Q1 2025 Newell Brands Inc Earnings Call
As Joanne and good morning, everyone and welcome to our first quarter earnings call we.
We had a strong start to the year with Q1 results in line or ahead of expectations across all key financial metrics core sales at minus two 1% improved both sequentially and versus year ago.
Both learning and development and the international business in total delivered core sales growth in the quarter nor.
Normalized gross margin increased meaningfully meaningfully for the seventh consecutive quarter, expanding by 150 basis points.
<unk> operating margin exceeded our outlook, even after increasing A&P investment dollars by high single digits compared to prior year and normalized earnings per share came in <unk> <unk> better than the upper end of our guidance range driven by strong operational performance.
We remain confident that Newell's new strategy is working.
Key piece of our new strategy relates to product innovation as we shared last quarter. Our multiyear innovation funnel has now largely been rebuilt with exciting consumer led proprietary products, which will begin launching in a sustained manner starting with the second half of this year.
Despite the dynamic operating environment, we remain laser focused on driving continued progress on our where to play and how to win strategy choices and the capabilities required to deliver against them.
That said, we know that tariffs are top of mind. So we'd like to start this morning by explaining why we're confident newell brands after what will likely be a period of temporary disruption.
Is well positioned to disproportionately benefit from the global trade realignment currently underway spin.
Specifically, we believe past decisions to proactively prepare for higher China tariffs by aggressively shifting sourced finished goods procurement to alternate geographies.
And to maintain and invest in a robust and extensive in house domestic manufacturing base, while many of our top competitors outsourced offshored much of their production capability gives us a unique opportunity to not just manage through this period of tariff related sourcing dislocations, but to be on a net.
<unk> significant beneficiaries of them.
Let's take each of those two decisions and term.
First we have made remarkable progress de risking our China supply base over the past several years recall that just a few years ago, 35% of Newell's total cost of goods sold was sourced finished goods imported from the U S into the U S from China last year 2024 that number was down to 15%.
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To help put this in perspective consider the following.
2024 total source finished goods imported to the U S. From all countries represented 24% of Newell's total global cost of goods sold after netting out the 15% imported from China, Mexico, which is 98% U S. MCA compliant was the second largest country of origin accounting.
Roughly half of the remaining 9% of U S imports the remaining balance of sourced from various countries, none of which individually exceed 1% of our total global cost of goods sold.
This effectively means that China is what we needed to be focused on that is why even prior to the announcement of an additional 125% tariff on Chinese imported goods, we have plans to reduce U S. Sourced finished goods from China down to 10% by the end of 2025, and even lower than that by the end of 2026.
Second.
In 2024 over 60% of Newell brands total sales were in the United States and since the 2017 tax cut and jobs Act, we've invested nearly $2 billion in U S manufacturing much of which was spent on high return automation projects and dramatic improvements in our distribution and transportation systems.
As a result more than half of our 2020 for U S. Sales were manufactured through an extensive north America supply base and are not subject to tariffs.
This means we are now uniquely positioned to support multiple product categories and to successfully partner with and lead our U S customers through this tumultuous period of impending supply disruption in fact, we believe that the number of categories, where we are strategically advantaged with north American tariff reproduction significantly exceed.
<unk> the number of categories, where we are disadvantaged.
Key categories that we manufacture tariff free across 15 U S plants and two U S. MCA compliant plants in Mexico, which collectively employ roughly 7300 individuals include eight of our top 10 brands, namely Rubbermaid Rubbermaid commercial sharpie.
Expo Yankee candle paper mate Coleman and booster.
We also manufacture nook baby care products and ball Mason jars domestically.
Many of these products compete against China sourced brands, which we believe provides us with a significant competitive advantage in the current environment.
With a significant number of customers canceling outstanding purchase orders and actively stopping shipments from China, we have significant untapped capacity across our U S and Mexico facilities due to the automation and operational excellence programs, we've implemented over the past several years. This.
This gives us the ability to quickly ramp up production of high quality products not subject to tariffs to allow our top strategic customers to keep their store shelves full.
When we shared our 2025 planned back in February we expected a fluid and dynamic macroeconomic environment, which is certainly playing out.
Mark will provide additional context on our outlook for the year and walk you through the numbers shortly but let me spend a few minutes, explaining our philosophical and strategic approach to guidance and tariff management.
In terms of topline growth, we are maintaining our net sales guidance for the year within this we are moderating our expectations for category growth from what was previously flat to now down 1% to 2%. We believe this is prudent given lower consumer confidence levels and more muted macroeconomic forecasts importantly, we.
We are not changing our forecast for market share for the year as our new product innovation pipeline remains on track.
Offsetting this impact our foreign exchange outlook based on current rates has improved by 1% to two percentage points.
Additionally, we continue to expect stronger top line performance in the back half of the year compared to the front half based on the timing of our innovation launches and distribution gains.
Relative to operating margin and earnings per share we are maintaining our stated guidance for the year as we expect lower commodity and input cost inflation favorable foreign exchange stronger productivity results and select pricing actions to offset higher tariff costs.
Within this guidance, we have created two separate tariff buckets and the first tariff bucket. We have placed five items first Mexico, and Canadian tariffs, which from an oil perspective had been effectively resolved because our two Mexican manufacturing facilities are 98% U S MCA compliant.
Second the initial I E.
20%, China tariffs third the section 232 global steel and aluminum tariffs fourth the reciprocal tariffs that were announced April 2nd and then suspended on April nine, leaving a residual baseline tariff of 10% on all countries, except China.
Finally, the retaliatory tariffs announced by both Canada, and China against the U S.
We expect to fully offset the expected bottomline normalized earnings per share impact from the five elements, which make up our first tariff bucket with a number of proactive actions.
First we updated our commodity and input cost estimates for the full year and found additional savings versus our going in budget estimates in several important areas. For example, the price of crude oil has dropped about 15% since the start of the year and natural gas is down close to 10%, which in addition to providing direct cost savings as far.
