax rate in the low 20% range and approximately 2% reduction in diluted shares outstanding with normalized earnings per share in the $45 to 48% range.

Newell brands as a stronger and more agile company today due to the decisive actions, we have taken to drive the turnaround and position the company for sustainable and profitable growth, we will maintain strong financial and operational discipline as we navigate through this environment.

We continue to see a long runway ahead for value creation, operator, let's now move to Q&A.

Thank you if you would like to signal with questions. Please press star one on your Touchtone telephone. If you are joining us today use a speaker phone. Please make sure mute function is turned off to allow your signal to reach our equipment again that is star one.

I would like to signal with questions and our first question will come from Bill Chappell with <unk> Securities.

Thanks, Good morning.

Good morning Bill.

Yes.

First question I guess, just kind of talk about elasticity that youre seeing or if it's maybe too early across the business units and kind of expectations for <unk>.

Built in for recession or no recession, as we move through the back half. Thanks.

I'll have Chris comment on elasticity and then ill.

Talk about your second part of the question, yes. So.

So far what we're seeing on pricing elasticity is there.

It is better than what our historical our models would suggest.

In other words, we're not seeing.

The typical volume impact from the pricing, we've taken and I think thats really a function of the fact that the.

The inflationary cost pressures affecting all manufacturers and so as we move prices higher and most of our categories competition has also move prices higher.

And so in many cases, there is not a price gap that's been created that's leading to elasticity.

We continue its still early days on this we continue to monitor the situation.

We mentioned in the first quarter pricing was the primary contributor to the company's core sales growth of six 9% with volume is relatively flat.

For the balance of the year whats embedded in our outlook is that there will be some price elasticity, we continue to expect.

For the outlook for the year pricing to be a high single digit contributor to core sales growth.

And volume to be down mid single digits. So we have not changed that view.

And the outlook for the full year, that's consistent with what we said when we started the year.

So the second part of your question and maybe I'll expand.

Expanded which you may not have intended but I presume you are really the question is about.

Recessionary conditions, the health of the consumer.

And the impact did I get that right.

Yes, absolutely.

Okay.

Here is I think.

While consumption in the first quarter.

Was down versus last year.

We have to recognize first quarter was very peculiar quarter in the sense you had that in 2020 . One you had that big stimulus in January than the big stimulus in March.

Some of the consumption growth when we look back and see was just gigantic and.

Take illustrate but say.

Home solutions and I think on core sales home solutions grew about 34%. If my memory serves me correctly last year at home fragrance, which is part of that.

<unk>.

<unk> was the biggest contributor was far bigger than the 30 call.

So and consumption. So if you think about that consumption was even higher and so to lap something like that that's fairly extraordinary.

So it is very tough right now to parse out what is price elasticity. What is stimulus. So we think that stimulus has been the big big aspect.

Going forward, there's no question that we will.

Have to be quite sensitive on some of the lower income consumer is and the channels they shop at.

And.

We are well positioned though because we have.

Most of our brands.

We're very big on good better best and in the last few years, we've sharpened back very much to make sure that this really good differentiation between good better best.

And so I think that allows us to cater to the different types of consumers.

So I think thats. The second part is a lot of our messaging and advertising social media.

We're very much now on a value based messaging.

And making sure even though we've taken price increases to the strength of our brands.

Trying to show that we are a great value and the other aspect is I think the fact that we've launched a lot of innovations.

Those innovations are providing the uniqueness that show hey, even though we've taken off price I think consumers are looking for value.

Rather than the absolute price point, and we think we are.

We remain a good value.

So Andrew.

And look there are many categories.

Now, we're actually seeing consumption increases writing.

In different parts of the World, we're seeing consumption increase in now and at the office channel opens up we think that will continue to accelerate and we are gaining share. So just think about it right with our sharp PS paper mate.

We have fantastic gross margins, we're growing and growing share. So I think we are fairly buoyant on that <unk>.

Commercial which last year was very tough for the commercial business because of inflation.

Yes.

With office office has pretty much close now, it's coming back and buying that businesses first quarter up 7%. It's growing back I'm very positive about end users, even though we've taken a lot of price increases.

Because the rubbermaid commercial brand is so strong and we are putting so many innovations like rubbermaid brewed with wheels material handling with new technologies.

I think the power of innovation is helping that the last comment I would make.

We have been striving for distribution improvements and new channels and I think that is helping us getting incremental distribution so going after new consumers.

And then the last comment would be as we have we're really monitoring that what I call. The 360 degree consumer journey and shopper journey as to what it is becoming more omnichannel have you targeted them. How do you reach them in the moment of where they start thinking about.

The category to the moment of decision, making and I think all of this will help us.

In our journey so on the whole, yes, there's some concern about consumer demand out there, but I remain volume to end.

If anything I think on the top line about one one other quarter, where we're making our own expectations and I think the street so I.

Feel pretty good about it.

And our next question will come from Wendy Nicholson with Citi.

Hi, I wanted to ask about project Ahmed because it's clearly.

Yielding benefits and it's an important part of your sort of next step towards higher margins.

So Chris are you seeing any challenges in terms of implementing all of it or any of the things that you're trying to do I'm. Just wondering if the supply chain is getting in the way or if there is any.

Any impact in terms of the timing of the savings youre going to generate from that program.

Thanks Wendy.

It's very topical and top of mind not just for me, but for many of our employees around across the company.

We are very much an implementation phase we remain.

Largely on track with the original timeline that we've set recall that all of it is a phased implementation and just to give you a sense of where we are in the program.

Last year, we did the detailed design work, we have now completed the systems testing.

Work and that has gone well, we have already executed the centralization of customer service, we have already executed the centralization of our distribution and transportation internal organization. We've now largely compete completed the implementation of a transportation outsource provider, which.

A key enabler those.

Transitions have happened or were currently executing where we're headed to which I alluded to in the prepared remarks is.

In early July we will turn on the first wave of the Newell distribution company and that will affect.

The food the home appliance and the baby businesses, which will move into the new normal distribution company and so that is a is a big milestone for us.

We have made a tremendous progress with most of our retail partners.

Call that we had.

A different sets of payment terms by business unit.

We've now negotiated with the majority of our <unk>.

Retail partners too.

Acyclic harmonize those and go to a single set of payment terms panel, which will be implementing as we move into July .

We've got the two new distribution centers, the Newbuild distribution center in Pennsylvania is now open and fully operational which we are excited about.

