Newell Brands Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 29, 2022

There are 8 speakers on the call.

Operator

Good morning, and welcome to Newell Brands First Quarter 20 22 Earnings Conference Call. 10. We will open the call for questions. 2019. As a reminder, today's conference is being recorded.

Operator

A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofia Sinas, Vice President of Investor Relations. Ms. Sinas, please go ahead.

Speaker 1

20. Thank you. Good morning, everyone. Welcome to Newell Brands First Quarter Earnings Call. On the call with me today are Ravi Telligram, our President and CEO 2 and Chris Peterson, our CFO and President, Business Operations.

Speaker 1

Before we begin, I'd like to inform you that during the course of today's call, 18. I refer you to the cautionary language and risk factors available in our earnings release, 2019. Our Form 10 ks, Forms 10 Q and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward looking statements. 20. Please also recognize that today's remarks will refer to certain non GAAP financial measures, including those we refer to as normalized measures.

Speaker 1

20. We believe these non GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. 20. Explanations of these non GAAP measures and available reconciliations between GAAP and non GAAP measures can be found in today's earnings release and tables 2019 as well as in other materials on Newell's Investor Relations website. Thank you.

Speaker 1

And now I'll turn the call over to Ravi.

Speaker 2

Thank you, Sofia. 22. Good morning, everyone, and welcome to the new Newell and our first quarter call. We're pleased with the strong start to 2022. 20.

Speaker 2

Building on the momentum from the prior quarters as our team remained laser focused on executing with excellence in a challenging environment. Course sales grew 6.9 percent against a difficult 20.9% comparison, While normalized operating income and normalized earnings per share increased 10.4% and 20%, respectively, despite significant ongoing inflation. 20. This demonstrates the power of our diversified portfolio and the nimbleness of our model. We're significantly better today at leveraging our brands to scale growth and efficiency.

Speaker 2

Our strategy is working 2nd quarter. And we have put a strong foundation in place for sustainable and profitable growth. Q1 marked 20 2nd consecutive quarter of core sales growth for Newell Brands. In Q1, our core sales growth was driven by pricing

Speaker 3

20 as volume was relatively flat.

Speaker 2

Core sales grew in 5 of 7 business units, including food, riding, 2.5. The Outdoor and Recreation and Food Businesses led the charge with double digit increase 20 2.5% versus the prior year period despite difficult comparisons. Home Fragrance and Home Appliances declined in the Q1 20. As they lapped a significant surge in demand in the year ago period due to the pandemic and the passage of stimulus in the U. S.

Speaker 2

20. Importantly, on both a 2 year and 3 year stacked basis, core sales increased in the double digit range 2,000 For all 7 business units, a fantastic achievement. As we shared last quarter, 20. Given the ongoing supply chain challenges that have beset the industry, retailers accelerated orders of seasonal products into the Q1,

Speaker 3

20, 2021, particularly in the Outdoor and Recreation

Speaker 2

and Writing businesses, which contributed to the strong top line results. 2. We are proud of the fact that we were able to fulfill these orders despite external obstacles showing the team's resilience and agility 2. As anticipated, we experienced normalization in category and consumption trends relative to last year, Which was turbocharged by the stimulus in the U. S.

Speaker 2

While domestic POS was below the elevated year ago base, 2019. It remained well ahead of 2019 2020 levels, showing that the behavioral shifts we've seen throughout the pandemic are enduring. 20. Our diverse all weather portfolio is well positioned to capitalize on the evolving consumer trends surrounding hybrid work, 20. Home is Hub as well as increased focus on well-being, outdoor activities and sustainability.

Speaker 2

We continue to sharpen brand positioning, Enhance our marketing and innovation muscle and improve our execution in the marketplace, substantially strengthening our iconic purpose driven brands. These actions have unlocked another quarter of strong growth for many of our largest brands such as Coleman, Braco Rubbermaid, Rubbermaid Commercial Product, Sharpie, Papermaid and Balvin. 14 of our top 20 brands grew in Q1 versus last 2. We're continuing to elevate the digital IQ of the organization and believe our early investments behind omni channel execution 2nd quarter. Driving stronger connections with our customers and consumers.

Speaker 2

In early April, we launched the new Creative Kitchen in Hoboken, New Jersey, Which is a new dream kitchen space and inspiration incubator that will serve up a steady stream of recipes and tips, connecting people with the latest kitchen innovations, 2nd. Together with our partner, we will produce cutting edge and inspiring content for all digital platforms, Showcasing our innovations, hosting live events with the studio audience and partnering with influencers and customers to engage with media. This is really exciting. This is a great way to showcase our new and differentiated innovations in food and appliances that satisfy consumers' unmet needs. 20.

Speaker 2

One such product is the recently launched Rubbermaid DuraLite Bakeware, an all in one bakeware solution for broiling, Baking, Freezing, Serving and Storage. Innovation is the lifeblood of every consumer products company and we have been hard at work reigniting this growth engine 20. From a geographic perspective, core sales in North America grew at nearly twice the rate of international markets 20. As EMEA softened against a difficult comparison and the impact on consumer sentiment from the unfortunate war 2 in Ukraine. Let me now shed some light on business unit results, starting with writing, where we saw continued momentum both on top line and market share 18.

