The paragraph is an introduction to Newell Brands' Third Quarter 2024 Earnings Conference Call. The operator provides the structure of the call, indicating that management will give a brief discussion before opening the floor for questions. Joanne Freiberger, VP of Investor Relations, begins the call, introducing Chris Peterson, President and CEO, and Mark Erceg, CFO, who are also present. She informs listeners about the inclusion of forward-looking statements, the associated risks, and the presence of non-GAAP financial measures. Explanations and reconciliations for these are available in their earnings release and SEC filings. Finally, she turns the call over to Chris Peterson.

The paragraph introduces Joanne, the new Vice President of Investor Relations for Newell, and provides an overview of the company's strong third-quarter performance following the new corporate strategy implemented in June 2023. Key highlights include improved core sales, increased gross and operating margins despite higher A&P investments, and enhanced earnings per share. The company also improved its cash conversion cycle and reduced leverage on its balance sheet. Given these successes, Newell is raising its full-year outlook on several financial metrics. The strategy focuses on innovation, brand building, market excellence, and operational efficiencies, supported by a new operating model to enhance organizational effectiveness and culture.

The new strategy and operating model changes are yielding positive results, as evidenced by improving top line trends, margin expansion, and strong cash flow. Over five reported quarters, core sales growth has sequentially improved, particularly in the Learning & Development segment and international business. Year-to-date, normalized gross margins have risen by 500 basis points, and operating margins by over 200 basis points, despite increased A&P investments. Net debt has been reduced by over $560 million, and normalized EBITDA increased by 2%, lowering Newell's leverage ratio from 6.5x to 4.9x. Progress is being made in enhancing consumer understanding, innovation, and brand building. Learning & Development and Home & Commercial segments show positive core sales growth, with Outdoor & Recreation improving its rate of sales decline.

The paragraph discusses Newell's recent efforts to enhance its product lineup and brand performance through innovation. It highlights the improvement in business trends starting in the third quarter and the launch of new products. These include the Graco SmartSense Soothing Bassinet and Swing, Mr. Coffee Perfect Brew coffeemaker, and a new all-in-one cordless handheld and countertop vacuum sealer. These products offer advanced features and benefits, positioning Newell as a competitive innovator in the market, with the coffeemaker garnering certifications and the vacuum sealer boasting unique versatility for better food preservation.

The paragraph discusses the positive impact of recent investments in key brands, highlighting Contigo's collaboration with fitness expert Ally Love, who joins as the brand's Chief Hydration Officer to develop fashionable and reliable water bottles. It also mentions Coleman's new advertising campaign on Amazon Prime's Thursday Night Football as part of a strategy to target the broader outdoor market, resulting in a notable sales increase. The company's new business developments have expanded distribution, boosting top-line results, especially internationally. Despite a slight overall decline in the general merchandise market, there is a noticeable split in consumer behavior based on income levels.

The paragraph discusses the impact of income levels on consumer spending post-pandemic. Lower income households are focusing on basic needs due to inflation, while higher income households are increasing spending, particularly on premium products. The company has implemented a new strategy focusing on major brands and premium pricing, resulting in growth, improved margins, a stronger balance sheet, and enhanced cash flow. This progress has allowed the company to increase its financial outlook for 2024. The strategy, which started five quarters ago, is transforming the business, and there's confidence in continued positive performance and shareholder value. The paragraph concludes with a note of gratitude to employees and transitions to Mark Erceg's remarks on third quarter results.

The paragraph discusses the financial performance of a company in the third quarter of 2024, highlighting improvements in core sales, gross margin, and pricing strategies. Core sales declined by 1.7%, a significant improvement compared to 2023 and earlier in 2024, with international pricing, especially in Latin America, contributing positively despite a 3% currency impact. Gross margin increased by 470 basis points to 35.4%, supported by fuel productivity savings and new commercialization strategies focusing on MPP and HPP offerings. The company also adjusted its normalization approach for public disclosures, affecting past financial metrics and resulting in a revised 2023 gross margin of 28.9%, showing a nearly 500 basis point improvement to 33.9% in 2024.

