Newell Brands Aktie

Great. All right. Good morning, and welcome back, everybody. For this next session, it is my pleasure to welcome Newell Brands back to the stage. With us this morning is President and Chief Executive Officer, Chris Peterson; and Chief Financial Officer, Mark Erceg.

Thanks, Chris. Before we get started today, I just want to say that we may make some forward-looking statements and refer to some non-GAAP measures. You can refer to our website in our Q1 investor presentation for a description of risk factors and non-GAAP reconciliations.

Great. And with that out of the way, I guess we can jump right in. Chris, just a bigger picture question to set the scene. Like it was at this conference 3 years ago that you unveiled the new strategy around how to -- where to play and how to win choices. Relative to that starting point, how would you frame where Newell is today? And where have you made the most tangible progress? And what do you want investors to appreciate most about the story at this point in Newell's turnaround?

Yes. Thanks, Chris. Yes, 3 years ago, we unveiled a new strategy. And since that time, we've made tremendous progress. The strategy was a capability-based improvement strategy. We have significantly improved the capabilities of the company. If you look at the company today, our gross margins are 500 basis points roughly higher than where we were 3 years ago. By the end of this year, we'll take almost 2 turns out of our net debt-to-EBITDA ratio. So we have delevered the company, and we continue to expect to do that going forward.

The longer piece was building the front-end capability in terms of consumer understanding, innovation, go-to-market capability. We have now got that in place. We have a full slate of innovation, and we have guided that this quarter that we're in now, the second quarter is going to be the quarter that the company returns to top line revenue growth, which will be the first quarter since COVID. So I believe that we're in a position now going forward, starting with this quarter, where we are going to return to sustainable profitable growth, which is a big departure from where the company had been 3 years ago.

Got it. Now I do want to pick up on a couple of those points. But just first, Mark, from a financial lens, I mean, the margin improvement over the same period has also been pretty impressive, and that's even before this return to core sales growth Obviously, it's not quite what you wanted it to be because of some of the external headwinds that have come your way. But can you just help us think about how you'll build upon that trajectory as you get back to core sales growth? And what's underpinning your confidence that the next phase of recovery is top line led?

Yes, great question. So look, we're really proud of what the team has accomplished over the last 3 years. If you look at where we started from, we had a business situation where our gross margin had fallen away in decade every single year since the Jarden acquisition. We stopped that dead in its tracks and made a meaningful inflection against it. As Chris indicated, we're up over 500 basis points in this relatively short period of time, and that's despite having to incur these tariff challenges and more recently, some commodity headwinds as well.

Our normalized op margin when we started the journey was 6%. If you take the midpoint of our guidance for this year, it will finish at 9%. So basically, over this 3-year period, we've added 100 basis points to op margin despite all those challenges, while the top line was compressing and when we were drawing inventory down.

The good news is we don't have to ask the question, how long can we continue to take cost out while not having sales improve because as Chris just indicated, sales are improving, and we are going to turn positive in the second quarter. And once that starts to happen, the flywheel really starts to kick in because since 2017, we've spent $2 billion automating our production facilities. We have highly automated operations today.

We've effectively taken out over 5,000 roles through that automation work. A good example is on Sharpie, where we used to make 25 sticks per minute. We now make basically 20x that rate as just one example. And because of that, the incremental marginal value coming off those production lines on a gross margin basis will be in excess of 50%. And on an op margin basis, it will probably be in excess of 45%. So the good news is we have an incredible team that has demonstrated the ability to be very agile, take a lot of cost out of the system in a very efficient and productive way while building capability. And now that the top line is inflecting, we're going to get all that fixed cost leverage coming through not just the manufacturing facilities, but the overhead lines as well.

Got it. No, that's very helpful. And then just around the inflection in core sales, what are the key building blocks that give you confidence that this inflection is truly durable and sustainable and not just a function of distribution timing. And I know you have a lot of Tier 1, Tier 2 innovations coming out this year, but how do we think about just the durability of that?

Sure. So as we headed into this year, we have 25 Tier 1 and Tier 2, which are our largest tier of innovation launching this year. For perspective, 3 years ago, when we launched the strategy, we didn't have a tiering system. We put a tiering system in place. We completely rebuilt the innovation process and pipeline. We invested in consumer insights.

We invested in brand building. We put brand management in place. We completely retooled the way we do innovation. And we went from at that time when we put the tiering system in place, one Tier 1 and Tier 2 innovation, and we've now built up to 25 across every one of our business units. The exciting part about those 25 is that all of those 25 we sold into retailers last year as part of the line review process.

So we know and we have firm commitments that our distribution is going to be higher this year, both as a share of shelf and in absolute terms. And gaining distribution across the entire retail landscape is a good start to the innovation. The retailer response has been terrific. We've started to launch the innovation in some of the categories at the beginning of this year and in the fourth quarter of last year.

We -- when we reported Q1, we beat sort of the midpoint of our guidance range by 2.5 points on the top line. That was largely driven by innovation -- initial innovation response from consumers being stronger than we expected, which allowed us to not only beat, but raise guidance on the top line for the current year. We also indicated that this quarter is going to be the quarter we returned to sales growth as a company, and we are on track to do that.

So our guidance for the second quarter is to have core sales growth between 0% and plus 2%, which will be a meaningful inflection. We expect that to continue as we go beyond the first quarter. Some of the exciting examples of what we've launched, if you take the baby business, we launched a Graco 360 turning car seat. It was the #1 launch in the baby gear category in the United States last year as ranked by revenue and growth of the category.

Over the last 4, 5 months, we've gained 300 basis points of market share in the baby gear category in the U.S. based on that innovation, along with innovations on strollers, innovations on other parts of the baby gear category, that returned the business from a consumption standpoint to over 4% core sales growth in the first quarter.

If you take Coleman, another example in the Outdoor & Rec business, which has been one of the businesses that we said is going to inflect this year. We launched the Snap 'N Go cooler at the beginning of this year. That innovation, which is a patented new innovation that allows you to collapse a cooler to 1/3 the size of a regular cooler, which allows for easier transportation and easier storage, is running 900% higher than plan to date.

So we've had to increase our supply plan 6x in the last 4 months. We've got full distribution at REI, one of the leading retailers in the U.S. It's allowed us to crack into Dick's Sporting Goods for the first time, which we're very excited about. It's been rated, I think, on Amazon as the best new cooler launch in the industry. And so a couple of examples that's having us be excited. So I think -- and then if you look at the first quarter, 6 of our top 10 brands we're growing market share now.

So it's the first time that we've seen that type of consumer response. And I think it's a testament to the capabilities that we've built and that we're bringing to bear. And this is before all of the innovation fully launches, which will happen over the next few months.

Great. And then just to build on that, obviously, the categories have -- categories remain modestly under pressure, but you're driving a lot of new growth and new excitement in baby and coolers like you just mentioned. Can you -- like how long do you think you can sustainably grow the top line in such an environment? Or like is it incumbent upon you to drive that category outperformance and...

Yes. We think there's a real opportunity for us to drive -- to play a more direct role in driving the category growth. And so we're driving innovation both to gain market share, but also to begin to drive category growth. And we're seeing that in a number of places. Some of our categories, there was a pull forward in COVID that in things like home appliances and in some baby gear categories where people bought forward.

And on a few of our categories that have longer purchase cycles, we're now seeing consumers return to the category. And we can entice those consumers when they return to the category with a superior value product that has better features and benefits that entices the consumer to return as the product life cycle wears out, we can start to drive category growth.

We're also driving premiumization in a number of our categories. We generally played 3 years ago in the bulk of our brands in the opening price point and middle price point parts of the categories. We've made a deliberate choice as part of that strategy to move more into the medium price point and higher price point categories. That choice has worked very well for us because what we're seeing is that across our business in general merchandise, the middle and higher income consumers in the U.S. continue to buy more. And so we're seeing growth in general merchandise from those consumers, which is very well situated for the innovation that we're bringing, which is targeting those consumers specifically.

And just around all of this new innovation, you've done a lot of work over the past couple of years rationalizing SKUs. And like how do you ensure that you can maintain high quality without reintroducing a lot of the complexity that you work so hard to?

Yes. We've done a number of other things. So we've -- what we're trying to do is drive fewer, bigger innovation supported for longer periods of time. And one of the things we've put in place is innovation portfolio leaders across each of our segments. And so this is a new capability that we put in place about a year ago. When we started 3 years ago, we had to rebuild the whole innovation process pipeline capability.

By the way, when we did that, we did it with an AI-first mentality. So we are very advanced on AI in our product development and our consumer insights capability. I think we're among the leaders in the industry now in consumer products and AI adoption on that front-end capability, and we can talk more about that. But -- if you look at that, these innovation portfolio leaders we put in place across the segments, look at the entire portfolio of innovation that the segments are working on that are slated to launch over the next 3 to 5 years.

They evaluate sufficiency from a top line standpoint to ensure that the innovation portfolio is going to deliver consistent top line growth. They also weed out small programs and recommend choices to ensure that we're driving fewer, bigger, and we're not allowing the organization to proliferate SKU and brand complexity.

Over the last several years, we've taken our SKU count from 100,000 down to 20,000. In the last 3 years, we've taken our brand count from 80 down to 50. We have 25 brands that represent over 90% of our sales and profit that are the priority brands that we focus on. Those brands are growing faster than the balance of the company. So we are driving an improvement in the quality of the portfolio at the same time that we're returning to growth as a total company.

Great. And I mean, yes, let's dig into your AI program. At CAGNY, you mentioned Quantum Leap. So where are you seeing the most tangible impact around speed to market, marketing effectiveness and just execution on shelf and...

Yes. We've taken sort of as part of the Quantum Leap program, which we launched -- we got started on AI a couple of years ago, but we pivoted to be sort of an AI first under this Quantum Leap program about a year ago. And there's really 3 planks to the program. The first is rolling out AI tools that enable personal productivity. So we've rolled that out to the top 2,000 leaders across the company. We have fully trained people on using things like Microsoft Copilot 365 in their individual daily work to make individuals more productive.

The second part of the strategy was an AI navigator strategy where we named 33 navigators for every function in the company. We have now developed what is a fully AI-enabled function look like for every function in the company 5 years from now. From that, we've developed a road map of what is the best way to get from where we're starting to that.

And then the third part of the plank is to take a look at multifunctional processes. If you look broadly across the company today, we have well in excess of 100 use cases of AI stood up. We're probably approaching 200 at this point. But really, the areas where we've made the biggest progress is on product development, marketing, consumer service, customer service and supply chain.

If I just take the product development and the marketing section as an example, as we put the brand management system in place, we segmented brands into consumer targets that each brand was focused on. We now have developed digital personas that represent those consumer segments. We've developed enough digital personas that we now have digital focus groups that allows us to do consumer insight testing at a much more rapid pace.

From there, we've built AI applications in our entire product development cycle. So we're able to go from insights to sketches to finished photography to prototype products in what used to take 4 months now in about 5 days. So it's a dramatic acceleration of speed, which is allowing us to repopulate the innovation cycle at a much more rapid pace.

On the marketing side, we've automated our digital content development process, both in terms of copyright, still photography and video. And this is a big improvement. So last year, our digital content creation team generated 500% more digital assets without any additional people. So we're driving dramatic productivity.

We could have chosen to take that and downsize the team by 80%. But instead, we chose to accelerate the digital content, which is also, we think, contributing to the company's return to core sales growth. That process is continuing. We started off the process focused on the U.S. We're now focused on leveraging that digital content and enabling it to travel with AI globally in all of our international markets. And so we think there's a big opportunity for us in that area as well.

On the supply chain, we're getting much more efficient in things like demand and supply planning. We believe it's going to unlock working capital, which is going to unlock cash flow. And then on consumer service, customer service, we're driving efficiency and speed, which is helping us drive overhead cost savings.

So -- and generally, the other thing I would say about the AI program, we've taken an approach of building the capability inside the company. So we're not using outside consultants because we think we know as much or more than they do. We're not following AI for AI's sake. We're following it in the service of our strategy.

And the ROI that we're seeing is measured in months, not years. And so in many cases, we're seeing paybacks from the investments we're making in AI of 2, 3 months. So it's a very rapid payback the way we've approached it and the internal capability that we've built.

Got it. And then, Mark, maybe you can just frame for us like how these capability -- like Chris just mentioned, higher margins, unlocking some overhead savings, improving cash conversion. Maybe if you could just help us frame the magnitude of these unlocks.

Yes. Chris did a great job of sharing from a broad standpoint, how we're thinking about AI and how that's actually translating into tangible benefits for us. I guess one of the things I would offer up is if you think about what we've been able to achieve and if you looked at our Q1 print, our normalized gross margin on a 3-year stack basis was up 610 basis points. Within that, our normalized op margin on a 3-year stack basis was up 270. And that was while we increased our A&P spend by over 50%, right?

So all these capabilities that Chris spoke to are all coming together and now converging to allow us to drive the top line because using AI enablement to drive the top line is the best way for us to monetize it through the rest of the P&L itself, and we're starting to see that. The other thing I would point out is if you look back to the third quarter of last year, that was the first time our overhead as a percent of sales arched down since we started this journey.

And that was because over the course of these last 3 years, we've had a whole bunch of capability sets we had to build out that we simply didn't have, a lot of the front-end capabilities Chris spoke to. It's not a coincidence that Chris talked about the fact that we started this AI journey well over a year ago, and it was in the third quarter of last year that overhead arked down for the first time. If you look at the guide we've provided for the current year, we've said that overhead as a percent of sales will come down somewhere in the 70, 80 basis point range.

That's a meaningful point of inflection for us because we've done a great job driving gross margin up to this point, but our overhead as a percent of sales structurally is too high, right? We have a target of getting down to 17% to 18%. This will help in that regard, a great deal. And then Chris touched on a lot of the other things that are happening as well, allowing us to have better deduction management through the use of AI that drives cash conversion cycle, that drives operating cash flow, right? All these other pieces, Chris largely gave voice to, so I won't repeat them here.

Great. And look, I mean, Newell has been -- you've navigated a highly dynamic tariff environment over the last couple of years. Like is this -- like how are you managing this internally? Is it just a new cost of doing business in this environment? Or do you see a structural competitive advantage noting you have such a strong domestic footprint?

We do. We do. When we started this journey when we were here 3 years ago, we talked about our capability sets across these 11 key capabilities that are required to win in our industry. At that time, we graded ourselves largely red on the front-end capabilities. But you'll recall, we also graded ourselves largely yellow to slightly green on a lot of the back-end capabilities like supply chain and procurement.

At this point in time, our supply chain and procurement teams and trade management teams are, I think, best-in-class. And they've allowed us to be very agile with respect to tariff management. It wasn't that long ago that we had over 30% of our business that was tariff exposed, right, particularly to China. We'll finish this year with less than 10% of our business in that situation. And that 10% is largely concentrated in the baby gear business, which is pretty much a push from a competitive standpoint because just about every car seat and stroller in the U.S. is imported from that same market, right? So we're not relatively disadvantaged as it relates to that.

We are relatively advantaged, however, because we do have this very strong domestic manufacturing base. We have 15 production facilities in the U.S. We have 2 on the border that are 98% USMCA compliant, and that gives us tariff advantages in 19 key categories. So for example, we make coolers in Kansas. We make Rubbermaid food storage products in Ohio. We make NUK baby care products up in Wisconsin. We make writing in Tennessee. We make candles up in Massachusetts, right? We make BRUTE refuse products in Virginia. I can go on and on and on and on.

That is a meaningful competitive advantage that we have. Now it's taken us a little longer than we initially thought to fully leverage that because, frankly, when you think about how much dislocation there was when the tariff announcements came out, most retailers were caught a little flat-footed as most industries were, and they didn't decide to go to some of the discretionary categories that we compete in as the first order of business as far as resetting their thinking and their supply chains.

Now that we've had a chance to go through the full cycle and bring consumer-led innovation to bear as part of those normalized line reviews and make the pitch about how having a very strong domestic supply base with really strong fill rates is an advantage for them and for us. We're seeing a lot more of those wins. And when Chris talked about the net distribution gains we're seeing this year, a lot of that traces back to the strong domestic footprint that we have. So I think it's an absolute advantage, and I think it's one that's only going to continue to give us higher rates of monetization in the years ahead.

Got it. So the innovation, coupled with the footprint is helping secure these wins. So you are seeing retailers are still focused on maintaining a derisked supply chain from that standpoint, like...

Yes, absolutely.

Yes. Not only that, but -- so they are definitely focused on derisked supply chain. But the other thing we've done over the last several years is we've integrated Newell. So Newell historically operated as a series of independent business units. And we've moved the company effectively to an integrated operating company.

So we were operating 23 supply chains independently in the U.S. We now have one integrated supply chain. As an example, our shipping to retailers, 20% of our shipments 5 years ago were in truckload. Today, 80% of our shipments are in full truckload. We would go to market and ask retailers to give us 23 different purchase orders, 23 different less-than-truckload shipments, 23 different invoices. Today, it's all one.

And that integration, we've not just done in the U.S., but we've now done in the international markets. We're complete in Asia. We're complete in the Americas, and we'll be done in Europe by the end of this year. And that is having a huge advantage because now we're able to go to retailers based on the scale of Newell and our brand portfolio and be a scaled provider, which is allowing us to have much more strategic joint business creation discussions with retailers, and it's opening new doors.

In fact, I met with one of the leading retailers in Europe on Monday, their CEO, and they do 0 business with us today. And they said, look, we couldn't do business with you when you were operating as a series of 23 different companies. But now that you have one integrated, we want all of your brands. And so we're seeing that opportunity unfold because we are, in many places, the largest general merchandise or one of the largest general merchandise suppliers for many major retail markets and many major retailers based on the strength of our portfolio.

And I guess I just wanted to just touch on like where -- like how are you guys seeing the consumer broadly, both in the U.S. and maybe in some of your major international markets, like where...

Yes. I think it's interesting. I think that the consumer demand picture is about -- from the most recent data, I think there's been a narrative in the U.S. market that the consumer is falling off a cliff or something in the month of May. We just haven't seen it in our business. And perhaps in our categories, we haven't seen it either.

It may be in some other categories. It might be in parts of the consumer segment. But broadly, as we went into this year, we planned the market growth for the year down 2% as part of our base plan. Through the first quarter, we actually did about 1 point better than that. So we -- the market was down about 1% in the first quarter versus 2%. I mentioned we overdelivered versus our plan by 2.5 points on the top line in the first quarter.

A point of that was market growth being better than we thought in the first quarter and 1.5 points of that was because of the strength of our innovation and the response consumers had, which was stronger than we expected on innovation. As we go to Q2 and beyond, we've got the business plan for a market that's down 2%. We haven't certainly seen anything that would cause us to come off of that.

And we actually think there's some potential that it might be better than that but we don't want to get ahead of ourselves. It may be different if you're talking about the food part of the business, but we're not in the food industry. In general merchandise, we've seen the high-income consumer, the middle-income consumer hold up pretty well and continuing to drive growth.

And our innovation that's focused against that consumer is driving growth in our categories. The low-income consumer, which has been under pressure, remains under pressure, but we're not seeing any type of a downward acceleration versus last year in terms of year-over-year offtake trend. Last year, the low-income consumer in the U.S. in general merchandise was down 10% to 15%, which started in March. I think it's going to be very interesting. It's hard to believe that they are going to be down 10% or 15% on top of down 10% or 15%. So I actually think on a year-over-year basis, there's some reason for optimism, although we don't have that in our outlook at this point because we didn't want to get ahead of ourselves.

Got it. And to the extent you do see some of this optimism come through, are you -- how is the organization set up to deliver against that if core sales remains...

Yes.

Market share gains, innovation, strength?

We -- Yes. We did get a little bit -- we made a strategic decision a couple of months ago at the beginning of the Iran conflict that we wanted to protect ourselves from any supply disruption. And so we did lean a little bit forward on inventory purchase selectively, top SKUs, top brands, top innovations, and that's been a good move because as I mentioned, -- some of the places we've leaned forward, we've sold out. Some are still in chase mode, but I feel pretty good about our ability to supply the upside.

I also feel like we haven't leaned out overly aggressive where we're going to wind up with an inventory problem. We've continued to bring our days inventory down and consolidate. The other thing I'll say is we're seeing a little bit of a divergence among the retail -- our retail customers. So retail customers that are more focused on the low-income consumer are we're seeing a little bit more pressure in their business.

Retail customers that are more focused on middle and upper income consumers we're driving tremendous growth. And so if you listen to a specific retailer talk about the consumer dynamic, it's important to understand who is their main consumer that they're going after because there is a divergence that we're seeing in general merchandise amongst those that are serving middle and higher income versus those that are primarily serving low-income consumers.

Got it. No, that's helpful. And then, Mark, just switch gears talking around costs. On the last earnings call, you mentioned a $5 per barrel change in oil equates to a $5 million swing in EBIT before any offsetting factors. I mean, clearly, crude has been volatile from May 1 to now. But can you just remind us in your 8.6% to 9.2% operating margin target for the year, what price of oil is embedded as a base case? And to the extent oil stays at this mid-90s level, like how should we think about that?

Great question. So we assume that oil was going to peak in the second quarter. For our modeling purposes, at that time, we took basically the spot and forward rates. That dictated that the price of oil would be roughly $100 a barrel in the second quarter averagely with that then trailing off a little bit into 3Q and 4Q. For the full year, our average at the time that we used was about $85 a barrel, just so you have that as a point of reference.

Now it's important to point out that as we sit here today, effectively at the start of June, there's really 2 things that are at play, right? One is the impact that oil has on resin. And the other one, obviously, is what it does with respect to transportation. As we sit here today, we're almost inoculated from additional moves on the resin side because by the time that worked its way through the system, it would get capitalized in our inventory system, and it wouldn't actually bleed through the current year, just as a point of quarter.

Second, we have taken select pricing in very targeted ways for resin-impacted businesses. Think about things like domestically produced coolers as an example, or some of the polyethylene impacted businesses like our BRUTE Rubbermaid products in certain regards, right? So we've already affected that action as well.

And then there is the piece that directly ties back to transportation because obviously, diesel is incurred at the pump in real time. That sensitivity that we gave you largely speaks to that because any resin impacts, like I said, will get suspended and capitalized through the balance of the year.

Got it. And just around that resin piece, like doesn't -- 2026 is more or less safeguarded. But on cash flow, does that -- is that what's putting you towards the low end of $350 million?

So put us towards the lower end, we guided to be $350 million to $400 million on operating cash flow. And during the last earnings call, we said we might be towards the lower end of that range, specifically because of the comments that Chris just made. We decided to lean in and make additional inventory purchases based on what we saw in the strength of our sales forecast and wanting to make sure that we had supply. That's what drove us towards that lower end.

Now importantly, offsetting that pressure is we do expect to gain about $60 million of cash this year from the unwinding of some company-owned life insurance policies that we also gave voice to during the course of the first quarter earnings call. So all in, we actually think we're going to have a good cash year. We're going to continue to drive our cash conversion cycle lower. We are going to continue to deleverage the enterprise. We think we will end the year some place maybe a little north of 4.5x that's going to be principally driven by having our EBITDA grow mid-single digits.

Yes. And that $60 million that Mark spoke of on the corporate-owned life insurance, that doesn't flow through operating cash flow. It flows through investing cash flow, but it gives us that cash that we can use for debt reduction. So we're expecting to fully fund the business, to fully fund our CapEx and to pay debt down this year as well.

Yes, because your CapEx is also slated to come down meaningfully just as you've -- you've done a lot of ERP investments over the last couple of years, a lot of restructuring. So now you're starting to see the...

We spent a great deal automating our production facilities and integrating the entirety of the operation. It wasn't that long ago that we literally had dozens of ERP systems operating across Newell. By the fall of this year, we will have gotten to our end state on our SAP journey. 95-plus percent of our sales will be on one instance of SAP. And the other 5% is unique and not even something that we would contemplate bringing online for regulatory reasons. For example, we would need to have our own ERP in the country of Turkey, just by way of example.

So that is going to be an enormous milestone for the company because it does take a lot of money to affect those types of integrations, but it also takes a great deal of time away from the business leaders in order to make those go smoothly. So that is going to be, I think, a real meaningful release of complexity across the business that we can then redirect towards delighting consumers every day.

Got you. And like at CAGNY, you outlined a path back to like 12% to 15% operating margin over the long term. Obviously, not a target for this year, likely not next year either. But can you just frame what are the biggest building blocks to that margin expansion, getting top line back volume leverage, throughput, productivity mix? Like maybe just talk through that.

Yes, sure. So what you're referring to is our algorithm whereby we said if we could have gross margins somewhere in the 37% to 38% range, have A&P spending around 6% to 7% and have overheads in the 17% to 18% range, that would give us a normalized op margin somewhere between 12% and 15%. We started this journey at 6%, we'll finish this year closer to 9% or around about that number, and that's that 100 basis points of increment I cited earlier for each of the past 3 years.

Now on a going-forward basis, the thing that's really exciting is, again, we're going to start getting top line leverage going through our highly automated production facilities, and that's going to give us a real boost because the underlying fuel productivity programs are as strong as ever. I think the team's ability to be agile has only been demonstrated to be improving as the years have gone by. We now have AI enablement, which is also another arrow in our quiver that we can deploy because the productivity enhancements we're seeing there are real and tangible with great ROIs that are paying out in a matter of months, not years.

And so we're going to be able to now start arcing down that overhead number in tandem with gross margin expansion. We've largely done the entirety of our op margin work on the back of gross margin up to this point without any benefit of sales volume, right? Going forward, we're going to continue to do that with sales volume coming on top, and we're going to be getting after the overhead elements. And we've already prefunded all the A&P spend effectively, right?

So it's entirely conceivable that, that op margin rate that we've seen to date, and we're not prepared to change our algorithm right now, but it's entirely reasonable to assume that, that 100 basis points that we've been able to deliver each of the past 3 years could continue or maybe even accelerate in given years depending on how everything comes together. So we're actually really excited as we sit here today.

It's been a long 3 years. We told everyone it was a capability-based turnaround. We said that cash was going to inflect first and it did. We said gross margin would follow and it did. And we said sales would inflect at the last point because that was the longest pole in the tent. A year ago, when we sat here, we expected to return to growth in the back half of '25. And absent the tariff impacts, which required us to take 3 rounds of pricing in April, May and July of last year, we're confident we would have done that. That's all behind us. The team is a year stronger and a year more capable. And as Chris said, we think Q2 is the quarter in which we inflect.

Great. And with a couple of minutes left, I guess, just capital allocation priorities, like we're getting -- expect to finish north of 4.5x leverage at the end of the year, goal towards 2.5x. How are you thinking about return to Evergreen and returning capital to shareholders?

Our first priority is always to fund the business. And as the business now is in a position to start expanding, normally, one would think that working capital would be a draw on cash. We actually think we have the ability to continue to drive our cash conversion cycle. So maybe that's a bit of a push. We do still have the ability to fund internal projects with really strong rates of return.

We typically used to talk about that in the context of supply chain, where we were basically having a threshold and a hurdle rate of 30-plus percent in order to get funding. But now we have a lot of AI projects that are competing and are bringing strong -- really strong ROIs associated with them as well. So we'll continue to fund and earmark cash towards those efforts and those endeavors.

And then everything else that we have at this point, frankly, will be put towards debt paydown because we are committed to becoming an investment-grade credit issuer again. We've made good progress from the second quarter of '23 to where we think we'll finish this year. We think we could have taken up to 2 turns out of our leverage ratio, but we have more to do and more to go.

Yes. All right. And I guess just, Chris, if we wrap things up, a year from now and we're sitting on the stage, what do you hope investors will point to as the clearest evidence that the near-term inflection and turnaround are taking shape?

Yes. I think a year from now, if we come back and what we're committed to do is say we're now growing market share as a company. We've returned the company sustainably to top line growth. We've delivered margin improvement. We've delivered EPS improvement. We have delivered cash improvement that's allowed us to delever. I think there's a real opportunity for the company to rerate because I don't believe that the company is trading.