<unk> impacting resin prices and transportation costs.
Second and tariff affected markets, our procurement team has gone back to suppliers and extracted broadly speaking a couple of points of cost reduction.
Third we put discretionary overhead and A&P spending under a microscope and made some tough but prudent decisions.
Having said that we still plan to spend more on A&P this year than at any point over the past several years as we invest in the business.
Fourth we updated foreign exchange rates, which have largely moved in our favor since our last earnings call and we increased prices in select geographies, where exchange rate movements versus the U S dollar were justified and appropriate.
Finally, we initiated two separate rounds of targeted tariff related price actions in the U S. One of which has already gone into effect and one of it one of which will be effective may one.
The good news is that after these five actions we have a plan to fully offset the negative bottom line 2025 normalized earnings per share impacts related to what we are calling our first bucket of tariffs.
The second tariff bucket is uniquely centered and isolated against the incremental 125% sure China tariffs given the magnitude of this element and since it seems to be particularly fluid we've chosen to handle it separately and outside of guidance for now as a sensitivity.
As previously mentioned, we already have plans to dramatically reduce our dependency of sourced finished goods originating from China. This year.
However, considering the incremental 125% tariffs being placed on China, we have done what many leading retailers have done and paused virtually all outstanding Chinese purchase orders.
In addition, as we shared on our February call call, we put a moratorium in place, stating we will not be signing up any new suppliers, who do not already have manufacturing capabilities outside of China or have defined plans to do so we've.
We've taken these actions because we believe as a practical matter, excluding the baby gear category that the amount of incremental pricing required to hold gross margins and the associated new retail shelf price at this tariff level would be so significant that it would preclude many consumers from purchasing those items.
Therefore, instead of continuing to source finished.
Product or raw materials out of China, we will leverage existing inventory on hand, while rapidly developing and qualifying alternative sourcing solutions for impacted items.
As part of this effort, we have encouraged our business leaders and brand managers to embrace another round of SKU simplification, which is something that will has proven to be very adept at having already cut our SKU count from over 100000 items to less than 20000 as of last year.
The other thing we are doing in which frankly, we are very excited about as aggressively selling and providing key strategic retailers access to our tariff free North America manufacturing base. During what we expect to be an extended period of constrained supply in certain product categories. We have already secured notable wins.
In food storage and vacuum sealing bags, both of which are included in our updated guidance and are in active dialogue across many more fronts as we pursue opportunities to expand distribution and share of shelf shelf, while simultaneously, helping customers offer high quality made in America Newell brands to their customers.
That said and in full transparency. The one piece that is most challenging as baby gear, which is an industry wide issue.
This is because approximately 97% of baby strollers, and 87% of baby car seats in the U S are sourced from China.
In the past the Trump administration offered section 301 tariff exemptions on baby gear products to help young families afford the significant costs associated with having and raising children.
Thus we are hopeful the administration will do so again, but in the meantime, we will do everything we can to protect and manage our baby gear business.
So before turning the call over to Mark Let me reiterate the key message coming out of this morning's call, which is as follows we believe that the number of opportunities. We have in advantaged categories, where we have domestic or U S. MCA compliant production exempt from tariffs significantly exceeds the number of categories, where we are disadvantaged.
Consistent with this we are actively pursuing numerous incremental sales opportunities and are confident that these short term challenges will give way to lasting medium and long term gains.
When we look back a few years from now we believe this time will be remembered as a pivotal point in Newell brands evolution into a high performing world class consumer products company.
It has been seven quarters since we deployed our new strategy and we remain excited and energized by the progress we are making and the results we are delivering and look forward to sharing additional updates with you in the future.
Finally, I'd like to thank our dedicated employees for their resilience throughout this dynamic environment and their continued commitment to operating with excellence and delighting consumers around the world Mark. Thanks, Chris Good morning, everyone first quarter 2025 core sales were minus two 1%, which was at the high end of our guidance range, reflecting new product.
Speaker Change: Innovation and to a lesser extent net pricing benefits.
Mark: Both the learning and development segment, and our international business, which represents nearly 40% of Newell's total sales posted positive core sales growth for the last five consecutive quarters, which we believe further demonstrates that our new strategy and one Newell operating model are working.
Mark: 2025 first quarter net sales included about two five points of currency headwind and just over half a point of category exits.
Mark: Normalized gross margin in the first quarter expanded by 150 basis points to 32, 5% towards the seventh consecutive quarter of year over year improvement.
Mark: Gross productivity savings and pricing more than offset inflation and foreign exchange.
Mark: Please excuse us one moment, we're experiencing a little bit of a technical difficulty. Please just hold for one moment.
Mark: All right.
Mark: It looks like we are making progress and you guys can hear me. Okay. If we can hear you. Okay. We may begin again, if youre ready.
Speaker Change: Yeah, we can hear you.
Mark: That's great. Thank you Pam patients heavy one allow us to begin again.
Speaker Change: Great. Thanks, everyone for being patient with us on our little technical Snafu, there I'm going to go ahead and start with my.
Speaker Change: First portion of my prepared remarks transitioning over from Chris. So thanks, and good morning, everyone first quarter 2025 core sales were minus two 1%, which was at the high end of our guidance range, reflecting new product innovation and to a lesser extent net pricing benefits, both the learning and development segment, and our international business, which represents nearly 40% of Newell's total.
Speaker Change: Sales posted positive core sales growth for the last five consecutive quarters, which we believe further demonstrates that our new strategy and one Newell operating model are working.
Speaker Change: 2025 first quarter net sales included about 2.5 points of currency headwind and just over half a point of category exits.
Speaker Change: Normalized gross margin in the first quarter expanded by 150 basis points to 32, 5%, which was the seventh consecutive quarter of year over year improvement.