In the third quarter of 2024, Newell achieved its highest normalized gross margin since 2020 at 35.4%, with a significant increase in its normalized operating margin to 9.5%, up 210 basis points from the previous year. This improvement resulted from strong productivity, positive pricing, and savings from organizational restructuring, partially offset by increased spending on A&P investments, targeted overhead investments, and higher incentive compensation due to strong financial results. Net interest expense rose by $6 million to $75 million, and a $34 million normalized tax provision was recorded. The company reported normalized diluted earnings per share of $0.16, but adjusting for normalization changes, it would have been $0.18. Newell generated $346 million in operating cash flow over the first nine months, driven by improved cash cycle efficiency. Their leverage ratio improved to 4.9x, showing a marked year-over-year improvement due to a $250 million net debt reduction and a 22% increase in trailing 12-month normalized EBITDA. The paragraph concludes by mentioning upcoming focus areas for the fourth quarter.

The article discusses the company's financial projections and progress in its corporate turnaround strategy. It predicts a decline in core sales by 2% to 5% and net sales by 4% to 7% for the fourth quarter, with foreign exchange impacting this difference. Despite these short-term declines, the company sees its long-term strategy as improving, with core sales gradually showing better results from the first half of 2023 through 2024. The fourth quarter of 2024 is expected to have a normalized operating margin of 7% to 7.7%, with increased SG&A expenses offset by improved gross margins. Interest expenses and a low tax rate are anticipated, with earnings per share ranging from $0.11 to $0.14. The full year's sales projections remain unchanged, but the operating margin outlook has been slightly raised.

Newell Brands has increased its normalized EPS guidance to $0.63-$0.66 and raised its operating cash flow forecast by $50 million to $500-$600 million. The company anticipates a high single to low double-digit tax rate for the year, expects $150 million in cash restructuring charges, and aims for a year-end leverage ratio slightly below 5x, maintaining its long-term goal of an investment-grade credit rating. Over five quarters since a new strategy deployment, Newell Brands has seen improvements in top-line results, margins, cash performance, and EBITDA growth, leading to reduced debt. With ongoing strategy execution, the company is optimistic about transforming into a world-class consumer products provider by 2025. The call is now open for questions.

In the paragraph, Olivia Tong from Raymond James asks about the performance of different divisions and the impact of pricing strategies on sales and gross margins, particularly as the company plans for the next year. Chris Peterson responds by explaining that different business units started with varying capabilities, which are now advancing at different rates due to the new strategy focused on consumer understanding, innovation, brand building, and market approaches. He highlights that their largest and most profitable division, Learning and Development, has shown consistent core sales growth. The Writing and Baby businesses are also performing well, gaining market share, especially with innovations like the SmartSense Soothing Bassinet and Swing. The company is optimistic about its strong capabilities and innovation pipeline for the upcoming year.

The Home and Commercial business is showing improvement, with core sales growth increasing by 200 basis points in the third quarter. The Commercial segment is performing well, while the Home Fragrance business, featuring Yankee Candle, has launched a new marketing campaign. Innovations in the kitchen segment include the launch of the Mr. Coffee Cold Brew product. The Outdoor & Recreation segment requires more time to turn around, with a strategic shift in the Coleman brand and a positive innovation pipeline planned for 2026. The company is focusing on productivity improvements and introducing gross margin accretive products rather than raising prices on current products.

The paragraph discusses a business strategy focusing more on product mix benefits rather than pricing. Chris Carey explains that the company evaluated its businesses and either adjusted pricing or exited those that were structurally unsound. They have developed a strong cost analysis capability to better understand SKU economic data and improved their pricing logic to access additional pricing without it appearing as a direct price increase to consumers. He notes that while gross margin improvement was largely due to productivity efforts, managing price/mix favorability will become more important. The paragraph ends with Lauren Lieberman from Barclays asking about the wide guidance range for the fourth quarter, specifically if there's any concern regarding retailer inventory destocking or consumer behavior across different income levels.

