The operator welcomes participants to the Newell Brands Second Quarter 2024 Earnings Conference Call and introduces the speakers. The VP of Investor Relations, Sofya Tsinis, gives a brief disclaimer regarding forward-looking statements and non-GAAP financial measures. CEO Chris Peterson then discusses the company's second quarter results, which exceeded expectations.

The company has seen improvements in core sales performance, gross margin, operating margin, EBITDA, EPS, and cash conversion cycle in the first half of 2024. This is attributed to the implementation of a new corporate strategy and operating model, which focuses on investing in innovation, brand building, and go-to-market excellence. The company has also seen a significant improvement in core sales growth, particularly in their most profitable segment and international business. As a result, the company has raised its outlook for the full year.

Newell has continuously improved their gross margins and operating margins over the past four quarters, while also increasing their operating cash flow and reducing net debt. Their normalized EBITDA has also increased by 10% compared to the previous year. They have also made progress in improving their front-end capabilities, particularly in the Learning & Development segment. The Home & Commercial segment has also seen improvement in structural profitability and selective growth, while the Outdoor & Recreation segment is in need of a turnaround.

The company has made significant changes to improve its performance, including restaffing the team and relocating to Atlanta. While there have been challenges, the business has bottomed out and is expected to improve in the second half of the year. The company has launched successful new products, such as Sharpie Creative Markers and Paper Mate InkJoy Bright gel pens, and plans to support and commercialize more innovations, including Graco SmartSense Soothing, Bassinet and Swing, Graco Ready 2 Jet Stroller, On-the-Go Crock-Pot, Multi-meal crock pot, and Rubbermaid Brilliance rounds. These new products offer unique features and expand the company's popular brands.

Rubbermaid is partnering with Olympic gold medalist Shawn Johnson East and her husband to promote their award-winning food storage containers. They have also launched a premium-priced sandwich maker and espresso machine in Latin America, as well as a new handheld vacuum sealer for food preservation. Additionally, they have activated commercial campaigns for their Oster and Ball brands to drive sales growth in Latin America and North America.

Newell is making progress in expanding their brand's distribution and implementing their One Newell International strategy. They have completed two ERP consolidations in Brazil and are seeing growth in international sales. The company is also reducing their dependence on China sourcing and pursuing alternative production methods in order to mitigate potential tariff changes.

Newell's exposure to China-based manufacturing has decreased to less than 10% and they have significant manufacturing capabilities in the U.S. and Mexico. They plan to stay agile and take advantage of growth opportunities while minimizing negative impacts of U.S. economic policy. Despite a challenging external backdrop, they have made progress on their strategic agenda and are confident in their financial outlook for 2024. They have taken decisive actions to improve their top line trajectory, economics, balance sheet, cash flow, and team, and have fostered a high-performance culture.

In the eighth paragraph, the speaker expresses confidence in the company's strategy to return to sustainable and profitable growth. They thank their employees for their commitment and hand the call over to Mark. Mark then discusses the positive impact of the company's interventions on their second quarter results, including improved core sales, gross margin expansion, and operating margin increase.

The increase in normalized operating margin was due to various factors such as productivity, pricing, and organizational restructuring. However, there was also higher spending in areas such as A&P investment, overhead investments, and incentive compensation. Net interest expense increased and there was a normalized tax benefit. Normalized diluted earnings per share were higher than last year, aided by an earlier-than-expected realization of certain tax benefits. Cash flow was down compared to the same period last year, but this was largely due to a significant contraction in inventory levels in the previous year.

In the second quarter, the company saw a 20-day improvement in their cash conversion cycle and a decrease in their leverage ratio. They also expect flat to slightly declining sales in the third quarter, but anticipate an increase in operating margin due to higher gross margin and increased investments. Their projected tax rate for the third quarter is higher than usual. Despite a challenging economic environment, the company is confident in their business transformation and has improved their full-year financial outlook, expecting a smaller decline in core sales.

The company has revised their full-year sales and earnings guidance, expecting a decline of 6% to 7% in net sales and an improvement in normalized operating margin by 110 basis points. They have also raised their normalized earnings per share guidance and operating cash flow forecast, and plan to proactively refinance debt obligations. The company is committed to achieving investment-grade status and targeting a leverage ratio of 2.5x in the long term.

Newell's new strategy and focus on operational execution has led to significant improvements in top line trends and gross margin over the past year. This has also allowed for increased investment in advertising and promotion and strengthening of front-end capabilities. Cash performance and EBITDA growth have been strong, resulting in debt reduction and a lower leverage ratio. The company believes they are on the right path to reemerge as a top consumer products company and have improved their outlook for core sales, operating margin, earnings per share, and cash flow. The operator opens the call for questions and the first question is about the strong gross margin performance in the quarter. The company is asked to unpack the moving pieces and provide insight into the progression for the rest of the year and beyond. The question also touches on the company's long-term gross margin targets and whether the current results give them confidence in their path forward.

Mark Erceg and Chris Peterson are pleased with the plot they have laid out for gross margin expansion. They have seen a significant increase in savings and are now running at double the rate of COGS coming out over the next two years. They attribute this to driving automation, looking at four-wall costs, and integrating the supply chain. They have also taken pricing actions and are seeing benefits from mix management. They believe they are just getting started and are excited about the future. They also expect to continue driving gross margin improvement in the remainder of the year, though they may face tougher comps.

The company expects to see gross margin improvement in the back half of the year, but not at the same level as the first half. They have long-term targets for gross margin and are confident in their ability to reach them. The company is also aware of the macroeconomic backdrop and expects their categories to continue to decline in the low-single-digits due to consumer pressure from inflation. This outlook has not changed for the back half of the year.

