NEWELL BRANDS INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights: - Rolled out new corporate strategy in June 2023 focusing on innovation, brand building, and go-to-market excellence in large and profitable brands. - Transitioned to new operating model to enhance organization effectiveness and agility. - Core sales year-over-year performance improved sequentially. Gross margin increased for fifth consecutive quarter. Normalized operating margin above plan despite higher A&P investments. Normalized earnings per share at high end of plan. Reduced cash conversion cycle and delevered balance sheet to under 5x. - Product innovation: Graco's SmartSense Soothing Bassinet and Swing, Mr. Coffee Perfect Brew, food safe handheld Plus machine. - Brand initiatives: Contigo's partnership with Ally Love, Coleman's TV campaign on Amazon Prime. - Consumer trends: Broader general merchandise market down low single digits, with bifurcation between low income (prioritizing basic needs) and higher-income (spending on premium products) households.

Segment Performance: Learning & Development delivered a third consecutive quarter of positive core sales growth, driven by the Baby business. Home & Commercial improved core sales growth by 200 basis points sequentially. The Outdoor & Recreation segment, the smallest in Newell's portfolio, improved core sales growth sequentially, moving to a negative 16.8% year-over-year in Q3 versus a 18.2% year-over-year decline in Q2. Revenue contribution details: Learning & Development is a key segment, with Home & Commercial and Outdoor & Recreation making up the other segments.

Guidance: - Full year outlook revised: Increased normalized operating margin to 8.1%-8.3% from 8%-8.2% previously. Raised normalized EPS guidance range to $0.63-$0.66 from $0.60-$0.65. Raised operating cash flow forecast by $50 million to $500 million-$600 million. - Fourth quarter guidance: Core sales expected down 2%-5%, net sales down 4%-7%. The two-point differential due to foreign exchange. Believes core sales run rate improving towards positive and sustainable inflection in 2025.

Risks: - Consumer dynamics bifurcation between low and high-income households could impact sales. - Tariff risk related to supply chain diversification, particularly with exposure in Baby business. - Retailer inventory destock concerns affecting fourth quarter sales guidance.

Q: Perhaps, can we start with just a walk around the categories given such a divergence in performance across division, particularly as you think about planning for next year? And then secondly, you talked about the price/mix contribution this quarter and favorability around that. Could you talk about a little bit more about that in terms of the impact of sales and gross margin, not only this quarter, but your expectations going forward as you pivot your portfolio more towards mid and higher price point from the OPT and MPP area?

A: Chris Peterson discussed category performance by division, noting Learning & Development's strong core sales growth, Home & Commercial's improvement, and Outdoor & Rec's progress. On price/mix, driving mix benefit through gross margin accretive products rather than pricing. Chris Carey added on cost analyst capability and price line logic improvements.

Q: The guidance range for the fourth quarter implied is really -- is pretty wide. And so, I just wanted to get a sense if you're seeing or hearing anything that's giving you pause around retailer inventory destock. You spoke very clearly about high end versus middle- and lower-income consumers. But just curious on kind of the -- frankly, the lower end of the range on sales it's effectively on the table for 4Q. And then also, you mentioned I think the language has changed a little bit on the inflection in core sales growth on time in '25. So, I just wanted to kind of check in on that front, if that's really driven by the lower progress in outdoor or if it's something else?

A: Chris Peterson said fourth quarter guide based on market down low single digits, not inventory destock. Retailer inventories good. Inflection in core sales growth in 2025 due to capability investments and innovation pipeline.

Q: I was hoping to see and I appreciate all the commentary about the kitchen appliances and now also the innovation in other areas of the business as you get out of more sluggish category environment. But I was thinking more long term in your ING investment and innovation in general. I mean not surprise you vest typically less than some of the other peers and the disruptors out there. Is there any way you can kind of help us like where you want to take that number, I believe, is about 5% at this point? And think about also how much you're contributing you're reinvesting sales as a percentage of sales in advertisement and promotion if -- how we should be thinking of where that's going to be the best in class? And then more short term, how we should be thinking of distribution, are you completely -- how you'd be thinking of the holidays as well in terms of the categories you compete in? How we should be thinking of distribution as we go into the fourth quarter and into 2025?

A: Chris Peterson said distribution to be more positive tailwind next year. Innovation spending expected to increase to 6%-7% long term. Andrea Teixeira asked about distribution losses, Chris Peterson said purposeful and part of portfolio improvement.

Q: Just a couple of questions, if I could. One is the question that I've asked on these earnings calls in the past, but I'm always curious on progress. There was a major maybe pull forward of demand in a number of your categories during COVID, and we've seen that normalization carry out for some time now. And as you talk about the sequential improvement in core sales growth, do you think that some of that is the consumer coming back for replenishment? Are we at the tail end sort of cycle normalization and we're reapproaching a new cycle? I know you're looking at, I think, flattish general merchandise category growth next year. How much of that is just this renormalization phase? And then if I just could, you did have a quick nod to elections, be remiss if I didn't ask. I know there's been an effort to diversify or your geographic basis of sourcing and manufacturing. How do you think about that evolution in the context of some policies that can go different ways depending on how the election plays out?

A: Chris Peterson said normalization from COVID pull forward ending, market share improving. On elections, focused on tariff risk, supply chain diversified with China cost of goods sold down to below 10% by end of next year.

Q: So, the turnaround looks to be achieving strong improvement in a number of areas outside of the top line thus far, particularly margins. But the biggest investors ask us is kind of when this company will sustainably grow again? I know you're not guiding for 2025 yet. You mentioned your performance will be impacted by the general merchandise environment next year. But what should give investors confidence in the Company achieving its long-term evergreen target of kind of low single-digit annual growth?

A: Chris Peterson said investments in consumer insights, innovation pipeline, brand management, etc., showing sequential top line improvement and market share gains. Expect top line growth in 2025 but uncertain macro context.

Q: I wanted to go back to profitability. You clearly delivered very strong results, and you sounded pretty positive about next year. I was looking at your disclosure, particularly on the organizational realignment and the savings there. It does seem based on your run rate saving what you're realizing this year, you still have another $10 million to $20 million of savings from there. Maybe -- I know you're not going to give guidance, but maybe can you give us a sense of what other savings you have line of sight for next year in terms of thinking like how much of the profitability is under your control versus how the general merchandise category is going to outperform?

A: Chris Peterson said fuel productivity program to generate over 6% cost of goods sold takeout next year. Overhead improvements with centralized functions, AI in customer service. Mark Erceg added on innovation program and automation benefits.