Newell Brands Inc. (NASDAQ:NWL) Q2 2025 Earnings Call Transcript

Newell Brands Inc. (NASDAQ:NWL) Q2 2025 Earnings Call Transcript August 1, 2025

Newell Brands Inc. reports earnings inline with expectations. Reported EPS is $0.24 EPS, expectations were $0.24.

Operator: Good morning, and welcome to Newell Brands Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded. A live webcast of the call is available at ir.newellbrands.com. I will now turn the call over to Joanne Freiberger, SVP of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin.

Joanne Freiberger: Thank you. Good morning, everyone, and welcome to Newell Brands Second Quarter 2025 Earnings Call. On the call with me today are Chris Peterson, our President and CEO; and Mark Erceg, our CFO. Before we begin, I’d like to inform you that during today’s call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially and we take — undertake no obligation to update forward-looking statements. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward-looking statements.

Please also recognize that today’s remarks will refer to certain non-GAAP financial measures, including those referred to as normalized measures. 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. Explanations of these non-GAAP measures are available and reconciliations between GAAP and Non-GAAP measures can be found in today’s earnings release and tables that were furnished to the SEC. Thank you. And with that, I’ll turn the call over to Chris.

Christopher H. Peterson: Thank you, Joanne. Good morning, everyone, and welcome to our second quarter earnings call. Newell Brands demonstrated tremendous agility during the second quarter, definitely managing the short- and long-term needs of the business as all constituents across the consumer products value chain were being challenged by a very dynamic global macroeconomic environment. Strict adherence to the key tenets of our strategy, coupled with another quarter of strong operational discipline drove Q2 results in line with expectations across all financial metrics. With normalized operating margin and normalized earnings per share results, both being particularly noteworthy. Normalized operating margin increased 10 basis points versus a year ago, to 10.7% with all 3 business segments being positive for the first time since Q3 of 2022.

The increase in normalized operating margin was driven by normalized gross margin, which increased by 80 basis points to the highest rate in 4 years at 35.6%. This was the 8th consecutive quarter of meaningful year-over-year expansion in gross margin as we continue to focus on dramatically improving the structural economics of the business. Normalized earnings per share came in at $0.24, which was at the top end of our guidance range despite incurring a higher-than- expected tax rate in the quarter. Relative to the top line, second quarter core sales was minus 4.4%, which was within our guidance range, but frankly, slightly below our operating plan. You may recall that since our new corporate strategy was deployed in June of 2023, core sales trends have dramatically improved each 6-month period going from down 14.7% in the first half of 2023 to down 2.3% in the second half of 2024.

With second quarter results now posted, first half core sales for ’25 came in at minus 3.4%, which is an improvement versus a year ago, but does interrupt the steady sequential progress that had been delivered during each 6-month period up until now. Having said that, it’s important to note that this was largely driven by category softness related to consumer pullback and retailer actions. We estimate market growth was down low single digits in the first half of 2025. This means Newell largely held market share during the first half of the year. From our standpoint, this is a notable improvement as prior to the implementation of the new strategy and the capability improvement projects, Newell had been consistently losing market share. Looking forward, we expect market growth to remain subdued as certain consumer cohorts remain under pressure.

In this context, we are focused on continuing to improve our front-end capabilities and over the course of the past several months, we have further strengthened our back half distribution, innovation and marketing plans. While we are excited about what we have achieved in all 3 areas, distribution gains is the area where we’ll spend the most time today because we continue to believe Newell Brands is well positioned to disproportionately benefit from the global tariff-driven trade realignment currently underway. Recall that more than half of our U.S. sales are manufactured through an extensive and highly automated North American supply base consisting of 15 U.S. manufacturing plants and 2 Mexico-based USMCA compliant facilities, none of which are subject to tariffs.

And because we have invested nearly $2 billion across our North American production system, since 2017, we have significant untapped capacity, which we can quickly access to help strategic customers keep their store shops full of high-quality American-made products that represent good value for their shoppers. In June, we shared notable tariff-related business wins that have been secured in food storage, vacuum sealing bags, markers and home fragrance. Since then, considerable progress has been made. We have now secured incremental business in 13 of the 19 categories where we have domestic manufacturing capability. In addition, we have identified 10 other categories where we have a relative sourcing advantage versus competition based on country of origin and/or where we have existing tariff free inventory available for incremental promotions.