Speaker 2

As the fundamentals remained in excellent shape, core sales grew for the 5th straight quarter, lapping a strong double digit increase in the year ago period, 2019. Driven by North America, Latin America and Asia Pacific. While the commercialoffice channel still remains below pre pandemic levels, We're winning there as well, and we're seeing year over year growth in this channel as people return to offices, albeit in a hybrid environment. Nineteen. Writing and Creative Expression, Glue and Fine Writing all grew in the quarter, helping to offset the decline in 2.

Speaker 2

Accelerated some of their back to school orders into Q1, which contributed to the strong results. We believe we are well positioned for the upcoming back to school season And we'll have strong merchandising plans in place to capture consumer demand. In Baby, the core sales increase was 2nd quarter. From a category perspective, both Baby Gear and Baby Care grew core sales 2, even as the business lapped a double digit comp that was aided by the stimulus in the U. S.

Speaker 2

This is particularly impressive given the pervasive Supply challenges that have been pressuring availability of products. Food delivered an excellent quarter. Core sales grew at a low double digit pace even as it lapped a very difficult double digit year ago comparison, 20. Reflecting strong growth across the Fresh Preserving, Cookware and Bakeware as well as Food Storage and Kitchen Organization categories. 18.

Speaker 2

March marked the largest global sales in over 5 years for fresh preserving, 2,000,000,000, a fantastic result fueled by strong consumption and innovation. This business goes from strength to strength,

Speaker 3

2nd quarter. And our teams

Speaker 2

continue to leverage favorable trends and new product launches to draw consumers into this category. 20. Even as mobility continues to improve and more people are returning to work in the office, Kitchen remains an integral part of consumers' lives. 20. In the context of a hybrid work environment and a highly inflationary backdrop, we believe that food 20.

Speaker 2

Consumption at home will remain ahead of pre pandemic levels with our leading brands well positioned to capitalize on these trends. Home Fragrance core sales and consumption declined against a record first quarter performance a year ago as pandemic driven demand 2. The category trends have slowed down as expected. Modest core growth in EMEA was not enough to offset declines in North America. 2.

Speaker 2

On a 2 3 year stack basis, core sales grew in the strong double digit range. Similar to home appliances, 20. We expect the category to continue to normalize through the balance of the year, but feel good about brand health 22 and New Product Pipeline, Both Within and Outside the Candle category. Core sales growth for home appliances 2. Higher core sales in Latin America were more than offset by declines in other regions.

Speaker 2

Both 2 3 year stacked 20. Core growth rates were in the strong double digit range. Given the challenging comparisons, we expect the slowdown in consumption 2nd quarter. To continue in this category as shopping behavior normalizes. The Outdoor and Recreation business continued its excellent momentum 2.9% 22% on top of 7% in the year ago period with Q1 marking the 5th consecutive quarter of growth.

Speaker 2

The strong performance was broad based 20 20. Our customers placed some of their orders for outdoor equipment earlier than usual 22. Due to the unpredictable supply chain environment and the seasonal nature of the category, strong top line and share momentum in the beverage business persisted in Q1 as our innovation and brand building efforts behind Contigo and Bubba continue to gain traction With the category further benefiting from increasing consumer mobility. Core sales growth for the commercial business Accelerated to 7.4 percent against its toughest comparison of the year led by North America and Latin America. 20.

Speaker 2

Strong momentum in the quarter was supported by pricing. We're also seeing improved product availability 2 and view our portfolio diversity across both commercial and retail verticals as an advantage. Commercial cleaning, material handling, Refuse and Recycling, Outdoor and Organization and Washroom were the major drivers of core sales growth, helping to offset softness 20. Dispersable Blouse, which are lapping a high base period due to COVID. We're encouraged by a strong order book 2 and believe that return to office bodes well for the commercial categories.

Speaker 2

The external environment has remained quite difficult in the Q1 2. As prevailing headwinds surrounding supply chain and inflation were further exacerbated by the unfortunate war in Ukraine. 18. Even as inflationary pressures have gotten more onerous than we previously anticipated due to the ongoing political situation and its impact 20. On costs, our resolve to restore gross margin and drive operating margins remain higher 20.

Speaker 2

Despite the significant impact from inflation, Newell's normalized operating margin 20. Improved about 50 basis points versus last year, ahead of our expectations, largely reflecting incremental pricing actions and Stronger Management of Overhead Costs. We are proceeding swiftly with mitigating actions, giving us confidence 20. To reiterate our outlook for the year, in spite of about $80,000,000 of incremental inflation, 20. We still expect 2022 to be a year of margins, even though inflation has continued to move against us.

Speaker 2

20. Our outlook calls for top and bottom line growth despite a challenging and uncertain macro backdrop. 20. For 2022, we remain focused on 5 key priorities. 1st, improving gross margins 22.

