The paragraph is an introduction to the Newell Brands First Quarter 2025 Earnings Conference Call. The operator provides initial instructions, including that the call is in listen-only mode initially and is being recorded, with a live webcast available online. Joanne Freiberger, SVP of Investor Relations and Chief Communications Officer, introduces the call, mentioning the inclusion of forward-looking statements and non-GAAP financial measures and directing listeners to refer to SEC filings for more information. She introduces Chris Peterson, the President and CEO, and Mark Erceg, the CFO, who will discuss the earnings results. Chris Peterson then starts his remarks on the company's first quarter earnings.

In the first quarter, Newell Brands performed well, with core sales and key financial metrics either meeting or exceeding expectations. There was significant improvement in core sales and margins, and normalized earnings per share surpassed guidance. The company's strategy, focused on innovation and new consumer-driven products, appears to be effective. Despite challenges such as tariffs and a dynamic operating environment, Newell remains focused on executing its strategy. They believe they are well-positioned to benefit from global trade realignment despite expected temporary disruptions.

The paragraph discusses Newell Brands' strategic decisions to mitigate the impact of higher tariffs on Chinese imports. They proactively reduced reliance on Chinese-sourced finished goods, decreasing from 35% of their total cost of goods sold in the past to 15% by 2024. The goal is to further reduce this to 10% by the end of 2025. Additionally, they maintain a strong domestic manufacturing base in the U.S., which accounted for over 60% of total sales in 2024 and has seen nearly $2 billion in investments since the 2017 Tax Cut and Jobs Act. Mexico is their second-largest import source, largely USMCA compliant, followed by various countries contributing minor portions. These efforts aim to make Newell Brands beneficiaries of tariff-related changes.

The paragraph discusses a company's strategic investment in automation and improvements in its manufacturing and distribution systems, allowing it to produce over half of its 2024 U.S. sales domestically and tariff-free. This positions the company advantageously over competitors relying on Chinese imports, particularly during a period of supply disruptions. The U.S. and Mexico facilities employ around 7,300 people and produce key brands like Rubbermaid, Sharpie, and Yankee Candle. With many competitors facing order cancellations from China, the company has the capacity to increase production and meet customer demands, aligning with its strategic 2025 plan amidst a volatile macroeconomic environment.

The paragraph outlines the company's strategic approach to financial guidance and tariff management. They maintain their net sales guidance but revise category growth expectations from flat to a decline of 1% to 2% due to weaker consumer confidence and economic forecasts. However, their market share forecast remains unchanged due to a strong product pipeline. Foreign exchange outlook improved slightly, and stronger performance is expected in the latter half of the year. Operating margin and EPS guidance remain steady, with expectations of mitigated inflation and favorable foreign exchange counterbalancing higher tariff costs. Tariffs are categorized into two buckets, managing tariffs from Mexico, Canada, China, global steel and aluminum tariffs, and retaliatory tariffs.

The company plans to offset the negative impact on earnings per share from the first set of tariffs through several proactive measures. These include revising commodity and input cost estimates, negotiating cost reductions with suppliers, scrutinizing discretionary spending, benefiting from favorable foreign exchange rate movements, and implementing targeted price increases in affected markets. They also highlighted a separate strategy for the significant and fluctuating impact of an additional 125% China tariff, which is not yet included in their official guidance.

The company plans to significantly reduce its reliance on goods from China due to a 125% tariff increase. They have paused Chinese purchase orders and will only work with suppliers outside China. The company is using existing inventory and exploring alternative sources to maintain gross margins without raising prices significantly, which would deter consumers. They've also encouraged SKU simplification, reducing their product range significantly, and are promoting their tariff-free North American manufacturing capabilities to key retailers amid anticipated supply constraints.

The paragraph discusses Newell Brands' recent successes in expanding their food storage and vacuum sealing bag sectors, highlighting ongoing efforts to broaden distribution and market share. It notes the significant challenges faced in the baby gear industry, largely due to heavy reliance on Chinese manufacturing and the expiration of previous tariff exemptions. The company is hopeful for renewed tariff relief to aid young families but is committed to managing its baby gear business regardless. Overall, Newell Brands is optimistic about numerous sales opportunities in categories exempt from tariffs and believes these efforts will lead to significant long-term growth, marking a transformation into a leading consumer products company. They express continued enthusiasm about their strategic progress and promise future updates.