And the Gastonia, South Carolina will be opening this fall so.

We are very much in the implementation phase.

I have said previously that this year will remain an investment year for the company.

We're.

Largely doing the implementation work this year when we get to next year in 2023 is when we expect.

The <unk> program to <unk>.

Turn into a cost savings benefit for the company Randy I would like to add one thing.

<unk> done all of it.

<unk> of it five years ago.

It could have been a disaster.

Even three years ago driven difficult just.

Just imagine with a company, where we've had 23 separate supply chain.

Defying them into one.

Walkman created as a culture of one <unk> and that.

Is so important to the execution of this.

Have more than 500 people involved in this project Chris has done a terrific job, leading this initiative, but we have galvanized all of the people because they believe in one Neil.

We've been able to overcome the silos.

And two and the business units have given up control on the start to say Hey, we think it's right for the company to have one distribution company. This whole concept of a one off.

Voice one truck is very powerful so I think looking.

Looking 10 years from now people will look back and say this was one of the most extraordinarily decisions you have made.

And our next question will come from Andrea Teixeira with Jpmorgan.

Hi, Good morning, I was just hoping you can update a little bit more underwriting segment and the puts and takes we should be seeing.

Head of your peak season.

And from that any we've heard a lot of supply chain issues in many parts of the world and in particular, obviously as you know in China. So I know.

You saw some of the things from there, but you also source from Mexico.

So if you can give us like a little bit of an update there and so that we understand embedded in your second quarter Guide you have increased marketing investments that I understand.

Just on that and not flowing through all that.

The upside we saw in EPS for the first quarter into the full year. So I was just trying to.

Bridge, the EPS guidance with what you've done so far thank you so much.

So I'll tackle the first one and then how Chris tackle the second.

Andrea So the writing business.

Had a banner year last year.

23% growth last year was just great.

So, but we've got.

We're off to a great start in <unk>.

Last quarter.

And.

The the brands remains very strong whether it's sharpie, whether it's paper mate.

Good set of innovations, but we also got innovations that are coming in.

Later part of the.

So and it's not just a U S say, we're doing well in Europe , we're doing well in Australia.

Just saw a shed increases.

In different parts of the world.

So I would just say that.

And even though the activity side is beginning to have a little bounce. So I would say the writing business is very strong and now is the office segment opening up.

And.

I think that'll be that'll add because.

That was a.

Decent size.

Our overall business.

So I think that will help as well and we are winning already better than others.

<unk>.

Think about having powerful brands.

So overall.

And I think.

Retailers deliberately because they wanted to make sure.

They were ready for the season.

Did that I think so far we don't see any.

Add flags on the season, if anything we see positive views.

And the only part of the business that we have some.

Issues, which is purely supply chain related is the diamond brand make us of chips and if he had the chips, we would just do even better though even there we've been launching.

Innovations from about a new innovation with a new type of chip that we've been able to source. So but that is the one that is holding us back a little bit, especially in Europe .

But otherwise.

Otherwise.

It's in fine shape.

So.

I'd say overall very positive.

About the business as we look forward.

Yeah on the supply chain question, what I would say is our supply chain remains the external environment remains challenging and you mentioned a couple of the challenges with <unk>.

And there are zero COVID-19 policies that has affected us with regard to <unk>.

<unk> downs that they've implemented in Shenzhen and Shanghai, we do source some products from those regions.

But that being said as I mentioned in the prepared remarks, I think the decisions that we've made.

To build inventory on top selling skus.

To solidify our labor force.

To accelerate automation and actually.

Sure.

Now in the implementation phase of avid and so the ocean freight we now are moving more ocean freight than ever to the east coast as opposed to the West coast, which has diversified our ocean freight shipping lanes all of those things have us in a position where our supply chain is in better shape today than at any point.

The pandemic started.

Our in stock rates that retailers have improved significantly our fill rates are improving.

We still have issues as Ravi mentioned on things like <unk>, where there's chip shortage. So we're not out of the woods everywhere, but we are in a much better position today on the supply chain that we have been since the pandemic started sorry quick one quick thing I forgot to mention that on the actual writing business itself resale.

Manufacturer in the states in Tennessee, and while yes, there are always some components that come from different parts of the world.

It's been actually a good competitive advantage for us and it remains so.

So.

So that's encouraging as well sorry, Chris.

Question on the guidance.

I would say is that certainly we're excited about the Q1 <unk>.

<unk> is coming in better than we expected.

There was a portion of that is related to customer order timing being earlier in the season that we think is not necessarily incremental for the year. There is a portion of the Q1 results that was ahead of our expectation and that would be incremental for the year on the other hand, we've had incremental inflation that we built into the <unk>.

And look for the year of $80 million as we mentioned and so theres a number of moving parts.

We think that the Q1 results give us confidence to maintain the outlook for the year, despite the incremental inflation.

We're going to incur which largely is coming in Q2, three and four so.

We feel good about the outlook.

That's how I would describe sort of where we are from.

From a guidance perspective, the other point I would I would note is Q1 is our seasonally smallest quarter.

So.

Although we started off better than we expected.

We're just heading into the big seasonal periods here over the next three to six months.

That's super helpful. Thank you both.

I'll pass it on.

And our next question will come from Peter Grom with UBS.

Okay.

Hey, good morning, everyone and I hope Youre doing well and congrats on the strong results. So I just wanted to ask about the core sales outlook. Maybe first can you just help us understand what youre seeing from a category perspective in terms of Pls.

There's a lot of uncertainty around the health of the consumer and what that means for durables demand I know scanner data hasnt been a great indicator of your performance over time, but it has slowed here in the U S. So just any thoughts around what you're seeing across your core categories would be helpful.

And then just maybe following up on that and kind of following up on Andrea's question, but maybe focusing more on the core sales outlook.

Is there something youre seeing around demand that caused you to reiterate your core sales outlook I know you mentioned the shift in customer ordering patterns.

<unk> delivered 6% in the first quarter, you expect low single digit growth in Q2.

That would just imply a pretty meaningful slowdown in the back half despite much easier comparisons to kind of get to the flat to plus 2% range for the year. So just any thoughts there or maybe how we should think about the magnitude of those shifts in ordering patterns.

Alright, let me give it a shot.

So Peter.

Look I think.

Always have to have in context last year. We grew 12, 5% core sales growth before that for three years as a declining company and five.

