Q2 2024 Newell Brands Inc Earnings Call

July 26, 2024

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Operator: Good morning, and welcome to Newell Brands' second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Good morning and welcome to Newell Brands' second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions.

Operator: After a brief discussion by management, we will open up the call for questions. In order to stay within the time schedule for the call, please limit yourself to one question during the Q&A session. Please note that today's conference call is being recorded.

Speaker Change: In order to stay within the time schedule for the call, please limit yourself to one question during the Q&A session. Today's conference call is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis.

Operator: A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofia Tsinis, VP of Investor Relations. Ms. Tsinis, you may begin.

Sofya Tsinis: VP of Investor Relations, Ms. Tsinis, you may begin.

Sofya Tsinis: Thank you. Good morning, everyone. Welcome to Newell Brands' second quarter earnings call. On the call with me today are Chris Peterson, our President and CEO, and Mark Erceg, our CFO. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements that involve risks and uncertainties. The actual results and outcomes may differ materially, and we undertake no obligation to update forward-

Sofya Tsinis: Before we begin, I'd like to inform you that during the course of today's call, we'll be making forward-looking statements which involve risks and uncertainties.

Sofya Tsinis: I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q, and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those 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.

Sofya Tsinis: Actual results and outcomes may differ materially, and we undertake no obligation to update forward-looking statements.

Speaker Change: I refer you to the cautionary language and risk factors 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.

Speaker Change: Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those who 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.

Sofya Tsinis: Explanations of these non-GAAP measures are available, and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables that were furnished to the SEC. Thank you, and now I'll turn the call over to Chris. Thank you, Sofia.

Chris: Explanations of these non-GAAP measures are available, and available reconciliations between GAAP and non-GAAP measures can be found in today's learnings release and tables that were furnished to the SEC. Thank you, and now I'll turn the call over to Chris.

Christopher H. Peterson: Good morning, everyone, and welcome to our second quarter call. Second quarter results came in at the high end, or ahead of plan, across all key metrics. Core sales performance continued to improve sequentially. Gross margin increased versus last year for the fourth consecutive quarter, driven primarily by outstanding productivity results. Normalized operating margin came in well above plan despite higher A&P investments. Normalized EBITDA improved 10% versus a year ago, and EPS was much stronger than we anticipated, driven by both better operational performance and tax help.

Chris: Thank you, Sofya. Good morning, everyone, and welcome to our second quarter call.

Chris: Second quarter results came in at the high end, or ahead of plan, across all key metrics. Core sales performance continued to improve sequentially. Gross margin increased versus last year for the fourth consecutive quarter, driven primarily by outstanding productivity results.

Chris: normalized operating margin came in well above plan despite higher A&P investments. Normalized EBITDA improved 10% versus a year ago. EPS was much stronger than we anticipated driven by both better operational performance and tax help.

Christopher H. Peterson: And we meaningfully reduced Newell's cash conversion cycle versus a year ago. We are off to a strong start in the first half of 2024, which gives us confidence to raise our outlook for the full year on core sales growth, normalized operating margin improvement, normalized earnings per share, and operating cash flow. Stepping back, as you may recall, a little over a year ago, we announced our new corporate strategy, which focuses on disproportionately investing in innovation, brand building, and go-to-market excellence in our largest and most profitable brands and markets, while driving further standardization and scale efficiencies across the supply chain and back-office functions.

Chris: And we meaningfully reduced Newell's cash conversion cycle versus a year ago.

Chris: We are off to a strong start in the first half of 2024, which gives us confidence to raise our outlook for the full year on core sales growth, normalized operating margin improvement, normalized earnings per share, and operating cash flow.

Chris: Stepping back, as you may recall, a little over a year ago, we announced our new corporate strategy.

Chris: which focuses on disproportionately investing in innovation, brand building, and go-to-market excellence in our largest and most profitable brands and markets, while driving further standardization and scale efficiencies across the supply chain and back-office functions.

Christopher H. Peterson: And just six months ago, we transitioned into a new operating model, which is designed to accelerate the new strategy by enhancing organizational effectiveness and agility while creating a high-performance, innovative, and inclusive culture. While still early days, we believe the strategy and operating model changes are clearly working.

Chris: And just six months ago, we transitioned into a new operating model, which is designed to accelerate the new strategy by enhancing organization effectiveness and agility, while creating a high-performing, innovative, and inclusive culture.

Chris: While still early days, we believe the strategy and operating model changes are clearly working.

Christopher H. Peterson: Since introducing the new strategy, we've now reported four quarters of results. And over the past year, we have improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023 to down 4.5% in the first half of 2024. Importantly, we also returned our most profitable segment, learning and development, as well as our combined international business, to core sales growth in the first half of this year.

Chris: Since introducing the new strategy, we've now reported four quarters of results.

Chris: And over the past year, we have improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023 to down 4.5% in the first half of 2024.

Chris: Importantly, we also returned our most profitable segment, Learning and Development, as well as our combined international business to core sales growth in the first half of this year.

Christopher H. Peterson: We have improved normalized gross margins for four quarters in a row versus the prior year and are up over 400 basis points on a trailing 12-month basis versus a year ago. We've improved operating margin by over 100 basis points on a trailing 12-month basis versus last year, despite increasing investment in A&P. We have driven $717 million in operating cash flow over the past four quarters and reduced net debt by about $400 million. Normalized EBITDA has increased by 10% on a trailing 12 month basis versus the prior year from $801 million to $882 million.

Chris: We have improved normalized gross margins for four quarters in a row versus prior year, and are up over 400 basis points on a trailing 12-month basis versus a year ago.

Chris: We've improved operating margin by over 100 basis points on a trailing 12-month basis versus last year, despite increasing investment in A&P.

Chris: We have driven $717 million in operating cash flow over the past four quarters and reduced net debt by about $400 million.

Chris: Normalized EBITDA has increased by 10% on a trailing 12-month basis versus prior year from $801 million to $882 million.

Christopher H. Peterson: We have taken a full turn out of Newell's leverage ratio going from 6.3 times last June down to 5.3 times this June, and we have made significant progress improving the company's front-end capabilities of consumer understanding, innovation, brand building, and go-to-market. From a segment perspective, learning and development delivered the second consecutive quarter of core sales growth driven by both the writing and baby business.

Chris: We have taken a full turn out of Newell's leverage ratio, going from 6.3 times last June down to 5.3 times this June . And we have made significant progress improving the company's front-end capabilities of consumer understanding, innovation, brand building, and go-to-market.

Chris: From a segment perspective, learning and development delivered the second consecutive quarter of core sales growth, driven by both the writing and baby businesses. We believe the front-end capabilities are most advanced in this segment, which is both structurally attractive and has a strong pipeline of consumer-driven innovations.

Christopher H. Peterson: We believe the front-end capabilities are most advanced in this segment, which is both structurally attractive and has a strong pipeline of consumer-driven innovation. The home and commercial segment has made significant progress on improving the structural profitability of the business and driving selective growth in parts of the portfolio as we reposition it for sustainable and profitable growth. In this segment, we made the decisive and necessary choices to exit some unprofitable categories and skews while taking pricing to enhance the structural economics of the business.

Chris: The home and commercial segment has made significant progress on improving the structural profitability of the business and driving selective growth in parts of the portfolio as we reposition it for sustainable and profitable growth.

Chris: In this segment, we made the decisive and necessary choices to exit some unprofitable categories and SKUs while taking pricing to enhance the structural economics of the business.

Christopher H. Peterson: We expect to sequentially improve the top-line performance of the home and commercial segment in the back half of this year as the front-end capabilities are improving rapidly. Lastly, the outdoor and recreation segment, which is the smallest one in Newell's portfolio, both from a revenue and profitability contribution perspective, continues to be the weakest and most in need of a turnaround.

Chris: We expect to sequentially improve the top-line performance of the home and commercial segment in the back half of this year as the front-end capabilities are improving rapidly.

Chris: Lastly, the outdoor and recreation segment, which is the smallest one in Newell's portfolio, both from a revenue and profitability contribution perspective, continues to be the weakest one and most in need of a turnaround.

Christopher H. Peterson: At this point, we have completely restaffed the team and have relocated the business to Atlanta while investing in the front-end capabilities required to get back to winning. While performance has been challenged, and we think it will be some time before we fully unlock the potential of iconic brands such as Coleman, we believe the business has now bottomed, and we expect trends to improve sequentially in the back half of the year, starting in the third quarter.

Chris: At this point, we have completely restaffed the team and have relocated the business to Atlanta while investing in the front-end capabilities required to get back to winning.

Chris: While performance has been challenged, and we think it will be some time before we fully unlock the potential of the iconic brands such as Coleman, we believe the business has now bottomed, and we expect trends to improve sequentially in the back half of the year, starting in the third quarter.

Christopher H. Peterson: Looking forward for the company overall, we expect top-line revenue trends to continue to improve sequentially in the back half of the year as the front-end capability investments continue to gain momentum. Last quarter, I spoke about the new Sharpie Creative Markers and Paper Mate InkJoy Bright Gel Pens, which continue to deliver strong performance as these iconic brands attract new purchasers to the category. During the balance of the year, we will support and commercialize a series of recently launched or soon to be launched additional innovations, including Graco SmartSense Soothing Bassinet and Swing, which detect and respond to baby's cries in seconds with soothing combinations to lull baby back to sleep.

Chris: Looking forward, for the company overall, we expect top-line revenue trends to continue to improve sequentially in the back half of the year, as the front-end capability investments continue to gain momentum.

Speaker Change: Last quarter, I spoke about the new Sharpie Creative Markers and Paper Mate InkJoy Bright Gel Pens, which continue to deliver strong performance as these iconic brands are attracting new purchasers to the categories.

Speaker Change: During the balance of the year, we will support and commercialize a series of recently launched, or soon to be launched, additional innovations.

Speaker Change: including Graco SmartSense Soothing Bassinet and Swing, which detect and respond to baby's cries in seconds with soothing combinations to lull baby back to sleep.

Christopher H. Peterson: Graco Ready-to-Jet Stroller, which features an easy-to-press button for one-handed folding so mom can hold her child while folding up her stroller. The On-the-go Crock-Pot, which was one of the top performing SKUs for the brand, is one of the first in the category to offer a portable food storage and warmer option. Multimeal Crockpot is an exciting launch that features two cooking pots, allowing users to cook at two separate temperatures and cooking methods at the same time.

Speaker Change: Graco Ready-to-Jet Stroller, which features an easy-to-press button for one-handed folding, so mom can hold her child while folding up her stroller.

Speaker Change: On-the-go Crock-Pot, which was one of the top-performing SKUs for the brand, is one of the first in the category to offer a portable food storage and warmer option.

Speaker Change: Multimeal Crock-Pot, which is an exciting launch that features two cooking pots allowing users to cook at two separate temperatures and cooking methods at the same time.

Christopher H. Peterson: Rubbermaid Brilliance rounds as Rubbermaid continues to expand its very popular Brilliance line to provide a complete offering that allows consumers to select the size and shape based on their needs, while offering four times the protection, 100% leak-proof, stain, odor, and shatter resistant performance. Rubbermaid is partnering with Olympic gold medalist Sean Johnston East and her husband, Andrew East, to highlight the unbeatable combination of performance and design from Rubbermaid Brilliance's award-winning food storage containers.

Speaker Change: Rubbermaid Brilliance rounds as Rubbermaid continues to expand its very popular Brilliance line to provide a complete offering that allows consumers to select the size and shape based on their needs, while offering four times the protection, 100% leak-proof stain, odor, and shatter-resistant.

Speaker Change: performance. Rubbermaid is partnering with Olympic gold medalist Shawn Johnston East and her husband Andrew East to highlight the unbeatable combination of performance and design from Rubbermaid Brilliance's award-winning food storage containers.

Christopher H. Peterson: Oster Sandwich Maker, which the Oster team launched earlier this year in Latin America, leveraging the innovation platform strategy by taking a highly successful premium price point product launched in Brazil from a sister brand, Cadence, and introducing it across Latin American markets under the Oster umbrella. Oster Perfect Brew Maxima is a premium-priced espresso machine that we launched several months ago in Latin America and is already on back order in Mexico. It allows consumers to obtain a coffee shop-style beverage in less time due to thermoblock technology and the ability to brew espresso and froth milk at the same time.

Speaker Change: Oster Sandwich Maker, which the Oster team launched earlier this year in Latin America, leveraging the innovation platform strategy by taking a highly successful premium price point product launched from Brazil from a sister brand, Cadence, and introducing it across Latin America markets under the Oster umbrella.

Speaker Change: Oster Perfect Brew Maxima is a premium-priced espresso machine that we launched several months ago in Latin America and is already on back order in Mexico. It allows consumers to obtain a coffee shop-style beverage in less time due to thermoblock technology and the ability to brew espresso and froth milk at the same time.

Speaker Change: Rubbermaid Commercial Powered Carts, which are battery-powered motorized carts, tilt trucks, and add-on accessories, which make it easier and safer to move heavy loads. This has been one of the most successful launches for Rubbermaid Commercial products, as it builds on an industry need for both safety and improved efficiency.

Christopher H. Peterson: This has been one of the most successful launches for Rubbermaid Commercial products, as it builds on an industry need for both safety and improved efficiency. And last but not least, this fall, during peak season for the holidays, we are introducing a new FoodSaver Handheld Plus machine, which is a drawer-sized cordless vacuum sealer that pairs with our FoodSaver storage bags for easy-to-use food preservation, now with a new marination function. It is the first and only coordinates machine in the industry.

Speaker Change: And last but not least, this fall during peak season for the holidays, we are introducing a new FoodSaver Handheld Plus machine, which is a drawer-sized cordless vacuum sealer that pairs with our FoodSaver storage bags for easy-to-use food preservation, now with a new marination function.

Speaker Change: It is the first and only coordinates machine in the industry.

Christopher H. Peterson: In addition, we have activated two significant commercial campaigns with the Oster 100-year anniversary in Latin America and the Ball 140-year anniversary in North America. Both brands are driving sales growth in these markets, respectively. We continue to make progress on new business development, expanding our brands distribution across both new and existing retailers, which has been one of the drivers of the strengthened top line results in recent quarters. We continue to advance the One Newell International strategy. On July 1st, we completed two additional ERP consolidations in Brazil without any significant disruption.