I'm not an expert, but I don't believe the company is trading assuming that's going to happen. But I can tell you inside the company, the company is very excited about the progress because the organization can see it coming. And I believe we're going to be here a year from now and be talking about the inflection on all key financial metrics and the sustainability of that, which will be an exciting discussion.

Great. And we'll leave it there. Thank you, Chris and Mark, and thank you, everyone, for attending. Look forward to seeing you guys next year.

Thank you.

Good morning, and welcome to Newell Brands First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. A live webcast of this 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.

Thank you. Good morning, everyone, and welcome to Newell Brands First Quarter 2026 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 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.

Today's remarks will also refer to 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 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.

Thank you, Joanne. Good morning, everyone, and welcome to our first quarter earnings call. We had a strong start to the year with Q1 results ahead of expectations across all key financial metrics.

All 3 segments delivered core sales growth above plan, with the Learning & Development segment returning to core sales growth. Core sales at minus 3.5% improved both sequentially and versus a year ago for 2 primary reasons. First, we experienced better-than-expected consumer demand for our products driven by improving point-of-sale and market share trends, which we believe is directly related to our focus on innovation and higher levels of advertising and promotion support.

Stronger consumer demand was most pronounced across the U.S. brand portfolio, where 6 of our top 10 brands gained market share in the first quarter. In addition, for the first time in over 4 years, 6 of our top 10 brands delivered year-over-year point-of-sale growth and 7 top 10 brands improved their sequential trajectory versus the fourth quarter.

These notable proof points provide clear evidence that our new innovation strategy and heightened levels of A&P investments are having the desired effect, namely allowing Newell to once again engage and delight consumers with high-quality products that deliver real solutions and benefits with strong consumer value.

As we discussed at CAGNY, 2026 is the first year since we initiated our turnaround strategy that we have a robust consumer-relevant innovation pipeline supported by competitive A&P levels and strong retail activation plans. During the course of the year, we plan to launch 25 Tier 1 and Tier 2 innovations, up from 18 last year, and those innovations span every one of our businesses.

Importantly, we are now bringing to market fully vetted consumer-preferred ideas that are designed to improve value, expand usage occasions and give retailers more reasons to support our brands. Those efforts are translating into better point-of-sale results, improved share trends and stronger distribution opportunities.

The second reason, first quarter core sales came in better than expected was a net pricing benefit related to customer programs due to better claims experience and improved deduction management. Our focus on improving the return on investment of our customer spending and improving operational discipline and spend management is paying off. These 2 items, which led to top line overdelivery, drove normalized operating margin above our outlook even after increasing A&P investment compared to prior year.

Normalized earnings per share came in $0.03 better than the upper end of our guidance range due to higher-than-expected core sales, better-than-expected normalized operating margin and a lower-than-expected first quarter effective tax rate.

From a segment perspective, Learning & Development was the strongest part of the portfolio in the quarter. The segment returned to core sales growth led by Baby, which grew 4.9% in the first quarter, supported by strong consumer demand, positive POS trends, innovation and share gains.

Both Home & Commercial and Outdoor & Recreation exceeded plan and improved sequentially. Based on these solid first quarter results, we remain confident that Newell's strategy is working. At the same time, the external environment remains dynamic, particularly as it relates to petro-based cost inputs and tariffs. So let's spend some time on each of those 2 important areas.

Currently, we see an additional approximately $50 million of commodity and transportation inflation versus our original plan with higher resin costs accounting for about 60% of the total increase. That said, unfortunately, resin is now a much smaller part of Newell's overall cost structure. For perspective, direct resin purchases represent roughly 5% of 2025's total cost of goods sold, which is down materially from about double that level historically. And our sourcing and supply chain teams manage our resin exposure through established contract structures rather than spot market purchases. This provides better visibility, reduces exposure to short-term spot market volatility and creates some lag time in how costs flow through the P&L, which gives the business more time to respond.

Moving to tariffs. The framework has shifted materially since our last call. IEEPA tariffs were invalidated. New tariffs under Section 122 were put in place at a temporary 10% replacement rate. Existing tariffs under Section 232 were revised and new Section 301 investigations are now underway for potential new tariffs.

The tariff environment clearly remains very fluid with a few important things to note. First, our initial outlook assumed a higher tariff baseline. So the current tariff regime is actually a help versus our going-in expectations. In fact, we believe tariff help will offset about 50% of the previously mentioned incremental commodity hurt with the remainder being offset by higher levels of productivity savings and targeted price and promotion adjustments where necessary.

Second, the best-in-class sourcing, manufacturing and trade capabilities we have built over the past several years have positioned us well on a relative basis versus competition. For example, we have reduced China-sourced finished goods from a peak of roughly 35% of global cost of goods sold to under 10% and our remaining China exposure, principally in Baby gear, is an industry-wide challenge, not one unique to Newell. In addition, our highly automated domestic manufacturing footprint creates what we believe is a structural tariff cost advantage across 19 product categories.

Third, and before moving on, I want to recognize Newell's Trade Expertise Center, TEC, as we call it, is a highly professionalized centralized capability that brings together trade compliance, policy intelligence, analytics and operational execution to ensure Newell stays compliant, keeps goods moving seamlessly across borders and responds quickly and efficiently as trade policy changes.

To close out this section, please note that we will actively pursue tariff refunds related to approximately $120 million of IEEPA tariffs paid in 2025 and neither our Q1 actuals nor our outlook include any benefit from these potential refunds.

Having touched on first quarter performance and what we are seeing and expect relative to commodity cost and tariff impacts, I want to turn to the overall Consumer & Category Environment and how we see our top line growth prospects for the balance of the year.

Consumer spending in the categories in which Newell competes came in slightly better than we expected in the first quarter at down 1%. We continue to see category growth from high-income consumer cohort being slightly more than offset by declines from low-income consumers. Additionally, it appears the tax refund stimulus boost is largely offsetting higher fuel and energy costs so far. Importantly, consumers are still responding when the value proposition is clear. When innovation solves a need, trusted brands are well supported, price and value are appropriately balanced and retail execution is strong.

Coming into the year, we assumed our categories in aggregate would decline about 2 percentage points. However, based on what we saw in the first quarter, we're now assuming a 1.5% category decline for the full year. This slight improvement in underlying consumer and category dynamics when coupled with better-than-expected first quarter results and what we know about the strength of our innovation, marketing and distribution plans for the balance of the year puts us in a position to predict a return to top line growth in the second quarter. Additionally, given the stronger-than-expected first quarter results and our second quarter outlook for core sales growth, we are also raising our full year outlook for net sales, core sales and normalized earnings per share.

Before closing, I want to thank all of the Newell employees for their dedication to the turnaround effort and their agility and resilience in dealing with a dynamic operating environment.

With that, I'll turn the call over to Mark to walk through the financials and outlook in more detail.

Thanks, Chris. Good morning, everyone. First quarter 2026 net and core sales declined versus a year ago by 1.1% and 3.5%, respectively, with 2.7 points of favorable foreign exchange and 0.3 points of exits and other impacts accounting for the difference between net and core.

Normalized gross margin in the first quarter expanded by 70 basis points to 33.2%. Gross productivity and favorable net pricing actions more than offset cost inflation, tariff costs and lower volume. Normalized overhead dollars were slightly lower year-over-year as we continue to execute against the previously announced global productivity plan.

During Q1, we recorded $6 million of restructuring charges, bringing cumulative charges under the plan to $46 million. We continue to expect total restructuring and restructuring-related charges associated with the plan of approximately $75 million to $90 million, the rest of which should be largely incurred by the end of 2026.

As expected, A&P as a percentage of sales was just north of 5%, which was about 30 basis points higher than a year ago as we continue to invest behind the strongest innovation program Newell has fielded since at least the Jarden acquisition. All of this brought Newell's normalized operating margin in at 4.8%, which was 30 basis points above a year ago and ahead of our expectations.

As Chris indicated, we did record approximately $25 million of net pricing benefit, which flowed through the balance of our first quarter P&L due to a refinement of estimates related to customer programs, reflecting better claims experience and improved deduction management. This benefit contributed about 160 basis points to core sales growth and about 110 basis points to our gross margin rate for the quarter.

In English, this means that the work we have been doing to generate a better return on our annual invoice to net investment in the U.S. of roughly $1 billion is starting to pay off. That work began several years ago with Ovid, which consolidated 23 separate U.S.-based legal entities into one go-to-market organization. It has subsequently continued with the implementation of a customer trade fund management system and improved deduction management software. Going forward, we will continue to strive to improve the return characteristics of our customer programs, which may actually result in more trade fund dollars being invested, but in a more efficient and optimal manner than in the past.

Net interest expense of $84 million represented an increase of $12 million from the prior year, and we reported a 0 normalized effective tax rate on the quarter. The combination of all these factors resulted in a normalized $0.05 loss on diluted earnings per share, which was ahead of the guidance we provided during our last earnings call.

From a cash standpoint, operating cash was an outflow of $233 million versus an operating cash outflow of $213 million in the year ago period. Please note that Q1 historically is always the smallest quarter of the year due to seasonality, so this cash performance is not unusual or unexpected.

Our net leverage ratio for the quarter was approximately 5.4x based on net debt of $4.8 billion and trailing 12-month normalized EBITDA of $881 million. This compares to approximately 5.3x in Q1 of 2025 when we had $4.7 billion of net debt and $884 million trailing 12-month normalized EBITDA. Having covered first quarter results and before providing our full year and second quarter outlook, let's take a few minutes to discuss commodity costs and tariff impacts in a bit more detail.

Following the start of Operation Epic Fury, oil, using WTI as the benchmark, increased from a pre-conflict average of about $60 to $65 a barrel to a peak of $113 before retrenching slightly. This directly impacts Newell in 2 ways. As indicated earlier, resin purchases represented about 5% of 2025 total company cost of goods sold and the price of polyethylene and polypropylene are directly tied to the price of oil. Using polyethylene as an example, because it represents more than 50% of our total resin use, the average price we paid during the first quarter was very comparable to the prior year. However, for the balance of the year, we are currently assuming the cost per pound will be up about 40% versus a year ago and about 40% higher than what we paid during the first quarter of 2026.

The second way the price of oil directly impacts Newell is inbound and outbound freight, which represents about 3% of 2025 total company cost of goods sold. In this case, the average price of a gallon of diesel during the first quarter of 2026 was about $4, which was up a modest 3% versus a year ago. That has changed rapidly, of course, and we are now assuming diesel will average about $5 per gallon for the balance of the year with the price peaking during Q2 before gradually tapering off throughout the second half of the year.

Because resin is an input component that gets converted into finished goods and is subsequently inventoriable, the incremental P&L impact is expected to be weighted more towards the back half of the year, whereas since diesel and bunker fuel is essentially expensed as incurred, often in the form of a fuel surcharge, they have a more immediate effect on the P&L.

To boil all this down and based on the assumptions we are currently using, commodities and transportation are now expected to add about $50 million of incremental cost to 2026 versus our original budget. But that is likely to change. So from a sensitivity standpoint, we can offer you the following. All else being equal, every $5 move in the per barrel price of oil up or down equates to about $5 million of either incremental cost, which we would develop plans to offset or benefit, which we could choose to reinvest or drop to the bottom line.

It is also worth noting that there is some good news because while commodity costs have risen meaningfully, we expect about half of this negative impact to be directly offset by lower tariff costs. Recall that during 2025, we incurred $115 million or $0.23 per share of new tariff-related P&L charges, $0.02 in the second quarter, $0.11 in the third and $0.10 in the fourth.

At the start of 2026, we expected to incur $146 million or $0.30 per share of comparable tariff-related P&L charges. Those charges were forecasted to present themselves as follows: $0.065 in each of the first and second quarters, $0.09 in the third quarter and $0.08 in the fourth quarter. As we stand here today, with all the changes we are aware of and with the key assumption that when the current 10% Section 122 tariffs expire, they are replaced by some combination of new tariffs that on average carry a 15% effective rate, we now expect to incur $120 million or $0.24 per share of P&L tariff-related costs, which is $26 million or $0.06 per share better than originally expected.

To help complete your models, our estimated 2026 P&L tariff impact is $0.10 in Q1, $0.07 in Q2, $0.05 in Q3 and $0.03 in Q4, all of which is off by $0.01 due to rounding.

Finally, to wrap this section up, please note 3 things. First, I just stated that the Q1 2026 P&L impact from these tariffs was $0.10, and our original estimate was $0.065. Q1's tariff impact ended up higher than expected, but that was primarily a function of sales coming in stronger than planned for certain tariff-impacted categories. In other words, we sold more inventory than anticipated in these categories, which brought forward tariff costs that have been held in inventory at the end of last year.

Second, with respect to the potential IEEPA tariff refund we are entitled to, we are accounting for this under a loss recovery model. Under that framework, a receivable can only be recorded when recovery is both probable and reasonably estimable. As of March 31, we did not record a receivable given remaining uncertainties, including the appeals process and implementation of the refund process itself. Thus, our current earnings and operating cash flow outlook does not include any impact from potential IEEPA tariff refunds, including refunds related to approximately $120 million of IEEPA tariffs paid in 2025.

Third, while there is a gap between the incremental commodity hurt we expect to incur and the incremental tariff help we now anticipate, plans are in place to make up the balance through a combination of gross productivity, disciplined cost management actions and where necessary, select and targeted net pricing actions.

Turning to our outlook and based on our first quarter overdelivery and projected sales growth over the balance of the year, we are raising our full year estimates for net sales, core sales and normalized earnings per share. Specifically, net sales are now expected to be between flat and positive 2% compared with our previous expectation of negative 1% to positive 1% and core sales are now expected to be between negative 1% and positive 1% compared with our prior expectation of negative 2% to flat.

The outlook for normalized operating margin remains unchanged at 8.6% to 9.2%. We continue to expect an effective tax rate in the high teens and the bottom end of our normalized diluted earnings per share range has been increased by $0.02, bringing the range to $0.56 to $0.60 versus $0.54 to $0.60.

From a cash standpoint, as previously disclosed, Newell Brands decided to terminate its U.S. nonqualified defined benefit plans. These were specialized nonqualified plans for certain participating former senior executives and are separate from our broad-based employee benefit programs.

As part of the process, we are liquidating the associated life insurance assets. And as a result, Newell expects to generate an incremental $60 million of cash by the end of the year, which will be recognized as cash from investing activities. Given this additional cash infusion, we have been leaning in on inventory purchases to bring in more inventory at what we believe will ultimately be lower tariff rates and to ensure adequacy of supply as business trends improve.

Consistent with this, while we are leveraging our operating cash -- we are leaving our operating cash flow range for the full year at $350 million to $400 million, we now expect to be towards the lower end of that range. CapEx is still being planned against a $200 million budget for 2026 versus a historical run rate of about $250 million, now that several large ERP integrations and supply chain projects have been successfully completed, and we continue to have plans to reduce our year-end leverage ratio by about half a turn.

For the second quarter of 2026, we expect both net and core sales to be flat to up 2% behind consumer-relevant innovation, net distribution gains and higher levels of A&P support. Normalized operating margin is projected to be between 9.6% and 10.2% and normalized diluted earnings per share is projected to be in the range of $0.16 to $0.19. Please note that second quarter normalized operating margin and normalized earnings per share include approximately $25 million of incremental year-over-year tariff costs, considerably higher diesel costs and an expected year-over-year increase in advertising and promotional support, both in absolute dollars and as a percentage of sales.

In closing, first quarter results were better than planned across all key metrics, with all 3 segments delivering core sales above our expectations. While we continue to face a dynamic cost and tariff environment, the capabilities we have built and the agility and dedication of the Newell team gives us the confidence to raise our full year outlook for net sales, core sales and normalized EPS while maintaining our operating margin outlook as we continue to prioritize cash generation and deleveraging as we seek to fully unlock the value of Newell's portfolio of leading brands for our shareholders.

Operator, we'll now open the call to questions.

[Operator Instructions] And our first question will come from Lauren Lieberman with Barclays.

I just wanted to first talk about the decision of what you're seeing in terms of category growth and the more optimistic outlook. There's a question of whether or not tax refunds were maybe helping consumers a bit in the first quarter, and now we've got raised higher gas prices. So just, I guess, what you're seeing that gives you the confidence to raise that category growth outlook at this point in the year?

Yes. Thanks, Lauren. And what I would say is, as I mentioned in the prepared remarks, through year-to-date through the first quarter and actually what we've seen so far in April, the category growth that we've seen has been negative 1%. As you know, we planned the year going into it at minus 2%. We decided to move the plan for the year up to minus 1.5%. So it was like -- it was sort of 0.5 point. That doesn't really assume that the balance of the year moves off that minus 2% assumption. It's more about the experience through the first 4 months being at minus 1% there. So it was a factor in our decision to raise the core sales growth guidance. And I think you're right, from what we can tell, the tax refunds, much of which came into the market in March and April, do appear to be offsetting the consumer impact from gas and energy.

I would say the bigger factor, though, that caused us to raise our core sales growth outlook was the underlying improvement in the business and additional distribution wins that we've received since we reported a couple of months ago. So we're continuing to win broader distribution gains. We're continuing to win more display presence. And that -- probably that real improvement, coupled with what we've seen year-to-date on category growth was the reason why we felt comfortable going forward with the raise in guidance.

The other thing I would say on the core sales guidance range is we could have gone further in raising it, but we didn't want to get ahead of our skis given that the first quarter is generally our seasonally smallest quarter. So we think we've taken sort of a prudent approach of reflecting what we've seen, what we know from the consumer response to our innovation and distribution and wins and category growth year-to-date, but also not counting on the environment being significantly better for the balance of the year.

Okay. So helpful. One just quick follow-up. Some of the new product activities that you had at the end of 2025, I'm thinking in particular around Yankee Candle, would you say that shelf sets and presence is now kind of on all those fronts as you expected? I think that was part of the disappointment in the second half of last year? Was it some of that just took longer to get into place? Would you say everything is now kind of as you'd originally expected just with a bit of a delay?

Yes. I think that's right. On Yankee Candle, I think we launched it last summer, and it took longer to get those shelves into a good place than what we thought. I think that has now resolved itself, and we feel like the shelf is in good shape on Home Fragrance. We had a very strong Q4 in the Home Fragrance business with core sales growth, which, as you know, is the biggest season there. We did -- we sold so much actually in Q4 that we didn't have as much to liquidate on sale in Q1 this year. So you'll see Q1 was sort of down a little bit in Home Fragrance, but that's largely because we weren't liquidating as much sale in product.

The other thing I would say importantly, as we think about go forward, we've got -- as we mentioned on our last call and at CAGNY, a lot of the innovation that we're launching this year and a lot of the distribution wins that we expect this year are setting in the second quarter. And so we remain very much on track for those. And that also is giving us confidence to predict or to guide that the current quarter, Q2 is going to be the quarter that Newell returns to core sales growth.

And the next question is going to come from Andrea Teixeira with JPMorgan.

So I was just hoping to see if you can comment on the pricing strategy now that resins are higher. I understand that you had to invest some of, I believe, in the Rubbermaid containers, given that your competitors did not follow. And I was just hoping to see in your new range, what are you assuming for that?

And then I understand, Chris, as you said now, the first quarter is a small quarter. But as you set up for back-to-school and now the back-to-school, I mean, now that the Writing business is back to growth and you're calling to a second quarter inflection. What are the drivers of that inflection? Is that still the momentum in Baby? Or is that any other -- like as you think about the categories, which categories are recovering and will drive that inflection, please?

Very good. So on pricing, we have not announced -- as we said on the last call, we did make pricing adjustments on the Rubbermaid Food Storage business and on the Baby business, the Baby business primarily because the tariff rate went down, Rubbermaid Food Storage to be more competitive about 5 or 6 months ago. And those have been in the market and those are performing well. Both of those businesses are accelerating. In fact, over the last 6 months, we're up several hundred basis points in market share on Baby, on the Graco business. We are -- we have had the strongest market share gains driven by innovation with things like the Graco 360 EasyTurn 2-in-1 rotating car seat as well as the SmartSense Swing and Bassinet that continue to drive that business forward in a very positive manner.

As we look forward on pricing, I think as we tried to allude in the prepared remarks, while we have $50 million or so of incremental commodity cost headwind from resins and transportation costs primarily, we think that about half of that is going to be offset from tariff benefit. We also think that we're going to drive additional productivity actions across our supply chain and across our overhead base that are going to help mitigate that commodity cost effort as well. And then there is a remaining piece. And so we're in the process of looking at that across the portfolio to see which parts of the portfolio might we take pricing adjustments.

What I would characterize going forward is it's likely that we will take some pricing actions. It could be through reducing our invoice to net spend in our promotional depth. It could be through list price increases. But I believe it will be very selective in the portfolio as opposed to broadscale pricing at this point because we just don't think we need that.

On your second question on the inflection, I would say a couple of things on that. The first thing I would say is one of the things that I'm excited about is in the first quarter, our POS trends were actually stronger than our core sales growth. So when we look at the consumer offtake trend, the consumer offtake trend was a couple of points better than the core sales growth in Q1. And as I mentioned in the prepared remarks, we had 6 of our top 10 brands that drove market share growth in the quarter. So that bodes well for replenishment orders heading into the second quarter is the first thing.

Second thing I would say is we've got a lot of our innovation that is in early stages of being launched, and we've seen very strong response to it. The Coleman Snap 'N Go cooler, we've raised our forecast on that innovation 5 times in the last 3 months in terms of the projection for that product. We continue to keep raising our projection on some of the Graco car seats, on Sharpie behind some of the new colors and tip sizes and other innovations.

We also continue to secure additional distribution wins. And so when I look at the inflection in the second quarter, the businesses that I would expect to be the biggest contributors to that inflection are likely to be the Writing business, the Baby business, the Outdoor & Recreation business as well as the Kitchen business. And I think all 4 of those businesses are positioned with the innovation, distribution gains that we have to drive meaningful progress.

Final point I would make is that the international business, which for largely shipment timing reasons, got off to a slower start in Q1. We do expect that business to be a stronger contributor in Q2 than it was in Q1. So those are kind of the things that give us confidence to guide that Q2 is going to be the inflection point.

The other thing I think it's important is you might recall about a year ago at this time, we had basically believed that we were going to positively inflect at some point during the back half of last year as well. Then the tariff regime came in, and we were forced to take pricing on April 1, on May 1 and on July 28 because we had to move quickly in order to remediate the $115 million of P&L impacts coming in from those tariffs. Those prices obviously are now effectively in the base, and many of those haven't even fully annualized yet. So to Chris' point, this additional $50 million of commodity increases that we have to contend with, we think a very small sliver of that might have to be addressed by very targeted pricing actions. So we don't see, based on where commodities sit today and where tariffs sit today, us needing to make any major interventions that would then disrupt the positive share and POS trends that Chris just cited.

And the next question will come from Olivia Tong with Raymond James.

Great. One short-term question, and then I have a follow-up. But your Q2 EPS guide obviously implies a fair bit of cost inflation and margin challenges given the commodity and cost environment. Is that the only reason for the margin change? Or is there -- given the strength and confidence in your top line expectations, did you assume any additional spending in there? Or is that just the flow-through of cost inflation? And then I have a follow-up.

Yes, it's a great question. So there's really 3 things I think I would speak to. One, we already addressed in part, which is to say that last year in Q2, we had $0.02 of tariff P&L impact. This year, we're predicting it to be $0.07. So that's a full $0.05. The other thing, obviously, is this commodity increase of $50 million. That $50 million, which, as we talked earlier, was probably about $30 million of resin and $20 million of diesel presents itself over the course of the balance of the year. These are very rough numbers, but about $10 million of that is probably going to impact us in Q2, $25 million in Q3 and $15 million in Q4 just roughly is one way to think about it.

And then the other thing, of course, is we continue to invest behind A&P, and we expect A&P in Q2 to be up a fair bit. So we're continuing to invest behind the business because we've been rebooting the business over the last many years. We feel like we're really getting traction now across the innovation side of the house, across the retail execution side of the house, the distribution gains that Chris has cited, we think the POS trends are reflecting that. So that's -- those are primarily the 3 reasons why you see that on the EPS side as it relates to Q2.

Yes. The biggest driver, as Mark said, is the tariff thing because tariffs go from effectively a year-over-year headwind of $0.05 a share in Q2 to in the back half, a material improvement in Q3 and Q4 because of the timing of when tariffs were implemented and all the changes that have been made. So if you were to strip out just that tariff impact, I think you'd see a much stronger performance on the operating margin side and on the bottom line compared to the prior year.

Yes, it's a $0.13 differential in the back half just on the tariff piece alone.

Got it. That's helpful. And then we've talked a lot in the past about your domestic manufacturing. And just wanted to ask you a little bit more about your ability to flex that to the extent that competition gets into sourcing challenges or what have you, greater exposure to nondomestic manufacturing, et cetera. Can you talk about the changes that you've made over the last few years in standing up those -- your domestic facilities so that should there be more demand or constraints amongst competition that you can step up if that's the case?

Yes. It's a good question, and it's one that we've been working on. We've spent the last really 6 or 7 years automating a lot of our U.S. manufacturing footprint. So as I mentioned, we have 15 manufacturing plants in the U.S. and 2 that are USMCA compliant in Mexico. And all of those facilities, we've been embarking on automation. And when we've done the automation, and I think we gave an example in the Writing plant in Tennessee, where we've moved the line speed from 150 units a minute to 500, and we've gone from 6 or 7 workers that were hired on the line down to 1.

But as we've done that automation, we did it sort of on a return on investment model that assumed a constant volume. But what it effectively did was gave us excess capacity in the U.S. factories. So today, in most of our U.S. manufacturing plants, we have the ability to scale up relatively quickly to compensate for supply disruption. And we do think -- we haven't baked that into our guidance, but we do think that there is a real possibility of supply disruption, particularly for those companies that are overly dependent on Asian sourcing because of supply constraints in some key materials that may manifest themselves there.

And so we can react relatively quickly. I would say if we had an order that was a material upside order because a competitor ran into trouble. And we've seen a couple of those so far in select categories. We can probably ramp up within 3 months or so, generally speaking, across our U.S. manufacturing footprint. And so I do feel like that's a big opportunity for us as those present themselves.

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, and have a great day.

Hi, everyone. It's my pleasure to welcome Newell Brands to CAGNY this year. They're our last presenter, so this is quite exciting. Joining us today are President and CEO, Chris Peterson; and CFO, Mark Erceg, Also, please join me in thanking them for sponsoring the break earlier today.

So with the strong portfolio of well-known brands, Newell Brands is focused on delighting consumers by lighting up everyday moments. The company has been on a significant transformation journey since 2023 and under the current leadership team to unlock operational excellence while strengthening front-end capabilities to scale with a One Newell approach.

They've made meaningful progress by simplifying the portfolio and rebuilding core capabilities, including automating a strong domestic manufacturing network. They expect to gain distribution in 2026 for the first time since the Jarden acquisition, owing to their renewed innovation momentum and disciplined execution. So I'm going to turn it over to Chris and Mark to hear more about the company's efforts. Thanks.

Thank you, and it's great to be back at CAGNY. I'm going to start with our forward-looking statement, which you can read at your leisure and start really with Newell at a glance. As Bonnie said, she couldn't have done a better job on the introduction. We are a portfolio company with leading consumer brands designed to delight consumers. We have a little bit over $7 billion in net sales, close to $900 million in EBITDA.

Our top 25 brands represent 90% of the company's sales. 10 countries represent 90% of the company sales, you can see the top 10 brands and the top 10 international markets on the slide below. We organized the brands into 3 segments: Home and Commercial Solutions, Learning & Development and Outdoor & Recreation. About 60% of our business is in the U.S. with about 40% being spread internationally across the markets that I mentioned on the previous slide. The key messages for today, we have been on a multiyear capability based turnaround, and that turnaround very much remains on track.

And in fact, we're excited about the progress that we're making, and we're excited about 2026 where we expect trends to accelerate, and we'll talk a little bit more about that. We also got started a couple of years ago on an early broad and deep executive sponsorship with artificial intelligence, a program that we internally call Quantum Leap, which is further strengthening our capabilities and accelerating innovation and distribution wins, and we'll provide a little bit of perspective on that.