Collectively, we have successfully secured tariff-relative sourcing advantage or tariff-free inventory wins with over 30 customers across nearly every domestic channel where we go to market. Some of these business wins are large and some are small. Some of them are onetime in nature, whereas others have the potential to be much, much longer in duration. Some of them will present themselves in 2025 and others will not come online until 2026. However, in all cases, we are leveraging the scale, efficiency and capabilities are where to play and how to win choices are creating to accelerate our business and grow profitably. Turning to innovation. We remain confident that Newell’s new strategy is working. As we shared earlier this year, our multiyear innovation funnel has now largely been rebuilt with exciting consumer-led proprietary products which will begin launching in a more sustained manner, starting with the second half of this year.

In fact, our most recent and largest Tier 1 innovation launch for 2025 was just announced last week. And a pivotal evolution for the brand, Yankee Candle has officially launched a comprehensive brand Refresh, an innovative — an initiative that reimagines the iconic fragrance experience with a premium product upgrade, modern design and a deepened emotional connection to consumers. Grounded in consumer insights, this fragrance first relaunch establishes a new benchmark for how Heritage Brands can evolve with purpose. To bring the Refresh brand to life, Yankee Candle partnered with Brittany Snow, Actress, Director and longtime fan. The Yankee Candle launch is supported by a full 360-degree marketing program and the products are being sold directly to consumers through company-operated stores, Yankee Candle’s branded website and third-party online and retail stores.

Finally, from a marketing standpoint, we plan to invest more money in absolute dollar terms and as a percentage of sales during the back half of 2025 than during any 6-month period since 2017. This money will be invested behind a strong set of innovative new product launches using holistic 360 Mark — 360-degree marketing campaigns with stronger return on investment expectations as our marketing capabilities have improved over the past 2 years. So for all of these reasons, we are confident that core sales during the back half of 2025 will improve sequentially versus the first half of the year. And that broadly speaking, Newell’s turnaround story is pacing well. The last thing I would like to comment on before turning the call over to Mark, who will walk you through the details, is how we have approached tariff impacts conceptually and at a high level in our updated guidance from both a top and bottom line standpoint.

Recall that last quarter, we spent considerable time describing and walking everyone through the numerous parts and pieces of the global tariff picture. As we stand here today, we have a much better understanding of the various rate impacts but short and near-term shopper behavior over the next 3 to 6 months remains uncertain. On the one hand, inflation has moderated, employment trends are favorable, real wages are up, and the recently enacted legislation out of Washington has several notable new tax provisions, which should put more dollars into the hands of lower income households while providing rate stability for moderate and high earners who typically look for more value-added MPP and HPP products. On the other hand, many consumers are still wrestling with the cumulative effect of several years of above-trend inflation and interest rates remain stubbornly high, which is depressing household formation, new housing starts and discretionary consumer purchases in general, but particularly for low-income consumers across general merchandise categories.

Thus, while we are optimistic about the mid- and longer-term trajectory of the U.S. and global economy, we remain a bit cautious in the short term. Therefore, we are updating our core sales guidance range for the year to reflect category growth expectations at the low end of our prior range. This is being offset by better foreign exchange, which, in turn, has us in the top half of our prior net sales guidance range. As it relates to our structural economics and the bottom line, we made the determination that we will price where necessary to protect the gross margin gains we have achieved as part of our turnaround strategy. Consistent with this, after identifying and executing additional productivity and overhead reduction actions, we initiated 3 separate rounds of targeted tariff-related price actions in the U.S., 2 of which we discussed last quarter and went into effect April 1 and May 1, respectively.

The first 2 rounds of pricing incorporated the initial 10:47 AIBA 20% China tariffs and the 25% tariff on aluminum and steel. The most recent price increase with a July 28 effective date included pricing where necessary to cover the additional 10% China and Rest of World where reciprocal tariffs exist. The combination of our cost reduction efforts and these pricing actions has put us in a position where we believe we will be able to fully offset all of the currently announced and either in effect or soon to be, in effect, tariff actions that are expected to be permanent in nature, which we believe is a tremendous accomplishment by the Newell team and represents the absorption and offsetting of about $0.16 per share. The only piece of tariff-related impacts, which is worth about $0.05 per share, we don’t plan to recover, is the onetime cost related to the incremental 125% share of China tariff that was only in effect for a limited period of time.

While we immediately suspended future orders once that rate was announced, we did incur that rate on in-transit goods that could not be delayed. Since those costs will not be ongoing, we believe it would be inappropriate and shortsighted for us to reduce planned A&P investment, eliminate or cut back organization capability enhancements being developed or priced to recover these nonrecurring transitory costs. As I turn the call over to Mark, who will provide additional details, let me state we expect sequential top line progress to resume going forward based on distribution gains, innovation launches and marketing programs. And we remain on track to expand normalized operating margins, grow normalized earnings per share on a tax equalized basis by double digits, grow normalized EBITDA by mid- to high single digits and improved Newell’s leverage ratio versus prior year during 2025.