Speaker Change: Gross productivity savings and pricing more than offset inflation and foreign exchange headwinds.
Speaker Change: During Q1, Newell's normalized operating margin was four 5%, which was comfortably above the guidance range. We provided during our last earnings call.
Speaker Change: Operating margin results were better than anticipated despite higher levels of A&P investment for two reasons.
Speaker Change: First core sales came in towards the top end of our guidance range and second gross margin performance was stronger than expected.
Speaker Change: Net interest expense of $72 million, representing an increase of $2 million from the prior year on a normalized income tax provision of $2 million was recorded in Q1.
Speaker Change: Relative to normalized diluted earnings per share we recorded a loss of one sent in the quarter, but this was five to eight cents above our guidance range without any discrete tax benefits distorting operating results.
Speaker Change: We had an operating cash outflow of $213 million versus a positive cash flow of $32 million in the year ago period. However, the first quarter is typically newell's smallest quarter of the year due to seasonality and as a result, it has always historically been a cash take quarter.
Speaker Change: Last year, we were able to break the trend due to a significant contribution from working capital, which lowered our cash conversion cycle by 30 days, coupled with a below target cash bonus payout, which is always made during the first quarter of the year.
Speaker Change: This year, our cash conversion cycle did improve by four additional days, but it would have improved even more absent a decision to pull some inventory purchases forward to avoid impending tariff increases a significantly higher cash bonus payout versus year ago also negatively impacted Q1 operating cash flow.
Speaker Change: Our net leverage ratio for the quarter was five three times, which compares favorably to Q1 of 2024 when it was five six times.
Chris: Chris mentioned several ways, we are mitigating the impact of looming tariffs one of which included additional procurement and supply chain related cost savings reach.
Chris: Recently I had been asked with increased frequency. If there is still ample gross margin runway ahead of us SaaS before I take you through our outlook for the full year and second quarter I would like to address that.
Chris: Newell brands as 42 global manufacturing plants, and as mentioned earlier 15 or in the U S and two U S. M. C. A compliant facilities are located just over the border in Mexico.
Chris: We have a strong frontline engagement program focused on continuous improvement that we referred to as peak, which is a mountain climbing metaphor, which connotes a never ending climb to the summit of continual improvement with.
Chris: Within peaks or six levels of attainment and each level generally takes 12 to 24 months, depending on the phase size and complexity of the site to complete.
Chris: Our first sites understandably took a little longer to ramp but more recent sites have been moving faster through the program.
Chris: As one is referred to as foundations phase II was base camp phases three through five are designated as climb one two or three and this is where we expand insight extend across the value chain or consolidate and optimize respectively.
Chris: Finally phase six is the summit, where continuous improvement has become the cultural norm and as such is fully embedded in everything we do.
Chris: Now with respect to our 42 plants 15 of our smaller plants have not started their journey.
Speaker Change: <unk> are in phase, one and 10 plants are in both phases, two and three.
Speaker Change: This means we don't have any plants that have reached phases four through six yet.
Speaker Change: Let me repeat that we don't have any plants in phases four through six.
Speaker Change: In addition to our manufacturing facilities, we have certain North American service centers, all of which are in phase one through phase III a peak.
Speaker Change: And we have only 14 distribution centers at a roughly 70 in total that are currently in either phase one or two.
Speaker Change: So yes, while we have made and are continuing to make solid progress in gaining meaningful cost efficiencies, we're not even halfway on our journey to the summit of continuous improvement, leaving ample room going forward for us to continue to improve <unk> gross margin and by proxy operating margin <unk>.
Speaker Change: And of course peak is just one of the many cost reduction and supply chain efficiency programs, we're scaling across the enterprise in just the past three years, we have reduced our supply chain staffing needs by 3800 positions to our automation efforts, which gives us a tremendous opportunity to capture highly accretive unit economics, as we look to leverage and monetize our strong.
Speaker Change: Domestic manufacturing of base across our tariffs advantaged categories.
Speaker Change: Now turning to our outlook, having made a series of swift interventions, including targeted pricing actions incremental cost reduction efforts and rapid sourcing decisions in conjunction with our Q1 bottom line over delivery, we expect to fully offset on a full year basis, all bucket one tariffs Chris referenced during his prepared remarks.
Speaker Change: Therefore today, we are affirming our 2025 financial outlook for net sales normalized operating margin and normalized earnings per share.
Speaker Change: Specifically net sales are still expected to be between negative four and negative 2%, which now includes an approximate 1% headwind largely driven by category exits.
Speaker Change: Normalized operating margin remains unchanged at 90% to 95%, which at the midpoint represents roughly 110 basis point improvement through 2024 and is more than double our evergreen target of a 50 basis point improvement each year.
Speaker Change: And our normalized diluted earnings per share range is unchanged at 70 to 76 cents, which represents an 18% increase versus 2024 at the midpoint and on a tax equivalent basis.
Speaker Change: Please note that this normalized diluted earnings per share range still assumes an effective tax rate in the low to mid teens, but also includes a higher level of expected interest expense, which we will likely incur when we refinanced the remaining balance on our outstanding April 'twenty 'twenty six notes at some point later this year.
Speaker Change: With all this being said it becomes clear that the only subsequent chip change we are making to our full year 2025 guidance relates to core sales.
Speaker Change: Core sales are now expected to be between minus three to minus 1% versus our previous expectation for core sales that finished the year between minus two and plus 1%.
Speaker Change: As Chris mentioned earlier this change is solely due to a slightly more pessimistic view of category growth, which we now expect to be essentially down 1% to 2% in 2025.
Chris: Previously, we had expected our categories in aggregate to be flat.
Chris: Finally for the full year, we have widened our operating cash flow range to between $400 million to $500 million from the previous range of $450 million to $500 million, primarily due to higher tariff induced inventory valuations.