And finally, we've driven a significant simplification agenda. And when you look at that simplification agenda, coupled with a strong manufacturing footprint, we believe we're well positioned to get back to delivering on the company's financial algorithm and drive shareholder value. So as context, in June of 2023, actually, at the Deutsche Bank conference, we showed this slide. This was the capability assessment that we had done that looked at the 11 capabilities that are required to win in our industry.

And at that point in time, you can see that most of the front-end capabilities we rated as we were worst in class in the industry. And so from that starting point on the capability set, we put a new strategy in place. The new strategy that we put in place has 5 very clear where to play and how to win choices.

The, where to play, choices are: to distort investment to the company's largest and most profitable brands; to expand distribution, focusing on the fastest-growing channels and winning retailers; the U.S. is the top priority, but we wanted to get to a One Newell approach in the international markets, which we've made significant progress on; we wanted to disproportionately focus on mid- and high-price point segments where brands can add value with innovative products: and we wanted to disproportionately target millennial and Gen Z consumers who are increasingly becoming a bigger part of the market.

On the, how to win, side, the how to win was all about improving the capabilities of the company. We got focused on rebuilding our ability to understand consumer insights more deeply to drive superior innovation. We'll talk a little bit more about that.

We wanted to create compelling brand building and brand communications. We wanted to win with the shopper with outstanding go-to-market expertise. We wanted to continue to advance a global scaled and advantaged supply chain, which we have done, and we wanted this to be based on a high-performance organization. We got off to a very strong start. In 2024, based on the strategy that was put in place in mid-'23, you can see the rate of core sales growth improved significantly we put gross margins up dramatically.

Our EBITDA, both in dollar terms and EBIT margin accelerated and we delevered the balance sheet at the same time. Although 57% of our U.S. business is domestically manufactured, 43% is imported. And in 2025, we got disrupted from the trade and tariff regime that is currently in the news based on the Supreme Court ruling that just came in the last hour, 1.5 hours.

And specifically, in the case of Newell, in 2025, we paid $174 million of incremental tariff cost that was not in our plan at the beginning of the year. That resulted in a P&L headwind in of $114 million or $0.23 a share, which is a meaningful part of Newell's profitability.

I will mention on that tariff headwind that the substantial majority of those tariffs were under the IEEPA tariff regime. And so the IEEPA tariff regime is the one that the Supreme Court just ruled 1.5 hours ago is not valid. It's too early to say what the implications of that are, because the administration has other authority that they can reimpose tariffs, number one. And number two, it's not clear whether companies will be entitled to a refund or not. And so I'm not going to comment more than that on the recent ruling because it's still too early to do that other than to say that the substantial majority of what we paid last year and the substantial majority of what's in our guidance this year are under that IEEPA authority that has been ruled invalid. Specifically in '25, though, to deal with this headwind, we did 3 things to adjust our plan in the year.

The first thing we did was we adjusted our sourcing strategy to bring more sourcing into our U.S. manufacturing plants and to move more products out of the China market into other countries. The second thing we did was got focused on productivity, really focused on supply chain productivity and overhead productivity. And we drove significant cost savings, both in the supply chain and in our overhead levels. And then finally, we took 3 rounds of pricing. The 3 rounds of pricing we took were April 1, May 1 and July 28.

Those -- that was pretty early. So we were one of the first people to price in our industry. And the reason we were one of the first people to price is because generally, our portfolio of brands are leading brands in the categories in which we compete. And when we're faced with a cost that affects the whole industry, we believe that generally, the leading brands are the ones that lead pricing in the categories. The result of that was we did pretty well at offsetting the tariff impact.

Our gross margin was actually up 10 basis points last year in '25 versus '24 despite this massive tariff headwind, our operating margin was up 20 basis points despite this. And within that, we invested 50 basis points more in A&P spend as we've been rebuilding A&P behind our new product innovation. And our net leverage ratio ended the year at about 5x, which is where we started the year. But this came at the expense of top line sales because we got scrapped as competitors waited to price until they saw our pricing in the market in a number of categories.

So when you look at the financial progression from '24 to '25, and you look at this chart on core sales, normalized gross margin, EBITDA and net leverage ratio, effectively, we went sideways in '25 because of the tariffs. The exciting part of this chart is we didn't go backwards. We went sideways. And so we sort of got delayed by years the way Mark and I think about this.

But if you look at where we are in '25 versus the starting point in '23, we shouldn't lose sight of the fact that we're still dramatically better today than we were when we got started on the turnaround plan. Core sales trends have improved in '25 versus '23. Gross margins are up substantially in '25 versus '23. EBITDA is up in both dollar terms and as a percentage and leverage ratio is down in '25.

What's more exciting though is that while we were dealing with these tariffs, we didn't stop the work on the capability improvement projects. And in fact, we have accelerated dramatically the work on capability. So as we stand here today, we now look at that same chart that I showed of where we were in '23. And you'll see that we believe we are green across the vast majority of the capabilities today that we need to get back to winning in the marketplace.

Part of that capability build that we got started on because we were starting in a place where we were deficient versus the industry, we decided to take a leapfrog approach with artificial intelligence. And I'm pretty excited about what we've been able to drive across that with early broad and deep executive sponsorship of AI, the Quantum Leap program I mentioned earlier. And so I want to spend a little bit just giving you a little taste of what that looks like.

So we got started with an operational approach. I became the executive sponsor. We put a steering team together. We put a dedicated Quantum Leap team together and we named functional navigators in every single function of the company. So there were 3 pillars that we got started with this work on. The first is foundational, which is how do we roll out AI tools to individual employees so that we can make them more productive in their individual work.

The second was a functional view where for every function, we have reimagined what that function workflow and productivity should look like over a 3- to 5-year period, fully AI-enabled.

And the third was looking at transforming entire end-to-end multifunctional value chain processes. The journey that we've been on in '24, we got started with what I would call sort of a grassroots effort as many companies did.

Looking at a governance team, enabling teams to go and look at use cases, funding those use cases and getting started. In mid-'25, we made a strategic pivot to really focus away from a use case model to a how-work-gets-done model, looking at workflows and processes. And within that strategic pivot, we're using generative AI. We're using machine learning and we're using agentic AI today for workflow management. So all 3 forms of AI are prevalent across Newell.

Today, under the Quantum Leap program, AI is fully embedded in the strategy focused on value creation. We're not doing AI for AI sake. We're doing AI to drive faster revenue, higher margins, more effective overhead and better cash and we're using it as an enterprise capability. Specifically, we have an AI steering team. We have workflow redesigns that have been developed across every function in the company that are driving productivity, improving outcomes and accelerating cycle time.

I mentioned the AI functional Navigators. We have 33 of them that are focused specifically on their functions. We have over 2,000 employees in the company today that are using AI every day in their work. And we've got over 100 active use cases that are in use across the company. One of the areas that I'm most excited about is what we've done in improving our innovation process with AI. So on the front end, we have deployed AI in ideation, in design and in prototyping across our innovation process.

We've also deployed AI to improve our consumer understanding, co-creation and testing. The -- it's not any one of these things. It's the combination that's driving significant improvement in what we're doing. And what it's enabling us to do is drive significantly faster cycle time from concept to launch across our innovation portfolio. We've also fully deployed AI in our marketing activation. So we are now creating digital content that's AI-enabled.

Last year, the amount of digital content we created was up 500% in '25 versus '24 with no additional investment. So a substantial improvement in speed, quality and cost, and we're employing AI and marketing activation. When we couple this with the highest A&P investment in the company's history and strong retailer activation, we are excited about where we're headed from an innovation standpoint as we head into '26. We have a video to showcase a little bit about a couple of the use cases for AI that we're going to show now.

[Presentation]

When we put it together, the innovation pipeline that we have heading into 2026 is the strongest in the history of the -- the modern history of the company since the Jarden acquisition. When we got started on the turnaround journey, we put in place a completely new innovation process. In 2023, we had on what we call a Tier 1 or Tier 2, which is a large consumer-oriented innovation that was launched in the market.

And generally, we would define our innovation pipeline as having a lack of consumer-relevant innovation with a lot of small projects that generated churn but didn't generate any value for consumers and retailers.

As we sit here today and enter 2026, we have 25 Tier 1 and Tier 2 innovations that are launching this year after 18 last year. These innovations are consumer-preferred. They are driving value. The retailer response has been terrific, and we are excited they're across every single one of our businesses. So every business will have a stronger innovation as we head into this year.

So let's take a look at a couple of them, and I'll go through some of the highlights. On the Writing business, we launched Sharpie S-Gel and became a major player in the S-Gel, the gel pen market. This year, we're launching a style icon set of pens that have better fashion, better colors to extend that S-Gel line.

On Expo, we've launched a better, more vibrant ink on dry erase. We've also extended into a new category, which is called wet erase, which is permanent until you want to wash it away, that is a completely new usage experience.

And then on Sharpie Creative Markers, which was launched a year ago, this year, we'll be launching a set of metallic colors on that Sharpie Creative Marker line and 3 new tip sizes, so this is a good example of extending innovation into year 2 and year 3 of some of these launches.

On Baby, last year, we launched the EasyTurn 360 2-in-1 convertible car seat. This was the #1 innovation in the baby gear category in the United States last year amongst all competitors. This innovation gained 860 basis points of market share in the turning car seat market.

We're excited to have that in year 2 this year, and we think there's room for that to grow. But what we're more excited about is this month, we're launching the same thing in the infant car seat market with a SnugRide, Turn & Slide car seat to get into the infant car seat market with the best turning car seat that's available.

Let's take a look at what this looks like.

[Presentation]

In the kitchen category, we're getting bigger in the performance blending category. We're launching in the Extreme Mix blender across Latin America and into the U.S. which is a high-performance blender with a great feature benefit set at a compelling value. In Home Fragrance, last year, we launched the relaunch of the Yankee Candle brand in the fall. We returned the Yankee Candle business to 6% core sales growth in Q4, which is the prime season for Yankee Candle.

In '26, we will be relaunching the Yankee Candle brand across Europe based on the same relaunch we did in the U.S. In addition to that, though, we're launching a Yankee Candle premium line, which you can see at the bottom, and we are relaunching the WoodWick as well as the Chesapeake Bay brand. So we have terrific innovation across all parts of the home fragrance portfolio.

When it comes to outdoor & rec, we are relaunching the Contigo brand. The Contigo brand is focused on the young professional and we are relaunching this with a new modern aesthetic with premium finishes based on the iconic silhouette of the Contigo brand. We're also launching the bubba brand this year. This is going after a consumer segment we call expressive baddies, which has Gen Z females 18 to 25, who are always 40 minutes late for the party but always ahead on fashion and beauty trends. And it's an expressive fun and exciting portfolio of products that we're excited about.

And finally, an outdoor & rec on Coleman, finally, but not least of all, we're launching the world's first collapsible cooler. This is a patent pending or patent-pending product. We'll showcase this a little bit, but we're very excited about this. So this is a hard-sided cooler that collapses to 1/3 the size for easier transportation and easier storage of coolers, and it still provides leakproof protection and days of ice retention.

Let's take a look at the advertising on this one.

[Presentation]

That's an exciting one. The combination of the go-to-market capability improvements we've made, the stronger innovation portfolio and our tariff advantage manufacturing wins that we've had has led us to winning more line reviews in '25 that are being reset in '26 than we've ever done before. As a result of that, we are forecasting this year for our distribution for the first time in terms of net total distribution points across Newell to be up in 2026, and we've got strong commitments from retailers to support this evasion with stronger share of shelf across most of our businesses in the U.S. and for the company in total.

Finally, from a tariff advantage manufacturing standpoint, we'll see how this evolves depending that the Supreme Court tariff ruling. But this is a good example of what we're doing on blenders. We self-manufacture these blenders. We are not subject to any tariffs on these blenders. And we've extended our product line now to have a feature benefit set that spans from sort of a mid opening price point product at $22.98, which is a great value at that price point all the way up to the Extreme Mix on the right side.

We are expecting to see, and we've got commitments for significant distribution gains on this across multiple retailers in the U.S. this year. So before I turn it to Mark, what I would say is I'm excited about entering '26. And as we enter '26, I believe that we are set up to have a significant improvement in the rate of core sales growth of the company. You're going to see us continue to grow operating margin, or guiding to get back to EBITDA growth and we're guiding to get our net leverage ratio down this year.

And for the first time, I feel like we've got now a full slate of innovation with a full set of A&P to support that turnaround and showcase what we can do in the market this year. So with that, I'll turn it over to Mark.

Thanks, Chris. Welcome, everyone. Having shared how Newell Brands Quantum Leap AI program has been a catalyst to further strengthen and drive our capability-based turnaround. We will now discuss how the radical simplification agenda we've been aggressively pursuing the past several years, directly supports and enhances our AI efforts going forward and how those efforts along with a strong domestic manufacturing footprint, will be monetized to support Newell's long-term financial algorithm and shareholder value proposition.

Over the past several years, we've reduced active SKUs by over 80%, rationalized our brand portfolio from 80 to slightly more than 50 consolidated 23 stand-alone supply chains, each with their own unique legal entity into an integrated and scaled operating company. We've also eliminated thousands of subscale suppliers and distributors hundreds of legal entities and dozens of office locations.

These major interventions, among others, have provided clarity of focus and improved operational excellence as evidenced by a 96% global fill rate which in turn has driven a tremendously positive impact on excess and obsolete inventory levels and customer penalties. And perhaps the biggest and most impressive simplification effort of them all, which is a foundational predicate for our enhanced AI efforts, is the transformative work that's been done across our IT landscape.

Immediately following the Jarden acquisition, Newell had an exceedingly complicated ERP structure characterized by multiple country and business unit specific localized ERPs. To make matters even worse, many of these individual country and business unit ERPs were running multiple instances of SAP. In total, only 35% of global sales were transacted on our core SAP platform. After years of hard painstaking work, Newell's ERP consolidation journey will end this fall when approximately 95% of global sales will be supported by a single instance of SAP.

A dramatically simplified IT core establishes the requisite framework to leverage data effectively through a system of unified governance and data quality management. This, in turn, allows high-quality data to be rapidly harnessed to drive faster AI augmented cycle times across the global enterprise.

As you can see from this chart, simplification efforts and more recently, AI enablement have allowed us to significantly reduce headcount while simultaneously improving underlying capabilities. Specifically, in Q3 of 2025, normalized overhead as a percentage of sales declined for the first time in 3 years, which was followed by a second decline in Q4 of 2025.

Looking forward, we expect normalized overheads as a percentage of sales to continue to drop for the next several years as we monetize past and future simplification efforts and as top line growth rates accelerate.

With overheads trending in the right direction, inclusive of the requisite work and investment required to dramatically increase Newell's capabilities, we can now match this up against a very strong end-to-end supply chain, which has benefited from about $2 billion of investment in the U.S., much of which was earmarked for automation since the 2017 Tax Cuts and Jobs Act.

The network currently consists of 41 plants strategically located around the world that, in aggregate, provide Newell with about 57% of everything we sell. The remaining 43% is sourced product. Within that 43%, it's very important to point out that Newell's rebuild supply network has dramatically reduced its dependence on China over the past several years. For example, China sourced product in the United States now represents less than 10% of total cost of goods sold, and that number is expected to decrease even more in the years ahead.

The dramatic increase in gross margin since 2023 has largely been driven by our fuel productivity program, which has consistently generated annual savings in excess of 3% of COGS. This high-performance organization, in addition to being scaled and highly efficient provides our retail partners with excellent customer fill rates. The United States was home to 15 of Newell's 41 plants, and we have 2 facilities located just a few miles south of the border that are 98% USMCA compliant. These 17 plants provide us with domestic sourcing across 19 tariff advantage categories.

For example, we make all jars in Indiana, NUK baby care products in Wisconsin, Sharpie and Paper Mate writing instruments and Elmer's glue in Tennessee, Yankee Candles in Massachusetts. Coleman coolers in Kansas, Brute trash cans in Virginia and Rubbermaid food storage in Ohio to name just a few. Since Liberation Day, we've been actively leveraging the strategic advantage with key retailers. And while the line review process does take time, we continue to make good progress extending distribution across our domestic production base.

Automation made our facilities more efficient and created incremental capacity, which is why our marginal return on incremental sales is now so compelling. For perspective, and assuming cost of goods sold is approximately 25% fixed and 75% variable, a 50% variable normalized gross margin rate across our tariff advantaged categories seems very reasonable. From there, and if we want to be somewhat conservative, we can assume $0.05 of every incremental sales dollar is reinvested back into A&P, which would leave us with normalized incremental operating margin of about 45%.

Since we finished 2025 with a normalized operating margin of approximately 8.4%, this suggests that the normalized operating margin on incremental sales going forward to be more than 5x current levels.

And while it might be obvious, it probably bears mentioning that if we were to use one of our higher-margin businesses like writing, the economics would be even more advantageous. In fact, let's take a quick look at how we've leveraged best-in-class proprietary automation techniques at our flagship writing plant in Maryville, Tennessee to improve unit economics on Sharpie. Just a few years ago, 6 workers could produce about 150 Sharpie Markers a minute, which translates into 25 units per minute per worker.

Today, one operator routinely makes 500 units a minute which is a productivity improvement of 20x. And while this is just one example, we have many others all across Newell's reimagined and rebuilt in-house supply chain. Expanding the scope of our discussion, looking at abbreviated P&L, the rapid expansion in gross margin between 2023 and 2024 allowed us to do a number of important things.

First, it allowed us to significantly increase A&P spending as a percentage of sales by nearly 20%, which is an important part of our top line growth strategy. Second, it allowed us to make critical investments in several overhead-related capabilities like consumer understanding, brand building and innovation, which are required to consistently win in the consumer products industry. And third, it allowed us to be both of these things while still expanding normalized operating margin by over 200 basis points.

This past year, fiscal 2025 was characterized by significant short-term tariff challenges, but the team responded exceedingly well. And as a result, we were actually able to expand normalized gross margin despite approximately $115 million of incremental gross P&L tariff costs. A modest improvement in normalized gross margin and meaningful reduction in overhead spending allowed us to expand our normalized operating margin by 20 basis points while also funding a 50 basis point increase in advertising and promotion, as we continue to invest behind a portfolio of category-leading brands.

As we enter 2026, tariffs will continue to put pressure on gross margins until their impact is fully annualized. So for modeling purposes, gross margin should be about flat. Relative to A&P, we have said repeatedly that we expect to invest more in absolute dollar terms and as a percentage of sales to properly support Newell's strongest innovation program since the Jarden acquisition. As mentioned earlier, normalized overheads have been down for 2 consecutive quarters. And based on our simplification, productivity and AI enablement efforts, we expect overheads as a percentage of sales to decrease by about 80 basis points this year.

Putting all this together, the midpoint of our 8.6% to 9.2% guidance range suggests normalized operating margin should expand by about 50 basis points to roughly 8.9%, which, if achieved, represent an increase of more than 50% versus 2023. We feel very good about the progress that has been made in a short period of time. and believe Newell Brands is a much better and stronger company than it was just a few years ago. However, we are not satisfied and will not be satisfied until the top line is consistently growing and normalized operating margins are meaningfully higher than they are today.

2.5 years into Newell's turnaround, we believe there's a clear line of sight, incredible path forward, which will result in normalized gross margin in the 37% to 38% range. A&P of approximately 6% to 7% and normalized overhead somewhere between 17% and 18% and normalized operating margin in the 12% to 15% range.

From a leverage standpoint, we began our journey at nearly 6.5x levered which by the end of 2024, we were able to bring down to about 5x. We expected to reduce that even further this past year, but $175 million worth of gross tariff cash impacts later, we are frankly happy to just hold the line.

Looking at 2026, we expect operating cash flow to be up roughly 40% versus 2025 for a variety of reasons, including mid-single-digit normalized EBITDA growth, lower cash taxes, a lower cash bonus payout and a lower cash conversion cycle. This increase in operating cash flow in conjunction with less CapEx spending now that several large supply chain and ERP projects have been successfully completed is expected to fully fund our dividend, allow for a modest amount of debt pay down and bring our year-end leverage ratio down by about 0.5 turn.

Ultimately, we aspire to once again be an investment-grade debt issuer. In the meantime, our long-term Evergreen annual financial targets remain unchanged, low single-digit core sales growth, 50 basis points of operating margin improvement and about 90% free cash flow productivity. And from a capital allocation standpoint, we continue to fund high return internal growth opportunities as we delever the balance sheet and pay a $0.07 quarterly dividend.

To wrap things up, we hope you take a number of things away from today's discussion. First is the sharp focus we have placed on systematically rebuilding capabilities across a simplified AI-enabled platform with strong domestic manufacturing.

Second, because we now have innovation at scale, improving distribution and competitive levels of A&P support, we have commercial momentum.

Third, we have attractive marginal production economics and a multiyear overhead optimization glide path to fuel our disciplined financial algorithm.

And finally, we see a clear path to shareholder value based on top line growth, margin expansion, strong cash flow generation and balance sheet deleveraging.

So with that, we thank you for your time and attention. And if there's questions, we'll be happy to take those as well.

Good morning, and welcome to Newell Brands Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Today's call is being recorded. A live webcast of this 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.

Thank you. Good morning, everyone, and welcome to Newell Brands Fourth 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 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-Qs and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward-looking statements.

Today's remarks will also refer to 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 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.

Thanks, Joanne. Welcome, everyone, and thank you for joining us this morning. I'll start by sharing some company and business-specific observations related to fiscal 2025, and then comment on how we are approaching 2026 from a strategic standpoint. .

After that, Mark will walk through fourth quarter and full year financials before providing a 2026 outlook. Since deploying Newell Brands new strategy in the summer of 2023, we have invested heavily in rebuilding our front-end capabilities, consumer understanding, brand building, innovation, marketing and go-to-market excellence to name a few. We've also focused on strengthening critical back-end capabilities such as manufacturing and distribution, procurement and information technology while simultaneously reducing complexity and instilling greater discipline and accountability across the organization.

This focus and attention drove swift and steady progress and about 9 months ago, when we shared first quarter 2025 results, Newell Brands sales trends, structural economics and leverage ratio at all dramatically improved since the start of the turnaround journey. Frankly, with core sales down only 2% in the first quarter of 2025, we were confident at that time that core sales would positively inflect at some point during the year.

That, of course, did not occur because tariffs intervened driving the need for multiple pricing actions, which significantly affected consumer behavior and retail dynamics. For example, Newell's categories which were originally expected to be flat during 2025, ended up being down 2 to 3 points and some large retailers shifted from direct import to domestic fulfillment.

In addition, competition was slow to initiate pricing actions and select international markets were disrupted by second or third derivative tariff-related impacts. Simply put, 2025 proved more difficult than we anticipated at the start of the year. The good news is that the team acted decisively across sourcing, productivity, domestic manufacturing and pricing in response to these challenges. From a sourcing standpoint, we reduced China sourcing exposure to below 10%, which you may recall was closer to 35% just a few years ago.

The decision to proactively diversify our supply chain away from China before tariffs even presented themselves has materially strengthened the resilience of our supply chain. From a productivity standpoint, we took an important step during the fourth quarter to further strengthen Neel by announcing a global productivity plan designed to enhance competitiveness, simplify the organization and support long-term value creation. The global productivity plan was enabled in part by the capabilities we've been building across the company, including greater use of automation, digitization and artificial intelligence to simplify processes, accelerate cycle time and enhance execution across functions to [indiscernible]. As we implement this we are redirecting resources toward our highest value activities including innovation and brand building while creating a more agile and high-performing organization. These actions are fully aligned with our disciplined execution model and our long-term objective of delivering consistent, sustainable and profitable top line growth.

Implementation of the plan is largely complete in the United States, Latin America and Asia and on track with our original plan. From a domestic manufacturing standpoint, we continue to invest behind automation and secured roughly $40 million of incremental tariff advantaged business wins in the second half of 2025. And finally, from a pricing standpoint, we successfully executed 3 rounds of pricing across impacted categories to protect the structural economics of the business. Importantly, these actions helped us to actually expand normalized operating margin for the year, while increasing advertising and promotional support by 50 basis points. This also allowed us to maintain Newell's leverage ratio at about 5x.

And while it might not always have been readily apparent, distribution momentum improved, and we saw continued share gains in parts of the portfolio as the year unfolded, which is why, in large part, Fourth quarter sales came in modestly better than anticipated. Let's now turn to our 3 business segments, starting with learning and development. Learning and Development was the most resilient segment across the portfolio this past year. Writing performance was supported by strong brands such as Sharpie and Expo, consumer preferred innovation like Sharpie creative markers and Expo Wedaracs, limited tariff exposure and best-in-class domestic manufacturing, which helped us secure a meaningful increase in points of distribution.

In Baby, we delivered strong performance in a tariff laden environment. The shift from direct import to domestic fulfillment is now behind us. And after 3 separate pricing actions, the baby business is on very solid footing. For the full year, [indiscernible] innovation program and improved go-to-market execution drove a 160 basis point increase in market share. And in the fourth quarter, Graco's market share was up over 350 basis points. The Home & Commercial segment was where we felt the most pressure during the year. And within that segment, Kitchen had the most difficulty given soft consumer demand, distribution losses and elevated promotional intensity. However, during the fourth quarter, we increased promotional activity and where appropriate, took selective price adjustments in the U.S. and Latin America to remain competitive in a highly promotional environment.

As of today, kitchen pricing and promotional holes are where they need to be to effectively compete and early consumer feedback on recent innovation launches such as Rubbermaid, Easy store Lids is encouraging. Moreover, we just secured a tariff-advantaged kitchen win with a large U.S. retailer, which we will talk more about at CAGNY. Commercial performance reflected stable demand in institutional and hospitality channels, partially offset by continued softness in DIY. And Home Fragrance performance improved as the year progressed, with the business returning to growth in the fourth quarter as the Yankee Candle relaunch was fully implemented across all retail channels in the U.S. Consumer response to improved innovation and execution has been encouraging, reinforcing our confidence in the direction of the business.

In Outdoor & Recreation top line performance stabilized and gross and operating margins bounced back as the year progressed, reflecting the benefits of simplification, tighter inventory management and improved execution. While demand still remains under some pressure, innovation is building and distribution is improving, so the segment is entering 2026 in its best position in years.

To wrap up 2025 observations, our new strategy, operating model and culture were all tested throughout the year, and we're very pleased to report that execution held, which is why we can confidently state Newell exited 2025 stronger and more resilient than when the year began. As we enter 2026, a central theme will be disciplined commercial execution, with our retail partners to convert key capabilities, which we spent the past 12 months further strengthening into improved performance while maintaining margin and cash discipline. For 2026, our guidance assumes that the categories we participate in will decline by approximately 2% for the year.

Even in that environment, our innovation and improving distribution give us confidence that we can outperform our categories and grow market share, which would be the first time since the Jarden acquisition. While we recognize there may be external tailwinds such as the stimulus effect of higher consumer tax refunds, we are not relying on that dynamic in our category growth forecast and view it as potential upside rather than a baseline assumption. Innovation remains a key source of our confidence because we currently have more than [ 25 ] Tier 1 or 2 launches planned for 2026, which is the strongest innovation lineup we have had since the Jarden acquisition. We'll provide a deeper look into Newell's rebuilt innovation pipeline at CAGNY in a couple of weeks. That distribution is also expected to turn positive in 2026 for the first time since the Jarden acquisition, supported by line review and tariff-advantaged manufacturing wins.

Our supply chain and procurement teams to continue to operate at world-class levels and should generate enough productivity savings to offset inflation and higher year-over-year tariff costs while overhead discipline and productivity will enable increased investment behind innovation without compromising profitability. Consistent with this, we are planning for normalized operating margin to expand in line with our Evergreen financial model, inclusive of a modest increase in advertising and promotion support which as a percent of sales is already up 50% over the last 3 years. Mark will have more to say about this in a minute, but please note that we do not expect core sales growth in the first quarter in part because, generally speaking, major shelf resets and the associated innovation and distribution gains that will follow are slated to real again in the second quarter.

In summary, while external factors may have delayed our turnaround by a few quarters, we remain confident that Newell Brands methodical capability-based transformation into a world-class consumer products company is still very much alive and well. As we enter 2026, we are well positioned to convert capabilities built over the last several years and to improve performance while maintaining margin and cash discipline.