5%, 6% in those times people notice that ZR to two Oh, My God, that's great for Newell.

At least thats positive that everyone is now, saying why let me Peter too so.

I think that as a compliment.

If there is anything thats probably.

Upside more upside than downside, having said that right now.

You are right the first half.

But we've had that acceleration right and that we've talked about then the big question Mark is in the second half that will be couple of onset than phase one.

I would really be a recession, hunan to 70% of the people seem to think so so if that happens what's the impact the second thing is.

We now have all of the right supplies, we're beginning to get our in stocks up.

People have.

Now built up their inventories.

The pull through is not then how our replenishment scopes. That's a question Mark So we don't know.

And we think the strength of our brands, but also through and we are optimistic, but we think where this this guidance, we're giving is prudent.

Especially because of not just the first quarter, but also second quarter remember because some of it we said there'll be a little bit more and also just the seasonal side.

So I think that really is.

How we are thinking about sort of first half second half the second question on consumer demand.

It really varies so.

The number one thing I'd say is the.

The biggest piece of it and cottage went as against pre pandemic that is 2019.

We are double digits, well about our all our businesses I think that is a very good place to be and that says hey. This is not just the pandemic effect and that Newell's brands that really stronger.

So I think that is cause for.

Some optimism.

There are separately some.

Business is home appliances.

So many years of decline we had remarkable growth.

In the second half of 2020 , one was double digits.

You've got to say hey.

Probably on some categories, whether it's toasters or coffee maker is supposed to have some consumer acceleration potentially because people can only buy so many toasters and coffeemakers. So.

Innovating to do new things.

Iced coffee, but we didn't stop at that point got kraft's got espresso et cetera to continue that cycle.

Home fragrance as I mentioned earlier.

When you have gigantic consumption from last year that you've got comps that sabra tough, but we still think the brand is very strong and look it's not just about while there's more mobility mental health is a big issue in this country and people want to Bud catalog and we're now into the diffuser category and we've got a lot of innovations that are.

Yankee candle the whole radiant line.

On Diffusers from wellbeing. So we've got a whole wellbeing collection. So we think innovation is the key to all of this and then the way we market.

Smart marketing and social media is hopefully going to get us to the right type of consumer which will lead to better conversion.

So I think consumer demand.

Right now is a bit of a question mark but for many of our categories not food.

No question, if that is going to be recession will actually continue to benefit because as it does with hybrid there's more meal occasions at home than they were pre pandemic second if that its recessions people aren't going to go to restaurants less that means more locations at home what does that mean people automate less therefore segue therefore.

Ball.

Yes, Paul Rubbermaid, Theyre, all going to do well as they did well in first quarter. So that's another category, where the consumer is going to be buying commercial I already said the end users very strong. So all in all I don't know that I would I.

I feel pretty good I think the guidance for this time for what we have I think is prudent so I'll leave it at that.

Thank you and our next question will come from Kevin Grundy with Jefferies.

Great. Thanks, Good morning, everyone. Congrats on the strong results.

The tremendous progress that you guys have made with the organization.

It's been remarkable so congrats on that.

A couple of questions from me, Chris Chris just on the on the guidance, which I think collectively people kind of view as conservative which is understandable given the environment, but you did say commodities move higher so thats probably about 15.

Illicitly I guess, it's better because you guys are kind of seemingly sitting tight with everything else. So maybe just comment on that and then.

Chris just with respect to buyback sort of setting aside the unique buyback with.

Your largest shareholder around the proceeds maybe just outline again, a little bit on timing. It just seems like there is a strong argument to be made that you guys could be moving sooner than later.

Very positive on the business. The results are good the balance sheet and free cash flow are much much better.

The margin opportunity is enormous, particularly in a more stable cost environment and all that you kind of pull that together for stock trading at 10 times EBITDA.

The decision not to lean in now when the stock would be materially higher if you deliver on what you think you can do so your comments there would be helpful. Thank you.

Very good so let me, let me start with inflation, so youre right the incremental $80 million of inflation that we've that we've now baked into the outlook.

Basically we've been offsetting that through three things.

Or plan to offset that through three things.

Some selective incremental pricing that we plan to put in the market. This year that will cover a portion of it. We also think that we have an opportunity to optimize particularly promotional spend which is another big lever.

That we're seeing an opportunity to.

Partially offset and then the third piece is we are doubling down on.

Opportunity to drive.

More overhead cost savings and so those three elements.

We've seen we see upside in that basically we are using to offset the incremental inflation, which is allowing us to sort of hold the outlook for the year.

And Thats whats baked into the plan on the buyback question.

We authorized as part of the CHS divestiture $375 million, we as I mentioned, we bought back $275 million in Q1, we did execute a <unk> five program that.

Executing in the month of April and we bought back $50 million additional in the month of April .

And so we've got $50 million remaining.

But we will.

We will look to do prior to the end of the year as you know our cash flow.

As stronger towards the end of the calendar year base.

Based on the seasonality of our business. So we do expect to generate good cash flow, we do expect to complete the incremental share repurchase program. This year.

And then we'll look.

Two.

Incremental opportunities as we get closer to the end of the year.

Okay very good. Thank you good luck.

Thank you.

A replay of today's call will be available later today on our website.

Our dual brands Dot com.

This concludes our conference. Thank you for your participation you may now disconnect.

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Question during the Q&A session.

As a reminder, today's conference is being recorded a live webcast of this call is available at IR Dot Newell brands Dot com.

I will now turn the call over to Sofia fitness, Vice President of Investor Relations. Mr. <unk>. Please go ahead.

Thank you good morning, everyone welcome to <unk> first quarter earnings call on the call with me today are Ravi Polygram, our president and CEO and Chris Peterson, our CFO and President business operations.

<unk>, we begin I would like to inform you that during the course of today's call, we will be making forward looking statements, which we love risks and uncertainties 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 is available in our earnings release, our Form 10-K .

<unk> Form 10-Q , and other SEC filings available on our Investor Relations website for 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 explanations of these non-GAAP measures and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release in table as well as in other materials on <unk> Investor Relations website. Thank you and now I'll turn the call over to Ravi.

Thank you Sofia.

Good morning, everyone and welcome to the new Neo kind of our first quarter call.

We're pleased with the strong start to 2022.

Building on the momentum from the prior quarters as our team remains laser focused on executing with excellence in a challenging environment core sales grew 6.9% against a difficult 29% comparison, while normalized operating income.