Chris: Putting all this together and combining projected cash flow and EBITDA growth. We continue to expect a year end 2025 leverage ratio without 4.5 times, which is roughly three quarters of a turn better than where it sits today and moves us closer to our longer term ambition of being in investment grade debt issuer.
Chris: As it relates to the second quarter of 2025, we expect both net and core sales to decline, 5% to 3% operating margin to be between 10.4, and 10, 8% and with a tax rate in the mid teens normalized diluted earnings per share of 21 to 24 cents.
Chris: So in closing despite the challenging macroeconomic environment, we remain confident that the substantial investments we have made to strengthen our core capabilities are accelerating newell's business transformation and it put us in a position to not just navigate through today's dynamic business environment, but to actually emerge even stronger this is because we.
Chris: Significantly more categories, which should benefit from east increased tariffs then be harmed by them due to our strong domestic and U S MCA compliant manufacturing capabilities.
Chris: It is for this reason we are affirming our 2025 financial outlook for net sales normalized operating margin and normalized EPS as it relates to our bucket one tariffs, which as noted in our press release include the initial two rounds of I E. P. A tariffs on China totaling 20% section 232 global steel and aluminum.
Chris: Some tariffs all other reciprocal tariffs of 10% currently in effect for countries outside of China, and any retaliatory tariffs that other countries have enacted against the United States.
Chris: If the additional 125% China tariff remains in effect for the full year. We currently estimate based on a comprehensive sensitivity analysis, we have conducted that the unmitigated impact could reduce newell brands 20 twenty-five normalized operating earnings per share by approximately <unk> 20 cents.
Chris: That said, we already have a clear line of sight to recover at least half of this impact which means the net impact of the continued hundred and 25% China tariffs for the rest of the year could be a reduction of up to 10 cents on our normalized EPS guidance range of 70 to 76 cents.
Speaker Change: Operator, we'll now open the call to questions.
Speaker Change: Thank you at this time, we will now conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to ensure your question. Please press star one again in order to stay within the time scheduled for the call. Please limit yourself to one question during.
Speaker Change: The Q&A session. Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Andrea Teixeira from J P. Morgan the floor is yours.
Andrea Teixeira: Thank you operator, and good morning, everyone. I wanted to just go back to what where you. Both said in terms of the retail Destocking and also a clarification on the tariffs.
Andrea Teixeira: And the 125%, but just on the the Destocking in consumption. If you can walk us through how was the exit rate for consumption and nuclear mostly out of it it seems like from your second quarter guidance. He is too.
Andrea Teixeira: Assuming some destocking by retailers and how we should be thinking about those.
Andrea Teixeira: As you said yourself too.
Andrea Teixeira: Two the big season for back to school.
Andrea Teixeira: And then second would be the.
Andrea Teixeira: The tariffs with the 125% mitigation effort that you did call out that it was not included in your guidance, but the Chinese fans impact and you would have mitigation for half of it. So we're just wondering if you can explain what those one is the likelihood and the mitigation at Nada.
Andrea Teixeira: Likelihood of course here, it's out of your control but.
Andrea Teixeira: What are the mitigation.
Andrea Teixeira: Efforts that you would see and why to begin with you didn't include that that tariff.
Andrea Teixeira: In the guide thank you.
Andrea Teixeira: Yeah very good thanks Andrea.
Andrea Teixeira: So let me start with the first part of your question.
Andrea Teixeira: Through the first quarter we.
Andrea Teixeira: We delivered obviously core sales growth of minus two 1%, which was at the high end of our guidance range, and frankly, a little bit better than than our base plan, we have not.
Andrea Teixeira: So through Q1.
Andrea Teixeira: We believe we're on track, we decided to lower our market growth assumption from what was previously planned when we issued guidance in February to now down 1% to 2%.
Andrea Teixeira: Out of a spirit of caution and prudence, given what we've seen from consumer confidence levels and broader macroeconomic forecast, we have not yet seen.
Andrea Teixeira: Consumption levels decline in our categories broadly versus our plan, but we believe that it's prudent for us to do that because we didn't want to wind up over planning the inventory and having too much cash flow. So that's why we took the decision to to lower.
Andrea Teixeira: The forecast for market growth this year.
Andrea Teixeira: We believe it's prudent we believe it de risks to the plan.
Andrea Teixeira: And frankly, we believe that our we have a plan to to fully offset that and not have an impact.
Andrea Teixeira: Operating income or earnings per share as a result.
Andrea Teixeira: On the on the retailer.
Andrea Teixeira: Inventory levels.
Andrea Teixeira: And we really didn't see a significant change in retailer inventory levels in Q1.
Andrea Teixeira: Of of of map of any magnitude recall that the liberation day tariffs were announced on April 2nd So it after Q1 ended.
Andrea Teixeira: And so we didn't see a big surge in retailer inventory levels in Q1 that being said when went with as we've talked many times in the past we do tend to look at our business on.
Andrea Teixeira: Six month periods versus quarterly periods, because sometimes order flow associated with promotional events.
Andrea Teixeira: Can drive a point or two of a difference between one quarter and another quarter, so relative to our going in plan. We believe we're right on track for the first half of the year, including the Q2 guidance when put together with the Q1 resolved.
Andrea Teixeira: On the on the tariff mitigation.
As we said in the prepared remarks.
Andrea Teixeira: We have taken already proactive action.
Andrea Teixeira: To fully mitigate.
Andrea Teixeira: The tariffs that we mentioned in our bucket one which include all tariffs.
Andrea Teixeira: Except for the additional 125% on China, we chose to put that as a sensitivity because frankly, there is a lot of discussion about that tariff level being unsustainable.
Andrea Teixeira: We're not sure if it's going to sustain for the year or not.
Andrea Teixeira: If it does sustain for the year our biggest exposure is the baby gear category now, let me put that into perspective, a little bit because.
Andrea Teixeira: As I said, we've already taken a number of mitigation actions on baby gear. So first of all if you look at the baby business about 20% of our baby business is baby care, which is the nook brand primarily on.