The paragraph discusses the guidance for the fourth quarter, noting that while consumer spending is expected to increase during the holiday season, it will likely be focused on food and essential items rather than general merchandise. The company's planning assumes a slightly declining market. The sales range takes into account retailer shipping practices rather than inventory issues, with retailer inventories deemed healthy. The timing of retailers taking inventory does not align with the company's quarters. The company observes sequential progress in the second half of the year and plans to provide guidance for the next year's core sales growth during the February call.

The paragraph discusses the company's optimism about its capability investments and innovation pipeline for the coming year, expecting improved core sales growth and market conditions. The general merchandise market is anticipated to move from being down in low single digits to potentially flat next year. However, the market remains volatile, notably affected by an upcoming election with differing economic policies. The company is closely monitoring the situation and is confident in its front-end capability progress and plans to enhance core sales next year. During a Q&A session, Bill Chappell inquires about category-specific growth prospects, citing areas like kitchen electrics, fragrance, baby products, and camping. Chris Peterson is asked to provide more details and examples to support the company's positive outlook despite seasonal business variations.

The paragraph discusses the differing market dynamics across various product categories, highlighting the impact of COVID-19 on purchase cycles, especially for kitchen appliances which experienced a surge in 2021. Demand is normalizing as consumers who bought during the pandemic may soon re-enter the market, with projections indicating a return to core sales growth in these categories by next year. In other categories, such as Baby products and Writing instruments, the focus is on innovation and product development rather than the pull-forward effect. The company is optimistic about gaining market share with new innovative products like the Graco SmartSense Soothing Bassinet and Swing at competitive pricing, and premium offerings like creative markers and the copper S-Gel pen driving market growth.

The paragraph discusses the company's positive performance with Paper Mate InkJoy Gel Bright pens and an upcoming Yankee Candle relaunch aimed at driving growth. The speaker expresses confidence in influencing category growth through innovation in mid and premium segments despite market volatility. They mention having a longer commercial plan for next year. Andrea Teixeira from JPMorgan then asks about long-term investment in innovation, noting the company's lower investment compared to peers, and inquires about the percentage of sales reinvested in advertising and promotion. She also asks about short-term distribution plans, particularly for the holiday season.

In the paragraph, Chris Peterson discusses the company's distribution strategy and its impact on future performance, particularly in 2025. The company has reduced its number of brands from 80 to around 50 by exiting unprofitable and smaller brands, which initially served as a headwind in 2024. However, Peterson anticipates distribution will become a positive driver for sales next year, aligning with the company’s new strategy. On the topic of innovation and margins, Peterson mentions increasing A&P spending from 4% to nearly 5% this year to support new innovations, aiming for a long-term target of 6% to 7%, guided by ROI considerations.

The paragraph discusses the company's strategy of aligning spending with innovation timelines while focusing on improving gross margins and reducing overhead costs. Despite increasing advertising and promotion (A&P) expenses, the company has achieved a significant increase in operating margins due to gross margin improvements. Over time, the company plans to continue enhancing operating margins by reinvesting in A&P and capturing gains from gross and overhead efficiencies. Andrea Teixeira asks about the impact of distribution losses, and Chris Peterson responds that while challenging to quantify, they account for a few points. Despite these losses, the company has achieved a notable 22% growth in trailing 12-month EBITDA, driven by supply chain productivity and centralization efforts.

