Newell Brands(US:NWL)2024-10-25 16:55Financial Data and Key Metrics - Core sales improved sequentially, with year-over-year performance showing consistent growth [5] - Gross margin increased for the fifth consecutive quarter, driven by productivity gains that offset inflation [5] - Normalized operating margin exceeded expectations despite higher A&P investments [5] - Normalized EPS was at the high end of the plan, supported by strong operational performance [6] - Net debt reduced by over $560 million in the past five quarters, with leverage ratio improving to 4.9x [8] - Normalized EBITDA increased by 2% on a trailing 12-month basis, from $739 million to $903 million [8] Business Segment Performance - Learning & Development segment delivered three consecutive quarters of positive core sales growth, driven by the Baby business [9] - Home & Commercial segment improved core sales growth by 200 basis points sequentially [9] - Outdoor & Recreation segment showed sequential improvement, with core sales growth moving from -18.2% in Q2 to -16.8% in Q3 [9] - International business achieved positive core sales growth in the first nine months of 2024 [14] Market Performance - Latin America contributed positively to Q3 core sales performance, though currency headwinds impacted net sales [19] - Higher-income households drove demand for premium-priced products, while lower-income households prioritized essential spending [15][16] - Coleman's new marketing campaign on Amazon Prime resulted in a double-digit sales increase post-launch [14] Strategic Direction and Industry Competition - The company's strategy focuses on innovation, brand building, and go-to-market excellence in its largest and most profitable brands [7] - Investments in new product innovation, such as Graco's SmartSense Soothing Bassinet and Swing, are driving market share gains [10][30] - The company is transitioning Coleman from a camping focus to a broader outdoor market, aligning with its strategy reset [14] - The company is expanding distribution across new and existing retailers, contributing to top-line growth [14] Management Commentary on Operating Environment and Future Outlook - The company expects the general merchandise market to improve next year, with low single-digit declines potentially flattening [40] - Management is confident in the company's ability to achieve sustainable top-line growth, driven by innovation and market share gains [67] - The company is monitoring macroeconomic factors, including the upcoming U.S. election, which could impact consumer behavior and market dynamics [40][58] Other Important Information - The company has reduced its SKU count from over 100,000 to 20,000, significantly improving revenue per SKU [54] - A&P investments increased from 4% to 5% of sales, with a long-term target of 6%-7% [50] - The company has diversified its supply chain, reducing reliance on China from over 30% to below 15%, with plans to further reduce it to below 10% by the end of 2025 [58] Q&A Session Summary Question: Divergence in category performance and price/mix contribution [29] - The company highlighted strong performance in the Learning & Development segment, particularly in Baby and Writing, driven by innovation [30] - Price/mix benefits are expected to come from margin-accretive product launches rather than price increases [33] Question: Fourth-quarter guidance and core sales growth inflection [37] - The company expects a low single-digit decline in the general merchandise market for Q4, with retailer shipping windows impacting sales timing [38] - Core sales growth is expected to improve in 2025, driven by stronger innovation and market share gains [39] Question: Outlook for specific categories (kitchen electrics, fragrance, baby, camping) [42] - Categories with long purchase cycles, such as kitchen appliances, are expected to return to growth as COVID-related demand normalization concludes [43] - The Baby and Writing segments are benefiting from strong innovation pipelines, while Outdoor & Recreation is expected to take longer to recover [44][45] Question: Innovation and A&P investment levels [48] - The company plans to increase A&P investment to 6%-7% of sales over time, focusing on ROI-driven spending [50] - Distribution losses in 2024 were a headwind of a couple of points, but the company expects distribution to be a positive driver in 2025 [52] Question: COVID demand normalization and election impact [56] - The company believes the normalization of COVID-related demand pull-forward is nearing completion, which should benefit category growth in 2025 [57] - The company has diversified its supply chain to mitigate tariff risks, with China exposure reduced to below 15% and expected to fall below 10% by the end of 2025 [58] Question: Sustainability of profit improvement [61] - The company expects continued profit improvement through productivity savings and gross margin expansion, even if revenue growth remains uneven [62] Question: Long-term growth targets and competition [65] - The company is focused on achieving sustainable top-line growth through investments in consumer insights, innovation, and brand building [66] - The company views competition as a validation of its strategy, particularly in categories responsive to innovation and strong branding [69] Question: Profitability and cost savings outlook [71] - The company has a strong pipeline of productivity savings, particularly in the supply chain, with over 6% cost of goods sold takeout expected in 2024 [72] - Additional savings are expected from automation, AI implementation, and overhead efficiency improvements [73][74]