Andrea Teixeira: On the baby care business, we are not tariff exposed and in fact, we are tariff advantaged because we manufacture the nook brand in our manufacturing plant in Wisconsin. So we believe.
Andrea Teixeira: On that business, we are likely to gain market share as many of our competitors are sourcing from China. They are going to have tariff costs, we are not.
Andrea Teixeira: And so we are in active discussions with retailers right now on the baby care business to move their shelf space from China sourced products to our Wisconsin sourced products.
Andrea Teixeira: There is then a second part of the baby business.
Andrea Teixeira: Which is the gear business, that's sold outside the United States, which is another 20% of the business that also is not impacted by tariffs.
Andrea Teixeira: And then there is the remainder of the of the baby gear business, which is about 60% of the overall baby business that is generally sourced from China and sold in the United States.
Andrea Teixeira: And that part of the business, we've taken two rounds of pricing. So far we took a 10% price increase for the tariffs that was effective on April 1st.
Andrea Teixeira: That went that has already gone into effect.
Andrea Teixeira: We announced a second 10% price increase that's going into effect tomorrow. So we will have priced up the baby gear products by about 20% to date, we have not priced yet for the 125% tariffs for a couple of reasons one is.
Andrea Teixeira: We accelerated as Mark mentioned inventory purchases into the United States prior to the implementation of the tariffs and so as we sit here today, we have probably three or four months of inventory on hand.
Andrea Teixeira: In the U S that is not subject to the tariffs. We've also paused additional input or orders of inventory from China. At this point. So we're not paying the tariff at this point at some point, we will begin to run out of inventory retailers will begin to run out of inventory and we will turn off.
Andrea Teixeira: Back on reordering from China.
Andrea Teixeira: When that happens because the whole industry sources from China, We would expect that we and the rest of the industry will take additional pricing to offset the tariff cost.
And so.
Andrea Teixeira: That's but we're monitoring it on a sort of a daily basis.
Andrea Teixeira: If the tariff regime changes in the meantime, I think we're well positioned.
Andrea Teixeira: If the tariffs remain in effect.
Andrea Teixeira: I think also we're well positioned despite what will likely be a period of some volatility during this transition period.
Andrea Teixeira: Thank you very much thank you.
Andrea Teixeira: Thank you for your question.
Andrea Teixeira: Our next question comes from the line of Lauren Lieberman from Barclays. The floor is yours.
Lauren Lieberman: Hey, Thanks, good morning.
Andrea Teixeira: You guys mentioned.
Speaker Change: Looking to utilize your U S capacity and talking to retailers and effectively looking to contract manufacturer and your plans I think is what you were suggesting so I just wanted to understand that a little bit better are you considering doing private label for retailers I just want to understand a little bit more about in the near term.
Speaker Change: How you are what you meant to sort of say about leveraging the.
Speaker Change: The U S based manufacturing and the excess flat that you have in the system. Thanks.
Lauren Lieberman: Yeah. Thanks Lauren.
Speaker Change: Yes, let me clarify we've been asked by a number of retailers, whether we would be willing to do their private label because much of their private label products that retailers are selling are sourced from China.
Speaker Change: Our answer has been that we're not really set up to do that so that's not what we're referring to instead, what we're recommending is that the retailers basically discontinue their private label product and replace it with our branded product.
Speaker Change: In addition, there is a number of our competitive brands that are 100% sourced from Asia that are subject to significant tariffs, where we are not and so we're recommending.
Speaker Change: There that retailers replace other branded products that are sourced from Asia with our branded products that are sourced from either the U S or Mexico, Let me give you an example.
Speaker Change: We have a blender plant in Mexico is one of our two Mexican blender plants, we have invested over the last several years significant amount of money and automating that blender plant.
Speaker Change: And as a result, the capacity on that Blender plan.
Speaker Change: As has virtually doubled.
Speaker Change: And we are operating with 50% capacity. So we can scale up that blender plan to take.
Speaker Change: And supply the U S market that blender plant largely today supply is Latin America. It does not supply the U S. But almost all blenders that are sold in the U S come from either China or other southeast Asia countries that are going to be subject to some amount of tariff or blender plant in Latin America or Mexico.
Speaker Change: <unk> is not subject to any tariffs and so we believe it's going to create a competitive advantage. So we are in active dialogue with retailers at discontinuing other Bert branded blenders and replacing them with oesterle branded blenders, because our products will become a much better value versus competitive blip blender products.
Speaker Change: <unk>.
Speaker Change: That's an example of what we're talking about we're trying to talk about here.
Speaker Change: Okay. That's great. Thank you and then also I know you mentioned.
Speaker Change: In terms of your core sales guidance and Europe flat your expectations on category I, just want to make sure I heard it correctly that at this point you haven't really seen any change in consumer behavior in your categories. It is different than what you had had in your budget.
Speaker Change: The debt Youre adjusting the core sales guidance on an assumption that the environment does become more challenged and to avoid having excess inventory if that comes to pass.
Speaker Change: Yes, that's correct and.
Speaker Change: It's interesting because it's a little bit hard to predict we just felt like it was prudent to perp too.
Speaker Change: To do that based on sort of the macro forecast, even though we haven't seen it.
Speaker Change: It could be that we're that we're wrong and the category does better than we think.
Speaker Change: One of the trends that we've been talking with the.
Speaker Change: Market researchers about as if consumers begin to cut back on eating out at restaurants and that type of thing and start to spend more time eating at home that generally as a as a tailwind for our category of our kitchen products.
Speaker Change: And so it's possible that depending on how this plays out we may be wrong and overly conservative in our outlook, but we felt like we would rather err on the side of being a little bit more muted in our category growth outlook to ensure that we don't overbuild inventory.
Speaker Change: And and ensure that we deliver the cash flow that's in our cash flow forecast.