Speaker Change: In addition, we have activated two significant commercial campaigns with the Oster 100-year anniversary in Latin America and the Ball 140-year anniversary in North America. Both brands are driving sales growth in these markets respectively.

Speaker Change: We continue to make progress on new business development, expanding our brand's distribution across both new and existing retailers, which has been one of the drivers of the strengthened top-line results in recent quarters.

Speaker Change: We continue to advance the One Newell International strategy. On July 1st, we completed two additional ERP consolidations in Brazil without any significant disruption.

Christopher H. Peterson: International continues to be a growth engine for the company and has returned to core sales growth already in the first half of 2024. We are in the early stages of seeing the fruits of our labor from critical front-end capabilities. The progress we have made so far is driving our confidence for continued sequential improvement and top-line trends as we enter the back half of the year. Before turning the call over to Mark, I want to provide some perspective on Newell's exposure to potential tariff changes, which is a topic that has captured headlines recently due to the upcoming election in November.

Speaker Change: International continues to be a growth engine for the company and has returned to core sales growth already in the first half of 2024.

Speaker Change: We are in the early stages of seeing the fruits of our labor from critical front-end capabilities. The progress we have made so far is driving our confidence for continued sequential improvement and top-line trends as we enter the back half of the year.

Speaker Change: Before turning the call over to Mark, I want to provide some perspective on Newell's exposure to potential tariff changes, which is a topic that has captured headlines recently due to the upcoming election in November .

Christopher H. Peterson: Having just posted our highest gross margin quarter in five years, we want to make sure we don't slide backwards. As such, for the last few years, we have been working to reduce our dependence on Chinese sources.

Mark: Having just posted our highest gross margin quarter in five years, we want to make sure we don't slide backwards.

Mark: As such, for the last few years, we have been working to reduce our dependence on China sourcing.

Mark: We began accelerating our efforts about six months ago. Specifically, we are continuing to pursue the following actions.

Christopher H. Peterson: We have completed a number of insourcing projects in the writing, baby, and home business. Second, we have been shifting production to alternate geographies through both existing and new suppliers, which we have been proactively qualifying for major purchase pools. At this point, we have evaluated the country of origin of all suppliers and are not signing on any new suppliers that do not have existing or defined plans to establish manufacturing capabilities outside of China.

Mark: First, where economically feasible, we have been insourcing production to Newell's existing manufacturing network. We have completed a number of insourcing projects in the writing, baby, and home businesses.

Mark: Second, we have been shifting production to alternate geographies through both existing and new suppliers.

Mark: which we have been proactively qualifying for major purchase pools. At this point, we have evaluated country of origin on all suppliers and are not signing on any new suppliers that do not have existing or defined plans to establish manufacturing capabilities outside of China.

Mark: As a result, source-finished goods that Newell imports from China to the U.S. now only account for about 15 percent of the company's total cost of goods sold, including a large portion of baby products that are currently exempt from the 301 tariffs.

Christopher H. Peterson: Importantly, based on the work already in progress, we expect this exposure to drop to less than 10% by the end of next year as we continue implementing our plan. While we recognize this as an area of uncertainty, our exposure to China-based manufacturing is much lower today than it was previously. Additionally, there are a number of categories where Newell has significant U.S. and Mexico manufacturing capability, while competitors continue to source from China, including writing, coolers, and blenders, to name a few.

Mark: Importantly, based on the work already in progress, we expect this exposure to drop to less than 10% by the end of next year as we continue implementing our plan.

Mark: While we recognize this is an area of uncertainty, our exposure to China-based manufacturing is much lower today than it was previously.

Mark: Additionally, there are a number of categories where Newell has significant U.S. and Mexico manufacturing capability while competitors continue to source from China, including writing, coolers, and blenders, to name a few.

Christopher H. Peterson: We plan to stay agile and connected as U.S. economic policy unfolds so that we take advantage of opportunities for growth while minimizing potential negative impacts. We came into this year with the expectation that the external backdrop would be challenging, particularly for consumer discretionary goods, which is largely how it has played out thus far. While our categories remain under pressure, we are making progress on our strategic agenda, which has enabled us to deliver results at the high end or ahead of plan across key metrics in the first half of the year.

Mark: We plan to stay agile and connected as the U.S. economic policy unfolds so that we take advantage of opportunities for growth while minimizing potential negative impacts.

Mark: We came into this year with the expectation that the external backdrop would be challenging, particularly for consumer discretionary goods, which is largely how it has played out thus far.

Mark: While our categories remain under pressure, we are making progress on our strategic agenda, which has enabled us to deliver results at the high end or ahead of plan across key metrics in the first half of the year. This provides us with confidence to raise the financial outlook for 2024.

Christopher H. Peterson: This provides us with confidence to raise the financial outlook for 2024. Since implementing the new corporate strategy, we have taken decisive actions that enabled us to improve the company's top-line trajectory, enhance the structural economics of the business, delever the balance sheet, and improve cash flow performance, while strengthening our team, Newell's front-end commercial capabilities, and fostering a high-performance, high-accountability culture. We remain laser-focused on returning the business to sustainable and profitable growth, with the strengthened performance in recent quarters reinforcing our confidence that we are pursuing the right strategy to accomplish this objective.

Mark: Since implementing the new corporate strategy, we have taken decisive actions that enabled us to improve the company's top-line trajectory, enhance the structural economics of the business,

Mark: deliver the balance sheet and improve cash flow performance, while strengthening our team, Newell's front-end commercial capabilities, and fostering a high-performance, high accountability culture.

Mark: We remain laser-focused on returning the business to sustainable and profitable growth, with the strengthened performance in recent quarters reinforcing our confidence that we are pursuing the right strategy to accomplish this objective.

Christopher H. Peterson: I would like to thank our talented employees for their continued commitment to operating with excellence and delighting our consumers by lighting up everyday moments. I will now hand the call over to Mark. Thanks, Chris. Good morning, everyone.

Mark: I would like to thank our talented employees for their continued commitment to operating with excellence.

Mark: and delighting our consumers by lighting up everyday moments.

Mark J. Erceg: We believe that our second quarter results provide additional evidence that the interventions we have made to operationalize Newell's new corporate strategy are having a positive impact on the business. For example, core sales came in at minus 4.2%, which was towards the high end of our outlook and represented a vast improvement versus our 2023 run rate. Pricing in international markets, particularly Latin America, was a meaningful contributor to core sales in Q2, and a 3% headwind from currency accounts for most of the difference between core sales at minus 4.2% and net sales at minus 7.8%. In addition, this was another quarter of rapid and meaningful gross margin expansion. Newell's world-class supply chain and procurement professionals once again delivered exceptionally strong productivity.

Mark: I will now hand the call over to Mark. Thanks, Chris. Good morning, everyone. We believe that our second quarter results provide additional evidence that the interventions we have made to operationalize Newell's new corporate strategy are having a positive impact on the business.

Mark: For example, core sales came in at minus 4.2 percent, which was towards the high end of our outlook, and represented a vast improvement versus our 2023 run rate.

Speaker Change: Pricing in international markets, particularly Latin America, was a meaningful contributor to core sales in Q2, and a 3% headwind from currency account for most of the difference between core sales at minus 4.2% and net sales at minus 7.8%.

Speaker Change: In addition, this was another quarter of rapid and meaningful gross margin expansion.

Speaker Change: Newell's world-class supply chain and procurement professionals once again delivered exceptionally strong productivity.

Mark J. Erceg: And as we continued to focus on providing consumers with more MPP and HPP offerings and exit structurally unattractive categories and SKUs, we benefited from both positive pricing and favorable mix. Consistent with this, and as a direct result of the strategies we have implemented, second quarter normalized gross margin decreased by 490 basis points versus last year to 34.8%, which builds on the 170, 570, and 410 basis point expansions that occurred during the three sequential quarters that preceded it, respectively. During Q2, Newell's normalized operating margin also rose sharply, increasing by 170 basis points versus last year's 10.8%.

Speaker Change: And as we continue to focus on providing consumers with more MPP and HPP offerings and exit structurally unattractive categories and SKUs, we benefited from both positive pricing and favorable mix.

Speaker Change: Consistent with this, and as a direct result of the strategies we have implemented, second-quarter normalized gross margin decreased by 490 basis points versus last year to 34.8 percent.

Speaker Change: which builds on the 170, 570, and 410 basis point expansions that occurred during the three sequential quarters that preceded it, respectively.

Speaker Change: During Q2, Newell's normalized operating margin also rose sharply, increasing by 170 basis points versus last year, the 10.8%.

Mark J. Erceg: The increase in normalized operating margin versus last year was due to strong productivity, positive pricing, and favorable mix, as well as ongoing organizational restructuring-related savings partly offset by higher year-over-year spending in three areas. First, we significantly increased A&P investment levels in absolute dollar terms and as a percentage of sales, even as we shifted some A&P spending originally planned for the second quarter into the third quarter. Second, we continue to make targeted overhead investments in several critical front-end commercial capabilities.

Speaker Change: The increase in normalized operating margin versus last year was due to strong productivity, positive pricing, and favorable mix, as well as ongoing organizational restructuring related savings partly offset by higher year-over-year spending in three areas.

Speaker Change: First, we significantly increased A&P investment levels in absolute dollar terms and as a percentage of sales, even as we shifted some A&P spending originally planned for the second quarter into the third quarter.

Speaker Change: Second, we continue to make targeted overhead investments in several critical front-end commercial capabilities.

Mark J. Erceg: Third, based on the strong financial results we have delivered to date and are projecting over the balance of the year, incentive compensation is being accrued at a higher level than last year. Net interest expense increased by $2 million to $78 million, primarily due to higher interest rates, and a normalized tax benefit of about $14 million was recorded in the quarter.

Speaker Change: Third, based on the strong financial results we have delivered to date and are projecting over the balance of the year, incentive compensation is being accrued at a higher level than last year.

Speaker Change: Net interest expense increased by $2 million to $78 million, primarily due to higher interest rates. And a normalized tax benefit of about $14 million was recorded in the quarter.

Mark J. Erceg: Normalized diluted earnings per share came in at $0.36, which was 50% higher than a year ago and well above our $0.18 to $0.21 guidance range. Now, to be fair, about 10 cents of our Q2 earnings per share over delivery versus going in expectations was driven by an earlier-than-expected realization of certain tax benefits. However, fully adjusting for these tax items still produces a second quarter operational earnings per share beat of 5 to 8 cents.

Speaker Change: Normalized diluted earnings per share came in at $0.36, which was 50% higher than a year ago and well above our $0.18 to $0.21 guidance range.

Speaker Change: Now, to be fair, about 10 cents of our Q2 earnings per share over delivery versus going in expectations was driven by an earlier than expected realization of certain tax benefits.

Speaker Change: However, fully adjusting for these tax items still produces a second quarter operational earnings per share beat of 5 to 8 cents.

Mark J. Erceg: Turning to cash flow, Newell generated $64 million of operating cash flow during the first six months of 2024. Now, that is admittedly down compared to the same period in 2023, but as you know, we just lapped an outsized benefit from massive working capital improvements last year, which was largely driven by a significant contraction in inventory levels. Operationally, our focus on cash remains as strong as ever, as evidenced by a more than 20-day improvement in our year-over-year second quarter cash conversion cycle and a further step down in our leverage ratio to 5.3 times at the end of Q2. This was slightly down sequentially versus Q1 and was one full turn better than Q2 of 2023.

Speaker Change: Turning to cash flow, Newell generated $64 million of operating cash flow during the first six months of 2024.

Speaker Change: Now, that is admittedly down compared to the same period in 2023, but as you know, we just lacked an outsized benefit from massive working capital improvements last year, which was largely driven by a significant contraction in inventory levels.

Speaker Change: Operationally, our focus on cash remains as strong as ever, as evidenced by a more than 20-day improvement in our year-over-year second quarter cash conversion cycle, and a further step down in our leverage ratio to 5.3 times at the end of Q2.

Speaker Change: This was slightly down sequentially versus Q1 and was one full turn better than Q2 of 2023. The year-over-year improvement was driven by $373 million of net debt reduction and a 10% increase in our trailing 12-month normalized EBITDA.

Mark J. Erceg: The year-over-year improvement was driven by $373 million of net debt reduction and a 10% increase in our trailing 12-month normalized EBITDA. Moving on to our third quarter outlook, we've assumed the following. Core sales are expected to be flat to down 2%, with net sales declining in the range of 4 to 6%. The four point differential between course and net sales is largely due to foreign exchange.

Speaker Change: Moving on to our third quarter outlook, we've assumed the following.

Speaker Change: Core sales are expected to be flat to down 2% with net sales declining in the range of 4 to 6%.

Speaker Change: The four-point differential between course and net sales is largely due to board exchange.

Mark J. Erceg: Third quarter normalized operating margin of 8.3 to 8.8 percent would represent an increase of 10 to 60 basis points versus last year as an increase in SG&A expense and both absolute dollars and as a percentage of sales due in part to higher levels of A&P investment should be more than offset by strong gross margin improvement. For the third quarter, we expect a slight year-over-year increase in interest expense, a normalized tax rate in the mid-20% range, and normalized earnings per share of $0.14-$0.17.

Speaker Change: Third quarter normalized operating margin of 8.3% to 8.8% would represent an increase of 10 to 60 basis points versus last year as an increase in SG&A expense in both absolute dollars and as a percentage of sales to impart the higher levels of A&P investment should be more than offset by strong gross margin improvement.

Speaker Change: For the third quarter, we expect a slight year-over-year increase in interest expense, a normalized tax rate in the mid-20 percent range, and normalized earnings per share of $0.14 to $0.17.

Mark J. Erceg: Please note that our projection for a Q3 tax rate in the mid-20s is higher than usual due to the realization of certain tax benefits in the second quarter instead of the third quarter, as previously mentioned. For the full year, we are the first to acknowledge that the macroeconomic environment remains choppy, but we believe the transformation of our business is clearly underway. As such, we have the confidence to improve our full-year financial outlook across several key financial metrics, starting with core sales.

Speaker Change: Please note that our projection for a Q3 tax rate in the mid-20s is higher than usual due to the realization of certain tax benefits in the second quarter instead of the third quarter as previously mentioned.