The paragraph discusses Newell's first quarter 2025 performance, highlighting a 2.1% decline in core sales, which aligns with the higher end of their guidance. This outcome reflects successful new product innovations and some net pricing benefits. Despite a challenging environment with currency headwinds and category exits, the company achieved positive core sales growth in its Learning and Development and International segments for five consecutive quarters, indicating the effectiveness of their new strategy and operating model. Additionally, the company's normalized gross margin improved for the seventh consecutive quarter, driven by productivity savings and pricing that offset inflation and foreign exchange challenges. During the report, there was a brief technical disruption, but it was resolved, allowing the discussion to continue.

In the first quarter of 2025, Newell reported positive core sales growth for its Learning and Development segment and International business, despite facing currency headwinds and category exits. The company's gross margin improved by 150 basis points to 32.5%, marking seven consecutive quarters of year-over-year improvement, due to gross productivity savings and pricing offsetting inflation and foreign exchange challenges. The normalized operating margin of 4.5% exceeded expectations, driven by stronger-than-expected core sales and gross margin performance. Although Newell experienced a $213 million operating cash outflow, this is typical due to seasonal factors, contrasting with the previous year when a significant working capital contribution and cash bonus payout helped achieve a positive cash flow. The company recorded a net interest expense increase to $72 million and a normalized income tax provision of $2 million, resulting in a normalized diluted earnings per share loss of $0.01, which was better than anticipated.

The paragraph discusses Newell Brands' improvements in their cash conversion cycle and net leverage ratio, despite challenges such as advance inventory purchases to avoid tariff increases and higher cash bonus payouts. It highlights the company's efforts to mitigate tariff impacts through procurement and supply chain cost savings. The discussion also touches on the potential for gross margin expansion and the company's focus on continuous improvement through its "peak" program across its 42 global manufacturing plants. The "peak" program, a metaphor for mountain climbing, is structured in six phases, aiming for continuous improvement and cultural integration. Currently, 15 of their smaller plants have yet to begin this program.

The paragraph outlines the current status and future outlook of a company's plant and service center phases, highlighting no facilities have reached Phases 4-6 yet. It mentions ongoing progress in cost efficiencies, revealing room for improvement in gross and operating margins. The company has reduced supply chain staffing by 3,800 positions via automation, offering potential unit economic benefits. Despite challenges from tariffs, the company reaffirms its 2025 financial outlook, anticipating net sales to decline by 2-4%, with a 1% hit from category exits.

The paragraph provides an update on financial guidance for 2025. The normalized operating margin remains unchanged at 9% to 9.5%, showing an improvement from 2024, and the normalized diluted earnings per share is expected to increase by 18% at the midpoint. The effective tax rate is projected to be in the low to mid-teens, with anticipated higher interest expenses due to refinancing of April 2026 notes. The main change is in core sales expectations, revised to decline by 3% to 1% due to a pessimistic category growth outlook. Operating cash flow projections have been adjusted to $400 million to $500 million, influenced by higher inventory valuations due to tariffs. The leverage ratio target for year-end 2025 is about 4.5 times, improving towards the goal of becoming an investment-grade debt issuer. For the second quarter of 2025, both net and core sales are expected to decline by 5% to 3%.

In the paragraph, Newell Brands discusses its financial outlook and the impact of tariffs on its business. The company expects an operating margin of 10.4% to 10.8% and normalized diluted earnings per share (EPS) between $0.21 and $0.24. Despite a challenging macroeconomic environment, Newell is confident in its business transformation and investments in domestic and USMCA-compliant manufacturing capabilities, which are expected to benefit from increased tariffs. The company reaffirms its 2025 financial projections, considering various international tariffs. If a 125% China tariff persists, it could reduce 2025 normalized operating EPS by approximately $0.20, but Newell anticipates recovering half of this impact, potentially resulting in a net EPS reduction of up to $0.10. The paragraph ends with the operator opening the floor for a Q&A session.

In the paragraph, Andrea Teixeira is seeking clarification about retail destocking and a 125% tariff impact. Chris Peterson responds by explaining that their first-quarter core sales growth was slightly better than expected, but they have reduced their market growth assumption from flat to a decline of 1-2% due to cautiousness about consumer confidence and macroeconomic factors. Despite not witnessing a drop in consumption levels, they lowered the forecast to avoid overestimating inventory and cash flow. The tariff impact was not included in their guidance, and they are working on mitigation efforts, covering half of the $0.20 impact, as a precautionary measure.