To the extent additional tariff-related pricing actions are necessary, we will act accordingly, but we think pricing actions for 2025 are now largely behind us. In closing, I would like to thank our dedicated employees for their continued agility, resilience and grit demonstrated throughout this dynamic environment. Their continued commitment to operating with excellence makes it possible for Newell Brands to delight consumers around the world. Mark?

Mark J. Erceg: Thanks, Chris. Good morning, everyone. Second quarter 2025 core sales came in at minus 4.4% and while net sales contracted slightly more at 4.8% due to unfavorable foreign exchange and business exits. The international business, which accounts for nearly 40% of Newell’s total sales, delivered a 6th consecutive quarter of positive core sales growth in both the Writing business, which is our most profitable business and the Home Fragrance business grew core sales. Normalized gross margin expanded by 80 basis points to 35.6% during the second quarter, which was the highest it has been in 4 years and represents the 8th consecutive quarter of substantial year-over-year improvement. Gross productivity savings and pricing more than offset headwinds from inflation, lower unit volume, which negatively impacted factory absorption and a slight tariff headwind, which I will elaborate on momentarily.

During the second quarter, Newell’s normalized operating margins also expanded, increasing by 10 basis points to 10.7%, with A&P levels as a percentage of sales being comparable to last year. This, of course, implies that overheads increased as a percentage of sales despite being down in absolute dollars as we continue to build out the essential capabilities required to consistently grow profitably in our industry. The reason we want to call this out is because starting with the third quarter and continuing into the fourth quarter of 2025, we expect overheads as a percentage of sales to decline for the first time since our new strategy was put into effect, which we think is notable. Net interest expense of $82 million reflected an increase of $4 million versus a year ago and a normalized income tax provision of $24 million was recorded in Q2, resulting in an effective tax rate of 19.2% which was higher than the mid-teens rate we projected 3 months ago.

Despite having a higher effective tax rate, which negatively impacted the quarter by $0.02, we delivered normalized earnings per share of $0.24, which was at the high end of our guidance range. Operating cash flow was an outflow of $271 million versus a cash inflow of $64 million in the prior year. Recall that Newell’s business is seasonal with OCF typically running negative during the first half of the year before turning positive in the second. That said, we did proactively and selectively purchased some inventory ahead of anticipated tariff-driven cost increases which negatively impacted first half operating cash flow and more recently, we took additional steps to ensure that we are rightsizing our back half inventory levels. Our net leverage ratio for the quarter was 5.5x, which was slightly above Q2 of 2024, but we still expect a year-end leverage ratio of about 4.5x as we move over time towards investment-grade status.

Beyond posting solid financial results, there are 2 other substantive items that took place during the second quarter that we would like to quickly mention. First, we added financial flexibility in Q2 by fully redeeming the remaining $1.25 billion of April 2026 outstanding bonds. The bond offering was 4x oversubscribed, which we believe is indicative of broad investor support behind Newell Brands corporate strategy, which has enhanced top line performance, strengthened our balance sheet and fundamentally improved our structural economics. Second, Newell’s very capable IT team partnered with the business to successfully complete 2 additional ERP integrations during the second quarter. Home Fragrance was moved from Oracle to SAP, and 2 instances of Datasul, in Brazil were migrated over to a single instance.

With these 2 large moves now behind us, we are in a position to complete our ERP harmonization efforts by the fall of 2026, which would be a fabulous outcome given that immediately following the Jarden acquisition, Newell Brands had 42 different ERP systems. Turning to the outlook. We are updating full year 2025 financial projections to reflect a number of factors. First, what we believe to be short-term category softness due to temporary consumer pullback in discretionary categories as consumers and retailers remain focused on food and everyday essentials. Second, the positive progress we are making on tariff-related relative sourcing advantage or tariff-free inventory business wins. Third, foreign exchange rates. Finally, the timing and impact of all known tariff costs and are offsetting mitigating actions.

Starting with the top line. Chris indicated, we are assuming a low single-digit decline across our product categories in aggregate for the balance of the year. However, partially offsetting this negative impact is about $30 million of incremental back half sales related to the various business wins already secured from leveraging a strong domestic manufacturing position and a best-in-class sourcing and procurement team. Before the year is over, this number is expected to grow even more as we look to secure additional in-year wins and strive to make the wins we’ve already secured even larger. And while we’re discussing 2025 right now, it warrants mentioning that since it takes time for retailers to change their shelf sets and merchandising opportunities are typically planned and managed several months out.