Speaker Change: For the full year, we are the first to acknowledge that the macroeconomic environment remains choppy, but we believe the transformation of our business is clearly underway. As such, we have the confidence to improve our full-year financial outlook across several key financial metrics, starting with core sales.

Mark J. Erceg: We are now calling for a core sales decline of 3% to 4% versus a 3% to 6% decline previously. This tighter, more optimistic full year range is driven by modest first half overdelivery versus our going in expectations and the development and deployment of stronger second half marketing and innovation programs. Embedded within our full-year core sales estimate is an assumption that our categories remain under pressure, contracting low single digits. For the full year, we now expect a net sales decline of 6% to 7% versus 5% to 8% previously.

Speaker Change: We are now calling for a core sales decline of 3-4% versus a 3-6% decline previously. This tighter, more optimistic full-year range is driven by modest first-half overdelivery versus our going-in expectations and the development and deployment of stronger second-half marketing and innovation programs.

Speaker Change: Embedded within our full-year core sales estimate is an assumption that our categories remain under pressure, contracting low single digits.

Speaker Change: For the full year, we now expect a net sales decline of 6 to 7 percent versus 5 to 8 percent previously. The new range includes a larger-than-previously-contemplated headwind from foreign exchange based on current spot rates.

Mark J. Erceg: The new range includes a larger than previously contemplated headwind from foreign exchange based on current spot rates. Normalized operating margin is now projected to be between 8 and 8.2 percent versus our prior range of 7.8 to 8.2 percent. At the midpoint, our revised normalized operating margin outlook now represents a 110 basis point year-over-year improvement. If achieved, this would more than double the 50 basis point annual expansion called for in our evergreen financial model.

Speaker Change: Normalized operating margin is now projected to be between 8 and 8.2 percent versus our prior range of 7.8 to 8.2 percent.

Speaker Change: At the midpoint, our revised normalized operating margin outlook now represents a 110 basis point year-over-year improvement. If achieved, this would more than double the 50 basis point annual expansion called for in our evergreen financial model.

Mark J. Erceg: We are also raising our normalized earnings per share guidance range to 60 to 65 cents from 52 to 62 cents. Within this updated range, there are two key assumptions we want to specifically point out. First, we now expect a low double-digit normalized tax rate for the year instead of our prior mid-teens tax rate estimate.

Speaker Change: We are also raising our normalized earnings per share guidance range to $0.60 to $0.65, from $0.52 to $0.62.

Speaker Change: Within this updated range are two key assumptions we want to specifically point out.

Speaker Change: First, we now expect a low double-digit normalized tax rate for the year instead of our prior mid-teens tax rate estimate. Second, we have built in a higher level of interest expense than we had before in the event we choose to proactively refinance a portion of our upcoming debt obligations at some point during the balance of the calendar year.

Mark J. Erceg: Second, we have built in a higher level of interest expense than we had before in the event we choose to proactively refinance a portion of our upcoming debt obligations at some point during the balance of the calendar year. Finally, due to stronger than anticipated delivery in the first half, we are raising our forecast for operating cash flow by $50 million to $450 to $550 million, including about $150 to $200 million in cash restructuring and related charges.

Speaker Change: Finally, due to stronger than anticipated delivery in the first half, we are raising our forecast for operating cash flow by $50 million to $450 to $550 million, including about $150 to $200 million in cash restructuring and related charges.

Mark J. Erceg: And on a related note, we still expect Newell's leverage to land around five times by the end of this year, and longer term, we remain committed to achieving investment grade status and continue to target a leverage ratio of about 2.5 times. So, to summarize, close adherence to our new strategy since its deployment a little over one year ago, coupled with a maniacal focus on operational execution, has allowed us to meaningfully improve our top-line trends and deliver four consecutive quarters of year-over-year gross margin improvement and three straight quarters of year-over-year operating margin expansion while investing more in advertising and promotion and beefing up several critical front-end capabilities.

Speaker Change: And, on a related note, we still expect Newell's leverage to land around five times by the end of this year, and longer term we remain committed to achieving investment grade status and continue to target a leverage ratio of about 2.5 times.

Speaker Change: So, to summarize, close adherence to our new strategy since its deployment a little over

Speaker Change: coupled with a maniacal focus on operational execution.

Speaker Change: has allowed us to meaningfully improve our top-line trends and deliver four consecutive quarters of year-over-year gross margin improvement and three straight quarters of year-over-year operating margin expansion, while investing more in advertising and promotion and beefing up several critical front-end capabilities.

Mark J. Erceg: During that same period, our cash performance and EBITDA growth have been strong, allowing us to pay down debt and lower our leverage ratio. We believe that these results and the actions we continue to take to strengthen the business and the organization have set the stage for Newell's re-emergence as a world-class consumer products company. While there is still plenty of work to be done, we are encouraged by the progress we are making to unlock and monetize Newell's full potential, and because we firmly believe we are on the right path, we have improved our full-year outlook for core sales, normalized operating margin, normalized earnings per share, and operating cash flow.

Speaker Change: During that same period, our cash performance and EBITDA growth has been strong, allowing us to pay down debt and lower our leverage ratio.

Speaker Change: We believe that these results and the actions we continue to take to strengthen the business and the organization have set the stage for Newell's re-emergence as a world-class consumer products company.

Speaker Change: While there is still plenty of work to be done, we are encouraged by the progress we are making to unlock and monetize Newell's full potential, and because we firmly believe we are on the right path, we have improved our full-year outlook for core sales, normalized operating margin, normalized earnings per share, and operating cash flow.

Mark J. Erceg: Operator, if you could, please open the call for questions. Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: Operator, if you could, please open the call for questions.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.

Operator: One moment for questions. Our first question comes from Peter Grom with UBS. You may proceed. Thanks, operator. And good morning, everyone. Hope you're doing well. So I was hoping to get some perspective on the gross margin performance, the strongest quarterly results in 2019. Can you maybe just unpack the movie pieces here?

Speaker Change: Our first question comes from Peter Grom with UBS. You may proceed.

Peter K. Grom: Thanks, operator, and good morning, everyone. Hope you're doing well. So I was hoping to get some perspective on the gross margin performance.

Speaker Change: in the quarter, you know, strongest quarterly results since 2019. Can you maybe just unpack...

Peter K. Grom: How did this compare to your own expectations? And, I guess, how should we think about the progression from a gross margin perspective for the balance of the year and beyond? It's been a while since we've talked about these long-term gross margin targets, but just would be curious whether the result today gives you confidence about the path forward here. Thanks.

Speaker Change: The moving pieces here. How did this, you know, compare to your own expectations?

Speaker Change: And I guess, how should we think about the progression from a gross margin perspective with the balance of the year and beyond? It's been a while since we've talked about these long-term gross margin targets, but just would be curious whether the result today gives you confidence on kind of the path forward here. Thanks.

Christopher H. Peterson: No, thanks for the question, and yes, we're really pleased with the prologue that we've been laying forward as it relates to gross margin expansion. You may recall that we talked about the fact that we have seen our level of savings step up significantly. From 2019 to 2022, our supply chain organization was taking out about 3% of COGS, and then in 2023 and 2024, we're now running more at double that rate, around roughly 6% of COGS coming out, averagely, over those two years. They are doing that by driving automation, looking at port wall costs, and frankly, looking at the entirety of the supply chain end-to-end. It wasn't that long ago that we didn't have an integrated supply chain.

Speaker Change: No, thanks for the question, and yes, we're really pleased with the prologue that we've been laying forward as it relates to gross margin expansion. You may recall that we talked about the fact that we have seen our level of savings step up significantly. From 2019 to 2022, our supply chain organization was taking out about 3% of COGS.

Speaker Change: And then in 23 and 24, we're now running more at double that rate, around roughly 6% of COGS coming out averagely over those two years.

Speaker Change: They are doing that by driving automation, looking at four wall costs, frankly looking at the entirety of the supply chain end to end. It wasn't that long ago that we didn't have an integrated supply chain. When we did integrate the supply chain and put the product supply professionals in charge of that, that obviously has given us additional fuel to drive through the P&L. We're also benefiting from the pricing actions that we took in July of last year, and we're also really starting to see a lot of benefits from mixed management.

Christopher H. Peterson: When we did integrate the supply chain and put the product supply professionals in charge of that, that obviously has given us additional fuel to drive the P&L. We're also benefiting from the pricing actions that we took in July of last year, and we're also really starting to see a lot of benefits from mixed management. The teams have gotten really good at looking at SKU-level financial data.

Speaker Change: The teams have gotten really good about looking at SKU-level financial data. We've been looking at our pricing and promotion strategies very, very critically, and we believe that that work has a huge amount of legs still associated with it going forward. And then, of course, we've talked about the fact that we're trying to drive our initiative programs to have more larger, more impactful initiatives that are accretive gross margin-wise as they come out the door. So we think, frankly, we're just getting started and are very excited about the plot ahead.

Christopher H. Peterson: We've been looking at our pricing and promotion strategies very, very critically, and we believe that that work has a huge amount of legs still associated with it going forward. And then, of course, we've talked about the fact that we're trying to drive our initiative programs to have more larger, more impactful initiatives that are accretive gross margin-wise as they come out the door. So we think, frankly, we're just getting started and are very excited about the plot ahead.

Christopher H. Peterson: Yeah, the only thing I would add to that, Peter, to your question on the balance of the year's gross margin, we still expect to drive gross margin improvement in the balance of the year. Of course, as we get into the balance of the year, we will begin to lap a little bit tougher comps, and so our guidance assumes that we drive gross margin improvement in the back half of the year, but likely not at the level of year-over-year improvement that we saw in the first half of the year.

Peter K. Grom: Yeah, the only thing I would add to that, Peter, to your question on the balance of the year gross margin is we still expect it to drive gross margin improvement in the balance of the year. Of course, as we get into the balance of the year, we will begin to lap a little bit tougher comps.

Peter K. Grom: and so our guidance assumes that we drive gross margin improvement in the back half of the year but likely not at the level year-over-year of improvement that we saw in the first half of the year.

Christopher H. Peterson: But all of the programs Mark talked about continue to be in place, and we see a multi-year runway of gross margin improvement ahead. I think we have set out what we think this business is capable of getting to over the long term at around 37% or 38% gross margin, and we still believe that that's the right longer-term target for us to be shooting for. Great. Thanks so much. Y'all pass it on.

Peter K. Grom: But all of the programs Mark talked about continue to be in place, and we see a multi-year runway of gross margin improvement ahead. I think we have set out what we think this business is capable of getting to.

Mark: over the long term at around 37 or 38% gross margin. And we still believe that that's the right longer-term target for us to be shooting for.

Speaker Change: Great, thanks so much, y'all. Bye for now.

Operator: Thank you. Our next question comes from Bill Chappell with True Securities; you may proceed. Thanks. Good morning. Morning, Bill.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Bill Chappell with Truist Securities. You may proceed.

William Bates Chappell: Thanks. Good morning.

William Bates Chappell: Morning. I just want to understand kind of your outlook on the back half in terms of some of the categories. And obviously, you have a seasonal business, and you had a good start for the first half, but as we move to the second half, particularly back to school and the holidays, and kind of the fragrance, the home fragrance, the appliance, and obviously, the writing is much more pronounced in terms of their impact on the sales.

William Bates Chappell: Good morning, Bill.

William Bates Chappell: I just want to understand kind of your outlook on the back half in terms of some of the categories. And obviously, you have a seasonal business and you've had a good start for the first half. But as we move to the back half, particularly back at school and the holidays.

Speaker Change: And kind of the fragrance, the home fragrance, the appliance, and obviously the writing is much more pronounced in terms of their impact on the sales.

William Bates Chappell: So what gives you confidence from the first half that these are going to really rebound and can return to the back half? Maybe any update you're seeing on back to school or what you're hearing from the retailers about the upcoming holiday season would be helpful. Sure.

Speaker Change: What gives you confidence from the first half that these are going to really rebound and return to the back half? Maybe any update you're seeing on Back to School or what you're hearing from the retailers about the upcoming holiday season? Anything like that would be helpful.

Christopher H. Peterson: So let me start by saying when we started this year, you know, we knew that we were heading into a macro backdrop where we were expecting our categories to be down low single digits. As consumers remain under pressure from the cumulative impact of inflation over the last several years, and that outlook in terms of category growth has not changed. It's effectively what we've seen in the first half of the year and what we're assuming in the back half of the year. And so far, we haven't seen anything to adjust that sort of fundamental macro backdrop.

Speaker Change: Sure. So let me start by saying when we started this year, you know, we knew that we were heading into a macro backdrop where we were expecting our categories to be down low single digits.

Speaker Change: as consumers remain under pressure from the cumulative impact of inflation over the last several years.

Speaker Change: And that outlook, in terms of category growth, has not changed. It's effectively what we've seen in the first half of the year and what we're assuming in the back half of the year. And so far, we haven't seen anything to adjust that sort of fundamental macro backdrop.

Christopher H. Peterson: Now, if you look at our specific performance, what gives us confidence to say that our core sales trend is going to be better, even better still, in the back half of this year versus the front half of this year are really three things. The first is that the rate of innovation contribution to the top line is higher in the back half of the year than in the front half of the year. And I talked a little bit about that in the prepared remarks, where we had a great launch of Sharpie Creative Markers and PaperMate InkJoy bright gel pens in the first half of the year.

Speaker Change: Now, if you look at our specific performance...

Speaker Change: What gives us confidence to say that our core sales trend is going to be even better still in the back half of this year versus the front half of this year are really three things.

Speaker Change: The first is...

Speaker Change: The rate of innovation contribution to the top line is higher in the back half of the year than the front half of the year. And I talked a little bit about that in the prepared remarks where we had a great launch of Sharpie Creative Markers and Paper Mate InkJoy bright gel pens in the front half of the year. But in the back half of the year, we have a lot more innovation coming to market.

Christopher H. Peterson: But in the back half of the year, we have a lot more innovation coming to market that's being launched as we speak, and so we're expecting the contribution from new product innovation to increase in the back half versus the front half. The second thing that's happening is, we talked about as part of our capability improvement actions the new business development group that we started about 12 months ago, and that group continues to gain traction.

Speaker Change: that's being launched as we speak. And so we're expecting the contribution from new product innovation to increase in the back half versus the front half.

Speaker Change: The second thing that's happening is, we had talked about as part of our capability improvement actions, the new business development group.