Speaker Change: Perfect. Okay. Thanks, so much I'll pass it on.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Steve powers reduce shrank the floor is yours.
Speaker Change: Steve powers the floor is yours.
Speaker Change: Sorry about that.
Speaker Change: Mute.
Speaker Change: Assuming the the tariffs.
Speaker Change: The China tariffs do remain it sounds like you would not really start to feel the impacts that you've called out until the second half of the year. So a couple of questions around that first if we think about the annualized 12 month impact there should we be thinking kind of two X as a run rate or with the longer term impact speak a little bit more muted because of further mitigate.
Speaker Change: And then maybe some seasonality question number one and then if you could.
Speaker Change: Just sort of the sensitivities that you've run what would be the analogous impacts on operating cash flow both in fiscal 'twenty, five and on an annualized basis as well as on your go forward leverage ratio expectations.
Speaker Change: Great questions. So as we think about the tariff effects. They would as you rightly said largely fall into the second half of the year as we've done our math, we probably think the impact would be roughly 40% in the third quarter, 60% in the fourth that's partly driven by some of the commentary that Chris offered earlier as we sit here today at March 31st home and <unk>.
Speaker Change: <unk> had about 110 days on hand learning development is around 120.
Speaker Change: Outdoor rec had a higher number than that right. So we have inventory that we can actually bleed through and work into the system as far as the cash impact if that 10 cents that we can't mitigate actually does come home to roost and we put that in an after tax basis, that's probably a $30 million impact operating cash flow in the current year now that said, we widened our range of four.
Speaker Change: To $500 million and so it's entirely reasonable to assume that it could fall within that.
Speaker Change: And then as far as trying to project that out into 'twenty six frankly, I don't think Thats a game, we really want to play right now because I think people are thinking about tariffs in isolation and you know I'm not an economist I'm not a politician. Most certainly but there's a lot of other things that play here and we're talking about consumer dynamics fuel prices are down the last few inflation reports for fairly been.
Speaker Change: Nine.
Speaker Change: There is talk about a meaningful tax cut that would largely advantage and help the lower and middle class. So it's really I think too early to say what this looks like on an ongoing basis. We just know that we're well positioned as we sit here today, we invested in a domestic manufacturing base that others have not chosen to do and we're ready and prepared to help our.
Speaker Change: Retailers provide great high quality products to their consumers.
Speaker Change: The other thing I would say on that which is interesting is that there's a there's a bit of a timing impact here so and in all of these categories, where we are advantaged with U S or Mexican manufacturing that.
That revenue up.
Speaker Change: Ups are up.
Speaker Change: Up lever that we expect is going to be a little bit delayed because it relies on retailers changing their store shelves or changing their merchandize event, which tends to take a little bit of time to work through the system.
Speaker Change: And so that is a tailwind I would expect would be significantly larger in 2026 and 2025, given the timing of implementation of that.
Speaker Change: The tariff impact on baby, which again affects the whole industry baby gear.
Speaker Change: In the U S.
Speaker Change: I think creates a little bit of a near term issue, but if the market moves up in pricing.
Speaker Change: Which I expect it will if it sustains.
Speaker Change: It's unclear whether that continues as a headwind into twenty-six or not.
Speaker Change: Okay.
Speaker Change: Yes, okay very good very good.
Speaker Change: Do you have it sounds like you have a lot of active conversations ongoing with where you are competitively advantaged.
Speaker Change: In terms of our expectation that when do you think that means to your point most of this as you as you are successful probably benefits next year more than this year, but when do you feel like.
Those conversations will start to materialize in actual contracted change.
Speaker Change: Yeah. So we've seen we've seen a couple of them already I mentioned in the prepared remarks.
Speaker Change: On our food saver consumables business.
Speaker Change: We've gotten some wins there because some of the competitive product was sourced from China.
Speaker Change: The retailer that was selling that is basically discontinue that item and moved their entire business back to us.
Speaker Change: So that's a win that will start to materialize in July.
Speaker Change: Also on on Rubbermaid food storage, we've gotten missed significant uptake in that business.
Speaker Change: I think I mentioned on the last call we have a major innovation that's launching this summer with rubbermaid easy store.
Speaker Change: That's replacing easy find lids. It also happens in that business that we manufacture that product in Ohio and much of the competitive product is coming from.
Speaker Change: Asia and so we've gotten significant wins on that both in terms of promotions that are shifting from competitive product to us and in terms of some of the private label product being delisted entirely because it's no longer economically viable that was coming from China.
Speaker Change: We are beyond those two categories. We are in active discussions on 19 total categories.
Speaker Change: And so we've factored those two into our guidance, but there are 17, others, where we believe we've got a significant competitive advantage.
Speaker Change: We're having active discussions across.
Speaker Change: Our top 10 retailers as we speak.
Speaker Change: On.
Speaker Change: How to navigate and move their stores to advantage our brands.
Speaker Change: Okay. Thank you that's very helpful framing I appreciate it I'll pass it on.
Speaker Change: Thank you for your question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Bill Chappell with tourists securities the floor is yours.
Bill Chappell: Thanks, Good morning.
Speaker Change: He just carnivale thinking.
Speaker Change: Taking a step back I guess I'm not 100% sure I understand.
Speaker Change: Why you're continuing to have guidance and I'd say that if I understand kind of how.
Speaker Change: You operate.
Speaker Change: And your and you understand your tariff exposure in pricing, but it seems like forecasting market growth, especially when it's a combination of volume and price is next to impossible at this point for all your various categories. So maybe help us understand how you came to that.
Speaker Change: Estimate and are you expecting price to be up double digits in volume to be down double digits and Alan and how are your competitors will im just trying to understand how we get confidence in and not necessarily your numbers in a vacuum but the market.
Speaker Change: Growth over the next two three quarters.
Speaker Change: Yes, it's a good question, we spent a fair amount of time talking about that and I think we feel like.