Our capability set has been dramatically improved as evidenced by a much stronger innovation funnel, improving distribution trends, higher levels of more effective marketing support and a completely rebuilt and highly skilled team. I want to thank the Newell team for their continued focus, resilience and execution in a challenging environment. Their commitment and hard work are what made the progress we delivered in '25 possible and what makes Newell Brands future so bright.

With that, I'll turn the call over to Mark to walk through the financials and our outlook in more detail.

Thanks, Chris, and good morning, everyone. Fourth quarter net sales were $1.9 billion, down 2.7% versus last year and core sales declined 4.1%, with the difference between net and core sales driven primarily by favorable foreign exchange. Importantly, fourth quarter core sales exceeded our revised expectations for 3 reasons: First, consumer demand and POS trends improved in December, which supported stronger replenishment as we continue to selectively increase promotional support for businesses where competition has been slow to price; second, our baby business has been performing exceptionally well behind a series of strong innovations like the [indiscernible] and the suiting [ bassinet ] and swing; third, while we expected Latin America to improve sequentially versus the third quarter, both Argentina and Brazil performed better than expected. In the case of Argentina, core sales grew slightly in the fourth quarter as economic activity rebounded sharply after Javier Malaise reform government picked up seats in their midterm elections and Brazil finished the quarter down only mid-single digits. By way of comparison, core sales for both countries were running down approximately 10% through November.

Normalized gross margin was 33.9%, which was down 70 basis points versus last year. However, if we back out $0.10 per share of tariff-related headwinds, gross margin would have been up significantly and inclusive of all tariffs, normalized fourth quarter gross margin was up 730 basis points on a 3-year stacked basis, which we believe is clear evidence that the transformation of Newell's structural economics is still proceeding at pace. Normalized operating margin was 8.7%, up 160 basis points versus last year. While still very strong performance in the absolute, this was admittedly modestly below our expectations for 2 reasons. First, and as mentioned earlier, we did enhance our promotional activity in the fourth quarter versus our going-in plan to be more price competitive in select categories. Second, we continue to invest in advertising and promotion and at 6.5% of sales, fourth quarter A&P was the highest it's been in nearly 10 years.

Normalized EBITDA in the fourth quarter increased nearly 12% and to $241 million, reflecting a combination of productivity and overhead savings, partially offset by higher A&P levels to support our innovation and brand-building agenda. In Q4, net interest expense of $84 million represented an increase of $12 million from the prior year period and a normalized tax provision of $2 million was recorded in the quarter. Normalized diluted earnings per share at $0.18 came in at the midpoint of our expected range. Fourth quarter cash generation was strong at roughly $160 million which helped us catch up after running behind earlier in the year due almost exclusively to the incremental $174 million of gross cash tariff costs we incurred this past year.

During the fourth quarter, we repaid the full outstanding principal on $47 million of senior notes, which matured in December of 2025, and we finished the year with a net leverage ratio of 5.1x. Turning to the full year. Net sales were $7.2 billion or a decline of 5% and core sales decreased by 4.6%. Normalized gross margin was 34.2% in 2025, which was up 10 basis points versus 2024. This year-over-year progression is obviously very modest when compared to what was achieved from 2023 to 2024 and when normalized gross margin expanded from 29.5% to 34.1%.

But at the risk of stating the obvious, having to absorb $114 million of incremental gross tariff P&L costs clearly impeded our ability to meaningfully expand normalized gross margin this past year. That is why Chris and I are very proud of how well and quickly our teams responded, which allowed us to keep the structural margin gains we had worked so hard to secure since the adoption of our new corporate strategy. This is readily apparent when looking at 2025 normalized operating margin, which increased by 20 basis points from 8.2% in 2024 to 8.4% in 2025, inclusive of a 50 basis point increase in A&P support.

Normalized earnings per share in 2025 were $0.57 compared to $0.68 in the prior year. On a tax-adjusted basis, the $0.68 would have been $0.04 lower, resulting in a $0.07 differential year-over-year. Please note that $0.05 of this $0.07 differential is directly attributable to the temporary 125% incremental China tariff, which because it was only in effect for a short period of time, we made no attempt to offset. Normalized EBITDA was $882 million compared with $900 million last year.

This decline of only $18 million compares very favorably to the $114 million of incremental tariff-related P&L pressure we had to contend with in 2025. Full year operating cash flow was $264 million, which was in line with our updated expectations and reflects the impact of cash tariff costs as well as a higher cash bonus payout in 2025 compared to 2024. We continue to manage working capital with discipline and our cash conversion cycle improved by 2 days in 2025 versus 2024. Turning to 2026. We are initiating full year net sales guidance of down 1% to up 1% with core sales in the range of down 2% to flat.

As Chris mentioned earlier, our outlook assumes low single-digit category contraction in aggregate and Newell Brands specific market share growth. Said differently, based on the strength of our innovation programs, incremental net distribution gains inclusive of tariff advantage wins and strengthen marketing plans supported with higher levels of advertising and promotional activity. We expect core sales growth to outperform category growth for the first time since the Jarden acquisition. While we do not typically provide explicit gross margin guidance, it may be helpful to provide some context since tariff impacts will not fully annualize until the second quarter of 2026. The tariff environment remains dynamic as we have consistently communicated, tariff pressure demand and price competitiveness in impacted categories and create short-term cash and P&L headwinds. In 2025, the total gross cash tariff impact was $174 million, and the total gross P&L impact before offsetting actions was $114 million. For 2026, our current outlook assumes a total gross cash tariff impact of $130 million with an estimated total gross P&L impact of $150 million.

On a P&L basis, that implies roughly $0.30 of headwind in 2026, which on a year-over-year incremental basis is $0.07 more than 2025. For modeling purposes, the $0.30 should present itself as follows: [ $0.650 ] in each of the [indiscernible] second quarters, $0.09 in the third quarter and $0.08 in the fourth quarter. Our mitigation approach remains focused on sourcing actions, productivity, capturing tariff-advantaged business wins and targeted pricing, but because of an incremental $0.07 of [indiscernible] related P&L impacts, gross margin is expected to be relatively flat in 2026 compared to 2025.

Moving further into the P&L, we expect normalized operating margin between 8.6% and 9.2%, which at the midpoint represents a 50 basis point improvement over 2025. Please note that this is fully consistent with our long-term financial evergreen model. Since normalized gross margin is expected to be relatively flat and we plan to once again increase advertising and promotion as a percentage of sales, it would be logical and safe to assume that virtually all of the expected increase in normalized operating margin will come from overhead reduction, where we expect our recently announced productivity plan to generate more than $75 million of year-over-year savings and lower overheads as a percentage of sales by nearly 100 basis points.

In 2026, we expect normalized earnings per share in the $0.54 to $0.60 range with about $20 million of higher interest expense and an effective tax rate in the high teens. We are initiating full year operating cash flow guidance of $350 million to $400 million, which at the midpoint represents a 40% increase over 2025. The increase in operating cash flow is driven by mid-single-digit EBITDA growth, lower cash taxes, a lower cash bonus payout, lower cash tariffs and a slight reduction in working capital. We are also planning for a CapEx budget of $200 million for 2026 versus a historical run rate of about $250 million, now that several large ERP integrations and supply chain projects have been successfully completed.

All of this taken together should reduce our net leverage ratio by about half a turn, moving us closer to our longer-term ambition of once again being an investment-grade debt issuer. For the first quarter, which, due to seasonality, is always the smallest quarter of the year, we expect net sales to decline 5% to 3% and core sales to decline 7% to 5% and with the difference between net and core sales driven by favorable foreign exchange. As indicated earlier, we feel very good about our full year core sales guidance given the strength of our innovation program, known net distribution gains and strong A&P investment plan.

So let's talk about why we are confident first quarter core sales will be an anomaly in a year that otherwise is expected to be a big step forward in our financial turnaround. First, we don't anticipate or see any issues with first quarter POS trends or consumer offtake, but we do expect retailer shipment timing and major shelf resets to skew a portion of replenishment and innovation shipments into April and May. This will help the second quarter at the expense of the first. Second, international, which represents close to 40% of total company sales and Latin America, in particular, are both improving as market conditions normalize after a period of political and tariff-induced volatility and are expected to turn positive in the second quarter. Third, we'll be lapping a prior year base period that includes a point or 2 of positive terrolated ordering timing dynamics. This will no longer be a factor starting with the second quarter. In fact, starting in the second quarter, we expect performance to improve meaningfully as innovation and shelf reset driven shipments build in both April and May and distribution gains begin to exceed distribution losses.

From there, our expectation for a relatively even core sales growth across the remaining 3 quarters of the year. First quarter normalized operating margin is expected to be 2.5% to 3.5% and and normalized EPS is expected to be in the range of negative $0.12 to negative $0.08. Please also note that Q1 EPS guidance reflects the annualization of tariff impacts, our decision to maintain A&P investment behind innovation and the fact that Q1 due to seasonality is the smallest quarter of the year.

Finally, from a pricing standpoint, there will be modest permanent price resets in select baby and kitchen categories beginning in January to restore everyday price architecture where needed. In closing, in the fourth quarter, we delivered double-digit EBITDA growth generating strong operating cash flow and improved leverage sequentially. This allowed us to finish the year with our structural economics intact and another year of capabilities having been built or meaningfully improved. We believe 2025 clearly demonstrated that Newell's turnaround has been built on a solid capability-based foundation, which due to the commitment and professionalism of our team allowed us to quickly adjust to dramatic changes in the external environment. We are confident our strategy is working and remain committed to investing in innovation and brand building. We are starting 2026 with our strongest innovation program ever a measurable increase in our known points of distribution and the highest level of advertising and promotional support we have ever fielded. We are fully convinced that Newell Brands best days are ahead. With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Olivia Tong from Raymond James.

Lots of detail on the innovation pipeline and [indiscernible] wins. But based on your full year outlook, it looks like you are expecting sales to flatten out over the course of the year. So could you help us understand your level of visibility, some of the shelf space wins and what gives you so much confidence in what is a pretty material inflection. It sounds like you're expecting to grow quite a bit ahead of the category.

And why -- I guess, why should we have confidence in that given the challenges and the mix performance in 2025, are there channel upgrades that are contributing to the expectation for your sales to outpace category? And then secondly, if you could just talk a little bit more about -- expand on what you brought up at the -- towards the end of the call about the baby and kitchen price interventions that are going in place in January.

Yes. Thanks, Olivia. So let me start by saying that we are planning the year, as we said in the prepared remarks, for the category to remain challenged. And so the current assumption that's embedded in our guidance is for the categories to be down 2% in we felt like it was prudent not to assume that the categories bounce back from what has been sort of a low single-digit decline. The reason why we're guiding stronger than that with our core sales at minus 2% to flat is -- are the 3 reasons that we mentioned in the prepared remarks, which is we have our strongest set of innovations slated for next year. that we've had since the Jarden acquisition.

And if you think about it, when we got started on the turnaround strategy in the summer of [ '23 ] we had to hire brand management teams. We completely redid the innovation pipeline, and all of that work is now culminating to a full set of innovation that is going to launch across every single business unit this year. And so we mentioned in the remarks that we've got '25 Tier 1, Tier 2 innovations launching this year. That's the largest number since we've been tracking Tier 1, Tier 2 innovations. Importantly, every single business unit is launching Tier 1 and Tier 2 innovation.

And the other point I would say is where we have done this already last year, we have seen very strong results in the baby business last year, I think I talked about the Graco easy-turn rotating car seat that car seat at the end of the year turned out to be the #1 selling baby item as tracked by Serco in the United States. So when we get it right, with good innovation and we launch it and support it, we've proven that we can resonate with consumers. And I think that's why you saw the baby business in the fourth quarter up 350 basis points in market share, which is a pretty remarkable achievement. Similarly, the relaunch of Yankee Candle which really hit in the fourth quarter, and the fourth quarter is the big season.

The Yankee Candle business in the U.S. was up 6% in core sales growth in the fourth quarter. And so once again, when we get the right products, the right innovation supported with right marketing, we are seeing that it's resonating. And what has us excited is that, we have that across all of our businesses as we head into 2026 as sort of the first point. The second point I would say is that we've obviously spent a lot of 2025 selling in all of this innovation in line reviews and solidifying promotional slots behind the innovation. And we have secured wins that we have visibility to for when retailers are going to reset their shelf sets to give us more space at retail.

And that's going to start kicking in, in a big way, really starting April or May. So although the first quarter guide is low, we believe that starting in Q2 from what we're seeing from a retail shelf set timing standpoint and from an innovation standpoint, Q2 is the quarter where we're going to start to see that come to bear. And so we're expecting from our internal forecast sort of Q2 through Q4. If you did the math on our guidance, if we're going to be down, call it, 4% on net sales at the midpoint in the first quarter, effectively minus 1% to plus 1% for the year.

We believe we're going to be back to net sales growth effectively starting in Q2 because of that. And then the third thing is we've got strong A&P time that and good results. The question on pricing. This is another factor, I would say that's influencing the dynamics. So recall that when the tariffs came into effect and they came into effect in multiple waves, we took 3 rounds of pricing. The first round that we took was April 1. The second round we took was May 1, and the third round was July 28. And effectively, if you think about that timing, we were leading pricing in most of the categories that we competed in. and because we were leading pricing in some categories, comPetitors were quick to follow in other categories, we got scraped and competitors were slower to follow.

As we sit here today, competitors have largely caught up with our pricing. And so we don't see the price -- the same price gaps today that we had in sort of the third and fourth quarter. specifically on the pricing where we've taken pricing adjustments. In the Baby business, we had priced for effectively 3 rounds of 10% tariffs from China or about 30% tariff rate. when the tariffs got rolled back from 30 to 20, we have adjusted our pricing back to account for the tariff rollback and that pricing rollback is going into market or went into market in the month of January.

So what's interesting about that is we were up 350 basis points in market share in the fourth quarter without the benefit of the price rollback. So we're pretty excited about where we're headed on baby for those reasons. The other 1 on kitchen that we've made a move on is, we launched one of our big innovations at the end of last year that we launched, which is really going to be focused on commercializing this year is the Easy store Rubbermaid Easy store lid food storage innovation, which is targeted at the mid-tier of the Rubbermaid food storage line because we manufacture that product in the United States in Ohio and because we've automated that plant and because of recent trends in resin pricing, we've decided to take a 15% price reduction on that product that's going into effect also, or went into effect in the month of January because we believe we're tariff advantaged, and we believe we can do this without sacrificing structural economics. I don't think it's been fully reflected at retail yet. So we are waiting for retailers to reflect that. But we believe that when that gets reflected at retail, the combination of tariff advantaged category with strong innovation with a sharper price point is going to lead to strong growth on that business as well.

Got it. Can I just follow up with 1 question around your -- the retailer views on your categories, especially in light of a case economy and outside of learning development, which you touched on some levels of consumer discretion in the vast majority of your home category.

So are there any changes as we look at fiscal '26 on how much shelf space retailers are providing? And then the level of competition, competitive response, particularly at the lower end in these categories.

Yes. We continue to see the trends that I've talked about really over the last year continue, which is that the higher income consumers, if you look at household income, the top 1/3 of U.S. households are spending more on general merchandise categories. the middle income consumers are spending about the same. And really, it's the lower income consumers that have pulled back in terms of their general merchandise spending.

So we are seeing that trend continue. Interestingly, that trend started really in about April of last year, something like that. And so we will annualize that trend at some point. But we have not assumed, as I mentioned, that category growth improves in '26 versus '25. As we have discussions with retailers, there are some reasons for optimism on category growth. We're about to enter sort of a mini stimulus period where arguably there's going to be $100 billion that the U.S. federal government returns and tax refunds incremental this year versus last year. As we've talked with the major retailers, we do believe that there's likely to be a sort of a mini stimulus effect of that.

It's not as big as the COVID stimulus effect. But we haven't really reflected that in our guidance just in the spirit of we don't want to get ahead of the category growth assumption from a planning standpoint. But we certainly will be prepared if we see that to respond and react to it. And then the other trend that we've talked about in the past from a consumer dynamic standpoint has been the 18- to 24-year-old. So we're seeing consumers 25-plus continue to spend slightly higher on general merchandise than prior year. but a pretty significant pullback in consumers 18 to 24 in terms of their general merchandise spending. And we think that's also due to sort of economic pressure on that cohort. But again, I think we're not counting on those trends changing in our guidance for this year.

Our next question comes from the line of Lauren Lieberman from Barclays.

So thinking ahead on the conversation about visibility into shelf resets and excitement about innovation and retailer engagement. I just wanted to think back to second half of '25. And you've had some similar levels of excitement around same sort of dynamic on distribution wins and innovation. And there was sort of a slower flow through. I mean one of the things that I think about [indiscernible] was just like it took longer to reset those shelves. It took longer to sell through existing inventory. So may not be a perfect analogy, but I just wanted to get a sense for how much wiggle room you think you're leaving yourselves for a similar dynamic to play out?

Because like you said, I mean, by the end of the year, Yankee was doing what you hoped it would do. It just took a little longer to get there. And I wanted to get a sense for if you kind of factor that, let's call it, greater conservatism into the plans as we look over to the next 2 quarters or so.

Yes. It's a good question, and it's certainly something that we've been thoughtful on. And I think if I go back to part of the reason why we didn't want to assume that the category growth rate improved is we felt like we were better off from a planning standpoint, assuming the category continues to decline and so that we didn't get ahead of ourselves from an inventory and from a guidance perspective. .

Relative to your point on the innovation, the shipment timing, it's a little bit different in some of our other businesses because they tend to be harder resets as opposed to Yankee Candle, which because of the SKU intensity and the omnichannel nature of the business can take a little bit more time. So I do believe that we have a forecast that does not assume that everything goes right, let's put it that way because we know that there's going to be some parts of our plan that don't go right during the year. And then there's other parts of our plan that we're looking, we're still working on because it's not like we go on vacation once we put the plan to bed. We continue to work on this. So I feel like we've got a forecast that both doesn't assume everything goes right and also has potential for upside if things that we're obviously working on. And we're trying to be prudent and not get ahead of ourselves.

Okay. Great. And then let's take like more constructive perspective almost -- what does it take, do you think, for your categories to get back to stable? Like if you're [indiscernible] your wisely, right, assuming down 2% this year, but let's look forward over like the next 5 years. Like what do you think on a longer-term basis is sort of the likely, let's call it, structural growth rate of your categories? And what does it kind of take to get back there?

Yes. I think that what I would say is a couple of things in terms of longer-term category growth. So we've often talked about, if you look back over long periods of time in the categories that we compete in, the category growth rate is somewhere 0% to 1% over long periods of time. And then our evergreen model would suggest that with strong innovation and strong brand building and leading brands, we should be able to grow a point or 2 faster, which sort of gets you to our evergreen target of growing kind of 2% to 3% from a core sales standpoint that we're targeting.

So on the question of what does it take for the categories to go from minus 2 to, let's call it, plus 1. I think there's a couple of things. I think, first of all, we are subject to the consumer macro economy because some of our categories are durable and discretionary. And what that means is if real incomes are growing, that helps category growth. And there is reason to believe that over the next 5 years, the country after suffering a period where real incomes were going down over the last couple of years that, that can turn around and real incomes can begin to grow going forward.

And if that happens, then I think that benefits general merchandise spending is sort of the first point. The second point I would say is we still have a couple of categories that are at the tail end of because of the purchase cycle timing of people bought a lot of stuff during COVID, and those products that they bought may have 3-, 4-, 5-year life cycles -- and those products are now starting to wear out. And that trend of peak consumers having been taken out of the market should start to wane as well. And then the third thing I would say is that if we do our job right, 1 of the jobs of a leading branded player in the category is actually to drive category growth. And so -- as an example, on the Baby business, we don't need more babies to be born in the U.S. for us to drive growth on the Baby business. We've shown that we can do that by premiumizing the category by offering better features and benefits and driving trade up. and part of the responsibility of the branded player is to do that. So as our innovation gets stronger and more robust I think we have an important role to play to drive trade up as well.

Our next question comes from the line of Peter Grom from UBS.

So Chris, you mentioned the potential for external tailwinds related to tax refunds. And I understand you're not embedding any benefit from this in your guidance. But I'd be curious if there's a way to frame what it could do to your categories and top line growth, whether that's something you've seen over time? Work you've done more really? Or just what the retailers maybe say?

Yes. We've tried to have conversations. So first of all, the combinations we've had with our leading retailers, they all also are watching this. And obviously, we've talked with Sircana and others about this. If you think about in the U.S., maybe $100 billion incremental being inserted and sort of tax refund this year. And if you were to compare that to COVID and say, well, in COVID, maybe it was $1 trillion or something like that. So this is 1/10 of what a COVID stimulus might be. If you go back and look at what happened with the stimulus and COVID, we saw a double-digit category growth rate as a result of that stimulus. And so if you were to -- one way to triangle it is to sort of do that math, and you might get to a point or 2 of impact for a period of time. But again, it's pretty speculative. And so we don't have a great crystal ball on this. We've never really seen this in recent times. And so that's why our view was to sort of be prepared. And when I talk about be prepared, one of the other things that we've done maybe to try to help be prepared is we got focused about a year ago, and we haven't talked that much about it on reducing our cycle time and our lead time on production.

And so we've taken probably 10 days out of our lead time on production across the company over the last year or so. And that effectively allows us to respond much more in real time to consumer demand shifts without having to prestage extra working capital. And so I think that's the biggest piece that we're focused on. We're going to know a lot more in the next 2 months because I think the tax refunds start this month in the month of February and then the biggest month for them is March. So I think by the time we get to our next earnings release, we'll have a much better view.

Our next question comes from the line of Andrea Teixeira from JPMorgan.

So I was hoping to see if you can kind of quantify, I mean, we can walk the organic sales growth against your category consumption you mentioned, but to just quantify the issue of timing for the shipments into the first quarter. And then if you can comment on how the exit rate on the key cohorts of your consumption have changed? And I think, I mean, by division, of course, by views, how are you seeing that happening?

Like how do you see that evolving, I should say, out of the fourth quarter and into the first quarter? And then if you can comment again on the cadence beyond or perhaps give us like the first half against the second half because as Olivier was saying, obviously, it's embedding a pretty hockey stick recovery into the second half. Obviously, conscious about your pipeline, but just to give us some sort of reassurance given that in 2025, you also expected that to happen, but the innovation did not come through as strongly as you anticipated?

Yes. So let me try to take a couple of those. So first of all, this is not really a first half, second half story, it's really a first quarter and then second through fourth quarter story. So this is different than a first half, second half story because we expect Q1 to uniquely be sort of the low quarter and we expect Q2 through Q4 to be relatively even and the business to bounce back immediately in Q2 from what we can see.

So that would be the thing I would say there, and we've tried to to quantify that. If you look at our net sales guide, as I mentioned, we're -- at the midpoint of our guidance, our net sales guidance was down 4% in Q1. And and with a net sales guidance of minus 1 to plus 1, but that would imply that for Q2 through Q4, we're guiding net sales to be positive 1%. And in those 3 quarters. And as we said in the prepared remarks, we believe it's going to be relatively even across those 3 quarters.

If I go to the business units, Interestingly, from a consumer offtake standpoint, consumer offtake improved in the fourth quarter across virtually every single one of our businesses. So when we look at our POS data, the Q4 consumer offtake trend was the strongest quarter that we had during the calendar year last year. And I mentioned a few of the businesses, but writing continues to be in very good shape with strong innovation. We mentioned on writing that, we had a major reset win at 1 of the leading retailers that reset their entire writing aisle that we led a riding IO reinvention program with that writing aisle reinvention program is doing well, and Newell is gaining share as a result in that retailer and more broadly. On baby, I mentioned that we're going from strength to strength. We've had a couple of great innovations this past year.

I mentioned the easy turn rotating convertible car seat which was the #1 innovation in baby in 2025. We also launched the Graco SmartSense, [indiscernible] and Swing. Importantly, we've got a very strong innovation set in addition, that's coming in '26 with more innovation on car seats and a pretty exciting innovation on strollers that we'll talk more about at CAGNY that's coming that we're excited about.

If you go to the Home and Commercial business, kitchen, as I mentioned, was probably the most tariff-impacted category or business for us last year. But kitchen started to return to stronger performance in Q4 with the launch of the Rubbermaid Easy store food storage product and some of the launches on [indiscernible] in Latin America that led to stronger performance there.

Home Fragrance returned to growth in the fourth quarter from both a top line and a consumer offtake standpoint. And what's exciting about home fragrance is that Yankee Candle U.S., which is where we had the major launch was up 6%. I think the home fragrance business was up 2%. But as we go into next year, that relaunch that we launched in the U.S. is now -- we're now going to launch that in Europe. And we are relaunching next year, both Chesapeake Bay and WoodWick, which we've been working on for the last couple of years. So the innovation that we've had on Yankee Candle is going to expand globally, and we're relaunching the other 2 smaller brands in that portfolio, which should lead to a strong year. In commercial, the business-to-business side of that business and the Mapapontex business has had pretty good years. supported by innovation.

It's really the DIY part of the business that was a struggle this past year. We believe that, that business has stabilized heading into next year. And then finally, on Outdoor & Rec, I think we've talked for some time that this is the business that was likely going to take the longest because we had to reset the entire team. We have now done that. and we've rebuilt the innovation pipeline, and we have very strong innovation launching in 2026, which we'll talk more about at CAGNY that we expect to see that. So if you go forward on each of the businesses, what I would say for next year, we're expecting core sales improvement in every single business that we have in the company in '26 versus '25. So it is a broad-based approach because our strategy was to have a broad-based set of innovation as referenced by the Tier 1, Tier 2 projects. Mark, you may want to just comment on the Q1 piece?

Yes. Before I get to that, I just want to build a little bit on some of the comments Chris just offered and shared because the innovation that we brought forward in '25, consumers did respond well to it. At the end of the day, what really happened was we had to take 3 rounds of pricing, which Chris clearly spoke to earlier, and then there were some knockdown effects places like Latin America, which has been growing at double-digit rates, then turn negative as they started to see the second and third derivative effects of the tariffs playing out in their home market.

So the consumer response was always very strong. And now, as Chris said, that's going to build and carry over because the innovation stream that was out there in '25 remains into '26, then we're putting another top off on top of it. that also is going to be driving the business in the right direction. And then despite all that, we were still able to expand our normalized gross margin. We expanded our normalized OP margin.

We put another 50 basis points in A&P we effectively held our EBITDA. We have effectively held our leverage ratio. So all in all, we feel like 25 was a really strong performance by the team, put in proper context. Now as we think about going forward, Chris said it very well. This is a Q1 phenomenon and it's a Q1 anomaly in some regards. But for the balance of the Q2 through Q4 period we expect to be doing pretty well in the marketplace. And that's because Q1 is the smallest quarter of the year. There was retailer shipment timing and major shelf resets that we know we're basically pushing into the second quarter at the expense of the first International will be down still, we believe, in the first quarter, but we expect that to inflect and turn positive into the second and stay positive for the balance of the year.

When we think about the P&L elements within the first quarter, we do have $0.07 of incremental tariff charges. We will have a little higher interest expense. And we're still planning to spend on A&P. So our A&P plan for the first quarter has us spending A&P at least 50 basis points more than the base period, if not 100, to support the strong innovation program. So we have, I think, a very comprehensive plan that doesn't lean in too far in any given area.

Last year, we started the year thinking our category would be flat. And in the benefit of hindsight, that was a mistake. It ended up down 2 to 3. This year, we're assuming that it doesn't get any better throughout the entirety of the year when we believe that there's reason to believe that, that might be different. So we feel really good about where we are. We think we have a very strong bottoms-up plan. We believe we built flexibility and degrees of freedom into that plan. And we're just eager to get out there and make it happen.

Our next question comes from the line of Brian McNamara from Canaccord Genuity.