Speaker Change: that we started about 12 months ago, and that group continues to gain traction. And so at this point,

Christopher H. Peterson: And so, at this point, we have a higher contribution of confirmed new distribution gains that are coming in the back half of this year as compared to the front half. And so, we know that our distribution is strengthening from that capability in the back half versus the front half.

Speaker Change: We have a higher contribution of confirmed...

Speaker Change: new distribution gains that are coming in the back half of this year as compared to the front half. And so we know that our distribution is strengthening from that capability in the back half versus the front half.

Christopher H. Peterson: And the third thing that's driving this is the international business. I mentioned that we returned to growth in the international business in the first half of this year, but we have now made a lot more progress in the operating model changes that we initiated six months ago, driving one new international capability. And we're expecting the international business in total to accelerate core sales growth in the back half of this year versus the front half. So when you put those three things together, they're driving a better tailwind from the implementation and realization of the integrated strategy. Relative to back to school, it's early days for the back-to-school season.

Speaker Change: And the third thing that's driving this is the international business. So I mentioned that we returned to growth in the international business in the front half of this year.

Speaker Change: But we have now made a lot more progress in the operating model changes that we initiated six months ago, driving the one new international capability.

Speaker Change: and we're expecting the international business.

Speaker Change: in total to accelerate core sales growth in the back half of this year versus the front half.

Speaker Change: Those three things together.

Speaker Change: They're driving a better tailwind from the implementation and the realization of the integrated strategy.

Christopher H. Peterson: Obviously, it's a big contributor to the company's results. We feel very good about the sell-in for back-to-school. We believe that we are set up for market share gains in the back-to-school period, driven by the strength of our innovation and the distribution and promotional setup that we have going into the back-to-school period. We also, this year, had very strong operational results in terms of fill rate and inventory, so we've had effectively no issues with getting the back-to-school displays and in-store materials set up.

Speaker Change: Relative to back-to-school...

Speaker Change: It's early days on the back-to-school season. Obviously, it's a big contributor to the company's results. We feel very good about the sell-in.

Speaker Change: for Back to School. We believe that we are set up for market share gains in the back-to-school period, driven by the strength of our innovation and the distribution and promotional setup that we have going into the back-to-school period. We also, this year,

Speaker Change: We've had very strong operational results in terms of fill rate and inventory, so we've had effectively no issues in getting the back-to-school

William Bates Chappell: Of course, we won't see the consumption from a consumer standpoint until the next two months or so. We'll have a better update on that at the end of next quarter, as we always do, but we feel as good as we can going into the back-to-school season on writing relative to prior years.

Speaker Change: displays and in-store.

Speaker Change: materials set up.

Speaker Change: Of course, we won't see the consumption from a consumer standpoint.

Speaker Change: until the next two months or so.

Speaker Change: And so we'll have a better update on that at the end of next quarter, as we always do. But we feel as good as we can going into the back of the school season on writing relative to prior years.

Christopher H. Peterson: And just maybe a clarification, I really appreciate the color, but it sounds like what you're hearing from the retailers, both for back to school and for the upcoming holiday season, is not out of line with what you expected back in January. Because we hear so many mixed signals from the consumer and the health of the consumer, stuff like that. Is that a fair statement? That's a good statement. Yeah, we've been, as I mentioned, we went into this year assuming that the categories that we compete in were going to be down low single digits.

Speaker Change: Got it. And just maybe a clarification, I really appreciate the color, but it sounds like...

Speaker Change: What you're hearing from the retailers both for back-to-school and for the upcoming holiday season is not out of line with what you expected back in January . Because we hear so many mixed signals on the consumer and the health of the consumer, stuff like that. Is that a fair statement?

Speaker Change: That's a fair statement. Yeah, we've been, as I mentioned, we went into this year assuming that the categories that we compete in were going to be down low single digits.

Christopher H. Peterson: Through the first six months of this year, our categories have been down low single digits, and everything we're hearing from the retailer would suggest that that stance continues in the back half of the year. So it really hasn't changed from a macro environment versus our expectations.

Speaker Change: Through the first six months of this year, our categories have been down low single digits.

Speaker Change: And everything we're hearing from the retailer would suggest that that stance continues in the back half of the year.

Speaker Change: It really hasn't changed from a macro environment versus our expectation.

Christopher H. Peterson: What's changed that's giving us more confidence is the progress that we're making uniquely at Newell driving the front end capability improvements. And that's what's really allowing us to deliver at the top end of the range and improve our core sales outlook for the balance of the year. Perfect. Thanks so much.

Speaker Change: What's changed that's giving us more confidence?

Speaker Change: is the progress that we're making.

Speaker Change: uniquely at Newell at driving the front end capability improvements.

Speaker Change: And that's what's really allowing us to deliver at the top end of the range and improve our core sales outlook for the balance of the year.

Speaker Change: Perfect. Thanks so much.

Operator: Thank you. Our next question comes from Andrea Teixeira with J.P. Morgan. You may proceed. Thank you, everyone. And good morning.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Andrea Teixeira with J.P. Morgan, you may proceed.

Andrea Faria Teixeira: I was just trying to parse out all the impacts. I mean, I did appreciate your explanation about the import impact and coming down to 10% sourcing from China. But we have been hearing and we have been witnessing the increase in rates for maritime containers and all of transportation. So I was hoping to see if there is any incremental pressure, or if it's pretty much hedged or contracted through the end of the year. And on that basis, I'm assuming that the second, the third quarter has, of course, some benefits from the back to school.

Andrea Faria Teixeira: Thank you everyone and good morning. I was just trying to pass out all the impacts. I mean I did appreciate your

Andrea Faria Teixeira: Your explanation about the import impact and coming down to 10% sourcing from China, but we have been hearing and we have been witnessing

Andrea Faria Teixeira: the increasing in rates for maritime containers and all of transportation. So I was hoping to see if there is any incremental pressure or it's pretty much hedged or contracted.

Speaker Change: Sofya Tsinis, Mark Erceg, Christopher Peterson

Christopher H. Peterson: So I was trying to see what are the mixed effects that you should be seeing in regards to that innovation, and if the innovation that you're coming through is margin accretive and how to think about going forward and related to that, I think Coleman and outdoors are relatively more, I would say, lower margin in that sense. And correct me if I'm wrong.

Speaker Change: What are the mixed effects that you should be seeing?

Speaker Change: in regards to that innovation and if the innovation that you're coming through

Speaker Change: Marginal Creative, and how to think about going forward. And related to that, I think Coleman and Outdoors is relatively more

Christopher H. Peterson: And that coming back, and that improving. Are you positive that those products and in the portfolio are right sized and better in terms of margins as they were before? I was just thinking on a like for like basis about how innovation has been accretive to your two remarks. Okay.

Speaker Change: I would say lower margin in that sense, and correct me if I'm wrong, and that coming back and that improving, are you positive that those products in the portfolio is right sized?

Speaker Change: and better in terms of margins as they were before. I was just thinking on a like-for-like basis how innovation has been accretive to your margin.

Christopher H. Peterson: Let me try to address each of the points. So, first of all, from an inflation standpoint, we went into the year assuming that inflation was going to be sort of a low single-digit headwind. That continues to be our outlook, and that's where we're pacing. We've seen a little bit of more inflation from resin, but labor and overhead continues to be about in line with what we expected in terms of inflation pressure.

Speaker Change: Okay, let me try to address each of the points.

Speaker Change: So, first of all, from an inflation standpoint,

Speaker Change: We went into the year assuming that inflation was going to be sort of a low single-digit headwind. That continues to be our outlook, and that's where we're pacing.

Speaker Change: We've seen a little bit of more inflation from resin.

Speaker Change: Labor and overhead continues to be about in line with what we expected in terms of inflation pressure.

Christopher H. Peterson: If anything, from a transportation standpoint, to your question on ocean freight, we've actually done a little better than we were expecting. So, heading into the year, we have contracted for 100% of our containers, and we are getting pretty much full adherence to our contracted rates. So, we have not experienced, and don't believe we're going to experience, significant ocean freight inflation or container availability issues.

Speaker Change: If anything, from a transportation standpoint to your question on ocean freight, we've actually done a little better than we were expecting.

Speaker Change: So heading into the year, we have contracted for 100% of our containers.

Speaker Change: And we are getting pretty much full adherence to our contracted rates.

Speaker Change: So we have not experienced, and don't believe we're going to experience.

Speaker Change: significant ocean freight inflation or container availability issues. So from an overall standpoint, our input cost inflation remains about the same despite some small puts and takes.

Christopher H. Peterson: So, from an overall standpoint, our input cost inflation remains about the same despite some small puts and takes. Relative to Q3, from a mix standpoint, what I would say is we don't think that the overall business unit mix is going to be dramatically different in Q3 of this year versus Q3 of last year. The only exception to that is, recall that we have exited some structurally less profitable parts of the business. And so we do believe that as a result of the continuation of those activities, mix should continue to be a help in Q3.

Speaker Change: Relative to Q3, from a mixed standpoint,

Speaker Change: You know, what I would say is we don't think that the

Speaker Change: that the overall business unit mix is going to be dramatically different in Q3 of this year versus Q3 of last year. The only exception to that is, recall that we have exited some structurally less profitable parts of the business.

Speaker Change: And so, we do believe that as a result of the continuation of those activities, MIX should continue to be a help.

Christopher H. Peterson: And when we look at the business mix, we are expecting gross margin to be up in Q3 versus a year ago, as we continue to expect strong productivity results from the supply chain teams. And we continue to expect mix benefit as we shift the portfolio to more structurally attractive parts of the portfolio. Last comment is on outdoor and rec.

Speaker Change: And when we look at the business mix, we are expecting gross margin to be up in Q3 versus a year ago, as we continue to expect

Speaker Change: strong productivity results from the supply chain teams and we continue to expect mixed benefit as we mix the portfolio to more structurally attractive parts of the portfolio.

Christopher H. Peterson: I mentioned in the prepared remarks that the outdoor and rec business is the segment that requires the most amount of turnaround at this point. The good news is it's our smallest segment, both in terms of revenue and profit. And at this point, we believe that the trend has bottomed in Q2, so we are expecting in Q3, the top line trend to begin to sequentially improve versus the front half of the year. And we think we're on a multi-year journey to get that business back to bright. So that's our expectation for the outdoor and rec business. And we've made some pretty dramatic action there.

Speaker Change: Last comment is on outdoor and rec. I mentioned in the prepared remarks...

Speaker Change: The outdoor and rec business is the segment that requires the most amount of turnaround at this point. The good news is it's our smallest.

Speaker Change: segment, both in terms of revenue and profit.

Speaker Change: And at this point, we believe that the trend has bottomed in Q2. So we are expecting in Q3 the top line trend to begin to sequentially improve versus the front half of the year. And we think we're on a multi-year journey to get that business back to bright.

Speaker Change: So, that's our expectation for the outdoor and rec business. And we've made pretty dramatic action there. I mean, moving the business from Chicago to Atlanta, effectively restaffing the entire leadership team of that business.

Operator: I mean, moving the business from Chicago to Atlanta, and effectively restaffing the entire leadership team of that business, has happened over the last three to six months. And so we believe we're in a much stronger position to take that business forward in a more profitable way over the next couple of years. Thank you. Thank you. Our next question comes from Lauren Lieberman with Barclays. You may proceed. Thanks. Good morning.

Speaker Change: has happened over the last three to six months. And so we believe we're in a much stronger position to take that business forward in a more profitable way over the next couple of years.

Speaker Change: Thank you.

Lauren Rae Lieberman: Two questions, one was just on retailer inventories, just kind of where you think things stand, if you're seeing any more cautious behavior from retailers in any categories in particular. And then the second was just on commercial. I think the business had core sales growth last quarter but then inflected to a downturn this quarter. So just any kind of update on that, if it's timing effects or anything you're seeing in the market, thanks. Yeah, thanks, Lauren.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Lauren Lieberman with Barclays. You may proceed.

Lauren Rae Lieberman: Thanks, good morning.

Lauren Rae Lieberman: Two questions. One was just on retailer inventories, just in kind of where you think things...

Lauren Rae Lieberman: Stand if you're seeing any more cautious

Christopher H. Peterson: On retail inventories, we believe we're still in pretty good shape. We haven't really seen a meaningful change in retail inventories in this year's numbers, in the front half. I think we said heading into the year that retail inventories were in pretty good shape. We continue to believe that that's the case, so we're not seeing major swings in our fundamental results as a result of big retail inventory changes.

Speaker Change: a meaningful change in retail inventories in this year's numbers in the front half. I think we said we felt heading into the year that retail inventories were in a pretty good shape. We continue to believe that that's the case, so we're not seeing...

Speaker Change: major swings in our

Christopher H. Peterson: Of course, there are always retail inventory changes related to seasonal businesses, so, you know, when you ship in for back-to-school, retailers build up inventory, and then you see how the consumption is during the season, but there's nothing that we see that gives us pause or says we believe we're either over-invenoried or under-invenoried at this point relative to sort of healthy levels across the retail landscape.

Speaker Change: fundamental results as a result of big retail inventory changes.

Speaker Change: Of course, there are always retail inventory changes related to seasonal businesses.

Speaker Change: [inaudible]

Speaker Change: We believe we're either over-inventoried or under-inventoried at this point relative to sort of healthy levels across the retail landscape. On the commercial business...

Christopher H. Peterson: On the commercial business, you know, the commercial business, you're correct, did grow in Q1. It was down slightly in Q2. I would say that's more of a timing issue.

Speaker Change: You know, the commercial business, you're correct, did grow in Q1. It was down slightly in Q2. I would say that's more of a timing. If you look at the front half of the year, the commercial business delivered core sales growth in total in the front half of the year.

Christopher H. Peterson: If you look at the first half of the year, the commercial business delivered core sales growth in total for the first half of the year. Part of what we're doing in the commercial business as well is that there is a good part of that business that is very structurally attractive. There's also a small part of that business that was structurally less attractive and tended to be more of the consumer-oriented products that were sold in DIY.

Speaker Change: Part of what we're doing in the commercial business as well is there's a good part of that business that is very structurally attractive. There's also a small part of that business.

Speaker Change: that tended to be more of the consumer-oriented products that were sold in DIY. Some of those consumer-oriented, structurally less attractive businesses

Speaker Change: We have chosen to walk away from as part of the mixed strategy that we've talked about.

