Newell Brands Third Quarter 2026 Earnings Conference Call - NEWELL BRANDS INC

Financial Performance:

• Net sales rose 3.7% YoY to $1.9 billion; core sales grew 3.3%, both exceeding the 2-3% guidance high end.
• Normalized gross margin expanded 70 bps YoY to 35.2%; normalized operating margin expanded 90 bps to 9.8%.
• Normalized EPS came in at $0.20, up from $0.17 YoY, landing at the high end of guidance.
• Trailing 12-month normalized EBITDA increased 20% YoY to $1.03 billion.
• Net leverage declined to approximately 4.5x (down from 4.8x in Q2 and 5.3x prior year).
• Year-to-date operating cash flow was $93 million; full-year guidance was lowered to ~$150 million from a previous $400 million estimate due to one-time non-operating pension and factoring adjustments.
• Underlying operational cash flow remains on track for ~$400 million when excluding one-time pension and factoring impacts.
• Capital expenditures for the first nine months were $131 million; full-year CapEx expected to be below $200 million.

Guidance and Future Outlook:

• Full-year 2026 net sales guidance raised to 2-3% growth; core sales guidance raised to 1-2% growth.
• Full-year 2026 normalized operating margin maintained at 10.0-10.4%; normalized EPS guidance maintained at $0.75 (range tightened to $0.74-$0.76).
• Q4 2026 guidance: Net and core sales growth of 1-3%; normalized operating margin of 8.4-9.0%; normalized EPS of $0.17-$0.19.
• 2027 Outlook: Base plan assumes global category growth flat to 1%; expects ~$150 million inflation (down from $220 million in 2026).
• Management expects modest pricing actions in early 2027 to address cumulative 8% two-year inflation impact not fully offset by productivity.
• 2027 normalized operating margins expected to be down vs. 2026 reported level (due to loss of $100M 2025 tariff refund benefit) but up >50 bps vs. 2025 when excluding the one-time benefit.
• Net leverage target remains comfortably below 4.5x for year-end 2026.

Business Segments and Product Lines:

• Learning & Development: Mid-single digit core sales growth; strongest U.S. back-to-school POS in three years driven by Sharpie, Expo, Elmer's, and Prismacolor.
• Baby: Core sales roughly flat due to shipment timing (growth in U.S. offset by Canada); Graco and Nook grew share; innovation driving year-to-date high mid-single digit growth.
• Home & Commercial: Strongest segment with 6% core sales growth; first time in five years all three sub-segments grew. Home fragrance up double digits; Commercial and Kitchen grew for first time.
• Outdoor & Recreation: Core sales declined due to shipment timing; Contigo grew share in hydration; Coleman Snap-and-Go recognized as Time's Best Innovation, with demand exceeding expectations.
• Innovation: Pace of ~25 Tier 1/2 launches maintained in 2026 and 2027; new Atlanta Design Center opened to accelerate R&D and prototyping.
• Operations: Completed global ERP consolidation; "One Newell" operating model now implemented across 10 largest non-U.S. countries.
• Leadership: Welcomed Guillermo Bede as new COO, bringing experience from SC Johnson, PepsiCo, and Unilever.

Market and Competitive Landscape:

• Global categories were roughly flat globally in Q3, outperforming July outlook (expected -1%, delivered flat to +1%).
• U.S. and Latin America showed positive category growth; EMEA and APAC remained challenged by macro pressures and Middle East tensions.
• Low-income consumers have bottomed out spending declines compared to prior year; high-income consumers continue to spend.
• Competitive set and private labels are already initiating pricing, narrowing price gaps; Newell aims to time pricing moves with competitors rather than leading aggressively.
• 2026 U.S. inflation excluding tariffs run at 4.6% of COGS ($220 million total headwind).

Risks and Challenges:

• Persistent inflationary pressures, specifically diesel fuel, transportation, resins, purchased products, and labor.
• Potential impact of U.S.-China trade policy (30 for 30 initiative) on baby gear tariffs remains unconfirmed; potential relief expected but scope/timing uncertain.
• Volatile macroeconomic environment, particularly in EMEA and APAC.
• Accounting complexity regarding pension plan terminations and factoring programs affecting operating cash flow presentation.

Management Commentary and Tone:

• Tone was confident and optimistic, highlighting "broad-based" growth and the successful translation of strategic investments into performance.
• Management emphasized the shift from volume compression to volume growth driven by innovation and distribution.
• Confidence expressed in the ability to sustain margin expansion and deleveraging despite inflationary headwinds.
• Acknowledged the "choppy" nature of some shipments (e.g., Outdoor & Recreation) but expressed high confidence in the trend reversal for Q4.

Analyst Questions and Answers:

• Q3 Growth Drivers: Q3 growth was primarily volume and mix driven with near-zero net pricing; no significant retailer inventory drawdowns.
• Innovation Cadence: 25 annual launches is considered the steady state; focus on three-year product lifecycle support and higher individual impact per launch.
• 2027 Pricing Philosophy: Pricing will be strategic, varied by business/geography, and timed to align with competitors/private label moves to minimize volume shock; expected to be low-to-mid single digits.
• Cash Flow Adjustments: $150 million reduction in CFO guidance explained by $85 million outflow from pension payments (offset by $145M investing inflow) and reduced factoring capacity; underlying operational cash flow remains strong.
• Outdoor & Recreation: Q3 decline attributed to shipment timing rather than weak demand; expected to return to growth in Q4.
• Inflation Composition (2026): 45% resins/packaging, 50% labor/overhead/transport, 10% metals/glass; 2027 assumptions mirror this profile assuming elevated energy prices.

Other Key Points:

• Successfully refinanced debt: $800 million ABL facility extended to 2031; $600 million senior notes issued at 6.25% coupon, used to redeem 2027 notes and reduce revolver balance.
• Moody's outlook revised from negative to stable; no short-term debt outstanding at quarter-end.
• Tariff refunds from IEPA recovery (one-time $100 million impact) included in full-year EPS guidance but excluded from normalized margin comparisons.
• Fuel productivity program delivered savings ahead of stretch targets.
• Sales and marketing functions are being reorganized under the new COO to improve connectivity and speed to market.