Our normalized earnings per share increased 10, 4% and 20% respectively. Despite significant.

Ongoing.

Excuse me ongoing inflation.

This demonstrates the power of our diversified portfolio.

And the nimbleness of our model.

We're significantly better today at leveraging our brands to scale growth and efficiency. After <unk> working and we have put a strong foundation in place for sustainable and profitable growth.

Q1 marked the seventh consecutive quarter of course has plenty of brands in Q1, our courthouse credits was driven by pricing as volume was relatively flat.

<unk> grew in five of seven business units, including food driving outdoor recreation baby and commercial the outdoor recreation and food businesses led the charge with double digit increases versus the prior year period, despite difficult comparisons.

Home fragrance and home appliances declined in the first quarter as they lapped a significant surge in demand in the year ago period due to the pandemic and the passage of stimulus in the U S. Importantly on both a two year and three year stacked basis core sales increased in the double D.

Grain.

All seven business units a fantastic achievement.

As we shared last quarter, given the ongoing supply chain challenges that have beset the industry retail has accelerated orders some seasonal products into the first quarter, particularly in the outgoing recreation and writing businesses, which contributed to the strong top line results.

We are proud of the fact that we were able to fulfill these orders despite external obstacles shine the team's resilience and agility as well as the powder one Neil.

As anticipated, we experienced normalization in category and consumption trends relative to last year, which establish charged by the stimulus in the U S. While the domestic Pos was below the elevated year ago base.

It remains well ahead of 2019 and tricky levels showing that the behavioral shifts <unk> tried the pandemic are enduring.

Our diverse all the way the portfolio is well positioned to capitalize on the evolving consumer trends surrounding hybrid what commerce hub as well as increased focus on value being outdoor activities in sustainability.

We continue to sharpen our brand positioning and enhance our marketing and innovation muscle and improve our execution in the marketplace substantially strengthening our iconic purpose driven brands.

These actions have unlocked another quarter of strong growth.

And many of our largest brands such as Goldman Graco Rubbermaid government commercial product sharpie paper mate in Bolivar.

14 of our top 20 brands grew in Q1 versus last year.

We're continuing to elevate the digital IQ of the organization and believe our early investments behind Omni channel execution are driving stronger connections with our customers and consumers in early April we launched annual creative kitchen in Hoboken, New Jersey, which is a new dream kitchen space and inspiration incubated that we would sell off a steady.

Streamer recipes and tips connecting people with the latest kitchen, and innovations food and kitchen trends together with our partner over produce cutting edge and inspiring content for all of the digital platforms showcasing our innovations hosting live events.

The studio audience, and partnering with Influencers and customer engagement media. This is really exciting. This is a great way to showcase our new and differentiated innovation in food and appliances that satisfy consumer unmet needs. One such product is that a recently launched rubbermaid Uralite bakeware.

All in one bakeware solution or brightening banking freezing savvy and story innovation is the lifeblood of every consumer products company and we have been hard at work right now.

<unk> this growth engine.

Brands, leveraging consumer and shopper insights for sites analytics and latest trends.

Okay.

From a geographic perspective cost outs in North America grew at nearly twice the rate of international markets.

EMEA softened against a difficult comparison.

The impact on consumer sentiment from the unfortunate war in UK.

Let me now shed some light on business unit results, starting with writing where we saw continued momentum both on top line and market share as the fundamentals remained in excellent shape core sales growth for the fifth straight quarter of lapping a strong double digit increase in the year ago period, driven by North America, Latin America and Asia Pacific.

While the commercial Slash office channel still remains below pre pandemic levels, we are winning there as well and we are seeing year over year growth in this channel as people return to offices, albeit in a hybrid environment.

Arriving and creative expression <unk> and fine writing all growing in the quarter, helping to offset the decline in lengthening labeling due to chip shortages.

Given the ongoing supply challenges across the industry retailers accelerated some of our back to school orders into Q1, which contributed to the strong results. We believe we are well positioned for the upcoming back to school season, and have strong marketing merchandising plans in place to capture consumer demand.

This is particularly impressive given the pervasive supply challenges that have been pressuring availability of products.

Food delivered an excellent quarter core SaaS grew at a low double digit pace, even as it lapped a very difficult double digit year ago comparison.

<unk> strong growth across the fresh preserving cookware and bakeware as well as food storage and kitchen organization categories March marked the largest global sales in over five years for fresh preserving a fantastic result, fueled by strong.

Assumption and innovation.

This business goes from strength to strength and our teams continue to leverage favorable trends and new product launches to draw consumers into this category.

Even as mobility continues to improve and more people are returning towards in office kitchen remains an integral part of consumers' lives.

Home fragrance core core SaaS on consumption declined against a record first quarter performance, yet ago with pandemic, driven demand and category trends have slowed down as expected.

Modest growth in EMEA was not enough to offset declines in North America.

On a two and three year stack basis core sales grew in the strong double digit rate.

Similar to home appliances.

We expect the category to continue to normalize through the balance of the year, but feel good about brand health and new product pipeline, both within and outside the camera category.

Core sales growth for home appliances declined low single digits as the business lapped a significant surge in consumption last year when it grew nearly 39%.

Core sales in Latin America were more than offset by declines in other regions. Both two and three year stack core growth rates when the strong double digit rate given the challenging comparisons we expect a slowdown in consumption to continue in this category as shopping behavior normalizes.

All regions and major businesses driven by retail our optimism regarding the upcoming season with outdoor participation expected to remain robust.

Customers place some of their orders for Argo equipment earlier than usual due to the unpredictable supply chain environment and the seasonal nature of the category strong topline and share momentum in the beverage business.

Persisted in Q1, <unk> innovation and brand building efforts behind <unk> continues to gain traction with the category further benefiting from increasing consumer mobility.

<unk> growth for the commercial business accelerated to seven 4% against its toughest comparison of the year led by North America Latin America.

Strong momentum in the quarter was supported by pricing. We're also seeing improved product availability and view our portfolio diversity across both commercial and retail verticals as an advantage.

Cleaning materials handling refuse and recycling outgo in organization and Washington were the major drivers so call sales growth, helping to offset softness in disposable gloves, which are lapping a high base period due to COVID-19 .

We are encouraged by a strong order book and believe that pretend to office bodes well for the commercial categories.

The external environment has remained quite difficult in the first quarter as providing headwinds surrounding supply chain and inflation.