The paragraph discusses the company's plan to mitigate the impact of tariffs on its operations, specifically those related to the Liberation Day tariffs announced after Q1. The company monitors its business over six-month periods rather than quarterly to account for variations in order flow due to promotional events. It believes it is on track to meet its first-half goals, even with the new tariff challenges. The company has already implemented measures to fully mitigate most tariffs, except for an additional 125% tariff on China, which is a concern primarily for its baby gear category. However, 20% of its baby business, particularly the NUK brand manufactured in Wisconsin, is not affected by tariffs and is even advantaged.

The company anticipates gaining market share in the baby care sector as their competitors face tariff costs on products sourced from China. They are actively negotiating with retailers to switch to their tariff-free, Wisconsin-sourced baby products. For their baby gear business, 20% sold internationally isn't affected by tariffs, but 60%, sourced from China and sold in the U.S., has undergone two 10% price increases due to tariffs. They've stockpiled several months’ worth of tariff-free inventory and paused new orders from China to avoid immediate tariff costs. Eventually, once this inventory depletes, they expect the industry to raise prices to offset tariffs. They are closely monitoring the situation and are ready to adapt if tariff policies change.

In the paragraph, Chris Peterson clarifies a strategy regarding manufacturing capacity in response to a question from Lauren Lieberman of Barclays. Some retailers have approached them to consider manufacturing private label products to replace those sourced from China due to tariffs. However, Chris Peterson explains that they are not set up to produce private label products. Instead, they are encouraging retailers to discontinue their private label products and switch to their branded products. Additionally, they are suggesting that retailers replace other brands sourced from Asia, which are subject to tariffs, with their products sourced from the U.S. or Mexico, citing their investment in automating their blender plant in Mexico.

The paragraph discusses the expansion and strategic positioning of a blender plant that has doubled its capacity and is currently operating at 50%. The plant, located in Latin America or Mexico, primarily supplies the Latin American market but has the potential to supply the U.S. market without being subject to tariffs, unlike products from China or Southeast Asia. This creates a competitive advantage for replacing other blender brands with Oster blenders in U.S. retailers. Additionally, despite not observing changes in consumer behavior yet, the company is adjusting its core sales guidance as a precaution against a potentially challenging market environment to avoid inventory surplus. There is a possibility that if consumers reduce dining out, they may purchase more home kitchen products, benefiting the company’s category.

The paragraph discusses the potential impact of China tariffs on a company's operations. The company acknowledges that they might be too conservative with their growth outlook to avoid overbuilding inventory and to meet cash flow forecasts. Steve Powers from Deutsche Bank inquires about the annualized impact of the tariffs if they persist, specifically asking if the impact would double annually or be mitigated by other factors. Mark Erceg responds, noting that the tariff effects would primarily impact the second half of the fiscal year, with a distribution of effects at roughly 40% in the third quarter and 60% in the fourth. He mentions that they have inventory on hand, which will help mitigate the impact.

The paragraph discusses the potential impact of an unmitigated $0.10 tariff on operating cash flow, estimated to be around $30 million, and how it fits into a broader $400 to $500 million range. It suggests that projecting these figures into 2026 is complex due to various factors, such as consumer dynamics, fuel prices, and possible tax cuts. The company is well-prepared, having invested in domestic manufacturing, which gives it an advantage in the U.S. and Mexican markets. However, benefits from this manufacturing advantage may be delayed, as they depend on retailers updating their offerings, a process expected to yield more significant benefits in 2026. The tariff impacts, especially on the baby gear industry in the U.S., pose immediate challenges.

The paragraph discusses how the company is experiencing competitive advantages, leading to a shift in business dynamics. Steve Powers and Chris Peterson are in dialogue about the company's market positioning and success in securing business. Chris mentions wins in their FoodSaver consumables and Rubbermaid food storage segments, primarily due to competitive products being sourced from China becoming economically unviable. The company has already realized some gains in these areas, and there are ongoing discussions in 19 total categories to further leverage their competitive advantage. The company has integrated these developments into their financial guidance and aims to benefit more significantly next year.