Speaker Change: And that impact was more pronounced in Q2 because of the summer selling season and those consumer-oriented sort of outdoor rubbermaid commercial type businesses.

Christopher H. Peterson: Some of those consumer-oriented, structurally less attractive businesses that we have chosen to walk away from as part of the mixed strategy that we've talked about, and that impact was more pronounced in Q2 because of the summer selling season and those consumer-oriented sort of outdoor rubbermaid commercial-type businesses. And so we continue to believe that business is in good shape. We have grown core sales in the first half of the year, and we believe that business is one that we should put in a strengthening and strong-performing business camp relative to the total portfolio. Thank you. Our next question comes from Brian McNamara with Canaccord Genuity; you may proceed. Hey, good morning, guys.

Speaker Change: And so we continue to believe that business is in good shape. We have grown core sales in the first half of the year, and we believe that business is one that we put in the...

Speaker Change: in the strengthening and strong performing business camp relative to the total portfolio.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Brian McNamara with Canaccord Genuity. He may proceed.

Operator: Thanks for taking the questions. First, I know you kind of flagged that it would take the longest to recover and turn around, but Outdoor continues to struggle with, I think it's been like, eight straight quarters now, pretty significant double-digit declines. You're not alone there, but the weakness appears more acute than some of the other brands that we see in the space.

Brian Christopher McNamara: Hey, good morning, guys. Thanks for taking the questions. First, I know you have kind of flagged it would take the longest to recover and turn around, but Outdoor continues to struggle with, I think it's like eight straight quarters now, pretty significant double-digit declines. You're not alone there, but the weakness appears more acute than some of other brands we see in the space. So I guess what gives you confidence that we've kind of reached this bottom?

Brian Christopher McNamara: So I guess, what gives you confidence that we've kind of reached this bottom? Yeah, I think two things. So I agree with that. In the outdoor and rec business, we are clearly, the market is challenging, but we are clearly underperforming the market. And I think there were a couple of things that drove that. One, we had a leadership team in that business that needed a complete redo. And we've now done that redo and restaffed pretty much the entire team, as I mentioned.

Christopher H. Peterson: And we now have a team that has started in the last three to six months that is much more capable in that business than we had previously. It's the first thing that gives me confidence. The second thing is, on a number of the outdoor brands, the strategy that the brand teams, the previous brand teams, were pursuing was fundamentally flawed in my view, and we have now changed that. So, as an example, Coleman has been exclusively focused on camping over the last few years.

Speaker Change: Yeah, I think two things. So I agree with that. We, in the outdoor and rec business, we are clearly, the market is challenging, but we are clearly underperforming the market.

Brian Christopher McNamara: And I think there's a couple of things that drove that. One, we had a leadership team in that business that needed a complete redo.

Brian Christopher McNamara: And we've now done that redo and re-staffed pretty much the entire team, as I mentioned. And we now have a team that has started in the last three to six months that is much more capable in that business than we had previously. It's the first thing that gives me confidence.

Brian Christopher McNamara: Second thing is, on a number of the outdoor brands,

Brian Christopher McNamara: the strategy that the brand teams, the previous brand teams were pursuing.

Christopher H. Peterson: And I think the total addressable market for camping is significantly narrower than the total addressable market for outdoor activities. And so we have pivoted our focus on the Coleman brand to focus more on outdoor activities, including sidelines, backyard, and beach. We're not abandoning camping, but we are expanding the aperture. And when you do that, the total addressable market that we're now going after with Coleman has tripled versus the previous total addressable market. First point.

Brian Christopher McNamara: was fundamentally flawed in my view.

Brian Christopher McNamara: And we have now changed that. So, as an example, Coleman was exclusively focused on camping.

Brian Christopher McNamara: over the last few years. And I think the total addressable market of camping is significantly narrower than the total addressable market of outdoor activities.

Brian Christopher McNamara: We're not abandoning camping, but we are expanding the aperture. And when you do that, the total addressable market that we're now going after with Coleman has tripled versus the previous total addressable market, first point.

Christopher H. Peterson: Second point, we've done a lot of work to redefine who the target consumer is and begin to repopulate the innovation pipeline. Because we had to get the new team in place, the new team is now in place.

Brian Christopher McNamara: Second point, we've done a lot of work to redefine who is the target consumer and begin to repopulate the innovation pipeline. Because we had to get the new team in place,

Christopher H. Peterson: We now have a much stronger innovation pipeline for that business than we've had at any point since I've been with the company. That being said, the innovation pipeline is still, you know, sort of going to unfold over the next 24 months, so it's not all going to launch this quarter because of the cycle time. But you will start to see us get back with better marketing campaigns and the beginning of a new innovation pipeline, starting in the second half of the year.

Brian Christopher McNamara: The new team is now in place. We now have a much stronger innovation pipeline on that business than we've had at any point since I've been with the company.

Brian Christopher McNamara: That being said, the innovation pipeline is still, you know, sort of...

Brian Christopher McNamara: It's going to unfold over the next 24 months, so it's not all going to launch this quarter because of the cycle time.

Brian Christopher McNamara: But you will start to see us get back with better marketing campaigns.

Brian Christopher McNamara: and the beginning of a new innovation pipeline starting in the back half of the year, and then we expect that to accelerate.

Christopher H. Peterson: And then we expect that to accelerate in calendar year 25 and even more in calendar year 26. So that's what gives us the confidence to say that we believe that the trend in O&R has bottomed, and we expect, already starting in Q3, the trend to improve sequentially. Great, that's a helpful color.

Brian Christopher McNamara: in calendar year 25 and even more in calendar year 26. So that's what gives, you know, gives us the confidence to say that we believe that the trend in O&R has bottomed and we expect already starting in Q3 the trend to improve.

Brian Christopher McNamara: I guess secondly, you know, we've heard from a whole host of consumer companies and, now you know, banks are reporting recently flagging low income consumer weakness while some higher income cohorts are trading down. What's your view of the current consumer health overall and how does that impact the potential return to top line growth next year? Yeah, I think our view continues to be that the consumer is under pressure, as I mentioned previously, because the cumulative impact of inflation has outstripped the cumulative wage gains if you look at the time period from 2019 to today, and that has caused consumers to prioritize food and essentials at the expense of more durable, discretionary products.

Speaker Change: sequentially. Got it.

Speaker Change: Great, that's helpful, Culler. I guess secondly, you know, we've heard from a whole host of consumer companies and now, you know, banks reporting recently flagging low-income consumer weakness while some higher-income cohorts are trading down. What's your view of the current consumer health overall and how does it impact a potential return to top-line growth next year?

Culler: Yeah, I think our view continues to be that the consumer is under pressure, as I mentioned previously, because...

Culler: The cumulative impact of inflation has outstripped

Culler: The Cumulative Wage Gains, if you look at the time period from 2019 to today, and that has caused consumers to prioritize

Culler: food and essentials at the expense of more durable, discretionary products, the same time.

Christopher H. Peterson: We had a COVID surge in demand back in 2021 that took some consumers out of the category for a period of time. I think the thing that we're starting to get a little bit more optimistic as it relates to 2025 is that we believe that the COVID bump and pulling people out of our categories is now likely going to be behind us as we go into next year. The second thing I would say is we have a number of categories where consumers are under pressure and should benefit. So, for example, food prices in restaurants have gone up dramatically, and if consumers spend more time eating at home, that should benefit our kitchen business.

Culler: We had a COVID surge in demand back in 2021 that took some consumers out of the category for a period of time. I think the thing that we're starting to get a little bit more optimistic...

Culler: As it relates to 2025, is we believe that that COVID bump and pulling people out of our categories is now likely going to be behind us as we go into next year, is the first thing.

Culler: The second thing I would say is we have a number of categories where when, as consumers

Culler: are under pressure should benefit. So, for example, food prices in restaurants have gone up dramatically, and if consumers spend more time eating at home, that should benefit our kitchen business.

Christopher H. Peterson: Because our kitchen business is all about enabling consumers to eat more at home, when you think about our kitchen appliances, our food storage business, our fresh preserving business, etc. And so we believe that as our innovation pipeline ramps up... We believe that we have an opportunity to entice more consumers into our categories as we go forward. And that's what we're focused on doing. Great, thanks very much.

Culler: because our kitchen business is all about.

Culler: [inaudible]

Culler: We believe that we have an opportunity to entice more consumers into our categories as we go forward. And that's what we're focused on doing.

Speaker Change: Great, thanks very much. Best of luck.

Brian Christopher McNamara: Best of luck. Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. You may proceed. Hey, good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Bye.

Speaker Change: Our next question comes from Chris Carey with Wells Fargo Securities. You may proceed.

Operator: So I actually wanted to follow up on that last comment, Chris, but also, you know, ask a follow-up. So regarding this comment on 2025 and the COVID bump, seemingly behind you and consumers ready to return to the categories, it's quite an interesting conversation, which we covered on this call around purchase cycles, length of purchase cycles, and how long these gaps can last. So, are you seeing signs that consumers are returning to certain of your categories that have longer but perhaps more predictable purchase cycles, or is this a bit more theoretical based on, you know, we're F years into a certain cycle, and typically, the consumer will return? So, it's really about whether this is happening, or is this more expected to happen? And if I could just, you know, I'll just add a follow-up here.

Christopher Michael Carey: Hey, good morning everyone. So I actually wanted to follow up on that last comment, Chris, but also, you know, ask follow-up.

Christopher Michael Carey: So regarding this, you know, comment on 2025,

Christopher Michael Carey: and the COVID bump seemingly behind you and consumers.

Speaker Change: ready to return to the categories. It's quite an interesting conversation which we've covered on this call around purchase cycles, length of purchase cycles, and how long these gaps can last.

Speaker Change: So are you seeing signs that consumers are returning?

Speaker Change: to certain of your categories.

Speaker Change: that have longer but perhaps more predictable purchase cycles, or is this a bit more?

Speaker Change: Sofya Tsinis, Mark Erceg, Christopher Peterson

Christopher Michael Carey: The commentary around sequential improvement in core sales. Would you have the same comment if you were to exclude some of the counterinflationary pricing you're taking in international markets? Are you seeing that sequential improvement, say, in your U.S. business, including some of that international noise? Yeah, so I think I would say a couple of things. It's obviously hard to predict.

Speaker Change: The commentary around sequential improvement in core sales

Speaker Change: Would you have the same comment if you were to exclude some of the counter inflationary pricing you're taking in international markets? Are you seeing that sequential improvement, say, in your U.S. business, including some of that international noise? Thanks.

Speaker Change: Yeah, so I think I would say a couple of things. It's obviously hard to predict.

Christopher H. Peterson: The thing that we're seeing that's giving me some encouragement is, I'll give you an example. One of the innovations I talked about in my prepared remarks was the Oster Perfect Brew espresso machine that we launched in Latin America. It's priced at about $900, which is a pretty significant price point for the Oster brand.

Speaker Change: The thing that we're seeing that's giving me some encouragement is, I'll give you an example. One of the innovations I talked about in the prepared remarks

Speaker Change: was the Oster Perfect Brew espresso machine that we launched in Latin America. We launched that product in Latin America. It's priced about $900, which is a pretty significant price point for the Oster brand.

Christopher H. Peterson: The product sold out. We sold our entire year's volume in the first two months. And we're starting to see some examples of that, where when we come up with a compelling innovation, even if it's at a high price point, we're seeing consumers be attracted to those and really perform at a strong level. And so as we start to see signs of that, that's what's giving us confidence. The Sharpie paint creative markers that we launched, which got the Sharpie brand into the paint marker market, you know, we've gone from effectively close to zero percent market share to 35 points of market share in paint markers in a period of six months. I mean, that's pretty dramatic.

Speaker Change: The product sold out. We sold our entire year's volume in the first two months.

Speaker Change: And we're starting to see some examples of that, where when we come with a compelling innovation, even if it's at a high price point,

Speaker Change: We're seeing consumers be attracted to those and really perform at a strong level. And so, as we start to see signs of that,

Speaker Change: [inaudible]

Speaker Change: That's what's giving us the confidence. The Sharpie paint creative markers that we launched, which got the Sharpie brand into the paint marker market, you know, we've gone from a effectively close to 0% market share to 35 points of market share in paint markers.

Christopher H. Peterson: And those Sharpie creative markers are an incremental purchase. So, what's starting to give me confidence is that when we come out with compelling innovation that we can communicate to consumers in a compelling way, we're seeing consumers buy and respond. And the response that we're seeing is greater than what we're anticipating. And so, that's why I'm starting to get a little bit more confident relative to our ability to drive these categories back to growth in the current environment.

Speaker Change: in a period of six months. I mean, that's pretty dramatic.

Speaker Change: And those Sharpie Creative Markers are an incremental purchase. So what it's starting to give me confidence is that when we come out with compelling innovation,

Speaker Change: that we can communicate to consumers in a compelling way. We're seeing consumers buy and respond.

Speaker Change: And the response that we're seeing is greater than what we're anticipating. And so that's why I'm starting to get a little bit more confident relative to our ability to drive these categories back to growth in the current environment. The last comment on the pricing for the foreign exchange and international.

Christopher H. Peterson: The last comment on the pricing for foreign exchange and international travel. I think the pricing for foreign exchange and international travel is not a meaningful contributor to the sequential improvement in core sales growth. So I think it had actually a smaller impact in Q2 than it was in Q1. But, you know, obviously, we are pricing where we see currency issues affecting our cost base, but that fundamentally is not a major contributor to the core sales improvement. It's been relatively consistent over the past, I would say, year or more.

Speaker Change: I think the pricing for foreign exchange and international is not a meaningful

Speaker Change: contributor.

Speaker Change: to the sequential improvement in core sales growth. So I think it was actually a smaller impact in Q2 than it was in Q1.

Speaker Change: but

Speaker Change: You know, obviously we are pricing.

Speaker Change: where we see currency issues affecting our cost base.

Speaker Change: But that fundamentally is not a major contributor to the core sales improvement.

Christopher H. Peterson: The only thing I would add to that is, you know, we have to do our part to create consumer demand, right? So if you look at the AMP in the quarter we just printed, it was at 5.3%. That's the highest we've been in the past six years. And if you look at our AMP plans for the balance of this year, we're going to be spending considerably more money on AMP overall. It'll be up at least, you know, low double digits.