We have secured even more wins in dollarized terms in 2026. Taking all this into account, 2025 net sales are expected to be in the top half and core sales in the lower half of the prior guidance range. This means both net sales and core sales are now expected to be between minus 3% and minus 2%. The outlook for normalized operating margin remains unchanged at 9% to 9.5%, which at the midpoint represents roughly a 110 basis point improvement from 2024 and is more than double our evergreen target of a 50 basis point improvement each year. Before moving on to earnings per share, let’s fully unpack our tariff situation, so everyone’s on the same page. Last quarter, we talked about various buckets of tariffs, and we provided a sensitivity as it related to the incremental 125% China tariffs.

We did that because at the time, we felt that this approach would provide our shareholders and potential future holders of Newell Brands stock with helpful perspective. This time around, because the overall tariff picture has come into a better view, we can boil things down quite a bit. So simply put, if we take everything we know from all of the individual country and/or regional tariff deals that have been announced to date and all of the commodity specific actions that have been taken on things like steel and aluminum it equates to an expected incremental cash tariff cost on a gross basis of approximately $155 million versus 2024. From a country standpoint, China accounts for about 80% of this amount, which is why for the past several years, we’ve been so focused on moving our supply base out of China.

While $155 million is the expected incremental cash tariff cost on a gross basis, that is not the amount that will hit our 2025 P&L because tariffs are inventoriable costs. That means they are capitalized or suspended into inventory when they are incurred and only recognized in the P&L when actually sold. Therefore, we expect roughly $50 million of this $155 million gross impact will not hit our 2025 P&L even though it will affect operating cash flow. This leaves a net 2025 P&L impact before any offsetting mitigating actions of $105 million, $10 million of which came through in our Q2 results, leaving approximately $55 million expected in Q3 and $40 million expected in Q4. On an after-tax EPS basis, $105 million equates to $0.21 per share, $0.02 of which fell into Q2, leaving $0.11 and $0.08 expected for Q3 and Q4, respectively.

The reason Q3 is expected to be higher than Q4 traces back to the incremental 125% China tariffs that were in effect for a period of time earlier this year. While orders were dramatically curtailed during that time period, we did incur about $25 million of gross cash impacts because shipments already in transit were burdened by this extra cost, which importantly was included in the $155 million number I referenced earlier. This $25 million or $0.05 per share is also being temporarily suspended in inventory, but because these purchases were earlier in the year, and these items are expected to turn very quickly, virtually all this amount will hit our Q3 P&L. With that detailed understanding and Chris stating earlier that mitigating cost reduction and pricing actions have been implemented to fully offset all of the currently announced and either in effect or soon to be in effect tariff actions that are expected to be permanent in nature updating our full year EPS guidance range is very straightforward.

We simply took our prior range of $0.70 to $0.76 and subtracted the $0.05 that are not permanent in nature and which, therefore, we are not seeking to recover. Doing so brought us to $0.65 to $0.71. Then because we have another quarter of actuals under our belt, we felt comfortable tightening that range by $0.01 on both the top and bottom end, which yields an all-in full year updated guidance range of $0.66 to $0.70. Please note that this new updated normalized EPS range still assumes an effective tax rate in the mid-teens and includes a higher level of expected interest expense due to our recent refinancing. The last thing to call out related to 2025 is we have tightened our operating cash flow range primarily due to the cash impact of higher tariffs on inventory valuations and now expect to finish the year somewhere between $400 million and $450 million.

For the third quarter of 2025, we expect both net and core sales to decline 4% to 2%, normalized operating margin to be between 9.1% and 9.5% and with a tax rate of around 10%, normalized EPS of $0.16 to $0.19, which again includes about $55 million or $0.11 per share of negative tariff impacts prior to any offsetting actions. While we don’t provide Q4 guidance, it can be easily calculated at this point, thus, please note that for modeling purposes, Q4 of 2025 is expected to include a significant favorable overhead impact from above-target incentive compensation earned in 2024. In closing, despite a very fluid macroeconomic environment, we remain confident that our strategy is working. Looking forward, we have exciting plans to gain more distribution, launched fewer but bigger gross margin accretive, differentiated and consumer-relevant MPP and HPP products with more effective advertising at higher weights for longer periods of time.

In addition, we believe we have a tariff advantaged domestic production network that is gaining momentum as leading retailers look to diversify their sourcing strategies. Operator, we’ll now open the call to questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Andrea Teixeira with JPMorgan.

Andrea Faria Teixeira: Can you comment both Chris and Mark, if you’re seeing the back-to-school, it seems as you pointed out, that category has probably outperformed what your expectations were? And then you — if you can also comment from the exit rate across all categories, including outdoors and your stated innovation embedded in your guide?