Speaker 2

As we continue to double down on our efforts to offset the significant inflationary pressures and supply chain challenges, While improving customer service levels. The strength of our brands has allowed us to take the appropriate pricing actions on all of our businesses, while ensuring they remain a good value for consumers. In addition, we'll continue to optimize commercial spend, price innovation to be gross margin accretive, direct A and P spend towards higher gross margin categories and drive productivity. 2nd, continue to drive core sales growth and innovations. Focus on mastering the 360 degree consumer and shopper journey and delight consumers and customers at each touch point and shoppers at each touch point with compelling storytelling 2nd focused on consumer value and brand uniqueness.

Speaker 2

We will capture consumer demand 22 by directing A and P to the brands with the highest margins and growth potential and target appropriate consumer segments 2nd, Turbocharge International to accelerate growth and profits 4th, continue investing in transforming our supply chain 2, Project Albit and Automation and last but not least, continue to strengthen the 1 Newell culture and build on our employee engagement momentum. 20. We remain committed to driving sustainable and profitable growth and building operational excellence 20. Throughout the organization while being a force for good, we recently announced a carbon neutrality goal by 2,040 2 emissions. We'll also continue to address existing macro headwinds 2 and forge ahead with our strategic initiatives such as Project Avent, automation and realizing the potential of international.

Speaker 2

20. Strong results in Q1 are building on our track record of following through with our commitments 22. And we are confident in our outlook for 2022. I am thankful to our employees for always rising to the occasion And helping us to successfully navigating through the ever changing operating environment. 20.

Speaker 2

I continue to believe that Newell's best days are ahead of us, and we have a significant opportunity to drive shareholder value. 2. And now I'll turn it over to Chris.

Speaker 4

Thank you, Robbie, and good morning, everyone. During the Q1, we built on the business momentum driving a better than anticipated outcome on both top and bottom lines

Speaker 3

2nd quarter. Through swift

Speaker 4

and decisive actions to mitigate the impact of inflation and supply chain challenges. Our actions over the past 20. 3 plus years to drive sales growth, reduce complexity and overhead costs, double down on productivity, improve working capital management and Build supply chain agility have put us in a much stronger position to effectively address today's challenges. 20. Before we get into the quarterly discussion, let me provide some perspective on the current operating environment.

Speaker 4

Inflation remains 20. Stubbornly high and our expectation for the full year has moved up slightly since February. The war in Ukraine took up energy prices, 2, which in turn resulted in higher than initially anticipated costs for resin and transportation. We now expect inflation to account for about 20.9 percent of cost of goods sold in 2022, similar to last year and about 1% above our previous forecast. 20.

Speaker 4

We continue to anticipate that ocean freight, source finished goods and wages will see the largest year over year increases. 2. We remain laser focused on offsetting the inflationary pressure and improving the company's gross margin by implementing the following actions: eighteen. Driving productivity on self manufactured operations, taking the necessary pricing actions across each business unit, reducing overhead costs, 2nd quarter. Optimizing the effectiveness of promotional spend and executing on the previously communicated product line exits from low margin categories, 20, 2019, primarily in Home Appliances and Outdoor and Recreation Businesses.

Speaker 4

We realize that the consumer is seeing higher prices across every facet of their lives, 2,000 and we will remain disciplined with our pricing actions, while continuing to carefully monitor elasticities. The contribution from pricing has continued to build sequentially with additional actions expected to be implemented in Q2. 20. For the full year, we still expect pricing and productivity to more than offset the impact of inflation. 20.

Speaker 4

The external supply chain dynamics have remained challenging as the industry continues to grapple with longer lead times for sourced products due to ongoing shipping delays, 20. China's 0 COVID policy also resulted in temporary lockdowns in Shenzhen and Shanghai regions, 18, which further exacerbated these issues. These challenges are not new nor are they unique to Newell Brands and our teams have continued to do 18. An incredible job navigating through this operating backdrop. To deal with this, we made a series of decisions that have significantly strengthened our supply chain performance.

Speaker 4

18. For example, we made a proactive decision to build inventory on top selling and high priority SKUs. We strengthened our labor force through enhanced 2,000. We accelerated automation efforts across our facilities. 2.

Speaker 4

And with Ovid, we are creating a scaled distribution and transportation platform to further drive operational excellence. 2,000 and we believe that we are well positioned to meet consumer demand in the majority of our businesses. Now let's turn to Q1 performance. 2019. Note these results include contribution from the Connected Home and Security business, which was divested on March 31.

Speaker 4

The only metric that excludes CH and S 18.4 percent to $2,400,000,000 as core sales growth 18. And higher net sales in the CH and S business were partially offset by unfavorable foreign exchange as well as category and retail store exits. Nineteen. Core sales growth grew 6.9% on top of a challenging 20.9% comparison from last year. 2.

Speaker 4

Core sales increased in 5 of 7 business units as we lacked difficult comps. On both a 2 3 year stacked basis, 18. Core sales increased in every business unit. Pricing was the primary driver of core sales growth as unit volume was relatively flat to a year ago. Core sales growth was ahead of our expectations due to timing of customer seasonal orders and improved supply chain performance.