Further exacerbated by the unfortunate in Ukraine.

Despite the significant impact from inflation.

Outlook for the year.

Spite of about $18 million of incremental inflation.

We still expect 2022 to be yet our margins, even though inflation has continued to move against us.

Cause for top and bottom line growth, despite a challenging and uncertain macro backdrop.

For 2022.

We remain focused on five key priorities first improving gross markets as he can.

Continued to double down on our efforts to offset.

The significant inflationary pressures and supply chain challenges, while improving customer service levels.

The strength of our brands has allowed us to take the appropriate pricing actions on all of our businesses, while ensuring they remain a good value for consumers. In addition, we will continue to optimize promotional spin price innovation to be gross margin accretive direct A&P spend towards higher gross margin categories.

And drive productivity.

Second continuing to drive core sales growth and the innovations.

<unk> focus on mass training, the 360 degree consumer and shopper journey and delight consumers and customers that each touch point and shoppers have each touch point with compelling storytelling focused on consumer value and brand uniqueness.

Neither capture consumer demand by directing and beat to the brands with the highest margins and growth potential.

And target appropriate consumer segments to maximize conversion.

Third turbocharged international to expedite growth and profits fourth continuing investing in transforming our supply chain. So we're project I'll bet on automation.

And last but not least continuing to strengthen the one youll culture and build on our employee engagement and momentum.

We remain committed to driving sustainable and profitable growth and building operational excellence throughout the organization, while being a force for good we recently announced a carbon neutrality goal by 2044, all scope, one and scope two emissions.

We'll also continue to address existing macro headwinds.

And forge ahead with our strategic initiatives, such as project Darwin automation and realizing the potential of international <unk>.

Strong results in Q1 are building on our track record of following through with our commitments and we are confident in our outlook for 2022.

I am thankful to our employees for always rising to the occasion and helping us to successfully navigate through the ever changing operating environment. I continue to believe that fuels best days are ahead of us and we have a significant opportunity to drive shareholder value.

Onwards, and upwards and now I'll turn it over to Chris.

Thank you Ravi and good morning, everyone during.

Before we get into the quarterly discussion, let me provide some perspective on the current operating environment.

Inflation remains stubbornly high and our expectation for the full year has moved up slightly since February .

The war in Ukraine took up energy prices, which in turn resulted in higher than initially anticipated costs for resin and transportation. We now expect inflation to account for about 9% of cost of goods sold in 2022, similar to last year and about 1% above our previous forecast.

We continue to anticipate that ocean freight sourced finished goods and wages, we will see the largest year over year increases.

We remain laser focused on offsetting the inflationary pressure and improving the company's gross margin by implementing the following actions.

Driving productivity on self manufactured operations.

The necessary pricing actions across each business unit, reducing overhead costs.

Optimizing the effectiveness of promotional spend.

And executing on the previously communicated product line exits from low margin categories, primarily in home appliances, and outdoor <unk> recreation businesses.

The full year, we still expect pricing and productivity to more than offset the impact of inflation.

The external supply chain dynamics have remained challenging as the industry continues to grapple with longer lead times for source products due to ongoing shipping delays port congestion limited container and availability and constraints on components labor and trucking capacity.

China's zero carbon policy also resulted in temporary lockdowns in Shenzhen, and Shanghai regions, which further exacerbated these issues.

These challenges are not new nor are they unique to newell brands and our teams have continued to do an incredible job navigating through this operating backdrop.

To deal with this we made a series of decisions that have significantly strengthened our supply chain performance.

For example, we made a proactive decision to build inventory on top selling and high priority Skus, we strengthened our labor force through enhanced compensation benefits training opportunities and working conditions, we accelerated automation efforts across our facilities and with avid we are creating a scaled distribution.

And transportation platform to further drive operational excellence.

We do not expect the external supply chain pressures to ease during the balance of the year. Our fill rates are improving and we believe that we are well positioned to meet consumer demand and the majority of our businesses.

Now, let's turn to first quarter performance.

Note. These results include contribution from the connected home and security business, which was divested on March 31, the only metric that excludes CHF. This core sales growth.

Net sales increased four 4% to $2 $4 billion as core sales growth and higher net sales in the <unk> business were partially offset by unfavorable foreign exchange as well as category and retail store exits core sales growth grew six 9% on top of a challenging 29% comparison.

From last year.

Core sales increased in five of seven business units as we lapped difficult comps on both a two and three year stacked basis core sales increased in every business unit.

Pricing was the primary driver of core sales growth as unit volume was relatively flat to year ago.

Core sales growth was ahead of our expectations due to timing of customer seasonal orders and improved supply chain performance.

Our gross margin performance improved sequentially from Q4, largely due to a higher contribution from pricing.

Normalized operating margin expanded 50 basis points year over year to 10, 6% as SG&A cost leverage, particularly in overheads more than offset the impact of gross margin contraction.

Net interest expense declined by $8 million year over year to $59 million as we reduced the company's gross debt by $609 million since March of 2021 <unk>.

The normalized tax rate was 18, 4% below last year's tax rate of 22, 4% largely due to a higher contribution from discrete tax benefits.

We reported normalized diluted earnings per share of <unk> 36.

A 20% increase from 30 a year ago.

Outside relative to the outlook, we provided was driven by higher sales growth better cost control and a slightly lower than expected tax rate.

Turning to segment results.

Core sales for the commercial solutions segment grew seven 4% on top of it.

Digit comparison from a year ago.

Core sales for home appliances declined one 9% as the business lapped 38, 9% growth in the year ago quarter. Its toughest comparison of the year.

Core sales for the home solutions segment grew one 4% on top of a 33, 8% last year as.

<unk> growth in the food business unit more than offset a decline in home fragrance due to a difficult comparison.

Core sales for the learning and development segment increased seven 4% on top of 17, 3% last year driven by growth in both the writing and baby businesses.

Core sales for the outdoor recreation segment grew 22, 9% on top of 7% last year as retailers ordered inventory earlier this year to prepare for the spring summer season.

Moving onto cash flow and balance sheet.

Q1, operating cash flow was a use of $272 million as compared to a use of $25 million last year, driven by increased working capital to support sales growth. We continued to strategically build inventories on top selling skus to mitigate the impact of supply chain obstacles and accommodate the shift in time.

<unk> of customer orders.

Cash conversion cycle moved up slightly mostly due to higher inventory.