Speaker Change: It's been relatively consistent over the past, I would say, year or more. The only thing I would add to that is, you know, we have to do our part to create the consumer demand, right? So if you look at the AMP in the quarter we just printed, it was at 5.3 percent. That's the highest we've been in the past six years.

Speaker Change: And if you look at our A&P plans for the balance of this year, we're going to be spending considerably more money in A&P overall. It'll be up at least, you know, low double digits. And in the back half, the back half is up roughly 30% versus the first half.

Christopher H. Peterson: And in the back half, the back half is up roughly 30% versus the first half in support of that. And as Chris talked about our business, the strength is starting to broaden out. If you go back to Q1, international sales grew, albeit very modestly, and then only one of our six major product groupings grew at that same point in time, which was Baby, right? We have six major product groupings in three segments. We have Writing, Baby, Commercial, Kitchen, Fragrance, and Outdoor, and Rec.

Christopher Michael Carey: I'm in support of that, and as Chris talked about our business, the strength is starting to broaden out. If you go back to Q1, right, international grew, albeit very modestly, and then only one of our six major product groupings grew at that same point in time, which was Baby, right? We have six major product groupings in three segments. We have Writing, Baby, Commercial, Kitchen, Fragrance, and Outdoor, and Rec.

Christopher H. Peterson: In Q2, international grew again, which is roughly 40% of our business, but then two of our six business segments, both in the LD segment, grew. As we look at our third-quarter projections, we're confident that international will grow faster than it grew in the first half, and we're confident that at least three of our six segments will grow, okay? Maybe more than that.

Speaker Change: In Q2, international grew again, which is roughly 40% of our business, but then two of our six business segments, both in the LD segment, grew.

Speaker Change: As we look at our third quarter projections, we're confident that International will grow faster than it grew in the first half, and we're confident that at least three of our six segments will grow, maybe more than that. So we're building out the capability sets.

Christopher H. Peterson: So we're building out the capability sets, doing the work to get the consumer orientation correct, the market appeal correct, the innovation correct, the pricing and promotion correct, and that's what's also helping us and giving us more confidence, right? I mean, the consumer will be coming along, but we also have to help them come along and find and select our brand. Perfect.

Speaker Change: Doing the work to get the consumer orientation correct, the market appeal correct, the innovation correct, the pricing and promo correct, and that's what's also helping us and giving us more confidence, right? I mean, the consumer will be coming along, but we also have to help them come along and find and select our brands.

Speaker Change: https://www.kenhub.com

Speaker Change: Perfect. Thanks, guys.

Christopher H. Peterson: Thanks, guys. Thank you. Our next question comes from Filippo Falorni with Citi; you may proceed. Hi, good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Filippo Falorni with Citi, you may proceed.

Operator: I wanted to ask about some of your assumptions for the second half of the year, particularly pricing versus volume at a core sales line, and maybe even some level of quantification of the contribution from Argentina and hyperinflationary pricing. And then for the U.S. market specifically, we've seen more recently some companies talk about retailers leaning in more on promotional activity. So maybe you can talk about what you're seeing in your categories.

Filippo Falorni: Hi, good morning, everyone. I wanted to ask about some of your assumptions in the second half of the year, particularly from pricing versus volume, the core sales line, and maybe even some level of quantification of the contribution from Argentina and hyperinflationary pricing.

Speaker Change: and then

Speaker Change: For the U.S. market specifically...

Speaker Change: We've seen more recently some companies talk about retailers leaning in more on promotional activity.

Filippo Falorni: And from a private label standpoint, we've also seen a pickup in some of your categories on track channels. So wondering, I know a track channel doesn't cover the entirety of your business, so wondering what you're seeing overall from a private label standpoint. Thank you.

Speaker Change: So maybe you can talk about what you're seeing in your categories.

Speaker Change: and from a private label standpoint we've also seen a pickup in some of your categories in track channels. So wondering, I know a track channel doesn't cover the entirety of your business, so wondering what you're seeing overall from a private label standpoint. Thank you.

Christopher H. Peterson: So from a pricing versus volume standpoint, what I would say is that recall that we took a meaningful price increase on about 30 percent of the U.S. business last July 1st. That has led to a carryover pricing benefit in the first half of this year. As we go into the back half of this year, we will lap that.

Speaker Change: Yeah, so let me try to tick them off here. So from a pricing versus volume standpoint, what I would say is that, recall that we took a meaningful price increase in about 30% of the U.S. business last July 1st.

Christopher H. Peterson: So I'm expecting that the pricing benefit in the back half of this year will be lower than in the front half of this year, and it'll be fundamentally more of a volume story than a pricing story, first thing. Second thing with respect to Argentina. We do have a business in Argentina. It represents less than one percent of the company's sales, so it's a small business. It is not in our top 10 countries.

Speaker Change: That has led to carryover pricing benefit in the first half of this year.

Speaker Change: As we go into the back half of this year, we will lap that, so I'm expecting that the pricing benefit in the back half of this year will be lower than in the front half of this year, and it will be fundamentally more of a volume story than a pricing story, first thing.

Speaker Change: Second thing with respect to Argentina, we do have a business in Argentina. It represents less than 1% of the company's sales, so it's a

Speaker Change: It's a small business.

Christopher H. Peterson: We have local manufacturing in Argentina. We are continuing to operate that business, and we are pricing for inflation. We're managing it a little bit more on a cash basis, and we're having really no issue with getting cash out of the country. So we feel pretty good about the team's ability to execute in a hyperinflationary market. It is not a material impact on the company because it's such a small percent of the company's business.

Speaker Change: It is not in our top 10 countries.

Speaker Change: We have local manufacturing in Argentina.

Speaker Change: We are continuing to operate that business.

Speaker Change: And we are pricing for inflation. We're managing it a little bit more on a cash basis. And we're having really no issue at getting cash out of the country. So we feel...

Speaker Change: pretty good about the team's ability to execute in a hyperinflationary market. It is not a material impact on the company because it's such a small percent of the company's

Christopher H. Peterson: It does, because of the pricing impact, contribute to international prices because of the significant prices that we're taking there. And we're seeing the inflation rate in Argentina come down. So the pricing benefit from Argentina is becoming smaller as the inflation level comes down in that market. So that's our situation there. From a U.S. promotion standpoint, you know, I think we're getting a lot of requests for increased promotional activity from retailers, and we're being selective about it.

Speaker Change: business.

Speaker Change: It does, because of the pricing impact, contribute to the international pricing because of the significant pricing that we're taking there.

Speaker Change: You know, I think we're getting a lot of requests.

Speaker Change: for increased promotional activity from retailers.

Christopher H. Peterson: You know, I would say our promotional stance is not materially different from where we were last year. It's not that the market has all of a sudden gotten way more promotional; there remains excess inventory that our people are trying to liquidate. An example of that might be the outdoor and rec type segment, where there still are a lot of companies that are working off excess inventory at higher promotional levels. But overall, on balance, we're not seeing a sea change relative to US promotional pressure.

Speaker Change: And we're being selective about it.

Speaker Change: is not materially different from where we were last year. It's not that the market has all of a sudden gotten way more promotional. The only exception to that are, there are a couple of categories where...

Speaker Change: There remains excess inventory that our people are trying to liquidate.

Speaker Change: An example of that might be the outdoor and rec type segment where there still are a lot of companies that are working off excess inventory at higher promotional levels. But overall, on balance, we're not seeing a sea change relative to U.S. promotional pressure. And then, lastly, in terms of private label, I would say the private label environment remains relatively consistent in our categories. We are not seeing a meaningful increase or a meaningful decrease in private label.

Christopher H. Peterson: Then lastly, in terms of private label, I would say the private label environment remains relatively consistent across our categories. We are not seeing a meaningful increase or a meaningful decrease in private label. The private label penetration in our businesses is very different. There are some businesses that have much higher private label penetration, like candles, for example. There are some businesses that have exceptionally low private label penetration, like writing. We haven't seen a material change in that, broadly across the company. I got it.

Speaker Change: And the private label penetration in our businesses is very different. There are some businesses that have.

Speaker Change: much higher private label penetration like Candles, for example. There are some businesses that have exceptionally low private label penetration like writing and We haven't seen a material change in that broadly across the company at this point

Filippo Falorni: That's super helpful, Chris. And maybe just a quick follow up on your comment on imports from China, that was super helpful, the 15% of COGS, and your goal to get to less than 10%. I was curious, what is that number if you take all overseas imports? I think in the past, you talked about half of your imports of your sales coming from overseas imports. Just curious about that. Yeah, you're talking about, for the U.S., it would be a little bit less than half, so probably more like, of our U.S. business, it's probably more 40 percent, would be my guess, of sort of imports, of which maybe 15 points are China and now 25 points are outside of China, something along those lines. And that's a material change, as I mentioned. We have dramatically reduced our dependence on China for sourcing.

Speaker Change: Got it. That's super helpful, Chris. And maybe just a quick follow-up on your comment on imports from China. That was super helpful, the 15% of COGS and your goal to get to less than 10%.

Speaker Change: I was curious, what is that number if you take all overseas imports? I think in the past you talked about half of your sales coming from overseas imports. Just curious on that, on the number.

Speaker Change: Yeah, you're talking about, for the U.S. it would be a little bit less than half.

Speaker Change: So probably more like of our U.S. business, it's probably more 40% would be my guess of sort of imports.

Speaker Change: of which maybe 15 points are China and now 25 points are outside of China, something along those lines.

Christopher H. Peterson: And the other thing that we're monitoring, and this is going to be an agile period, is we have a number of categories where competitors are very dependent on China sourcing, and we are not. And so, depending on what happens with Chinese tariffs, we may need to scale up production quickly to add additional capacity if our competitors get priced out of the market in some of our businesses. At the same time, if there are businesses that we get hit with tariffs in China, we'll have to react to those as well. But I think our starting point is much more balanced today than perhaps it was—certainly than where we were three or four years ago. I got it.

Speaker Change: So, and that's a material change, as I mentioned. We have dramatically reduced our dependence on China sourcing. And the other thing that we're monitoring, and this is going to be an agile period, is we have a number of categories.

Speaker Change: where competitors are very dependent on China sourcing and we are not.

Speaker Change: And so, depending on what happens with China tariffs, we may need to scale up production quickly to add additional capacity if our competitors get priced out of the market.

Speaker Change: and some of our businesses.

Speaker Change: At the same time, if there are businesses that we get hit with tariffs in China, we'll have to react to those as well. But I think our starting point is much more balanced today than perhaps what, certainly than where we were three or four years ago.

Filippo Falorni: Thank you. Very helpful. Thank you. Thank you. And our final question comes from Olivia Tong with Raymond James. You may proceed. Great, thanks.

Speaker Change: Thank you. Super helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: And our final question comes from Olivia Tong with Raymond James. You may proceed.

Operator: I would love to hear your assessment of the competitive environment, because you're clearly driving better results versus your peers. And as you discussed during your prepared remarks, it sounds like you have a lot less exposure to Chinese manufacturing. So as you look at flattening out the top line in the second half, how much of that is just less pressure on the categories in reference to Chris's question about, you know, sort of a return to the replenishment cycle, potentially, you know, over four years post COVID, are people coming back to the category, things starting to break down and needing to be replaced? And how much of that is your innovation? So we don't think, in the back half of this year, we don't think any of it is category-driven.

Olivia Tong Cheang: Great, thanks.

Olivia Tong Cheang: I would love to hear your assessment on the competitive environment because you're clearly driving better results versus your peers. And as you discussed during your prepared remarks, it sounds like you have a lot less exposure to China manufacturing. So as you look at flattening out the top line in the second half,

Speaker Change: How much of that is just less pressure on the categories, in reference to Chris's question about, you know, sort of a return to replenishment cycle, potentially, you know, four years post-COVID, are people coming back to the category, you know, things starting to break down and needing to be replaced, and how much of that is your innovation?

Speaker Change: So we don't think in the back half of this year we don't think any of it is category driven. We're still expecting in the back half of the year the categories we compete in to be down low single digits.

Olivia Tong Cheang: We're still expecting in the back half of the year, the categories we compete in to be down low single digits. What's really changing is our execution, and it's not just one strategy that we're employing. It's the integrated set of strategies that we've put in place. And so when you look at the strategy that we deployed a year ago, and then the operating model change that's accelerating that, and the culture change, that integrated set of choices is driving better contribution from innovation, better contribution from new business development, and better contribution from international. I think those are more company-specific than the sort of category changes that we're assuming.

Speaker Change: What's really changing is our execution, and it's not one strategy that we're employing, it's the integrated set of strategies that we've put in place.

Speaker Change: And so when you look at the strategy that we...

Speaker Change: deployed a year ago, and then the operating model changed to that's accelerating that, and the culture changed, that integrated set of choices

Speaker Change: is driving better contribution from

Speaker Change: innovation, better contribution from new business development.

Speaker Change: and Better Contribution from International. I think those are more company-specific.

Speaker Change: [inaudible]

Christopher H. Peterson: And that's what we're excited about, frankly, because what we've been focused on since we put the strategy in place about a year ago is focusing on the things that we can control to try to get the company operating with excellence. And I think we're starting to see that show up through the financial results. But we're not ready to declare success yet.

Speaker Change: about a year ago is focusing on the things that we could control to try to get the company operating with excellence. And I think we're starting to see that show up through the financial results.

Speaker Change: We're not ready to declare success yet. There's still a lot of work to be done ahead of us, because our objective is to outperform the category consistently over time. And we think we're on the pace to be able to do that as we go forward here.

Speaker Change: And then just on China production, you mentioned it's going to 10% or 15%. Can you say how much of that is baby? And then just for comparison,

Speaker Change: What percent of your goods were produced in China during the previous tariff increase to 25%?

Speaker Change: Yeah, so we were probably close to 35 or 40 percent of our goods when the previous tariffs went into effect, and so, you know, the amount that we're currently paying in China tariffs

Speaker Change: has fallen by about half, so it's a material decline as we've shifted our supply base.

Speaker Change: Of the 15 points that are going to less than 10, I would say probably about half of that is baby. So baby is by far the most exposed go-forward category once we implement the changes.

Speaker Change: And as you know, in the previous tariff implementation, we were able to lobby the government successfully to exempt the majority of the baby products from tariffs at all, which is why they're not on any tariff list today.

