Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Newell Brands Inc (NWL, Financial) reported strong third-quarter results, with performance at the high end or ahead of plan across most key metrics.
- The company achieved a fifth consecutive quarter of gross margin improvement, driven by outstanding productivity results that offset inflation.
- Normalized operating margin exceeded expectations despite planned higher advertising and promotion (A&P) investments.
- Newell Brands Inc (NWL) significantly reduced its cash conversion cycle and deleveraged its balance sheet to under 5 times.
- The company raised its full-year outlook for normalized operating margin improvement, normalized earnings per share, and operating cash flow.
Negative Points
- Core sales for the third quarter were down 1.7%, indicating ongoing challenges in achieving positive sales growth.
- The outdoor and recreation segment continued to face difficulties, with a year-over-year decline in core sales growth.
- The general merchandise market remains down low single digits, impacting Newell Brands Inc (NWL)'s sales performance.
- Lower income households are prioritizing spending on basic needs, affecting demand for Newell Brands Inc (NWL)'s products.
- The company faces uncertainty in market dynamics and consumer behavior, which could impact future sales growth.
Q & A Highlights
Q: Can you provide an overview of the performance across different divisions and discuss the impact of price mix on sales and gross margin?
A: Christopher Peterson, President and CEO, explained that the learning and development segment showed positive core sales growth, driven by the baby business and writing products. The home and commercial segment improved its core sales growth by 200 basis points, while the outdoor and recreation segment is expected to take longer to turn around. Regarding price mix, the company is focusing on launching gross margin accretive products rather than increasing prices on base products.
Q: The guidance range for the fourth quarter seems wide. Are there concerns about retailer inventory or consumer spending trends?
A: Peterson noted that the guidance range reflects the timing of retailer shipping windows rather than inventory destocking. The company anticipates a holiday season where consumers may spend more on essentials rather than general merchandise. They expect continued sequential progress in the second half of the year.
Q: Can you discuss the outlook for categories like kitchen electrics, fragrance, and baby products? Are these categories expected to return to growth?
A: Peterson highlighted that categories like kitchen electrics are expected to return to growth as the pull-forward demand from COVID normalizes. The baby and writing segments are supported by strong innovation pipelines, such as the Graco SmartSense and new Sharpie products. The home fragrance segment is launching a Yankee Candle relaunch, which is expected to drive growth.
Q: How is Newell Brands planning to increase investment in innovation and advertising?
A: Peterson stated that the company plans to increase A&P spending from about 4% to potentially 6-7% over time, aligning with innovation launches. They aim to drive operating margins higher through gross margin improvements and overhead reductions, while reinvesting in advertising and promotion.
Q: What gives you confidence in achieving sustainable growth, and how do you view competition from new market entrants?
A: Peterson expressed confidence in the company's strategy, which focuses on consumer insights, innovation, and brand building. He views competition as a positive indicator of the potential for growth in their categories. The company is making progress in market share trends and expects to achieve sustainable growth by leveraging their strengthened capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