At the end of the quarter, we completed the divestiture of the <unk> business to <unk> technologies for a purchase price of $593 million.

We ended Q1 with a leverage ratio of three one times slightly below three three times in the year ago period, reflecting both debt paydown and normalized EBITDA growth.

Before going through the outlook for Q2, and the full year 2022, let me provide some context for the forecast too.

2022 is off to a strong start with the implementation of the pricing actions that we've announced driving both topline growth and better margin performance.

Thus far our volume elasticities have been below historical levels for most of the categories. We compete.

This is something we will continue to monitor and evaluate by category.

Within the company's outlook, we continue to assume a moderate level of volume elasticity from price increases.

While consumption patterns vary by business and moderation continues in some categories overall, they remain above pre pandemic levels.

Given the recent move in inputs, our inflation assumption for the year has gotten slightly worse as we now expect it to account for about 9% of cost of goods sold in 2022.

Going forward, we will continue to act with speed to address both inflationary and supply related dynamics, we will maintain disciplined cost and cash management.

And continue to build operational excellence as we accelerate automation and move into the implementation stage of Aman.

Strong Q1 results give us confidence to reaffirm the full year 2022 outlook, despite macro uncertainties and external headwinds.

For the full year 2022, and we continue to expect net sales of $9 93 to 10, one 3 billion.

This guidance contemplates normalized operating margin improvement of about $50 to 80 basis points versus last year to 11, 5% to 11, 8%.

Normalized earnings per share outlook remains unchanged at a $1 85 to $1 93 versus $1 82 in 2021 and currently reflects a mid teens normalized effective tax rate and a 2% decline in diluted shares outstanding.

There is also no change in the operating cash flow forecast of $800 million to $850 million, which includes the year over year headwind from the loss of profits on <unk>, starting in Q2 and onetime cash tax payment on this deal.

Although we have made strategic investments in inventory our forecast does assume that the cash conversion cycle improves year over year we.

We still anticipate about $350 million in capital expenditures for the year with the increase versus 2021, reflecting onetime capital costs supporting infrastructure build for project Ahmed.

For Q2, we are forecasting net sales of $2 five 2% to $2 $5 $7 billion with low single digit core sales growth being offset by greater than 8% headwind from the sale of the CHS business Foreign exchange category exits as well as closure of some Yankee candle retail stores.

We are forecasting a normalized effective tax rate in the low 20% range and approximately 2% reduction in diluted shares outstanding with normalized earnings per share in the $45 to 48% range.

Operator, let's now move to Q&A.

And our first question will come from Bill Chappell with <unk> Securities.

Thanks, Good morning.

Good morning Bill.

Hey.

First question I guess, just kind of talk about elasticity that youre seeing or if it's maybe too early kind of across the business units and kind of expectations or.

Thats built in for recession or no recession, as we move through the back half. Thanks.

I'll have Chris comment on elasticity and then ill.

Talk about your second part of the question, yes. So.

Far what we're seeing on pricing elasticity.

Is that it is better than what our historical models would suggest.

In other words, we're not seeing.

The typical volume impact from the pricing, we've taken and I think thats really a function of the fact that.

The inflationary cost pressures affecting all manufacturers and so as we move prices higher and most of our categories competition is also move prices higher.

And so in many cases, there is not a price gap that's been created that's leading to elasticity.

Continue its still early days on this we continue to monitor the situation as we mentioned in the first quarter pricing was the primary contributor to the company's core sales growth of six 9% with volume is relatively flat.

For the balance of the year whats embedded in our outlook is that there will be some price elasticity, we continue to expect.

For the outlook for the year pricing to be a high single digit contributor to core sales growth and volume to be down mid single digits. So we have not changed that view.

And the outlook for the full year, that's consistent with what we said when we started the year.

So the second part of your question and maybe I'll expand it which you may not have intended but I presume you are really the question is about.

Recessionary conditions, the health of the consumer.

The impact did I get that right.

Yes, absolutely.

Okay.

Here is I think.

While consumption in the first quarter.

It was down versus last year.

We have to recognize first quarter was very peculiar quarter in the sense you had that in 2020 . One you had that big stimulus in January then the biggest 10 minutes in March.

Some of that consumption growth when we look back and see whats just gigantic and.

Take illustrates let's say.

<unk> solutions and I think on core sales home solutions grew about 34%. If my memory serves me correctly last year at home fragrance, which is part of that.

Sure.

What's the biggest kept towards rate was far bigger than the 30 call. So and consumption. So if you think about that consumption was even higher.

And so to lap something like that that's fairly extraordinary. So it is very tough right now to parse out what is price elasticity. What is stimulus, though we think that stimulus has been the big big aspect.

So going forward there is no question that.

We will have to be quite sensitive on some of the lower income consumers and the channels they shop.

And which is very well positioned though because we have.

For most of our brands.

We are very big on good better best.

And in the last few years, they've sharpened back very much to make sure that there's really good differentiation between good better best.

So I think that allows us to cater to the different types of consumers.

So I think thats. The second part is a lot of our messaging and advertising social media.

Very much now on a value based messaging and making sure even though we've taken price increases to the strength of our brands.

Trying to show that we are a great value.

And the other aspect is I think the fact that we've launched a lot of innovations.

Innovations have providing the uniqueness that show hey, even though we've taken a price I think consumers are looking for value.

Rather than the absolute price point and we think.

We remain a good value so.

I looked at many.

Greece.

Now, we're actually seeing consumption increases writing.

In different parts of the World, we're seeing consumption increase and now at the office channel opens up we think that will continue to accelerate and we are gaining share. So just think about it right with our sharpie paper mate.

We have fantastic gross margins, we're growing and growing share. So I think we are fairly buoyant combat.

Commercial which last year was very tough for the commercial business because of inflation.

And.

With office office has pretty much close now, it's coming back and buying that business. This past quarter up 7%, it's growing back I'm very positive about end users, even though we've taken a lot of price increases.

They are because the rubbermaid commercial brand is so strong and we have put so many innovations like rubbermaid brewed with wheels material handling with new technologies. So I think the power of innovation is helping that the last comment I would make.

Is we have been striving for distribution improvements and new channels and I think that is helping us getting incremental distribution so going after new consumers.

And then the last comment would be as we have we're really monitoring that what I call. The 360 degree consumer journey and chopper getting as to what it is becoming more omni channel. How do you target them, how do you reach them in the moment of where they stop thinking about.