Speaker 4

Normalized gross margin contracted 100 basis points versus last year to 31.2%, Reflecting over 700 basis points of pressure from inflation and the unfavorable impact from foreign exchange, 22, which offset the benefits from pricing and fuel productivity savings. The gross margin performance improved sequentially from Q4, 2019, largely due to a higher contribution from pricing. Normalized operating margin expanded 50 basis points year over year to 10.6% 20. As SG and A cost leverage particularly in overheads more than offset the impact of gross margin contraction. $20,000,000 net interest expense declined by $8,000,000 year over year to $59,000,000 as we reduced the company's gross debt $9,000,000 since March of 2021.

Speaker 4

The normalized tax rate was 18.4% 2,000,000 below last year's tax rate of 22.4%, largely due to a higher contribution from discrete tax benefits. 20. We reported normalized diluted earnings per share of $0.36 a 20% increase from $0.30 a year ago. 2. Upside relative to the outlook we provided was driven by higher sales growth, better cost control and a slightly lower than expected tax rate.

Speaker 4

20. Turning to segment results. Core sales for the Commercial Solutions segment grew 7.4% on top of a double digit comparison from a year ago. 20. Core sales for home appliances declined 1.9% as the business lapped 38.9% growth in the year ago quarter, 2nd quarter.

Speaker 4

Core sales for the Home Solutions segment grew 1.4% on top of a 33.8% 2019. Last year, as growth in the Food business unit more than offset a decline in Home Fragrance due to a difficult comparison. 2. Core sales for the Learning and Development segment increased 7.4% on top of 17.3% last year, 2, driven by growth in both the Writing and Baby businesses. Core sales for the Outdoor and Recreation segment grew 22.9% on top of 18% last year as retailers ordered inventory earlier this year to prepare for the springsummer season.

Speaker 4

$2,000 Moving on to cash flow and balance sheet. In Q1, operating cash flow was a use of $272,000,000 20. As compared to a use of $25,000,000 last year, driven by increased working capital to support sales growth, we continue to strategically build inventories 18.5% on top selling SKUs to mitigate the impact of supply chain obstacles and accommodate the shift in timing of customer orders. $1,000,000 cash conversion cycle moved up slightly mostly due to higher inventory. At the end of the quarter, we completed the divestiture of the CH and S business 18.5 percent to Resideo Technologies for a purchase price of $593,000,000 subject to customary working capital and transaction adjustments.

Speaker 4

20. We also used $275,000,000 of the company's $375,000,000 share repurchase authorization 2,000 shares from Carl Icahn and certain of his affiliates. We ended Q1 with a leverage ratio of 3.1 times, 20.6 times in the year ago period, reflecting both debt pay down and normalized EBITDA growth. 20. Before going through the outlook for Q2 and the full year 2022, let me provide some context for the forecast.

Speaker 4

22 is off to a strong start with the implementation of the pricing actions that we've announced driving both top line growth and better margin performance. 20. Thus far, volume elasticities have been below historical levels for most of the categories we compete in. 20. This is something we will continue to monitor and evaluate by category.

Speaker 4

Within the company's outlook, we continue to assume 20.5 percent. While consumption patterns vary by business and moderation continues in some categories, 20. Overall, they remain above pre pandemic levels. Q1 results as well as the outlook for the balance of the year do reflect a shift 18 customer order patterns as a result of the ongoing supply chain constraints. This is benefiting the first half of the year at the expense of the back half.

Speaker 4

20. Given the recent move in inputs, our inflation assumption for the year has gotten slightly worse as we now expect it to account for about 9% of cost 22. Going forward, we will continue to act with speed to address both inflationary and supply related dynamics. 20. We will maintain disciplined cost and cash management and continue to build operational excellence as we accelerate automation 22 and move into the implementation stage of Avid.

Speaker 4

Strong Q1 results give us confidence to reaffirm the full year 2022 outlook

Speaker 3

20 2.

Speaker 4

Despite macro uncertainties and external headwinds. For the full year 2022, we continue to expect $9,930,000,000 to $10,130,000,000 reflecting flat to 2% growth in core sales 18.5% headwind from the divestiture of the CH and S business, category exits, closure of some Yankee Candle retail stores 12,000,000 as well as unfavorable foreign exchange. This guidance contemplates normalized operating margin improvement of about 50 basis points to 80 basis points 18.5 percent to 11.8 percent. Pricing, productivity and mix optimization actions are expected to more than offset a nearly 600 basis point unfavorable impact from inflation as well as higher investment in advertising and promotion. 20.

Speaker 4

Normalized earnings per share outlook remains unchanged at $1.85 to $1.93 versus $1.82 in 2021 And currently reflects a mid teens normalized effective tax rate and a 2% decline in diluted shares outstanding. There is also no change in the operating cash flow forecast of $800,000,000 to $850,000,000 which includes the year over year headwind from the loss 20 2,500,000 profits on CH and S starting in Q2 and one time cash tax payment on this deal. 20. Although we have made strategic investments in inventory, our forecast does assume that the cash conversion cycle improves year over year. 20.