Speaker Change: So, you know, outside of baby, our exposure is even smaller, is what I would say, or will be even smaller as we head into sort of the middle of next year.

Speaker Change: Great. Thank you, Dr. Block.

Speaker Change: Thank you. This concludes today's conference call. Thank you for your participation. A replay of today's call will be available later on today on the company's website at ir.newellbrands.com. You may now disconnect. Have a great day.

Speaker Change: You

Speaker Change: ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪

Christopher H. Peterson: There's still a lot of work to be done ahead of us because our objective is to outperform the category consistently over time, and we think we're on the pace to be able to do that as we go forward here.

Speaker Change: In order to stay within the time schedule for the call, please limit yourself to one question during the Q&A session.

Speaker Change: Today's conference call is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, VP of Investor Relations. Ms. Tsinis, you may begin.

Olivia Tong Cheang: And then just on China production, you mentioned it's going to 10% from 15%. Can you say how much of that is baby? And then, just for comparison, what percent of your goods were produced in China during the previous tariff increase to 25%? Yeah, so we were probably close to 35 or 40 percent of our goods when the previous tariffs went into effect. And so, you know, the amount that we're currently paying in Chinese tariffs has fallen by more than, by about half. So it's a material decline as we've shifted our supply base. Of the 15 points that are going to less than 10, I would say probably about half of that is baby.

Christopher H. Peterson: So baby is by far the most exposed go-forward category once we implement the changes. And as you know, in the previous tariff implementation, we were able to lobby the government successfully to exempt the majority of baby products from tariffs at all, which is why they're not on any tariff list today. So, you know, outside of the baby, our exposure is even smaller, is what I would say, or will be even smaller as we head into sort of the middle of next year. Great, thank you both a lot.

Sofya Tsinis: Thank you. Good morning, everyone. Welcome to Newell Brands' second quarter earnings call. On the call with me today are Chris Peterson, our President and CEO , and Mark Erceg, our CFO . Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially, and we undertake no obligation to update forward-looking statements.

Speaker Change #100: I refer you to the cautionary language and risk factors 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.

Speaker Change #100: Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those who 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.

Christopher Michael Carey: Explanations of these non-GAAP measures are available, and available reconciliations between GAAP and non-GAAP measures can be found in today's learnings release and tables that were furnished to the SEC. Thank you, and now I'll turn the call over to Chris. Thank you, Sofya. Good morning, everyone, and welcome to our second quarter call.

Operator: Thank you. This concludes today's conference call. Thank you for your participation. A replay of today's call will be available later on today on the company's website at ir.newellbrands.com. You may now disconnect. Have a great day.

Operator: Thanks for watching! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good morning and welcome to Newell Brands' second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Christopher Michael Carey: Second quarter results came in at the high end, or ahead of plan, across all key metrics. Core sales performance continued to improve sequentially. Gross margin increased versus last year for the fourth consecutive quarter, driven primarily by outstanding productivity results.

Christopher Michael Carey: Normalized operating margin came in well above plan despite higher A&P investments. Normalized EBITDA improved 10% versus a year ago. EPS was much stronger than we anticipated, driven by both better operational performance and tax help.

Christopher Michael Carey: And we meaningfully reduced Newell's cash conversion cycle versus a year ago.

Christopher Michael Carey: We are off to a strong start in the first half of 2024, which gives us confidence to raise our outlook for the full year on core sales growth, normalized operating margin improvement, normalized earnings per share, and operating cash flow.

Christopher Michael Carey: Stepping back, as you may recall, a little over a year ago, we announced our new corporate strategy.

Christopher Michael Carey: which focuses on disproportionately investing in innovation, brand building, and go-to-market excellence in our largest and most profitable brands and markets, while driving further standardization and scale efficiencies across the supply chain and back-office functions.

Operator: A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofia Tsinis, VP of Investor Relations. Ms. Tsinis, you may begin.

Christopher Michael Carey: And just six months ago, we transitioned into a new operating model, which is designed to accelerate the new strategy by enhancing organization effectiveness and agility, while creating a high-performing, innovative, and inclusive culture.

Christopher Michael Carey: While still early days, we believe the strategy and operating model changes are clearly working.

Christopher Michael Carey: Since introducing the new strategy, we've now reported four quarters of results.

Christopher Michael Carey: And over the past year, we have improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023 to down 4.5% in the first half of 2024.

Christopher Michael Carey: Importantly, we also returned our most profitable segment, learning and development, as well as our combined international business to core sales growth in the first half of this year.

Christopher Michael Carey: We have improved normalized gross margins for four quarters in a row versus prior year and are up over 400 basis points on a trailing 12-month basis versus a year ago.

Christopher Michael Carey: We've improved operating margin by over 100 basis points on a trailing 12-month basis versus last year, despite increasing investment in A&P.

Christopher Michael Carey: We have driven $717 million in operating cash flow over the past four quarters and reduced net debt by about $400 million.

Christopher H. Peterson: Normalized EBITDA improved 10% versus a year ago. EPS was much stronger than we anticipated, driven by both better operational performance and tax help, and we meaningfully reduced Newell's cash conversion cycle versus a year ago. We are off to a strong start in the first half of 2024, which gives us confidence to raise our outlook for the full year on core sales growth, normalized operating margin improvement, normalized earnings per share, and operating cash flow.

Speaker Change #101: Normalized EBITDA has increased by 10% on a trailing 12-month basis versus prior year from $801 million to $882 million.

Speaker Change #101: We have taken a full turn out of Newell's leverage ratio going from 6.3 times last June down to 5.3 times this June .

Christopher H. Peterson: Stepping back, as you may recall, a little over a year ago, we announced our new corporate strategy, which focuses on disproportionately investing in innovation, brand building, and go-to-market excellence in our largest and most profitable brands and markets, while driving further standardization and scale efficiencies across the supply chain and back-office functions. And just six months ago, we transitioned into a new operating model, which is designed to accelerate the new strategy by enhancing organizational effectiveness and agility while creating a high-performing, innovative, and inclusive culture. While still early days, we believe the strategy and operating model changes are clearly working.

Speaker Change #101: And we have made significant progress improving the company's front-end capabilities of consumer understanding, innovation, brand building, and go-to-market.

Christopher H. Peterson: Since introducing the new strategy, we've now reported four quarters of results. And over the past year, we have improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023 to down 4.5% in the first half of 2024. Importantly, we also returned our most profitable segment, Learning and Development, as well as our combined international business, to core sales growth in the first half of this year.

Speaker Change #101: From a segment perspective, learning and development delivered the second consecutive quarter of core sales growth driven by both the writing and baby businesses.

Christopher H. Peterson: We have improved normalized gross margins for four quarters in a row versus the prior year and are up over 400 basis points on a trailing 12-month basis versus a year ago. We've improved operating margin by over 100 basis points on a trailing 12-month basis versus last year, despite increasing investment in A&P. We have driven $717 million in operating cash flow over the past four quarters and reduced net debt by about $400 million. Normalized EBITDA has increased by 10% on a trailing 12-month basis versus the prior year from $801 million to $882 million.

Speaker Change #101: We believe the front-end capabilities are most advanced in this segment, which is both structurally attractive and has a strong pipeline of consumer-driven innovations.

Christopher H. Peterson: The home and commercial segment has made significant progress on improving the structural profitability of the business and driving selective growth in parts of the portfolio as we reposition it for sustainable and profitable growth. In this segment, we made the decisive and necessary choices to exit some unprofitable categories and skews while taking pricing actions to enhance the structural economics of the business. We expect to sequentially improve the top-line performance of the home and commercial segment in the back half of this year as the front-end capabilities are improving rapidly. Lastly, the outdoor and recreation segment, which is the smallest one in Newell's portfolio, both from a revenue and profitability contribution perspective, continues to be the weakest and most in need of a turnaround.

Speaker Change #101: The home and commercial segment has made significant progress on improving the structural profitability of the business and driving selective growth in parts of the portfolio as we reposition it for sustainable and profitable growth.

Speaker Change #101: In this segment, we made the decisive and necessary choices to exit some unprofitable categories and SKUs while taking pricing to enhance the structural economics of the business.

Speaker Change #101: We expect to sequentially improve the top-line performance of the home and commercial segment in the back half of this year as the front-end capabilities are improving rapidly.

Speaker Change #101: Lastly, the outdoor and recreation segment, which is the smallest one in Newell's portfolio, both from a revenue and profitability contribution perspective, continues to be the weakest one and most in need of a turnaround.

Speaker Change #101: At this point, we have completely restaffed the team and have relocated the business to Atlanta while investing in the front-end capabilities required to get back to winning.

Speaker Change #101: While performance has been challenged, and we think it will be some time before we fully unlock the potential of the iconic brands such as Coleman, we believe the business has now bottomed, and we expect trends to improve sequentially in the back half of the year, starting in the third quarter.

Christopher H. Peterson: Looking forward for the company overall, we expect top-line revenue trends to continue to improve sequentially in the back half of the year as the front-end capability investments continue to gain momentum. Last quarter, I spoke about the new Sharpie Creative Markers and Paper Mate InkJoy Bright gel pens, which continue to deliver strong performance as these iconic brands attract new purchasers to the category. During the balance of the year, we will support and commercialize a series of recently launched or soon-to-be-launched additional innovations, including Graco SmartSense Soothing Bassinet and Swing, which detect and respond to babies' cries in seconds with soothing combinations to lull a baby back to sleep.

Speaker Change #101: Looking forward, for the company overall, we expect top-line revenue trends to continue to improve sequentially in the back half of the year, as the front-end capability investments continue to gain momentum.

Speaker Change #102: Last quarter, I spoke about the new Sharpie Creative Markers and Paper Mate InkJoy Bright Gel Pens, which continue to deliver strong performance as these iconic brands are attracting new purchasers to the categories.

Speaker Change #103: During the balance of the year, we will support and commercialize a series of recently launched or soon-to-be-launched additional innovations, including Graco SmartSense Soothing Bassinet and Swing, which detect and respond to babies' cries in seconds with soothing combinations to lull baby back to sleep.

Speaker Change #103: Graco Ready-to-Jet Stroller, which features an easy-to-press button for one-handed folding, so mom can hold her child while folding up her stroller.

Speaker Change #103: On-the-go Crock-Pot, which was one of the top performing SKUs for the brand, is one of the first in the category to offer a portable food storage and warmer option.

Speaker Change #103: Multimeal Crock-Pot, which is an exciting launch that features two cooking pots allowing users to cook at two separate temperatures and cooking methods at the same time.

Speaker Change #103: Rubbermaid Brilliance Rounds, as Rubbermaid continues to expand its very popular Brilliance line to provide a complete offering that allows consumers to select the size and shape based on their needs, while offering four times the protection, 100% leaf-proof stain, odor, and shatter resistant,

Speaker Change #104: performance. Rubbermaid is partnering with Olympic gold medalist Sean Johnston East.

Speaker Change #105: And her husband, Andrew East, to highlight the unbeatable combination of performance and design from Rubbermaid Brilliance's award-winning food storage containers.

Christopher H. Peterson: Oster Sandwich Maker, which the Oster team launched earlier this year in Latin America, leveraging the innovation platform strategy by taking a highly successful premium price point product launched in Brazil from a sister brand, Cadence, and introducing it across Latin American markets under the Oster umbrella. Oster Perfect Brew Maxima is a premium-priced espresso machine that we launched several months ago in Latin America and is already on back order in Mexico. It allows consumers to obtain a coffee shop-style beverage in less time due to Thermoblock technology and the ability to brew espresso and froth milk at the same time.

Speaker Change #105: Oster Sandwich Maker, which the Oster team launched earlier this year in Latin America, leveraging the innovation platform strategy by taking a highly successful premium price point product launched from Brazil from a sister brand, Cadence, and introducing it across Latin America markets under the Oster umbrella.

Speaker Change #106: Oster Perfect Brew Maxima is a premium-priced espresso machine that we launched several months ago in Latin America and is already on back order in Mexico. It allows consumers to obtain a coffee shop-style beverage in less time due to Thermoblock technology and the ability to brew espresso and froth milk at the same time.

Speaker Change #107: Rubbermaid commercial-powered carts, which are battery-powered motorized carts, tilt trucks, and add-on accessories, which make it easier and safer to move heavy loads. This has been one of the most successful launches for Rubbermaid commercial products, as it builds on an industry need for both safety and improved efficiency.

Speaker Change #107: And last but not least, this fall during peak season for the holidays, we are introducing a new FoodSaver Handheld Plus machine, which is a drawer-sized cordless vacuum sealer that pairs with our FoodSaver storage bags for easy-to-use food preservation, now with a new marination function.

Christopher H. Peterson: In addition, we have activated two significant commercial campaigns with the Oster 100-year anniversary in Latin America and the Ball 140-year anniversary in North America. Both brands are driving sales growth in these markets, respectively. We continue to make progress on new business development, expanding our brand's distribution across both new and existing retailers, which has been one of the drivers of the strengthened top-line results in recent quarters. We continue to advance the OneNewell International strategy. On July 1st, we completed two additional ERP consolidations in Brazil without any significant disruption.

Speaker Change #108: It is the first and only coordinates machine in the industry.

Speaker Change #108: In addition, we have activated two significant commercial campaigns with the Oster 100-year anniversary in Latin America and the Ball 140-year anniversary in North America. Both brands are driving sales growth in these markets respectively.

Speaker Change #108: We continue to make progress on new business development, expanding our brand's distribution across both new and existing retailers, which has been one of the drivers of the strengthened top-line results in recent quarters.

Speaker Change #108: We continue to advance the One Newell International strategy. On July 1st, we completed two additional ERP consolidations in Brazil without any significant disruption.

Speaker Change #108: International continues to be a growth engine for the company and has returned to core sales growth already in the first half of 2024.

Speaker Change #108: We are in the early stages of seeing the fruits of our labor from critical front-end capabilities. The progress we have made so far is driving our confidence for continued sequential improvement and top-line trends as we enter the back half of the year.

Mark J. Erceg: Before turning the call over to Mark, I want to provide some perspective on Newell's exposure to potential tariff changes, which is a topic that has captured headlines recently due to the upcoming election in November . Having just posted our highest gross margin quarter in five years, we want to make sure we don't slide backwards.

Mark J. Erceg: As such, for the last few years, we have been working to reduce our dependence on China sourcing.