So the company has generally lacked innovation before the new strategy was implemented a few years ago. and therefore, it doesn't really have the muscle memory there. I think you had 1, 8 and 15 Tier 1 or Tier 2 innovations, respectively over the last 3 years of 24 in total, correct me if I'm wrong, but core sales continue to decline. So can you comment on your relative hit rate on those. You have a large competitor that we all know of in small Kagen appliances that pretty consistently had buzz across social media with their new products. Is there anything tangible you can point investors to that suggest the '25 Tier 1 or 2 innovations this year will be successful? And when would you expect this higher level of A&P spend to pay off?

Yes. Good question, and you're exactly right. So in 2023, we had on Tier 1, Tier 2 innovative. 2024 was 8%. In '25, our plan was 15%. We actually wound up with some of the Tier 3s doing a little better. So we wound up with 19%. And this year, we've got 25. What's important about that sequence though, is that when we launch an innovation, our plan with the innovation is to support the innovation for a multiyear period. It's not just a once a one-and-done thing.

And so you could almost think about these things as cumulative. So if you thought about to 2024, we had the 1 from '23 and then the 8 and '24. So there were 9 things that we were talking about. If you think about this year, we've got the '18 or '19 from last year, plus the 25 from this year. And so there is a plethora of innovation across our top brands that we're talking about. And that gives us dramatically greater consumer purchase behavior drivers that we can go after. Now to your question on, well, how have we done with the innovation that we've been launched. It's interesting because we've obviously put in a tracking system as part of this as well.

And if we look at the innovations that we've launched that are Tier 1 and Tier 2 innovation, we are basically delivering what we expect in aggregate. And what I mean by that is not every single 1 is working. There's probably about 70% of them that are beating their targets and 30% that are not. But the 70% that are meeting or beating are meeting and beating by more than the ones that are not. So when we look at the revenue growth that we expected in aggregate from the portfolio, we're actually slightly better than what we thought going in.

So that's a good sign because we're not trying to be perfect on every innovation. Otherwise, we'd be too slow as sort of the first thing. The second thing is when you say, what are the proof points and give me some examples I think I talked about some of the Graco easy turn rotating car seat was the #1 baby innovation last year. That was an innovation that got started as part of this new strategy. the Yankee Candle relaunch, which delivered 6% revenue growth in the fourth quarter, which is the biggest quarter for home fragrance is a direct result of the strategy here. The Sharpie creative colors and tip size, the Expo Wetterace and ink restage the Oster Extreme mix blender, all of these things are examples of where we've done it, and we've met or exceeded expectations. And so I think we've got -- it's not a -- we haven't been doing this as an organization for 10 or 20 years, but we've now been doing it for 3 years working on it and launching. And so I think the muscle continues to build. The other thing I would say on this that is important is -- we've taken, in many cases, a leapfrog strategy in this innovation process. And so one of the areas that we leaned in on artificial intelligence early on in digital marketing content creation. So we are now creating with AI both video, still photography and copyright content that is allowing us to go much faster in terms of the amount and the cost of creating digital content, which is increasing the ROI of what we're doing.

We also have put that AI into our product development cycle. And so for example, we're able to go from a sketch to 3D CAD drawings with an AI app that has taken the cycle time down dramatically to do that. We then have created digital personas that we can do consumer testing with as part of a virtual focus group, which also accelerates cycle time. And that full investment in the ecosystem of that AI capability, I think, is enabling us to be stronger, better and faster, and that is starting to show up in how we've made such progress so quickly at ramping up the innovation pipeline.

The other thing I would offer is during this entire period of time since we've been revamping our strategy we've had to cold a herd quite a bit. We went from 80 brands down to 50. We had meaningful pockets of just unprofitable businesses that were so intenable, there was nothing to do but frankly, walk away from them. And you asked a very important question about are we seeing the return on the increase in A&P support. And there is a long views on that admittedly, but where we were starting from was 4% of sales, which was barely giving our brands the ability to get their gloves up.

The way we're really seeing that manifest itself in business wins is when we go into these line reviews, we show them these leading innovations based on summer ideas, and then we show them the support plans, and the fact that we can now show the meaningful support plans and that we're putting our own money behind these innovations gets the retailer is excited. And so one of the reasons our hit rate has gone up significantly in my view, is because the A&P levels are there for us to then drive it through the consumer purchase cycle.

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.

Hi, good afternoon, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. Just before we begin, a quick disclosure, please see the Morgan Stanley research website at www.morganstanley.com, research disclosures for our research disclosures. And if you have any questions, you can reach out to your Morgan Stanley representative.

With that, I'm very pleased to welcome back Chris Peterson, Newell Brands' President and CEO; and Mark Erceg, CFO, to the fireside chat today.

So why don't we start with the news from yesterday. You announced the new productivity plan with a reduction of 10% of the professional clerical employees. First, strategically, why is this plan being put in place now. You've got a large amount of restructuring already what sort of originated behind this plan? And I guess, can you tie that intent to what actually is occurring under this play and organizationally. What are the changes that you're making and the different buckets of actions you're taking across the function?

Yes. This is a different type of restructuring productivity plan that we announced yesterday morning and what we've done historically. We're not changing the company's operating model. We're not changing the company's strategy. This is really about harvesting the work that we've done since we put the new strategy in place.

Over the last couple of years, we've taken our number of brands from 80 brands down to 52 taken our number of legal entities from 500 legal entities down to 200, taking our ERP systems from 42 down to 6, taking our SKU count down from 100,000 to 20,000. All of that complexity reduction work is enabling us to take this productivity step.

In addition to that, about 1.5 years ago as part of the turnaround plan, we got pretty aggressive at going after artificial intelligence. We started looking at use cases. And about 9 months ago, we moved aggressively into Agenetic AI. We now have fully implemented over 100 use cases across the company, and we're seeing significant productivity gains. And so it's really the combination of the complexity reduction work that we've been doing and the AI work that's enabling us to go after this productivity savings.

And we've been working on this for the past couple of quarters. And the thing that's different about this plan is -- this plan will largely be implemented in the U.S. this month. So it's not a plan that's going to come in the future. It's a plan that's happening right now. And then in the international markets, it will be largely complete by the middle of next year, subject to works council and local regulatory requirements.

Okay. And you've talked about $110 million to $130 million in pretax cost savings. How quickly does that ramp up? Is that mainly employee savings? Is there other buckets in there? And as you think about those savings versus your prior long-term margin goals, is this help you get there? Was there always something you had in mind? Or is this incremental to your prior goals?

Yes. Starting with the third quarter of this year, we had seen our overhead as a percent of sales trend down. And at that time, both Chris and I said very definitively on the earnings call that, that is something we expect to see now on an ongoing basis. So this particular action will probably reduce our 2026 overhead as a percent of sales by roughly 100 basis points. That won't all fully drop to the bottom line because there's a lot of moving parts within the P&L.

Next year is an example, despite having made massive movements in our gross margin progression. Next year, it might be flat to slightly down because there will be more tariff impacts impacting next fiscal year versus 2025. In fact, we think right now all is being equal to be about $0.28 of headwind to the P&L versus this year was $0.23, so next year nickel. We also plan to continue to invest more money in A&P. Next year will be our highest level of A&P spending in absolute dollars and as a percent of sales to support a very robust innovation program. And so we'll probably see 20, 30 basis points get reinvested in the A&P line as well. So when you put all that together, next year, I think we'll have another year where we have our op margin growing roughly 50 basis points, which is consistent with our evergreen financial targets.

Okay. Great. That's helpful. And what about the long term as we think sort of multiyear, right, because some of these savings will take time to ramp up?

Yes, we're really excited because we have said at the time of the initial strategy reveal that we wanted to take our op margin from the 6% range, which is where we were in 2023, up to like the 12% to 15% arena. And in order to do that, we needed to get our gross margin to 37% to 38%. We're roughly at 31.5% as we sit here today up from 29.5%. So massive progress has been made there. We said that the A&P needs to be somewhere in the 6% to 7% range. We started the journey when we were at 4%. This year, we'll finish closer to 6%. And then we said that we need to get our overhead as a percent of sales into the 17% to 18% range. And if we did all those things, we'd be somewhere in the 12% to 15% arena.

This action on the overhead side was always contemplated, and it's something that we're now in a position to effect due to the AI enablement. And we're very confident that over time, we'll get to that 12% to 15% as a result of this and the other actions we've taken.

Great. That's helpful. Chris, maybe you can touch on the organizational changes you've already made in recent years. There's been a lot of work with Project Phoenix, more Newell, supply chain work, can you just give us a poor card on where you stand organizationally today versus what you expected if you go back a few years ago and the progress you've made.

Yes, we feel pretty good about the progress we've made, and we believe the capability of the company has dramatically improved today versus where it was when we unveiled the strategy a little over 2.5 years ago. When we unveiled the strategy, we've made a deliberate set of where to play, how to win choices that was based on a capability assessment but perhaps more importantly, we changed the operating model of the company that we intended to move in.

Some of the big changes that we went after was we wanted to create a consumer understanding and consumer insights function, we have now fully developed that function. It is fully AI-enabled, and we feel like we are at the leading edge of that capability. We put in place a brand management system. We now have a fully formed brand management teams across all of the top 25 brands in the company. We didn't have brand management in place as a company prior to that. We also have been focused on integrating the supply chain. The supply chain historically was operated business by business. We have fully consolidated the global supply chain at this point and are now operating in an integrated supply chain that's operating with world-class productivity results. The best ever customer service results we've seen.

We also, on the geographic side, wanted to move to a 1 Newell go-to-market approach. We were going to market as 6 or 7 independent businesses. We are, I would say, 80% of the way through that journey. One of the big steps that was required to do that was these ERP conversions, which allow us to consolidate sales forces and orders and move to 1 order, 1 invoice, 1 delivery to retail customers. We've gone from 42 ERP systems down to 6. 2026 will be the final year when we get fully to 1 effective global system.

Right now of our top 10 U.S. -- our top 10 countries, we are fully in the U.S. or in the 1 Newell model and 6 out of the top 10. By this time next year, we'll be fully in the 1 Newell model in all 10, the last big implementation that needs to happen is the Mapa Spontex and NOOK business in Europe that we have planned for next fall. So we believe that, that will be a big enabler for us for another round of sort of simplification, complexity reduction.

By the way, we also have done a lot of investment in CapEx to make this happen. And so as we head into next year, because of all of this progress we've made, we expect CapEx to come down next year, which should be a material positive impact for free cash flow going into next year.

Great. Maybe we can turn to the short-term environment. Clearly, a difficult consumer backdrop across household products categories in the U.S. your business has seen some particular pressure also from retailer inventory cuts as well as some market share pressures you took pricing for tariffs earlier than some competitors. So maybe just starting with the U.S. geography. Can you just give us an update on the consumer environment, the competitive environment and also touch on any retailer actions, whether it's continued inventory adjustments, acceptance of pricing and what you're seeing from competitors also on the pricing side given the tariff situation?

Yes. Let me -- there's a lot to unpack in that, and let me try to bucket it into a few pieces. So I think this year has been highly volatile from -- in the general merchandise categories. We came into the year thinking that the category growth was going to be about flat this year versus last year. our assumption that category growth was going to be flat, proved to be completely false.

And in our most recent update, we've guided the category to be down 2% to 3% this year, which is what we expect it to be. At the time we provided guidance on category growth at the beginning of the year, we didn't know about tariffs, we didn't know about supply chain disruption. There were a lot of things that happened during the year. that impacted that. If you unpack from a consumer standpoint, on general merchandise, what's happening, there's really 2 trends that stand out. If you look at -- in the U.S. market at income dispersion. The bottom 1/3 of U.S. households are pulling back on general merchandise spending this year by about 15%. So it's a huge reduction in general merchandise spending amongst that bottom 1/3 of U.S. households.

The middle income and higher income are still spending more on general merchandise this year, but it's that lower income group that is driving the category decline this year. And I think it's because they're under pressure with food prices, with the cumulative effect of inflation, with housing prices, car insurance prices, et cetera, that's causing them to pull back on general merchandise categories that are more discretionary in nature.

The other thing we can see from the consumer data is if you look at age cohorts, we're seeing the 18- to 24-year-old cohort pull back on general merchandise spending by about 10% this year. All other age groups, interestingly, are relatively flat. And we think that, that 18 to 24 group that's pulling back is largely due to student debt restarting unemployment among that group being higher than typical. And so that's the trends that we're watching from a consumer standpoint. We've had to take -- if I turn to more short-term dynamics. We've had some retail inventory reduction that hit us in the third quarter as customers -- retail customers in several of our big categories move from direct import to domestic delivery. So instead of taking possession of the product in Asia, they've asked us to bring it onshore and they take possession of the product in the U.S. That creates a onetime retailer inventory effect. That is largely behind us.

Today, over 95% of our business now in the U.S. is domestic delivery. That number direct import used to be at the beginning of this year, about 8%. As we sit here today, it's probably 4% of our business. That's direct import. So we think that's behind us from a retail inventory perspective.

As we look at retail inventory from what retailers have in their warehouses in their stores, we feel pretty good about where retail inventories right now are on our business. We have a clear line of sight at the major retailers of where we are. I will say retailers and general merchandises, they went into the holiday season did reduce their open-to-buy dollars because they didn't want to take markdown risk, particularly on seasonally oriented merchandise heading into this holiday season. And so we did see that impact in the third quarter. But at this point, our retail inventories are in pretty good shape. So we think we're shipping to consumption sort of from here going forward.

And then on the pricing side, to your point, there's a lot of different dynamics depending on the category and about 55% of our U.S. business, we manufacture in our 15 U.S. manufacturing plants or our 2 plants in Mexico that are USMCA compliant. We have not needed nor have we taken pricing in those markets because we're not subject to tariffs. The biggest one we've been watching is the writing business, which is our largest and most profitable business. We expected our competitive set, which is subject to tariffs to take pricing during the replenishment part of back-to-school in September. That didn't happen, but the update is in mid-October, they all took pricing. And so most of our competitive set has moved up 10% to 15% at this point. We have not -- and so we believe our brands are now as of the fourth quarter, represent an even better value for consumers because of our U.S. manufacturing presence in that business.

In some of our other businesses, the 45% that we import, where we are subject to tariffs, we took 3 rounds of pricing, and we took pricing early and pretty aggressively to maintain the structural economics of the business. The last round of pricing that we put in the market was July 28, which fully priced for the current tariff environment. We felt like as the market leader in most of the categories in which we compete, we needed to lead the pricing higher for the tariff impact.

In many cases, the competition followed. So for example, in the baby category, where most baby gear products are made in China for us and for the industry. We've seen competition move up as we've moved up in price. Our innovation in that category is very strong. So despite taking pricing, we are gaining market share at the same time despite the pricing we've put in the market.

In some other categories, primarily the kitchen business and primarily the kitchen appliance business. we saw competitors lag us in terms of taking pricing, and we lost share while we had taken price as they sort of delayed their pricing actions. That situation has gotten a lot better in the last 30 days.

First of all, they've taken more pricing up. And secondly, where they haven't, we've gotten more promotionally competitive to close price gaps. So we think we're doing the right thing. It's never fun to go through this type of an environment, but we feel pretty good about where we are from a pricing competitive standpoint right now.

Okay. Any thoughts on the U.S. consumer going forward from here? We spend a lot of time...

The thing that we're excited about as we look into next year is -- we have a lot of tailwind about -- that gives us confidence that we believe we're going to grow faster than the category for the first time heading into 2026. So when we put the turnaround strategy in place in 2023, one of the things we got focused on was rebuilding the company's innovation capability, really focused on consumer-oriented innovation.

And at that point in time, we put in a tiering system and Tier 1 and Tier 2 are our 2 largest categories of innovation. In 2023, we had on Tier 1 and Tier 2 innovation. 2024, we had 2025, we had 15 next year, we have over 20. And it's not just the number in 1 year, these innovations that we're launching, we support for 2 to 3 years.

So the cumulative effect of that will have us with the best innovation portfolio that we will be ready to launch next year in the history of the company. And the business that was the biggest laggard when we got started, and we were very clear on that was Outdoor & Recreation, where we needed to really rebuild the team. So we shut the whole office down in Chicago rebuilt the team and the company's headquarters in Atlanta. That team got going, and we now have a full slate of innovation ready in that business to hit the market next year, which we're excited about. So every single business unit, we'll have a full slate of innovation next year for the first time really ever.

As a result of that, plus the tariff advantage selling that we've done to date, our forward-looking indicators would suggest that our net distribution next year will be up for the first time as far back as we can look since the Jarden acquisition. So we're headed to the strongest innovation pipeline that we've ever had, supported by the highest advertising and promotion budget we've ever had with our net distribution going higher next year from wins that we've gotten with retailers, which gives us confidence that we think we're set up to grow faster than the market heading into next year.

The biggest question mark for us is category growth. So what happens to the category? Does the category stay being down 2% to 3%. Does it get better? Does it get worse? I'm not ready to forecast that yet. My track record was not very good heading into this year on that, but we'll provide a guidance update when we give our normal guidance update on our February call.

Okay. Great. That's helpful. And Mark, maybe some of the sourcing in terms of tariffs, some of the sourcing wins you can get, has that been substantial as you think about your portfolio, Chris, you talked about the distribution expansion or net distribution being up next year. How much of that is related to sourcing post tariffs? How much of that is around the innovation?

No, it's a great question. So we have a very talented supply chain and procurement team, and they have been affecting a redomesticated strategy for a number of years now. It wasn't that long ago that roughly 30% of our business globally was effectively being imported in from China. When we finish this year, that number will be less than 10%. And that 10% will be largely centered on our baby gear business, which is kind of a universal phenomenon. 87% of the strollers in the U.S. are sourcing from Asia, a higher percentage of car seats are sourced in from Asia.

But that is something that we have been aggressively pursuing. And that really creates the backbone, which we call our fuel productivity program, the supply chain team and the procurement team. They, in any given year, have 1,800 to 2,000 projects that they've identified. And they drive that through the stages of our peak program, which is kind of our Lean Six Sigma program. That team has been taking out averagely probably, call it, 4%, 5% of COGS each and every year since we put the strategy in place, and it predated that a little bit. But over the last many years, it's really ramped up as we've really driven automation and other things as well.

The thing we're super excited about is we've gone from 29.5% as our gross margin in 2023, and we'll finish this year more around 34.5%. So it's a 500 basis point improvement in 2 years. And prior to this new program and the new strategy being put in place, we had lost gross margin structurally every single year since the Jarden acquisition. So that's a major inflection. And our teams have been able to do that with no unit volume growth. because, obviously, our business has been, for a number of reasons, getting a little bit smaller, which we knew we would have to effect in order to then grow from a more consolidated base.

But once we start getting a little bit of wind in our sales, we're going to have really strong monetization of that through our manufacturing network because it's highly automated. And because of it being highly automated, we've increased our capacity utilization. So we're running around 40% globally. And so we believe that the next incremental unit that goes through those factories, all else being equal, we will have a gross margin of roughly 50% and an op margin of roughly 45%. So we think we still have tremendous runway ahead of us as it relates to gross margin expansion in the years ahead. And then that innovation program that Chris talked about, which we're super excited about. We put a dictate in place at every new innovation that comes out from our design teams have to be 500 basis points accretive to whatever it is that's replacing in market. And so that's another huge lever that we're going to be able to drive in the years ahead as that takes hold.

Great. And can you guys dimensionalize the distribution expansion a bit more and sort of where it's coming from, which product categories, which geographies?

Yes. So it's fairly broad. And what I would say is because that those innovations are across every single business unit, we're seeing innovation-driven distribution expansion fairly universally. About probably 60% to 70% of the distribution expansion is driven by the innovation there's another 30% that's driven by either tariff advantage selling or things that we're doing like a reinvention. So as an example, with a large retailer that we are the category capped in, we looked at their entire aisle in writing. And they were carrying 16 brands. The bottom 6 brands had market share of 1% to 2%.

My point to them was, hey, 99% of consumers are choosing not to buy these items every day. Why are you carrying them? They said, well, show us. So we did a test and we laid out the Isle completely differently from a navigation standpoint with 10 brands instead of 16. By the way, none of the 6 bottom brands were our brands. And so we did the test in 4 stores and lo and behold, the test work. the category growth in those 4 stores was higher than the control environment because the conversion of the shopper was better. The shopper found it easier to navigate, easier to find an item they didn't give up as easily because the store was confusing.

And based on that test, the retailer agreed that we were going to launch it across their entire chain. And so those types of things that is in our go-to-market capability build, we're now starting to roll across many retailers across many categories in our business. And so it's sort of a combination of the innovation coming, the category work that we're doing.

And then finally, the tariff advantage selling that we're doing, where based on our U.S. manufacturing and our U.S. Mexico MCA compliant manufacturing, we are as part of line reviews pitching retailers at shifting their source of supply to U.S. manufactured brands that we have.

And on that, I think we've been pretty public this year. We got started early on that. Frankly, we were a little bit faster than the retailers. We're capable of digesting it. I think the retailers were digesting the tariff moves so much that -- and the tariff moves were changing so much that they were a little reluctant to make permanent decisions.

So we got out $35 million of incremental revenue from that tariff advantage selling this year, but most of that was promotional. In other words, we captured end caps. We captured holiday displays. We captured those types of things. What's happening now that the tariff environment has started to become more clear is in the line review process where you're talking about permanent distribution, we're starting to make plays to take incremental shelf space as part of that to derisk the retailers and get the retailers back to U.S. manufactured goods. And we're seeing some really strong traction there. The distribution gains that I mentioned that we've secured for next year, we're still in the hunt for even more. So we're in the middle of line reviews on a number of categories that would have our distribution gains next year as being even higher than what we've got on the books right now.

Okay. Great. Maybe we can turn to international. We talked about the U.S. That was a source of weakness in Q3, particularly Brazil, down 25% year-over-year. It's been growing more like a high single-digit rate and obviously, in the release yesterday, you mentioned corporate core sales at the lower end of guidance as Latin America hasn't recovered as much as was expected. So can you just give us an update on what you're seeing from a consumer standpoint in Brazil in Latin America and the key international markets. Why was trends so -- why were trend so weak in Q3 and this weakness is lingering in Q4. But more importantly, what's the path to recovery as we look out over the next few quarters?

Yes, sure. So prior to Q3 of this year, we had 6 consecutive quarters of core sales growth in the international business. In Q3, our core sales in International was down 6%, which broke that streak. And really, if you go within that, the biggest driver was Latin America. And within Latin America, as you rightly say, we called out Brazil and the other one is Argentina, that was part of that mix. Both Brazil and Argentina are top 10 countries for Newell in terms of revenue.

Two different issues in Brazil, which have been growing high single digits, almost 10%, we saw down 25%, as you rightly say, in Q3, we think that was because of the 50% tariff that Trump put on Brazil, which caused supply chain issues as well as retailer ordering pattern issues, was less of a consumer issue than it was a retailer issue, but it was still a little bit of a consumer issue. I mean the GDP in Brazil has gone from 3%, 4% down to flat. It hasn't gone to negative 25%. So that was sort of the issue in Brazil.

In Argentina, there was an election that happened in September that was sort of their version of a midterm election. Everybody thought Malay, who is the President, who was going to lose his coalition. Retailers literally stopped ordering in the month of September. He actually won a bigger mandate. So we thought they would turn back on post that. What we've seen quarter-to-date is that minus 25% sort of in Brazil, Argentina, that we saw in Q3 is tracking now at about minus 10% in October, November. So it's improved but we sort of thought it was going to go back to being maybe flat. And so what we put in the release was that we announced yesterday morning with the productivity initiative was we affirmed our operating margin guidance. We affirmed our earnings per share guidance. We affirmed our operating cash flow guidance. So no change to any of those ranges.

But we said that we expected our core sales and our net sales guidance to be toward the lower end of our previously announced range because that bounce back, particularly in Brazil and Argentina, seem to be slower than what we had thought might happen.

Okay. Great.

So as you look forward into '26, it's a little bit hard to tell. I don't think we're going to see -- if we've seen minus 25%, turn to minus 10%, I don't think you're going to see minus 10% next year. So we still are pretty confident that the international business is set up to get back to growth -- core sales growth in '26.

Okay. Great. And maybe we could talk about core sales growth across the business globally in '26. You mentioned the heightened innovation. There's a multiyear platform of innovation higher spending, distribution gains, international bouncing back. So are you comfortable at some point you returned to core sales growth in 2026? How do you think about that? Conceptually, I know there's a lot of volatility from a category standpoint.

Yes. We haven't guided to '26 yet. Our guidance will be in February as we always do. We're not changing our guidance philosophy here. What I'm confident in is that we've got a plan that should allow us to grow faster than the category next year for the first time.

I'd like to say that if you look at what the category growth is likely to be, there are reasons for optimism. The new tax bill that was passed this summer, if you think about what's driving the category decline in that low-income consumer group provides stimulus directly to low-income consumers that starts in January.

And so there's reason to believe that as that stimulus gets into the market, that consumer group generally spends that stimulus that could have them returning to the market. Also, we've seen real wages begin to turn positive over the last 6 to 9 months in the country. That also is a good leading indicator. And finally, if you think the low-income consumer group was down 15% this year, it's hard to believe they're going to be down 15% again next year on top of the minus 15% this year. And we haven't seen really a pullback from the middle and higher income consumer. So those are the reasons to believe that category growth is going to be much better next year than this year.

On the flip side, if you believe unemployment is going to spike next year, that would be a headwind for us. And so we're not great macroeconomic forecasters. So we're trying to plan the business in sort of multiple scenarios so that in either of those scenarios for category growth we're going to try to drive growth faster than the market. And we're going to try to improve operating margin, and we're going to have a meaningful step-up in operating cash flow and free cash flow and we're going to get back to delevering the company's balance sheet.

Great. And Mark, maybe you can touch on capital allocation. your leverage is near 5x. How would you sort of characterize your capital allocation priorities from here? And cash flow as you look out over the next few years, is there a working capital opportunity left for you to go after?

Yes. Good question. So we started this transformation when we were 6.5x levered. We, in pretty short order, we're able to drive that down to 5, and that's where we ended last fiscal year. When we started this year, and we thought category growth was going to be flat, we had predicted that we would take another half turn off our leverage than in this year at 4.5x. Because of what has happened with respect to tariffs in the second and third derivative effects of that, we're likely still going to be at 5x at the end of this year.

Now if you look through that, what you'll see is that we're going to have about $900 million of EBITDA this year, which is exactly what we had in the prior year. So we have been able to handle this $0.23 headwind to the P&L because of tariffs, I think, fairly well and fairly jointly, and I think it's real testimonial to the team itself.

Now as we think about next year, our operating cash flow will be substantively better than it is in the current year. The current year we're guiding from $250 million to $300 million. Next year, it will be sizably larger than that for a number of factors. One is the tariff cash impact will actually step down. So this year, we had $180 million of cash tariff impacts and $115 million of P&L impacts. Next year, those numbers, as we sit here today, all else being equal, is that the cash impact next year will be $120 million, and the P&L impact will be $140 million, which is $0.28, which I alluded to earlier. That's a $60 million reversal year-over-year, and that will present itself in the form of lower working capital, principally inventory. So that's the first thing.

Second thing is we expect, all else being equal, that we would be able to drive our cash conversion cycle, putting tariffs aside to be a better and a lower number in '26 than '25. As we get back on our fill rate improvements and our weighted forecast improvement accuracy programs because this year, there was a disconnect in the third quarter when the sales kind of backed up for the reasons that Chris gave voice to, we found ourselves in a situation where our cash conversion cycle actually increased by 3, 4 days. And we don't have enough time this year to then drive that back down. If you look at what we did the prior year, we took our cash conversion cycle down by 8. And the year before that, we took it be 23 days.

So next year, if you put the cash tariff impact aside, we will still believe able to, in our view, take the working capital number down as it relates to that. Then we have a number of other factors. We know that our cash taxes next year will be less than our cash taxes this year. We have a very sophisticated tax team, and we do advanced tax strategy work. And we know definitively that our cash taxes next year will be lower than this year. And then we had a well above average bonus payout that we paid out in February of this calendar year. And next year, based on where we're trending, we'll probably have a slightly below target bonus payout, and that will be paid out in February of '26. And that alone is probably worth the $60 million, $70 million reversal.