Speaker 4

We still anticipate about $350,000,000 in capital expenditures for the year with the increase versus 2021 reflecting one time capital 2,000 costs supporting infrastructure build for Project Oven. For Q2, we are forecasting net sales of $2,520,000,000 to $2,570,000,000 With low single digit core sales growth being offset by a greater than 8% headwind from the sale of the CH and S business, 20.6% foreign exchange category exits as well as closure of some Yankee Candle retail stores. Similar to Q1, 2,000. We are assuming some acceleration of customer orders from Q3 to Q2 as retailers look to secure inventory earlier in the season 20. And we have an Ovid implementation wave planned for early July.

Speaker 4

We expect normalized operating margin to contract 20 basis points to 50 basis points year over year to 11.7 percent to 12.1 percent, reflecting a meaningful step up in advertising and promotion spending during the quarter 2nd incremental inflation. We are forecasting a normalized effective tax rate in the low 20% range and approximately 2% $1,000,000 reduction in diluted shares outstanding with normalized earnings per share in the $0.45 to $0.48 range. 18. Newell Brands is a stronger and more agile company today due to the decisive actions we have taken to drive the turnaround 2 and position the company for sustainable and profitable growth. We will maintain strong financial and operational discipline as we navigate through this environment.

Operator

1. If you would like to signal with questions. And our first question will come from Bill Chappell with Truist Securities.

Speaker 2

18. Thanks. Good morning.

Speaker 4

Good morning, Bill. Hi, Bill.

Speaker 5

Hey, first question, I guess, 2.

Speaker 4

Just kind of talk about elasticity that you're seeing or if it's maybe too early kind of across the business units and kind of expectations for 2 that's built in for recession or no recession as we move to the back half. Thanks.

Speaker 2

Bill, I'll have Chris comment on elasticity, and then I'll 2. Talk about your second part of the question.

Speaker 4

Yes. So far what we're seeing on pricing elasticity 20. That it is better than what our historical models would suggest. In other words, we're not seeing 20. The typical volume impact from the pricing we've taken and I think that's really a function of the fact that The inflationary cost pressure is affecting all manufacturers.

Speaker 4

And so as we move prices higher in most of our categories, 20. Competition has also moved prices higher and so in many cases there's not a price gap that's been created That's leading to elasticity. We continue it's still early days on this. We continue to monitor the situation. 20.

Speaker 4

As we mentioned in the Q1, pricing was the primary contributor to the company's core sales growth of 6.9% 2nd quarter with volumes relatively flat. For the balance of the year, what's embedded in our outlook is that there will be some price elasticity. We 18. We continue to expect for the outlook for the year pricing to be a high single digit contributor to core sales growth And volume to be down mid single digits. So we have not changed that view in the outlook for the full year.

Speaker 4

2. That's consistent with what we said when we started the year.

Speaker 2

Bill, so the second part of your question and maybe I'll Expanded, which you may not have intended, but I presume you're really the question is about Recessary conditions, the health of the consumer and the impact, did I get that right?

Speaker 4

Yes, absolutely.

Speaker 2

Okay. So here is, I think, while consumption in the first quarter Was down versus last year. We have to recognize Q1 was very peculiar quarter 20. In the sense of you had that in 2021, you had that big stimulus in January, then the big stimulus in March. And some of the consumption growth when we look back and see was just gigantic.

Speaker 2

And Take I'll illustrate, let's say, Home Solutions. And I think on core sales, Home Solutions grew about 34%, if my memory serves me correctly, last year. And Home Fragrance, which is part of that, Really was the biggest contributor. It was far bigger than the 34%. So and consumption so if you think about that, 20.

Speaker 2

Consumption was even higher. And so to lap something like that is very extraordinary. So

Speaker 4

2. It is

Speaker 2

very tough right now to parse out what is price elasticity, what is stimulus. We think that stimulus has been the big, big aspect. 2. So going forward, there's no question that we'll have to be quite sensitive On some of the lower income consumers and the channels they shop and which is we're well positioned though because we have For most of our brands, we are very big on good, better, best. And in the last few years, we've Sharpen that very much to make sure that there's really good differentiation between good, better, best.

Speaker 2

And so I think that allows us 2. To cater to the different types of consumers. So I think that's the second part is a lot of our messaging 2. In advertising social media, we're very much now on a value based messaging And making sure even though we've taken price increases to the strength of our brands, trying to show that we are a great value. 2.

Speaker 2

And the other aspect is, I think the fact that we've launched a lot of innovations, those innovations are providing the uniqueness that 20. Hey, even though we've taken our price, I think consumers are looking for value rather than the absolute price point, And we think we remain a good value. So I and look, there are many categories where 2. Now we're actually seeing consumption increases riding in different parts of the world. We're seeing consumption increase and now and as the office channel opens up, we think that will continue to accelerate and we are gaining share.

Speaker 2

So just think about it, right? With our Sharpies, Paper Mate, we have fantastic gross margins. We're growing and growing share. 20. So I think we are fairly buoyant on that.

Speaker 2

Commercial, which last year was very tough for the commercial business because of inflation And with the offices pretty much closed, now it's coming back and boy that business is 1st quarter up 7%, it's growing back. I'm very positive about end users even though we've taken a lot of price increases. They are because the Rubbermaid Commercial brand is So strong and we have put so many innovations like Rubbermaid Brute with wheels, material handling, with new technologies. 2. So I think the power of innovation is helping that.