Christopher H. Peterson: Okay. Let me start with back-to-school. So it’s a little bit early to read consumer offtake with back-to-school. The next 4 weeks are going to be sort of the key 4 weeks in that. What I will say is we feel very good about our sell-in and our setup heading into the big back-to-school weeks. We had all-time record high fill rates. We shipped out really all of the pre-display setups heading into back-to-school at the highest quality level from a supply chain standpoint than we’ve ever done. We also, as I think we mentioned on the last call, secured a number of wins heading into back-to-school, where we got exclusivity on some of the categories where we have very high market share like EXPO markers, Sharpie markers with several retailers.

So we believe we’re well set up. We’ll know a lot more over the next 4 to 6 weeks relative to consumer behavior on that. In terms of innovation, if I go through, we continue to feel very good about the innovation that we have in the Writing category. We’ve talked about the Sharpie creative markers, new colors, new tip sizes, that is continuing to resonate well with consumers. We also talked about on EXPO launching a more vibrant ink and also launching a Wet Erase, new to the world segment so that consumers can both use a Dry Erase and a Wet Erase Marker, and that is off to a very strong start. In the Baby category, we continue to go from strength to strength. Recall that we had very strong core sales growth in the first quarter, high single digits.

We gave some of that back in the second quarter, which was expected because some retailers ordered baby gear, particularly before the tariffs went into effect. If you look at the first 6 months of the year, the Baby business is positive in terms of core sales growth, and we continue to see strong reaction to the Graco, SmartSense, bassinet and swing, which is going from strength to strength. As well as the Graco 360 Easy Turn 2-in-1 rotating convertible car seat. So we are gaining share in those categories. On the Home and Commercial standpoint, as I mentioned in the prepared remarks, probably the biggest innovation that we have this year as a company is coming. We announced last week on Yankee Candle, where we are doing a complete brand restage with a new improved wax formulation, new labeling, new marketing campaign, new vessels.

We’re very excited about the consumer feedback we’ve seen in our premarket testing as well as the retailer reaction to that relaunch. On kitchen, we’ve got — I think we’ve talked about the Oster Extreme Mix Blender which has launched now in the U.S., but more importantly, is off to a fantastic start in Latin America where the bulk of the Oster business is. We also are launching the Rubbermaid EasyStore FindLids (sic) [ Rubbermaid EasyFindLids ] , which is a significant restage of our primary Rubbermaid Food Storage business, which we believe is going to get that business on a much stronger footing in the back half of the year. On Commercial, we’ve talked about the RCP BRUTE farm program, which is off to a strong start. And on Outdoor & Rec, this is the one I’ll just mention briefly that we’re having good — very strong traction with our Coleman Pro cooler in the U.S. and the sponsorship that we’ve signed with Kane Brown.

We also are back to growth in the Japan Coleman business, which is where we’re the market leader and where we play more in the HPP side of the business. In Outdoor & Rec, more broadly, we’re very excited about the innovation that we’ve got slated to come in early 2026. And I think we’ve been talking about for some time that that’s when we expect that business to see a notable increase in innovation. We’ve been having discussions with many leading Outdoor & Rec retailers where we’re now showcasing that innovation and the response we’ve gotten has been very strong. So we feel very good about the progress we’re making on the innovation portfolio and we feel very good that we remain on track for that to strengthen as we go forward from here.

Operator: Our next question comes from Brian McNamara with Canaccord Genuity.

Brian Christopher McNamara: So look, a ton of progress has been made in the turnaround, you’re about 26 months in now, but with core sales moving in the wrong direction, what’s driving that? If innovation is working, what isn’t? And then I understand the market is tough, but some peers are growing significantly in spite of this. So why should current or prospective investors be confident the strategy is working?

Christopher H. Peterson: Yes. I think — and I covered — I touched on this a little bit in the prepared remarks. We continue to make sequential progress on core sales growth. So if you look in the first half of this year, we were down 3.4%, which was an improvement versus the run rate in the first half of last year and a significant improvement from before we launched the strategy where in the first half of ’23, we were down 14.7%. So we are moving in the right direction. This is not something when you’re dealing with the front-end capability improvements that we’ve made and the innovation reboot that happens overnight. But what I will say is we do believe that we have a strong innovation pipeline that is manifesting itself in parts of the business that you can see already.

We’ve returned the Writing and the Baby business to grow pretty consistently over the past several quarters. The International business is driving core sales growth. This quarter, we returned the Home Fragrance business to core sales growth this past Q2. And so while there’s more work to do across the balance of the portfolio, I think we’ve been very clear that given the timing of the innovation development cycle, Outdoor & Rec is sort of the one that is going to be the laggard. Although I’ll mention, even in the case of Outdoor & Rec, our core sales trends have improved sequentially and so we believe we’re on the right track. The reason why this quarter, we were down 4.4%, which was a deceleration from last quarter, was really had to do with the timing of retailer shipments as well as a more challenging category growth dynamic that we’re facing but we are confident that we are going to improve core sale trends going forward, starting with the back half of this year.