Christopher H. Peterson: We began accelerating our efforts about six months ago. Specifically, we are continuing to pursue the following action. First, where economically feasible, we have been insourcing production to Newell's existing manufacturing network. We have completed a number of insourcing projects in the writing, baby, and home businesses. Second, we have been shifting production to alternate geographies through both existing and new suppliers, which we have been proactively qualifying for major purchase pools. At this point, we have evaluated the country of origin of all suppliers and are not signing on any new suppliers that do not have existing or defined plans to establish manufacturing capabilities outside of China.

Mark J. Erceg: We began accelerating our efforts about six months ago.

Mark J. Erceg: Specifically, we are continuing to pursue the following actions. First, where economically feasible, we have been insourcing production to Newell's existing manufacturing network. We have completed a number of insourcing projects in the writing, baby, and home businesses.

Mark J. Erceg: Second, we have been shifting production to alternate geographies through both existing and new suppliers.

Mark J. Erceg: which we have been proactively qualifying for major purchase pools. At this point, we have evaluated country of origin on all suppliers and are not signing on any new suppliers that do not have existing or defined plans to establish manufacturing capabilities outside of China.

Christopher H. Peterson: As a result, source-finished goods that Newell imports from China to the U.S. now only account for about 15 percent of the company's total cost of goods sold, including a large portion of baby products that are currently exempt from the 301 tariff. Importantly, based on the work already in progress, we expect this exposure to drop to less than 10% by the end of next year as we continue implementing our plan. While we recognize this as an area of uncertainty, our exposure to China-based manufacturing is much lower today than it was previously. Additionally, there are a number of categories where Newell has significant U.S. and Mexico manufacturing capability, while competitors continue to source from China, including writing, coolers, and blenders, to name a few.

Mark J. Erceg: As a result, source-finished goods that Newell imports from China to the U.S. now only account for about 15 percent of the company's total cost of goods sold, including a large portion of baby products that are currently exempt from the 301 tariffs.

Mark J. Erceg: Importantly, based on the work already in progress, we expect this exposure to drop to less than 10% by the end of next year as we continue implementing our plan.

Mark J. Erceg: While we recognize this is an area of uncertainty, our exposure to China-based manufacturing is much lower today than it was previously.

Mark J. Erceg: Additionally, there are a number of categories where Newell has significant U.S. and Mexico manufacturing capability, while competitors continue to source from China, including writing, coolers, and blenders, to name a few.

Mark J. Erceg: We plan to stay agile and connected as the U.S. economic policy unfolds so that we take advantage of opportunities for growth while minimizing potential negative impacts.

Mark J. Erceg: We came into this year with the expectation that the external backdrop would be challenging, particularly for consumer discretionary goods, which is largely how it has played out thus far.

Mark J. Erceg: While our categories remain under pressure, we are making progress on our strategic agenda, which has enabled us to deliver results at the high end or ahead of plan across key metrics in the first half of the year. This provides us with confidence to raise the financial outlook for 2024.

Mark J. Erceg: Since implementing the new corporate strategy, we have taken decisive actions that enabled us to improve the company's top-line trajectory, enhance the structural economics of the business,

Mark J. Erceg: deliver the balance sheet and improve cash flow performance, while strengthening our team, Newell's front-end commercial capabilities, and fostering a high-performance, high accountability culture.

Mark J. Erceg: We remain laser-focused on returning the business to sustainable and profitable growth, with the strengthened performance in recent quarters reinforcing our confidence that we are pursuing the right strategy to accomplish this objective.

Mark J. Erceg: I would like to thank our talented employees for their continued commitment to operating with excellence.

Mark J. Erceg: and delighting our consumers by lighting up everyday moments.

Mark J. Erceg: I will now hand the call over to Mark. Thanks, Chris. Good morning, everyone. We believe that our second quarter results provide additional evidence that the interventions we have made to operationalize Newell's new corporate strategy are having a positive impact on the business.

Mark J. Erceg: For example, core sales came in at minus 4.2 percent, which was towards the high end of our outlook, and represented a vast improvement versus our 2023 run rate.

Speaker Change #110: Pricing in international markets, particularly Latin America, was a meaningful contributor to core sales in Q2 and a 3% headwind from currency account for most of the difference between core sales at minus 4.2% and net sales at minus 7.8%.

Speaker Change #110: In addition, this was another quarter of rapid and meaningful gross margin expansion. Newell's world-class supply chain and procurement professionals once again delivered exceptionally strong productivity.

Speaker Change #110: And, as we continued to focus on providing consumers with more MPP and HPP offerings and exit structurally unattractive categories and SKUs, we benefited from both positive pricing and favorable mix.

Speaker Change #110: Consistent with this, and as a direct result of the strategies we have implemented, second quarter normalized gross margin decreased by 490 basis points versus last year to 34.8%, which builds on the 170, 570, and 410 basis point expansions that occurred during the three sequential quarters that preceded it, respectively.

Speaker Change #110: During Q2, Newell's normalized operating margin also rose sharply, increasing by 170 basis points versus last year, the 10.8%.

Speaker Change #110: The increase in normalized operating margin versus last year was due to strong productivity, positive pricing, and favorable mix, as well as ongoing organizational restructuring related savings partly offset by higher year-over-year spending in three areas.

Speaker Change #110: First, we significantly increased A&P investment levels in absolute dollar terms and as a percentage of sales, even as we shifted some A&P spending originally planned for the second quarter into the third quarter.

Speaker Change #110: Second, we continue to make targeted overhead investments in several critical front-end commercial capabilities.

Speaker Change #110: Third, based on the strong financial results we have delivered to date and are projecting over the balance of the year, incentive compensation is being accrued at a higher level than last year.

Speaker Change #110: Net interest expense increased by $2 million to $78 million, primarily due to higher interest rates, and a normalized tax benefit of about $14 million was recorded in the quarter.

Mark J. Erceg: And a normalized tax benefit of about $14 million was recorded in the quarter. Normalized diluted earnings per share came in at $0.36, which was 50% higher than a year ago and well above our $0.18 to $0.21 guidance range. Now, to be fair, about 10 cents of our Q2 earnings per share over delivery versus going in expectations was driven by an earlier than expected realization of certain tax benefits. However, fully adjusting for these tax items still produces a second quarter operational earnings per share beat of 5 to 8 cents. Turning to cash flow, Newell generated $64 million of operating cash flow during the first six months of 2024.

Speaker Change #110: Normalized diluted earnings per share came in at $0.36, which was 50% higher than a year ago and well above our $0.18 to $0.21 guidance range.

Speaker Change #110: Now, to be fair, about 10 cents of our Q2 earnings per share over delivery versus going in expectations was driven by an earlier-than-expected realization of certain tax benefits.

Speaker Change #110: However, fully adjusting for these tax items still produces a second quarter operational earnings per share beat of 5 to 8 cents.

Speaker Change #110: Turning to cash flow, Newell generated $64 million of operating cash flow during the first six months of 2024.

Mark J. Erceg: Now, that is admittedly down compared to the same period in 2023, but as you know, we just lapped an outsized benefit from massive working capital improvements last year, which was largely driven by a significant contraction in inventory levels. Operationally, our focus on cash remains as strong as ever, as evidenced by a more than 20-day improvement in our year-over-year second quarter cash conversion cycle and a further step down in our leverage ratio to 5.3 times at the end of Q2. This was slightly down sequentially versus Q1 and was one full turn better than Q2 of 2023.

Speaker Change #110: Now, that is admittedly down compared to the same period in 2023, but as you know, we just lacked an outsized benefit from massive working capital improvements last year, which was largely driven by a significant contraction in inventory levels.

Speaker Change #110: Operationally, our focus on cash remains as strong as ever, as evidenced by a more than 20-day improvement in our year-over-year second quarter cash conversion cycle, and a further step down in our leverage ratio to 5.3 times at the end of Q2.

Speaker Change #110: This was slightly down sequentially versus Q1 and was one full turn better than Q2 of 2023. The year-over-year improvement was driven by $373 million of net debt reduction and a 10% increase in our trailing 12-month normalized EBITDA.

Mark J. Erceg: The four point differential between course and net sales is largely due to foreign exchange. The third quarter normalized operating margin of 8.3 to 8.8% would represent an increase of 10 to 60 basis points versus last year as an increase in SG&A expense and both absolute dollars and as a percentage of sales due in part to higher levels of A&P investment should be more than offset by strong gross margin improvement. For the third quarter, we expect a slight year-over-year increase in interest expense, a normalized tax rate in the mid-20% range, and normalized earnings per share of $0.14-$0.17. Please note that our projection for a Q3 tax rate in the mid-20s is higher than usual due to the realization of certain tax benefits in the second quarter instead of the third quarter, as previously mentioned.

Speaker Change #110: Moving on to our third quarter outlook, we've assumed the following.

Speaker Change #110: Core sales are expected to be flat to down 2% with net sales declining in the range of 4 to 6%.

Speaker Change #110: The four-point differential between course and net sales is largely due to board exchange.

Speaker Change #110: Third quarter normalized operating margin of 8.3% to 8.8% would represent an increase of 10 to 60 basis points versus last year as an increase in SG&A expense.

Speaker Change #110: and both Aspen Dollars and as a percentage of sales.

Speaker Change #110: do impart the higher levels of A&P investment should be more than offset by strong gross market improvement.

Speaker Change #110: For the third quarter, we expect a slight year-over-year increase in interest expense, a normalized tax rate in the mid-20 percent range, and normalized earnings per share of $0.14 to $0.17.

Speaker Change #110: Please note that our projection for a Q3 tax rate in the mid-20s is higher than usual due to the realization of certain tax benefits in the second quarter instead of the third quarter as previously mentioned.

Mark J. Erceg: For the full year, we are the first to acknowledge that the macroeconomic environment remains choppy, but we believe the transformation of our business is clearly underway. As such, we have the confidence to improve our full-year financial outlook across several key financial metrics, starting with core sales. We are now calling for a core sales decline of 3% to 4% versus a 3% to 6% decline previously. This tighter, more optimistic full-year range is driven by modest first-half overdelivery versus our going-in expectations and the development and deployment of stronger second-half marketing and innovation programs.

Speaker Change #110: For the full year, we are the first to acknowledge that the macroeconomic environment remains choppy, but we believe the transformation of our business is clearly underway. As such, we have the confidence to improve our full-year financial outlook across several key financial metrics, starting with core sales.

Speaker Change #110: We are now calling for a core sales decline of 3% to 4% versus a 3% to 6% decline previously. This tighter, more optimistic full-year range is driven by modest first-half overdelivery versus our going-in expectations, and the development and deployment of stronger second-half marketing and innovation programs.

Mark J. Erceg: Embedded within our full-year core sales estimate is an assumption that our categories remain under pressure, contracting low single digits. For the full year, we now expect a net sales decline of 6% to 7% versus 5% to 8% previously.

Speaker Change #110: Embedded within our full-year core sales estimate is an assumption that our categories remain under pressure, contracting low single digits.

Speaker Change #110: For the full year, we now expect a net sales decline of 6 to 7 percent versus 5 to 8 percent previously. The new range includes a larger-than-previously-contemplated headwind from foreign exchange based on current spot rates.

Speaker Change #110: Normalized operating margin is now projected to be between 8 and 8.2 percent versus our prior range of 7.8 to 8.2 percent.

Speaker Change #110: At the midpoint, our revised normalized operating margin outlook now represents a 110 basis point year-over-year improvement. If achieved, this would more than double the 50 basis point annual expansion called for in our evergreen financial model.

Mark J. Erceg: We are also raising our normalized earnings per share guidance range to $0.60-$0.65 from $0.50-$0.62. Within this updated range, there are two key assumptions we want to specifically point out. First, we now expect a low double-digit normalized tax rate for the year instead of our prior mid-teens tax rate estimate.

Speaker Change #110: We are also raising our normalized earnings per share guidance range to $0.60 to $0.65, from $0.52 to $0.62.

Speaker Change #110: Within this updated range are two key assumptions we want to specifically point out.

Speaker Change #110: First, we now expect a low double-digit normalized tax rate for the year instead of our prior mid-teens tax rate estimate.

Speaker Change #110: Second, we have built in a higher level of interest expense than we had before in the event we choose to proactively refinance a portion of our upcoming debt obligations at some point during the balance of the calendar year.

Speaker Change #110: Finally, due to stronger than anticipated delivery in the first half, we are raising our forecast for operating cash flow by $50 million to $450 to $550 million, including about $150 to $200 million in cash restructuring and related charges.

Mark J. Erceg: And on a related note, we still expect Newell's leverage to land around five times by the end of this year, and longer term, we remain committed to achieving investment grade status and continue to target a leverage ratio of about 2.5 times. So, to summarize, close adherence to our new strategy, since its deployment a little over one year ago, coupled with a maniacal focus on operational execution, has allowed us to meaningfully improve our top-line trends and deliver four consecutive quarters of year-over-year gross margin improvement and three straight quarters of year-over-year operating margin expansion while investing more in advertising and promotion and beefing up several critical front-end capabilities.

Speaker Change #110: And on a related note, we still expect Newell's leverage to land around five times by the end of this year, and longer term we remain committed to achieving investment grade status and continue to target a leverage ratio of about 2.5 times.

Speaker Change #110: So, to summarize, close adherence to our new strategy since its deployment a little over one year ago, coupled with a maniacal focus on operational execution,

Speaker Change #110: has allowed us to meaningfully improve our top-line trends and deliver four consecutive quarters of year-over-year gross margin improvement and three straight quarters of year-over-year operating margin expansion, while investing more in advertising and promotion and beefing up several critical front-end capabilities.

Speaker Change #110: During that same period, our cash performance and EBITDA growth has been strong, allowing us to pay down debt and lower our leverage ratio.

Speaker Change #110: We believe that these results and the actions we continue to take to strengthen the business and the organization have set the stage for Newell's re-emergence as a world-class consumer products company.

Speaker Change #110: While there is still plenty of work to be done, we are encouraged by the progress we are making to unlock and monetize Newell's full potential, and because we firmly believe we are on the right path, we have improved our full-year outlook for core sales, normalized operating margin, normalized earnings per share, and operating cash flow.

Speaker Change #111: Operator, if you could, please open the call for questions.

Q2 2024 Newell Brands Inc Earnings Call

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