Speaker 2

The last comment I'd make is we have been striving for distribution improvements And new channels and I think that is helping us getting incremental distribution, so going after new consumers. And then the last comment would be, as we have we're really mastering the 3 what I call the 360 degree consumer journey and shopper journey, 20. As the world is becoming more omnichannel, how do you target them? How do you reach them in the moment of where they start thinking about The category to the moment of decision making. And I think all of this will help us in our journey.

Speaker 2

So On the whole, yes, there is some concerns about consumer demand out there, but I remain buoyant. And If anything, I just think on the top line of one other quarter, we're beating our own expectations, and I think this reached. So I feel pretty good about it.

Operator

And our next question will come

Speaker 3

Yielding benefits and it's an important part of your sort of next step towards higher margins. So Chris, are you seeing any challenges in terms of 2,000. Implementing Ovid or any of the things that you're trying to do. I'm just wondering if the supply chain is getting in the way or if there's any impact in terms of the timing of the savings you're going to generate from that program? Thanks.

Speaker 4

Yes. Thanks, Wendy. And 2. It's very topical and top of mind not just for me, but for many of our employees around across the company. We are very much in implementation phase.

Speaker 4

We remain largely on track with the original timeline that we've set. Recall that Ovid is a phased implementation and just to give you a sense of where we are in the program. 2. Last year we did the detailed design work. We've now completed the systems testing work and that has gone well.

Speaker 4

We have already executed the centralization of customer service. We've already executed the centralization of our distribution and transportation 20 20 20. We've now largely completed the implementation of a transportation outsource 2 provider, which is a key enabler. Those transitions have happened or we're currently executing 2. Where we're headed to, which I alluded to in the prepared remarks is, in early July, 2.

Speaker 4

We will turn on the first wave of the Newell distribution company and that will affect the food, the home appliance and the baby businesses, Which will move into the new Newell Distribution Company. And so that is a big milestone for us. We have made a tremendous progress with most of our retail partners. Recall that we had Different sets of payment terms by business unit. We've now negotiated with the majority of our retail partners to Basically, harmonize those and go to a single set of payment terms to Newell, which we'll be implementing as we move into July.

Speaker 4

We've got the 2 new distribution centers. The Newville distribution center in Pennsylvania is now open and fully operational, 2, which we are excited about, and the Gastonia, South Carolina will be opening this fall. 20. So, we are very much in the implementation phase. I think I said previously that 20.

Speaker 4

This year will remain an investment year for the company, as we're largely Doing the implementation work this year, when we get to next year in 2023 is when we expect the Ovid program to Turn into a cost savings benefit for the company. Wendy, I would like

Speaker 2

to add one thing. If we had done Ovid tried to do Ovid 5 years ago, I think it could have been a disaster. Even 3 years ago, it would have been difficult. Just imagine with our company where we've had 23 separate supply chains, Unifying them into 1. What we've created is a culture of 1 Newell, 2.

Speaker 2

And that is so important to the execution of this. We have had more than 500 people involved in this project. Chris has done a 2. Terrific job leading this initiative, but we've galvanized all the people because they believe in 1 Newell. We've been able to overcome the silos and to and the business units have given up control on the stuff to say, Hey, we think it's right for the company to have 1 distribution company.

Speaker 2

This whole concept of 1 order, 1 invoice, 1 truck is very powerful. So I think looking 10 years from now, people will look back and say this was one of the most extraordinary decisions Newell made.

Operator

20. And our next question will come from Andrea Teixehr with JPMorgan.

Speaker 6

Hi, good morning. I was just hoping you can update a little bit more on the Writing 18. And from that, 20. We've heard a lot of supply chain issues in many parts of the world in particular obviously as you know in China. So I know 20.

Speaker 6

You sourced some of the things from there, but you also sourced from Mexico. So if you can give us like a little bit of an update there. 20. And so that we understand embedded in your 2nd quarter guide, you have increased marketing investments that I understand You were just on that end not flowing through all the upside we saw in EPS for the Q1 into the full year. So we're just trying to 20 bridge, the EPS guidance with what you've done so far.

Speaker 6

Thank you so much.

Speaker 2

So I'll tackle the first one and then I'll Chris tackle the second. Andrea, so the writing business, look, had a banner year last year, 23% growth last year was just great. So but we've got We're off to a great start in Q1 and the brands remain very strong, Whether it's Sharpie, whether it's Paper Mate, there's a good set of innovations. We've also got innovations that are coming in Later part of the year. So and it's not just a U.

Speaker 2

S. Thing. We're doing well in Europe. We're doing well in Australia. We just saw share increases in different parts of the world.

Speaker 2

So I would just say that And even the activity side is beginning to have a little bounce. So I would say the writing business Very strong. And now with the office segment opening up, and I think that will be that will add because That was a decent size of our overall business. And so I think that will help As well, and we're winning already better than others. And just the thing about having powerful brands.