Speaker Change: And the majority of our business is not tariff impacted.
Speaker Change: And so when we're talking about the tariff impact the tariff impact.
Speaker Change: Of significance is largely this China, 125%, which is largely centered on the baby gear category, which is.
Speaker Change: For import into the U S, which is less than 10% of the total company revenue and so for 90 plus percent of our business. The tariff impact is relatively minor.
Speaker Change: And.
Speaker Change: And we've got a <unk>.
Speaker Change: Land to fully offset it as I mentioned and so we think that.
Speaker Change: Our our thought on this is that we have pretty good visibility internally.
Speaker Change: Two the plan how we're adjusting the plan how we're offsetting this.
Speaker Change: And we have a view of what we would do if if this 125% sustains on China Youre right that our ability to forecast in the current macro environment.
Speaker Change: <unk> has become more challenge, but I think our our other view is that.
Speaker Change: Given the data that we have we believe.
Speaker Change: That providing some guidance is helpful to the street, because if we left it out there with no guidance.
Speaker Change: We feel like people would be all over the map and not really understanding and we actually feel I think better about our position than what I think the market was thinking about our position over the last three months because if you look back.
Speaker Change: On this period as I mentioned in the prepared remarks, a year or two from now I actually think this is going to be a benefit for newell all in.
Speaker Change:
Speaker Change: Because.
Speaker Change: The advantaged categories that we have with our U S manufacturing base.
Speaker Change: Gently exceed the.
Speaker Change: The number of places, where we're disadvantage and we've heard some of our competitors who are 100% sourced from China talk about going out of business, we're not anywhere close to that position. We're talking about 19 product categories, where we're competitively advantaged, where we're selling we've got incremental capacity and by the way that incremental capacity.
Speaker Change: <unk> with that when you factor in the fixed cost element of our manufacturing base is highly profitable and so.
Speaker Change: If we do our job well and sell the incremental volume on our U S and Mexican manufacturing base.
Speaker Change: I think we're going to come out stronger.
Speaker Change: Over the over the medium and long term then.
Speaker Change: <unk>.
Speaker Change: Then if the tariffs had not gone into place and if I could we've talked in the past about how we've largely rebuilt our internal management reporting systems.
Speaker Change: And our new trade fund management system that allows us to get much better price promotion diagnostics and so we feel that we have demonstrated the ability to be pretty good with respect to our forecast as of late and then as Chris Intimated. We feel guidance is frankly, an obligation of management.
Speaker Change: We don't own this company, we have an obligation to our owners of tell them. What we know now as part of our approach to this particular exercise I will say that we really went out of our way to derisk our fiscal year plan.
Speaker Change: And that's why I think we've been so communicative on all these different elements as we sit here today.
Speaker Change: Yes.
Speaker Change: I appreciate it I discussed it still seems like it's in a vacuum because we don't know if your competitors have liquidation sales or what they do with pricing or stuff like that.
Speaker Change: I understand you can forecast I'm, just trying to understand how you're forecasting a competitive space.
Speaker Change: A lot of it on par thanks a lot.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from Brian Macnamara from Canaccord Genuity the floor is yours.
Hey, good morning, guys. Thanks for taking the questions.
Speaker Change: So I guess, the China sensitivity SaaS, a little worse than we would've expected given your relatively low exposure there and your high domestic sourcing is it simply just lack of pricing in the baby category, specifically with with triple digit tariffs in place or is there anything else we should be considering.
Speaker Change: I think it's primarily driven by the baby category.
Speaker Change: That's our 70% of our.
Speaker Change: Of our China import exposure as the baby year category.
Speaker Change: The balance of what's coming from China to the U S.
Speaker Change: We've had a plan in place.
Speaker Change: That we've been working on for a number of years as I mentioned to move out of China.
Speaker Change: We are accelerating that plan as we speak.
Speaker Change: And so there there there could be a small amount of impact in a few other.
Speaker Change: Places, but but the majority of the impact is the baby gear category by the way the baby gear category I think.
Speaker Change: What Mark said or what we said was that.
Speaker Change: At this point, we've got a plan to mitigate at least half of the of the 20 cents impact.
Speaker Change: It could be better than that.
Speaker Change: Because we're not alone in mess.
Speaker Change: The majority of the stroller market today is in the Super premium and premium category.
Speaker Change: Those brands are all affected by this as well and and graco being positioned at the high end of mass could wind up being a beneficiary.
Speaker Change: As prices in the market move up.
Speaker Change: Not just for us, but for everybody depending on how this tariff sustain so.
Speaker Change: That's the primary impact yeah. The other piece of the puzzle is look we said, it's 'twenty, assuming that 125, China tariffs stay in force for the full calendar year, we said as we sit here today, we found ways that we think we can offset half of it roughly.
Speaker Change: Well, we still have eight months ago and then the last thing we're going to do is sit on our hands right. So the full intention is to continually chew against that.
Speaker Change: And we're we're optimistic that with the team we have in place and the lines that we have in the water to bring in incremental sales.
We can continue to make headway.
Speaker Change: I appreciate the transparency there secondly, Chris you just alluded to this a little while ago, but your markets, especially the small kitchen appliances that still have some pretty significant China sourcing. Many are 100% as your as you said if triple digit tariffs remain in place.
Speaker Change: On China. When this result in material consolidation with smaller players are effectively dropping out of the market and effectively widen your competitive moat.
Speaker Change: Yes, no question about it and that's we.
Speaker Change: We think we've got that opportunity in a number of product categories. I think I mentioned Theres 19 product categories that we think we are competitively advantaged.
Speaker Change: And we do think that there are going to be some competitors that basically drop out that's going to allow for significant market share gains for us in some of these categories is it some.
Speaker Change: As I mentioned on the prepared remarks.
Speaker Change: The two places where we're seeing already wins are in.