So you take all those pieces into account, plus the fact that Chris talked about CapEx going from $250 million this year, probably more to like $200 million next year as we finish the ERP programs as we've considered and finished a lot of the large consolidation programs across the distribution in the supply chain, you can see that we'll have a much, much, much stronger operating cash and free cash flow result in 2026. We believe irrespective of what happens on the top line. And so we will continue to fund the business. Most businesses, say, the first call on cash is funding working capital expansion. We think we can contract working capital. Second call on cash for us is basically funding high-return fuel productivity programs.

We have kind of a 30% ROR threshold. And if we can fund projects internally at 30%, we'll do that all day long. And then our focus really becomes on debt pay down. right? Because we are committed to getting ourselves back to investment grade, and we have a ways to go as it relates to that, but it's something we're very strongly committed to.

Great. That's helpful. Maybe we can end on AI. You touched on it in a couple of instances already in our conversation, how impactful is this to your business? How are you using it and which functional areas?

Yes, we're using it broadly across all areas of the company. And I think it's going to change every area of consumer products going forward. As I said, we got started on it about 1.5 years ago. We moved to Agenetic AI about 9 months ago. And we're really sort of taking a 3-pronged approach to this. The first is we've rolled out AI tools to all employees with things like CoPilot 365, ChatGPT to enable everybody in the company to be more efficient in their work. And we've implemented training across the board for that.

The second is in each function, we've looked at processes that are capable of being AI-enabled, and we've made significant progress there. The biggest areas that we've made progress are probably in consumer understanding and marketing and customer service, consumer service, a lot of the back office capability, supply chain, all of those areas, we've made meaningful progress in terms of AI implementation.

And then the third thing that we're looking at are difficult cross multifunctional processes across the company that can be reimagined and redefined. And we've made -- think of things like planning that go across a lot of the organization that can be automated with artificial intelligence. Finally, our strategy has been a little different than most. Because we were on this capability-based turnaround we wanted to move and change the company's capabilities anyway and the company's processes anyway.

We decided to, in many of these functions take a leapfrog approach. And so we went to the leading technology companies directly and volunteered to be a beta client. And we're pretty successful. And so we are the beta client with a number of leading tech firms that are sort of co-developing the AI capability in these areas.

And I think it's not -- it's different in terms of where we are in each of the functions. But in several of the functions, I think we're now in the lead in the industry. and consumer products, and we're demonstrably ahead of where everybody else is in terms of capability. I mean we've -- as an example, we've increased our digital marketing assets this year by 500% with less people. We've taken our -- on customer service, which is our interface with retailers. We've taken our response time from 3 hours to 15 minutes, and we've increased our productivity by 300% or 400%.

In our innovation process, and consumer understanding, we've done consumer segmentation work to segment that consumers were going after. And we've then built digital personas, and we're now doing consumer testing against the digital personas and using that feedback from the digital personas to then create sketches, which we can, with AI separately create digital assets, which we can then convert into 3D CAD that whole product development cycle, we've taken from 4 months to 2 to 3 weeks on the front end through this implementation. So it's a massive impact I think we're just getting started in some ways. And we're excited about it because of our starting point, we were able to lease log a little bit.

Right. Great. Well, with that, we're out of time. So really appreciate both of you being here today.

Thank you.

Thank you.

Good morning, and welcome to Newell Brands' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. A live webcast of this call is available at ir.newellbrands.com.

I will now turn the call over to Joanne Freiberger, Senior Vice President of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin.

Thank you, Michelle. Good morning, everyone, and welcome to Newell Brands' Third 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 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.

Today's remarks will also refer to 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 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.

Thanks, Joanne. Good morning, everyone, and thank you for joining us. The third quarter macro environment for general merchandise categories remained exceptionally dynamic and challenging. Numerous new tariffs were announced by both the U.S. and international markets, creating trade disruptions in affected categories. For perspective, we now anticipate Newell will incur $180 million in incremental cash tariff costs this year, which is up from our estimate of $155 million just 2 months ago. These trade disruptions have affected short-term consumer and retailer behavior. To respond to this, we employed a multifaceted plan. Specifically, we increased focus on productivity and overhead cost savings efforts.

We sold incremental distribution and promotions and tariff advantaged categories, and we took pricing actions where necessary to offset the tariff costs. While our team executed our plan well, it was not sufficient to offset the macro headwinds in the third quarter. Both core and net sales came in down 7%, which was below our expectations due in large part to 3 discrete macroeconomic-related factors namely lower retailer inventory levels, a slowdown in a couple of key international markets like Brazil, and lower consumer demand as we priced for tariffs more aggressively than competition in several categories. Combined, these 3 factors reduced third quarter sales by 4 to 5 points which, along with 2 to 3 points of category compression more than offset incremental tariff advantage business wins and a strong innovation program.

The good news is that our consumer-driven product and consumer innovation programs are getting stronger every day, and starting with the fourth quarter and extending throughout 2026, net distribution gains are expected to exceed distribution losses. This stands in stark contrast to the 3 discrete macroeconomic factors that weighed on our business during the third quarter, which we believe will be short-lived. For example, our market intelligence suggests that the retailer inventory adjustment we experienced during the third quarter was largely onetime in nature, as higher inventory values due to tariffs were absorbed by the market and several large retailers shifted their business from direct import to domestic delivery.

Relative to our international business, which accounts for roughly 40% of our total sales, we expect it will return to growth during the fourth quarter after heightened macroeconomic and political instability caused a slowdown in Brazil and Argentina, both top 10 international markets for Newell. This slowdown interrupted 6 consecutive quarters of international core sales growth.

Finally, competitive pricing actions have begun to manifest themselves across several key businesses like Writing, where we have a strong domestic manufacturing presence. As more pricing hits the market in categories where we are tariff advantaged, we expect the amount of incremental business wins we secure to continue to increase. For these reasons, we remain confident that Newell's turnaround is on track and that the actions we are taking position us well to return to top line growth in the future.

Let's now turn to our 3 business segments, starting with Learning & Development. Writing held its own during a back-to-school season that all-in was roughly flat. Overall, we performed well with retail partners that prioritized and featured branded products, while isolated customers that shifted emphasis to private label alternatives experienced weaker sell-through. That said, we did expect stronger results because we anticipated competitors would take pricing prior to replenishment orders being placed and shipped. Instead, competitors waited until after the back-to-school season had ended to implement meaningful increases, which we are now seeing in October reflected at shelf.

Looking forward and on the heels of recent product successes such as Sharpie Creative Markers and Expo Dry and Wet Erase, the 2026 Writing innovation program remains very strong. In addition, points of distribution will be considerably higher after a major retailer completes a total shelf reset this month and competitors who, unlike us, don't have strong domestic manufacturing capabilities, raise prices. For these reasons, we feel very good about where we are headed with our Writing business.

In Baby, we proactively took 3 rounds of pricing to offset inflation and tariffs. Competitors largely followed and due to the strength of our Graco innovation program, we continued to gain market share despite leading pricing higher in the category. As we indicated last quarter, the Baby business was temporarily affected in the third quarter by a large retailer's decision to shift from direct import shipments to domestic fulfillment. Looking ahead, we have an exciting 2026 innovation pipeline for Baby, so this business is also trending well.

Turning to the Home & Commercial segment and starting with kitchen. We have been proactively pricing throughout the year to offset tariffs and protect margins, but several competitors did not immediately follow. As a result, we took the decision late in the third quarter to increase promotional activity to restore price competitiveness, which will put near-term pressure on sales and margins as the broader market adjusts to higher sourcing costs and small kitchen appliances from Southeast Asia. Kitchen was also impacted by macro softness in Brazil and Argentina, where Oster is the market leader, which we expect to be transitory.

In Home Fragrance, Q3 core sales were below expectations as some retail partners use the timing of the Yankee Candle brand restage to destock by liquidating older products before placing new orders. That said, where shelves have been reset with the new assortment, consumer demand has been strong, validating the direction of the relaunch. We remain confident that the restage will bring a return to growth in the fourth quarter of 2025 and for the full year 2026 as shelves are now largely reset and full A&P launch support is initiated.

The Commercial business, which is anchored by the Rubbermaid Commercial Products brand, continues to perform well across the institutional and hospitality verticals where demand has been consistent. However, in the third quarter, this strength was more than offset by continued DIY softness where store traffic remains below prior year levels. Despite near-term top line challenges, the Home & Commercial team continues to execute our simplification plan, driving cost efficiencies and positioning the segment for profit improvement as demand stabilizes.

Finally, the Outdoor & Recreation business has started to turn the corner with third quarter sales being essentially flat with last year. Simplification efforts, tighter inventory management and portfolio pruning are all delivering tangible improvement. And perhaps most importantly, we have a strong innovation lineup in place for 2026 that we are very excited about. We believe this business is on track to return to top line growth next year. Mark will go into more detail shortly, but before doing that, I would like to call out a few things from a total company standpoint that were particularly notable in the third quarter and share some high-level thoughts on our updated guidance for the year.

First, excluding the impact of the 125% China tariffs, which we called out last quarter, normalized gross margin would have expanded by 40 basis points in the third quarter versus a year ago. Second, normalized overheads as a percent of sales declined approximately 120 basis points year-over-year, the first reduction in 3 years as we realized savings from our realignment plan and technology investments. Third, advertising and promotion spending reached its highest rate as a percent of sales in nearly a decade, reflecting our commitment to invest in brand building and innovation even in a soft demand environment. Fourth, Newell's balance sheet remains solid.

Net debt ended the quarter at $4.5 billion, down from the prior year, and our leverage ratio dropped by 20 basis points versus the second quarter. These proof points demonstrate that the fundamental structural economics of the company are much stronger today than before the transformation started. From a guidance standpoint, we are taking a more conservative view of consumer demand for the fourth quarter, and we now expect our categories in aggregate to be down about 3%.

We continue to expect sequential improvement in normalized profitability in the fourth quarter as we continue to drive productivity gains, disciplined overhead management and pricing actions that protect structural margins. We also expect cash flow to strengthen sequentially as tariff-related costs subside and working capital improves.

In closing, while near-term demand remains uneven, our strategy is working, and our teams are executing with focus, agility and discipline. I want to thank all of our Newell employees around the world for their continued resilience and execution in what remains a complex environment. Their focus and dedication make our progress possible.

With that, I'll turn it over to Mark to walk through the financial results and provide additional detail on our performance and outlook.

Thanks, Chris. Good morning, everyone. Third quarter net sales were down 7.2% and core sales declined 7.4%, with the difference mainly driven by favorable foreign exchange. Normalized gross margin was 34.5%, down 90 basis points year-over-year as the positive impact from gross productivity and pricing was more than offset by headwinds from incremental tariff costs, inflation and volume declines. Excluding onetime incremental 125% China tariff costs of about $24 million, which we called out during our Q2 call, Q3 normalized gross margin would have expanded by 40 basis points year-over-year.

Normalized operating margin was 8.9%, which was down 60 basis points versus last year as a 120 basis point improvement in normalized overheads was more than offset by the previously mentioned reduction in gross margin and an 80 basis point increase in advertising and promotion dollars. Excluding the impact of 125% China tariffs, Q3 normalized operating margin would have expanded by 80 basis points to 10.3% in the third quarter versus a year ago.

While Chris mentioned this earlier, it bears repeating, from this point, going forward, we expect overheads as a percent of sales to continue declining over the next several quarters as efficiency work compounds and productivity-enhancing AI-based tools are widely leveraged across the company.

Net interest expense of $83 million was up $8 million versus last year and a normalized income tax provision of $6 million with an effective tax rate of 7.9% was recorded in Q3. This resulted in normalized diluted earnings per share of $0.17, which was within the guidance range provided 3 months ago and slightly ahead of last year. Importantly, we were able to achieve this despite incurring about $55 million of net tariff P&L expense or approximately $0.11 per share in the third quarter.

Year-to-date operating cash flow was $103 million versus $346 million last year. And given the importance of cash, let's take a few moments to fully unpack this situation. At the start of the year, we knew operating cash flow for 2025 was likely to be below 2024 levels for 2 reasons. First, we needed to pay out in early 2025, a well above target bonus related to the 2024 performance year, which was considerably higher than the below target bonus payout in early 2024 related to the 2023 performance year. Second, during 2024, we enjoyed outsized working capital benefits, having reduced our cash conversion cycle by 9 days.

Now that being said, 3 quarters into 2025, we are running behind plan as it relates to operating cash flow for several reasons. First, we now expect to incur approximately $180 million of gross tariff cash impacts this year, which is up from $155 million from our last earnings call. The increase is driven by higher import volumes from China following our second quarter shipment pause, additional reciprocal tariffs on Southeast Asia and China, the August 18th Section 232 increase on steel and aluminum tariffs from 25% to 50% and additional items having been added to the tariff registry. Second, the discrete items Chris cited that negatively impacted third quarter sales created excess inventory, which as a practical matter, we will not be able to fully process through at this stage in the year.

Finally, and I will speak more about this in just a few minutes, a reduced sales forecast and higher tariff costs for the full year leave us with less operating income than previously projected. Given these dynamics, our third quarter cash conversion cycle increased by about 4 days, but we still reduced our net leverage ratio down to 5.3x, which was a 20 basis point improvement over last quarter.

Moving to the fourth quarter outlook. We expect net sales to decline 4% to 1% and core sales to decline 5% to 3%, with the difference being primarily driven by foreign exchange. Given this range, the core sales improvement we are calling for between third quarter actuals and the midpoint of our fourth quarter outlook of 3.5 points can be reconciled as follows: First, we believe the bulk of any onetime retailer inventory transitions away from direct import to domestic fulfillment are now behind us. In addition, retailer inventories have, generally speaking, already taken the higher inventoriable value of products associated with tariffs and any reduction in open-to-buy dollars into account.

Second, we expect our international business to return to growth in Q4 as Brazil recovers from the macroeconomic disruption that occurred during the third quarter and as consumer confidence improves following the Argentinian election, which incidentally and perhaps surprisingly is one of our top 10 international markets.

Third, we have strengthened our fourth quarter promotion plans, and we are finally starting to see competitive price movement across several key categories, both of which should accelerate our unit velocity.

Fourth, we expect to have more incremental tariff advantage wins in the fourth quarter than in the third. And finally, our fourth quarter innovation and marketing program is judgmentally the strongest we will have fielded since the Jarden acquisition.

Going a bit further into the P&L, normalized operating margin for the fourth quarter is expected to be between 9% and 9.5%, which includes a significant favorable overhead impact from well above target incentive comp earned in the 2024 base period. With a tax rate in the low teens, normalized EPS is expected to be in the $0.16 to $0.20 range. Please note that this EPS range includes about $50 million or $0.10 per share of negative tariff impacts prior to any offsetting action.

Turning to our full year 2025 financial projections. Net sales are expected to decline 5% to 4.5% and core sales are expected to decline 5% to 4% Normalized operating margin should be in the range of 8.4% to 8.6% and our EPS range is now $0.56 to $0.60. Within that range, we expect to incur a net 2025 P&L impact before any offsetting mitigating actions of $115 million related to tariffs, $10 million of which came through in Q2 and $55 million of which came through in Q3, leaving roughly $50 million in Q4.

On a normalized EPS basis, this equates to approximately $0.23 per share, which impacted the second and third quarters by $0.02 and $0.11, respectively, leaving $0.10 for the fourth quarter. This 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 refinancing in May of this year.

Finally, we are updating our full year operating cash flow guidance range to $250 million to $300 million, which incorporates our prior commentary regarding third quarter actuals and our fourth quarter estimates. We acknowledge this is considerably lower than when the year began, but it would also be fair to recognize that $180 million in incremental cash tariff impacts has had a negative impact on our end-year cash generation.

Typically, we hold commentary related to the upcoming fiscal year for our fourth quarter earnings call. However, given the importance of cash and being mindful of our leverage ratio, we now expect to end the year at about 5x. There are a few things we would like to point out today relative to 2026. Specifically, we expect operating cash flow to strengthen significantly next year as both cash taxes and incentive compensation decline year-over-year. In addition, based on our preliminary reviews, we expect 2026 CapEx spending to be meaningfully below 2025 levels since several major IT and supply chain initiatives will be behind us. Finally, we expect our cash conversion cycle to drop next year and working capital to improve as this year's tariff inventory effects normalize.

Before handing things off to the operator for your questions, we would like to offer 3 quick closing thoughts. First, while the macro environment remains fluid, we're confident our strategy is working. Looking ahead, we'll work to broaden distribution and continue to bring fewer but bigger and better supported product and commercial innovations to market. In fact, right now, we have plans to launch over 20 gross margin accretive, differentiated and consumer-relevant Tier 1 or Tier 2 propositions next year.

Second, these innovations, along with our base business will be supported by more effective advertising at higher weights for longer periods of time. Finally, while tariffs have arguably set us back a couple of quarters on our journey towards a positive and sustained inflection in top line sales and additional balance sheet deleveraging, we continue to march forward with confidence and conviction that Newell Brands' best days still lie ahead.

And of course, I would be remiss if I didn't echo Chris' comments about how proud we have been by the way in which the Newell team has proactively addressed the unique challenges that have been presented this year. The team's agility, resilience and professionalism have been on full display throughout the year, and Chris and I are honored to be part of the positive transformation being effective at Newell Brands.

Operator, we'll now open the call to questions.

Your first question comes from Lauren Lieberman with Barclays.

So I have a lot of questions. First off, we were all together in September, right? And you had an opportunity to publicly comment on trends, and I know back-to-school was still -- the season itself was still very early. But the shortfall here wasn't just back-to-school obviously. So first, can we talk about when you had a sense of what was going on from an organic sales standpoint. Because the miss is start to say the least, and there's a number of drivers here, all of which given your connectivity with retailers, I would have thought you would have had better visibility into by that point in the quarter.

Yes. Thanks, Lauren. So if you look at the 3 factors that caused the miss, we knew that retailer inventory was going to decline in the third quarter. And in fact, we had talked about that and we thought we had appropriately captured that in our guidance. However, the magnitude of the retailer inventory reduction manifested itself much more significantly than what we expected in the month of September.

And so for example, we didn't know on the Home Fragrance business that retailers were not going to reorder the new product because they were going to be liquidating the old product, that really manifested in the month of September after the back-to-school conference. The second thing is the international business. The international business, which had been tracking for 6 quarters in a row in positive growth, really fell apart in September. And for perspective, Brazil, which is 1 of our top 5 markets ended the quarter down 25%. And Brazil had been growing in high single digits pretty consistently.

That really manifested itself much more dramatically in September after the administration put a 50% tariff on Brazil. We didn't know that was going to happen. Likewise, in Argentina, which is 1 of our top 10 markets, there was an election coming up, the -- for the President's party in Argentina that caused retailers in the month of September to effectively stop ordering.

So we went from a business that was doing very well there to a very negative situation in September. And so that sort of surprised us. And then I think the third thing was we took aggressive pricing action as we were very public about. Our third round of pricing went into the market July 28 and was starting to get reflected at retail in early September.

We expected our competitors to follow. And what happened was in a number of categories, not in all, but in a number of categories, we got scraped by competitors who did not price and that also began to manifest itself more significantly in the month of September. So I think the month of September, as we've been pretty public about is the largest month in the third quarter. It always has been. And so that's what caught us by surprise was the confluence of those 3 factors, which really were back-end weighted in the quarter.

Okay. And then just following up on that aggressive pricing piece. Let's talk about, if we can, categories because I know Baby, obviously, you needed to price. That's your one big category that was unavoidable in terms of tariffs. But on the others, I would not have thought your pricing needed to be, let's put it, that aggressive given your lower tariff exposure. So I'm just surprised that you were -- maybe I missed something, but kind of caught off sides -- you were kind of caught off sides on pricing in categories where tariffs are not a big impact for you or shouldn't have been.

Yes. So about 45% of our U.S. business is imported from outside the U.S. And we've been talking about diversifying our risk profile there, which we've been making good progress on. Interestingly, the Baby pricing went reasonably well. So cumulatively between the 3 price increases on baby gear, we've taken prices up close to 24%. Competition has largely followed in that category.

And as I mentioned in the prepared remarks, we actually gained share in the third quarter. And so although the Baby sales were down, the POS on Baby was up significantly. It was more a function of the retailer shift from direct import to domestic delivery from one of the largest retailers in the country that put a temporary reduction on revenue in the Baby business.

The place where we really got caught off side was much more related to the kitchen business. So on the kitchen business, we had brands like Calphalon, Mr. Coffee, Crockpot that are imported from Asia, some of which from China, and we price to recover the structural economics and competitors basically didn't follow us during this period. Now part of that is understandable because we generally are the market leader in the categories in which we play and competitors may have been waiting to see what we did before they took action. But the pricing that we put in the market turned out to position us as being uncompetitive in those businesses that are primarily sourced businesses.

Okay. Great. And then last thing, and then I'll pass it along. The -- I guess, it's 2 questions. But just the direct import to direct delivery shift that I know you had spoken to, so was it bigger? I think it was supposed to be a one point shift 3Q to Q4. So I just wanted to check on that.

And then also just the headwind from tariffs. I don't know if I was interpreting correctly, but the $24 million in the quarter, I think that's about half of what it was anticipated to be. So was there a shift also part of the profit headwind we're going to see in 4Q? Is flow-through of tariff timing because of the slower sales growth you like didn't sell-through as much of that on the water tariff inventory in 3Q and so you're seeing more of the hit in 4Q?

Yes. So on the tariff side, I think the $24 million that Mark was talking about was just the onetime tariff from the 125% that manifested itself. But the total tariff hit in Q3 was much bigger than that, which was $0.11. And I think that was roughly what we thought. So I don't think there was a change in sort of tariff expectation on that.

Relative to the retail inventory reduction, I think when we started -- when we guided for Q2 -- or for Q3, I'm sorry, we expected retailer inventory reduction to be about 1 point of headwind from the DI to direct delivery switch that we knew about heading into the quarter. We believe that based on the data we have, that it was about 2 points more than that, not all because of direct import to direct to domestic delivery, but also because of this retailers pulling back on inventory on things like the home fragrance restage. So we think we were expecting sort of a 1-point headwind from retail inventory reduction. We think in the quarter, we wound up with more like a 3-point headwind from retail inventory reduction.

Our next question comes from Filippo Falorni with Citi.

So Chris, obviously, you mentioned very challenging environment on the macro side and you're revising your category growth down 3%. I guess what's the visibility there? I know this number has been revised down a couple of times this year. And I know it's challenging to forecast, but like what gives you the confidence that this 3% is the run rate? And then just a follow-up on Q4. Your core sales guidance assume worse than category. Is there an assumption in Q4 of further destocking at the retailer level or market share losses?

Yes. So we -- it's not -- when we thought about the Q4 guide, obviously, we wanted to set the Q4 guide in a place that recognized that we've just come off of a miss in Q3. And so the category has been running down kind of around 2% to 3%. We took the more conservative view relative to Q4 at setting it at minus 3%. And then we also -- because of this price scrape experience, we wanted to build in some potential for that price scrape experience to continue into Q4.

And so we guided, I think, down 3% to down 5%. The down 3% would assume the high end of our range would assume that we grow in line with the market, the down 5% end of the range would assume primarily that we get price scraped in a meaningful way, and that continues. We think we've taken remedial action to get our pricing more competitive, as I mentioned in the prepared remarks, but we didn't want to go into Q4 overpromising relative to what we're seeing on those 2 factors. So that's what informed our guide for Q4.

Got it. And then just on the categories then like in your share gains and the potential for increasing shelf space in your categories where you are manufacturing advantage versus your competition. Like do you feel that we're going to see more of that in Q4? Or is there a bigger opportunity for '26?

We think both. So we have said earlier that in our tariff advantage categories, we have been proactively selling to get incremental shelf space and incremental merchandising. We remain on track for $35 million of additional business this year. That number has not changed relative to what we expect this year, and more of that is coming in Q4 than was in Q3, which is the reason for sequential improvement.

As we go into next year, we're more optimistic that number is going to be bigger in '26 versus '25. We're also -- it bears repeating, pretty optimistic about where we're heading in calendar year 2026. And the reason for that is because, as Mark mentioned in the prepared remarks, we have now over 20 Tier 1 and Tier 2 initiatives lined up ready to launch next year.

For perspective, in 2023, when we started the turnaround effort, we had 1. In '24, we went to 8. This year, we launched 15. Next year, it will be over 20. So -- and if you look at those innovations that we're launching next year, they really span every segment. And I think I mentioned in my prepared remarks, including Outdoor & Rec, which was the one that we've been pretty clear was going to take until 2026 until we got the innovation ready to launch.

So we've got a full slate of innovation launching next year. The retailer reaction to the innovation has been very strong. In fact, a number of our leading retailers have commented it's the strongest innovation portfolio they've seen from Newell in over 10 years. We also know that as we head into next -- into -- both in Q4 and into next year that from the line reviews that we've had, our net distribution is turning positive in Q4, and we expect that to accelerate as we go into next year. So we think we're taking the right action to get the company growing faster than the market growth. And we think that we're set up in a positive way as we head into 2026.

Our next question comes from Peter Grom with UBS.

So I wanted to ask a follow-up to that. And it's just kind of a clarification on the category growth in the guidance, and I apologize if I missed this, but the 3% down assumption versus, call it, currently running down 2% to 3% and the commentary that it's coming off a miss versus expectations, which I think would suggest that you're embedding some flexibility here. But I guess I'm just curious on that, the category assumption because it does seem like when you listen to other companies in CPG or other consumer sectors, it seems like there's a lot of consumer uncertainty. And in many ways, trends are actually getting worse sequentially. So is it not plausible that the category would deteriorate to kind of that 3% number as we move through the balance of the year? Or is there something I'm kind of missing there?

No, I think it's certainly plausible. It's -- we meet with a number of different input sources, including people like Circana. We obviously talk to retailers about their outlook, and we look at macroeconomic forecasts as we try to estimate the market growth. I would say that the 2 biggest themes that we're seeing relative to the consumer standpoint and general merchandise more broadly is, number one, there is a significant pullback among the low-income consumer households.

So it is notable low-income consumers remain under a lot of pressure and their purchase behavior in general merchandise is down significantly versus a year ago for the bottom 1/3 of U.S. households and that trend has been continuing. We haven't seen it accelerate or decelerate, but it remains a headwind for the category.

The other notable trend that we're seeing from an age group is that the younger consumer, those 18 to 24 also are pulling back significantly on general merchandise purchases. And that trend has been with us for a little while now, and we think that trend is also relatively stable. So I think we felt like setting the category growth rate assumption sort of at the low end of what we've seen so far was the right place to head into Q4 from an assumption standpoint based on what we've seen across all of the data that we look at.

Okay. That's helpful. And then I guess, Mark, you kind of mentioned that tariffs pushed back the return to sales growth by a couple of quarters. And the commentary to Filippo's question was helpful just in your confidence in the ability to outperform. But just -- I don't know, like given the exit rate, do you have any initial views on how we should be thinking about category growth or sales growth looking out to '26?

I think what I would say is at this point in time, as Chris indicated, we're going to be a little bit conservative on our category growth rate assumptions. We haven't guided to anything with respect to '26, but I do think this might be a good opportunity to at least share an observation. Certainly, we all had wished when we started this year that we were going to grow the top line at a better rate than we were obviously going to demonstrate. But we have to take into account the context, and we also have to take into account how the company was able to respond to the challenges that we faced.

We've had $180 million of gross cash impacts and $155 million of net P&L effects that we've been speaking to as far as where we find ourselves. That equates to $0.23 a share of headwind. And if you look at where we are now currently guiding, it's effectively $0.56 to $0.60. So call the midpoint of that $0.58. Last year, we did $0.68 a share, but we had a 7% tax rate. If you adjust for that, that would basically be on an equivalized basis, $0.62 last year. So our guidance range right now at the midpoint is $0.58 versus $0.62, and we have a $0.23 headwind.

If you look at our EBITDA estimates for this year, there'll be about $900 million. Last year it was $900 million. Our leverage ratio will be 5. Last year, it was 5. So clearly, while we have had to take some impacts from the top line effects from the international markets slowing from retailers pulling back on inventory, from us leading on price. If you really look through all of that, I think the company has demonstrated an ability to react and react well and swiftly, and we've been able to keep the integrity of the financial structure of the company moving forward.