Speaker 2

So overall 20. And I think retailers deliberately because they want to make sure that they were ready for the season did that. I think 20. So far, we don't see any red flags on the season. If anything, we see positive views.

Speaker 2

20. And the only part of the business that we have some issues, which is Purely supply chain related is the Daimler brand because of chips. And if we had the chips, we would just do even Better, though, even there, we've been launching innovations. We've got a new innovation with a new type of chip that we've been able to source. So But that is the one that is holding us back a little bit, especially in Europe.

Speaker 2

But that's otherwise, It's in fine shape. So I'd say overall, very positive About the business as we look forward to the year.

Speaker 4

Yes. On the supply chain question, 20. What I would say is our supply chain remains the external environment remains challenging and you mentioned a couple of the challenges with China and their 0 COVID policies that has affected us with regard to lockdowns that they've implemented in Shenzhen and 20. We do source some products from those regions. But that being said, as I mentioned in the prepared remarks, I think the 2,000 decisions that we've made to build inventory on top selling SKUs, to solidify our labor force, 2.

Speaker 4

We now are moving more ocean freight than ever to the East Coast as opposed to the West Coast, which has diversified our ocean freight Shipping lanes. All of those things have us in a position where our supply chain is in better shape today than at any point since the pandemic started. 2. Our in stock rates at retailers have improved significantly. Our fill rates are improving.

Speaker 4

2. We still have issues as Ravi mentioned on things like Dymo where there's a chip shortage, so we're not out of the woods everywhere. But we are in a much better position today on the supply chain than we have been since the pandemic started. Sorry, quick one quick thing

Speaker 2

I forgot to mention, Andrea. On The actual writing business itself, we self manufacture in the states in Tennessee. And while yes, there are always some components that 20 2. That has been actually a good competitive advantage for us, and it remains 20. So that's encouraging as well.

Speaker 2

Sorry, Chris.

Speaker 4

On the question on the guidance, 2. What I would say is that certainly we're excited about the Q1 results coming in better than we expected. There was a portion of that that is related to customer order timing being earlier in the season 2 that we think is not necessarily incremental for the year. There is a portion of the Q1 results that was ahead of our expectation and that would be incremental for the year. 2.

Speaker 4

On the other hand, we've had incremental inflation that we've built into the outlook for the year of $80,000,000 as we mentioned. And so there's a number of moving parts. We think that the Q1 results give us confidence to maintain the outlook for the year despite the incremental inflation that we're going to incur, 20 2, which largely is coming in Q2, Q3 and Q4. So, we feel good about the outlook and that's 2. How I would describe sort of where we are from a guidance perspective.

Speaker 4

The other point I would note is Q1 is our seasonally smallest quarter. And so, although we started off better than we expected, we're just heading into the big seasonal periods 2. Over the next 3 to 6 months.

Speaker 6

That's super helpful. Thank you both. I'll pass it on.

Operator

18. And our next question will come from Peter Grom with UBS.

Speaker 5

Hey, good morning everyone and I hope you're doing well and congrats on the strong results. So I just wanted to ask about the core sales outlook. Maybe first, can you just 20. Help us understand what you're seeing from a category perspective in terms of POS. There's just a lot of uncertainty around the health of the consumer and what that means for durables 20.

Speaker 5

And I know, SCAR data hasn't been a great indicator of your performance over time, but it has slowed here in the U. S. So just 20. Any thoughts around what you're seeing across your core categories would be helpful. And then just maybe following up on that and kind of following up on Andreas question, 20.

Speaker 5

Maybe focusing more on the core sales outlook. And is there something you're seeing around demand that caused 2. Reiterate your core sales outlook. I know you mentioned the shift in customer ordering patterns, but you delivered 6% in the first quarter. You expect low single digit growth in Q2.

Speaker 5

So that would just imply a pretty meaningful slowdown in the back half 20. Much easier comparison to kind of get to the flat to 2% plus 2% range for the year. So just any thoughts there or maybe how we should think about the magnitude of those shifts in ordering patterns? Thanks. All right.

Speaker 5

18 of those shifts in ordering patterns. Thanks.

Speaker 2

All right. Let me give it a shot. So Peter, look, I think 20. Always have in context, last year we grew 12.5% core sales growth. Before that for 3 years this is a declining company and 5%, 6%.

Speaker 2

In those times people would have said 0 to 2, oh my God, that's great for Newell. So at least that's positive that everyone is now saying, why only 0 to 2? So I take that as a compliment. And look, if there's anything that's probably upside more upside than downside. Having said that, right now there's you're right, the first half, but we've had that acceleration, right, 2,000 that we've talked about.

Speaker 2

Then the big question mark is in the second half there will be a couple of uncertainties. 1, 20. Will there really be a recession? Who knows? 30% of the people seem to think so.

Speaker 2

So if that happens, what's the impact? The second thing is, We now have all the right supplies. We're beginning to get our in stocks up. People have now built up the inventories. If the pull through is not there, then how will replenishments go?

Speaker 2

That's a question mark. So we don't know. And we think the strength of our brands will all pull through and we're optimistic. But we think we're this guidance we're giving is prudent, Especially because of not just the Q1, but also Q2, remember because of Avid, we said there will be a little bit more and also just the seasonal side. 2.