Speaker Change: Tobacco ceiling with the with the food safer brand and in the Rubbermaid food storage business, but we've as Mark said got a lot of lines out in the water right now and I think we're in active discussions with retailers on shifting their shelf space and shifting their merchandising to our brands that are made in the U S.
Speaker Change: I mean, if you could if we could wave a wand and either make the Chinese one twenty-five tariffs go away or be guarantee they would be in place for the full calendar year, we would take the latter based on our positioning and market and based on our strong domestic manufacturing base and based on what we know about the competitive set now there might be some temporarily disrupt disruption, but for the mid and long term.
Speaker Change: We're well positioned to be advantaged by this scenario.
Speaker Change: Very helpful. Thanks, guys best of luck.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Filippo follow me at city the floor is yours.
Speaker Change: Hi, good morning, everyone.
Speaker Change: First I wanted to ask you on pricing just following up on Bill's question.
Speaker Change: <unk> announced pricing as of today why are you expecting in terms of price contribution in your core sales guidance and just roughly like what elasticity that you're assuming based on your expected response from competitors.
Speaker Change: Right now based in our sales walk in our in our build bridges, we would tell you that for the full year, we think pricing net of elasticity will be up a point or two.
Okay.
Speaker Change: Net total company number inconvenience International correct correct got it got.
Speaker Change: Got it okay.
Speaker Change: Then.
Speaker Change: Just a follow up on the baby gear category, you mentioned last time in the Trump administration, you were able to get an exemption.
Speaker Change: For those categories that where the industry was able to get an extension of an exemption for those categories is that are there conversations currently to ask for an exemption just any thoughts on potentially get into exemption again this time.
Speaker Change: Yes, we are actively engaged in lobbying efforts.
Speaker Change: To get an exemption for baby gear products sourced from China.
Speaker Change: Yeah.
Speaker Change: And the Trump administration was the administration that gave the exemptions for baby gear products in the last or in the first term when the initial China tariffs went into effect.
Speaker Change: It's a fluid situation. So I certainly can't predict the outcome of it but I can say that there are certainly efforts ongoing.
Speaker Change: Not just by us at normal, but also by the industry on this.
Speaker Change: On the lobbying front.
Speaker Change: Great. Thank you so much guys.
Speaker Change: Yes.
Speaker Change: Thank you for your question.
Moderator: Our last question comes from Olivia Tong at Raymond James the floor is yours.
Olivia Tong: Great. Thank you so much.
Olivia Tong: You mentioned no change in your market share outlook, but it's we're able to secure new distribution in food storage. So can you talk through that a little bit you know in terms of how youre thinking about.
Some of the discussions that youre, having any other 17 categories. That's my first question and then second can you price and any other categories beyond Baby and then my last question is just around your key industries.
Olivia Tong: What your competition is doing and if theres any excess capacity outside of China or even domestically because you know as you mentioned the efficiency improvements you were able to achieve in the U S and the blender category.
Olivia Tong: Getting to 50%.
Olivia Tong: More space in their other capacity out there that others are able to capitalize on.
Olivia Tong: Yeah. So.
Olivia Tong: Let's start with <unk>.
Olivia Tong: On the pricing, we did take select pricing on some other goods that were sourced from China that we expected to be sourced from China for a long period of time.
Olivia Tong: It was very small.
Olivia Tong: So the 20% pricing that we put into effect.
Olivia Tong: Effective as of Tomorrow.
Olivia Tong: I would say, 90% on baby here, but there was 10% on some other small businesses that we have that we don't anticipate moving out of China in the near term.
Olivia Tong: But baby gear for purposes of the financial modeling was was the major place, where we took the pricing from a capacity standpoint.
Olivia Tong: We don't think that there's significant excess capacity.
Olivia Tong: In the U S or or Mexican market.
Olivia Tong: On the categories, where we're advantaged, we think many of our competitors.
Olivia Tong: Have effectively shut down capacity and moved capacity.
Olivia Tong: Two sourced finished goods players in Asia and a lot of these.
Olivia Tong: And a lot of these categories and so I mentioned, the two categories, where we've already secured wins on the other 17 categories, where we're having discussions this is still relatively new so recall that.
Olivia Tong: It's only been.
Olivia Tong: Four weeks since the Liberation day tariffs have been announced even though it seems like a long time.
Olivia Tong: And many retailers are still trying to understand the impact of those tariffs and how theyre going to mitigate them because they they affect a lot of different categories, not just that normal participates in but that the retailer participates broadly in and so we are.
Olivia Tong: Showing up with a proposal and plan for the categories in which we compete and where we're competitively advantaged as I mentioned at each of our top 10 retail customers. We've already had initial conversations top to top with all 10 of them.
Olivia Tong: And we're now starting to drive to the next steps, which is to go down and begin to have discussions with merchants, but I can tell you is that many of our retailers have paused or canceled their purchase orders from China.
Olivia Tong: In these categories, where we're advantaged. So we do believe that there's going to be a supply disruption in the categories, where we're competitively advantaged and that's going to position us I think to be able to come in and.
Olivia Tong: Fill in.
Olivia Tong: Incremental.
Olivia Tong: Inventory level, we have not factored that into our guidance at this point, so that as upside to our guidance on the extra 17, because we don't have commitments at this point.
<unk>.
Olivia Tong: And so.
Olivia Tong: Uh huh.
Olivia Tong: That's kind of how we're thinking about it and how we're approaching it but we are.
Olivia Tong: We are having active discussions as we speak.
Speaker Change: Ross all of these categories with all of these top retailers.
Olivia Tong: Great. Thank you.
Speaker Change: Okay. Thank you all for joining and we look forward to talking in follow up conversations.
Olivia Tong: That's great. Thank you.
Speaker Change: This does conclude the question and answer session. Thank you for your participation a replay of today's call will be available later today on the company's website at IR <unk> brands Dot Com you may now disconnect have a great day.
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