The paragraph discusses the company's efforts to improve structural profitability by exiting unprofitable businesses and enhancing its portfolio over the past five quarters. Andrea Teixeira and Chris Peterson mention the significant reduction in the number of SKUs from over 100,000 in 2019 to about 20,000, which has tripled revenue per SKU. They express satisfaction with their current SKU count and future opportunities. Chris Carey from Wells Fargo Securities inquires about the normalization of demand following COVID, noting a potential consumer return for replenishment and whether the company is nearing the end of this cycle normalization, aligning with their expectation of flat general merchandise category growth for the next year.

The paragraph discusses the company's efforts to adapt to changing market conditions and anticipate potential impacts of elections on business policies. Chris Peterson highlights that demand normalization post-COVID is leading to an improved market environment, with expectations for better category growth and increased market share next year. The focus has been on managing tariff risks through supply chain diversification, reducing dependence on Chinese manufacturing from over 30% to below 15%, with plans to lower it further. The company also maintains a strong U.S. manufacturing presence with several plants across different states.

The company anticipates potential benefits from the implementation of tariffs in certain categories, although the Baby business remains a risk due to its previous exemption from tariffs. Despite uneven revenue growth, the company is optimistic about sustaining profit improvements through expected revenue increases driven by category growth and investment in front-end capabilities. Additionally, a strong pipeline of productivity savings projects across the supply chain and back-office functions is expected to contribute to continued margin improvements.

The article paragraph discusses the company's confidence in achieving continued EBITDA growth, although not necessarily at the same 22% rate seen previously. The company plans to improve the cash conversion cycle and reduce leverage, having already lowered the net debt-to-EBITDA ratio from 6.5x to 4.9x. Mark Erceg highlights the advantages of the company's scale distribution and supply chain, which will be beneficial when there is an increase in volume. In response to a question from Brian McNamara, Chris Peterson affirms the company's commitment to sustainable and profitable top-line growth, despite current uncertainties in the general merchandise environment and the absence of guidance for 2025.

The paragraph discusses the strategic initiatives implemented by a company to drive growth and improve market share. These include building a consumer insights function, redesigning the innovation pipeline, and focusing on the top 25 brands. The company has seen sequential improvement in top-line growth, reducing declines from double digits last year to 1.7% in the current quarter. This has also led to market share gains in more top brands compared to a year ago. The company is optimistic about achieving top-line growth by 2025, although precise guidance is not yet offered due to macroeconomic uncertainties. Additionally, a competitor that recently went public and competes in some categories is noted, but it is unclear if they are viewed as beneficial to the market or a challenge, particularly in the kitchen appliances sector.

The paragraph features a discussion between Chris Peterson and Filippo Falorni regarding a company's strategic approach and anticipated profitability. Peterson describes how the company's focus on innovation, consumer insights, and strong branding in specific categories, especially in kitchen appliances, is showing positive results. Although incremental shelf space isn't increasing, Peterson views this as a positive indication that their strategy is working. The conversation with Falorni shifts to profitability and organizational realignment, with an emphasis on expected savings and potential profitability under the company's control. Falorni is seeking insights into further savings and profitability for the coming year.

The company's largest savings initiative is a fuel productivity program in the supply chain, expected to reduce the cost of goods sold by over 6%, despite being partially offset by inflation. This program is a key driver of gross margin improvement and will continue next year. Additionally, the company is centralizing back-office functions and implementing artificial intelligence in customer service to improve productivity and service quality. There are further opportunities to enhance overhead efficiency. Mark Erceg mentions optimizing structural economics of innovation programs and improving capacity utilization, currently at 40%, to drive economic benefits.

The paragraph discusses the implementation of automation programs in a business to reduce costs, emphasizing the benefits of automation in production. A new system for managing trade funds is being launched in January, aimed at improving performance-based collaboration with retail partners and enhancing promotion analysis. This system is expected to unlock significant potential, as there's over $1 billion in opportunities in the U.S. that have been underutilized due to a lack of proper diagnostic tools. The speaker expresses excitement about the cost-saving possibilities and concludes the call, inviting further discussions and mentioning that a replay will be available on the company's website.

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