In the exchange, Bill Chappell from Truist Securities questions the company's guidance amid market growth uncertainties, particularly in terms of predicting volume and price changes across various categories. Mark Erceg responds by noting that the majority of the company's business is not significantly impacted by tariffs, with the China 125% tariff mainly affecting the baby gear category, which represents less than 10% of their total revenue. He explains that they have a plan to fully offset the tariff impacts and maintain good internal visibility on their strategy. Despite the challenging macroenvironment for forecasting, the company feels confident in managing and adjusting their plans accordingly.

The paragraph discusses Newell's approach to providing guidance based on available data, believing it's beneficial for the market to avoid confusion. They feel confident about their position, especially given their U.S. manufacturing base, which they see as advantageous compared to competitors relying entirely on Chinese sourcing. Newell highlights their strength in 19 product categories and the profitability of their U.S. and Mexican operations. They suggest that tariffs might ultimately benefit them in the medium to long term. Mark Erceg mentions improvements in internal management and trade fund systems, enabling better forecasts and emphasizing management’s responsibility to share insights with the company's shareholders.

The discussion revolves around the company's efforts to manage risk in their fiscal year plan, with a focus on forecasting in the competitive market. Bill Chappell questions the ability to predict actions like competitor liquidation sales that could impact pricing. Brian McNamara then raises concerns about the company's sensitivity to the Chinese market, particularly in the baby category, due to high tariffs and low exposure. Chris Peterson responds by explaining that 70% of their China import exposure is in baby gear, and they are working on a plan to reduce reliance on China. They also aim to mitigate at least half of the predicted financial impact from tariffs, noting that many competitors in the premium stroller market are similarly affected.

The paragraph discusses how Graco, positioned at the high end of the market, might benefit from rising prices due to tariffs on China-made goods. Mark Erceg mentions plans to offset costs associated with these tariffs, intending to use the remaining months of the year to continue making progress. Brian McNamara points out that the small kitchen appliance market heavily sources from China, which could lead to smaller competitors dropping out if high tariffs persist, thus favoring larger players like theirs. Chris Peterson confirms this and highlights that they are already seeing market share gains in specific product categories, such as vacuum sealing and food storage with the FoodSaver and Rubbermaid brands.

The paragraph primarily discusses the impact of Chinese tariffs and the company's strategy regarding them. Mark Erceg mentions a preference for the continuation of the Chinese tariffs over their removal, as their strong domestic manufacturing base positions them advantageously against competitors in the mid to long term. A question about pricing and expected sales in light of announced pricing strategies follows. Chris Peterson explains that they anticipate a 1-2% increase in pricing net of elasticity for the year. Filippo Falorni inquires about possible exemptions for the baby gear category, recalling a past exemption during the Trump administration. Chris Peterson is asked whether discussions are ongoing to secure similar exemptions currently.

The paragraph discusses Newell's efforts to lobby for exemptions on tariffs for baby gear products sourced from China, noting that similar exemptions were granted during the Trump administration. The situation is uncertain, but the company, along with the industry, is actively lobbying for these exemptions. Olivia Tong from Raymond James asks about market share outlook, potential new distribution in food storage, and pricing strategies beyond baby gear. Chris Peterson responds that they have implemented a 20% price increase, primarily on baby gear, and a smaller increase on other products sourced from China. He indicates that they do not plan to move production from China in the near future.

The paragraph discusses how baby gear plays a significant role in financial modeling due to pricing strategies. The company believes there isn't much excess capacity in the U.S. or Mexican markets in certain advantaged categories since competitors have shifted production to Asia. With recent Liberation Day tariffs impacting multiple categories, many retailers are reassessing their purchasing strategies. The company has initiated top-level conversations with its top 10 retail customers and plans to further discuss with merchants. Retailers have started pausing or canceling orders from China in these advantaged categories, which could cause supply disruptions and potentially benefit the company by allowing them to fill inventory gaps. However, these potential benefits have not yet been included in financial guidance.

The paragraph outlines that active discussions with top retailers are ongoing. Olivia Tong expresses gratitude, and Chris Peterson appreciates everyone's participation. The operator announces that the Q&A session has concluded, and the call replay will be accessible on the company's website later. Participants are thanked and allowed to disconnect.

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