Speaker 2

So I think that really is how we are thinking about sort of first half, second half. The second question on consumer demand, It really varies. So and the number one thing I'd say is the biggest piece of encouragement is 19. Against pre pandemic, that is 2019, we are double digits, well above in our All our businesses. I think that is a very good place to be.

Speaker 2

And that says, hey, this is not just a pandemic effect 2nd, and that Newell Brands are really stronger. And so I think that is cause for some optimism. 2nd, 20. There are certainly some businesses, home appliances. After so many years of decline, we had 20.

Speaker 2

Remarkable growth in the second half of twenty twenty. In 2021 was double digits. So you've got to say, Hey, probably on some categories, whether it's toasters or coffee makers, was there some Consumer acceleration potentially because people can only buy so many toasters and coffee makers. So but we're innovating to do new things Like iced coffee, but we didn't stop at that. We've got frappe, we've got espresso, etcetera, to continue that cycle.

Speaker 2

Home Fragrance, as I mentioned earlier, when you have gigantic consumption from last year that you got comp, that's all tough. But we still think the brand is very strong. And look, it's not just about while there's more mobility, mental health is a big issue in this country and people want To burn candles and we're now into the diffuser category and we've got a lot of innovations there. Our Yankee Candle, the whole Radiant line On diffusers for well-being, so we've got a whole well-being collection. So we think innovation is the key to all of this.

Speaker 2

And then the way we market, very smart marketing and social media is hopefully going to get us to the right type of 2. Which will lead to better conversion. So I think consumer demand right now is 22. A bit of a question mark, but for many of our categories. Look, food, no question,

Speaker 3

if there is going to be

Speaker 2

a recession, we'll actually continue to benefit Because as it is with hybrid, there's more meat occasions at home than there were pre pandemic. 2nd,

Speaker 3

If there is recessions, people are going to

Speaker 2

go to restaurants less, that means more occasions at home. What does that mean? People want to waste less. They're for FoodSaver. They're for Ball.

Speaker 2

Yes, for Rubbermaid, they're all going to do well and they did well in Q1. So that's another category where the consumer is going to be buoyed. Commercial, I already said the end user is very strong. So all in all, I don't know that I would I feel pretty good. I think The guidance for this time for what we have, I think, is prudent.

Speaker 2

So I'll leave it at that.

Operator

20. Thank you. And our next question will come from Kevin Grundy with Jefferies.

Speaker 7

20. Great. Thanks. Good morning, everyone. Congrats on the strong results and the tremendous progress that you guys have made with the organization.

Speaker 7

It's been remarkable, so congrats on that. A couple of questions for me. Chris, just on the guidance, which I think Collectively people kind of view as conservative, which is understandable given the environment. But you did say commodities move higher, so that's probably about $0.15 What implicitly I guess Better because you guys are kind of seemingly sitting tight with everything else. So maybe just comment on that.

Speaker 7

And then, Chris, just with respect to buyback, 18. Sort of setting aside the unique buyback with your largest shareholder around the proceeds, maybe just outline again a little bit on timing. It just seems like there's a strong argument to be made that you guys could be moving sooner than later. Very positive on the business. The results are good.

Speaker 7

20. The balance sheet and free cash flow are much, much better. The margin opportunity is enormous, particularly in a more stable sort of cost environment. Paul, do you kind of pull that together for stock trading in 10 times EBITDA? Like why the decision not to lean in now when the stock could be materially higher if you deliver on what you think you can 2.

Speaker 7

So your comments there would be helpful. Thank you.

Speaker 4

Very good. So let me start with inflation. So you're right, the $1,000,000 incremental $80,000,000 of inflation that we've now baked into the outlook. Basically, we've been offsetting that through 3 things Or plan to offset that through 3 things. There's some selective incremental pricing that we plan to put in the market this year We also think that we have an opportunity to optimize particularly promotional spend, Which is another big lever that we're seeing an opportunity to partially offset.

Speaker 4

And then the 3rd piece is we are doubling down on opportunity to drive more overhead cost savings. 20. And so those three elements, we see upside in that basically we're using to offset the incremental inflation, which is allowing us 20.5% to sort of hold the outlook for the year, and that's what's baked into the plan. On the buyback question, 20. We authorized as part of the CH and S divestiture $375,000,000 We as I mentioned, we bought back 2 $75,000,000 in Q1.

Speaker 4

We did execute a 10b5 program that Executed in the month of April, then we bought back $50,000,000 additional in the month of April. And so we've got $50,000,000 remaining That we will look to do prior to the end of the year. As you know, our cash flow Is stronger toward the end of the calendar year based on the seasonality of our business. So we do expect To generate good cash flow, we do expect to complete the incremental share repurchase program this year 2. And then we'll look to incremental opportunities as we get closer to the end of the year.

Operator

20. A replay of today's call will be available later today on our website, ir. Newellbrands.com. This concludes our conference. Thank you for your participation.

Operator

You may now disconnect.

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Earnings Conference Call
Newell Brands Q1 2022
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