So as we look forward to '26, we're more optimistic. The challenges that we've given voice to today, we really do think are temporal, and we're going to get back to the base fundamentals of our category innovation, our consumer innovation, and we're going to be out there leading across a whole range of fronts. So we're actually very excited about it. The category is going to do what the category is going to do. But the things we are driving and we can affect, we feel very, very good about, and we're definitely in a much better position today than we were when this calendar year started.

Our next question comes from Andrea Teixeira with JPMorgan.

I was hoping to see if you can comment a bit on your visibility in regards to the inventory destocking that you spoke about. And sorry if I missed some of the nuances. But the -- so that's one question. And then the second question is that, have you taken pricing in Brazil and in some of these countries ahead of this -- or not ahead because of the tariffs?

And then the third point is, can you comment a little bit on the exit rate? It sounds as if -- because you took pricing ahead of your competitors, and then now you did mention on the release that as you saw pricing coming through, you saw better consumer like take? Can you -- I mean, we don't see -- obviously, we don't see everything in scanner. Can you comment to that, like how are you seeing that consumer coming back or kind of the price gaps narrowing relative to what maybe it would be helpful in Writing, particularly to see how the price gaps have narrowed or back to historicals?

Okay. Let me try to take those in turn. On the inventory destocking, we have pretty good visibility on -- if a customer is going to move from direct import to domestic delivery, they give us significant a few weeks or months of notice on that because we've got to manage that with them to make sure we have the inventory onshore before they start ordering. So we typically get a month or maybe 2 of lead time notice on that.

We have accomplished all of that move that we've been notified of and our amount of business that is direct import today is much lower than it has been at any point previously. I think at one point, it was 10% of our U.S. business. It's down now probably to about 5% of our U.S. business with the most recent moves. So as we stand here today on that shift, we do not believe that there's any additional shift from direct import to domestic delivery that we're going to face in either Q4 or going into next year that we know about. We have not been notified on any additional categories.

So that one, we feel we've got pretty good visibility to, and we don't believe that will be a go-forward topic that we're going to talk about because we believe that onetime impact really hit us in Q3 and is now in the rearview mirror.

Relative to retail inventory beyond that shift in delivery method, we get reasonable visibility primarily because many of our retailers, we have access in their systems to look at their weeks of cover on our business. And as we look at the weeks of cover on our business, our customer teams are flagging where we think we have risk from retailer inventories being too high relative to what they need from a replenishment standpoint. It's not a perfect science.

Typically, in our categories, retailers might hold 8 to 10 weeks of inventory throughout their system. And could they move the retail inventory up or down by a week or 2? Yes. When we start to get concerned is when they are 3 or 4 weeks, either too high or too low. As we sit here today, we don't see that. We believe that the retailer inventories are at our largest customers where we have visibility, consistent with historical norms. So we don't believe that retailer inventories are out of line relative to historical norms. And that's why we said in the prepared remarks that we think that retailer inventory headwind is now behind us from what we can see.

On the pricing side, I'll start with Brazil. We did take pricing in Brazil in certain categories when the tariff went into effect. And we saw in that market both a significant macro slowdown and in the categories where we took pricing, we got scraped from a pricing standpoint. So we had a double impact in the Brazil market that affected our business. We have since corrected our pricing actions in those markets to be more competitive. And we believe the macro environment, which was negatively impacted, is starting to stabilize in that market.

The other one that I'll mention is in Argentina, it wasn't so much a pricing dynamic. There was a significant concern in that market around the elections that happened last Sunday relative to President Milei's party and whether they were going to be voted in or out of power effectively. His party wound up doing better than I think what anybody expected. That has reinvigorated confidence in the economy. A number of retailers in that market effectively stopped ordering product for a significant period of time pending the outcome of that election. Now that, that election is over with those customers are reordering. So we expect that market to be back on track and are seeing positive trends as a result of that.

On the pricing in the U.S. I'll start with Writing, which you asked specifically about. We were hoping that and sort of expecting that during the replenishment part of back-to-school that a number of our competitors that were subject to tariffs would take prices up. We did not see that. However, we have seen in the month of October, just in the last 2 weeks, retail prices have moved up for a large majority of our competitor products. We have not moved prices up because we have domestic manufacturing. And so we've seen generally prices move up on competitive brands high single to low single digits. And we believe from our discussions that, that is going to allow us to sell more aggressively at expanding our distribution, and it's going to create a competitive pricing advantage for us versus our competitive products.

So again, that move just happened within the last week or 2. It's a little bit too early to say what the consumer dynamic will be as a result of that. But we are seeing the price advantage because of our tariff advantage on Writing, we believe will start to manifest itself in the fourth quarter.

And then on Baby, where I mentioned we took 3 rounds of pricing, and we've now fully priced for the tariff impact. Generally, we've seen competitors follow. What's interesting on that is we -- in Baby, we had assumed that the elasticity would be about one for one. So as we took pricing up by 24%, effectively, we assumed unit volume would be down on those items by 24%. So far, that appears to be about right. And in fact, it's going a little better than that because we are gaining market share on Baby, both as consumers trade down from super premium brands to Graco and based on the strong innovation that we have that is, I think, doing better than the competitive set. So we feel good about the Baby business. You're going to see in the third quarter, core sales for Baby were down. That really is a function of this direct import to domestic delivery shift. I expect that trend will turn back positive here as we go forward.

Our next question comes from Brian McNamara with Canaccord Genuity.

First off, a week after you guys reported Q2, a large competitor of yours in small kitchen appliances suggested the U.S. market, excluding this competitor, declined at like a mid- to high single-digit clip in its category, suggesting you guys outperformed pretty well. I'm just curious how this particular category performed in Q3 given the pretty weak September.

Yes. I think -- so if you look at the -- some of the small kitchen appliance competitors that have reported and not all of them have reported, but a couple of them have reported organic sales growth down mid-teens. So certainly, we did better than that. And I think we're not alone in being disrupted by this trade disruption. And the trade disruption not only hit us, but it hit retailers, too, because effectively, when the 145% tariff rate went into China, everybody stopped ordering. And when you stop ordering, you create sort of a kink in the supply chain, which then when you finally turn back on, it takes a while for you to get the inventory back through the ocean channel into the U.S. and then ship to retailers. And so there's a bit of choppiness that really is impacting the import business more than the self-manufactured business.

And I think if you look at the competitive set, you'll generally see that where CPG companies that manufacture in the U.S. are better positioned to navigate this because they don't have the same type of trade disruption as those that are importing product from outside the U.S. And that's certainly been true on our business, if you look at our self-manufactured business versus our imported business.

What we're trying to do, as I mentioned before, and what gives us confidence that we're on the right track from a strategy perspective is we think as we head into next year, we've got the strongest innovation pipeline that we will have ever had in the last 10 years. We think from what we know from the line review process, our distribution, our net distribution in the U.S. is going up versus this year. We continue to make very strong progress on overhead cost reduction, and I expect that to accelerate, particularly as we've made significant progress on artificial intelligence across the company. We're up to close to 100 use cases being implemented, and we've now moved fully into agentic AI, which we are starting to leverage more broadly across the company.

And then I think as Mark went through, we see, as we head into next year, a very strong cash bounce back for the company as we expect cash taxes to be down, we expect working capital to ratchet down as tariffs are fully embedded already into the inventory level. We're going to get some year-over-year help from incentive comp, and we expect CapEx to be lower next year as some of the big projects that we've been doing are finalized going into next year. So we'll obviously talk more as we always do at the fourth quarter call on our outlook for '26. But we're trying to navigate the short-term choppiness while ensuring we keep our eyes on sort of the midterm turnaround plan.

Great. And just a quick follow-up. I think a key debate on the stock is whether you guys can sustainably grow again. So with A&P spending at a decade high, the tariff inventory adjustment at the retailer level, a onetime event, international expected to return to growth, why would Q4 be guided lower relative to your implied guidance prior? I think your prior guidance implied flattish kind of core sales growth.

Yes. So I think our Q4 guide is probably maybe 3 points below what the implied guide was last quarter, and it's really 3 things. Number one, we've taken 3 equal things. Number one, we've taken a little bit more conservative view of the market. I think I mentioned minus 3. I think previously in our applied guide, we would have been probably assuming minus 2%.

We've taken a little bit more conservative view on international just because of what we saw in Brazil and Argentina. And so that maybe is another point that we've derisked in the Q4 guide. And then we've taken, as I mentioned, a little bit more conservative view on price scraping because we don't know how quickly competition is going to raise price. And so that's maybe another point as well. So those are the 3 factors that would cause us in Q4 to take a little bit more conservative view versus what the implied guide was previously.

Our next question comes from Olivia Tong with Raymond James.

I wanted to ask you about the innovations that are coming, the 20 Tier 1, 2 innovations, which you talked about for next year. As you think about in the planning for that, you mentioned in previous remarks, the backdrop is more challenging. It sounds like the Yankee relaunch is off to a bumpy start. And you also talked about how low income and younger consumers are pulling back. So as you think about the planning for that, can you talk about your conversations with retailers, the seemingly deceleration in terms of categories and just the general sort of malaise across these categories and launching innovation in that, how you may have to think about the growth expectations for that as we think about '26.

Yes. Good question. So what we're seeing is -- and I mentioned the sort of the broader consumer points. But the other point that we're seeing is when we come with compelling innovation that represents a good value, we are seeing consumers respond to that. So the reason we're growing market share, for example, in Baby is because we've launched outstanding innovation behind the Graco SmartSense Bassinet and Swing, the Graco 360 Easy Turn 2-in-1 rotating convertible car seat, which are off to great starts.

The reason why we're growing and where we're growing in the Writing category is because of the Sharpie Creative Markers and the Expo Wet and Dry Erase. The reason that we're -- the place where we're growing the fastest in Outdoor & Rec is behind the Coleman Pro coolers that we've launched. And so it's an interesting market because although the consumer is pulling back on general merchandise categories, we are seeing if you come with a compelling innovation that represents a good value, and I differentiate good value from low price, you can have a good value proposition that's at the MPP or the HPP price point, but it has to be a good value and it has to be a compelling proposition. But when we do that, we are seeing the consumer broadly respond to that. And that's why we believe that it's right for us to continue to drive and invest behind innovation as we go into next year.

I'm frankly pretty excited about what we've got planned next year, and we'll try to showcase -- we don't want to showcase it all on the earnings call today for competitive reasons, but we'll try to showcase some of it at some of the upcoming investor conferences that we go to. But I think it is pretty broad across our top 25 brands.

And every single business unit that we have has a strong innovation pipeline next year. And so we are now at a point where we're a little over -- about 2.5 years into the new strategy. And recall, when we put the new strategy in place, one of our big planks was rebuilding and implementing brand management, completely rebuilding our innovation process. 2026 is really the first year that we'll have a full innovation across all of our businesses launching in the market as a result of that effort.

Our next question comes from Steve Powers with Deutsche Bank.

I was hoping we could just go back a little bit to where we started and just in terms of what happened in the quarter. Can you just talk a little bit about where you were coming into September? Were you in line with your prior guidance range? Because if you were, then I think the drop-off we're talking about in September is low to mid-teens, even factoring in the size of September.

And then extrapolating from that, just a little bit about what you've seen so far in October and whether the guide, taking your points about the conservatism you've laid in, I'm just curious as to how much of a ramp is implied in the fourth quarter guide, especially because Yankee seems part of the problem or part of the setback in 3Q, and we know how big a business that is in December. So it seems a lot is dependent on that in the full year. So just some perspective there would be great.

Yes. So let me try to help here. So in the third quarter, the plan that we had heading into the third quarter had September as -- so when we start -- at the beginning of the third quarter when we guided for Q3, the plan that we had, that our guidance was based on had September as the biggest quarter and had September up meaningfully versus a year ago. And so that was the plan that we assumed when we guided. And there were a lot of reasons why we thought that was going to happen from a shipment timing standpoint, et cetera.

What we saw was that September certainly came in well below our expectations, as we mentioned, but September was not meaningfully off of what we saw in July and August. In fact, if anything, September was a little better versus prior year compared to July and August, but it was off of our forecast meaningfully, if that makes sense. As we go into what we're seeing so far in October, I think certainly, the October results, and you mentioned Home Fragrance, for example, Home Fragrance is running up in the month of October versus a year ago.

And that's a big turn from what we saw in September and frankly, in Q3, where it was down significantly. So we've seen the turn in that business already in the month of October. Certainly, the October results we've taken into account as we've guided for Q4 and we don't believe that we're basing our guidance on a hockey stick or something like that for Q4.

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.

Okay. All right. So next up, we have Newell Brands, really happy to have them with us again. We've got the company's President and CEO, Chris Peterson; and Mark Erceg, CFO.

So we're going to get started. We'll start with a high-level question for you, Chris. Lots of change in Newell over the last 2.5 years since you've become CEO, including a down to the studs assessment of the business and the strategic overhaul. For those in the audience who may have known an early Newell, what would you say has changed?

Almost everything is what I would say. But when we got started 2.5 years ago on this journey, we started, to your point, with the capability assessment, assessing the 11 core capabilities that are required to win in consumer products, and really trying to do a database deep dive of where did we stand from a capability standpoint versus best-in-class competition. At that point in time, on about half of those capabilities, we were red, meaning we were worst in class, generally on the things that drive top line growth. We were yellow and green on a lot of the supply chain and back-office functions. That led to a new strategy, which we put in place in June of 2023, with a very clear set of where to play and how to win choices. That then led to the kickoff of the capability improvement project list, as well as a new operating model. And that new operating model was very much focused on establishing global segments that ran the P&L for the brands, establishing brand management and then ruthlessly scaling our go-to-market supply chain and back office as a one Newell organization structure. Underpinning all of that, we've upgraded talent, changed the company's culture to a high-performing, innovative and inclusive culture, and established a new set of values across the company. So it's been a pretty soup to nuts reassessment and rebuild of the company. And what we're excited about as we sit here today is we've seen the results of that. Our rate of core sales growth has improved significantly today versus where we were 2.5 years ago. Although we're still negative this year, we are less negative this year than we have been in the last couple, and we are on our way to get back to core sales growth. We've taken our gross margin up almost 600 basis points in 2 years, which is a remarkable achievement. We've reduced our net leverage ratio. We've improved our balance sheet. We've driven strong cash flow. So we think we're on the right track, although we're not satisfied with where we are, there's still more work ahead of us to go.

Okay. Great. I want to dig into a lot of that further as we go. But maybe first, we can talk about your outlook for category growth this year. Earlier in the year, you've been talking about a 1% to 2% decline for categories. And then in August, it results, you've lowered that to low single digits. So subtle change, but a change. So what drove that change in expectations? Any change over the past month? And you also, in that conversation, discussed confidence in improving category growth in '26. Maybe you can kind of unpack some of that for us.

Yes, sure. So exactly right. In the August earnings call, we said, effectively, we're going to be down about -- we expect our category growth rate in the categories we compete to be down, call it, about 2% this year. That's about what we saw in the first half of the year. One of the things that's important to note is that we were pretty close to that category growth number in the first half of the year from a core sales growth standpoint. And so what that means is that our market share is improving as we're bringing the frontline capabilities on. As we looked at the outlook for the balance of the year, we didn't see a catalyst for the category growth rate in the back half of the year to be better than the first half of the year. And so we reset our guidance to include the impact of tariffs, but also to include the assumption that the minus 2 is going to sort of sustain throughout this year. In the last month, we haven't really seen anything from a consumer standpoint that would change that dynamic, or change that outlook. That being said, what we are seeing from a consumer standpoint is that the lower-income consumer remains under pressure. The middle income consumer also is increasingly under pressure. And what that's resulting in is consumers looking for more value. The good news is our portfolio, we've been working on developing products and innovation that delivers strong value behind our leading brands. And we're seeing that on some of our businesses, which I'm sure we'll get into. The high income consumer remains very strong. Equity values have gone up, home values have gone up. And so we see a very different dynamic for high income consumers versus middle and lower-income consumers. As we go to next year, I think there's reasons for optimism that category growth can improve next year in discretionary product categories. I'm not an economist, but the uncertainty from a consumer standpoint that we've endured this year is seemingly lessening as we go forward. I think we're headed to an environment where interest rates are likely to come down as we go into next year. That helps directly on household formation and -- which directly impacts some of our categories. And I think some of the most recent statistics on GDP growth above 3% are encouraging. So we're not guiding yet for next year, but I'm cautiously optimistic when I look at the macro environment that the category growth rate can improve next year versus this year.

Okay. Great. Before we go further, I wanted to just set the scene on tariffs. So let's just start with what you're facing, where are they the most pronounced, and how you're mitigating and/or benefiting from this new environment?

Sounds good. So tariffs has been a dynamic environment to say the least with the number of changes. What I would say on tariffs is a couple of things. First, we've created a trade expertise center across Newell which we did before tariffs got started. But that, we think, is a competitive advantage. So we have an organization that in real time, gets tariff announcements from all governments, from all countries around the world in which we do business, can run it through our system, and can give us a financial impact usually within a couple of days. So we have very strong visibility to the impact on Newell from tariffs. We also have created a lot of flexibility in our supply chain. Recall that several years ago, 35% of our business was sourced in China headed to the U.S. At the beginning of this year that -- we had reduced that number proactively down to 15%. And by the end of this year, we'll be less than 10%, China to the U.S. dependent on our business. We're still very much on track for that. We've also created free trade zones in the U.S., which give us ability to navigate this environment. When the tariffs came in to the current state of play, we've guided that. We expect the cash impact on tariffs for Newell this year to be about $155 million incrementally. The P&L impact of that is about $0.21 a share. We have done a couple of things. One, we've gotten more aggressive on overhead cost management, and we've gotten more aggressive on fuel productivity programs. We've also, to partially offset the impact of tariffs, we've also taken 3 rounds of pricing. The first round we put in place effectively around May 1, then June 1, and then the last round was August 1. So we have, at this point, fully priced for tariffs. The retail pricing has not fully reflected our pricing yet, but our pricing is now fully in place. The other thing I would point out is about 55% of our U.S. business, we manufacture ourselves. We have 15 U.S. manufacturing plants. And we have two plants in Mexico that are USMCA compliant that are not subject to tariffs. And on those categories we're advantaged, because we're not facing really any tariff exposure on that part of the business.

Okay. Categories where you're advantaged, maybe mention a couple of them. And then also, are there any categories you're actually disadvantaged as a result of tariffs? And if so, how are you going to address those?

Yes. So I would say we're advantaged in significantly more categories that represent a greater percent of the business than where we're disadvantaged. There's 19 categories that we are advantaged. Of -- and one of the things we've done since tariffs have gone on is we've gone on a proactive selling pitch to retailers to effectively delist the competitive set that's coming from overseas that's going to have tariff exposure and change out to our brands. On the last earnings call, we said we expected about $30 million of wins already in the back half of this year from that. We've actually secured more wins at this point, so we're up to $35 million. So we've gotten another $5 million since we last reported in additional wins this year. And that number for what it's worth, I think, is going to be bigger as we go into next year, because we'll have a full year impact of that. So we're on our front foot, pitching where we have cost advantaged categories. And those categories would include things like -- 8 of our top 10 brands are made in the U.S. It would include things like the Writing business, which is made in Maryville, Tennessee. The Food Storage business behind the Rubbermaid brand. We have a big Rubbermaid Commercial Products business that's made in Virginia. We've got part of our Outdoor & Rec business that's made in Kansas to name a few and several others. The categories -- there's been a set of categories where we're kind of neutral. The biggest category where we're subject to tariffs that were kind of neutral with the industry is the Baby category with Graco. On that category it's interesting because that's where we've taken the most aggressive pricing. And about half of the pricing that we've taken has been reflected at this point by retailers. The interesting thing on that business is we're gaining market share right now despite the pricing. And we're gaining significant market share behind great innovation. We've launched The EasyTurn convertible car seat. We've launched the SmartSense Bassinet and Swing that is driving market share growth. The other thing we're seeing is consumers are trading down from the super premium segment to Graco. So we're seeing Nuna, UPPAbaby and Maxi-Cosi, which are at the super premium, all losing market share. And Graco, which is positioned at the high end of MPP is the beneficiary of that. Because consumers are deciding, I don't need to buy a $1,400 car seat when I can buy a $500 car seat, that's very good. So that's one that we feel good about our trajectory.

And then the couple of categories that I would mention where we're disadvantaged would be things like -- we have a metal trash can business in Rubbermaid consumer products that's sourced from outside the U.S. that some competitors have U.S. manufacturing, toaster ovens, but they tend to be small categories that represent a small percentage of the Newell business.

Okay. I'm not sure I knew you made toaster ovens.

Exactly.

Okay. Let's go a bit into these distribution wins because you [indiscernible] now $35 million in incremental sales as a result of these tariff advantaged categories. Should we take that $30 million to $35 million and kind of run rate it into '26? Or you mentioned that it can grow. Does it grow as retailers reset shelves? Like I just [indiscernible]

So that -- if I take that $35 million that we've just updated 5 minutes ago with externally from $30 million, and say, well, how does that go to next year? There's a part of the $35 million that is a line review reset that -- where the retailers are resetting and giving us more shelf space. That should be sustaining. And there's a part of it that are merchandise wins for promotional events that are sort of more you win at this year, and then you hope you win it next year, but you don't know that you're going to win it next year. And so part of it sustains, part of it doesn't. What -- the way I would think about it is the $35 million will be in the base as we head into the back half of next year. But I expect that the wins next year from what we see will be a bigger number than $35 million incrementally versus this year. So in other words, I expect not only will we lap the $35 million, but we'll add on more than that based on the full year impact next year. And that incremental next year will probably be more significant in the front half of next year because we're not lapping anything versus the back half when we're lapping the $35 million.

Okay. And then I believe there's other distribution wins beyond things that are kind of directly related, or influenced by the scope of tariffs. So is that right? And maybe just quantify or talk a little bit about what that looks like?

Yes. So one of the things we've been working on is improving the company's new product innovation pipeline. So when we started on the strategy refresh, we did an assessment of our innovation pipeline and concluded that we were terrible. And so we completely reset the innovation process and pipeline.

As perspective, we put in a tiering system of Tier 1, Tier 2, Tier 3 and Tier 4 innovations. Tier 1 and Tier 2 innovations, I think we had one or two in all of 2023 as a company. Last year, we had 8. This year, we've got kind of a mid-teens number. So we have significantly ramped up impactful, high-quality consumer-based innovation. And as we're doing that, we're gaining distribution when we bring those initiatives to market. And so as an example, I mentioned in the Baby category that The EasyTurn convertible car seat. The SmartSense Bassinet and Swing. That's allowing us to go to retailers with a category growth story that says we're the ones that can turn the category growth around. But in order to do that, you've got to support our innovation that we're bringing to market. And we're starting to get stronger and stronger traction from retailers and starting to win an ever increasing of distribution. So if you look in the U.S., for example, we put in -- one of the other things we weren't doing historically was tracking distribution. We've now, as of about 1.5 years ago, put a sophisticated tracking system in place. But we were losing distribution pretty consistently up until about the middle of this year. We now, as we go into the back half of this year, are turning net positive on distribution for the first time since we put the new strategy in place. And so -- as we go forward, we can see that distribution should go from what was a headwind on revenue to being a tailwind.

Okay. Great. Let's keep going on innovation. So pipeline is stronger. You give us examples of the Tier 1 and Tier 2. So it's quality and quantity. But from the outside, I guess it can be difficult to know if innovation will matter? A lot of times, seem like that's a great idea. We don't know if it ended up mattering. So I guess, how should an outside investor judge the quality of innovation? And also, how do you think about launching innovation against this subdued macro backdrop?

Yes. It's interesting. So we went back and looked at -- because we've launched a meaningful number of these, sort of, call it, 15 Tier 1 and Tier 2 innovations this year. So let's say we've launched 10 of them already in the first half, or something like that, or maybe something like that. There -- some of them launched at different periods of time.

But from what we've seen so far, in total, we're actually doing better than we thought in terms of revenue, incremental revenue, margins, and net present value on that innovation portfolio. We've got some that are doing dramatically better than we thought, and we've got some that are doing worse than we thought, and that's okay because we're not going to get it right all the time. But as a portfolio in total, we're actually doing better than what we projected. So that's the first thing that gives me confidence that we're on the right track. On the ones that were doing better than we thought, we're asking ourselves, how can we double down and invest more behind the winners? This year, we'll have the largest A&P budget as a percent of sales and as an absolute dollar amount. It's already embedded in our guidance in recent history. And we've used the gross margin improvement to effectively fund higher A&P spend, which is effectively going against these leading innovations has been the model that [ are ] playbook. And we're seeing consumers resonate even in this environment to that. So consumers are responding when we come out with innovation. Because the innovation is compelling from a value perspective and the price points generally that we're asking consumers to pay on a good part of our business is not high enough that it's going to make the difference in their lifestyle. And the products are representing a good value. So I'm pretty optimistic that innovation still matters and will continue to matter as we go forward.

Okay. Let's take -- just looking at my questions quickly -- a closer look at your assumptions for the back half. So I wanted to just check in on how Back-to-School has gone, at earnings, sell-in was constructive. We now have another month of data. I still haven't taken kids back-to-school, that's this weekend. But curious what you can tell us about consumption?

Yes. So we -- when we talk about Back-to-School, we talk about a 12-week period that basically goes from around July 1 to around September 30. We're 8 weeks into the 12-week period at this point in terms of data that we see that's not public because we get data in advance of what becomes public. Based on that 8-week data, you're right. Our sell-in was terrific. The Back-to-School season, we -- I think I said, got off to a little bit of a slow start, but then started to accelerate, and that trend has continued. And so as we sit here today through the first 8 weeks, we're seeing on the Writing business, which is our primary Back-to-School business, category growth is about flat this year versus last year is the first thing I would say. And so that, we think, is positive. And about in line with what we had expected. The second thing I would say about Back-to-School is that we haven't seen prices move up in the Writing category really at all. Not just by -- we don't need to raise prices because we're manufacturing in the U.S., but much of the private label and the competitive brands are coming from outside the U.S. and are subject to tariffs, they have not raised prices. So they protected prices during Back-to-School. We think that's because many of these companies brought their Back-to-School inventory and before the tariffs took effect. The thing that we're now going to be into in the month of September, which is always the largest month of the quarter for us in Q3 is the replenishment orders. Because July and August is more about the setup, September is more about the replenishment orders. And the thing that we're watching is we think that some of these competitors are going to have to replenish now at the higher cost base. And so we're watching the pricing dynamic carefully as we go forward.

Is there a chance that, that manifests differently that they don't price what they pull back on marketing? Like is that another scenario this year anyway?

It's possible. And we've got our strongest marketing plan, our strongest marketing spend, strong innovation, and a cost -- now, an increasingly cost advantaged position because of our U.S. manufacturing footprint. So I'm optimistic about where we're headed on this business as we go forward. We also have -- I think I shared at one of our previous discussions. We've done a big shelf aisle reinvention with one of the leading retailers and that aisle reinvention, which disproportionately benefits our brands gets reset in October of this year. And so we should see distribution gains start to ramp up on the Writing business in Q4 as well.

Okay. Great. Speaking of Q4. So one area of focus for investors has been core sales in general and the time line to inflection to growth. At the midpoint of the fourth quarter guidance, or implied fourth quarter guidance I should say, you would have core sales flat. So what dictates that? So what, if anything, could drive upside? And let's also talk, frankly, about risk to the downside and then sort of questionable consumer environment and the notion that inflation will start to show up more now in store.

Yes. I think there's a couple of things. One of the questions we've gotten to your point is, boy, if your Q3 guidance was negative 2% to minus 4%, and the implied is relatively flat in Q4. Why is there an improvement in Q4 versus Q3? And I think there's 3 things that are in our -- that we would say are positives as we think about Q4 versus Q3. The first one is we have a stronger innovation hitting. The Yankee Candle restage, which is our biggest innovation of the year, really comes into play in full force in Q4. And we're optimistic that, that's going to drive a meaningful growth on that business that's disproportionate in Q4.