The category to the moment of decision, making and I think all of this will help us.

In our journey so on the whole, yes, there's some concern about consumer demand out there, but I remain volume to end.

If anything I think on the top line.

One other quarter of R. R.

<unk> expectations and I think the street, so I feel pretty good about it.

And our next question will come from Wendy Nicholson with Citi.

Hi, I wanted to ask about project Ahmed because it's clearly.

Yielding benefits and that's an important part of your sort of next step towards higher margins.

So Chris are you seeing any challenges in terms of implementing all of it or any of the things that you are trying to do I'm. Just wondering if the supply chain is getting in the way or if there was any.

Any impact in terms of the timing of the savings youre going to generate from that program. Thanks.

Thanks Wendy.

It's very topical and top of mind not just for me, but for many of our employees around across the company.

We're very much an implementation phase we remain.

Largely on track with the original timeline that we've set recall that all of it is a phased implementation and just to give you a sense of where we are in the program.

Last year, we did the detailed design work, we've now completed the systems testing.

Work and that has gone well, we have already executed the centralization of customer service, we have already executed the centralization of our distribution and transportation internal organization.

We have now largely competed completed the implementation of a transportation outsource provider, which is a key enabler those.

Transitions have happened or were currently executing where we're headed to which I alluded to in the prepared remarks.

<unk>.

In early July we will turn on the first wave of the Newell distribution company and that will affect.

The food the home appliance and the baby businesses, which will move into the new normal distribution company and so that is a is a big milestone for us.

We have made a tremendous progress with most of our retail partners.

Call that we had.

Different sets of payment terms by business unit.

We've now negotiated with the majority of our.

Our retail partners to <unk>.

Basically harmonize those and go to a single set of payment terms panel, which will be implementing as we move into July .

We've got the two new distribution centers, the Newbuild distribution center in Pennsylvania is now open and fully operational which we are excited about.

And the Gastonia, South Carolina will be opening this fall so.

<unk>.

We are very much in the implementation phase.

I've said previously that this year will remain an investment year for the company.

We are.

Largely doing the implementation work this year when we get to next year in 2023 is when we expect.

The <unk> program too.

<unk> turn into a cost savings benefit for the company Randy I would like to add one thing.

<unk> done all of it.

Try to do all of it five years ago.

It could have been a disaster.

Even three years ago driven difficult just.

Just imagine with a company, where we have had 23 separate supply chain.

Defying them into one.

What we've created is a culture of one newell and that.

Is so important to the execution of this we have had more than 500 people involved in this project Chris has done a terrific job leading this initiative, but we have galvanized for all of the people because they believe in one Neil.

We've been able to overcome the silos.

And two and the business units have given up control on the start to say Hey, we think it's right for the company to have one distribution company. This whole concept of one order one invoice one truck is very powerful so I think looking.

Looking 10 years from now people will look back and say this was one of the most extraordinarily decisions you have made.

And our next question will come from Andrea Teixeira with Jpmorgan.

Hi, Good morning, I was just hoping you can update a little bit more on the writing segment and the puts and takes we should be seeing.

Head of your peak season.

And from that any we've heard a lot of supply chain issues in many parts of the world and in particular, obviously as you know in China. So I know.

You saw some of the things from there, but you also source from Mexico.

So if you can give us like a little bit of an update there and so that we understand embedded in your second quarter Guide you have increased marketing investments that I understand.

You were just on that and not flowing through all.

The upside we saw in EPS for the first quarter into the full year. So I was just trying to.

Bridge.

The EPS guidance with what you've done so far thank you so much.

So I'll tackle the first one and then how Chris tackle the second.

Andrea So the writing business.

A banner year last year.

23% growth last year as described.

So <unk> got.

We're off to a great start.

In first quarter and.

The the brands remains very strong whether it's sharpie paper mate.

Good set of innovations we have also got innovations that are coming in.

Later part of the.

So and it's not just a U S thing, we're doing well in Europe , we're doing well in Australia.

We just saw a shadow increases.

In different parts of the world.

So I would just say that.

And even though the activity side is beginning to have a little bounce. So I would say the writing business is very strong and now is the office segment opening up.

And.

I think that'll be that'll add because.

That is a decent size.

Our overall business.

So I think that will help as well and we are winning already better than others.

And this thing.

Think about having powerful brands.

So overall.

And I think retailers deliberately because they wanted to make sure.

They were ready for the season.

Did that I think so.

So far we don't see any red flags on the season, if anything we see positive views.

And the only part of the business that we have some.

Issues, which is purely supply chain related is the diamond brand make us of chips and if he had the chips. We would just do even better though even there we have been launching.

Innovations from about a new innovation with a new type of chip that we've been able to source. So but that is the one that is holding us back a little bit, especially in Europe .

But otherwise.

Otherwise.

In fine shape.

So.

I'd say overall very positive.

About the business as we look forward.

Yes on the supply chain question, what I would say is our supply chain remains the external environment remains challenging and you mentioned a couple of the challenges with <unk>.

China and Theyre zero Covid policies that has affected us with regard to <unk>.

<unk> downs that they've implemented in Shenzhen and Shanghai, we do source some products from those regions.

But that being said as I mentioned in the prepared remarks, I think the decisions that we've made.

To build inventory on top selling skus.

To solidify our labor force.

To accelerate automation and actually we're now in the implementation phase of avid and so the ocean freight we now are moving more ocean freight than ever to the east coast as opposed to the West coast, which has diversified our ocean freight shipping lanes all of those things.

US in a position where our supply chain is in better shape today than at any point since the pandemic started.

Our in stock rates that retailers have improved significantly our fill rates are improving.

We still have issues as Ravi mentioned on things like <unk>, where there's chip shortage. So we're not out of the woods everywhere, but we are in a much better position today on the supply chain that we have done since the pandemic started sorry, a quick one quick thing I forgot to mention that on the.

The actual writing business itself, we self manufacture in the states in Tennessee, and while yes, there's always some components that come from different parts of the world.

It's been actually a good competitive advantage for us and it remains so.

So.

So that's encouraging as well sorry, Chris.

Question on the guidance.

What I would say is that certainly we're excited about the Q1 results coming in better than we expected.

There was a portion of that.

As related to customer order timing being earlier in the season that we think is not necessarily incremental for the year. There is a portion of the Q1 results that was ahead of our expectation and that would be incremental for the year on the other hand, we've had incremental inflation that we built into the outlook for the year of $80 million as we.