The company is confident that its core sales trend will improve in the second half of the year due to several factors. These include a higher rate of innovation contribution, confirmed new distribution gains, and improvements in the international business. These factors are expected to drive a better tailwind and contribute to the implementation of the company's integrated strategy.

The company is optimistic about the upcoming back-to-school season and expects to gain market share due to strong innovation and operational results. They have had no issues setting up displays and materials, but won't see consumer consumption until the next two months. The company's expectations for the back-to-school and holiday seasons have not changed from their initial assumptions, as the categories they compete in have been down low-single-digits in the first six months of the year.

Newell's confidence has increased due to progress in driving front-end capability improvements at Newell, allowing them to deliver at the top end of the range and improve their core sales outlook for the rest of the year. The company has hedged or contracted for any potential pressure from increased rates for maritime containers and transportation. The third quarter is expected to have benefits from back-to-school sales and the company's innovation is expected to be margin accretive. The Coleman and outdoors portfolio is also expected to have improved margins. Overall, the company is pacing for a low-single digit headwind from inflation, with a little more inflation seen from resin.

The company's labor and overhead costs are in line with expectations, and they have not experienced significant inflation or availability issues with ocean freight. The overall business unit mix is not expected to be drastically different in the third quarter compared to last year, with the exception of exiting some less profitable parts of the business. The company expects gross margin to be up in the third quarter due to strong productivity and a shift to more profitable parts of the portfolio. The Outdoor & Rec segment, which requires the most turnaround, is expected to see sequential improvement in the third quarter and is on a multi-year journey to recovery. The company has taken significant action in this segment.

The company has recently relocated its business from Chicago to Atlanta and has restaffed its entire leadership team. They believe this will lead to stronger profitability in the next few years. Retail inventory levels are stable and the commercial business saw growth in the first quarter but a slight decline in the second quarter, which is attributed to timing.

The company's commercial business saw growth in the first half of the year, but some consumer-oriented products were not performing well and have been discontinued as part of a mix strategy. The company believes the business is in good shape overall. In the outdoor segment, the company has been struggling for eight consecutive quarters, but the CEO is confident that changes in leadership and strategy will help the business recover.

The company has made significant changes to its Outdoor business, including restaffing and redefining the brand strategy. They have expanded their focus beyond just camping, which has tripled their total addressable market. The new team is now in place and has a strong innovation pipeline, which will lead to better marketing campaigns and new products in the coming years. This gives the company confidence that the downward trend in Outdoor has bottomed out and they expect to see improvement in the third quarter.

The speaker discusses the current state of the consumer market, noting that low income consumers are struggling while higher income consumers are trading down. They believe that the cumulative impact of inflation has put pressure on consumers, causing them to prioritize essentials over discretionary products. However, they are optimistic for 2025 and believe that the COVID-related surge in demand will no longer be a factor. They also mention that certain categories, such as kitchen appliances, may benefit from the current consumer climate.

The speaker follows up on a previous comment about the potential return of consumers to certain categories in 2025. They ask if there are signs of this happening or if it is just expected based on purchase cycles. They also inquire about the sequential improvement in core sales, wondering if it is impacted by international pricing. The speaker, Chris Peterson, responds by mentioning the success of a high-priced innovation in Latin America, which sold out within two months, giving them confidence in the potential return of consumers to the category.

The Sharpie creative markers that were launched have been successful in gaining market share in the paint market. This success has given the company confidence in their ability to drive growth in other categories through innovative products and effective marketing. The impact of foreign exchange and international pricing on core sales growth is not significant. The company plans to increase advertising and marketing spending to further drive demand and support their business, which is showing signs of strength in various areas.

The company's international growth has been modest, but they are confident that it will increase in the third quarter. They are also expecting growth in at least three of their six business segments. The company is focusing on consumer orientation, market appeal, innovation, and pricing and promotion to help drive growth. They also mention Argentina and upper inflationary pricing as potential contributors to growth in the second half of the year. In the U.S., they have not seen a significant increase in promotional activity or private label sales in their categories.

The speaker discusses the company's pricing and volume strategy, noting that a price increase in the first half of the year will lead to a lower pricing benefit in the second half. They also address the impact of hyperinflation in Argentina, stating that it is a small portion of the company's sales and they are managing it well. The company is being selective about promotional activity in the U.S., with the exception of categories with excess inventory.

The speaker discusses the current state of promotional pressure and private label in the company's Outdoor & Rec segment. They mention that while some companies are still working through excess inventory with higher promotions, overall there has not been a significant change in U.S. promotional pressure. The speaker also mentions that private label remains consistent in their categories, with some businesses having higher or lower penetration. They note that the company's dependence on imports from China has decreased and they are monitoring competitors who are still heavily reliant on China sourcing.

The company is prepared to handle potential changes in the market due to China tariffs and is focused on maintaining a balanced approach. They have improved their competitive position and are not expecting a significant increase in category growth, but rather attribute their success to their integrated strategies and operating model. These strategies have led to better performance in areas such as innovation, new business development, and international markets.

The speaker believes that the company's recent changes are more specific to the company rather than the overall category. They are focused on improving the company's operations and have seen positive results, but still have more work to do. The company's production in China has decreased from 35-40% to less than 10%, with about half of that being in the Baby category. The company successfully lobbied for exemptions on Baby products from previous tariffs. The company's overall exposure to tariffs is now even smaller.

The paragraph is informing the reader that they are now allowed to disconnect, or end their current activity, and wishes them a great day.

This summary was generated with AI and may contain some inaccuracies.