Mark J. Erceg: Yes. But if I could add just a couple of things. I mean, if you look at the gross margin in the second quarter that we just printed, and you compare that to the 2-year stack. We’re up 680 basis points. We’ve said that this year, we’re going to grow our op margin by about 110 basis points at the midpoint. We’ve said that our EPS on a tax-adjusted basis will be up double digits. We said that our trailing 12-month EBITDA by the end of the year will be up mid- to high single digits, we’re delevering the company. We’ve also said based on the third quarter and full year guidance, we provided that in effect, we’re calling Q4 core sales to be flat. We’re also talking about the fact that our second half A&P is going to be the highest level since literally since 2017, right?

So all the things that are out there that we’ve said will come to pass are coming to pass. We always said that sales will be the last long pole in the tent to come up, but we have a great innovation program that’s coming out the door as we speak, and we’re gaining distribution because of all of our tariff advantage business positions.

Operator: Our next question comes from Olivia Tong with Raymond James.

Olivia Tong Cheang: Lots of details so far on the innovation pipeline and some of the wins in terms of the additional categories that you’re getting shelf space on. But based on your full year outlook, it looks like core sales would be up roughly 2% to 4% in Q4. So, can you talk about what drives such a material inflection from where you expect to be in the first 3 quarters versus Q4? Are there particular brands, categories, channels, et cetera, that are driving that?

Mark J. Erceg: I’ll let Chris provide some backup detail. But if you look at the full year guidance we just provided and the third quarter guidance we just provided, I think you would see that core sales in the fourth quarter are effectively being called at roughly flat.

Christopher H. Peterson: Yes. And then relative to that improvement of heading into the implied Q4 guide of relatively flat on core sales, I think there’s a couple of things that are supporting that. Number one, the tariff distribution wins that we’re getting do tend to be more Q4 weighted because of the timing of implementation, both from a shelf set standpoint and from an incremental merchandising standpoint. The second thing is some of the big innovation that we’ve launched, for example, the Yankee Candle relaunch. The big quarter for Yankee Candle is Q4. So we expect the innovation to have a more material impact in Q4 than Q3 slightly. And then I would say the third thing is, we have been working with a number of retailers on reinventing their store shelves.

And some of those store shelf resets get implemented in October. And so we believe that the distribution gains are going to be bigger in the fourth quarter because of the underlying fundamental progress in addition to the tariff-related wins heading into Q4. So we think we’re on the right track. And we think, as Mark said, from what we see today, we’re not guiding to Q4, but the implied guidance would put us about flat in core sales in Q4.

Olivia Tong Cheang: Got it. And then with respect to the pricing that you have implemented, could you talk about retailer response to the Baby pricing, any other actions that you might be contemplating? — apologies if you talked about this at the beginning of the call, since I was a bit late.

Christopher H. Peterson: Yes. No worries. On the pricing that we’ve taken, retailers have been generally constructive understanding that we’re taking pricing that is largely cost-based. By the way, we’re not solely relying on pricing to cover the tariff cost. We also are driving incremental productivity savings and tightening our overhead spending to ensure that we’ve got a competitive cost system. And then we’re looking at where the tariff impact can’t be mitigated or we need to take pricing for consumers. As we’ve taken the pricing, the general response from retailers has been understanding and they have accepted our pricing. The biggest challenge from a retailer discussion standpoint that we’ve encountered is the timing of when the pricing goes into effect.

And obviously, most retailers, when we have that dialogue don’t want to be disadvantaged versus other retailers. And so we’re trying to be very mindful about not advantaging or disadvantaging one retailer versus another. From a consumer standpoint, that the pricing that we put in the market, in particular, on the Baby category, hasn’t fully materialized yet in terms of retail prices for the consumer. As I mentioned, the third round of pricing that we took, which was also focused on Baby just went into effect on Monday of this week on July 28. So I would expect retail prices to begin to move up a little bit based on our pricing to the retailers over the next month or two. And we, of course, are monitoring consumer response and reaction to that.

We believe that the whole category is going to price up. We have not assumed that the pricing is incremental in our outlook. We’ve largely assumed that there’s going to be volume loss associated with the pricing and that so — but — so we think we’ve been prudent in our planning approach. But we’ll see as we go along here, whether we need to adjust, but we’re watching it very carefully.

Operator: Thank you. Your next question comes from Bill Chappell with Truist Securities.