Mentioned, and so theres a number of moving parts.

Think that the Q1 results give us confidence to maintain the outlook for the year. Despite the incremental inflation that we're going to incur which largely is coming in Q2, three and four.

No.

We feel good about the outlook.

How I would describe sort of where we are from.

From a guidance perspective, the other point I would I would note is Q1 is our seasonally smallest quarter and so.

Although we started off better than we expected.

We're just heading into the big seasonal periods here over the next three to six months.

That's super helpful. Thank you both.

I'll pass it on.

And our next question will come from Peter Grom with UBS.

Okay.

Hey, good morning, everyone and hope you're doing well and congrats on the strong results. So I just wanted to ask about the core sales outlook. Maybe first can you just help us understand what youre seeing from a category perspective in terms of Pls, Yeah, Theres, just a lot of uncertainty around the health of the consumer and what that means for durables demand.

No.

Randy that hasnt been a great indicator of your performance over time, but it has slowed here in the U S. So just any thoughts around what you're seeing across your core categories would be helpful.

And then just maybe following up on that and kind of following up on Andrea's question, but maybe focusing more on the core sales outlook.

Yes.

Is there something youre seeing around demand that caused you to reiterate your core sales outlook I know you mentioned the shift in customer ordering patterns, but you delivered 6% in the first quarter, you expect low single digit growth in Q2.

Alright, let me give it a shot.

So Peter.

Look I think.

Always have to have in context last year. We grew 12, 5% core sales growth before that for three years as a declining company and five.

5%, 6% in those times people notice that ZR to Oh, My God Thats great for Neil.

At least thats positive that everyone is now, saying why aren't you too so.

I take that as a compliment.

Look if there is anything that's probably.

Upside more upside than downside, having said that right now.

You are right the first half.

But we've had that acceleration right and that we've talked about it.

The Big question Mark is in the second half that will be couple of onset than phase one.

I would really be a recession, Hunan is 30% of the people seem to think so so if that happens what's the impact the second thing is.

We now have all the right supplies, we're beginning to get our in stocks up.

People have.

<unk> now built up their inventories.

The pull through is not that then how our replenishment cost. That's a question Mark So we don't know.

And we think the strength of our brands, but also through and we are optimistic, but we think where this this guidance, we're giving is prudent.

Especially because of not just the first quarter, but also second quarter remember because some of it we said there'll be a little bit more and also just the seasonal side.

So I think that really is.

How we are thinking about sort of first half second half the second question on consumer demand.

It really varies so.

The number one thing I'd say is the.

The biggest piece of it and cottage went as against pre pandemic that is 2019.

We are double digits, well about our all our businesses I think that is a very good place to be and that says hey. This is not just the pandemic effect and that Newell's brands that really stronger.

And so I think that as costs for.

Some optimism.

And then separately.

Some.

Business is home appliances.

So many years of decline we had remarkable growth.

In the second half of 2020 , one was double digits.

You've got to say hey.

Probably on some categories, whether it's <unk> or coffee maker is supposed to have some consumer acceleration potentially because people can only buy so many toasters and coffeemakers. So.

Innovating to do new things.

Ice coffee, but we didn't stop at that point got Frac rock espresso et cetera to continue that cycle.

Home fragrance as I mentioned earlier.

When you have gigantic consumption from last year that you've got comps that solid tough, but we still think the brand is very strong and look it's not just about while there's more mobility mental health is a big issue in this country and people want to blend catalog and we're now into the diffuser category and we've got a lot of innovations that are.

Yankee candle the whole radiant line.

On Diffusers profile being so we've got a whole wellbeing collection. So we think innovation is the key to all of this and then the way we market.

Very smart marketing and social media is hopefully going to get us to the right type of consumer which will lead to better conversion.

So I think consumer demand.

Right now is a bit of a question mark but for many of our categories not food.

No question, if that is going to be recession will actually continue to benefit because as it does with hybrid there's more meal occasions at home than they were pre pandemic second if that is recession as people are going to go to restaurants less that means more locations at home what does that mean people Broadway snap therefore segue therefore.

Paul.

Yes, Paul Rubbermaid, Theyre, all going to do well as they did well in first quarter. So that's another category, where the consumer is going to be volume commercial I already said the end users very strong. So all in all I don't know that I would.

I feel pretty good I think the guidance for this time for what we have I think is prudent so I'll leave it at that.

Thank you and our next question will come from Kevin Grundy with Jefferies.

Great.

Good morning, everyone. Congrats on the strong results.

The tremendous progress that you guys have made with the organization.

It's been remarkable so congrats on that.

Politically I guess is better because you guys are kind of seemingly sitting tight with everything else. So maybe just comment on that and then.

Chris just with respect to buyback sort of setting aside the unique buyback with.

I'm very positive on the business. The results are good the balance sheet and free cash flow are much much better.

The margin opportunity is enormous, particularly in a more stable cost environment and all that kind of pull that together for stock trading at 10 times EBITDA.

Why the decision not to lean in now when the stock would be materially higher if you deliver on what you think you can do so your comments there would be helpful. Thank you.

Very good so let me, let me start with inflation, so youre right the incremental $80 million of inflation that we've that we've now baked into the outlook.

Basically we've been offsetting that through three things.

Our plan to offset that through three things.

That we're seeing an opportunity to.

Partially offset and then the third piece is we are doubling down on.

Opportunity to drive.

More overhead cost savings and so those three elements.

We've seen we see upside in that basically we are using to offset the incremental inflation, which is allowing us to sort of hold the outlook for the year.

And Thats whats baked into the plan on the buyback question.

We authorized as part of the <unk> divestiture of $375 million, we as I mentioned, we bought back $275 million in Q1, we did execute a <unk> five program that.

Executing in the month of April and we bought back $50 million additional in the month of April .

And so we've got $50 million remaining.

But we will.

We will look to do prior to the end of the year as you know our cash flow.

As stronger towards the end of the calendar year.

Based on the seasonality of our business. So we do expect to generate good cash flow, we do expect to complete the incremental share repurchase program. This year.

And then we'll we'll look.

Two.

Incremental opportunities as we get closer to the end of the year.

Okay very good. Thank you good luck.

Thank you.

A replay of today's call will be available later today on our website.

Our dual brands Dot com.

This concludes our conference. Thank you for your participation you may now disconnect.

Q1 2022 Newell Brands Inc Earnings Call

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