William Bates Chappell: Chris, I mean just kind of broader sense, I’m just trying to understand — I get your enthusiasm for innovation, and I know for some of the categories, it’s a long time coming. But just because innovation made a meaningful impact in Baby and Learning doesn’t necessarily mean it will make a meaningful impact in Yankee Candle or Rec & Leisure or other type categories were a similar one. And so I’m just trying to understand, I guess, one, do you have some kind of background in the past where you’ve seen a meaningful impact from innovation? Have your competitors in these categories have not been innovating so you’re kind of operating in a vacuum? And then how do you kind of peer that all with, it seems like you need the categories to grow to really grow, and you’re now talking about the categories at the low end of what was kind of conservative outlook.

So just trying to understand your confidence in that — not just from distribution gains, but just for the categories and your business can grow again as we go into ’26.

Christopher H. Peterson: Yes. So I’d say a couple of things on that, just to unpack it. Category growth does affect Newell and category growth is driven by macro factors. And so it’s not that we can’t do better or worse, frankly, than category growth, but we have to plan for it accordingly because the general merchandise categories have been under pressure as consumers have been prioritizing food, housing, essentials, car insurance. Everything we’re hearing is that those — the category growth rates are expected to improve as we head into next year, but we’re not macroeconomists. So we’re not guiding to ’26 at this point. But we don’t believe that general merchandise is going to continue a downward trend from a category growth rate forever.

And so that would be the first thing. Second thing is, relative to innovation, what we’ve seen from a competitive set which is part of our strategy is that in every category we compete in, we can find a competitor that drove significant growth through innovation. So we know that these categories are highly responsive to innovation. And we know that when you get innovation right, you can grow materially faster than the category. And in some cases, if you do the innovation correctly, you can actually drive category growth at the same time. So it’s not the category growth is completely outside of the company’s control. And so part of the reason why we believe that these 6 businesses are good businesses for us to be in is because we’ve seen them be responsive to innovation, not just in Baby and Writing, but we’ve got examples of where we’re driving significant growth in the Kitchen business or the Home Fragrance or Commercial or Outdoor & Rec through new product innovation.

And so — we just — as we said when we launched a new strategy in June of 2023, the innovation capability in the company was really worst in class as when we announced our new strategy. And so we needed to dramatically change the capability, that included, for example, adding a brand management capability, which the company didn’t have. We now have that capability. We have a consumer insights function that has been rebuilt. We now have the ability to test innovation with consumers and with retailers, frankly, prior to the innovation going to market. And so as all of those capabilities are coming online, they’re coming online at differential rates by category, which is why you’re seeing the core sales growth different by category. But what we’re excited about is we believe we’re going to be largely fully online by the time we get to the beginning of 2026, across all of the businesses.

And so that’s how we see it. And we know that it’s important to get the company back to core sales growth from a sustainable standpoint. That’s why we’ve kept our evergreen target of low single digits is what we’re aspiring to be able to deliver to. When we put the strategy out at the beginning in June of ’23, we said very clearly, the first areas that we’re going to manifest themselves in terms of the financials, we’re going to be the margins and the cash flow, and we’ve seen that. I think our gross margins are up 500 or 600 basis points over the last 2 years. Our operating margins, as I mentioned, at the midpoint of our guidance range are up 110 basis points this year versus last year despite a $0.21 tariff impact this year. We’re growing EBITDA mid- to high single digits in our guidance this year, and that’s on top of a very strong EBITDA growth last year versus the year before.

So we’ve taken the leverage ratio, which was 6.5x when we announced the strategy down to where we think we’re going to end this year at 4.5x. So we think we’re on the right track, and we think we’ve got the proof points to show it. And we think as we go forward, those proof points are going to manifest themselves more broadly across the businesses, and we’re going to see stronger top line growth going forward, which is the last element of the strategy manifesting itself in the numbers.

Operator: Your next question comes from Filippo Falorni with Citi.

Filippo Falorni: I wanted to ask of the environment at the retailer level. Are you seeing any impact from inventory destocking in some of your categories? What are you seeing in terms of repurchasing level? And then in terms of your question on — to the prior question on pricing, what do you see from a competitive response? We’ve seen some categories being a little bit more promotional, some private label taking share in certain categories. So, just curious what are you seeing from a competitive response to pricing at the promotional level?

Christopher H. Peterson: Yes. On the retailer inventory, we did see a little bit of an impact in Q2, but it was primarily on — we have a part of our business that’s about somewhere between 5% and 7% of our U.S. business that is direct import. And when we say direct import, we — if we were producing product in Asia, the retailer takes possession of the product in Asia and then imports the inventory to the U.S. And when the China tariffs went into effect, we had a couple of retailers basically stop their direct import business for a period of time, which had their inventory levels back up a little bit or go down a little bit in that part of the business. So we did see a little bit of an impact from direct import being cut off.

It didn’t affect sort of out of stocks at retail, but it did affect our shipments in the short term. That’s really the only notable impact. We haven’t seen retailer inventory where we’re supplying on the majority of our business direct from our U.S. distribution centers. We haven’t seen a dramatic change in retailer inventory. We believe — continue to believe that the retail inventories are in reasonably good shape. From a pricing standpoint, it’s a little bit hard to tell, partly because of the Amazon Prime Day effect, which other retailers then follow. And so we’re trying to get unpacked kind of what’s happening with the everyday price and then what’s happening with the promoted prices. But because of the noise in the system with tariffs, it’s a little bit fuzzy to really unpack that.

Broadly, what we’re seeing is that in most categories where everybody is affected by tariffs, pricing is moving up, but it’s not moving up at the same — on the same timing. We’re not seeing, generally speaking, more aggressive promoted prices. But what we are seeing is in some cases, competitors are delaying the date of the price increase because they still have inventory onshore that hasn’t been subject to the tariffs. We expect this situation on pricing from a competitive standpoint to really get a lot clearer over the next 3 to 6 months as the pre-tariff inventory sort of runs out and the price increases become more visible at retail. So it’s a bit fuzzy. I will admit at the moment, but we’re watching it every day. And what we’re excited about, as I mentioned on that is that in over half of our business where we’re not subject to tariffs, we’re not taking pricing.

And so on those categories, we think our advantage from a consumer value standpoint is going to strengthen over the next 3 to 6 months. And then on the categories where we have taken pricing, we think generally, competitors are going to take pricing but it will be different by category, and we may have to adjust depending on the specifics of the category in the competitive set.

Operator: And your last question comes from Peter Grom with UBS.

Peter K. Grom: So 2 quick ones for me. Maybe just tying all this commentary around the sequential improvement in sales. Guys, can you maybe just help us understand how much of it is — or quantify maybe how much of it is driven by kind of the distribution gains and the innovation versus what’s expected from a category growth perspective? And then I guess just maybe looking out over the next several years, I know a lot of the discussion today is on the top line. But I’d be curious how we should be thinking about kind of the margin progression, right? I mean you guys have done a tremendous job on gross margin, operating margin despite sales being down. So as — or if or when top line returns to grow, how should we think about kind of the benefits from a profit standpoint?

Christopher H. Peterson: Yes. So let me take the first one on category growth, and then I’ll let Mark talk margin. Relative to our core sales guidance, for the year, we had started, I think, the year with a minus 1% to minus 3%. In this update, we tightened to the bottom end of the core sales range of minus 2% to minus 3% for this year. And really, what drove that entire change was our outlook on category growth. So we had said — I think last quarter, we were reflecting 1 to 2 points of category decline. At this point, what we have in the outlook is closer to 2 points of category decline, and that’s why we’ve adjusted our core sales outlook for the year, entirely due to category growth. We continue to believe that the actions in our control, on distribution gains on innovation are very much on track, and we’re not changing our outlook as a result of those items, so to speak. So that’s where we are from a top line standpoint.

Mark J. Erceg: Yes. As far as the longer-term question is concerned, I mean when we first put the strategy out at Deutsche Bank a number of years ago, we said our interim targets were to have gross margin in the 37% to 38% range. We acknowledge and recognize that we needed to get A&P levels up. We said that ultimately, we think the end spot there is probably somewhere in the 6.5% range because some brands have more, some brands have less. We talked about the fact that we do need to get our overheads down and that’s why we’re really excited that starting with the third quarter of this year, overhead as a percent of sales will start arcing downward, which will be another catalyst to really start driving op margin at a greater rate.

As we’ve been building up the capabilities, a lot of that gross margin progress has gone into A&P and has gone into the overhead line, but we think that’s going to inflect. And once that inflect, frankly, we don’t see going back the other direction. So we’re really very bullish on what we think we can do as it relates to that. We told people from the beginning that once we get to that first base camp of that 37% to 38% range, we’ll then talk about what’s next. But as you think about what we’ve been building, we’ve been building an integrated system. And that integrated system has very high fill rates. We’ve got great customer service. We have the ability to monetize the next incremental unit at a very high rate because of the automation programs we put into effect.

And so the math that we’ve done internally makes both Chris and I and the rest of the leadership team, very optimistic about our future here at Newell.

Operator: Thank you. This concludes today’s conference call. Thank you for your participation. A replay of today’s call will be available later today on the company’s website at ir.newellbrands.com. You may now disconnect. Have a great day.