Second thing is, in Q3, we did have some retailers that shifted how they buy products from us, from direct import where they take possession of the product in Asia to buying from us in the U.S. from our distribution centers. And when that happens, it causes a retailer inventory reduction because they transfer basically the 30 days of inventory on the ocean from them owning the inventory to us owning the inventory. That has about 1 point of negative impact in Q3 that we think is onetime and is not going to repeat in Q4. And then the third thing is this tariff advantage selling that we've talked about is really more pronounced in Q4 than it is in Q3 just because of the timing of when it's going to present itself. So we think we've got a plot to have Q4 be significantly better than Q3 from a core sales perspective.

Okay. And then those sound like almost mechanical effects, not to be too flippant. But what about the consumer right? I mean...

Yes. The consumer remains under pressure, as I said, particularly the low-income consumer and the mid-income consumer. And we know that the consumer is focused on value. And so we are focused on value. And many of our brands are not positioned as HPP brands. Many of our brands are positioned as leading brands in the MPP, and we still have some exposure to OPP, the higher end of OPP. So we think if we do our job right on consumer insights, innovation, brand communication, and particularly focusing on value, we think we can navigate this environment well, and we're well positioned to do that. We cannot outrun the category to a great degree. If we -- if I were to say, boy, if you're firing on all cylinders from things you can control, we should be able to ultimately grow, and maybe a couple of points faster than the category if we're doing our job well. So if the category is minus 2, that we should be able to do a couple of points better than that. But as I said, we are laser-focused on getting back to top line growth. I think we've proven that we can improve the structural economics from a gross margin standpoint. We've proven that we can drive cash and improve the balance sheet. We know that the next thing is for us to get to top line growth. We think that the market is actually -- the consensus is we're not going to be able to do it, by the way, I think if you look at where we're trading. And so that gets us excited because we think when we do it, there's a real opportunity for us to get re-rated.

Yes. Okay. Let's just pivot to second half margin expectations. So from a gross margin perspective, tariffs sort of drag in 3Q. Can you just talk a bit about the 3Q tariff impact and help us understand why you get back to margin expansion in the fourth quarter?

Great question. So since we put the new strategy in place, we've had 8 consecutive quarters of meaningful gross margin expansion. That will be put a little bit at risk in Q3. But as you said, it's specifically because of the tariff dynamics that have been at play. We have incurred about $155 million of gross cash impacts on a net basis, that hits the '25 P&L, that's more like $105 million, which for us is about $0.21 a share. In our last earnings call, we talked about the fact that, that would hit us $0.02 in Q2, $0.11 in Q3, and then about $0.08 in Q4. Of that $0.21 impact, we have found ways to offset $0.16 of it. And the reason we chose to offset $0.16 instead of a full $0.21 was because there's [ $0.05 ] that relates to the 125% China tariff that was basically levied against us on shipments that were in transit. That's a nonrecurring item, right? So we don't want to make any short-term decisions that would take away from the strong A&P plan. We have the second half of the year, the strong capability build out we have on the overhead side of the house. And so we've chosen to effectively allow that [ $0.05 ] simply to pass through. It will not be reoccurring next year. And of course, that [ $0.05 ] is about $25 million, and that puts our gross margin trend a little bit at risk in Q3. But when we get to Q4, we fully expect our gross margin to expand once again.

Okay. Great. Let's think a little bit longer term on gross margin expansion beyond this year. Kind of what are the key drivers of continued expansion? And how should we think about incremental volume as a driver versus other levers?

Yes. So we have, as I just mentioned, expanded gross margin over the last period of time, such that our second quarter print had a 2-year stack up 680 basis points. That's a pretty remarkable feat. On a trailing 12-month basis, that comparable number would be 630 basis points of gross margin expansion. We have principally done that by having a world-class supply chain and procurement team that have been driving meaningful savings through the fuel productivity efforts. That are all encompassing. At any given time, we literally have thousands of projects we're tilting against, and they've been delivering best-in-class performance. Best-in-class performance is typically perceived as being around a 3% COGS takeout per annum. We've been running in the 4%, 5% range. And they've done that importantly without the benefit of any unit volume. As we sit here today, because we have put about $2 billion into our automated facilities since the 2017 Jobs Act, we have a network that Chris alluded to, of 15 domestic plants, including 2 on the Mexican border that are 100% USMCA compliant, that are poised to generate really attractive marginal economic unit returns. You think about last year, our gross margin was 34% as a company. We think the next incremental unit coming off our automated facilities is roughly at 50% on a gross margin basis. And even more importantly, look at our op margin last year was 8.2%. We think the pass-through rate on that next incremental unit is effectively 45%. Because 25% of our cost of goods sold is effectively fixed, and our overhead, which is roughly 20% of sales is largely fixed as well. So these tariff advantage wins that Chris was talking about should monetize themselves in very, very short order. And as we think about on a going-forward basis, we're really just at the beginning of our journey as it relates to peak. Peak is kind of our Lean Sigma -- Six Sigma equivalency. And there's really 6 stages to that. One is foundations, two is base camp. Then you have climbs 1, 2 and 3 and then you attain the Summit. For our 44 facilities, we only have one facility that's gotten to climb 2. So we're really at the very beginning of our journey.

Now in addition to that, as we continue to bring innovation online, we've made a dictum that all innovation going out the door is at least 500 basis points accretive on the gross margin line and that's going to continue to build and expand. And we're going to continue to leverage those bigger initiatives into years 2 and 3, which should provide additional ballast. And we're doing a much better job with our management reporting systems, and so mix management is still a huge opportunity for us as well. So we are exceedingly confident that we're going to be able to continue to transform the structural economics of the business. Our near-term goal is to get to a gross margin of 37% to 38%. We think the right level of A&P spend for us is somewhere in the 6% to 7% range. We expect to finish this year closer to 6%, having started at 4%. Not that long ago, when we put the strategy in place. And we think because of a lot of the AI enablers and other things that are coming down the pike, we can get our overheads as a percent of sales into the 17% to 18% range. If we do all those things, and we're confident that we'll be able to do so, that would put our normalized op margin in the 12% to 15% range. And you contrast that with '23 when we were at 6%, '24, we were at 8%. This year, we should finish closer to 9%. You can see the real value creation opportunity that, that suggests.

Okay. Fantastic. Capital allocation. So you've pruned the brand portfolio significantly. When we ask about divestitures further, the answer is no. But we do have a number of investors that look at certain segments like Outdoor & Rec in particular, where there's been this protracted history of challenges. And really do question if Newell has the right to win in those categories. So you're still at 5.5x leverage. I think proceeds could help accelerate debt pay down. So just how do you think about the right to win in Outdoor & Rec? And would it make sense to be open to a divestiture to bring down leverage?

Yes. So I think a couple of things. One is we're very focused on shareholder value creation. We have looked at sort of divestitures. We don't see a path for divestitures to help from a value creation path for a variety of reasons. Number one, we have a very low tax basis today because we've done 10 big divestitures since the Jarden acquisition. Number two, we've got a highly synergized at this point, go-to-market and supply chain and back office. So the dis-synergy impact is actually fairly significant. And number three, most importantly, we think these are businesses we can win in. And so on Outdoor & Rec to your question, that's the business that we said was the furthest behind when we started the strategy. So we've been very clear from the beginning that this was going to be the laggard, and the innovation wasn't going to start to hit until 2026. On that business, that business, when we started the strategy was based in Chicago. We completely closed the Chicago office and eliminated the vast majority of the organization, and moved the business to Atlanta, and hired a brand-new team. That brand-new team is now on the field. They populated the consumer understanding, the insights, the innovation. That innovation, I'm feeling pretty excited about. We haven't announced all of it yet for competitive reasons, but it's coming next year. So I'm very confident that the Outdoor & Rec business is going to be stronger on core sales growth next year versus this year or last year. And we've got several of those big innovations on Outdoor & Rec that are going to launch, starting actually at the beginning of next year, like in January. And we've shared them with leading retailers, and we've gotten strong positive reaction. So I think we're on the right -- we're on the right trajectory there. And I think you're going to see us get back in the game in a strong way.

Okay. Great. I'm just going to flip it. You've increased financial [indiscernible] leverage, but you've increased financial flexibility, redeeming the April '26 bonds. So I think some investors have looked to some of your [indiscernible] peers and wonder if there are any brands that are better suited under Newell's umbrella than their current owners. So is an acquisition something you'd consider in the near to midterm?

Yes. I don't -- I think in the near term, probably no. We've still got a little bit of work to do to finish the complexity reduction work, which, by the way, we're making incredible progress on in terms of ERP systems, legal entities, brands, all of that. And continue to delever, and continue to bring the top line front-end capabilities online. That being said, in the midterm, I do believe that acquisitions will be a part of our future. At some point, not large acquisitions, but sort of tuck-in medium acquisitions where we can add a tremendous amount of synergy to either top line and margin. I think that is a source of value creation for the company over time.

Okay. very quick wrap-up question. So because [indiscernible] but just given the volatile external environment, I think a lot of people kind of lose sight easily of all the changes that have been underway at Newell and embarked on before tariffs became like the #1 topic. So if you just step back and think about the longer term, when hopefully the tariff dynamics have settled out, what are you most excited about? And for people outside of Newell to start to recognize?

I'm excited about the opportunity for value creation overall and for a lot of the progress that we've made that is less visible through the financial results. And so the complexity reduction work is remarkable. And it's coming almost to an end, which is exciting because we're now into the new model with the complexity -- with the complexity being reduced. We've also, as an example, when we put the capability investment projects together, one of the ones we took on was artificial intelligence. A lot of people have talked about artificial intelligence. I think we've done a better job than most at getting going on that. And we haven't just done it to take cost out, but we've done it to fundamentally improve capabilities. So for example, in our marketing, our digital marketing area, this year, in the first half of the year, our digital asset creation is up 500% versus last year for the same cost. So we're literally 500% more effective because we've created a series of AI applications that is allowing us to create digital content at a much more compelling, much lower cost basis than what we've been doing before. And I could give you 25 of those examples that I think are geared toward getting the company back to top line growth which is sort of the last remaining piece, I think, of what we need to drive to solidify the turnaround.

Okay. Great. Please join me in thanking Newell, for being with us, and we will continue and break out.

Thank you.

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.

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 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.

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-related 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 Britney 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 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 stay 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?

Thanks, Cris. 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.

[Operator Instructions]

Your first question comes from Andrea Teixeira with JPMorgan.

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?

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 dryer 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 Easy Store Fine Lids, 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 and 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.

Our next question comes from Brian McNamara with Canaccord Genuity.

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 are growing significantly in spite of this. So why should current or prospective investors be confident the strategy is working?

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.

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.

Our next question comes from Olivia Tong with Raymond James.

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?

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.

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 a 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.

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.

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.

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

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.

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 worse 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.

Your next question comes from Filippo Falorni with Citi.

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?

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.

And your last question comes from Peter Grom with UBS.

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 are grow, how should we think about kind of the benefits from a profit standpoint?

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, 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.

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.

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.

Good morning, and welcome back to Deutsche Bank's Global Consumer Conference. My name is Christopher Barnes, and I'm part of Deutsche Bank's U.S. consumer packaged goods research team.

It's my pleasure this morning to welcome back Newell Brands to our stage. President and Chief Executive Officer; Chris Peterson; and Chief Financial Officer, Mark Erceg, will lead us through a presentation, after which we'll dive into some quick Q&A as time allows.

And without further delay, the floor yours, Chris.

All right. Thank you. It's exciting to be back at the Deutsche Bank conference, as always.

Before we get started, we have put a forward-looking statement in our presentation deck. It's on our website for those that are interested. I thought I would start with just a little bit of background overview of Newell. Newell is about a $7.6 billion company. We generate about $900 million a year of trailing 12-month EBITDA. We have 25 that represent 90% of the company's sales, 10 countries that represent 90% of our sales. About 62% of our business is in the U.S., 38% is international.

You may not have heard of Newell Brands, but you've heard of our brands. Our top 10 brands include brands like Rubbermaid, Graco, Coleman, Sharpie, Paper Mate, Yankee Candle and Oster, to name a few.

We have a diverse portfolio that's organized into 3 segments: the Home & Commercial segment, the Learning & Development segment in the Outdoor & Rec segment. And our business is pretty globalized, as I mentioned, with the U.S. being the largest market at 62%, but 38% spread regionally relatively around the world.

Key messages for the presentation today. In 2023, we conducted a capability assessment of capabilities that were required to win in consumer products. From that capability assessment, we deployed a new corporate strategy actually at this conference 2 years ago today with a clear set of where to play and how to win choices.

That strategy was then fully implemented over the course of the last 2 years with a new operating model, critical talent upgrades and a culture redesign. We believe that we now are in the position where we have the right capability set to successfully compete and win with consumers and leading retailers, and we'll talk through why we believe that's the case.

And we believe we have evidence now that the new strategy is working as our top line trends have improved since we put the new strategy in place. We have dramatically improved our gross margins. We've improved gross margins 7 quarters in a row. We've had strong operating cash flow. And we believe we've got significant runway for future value creation.

So let's start with the capability assessment. The time we did the capability assessment, these were the 11 capabilities that we thought were required to win in consumer products. We subdivided these into, on average, about 5 sub-capabilities each. We did a database analysis comparison of where Newell stacked up versus best-in-class consumer product companies. And from that, we put in place the strategy and a capability improvement plan.

That led to this strategy, which is a fairly simple strategy, but a complicated strategy to actually execute. We have 5 where-to-play choices focused on distorting investment to our largest and most profitable brands, expanding distribution in our fastest-growing channels and winning retailers.

From a geographic standpoint, we want the U.S. as the top priority, given it's 62% of our revenue, but we wanted to grow internationally as One Newell. We'll talk more about that.

We wanted to disproportionately invest in mid- and high price point segments within the categories in which we competed as opposed to opening price point segments.

And target millennial and Gen Z consumers disproportionately because they represent the majority of the purchases in the categories in which we compete.

From a how-to-win standpoint, it was very much around building capability in the core areas that are required to win, things like consumer understanding, superior innovation, brand building and brand communication, go-to-market retail expertise, supply chain, and importantly, becoming a high-performance organization.

The new operating model we installed had some significant changes that we put in place in 2024. First and foremost, the company put in place a consumer-first global brand management organization, which did not exist prior to the new strategy. We standardized the international operating model to move from going to market by business, by country to a One Newell integrated operating model where we go to market as a company in each of the top 10 countries. We centralized U.S. selling and created a new business development team. We took the supply chain finance and HR functions and fully centralized those where we thought we could drive scale and cost efficiency. And we continued what had been a very aggressive simplification agenda.

We installed a new team. On the leadership side, we reduced over 20% of the company's management roles that are at the VP and above level. Of the remaining roles, we brought in 25% new people into those roles to upgrade the talent in the leadership organization.

The marketing side was probably the biggest change that we made. Not only did we institute brand management, but we then put in place an exceptional performance standard that we measured brand management against. And as a result of that, we wound up turning over and bringing in from the outside about 50% new marketing talent from academy-oriented companies.

And then underpinning this, we put in place a high-performing, high accountability culture as the goal of what we were trying to establish.

Relative to the new culture, we defined the culture that we were looking to transform the company to by 3 vectors: we wanted to be high performance, we wanted to be innovative and we wanted to be inclusive. And those are the 3 things that we're striving for.

As a result of that, we also changed the company's values that we are ascribing to how we want to do this, focused on integrity, passion for winning, leadership, ownership and teamwork.

Previously, the company's values had elements of integrity and teamwork, but was really missing passion for winning, leadership and ownership, which we felt are important values to get the company back on the right track.

We also have simplified our brand portfolio. We started the journey, we had 80 brands across the company. Today, we have about 55 brands. So we have disgorged about 25 brands. So the quality of the portfolio that we're operating with today, we believe, is much stronger than what we were doing several years ago.

If you look at how we disgorged the brands, there were several brands that we sold. There were a few that we licensed. And then there were a number where we just shut down the brand because they were small, insignificant, not making much money and we thought that we could capture that volume either in other brands in the portfolio. The way we determined which of these vectors to go after was really focused on net present value, what was the best net present value to do that.

If you look today then at the top 25 brands, I mentioned we operate in 3 segments. These are the top 25 brands by segment that we go after. And so you can see in Learning & Development, the Writing and Baby brands; in Home & Commercial, you can see the Commercial, the Home Fragrance and the kitchen brands. And in Outdoor & Rec, you can see Coleman, Contigo and Campingaz, which is a big brand here in Europe.

What's important about this is that we believe that these brands all fit together well under the Newell umbrella for a couple of reasons. First, the same core competencies are required to win across all of these brands. So if you think about the capability assessment that we went through and the capabilities that we're driving of consumer understanding, innovation, brand building, brand communication, all of those things are important for each of these brands.

Second thing is the vast majority of these brands are sold in common retail channels around the world. So there's significant synergy in going to market with them as 1 portfolio.

Part of what Newell was doing in the past was going to market without them in 1 bag or in 1 sales organization, but in a dispersed set of sales organizations. So as we've now put the sales organizations together, we are seeing significant synergy by going to market with all of these in a common sales force.

We also have integrated the supply chain and back office, and this is leading to significant cost synergy. As an example, a few years ago, in the U.S., we were supplying the U.S. market with about 20% of our volume moving in full truckloads. Today, about 80% of our volume moves in full truckloads.

So we have dramatically consolidated. We've moved to mixed distribution centers that can support all of the brands so we can deliver a single order with a single invoice to a single retailer and carry each of the brands in that.

We believe we now have the right capability set to successfully compete and win with consumers and leading retailers, and I'll just spend a minute on each of them and give you a snapshot of where I think we are in this journey.

So this was the capability set that we showed previously that we started with. If I just spend a second on each of these, I'll start with consumer and customer understanding. This is foundational work that all consumer product companies need.

The company did not have a great consumer insights organization. We built and hired a new internal consumer insights organization. That organization has now mapped 37 different consumer segments across 17 countries with 76,000 respondents. The one I'm showing here is an example of a cooking segmentation. So if you think about how people cook, there are 7 segments within that.

The reason why this is important is if you are trying to put a brand strategy together, it's important to know which of the consumer segments are you going after with your brand because each of these consumer segments are looking for something different. And so if you don't understand what the segmentation is, it's hard to come up with new product innovation and compelling brand building.

This work is now complete and has been done across all of the top 25 brands across the company, which is foundational work required for good brand management.

In terms of brand building, we've installed a Newell Brands Brand Academy with best-in-class training. We've made a significant investment in upskilling , as I mentioned, the marketing organization. We've now put a rigorous training course to really move the capability and improve the skill set of the marketing organization. That is enabling the global brand management operating model to operate in a much more effective way. We've also created a center of expertise and marketing that's focused on data-driven marketing and enhanced media capabilities that is driving higher ROI across the company's marketing investment.

As an example, brand communication is an area that we've made meaningful progress focused on driving awareness, engagement and conversion across different elements like public relations, paid media, brand-owned marketing, shopper marketing and influencer marketing. This is an example of the Rubbermaid Easy store innovation that's set to launch later this summer in the Rubbermaid Food Storage business. And you'll see as we're going to market with the new innovation, we now have a holistic 360-degree marketing campaign across all of the relevant touch points to drive the brand communication in a more productive and effective and efficient manner.

On innovation, we had major work to do to improve the company's innovation capability. And I'll just give you a few examples quickly of innovation that is launching this year that is dramatically better than what we've had previously. So many of you heard us talk about last year in Writing, we launched Sharpie Creative Markers. This year, we're launching around -- sort of the extension of that with new earth tone colors and a new fine tip size.

Since we launched Creative Markers, we went from 0% market share in paint markers to 35% market share in paint markers. So it's been a strong innovation based on superior product, and we are extending it with additional innovation coming this year.

This is a good example. This is one of my favorite. The Sharpie brand back in 2020 was a permanent marker brand. We decided to enter gel pens. On the left, what you can see -- when we first entered gel pens, we came with a terrific product that was MSRP of about $10 for a pack, $1.25 per pen. We then, in '21, extended with metal barrel pens, which allowed us to move the price point per pen from $1.25 to $2.50 or double the price per pen. And then last year, we launched the Sharpie S-Gel copper pen at $10 per pen.

And so we are driving category growth through innovation that is delighting consumers, and this is a good example of how we're doing that.

We are launching, as we speak, on EXPO. EXPO is our dry erase brand, which has about 80% market share. An upgrade to the ink on -- that's used on EXPO to make it much more vibrant colors, so that people can see across the room when you're writing on a whiteboard.

In addition to this, we're also launching a wet erase segment, which is a new-to-the-world segment. that is permanent until you don't want it to be. So one of the challenges with dry erase is you rub up against the whiteboard and it rubs off. With wet erase, you can write it and it won't rub off unless you put water on it. And so we believe that's going to open up a whole new set of usage occasions and drive growth on the EXPO brand.

On baby care, we've talked about the SmartSense, which we've launched toward the end of last year, and we will be activating aggressively this year, both a Soothing Swing and Bassinet that respond to baby's cries. This is off to a terrific start, and we believe we've got significant opportunity for growth behind these products.

We also are launching -- or have just launched a 360-degree turning cars under the Graco brand. That's a 2-in-1 convertible car seat that we believe is going to be a game changer for the industry in the U.S., and we're off to a strong start on that product as well.

On kitchen, we've just launched an extreme mixed blender. This is our first foray into -- in the U.S., at least, into performance blenders. The Oster blender business is a very strong business in Latin America, which is the primary market, but the U.S. has been more of a white space for us.

We're off to a good start. This blender is competitive with the best performance blenders in the U.S. market. In fact, as we were traveling over here, Food & Wine magazine just came out in the U.S. and named the Extreme Mix blender the best blender available in the United States. So outperforming Vitamix, SharkNinja's product and others. So we're excited to get in the game in the U.S.

I will also mention on the blender business, our blenders are self-manufactured in Mexico in a facility that's USMCA compliant. So we also are not subject to tariffs, which is a unique advantage that we have in this category versus the vast majority of our competitive set, which is made in Asia.

On Rubbermaid Commercial, we've done work to launch a set of farm products under the BRUTE brand name that we're pretty excited about. So the team has gone and looked at farms, and we've determined that we've got a big opportunity to disrupt this category with BRUTE products that are indestructible by large animals. And so we're launching a whole lineup. The one pictured here is a water or a feed bowl that will replace what historically has been a metal product that will last about 30 days. This product will last 10 years. And so we think it's a game-changing product for the farmer community.

Home Fragrance, this is our largest innovation of the year. This product is set to launch in about 30 days in the U.S. We're doing a complete restage of the Yankee Candle brand with significantly improved soy wax formulation for a cleaner burn, a significantly improved fragrance formulation and significantly improved graphics and packaging behind a new advertising campaign. In addition to that, we're going to be launching a new premium candle offering to get in the game at more premium levels.

We're pretty excited about this. The response from the consumer testing we've done has been terrific, and more to come as we get into the back half of the year.

On Coleman, we've launched a set of Coleman coolers called Coleman Pro that launched earlier this year, which are injection-molded coolers, which are much higher-end coolers. So these coolers compete with much higher performance-oriented coolers and they represent a superior value to those coolers.

We're off to a strong start in this brand, but this is an example -- a good example of how we're trying to bring the Coleman brand out of the opening price point in the U.S. up into more of a lifestyle aspirational type of brand.

Innovation has been a multiyear journey. When we were here 2 years ago at this conference, we said that we needed a complete reset of the innovation process, people, objectives, everything. And so we really did a sort of a full stop of what the company had previously been doing, which was launching a lot of SKUs that were not really driving any type of financial result that were not consumer oriented.

We've been working over the last 2 years to build a healthy pipeline of products, and we believe we've made significant progress on that. And our innovation launches this year will be the strongest that the company has had from a financial standpoint in 8 years since the Jarden acquisition. And we've got a great pipeline coming for the following year.

So we believe that we are now finally at the point where we have good innovation that's investable, which is required to get the company fully back to core sales growth.

From a go-to-market and retail execution standpoint, this is an example of a major U.S. retailer that we're working with to do an aisle reinvention. And so on the left, you see what their shelf looked like previously. The right is what it looks like in the test.

The test results came back. We grew the category with the aisle reinvention by 470 basis points for this retailer. Importantly, Newell grew by almost 1,200 basis points, so our market share went up because we have the leading brands and that retailer, which expanded the test in October '24 has now committed to roll across their entire line which will reset in October of '25.

So this is an example of how we're trying to play the category leadership role where we have category leadership positions, which we had not been doing previously.

On the international side, I mentioned Oster in Latin America. This is an example of a 100-year anniversary program across multiple touch points that we ran from a commercial innovation standpoint and a good example of what we're trying to do from a go-to-market standpoint.

From a supply chain and procurement standpoint, we believe we have a competitively advantaged global trade expertise center. And I probably wouldn't have put this slide in if -- maybe 3 months ago. But with the political landscape that we're operating in now, I feel very good about having this.

So we have a dedicated team of people that has over 500 years of experience. We operate 4 free trade zones in the U.S., which is unique. We don't believe many of our competitors operate any. We have real-time data on all of the goods movement. We've showed a picture here. I could pull it up on my computer and show you where any of our containers in the world are at any moment on any ship. And we can quickly maneuver based on trade and tariff policy to maximize profitability and flow of goods.

From a supply chain standpoint, we've done a lot of work investing in the company's supply chain. We have 42 manufacturing plants around the world. We've invested over $2 billion in capital over the last 7 years to automate these factories.

And so if you look at the factories today, we are operating with highly efficient, highly automated factories. We've improved the company's global fill rate to over 95%, which is the highest in the history of the company. And we've reduced our dependence on China from what was 35% several years ago to less than 10%.

We have 19 tariff-advantaged categories that are produced either in the U.S. or the U.S. or in Mexico for the U.S. This gives you a sense of where they are.

Eight of Newell's top 10 brands are manufactured in North America. So we believe we are advantaged from a tariff standpoint in more categories than we are disadvantaged.

And then lastly, from an artificial intelligence standpoint, this is one of the areas we got started on as well from a capability assessment -- from a capability standpoint 2 years ago. We started by standing up a governance team and going aggressively after artificial intelligence use cases or applications. Today, we've got about 75 apps live across the company that we are using every day across marketing, across supply chain and across our consumer service, customer service and back-office functions.

Where we're moving to is agentic AI, which we believe is the next frontier. We've got a few agents started, but we believe there's more to go there to drive capability improvement.

In closing, we believe over the past 2 years, we've really fundamentally transformed the company. We started with the capability assessment and the new corporate strategy. We put in place the new team, the new culture, the new operating model, simplified the brand portfolio. Today, we believe we have the capabilities in place to really accelerate performance.

Mark will talk a few minutes more about that.

Thanks, Chris. So Chris just discussed how the capabilities we have built and the interventions we have made in support of our new corporate strategy have put Newell Brands in a position for the first time in a long time to successfully compete and win with consumers and leading retailers.

What we'd like to do now is highlight the significant progress we have made in operationalizing and monetizing our new corporate strategy as evidenced by improving top line trends, dramatic margin expansion and strong operating cash flow.

Newell's new strategy and capability set provides us with significant runway for value creation, which is why over the past 2 years we've been maniacally focused on top line acceleration, margin expansion and driving strong cash flow.

So let's go a bit deeper into each of these areas, starting with top line acceleration. As you can see on Slide 39, total company core sales trends have improved sequentially and meaningfully during each subsequent 6-month period since the adoption and implementation of our new corporate strategy. And while we have admittedly not yet seen total company core sales trends turn positive, it is important to point out that both the Learning & Development segment, which is our most profitable segment; and our international business, which represents nearly 40% of Newell's total sales, each posted positive core sales growth for 5 consecutive quarters.

Looking forward, brand category exits are now largely in the past. Our front-end capabilities and our intervention program, in particular, are getting stronger every day and we have numerous tariff-advantaged categories where we are aggressively pursuing incremental sales opportunities.

Turning to margin expansion on Slide 40, you can see we have dramatically improved the underlying structural economics of our business. In fact, trailing 12-month normalized gross margin has expanded meaningfully in each of the 7 full quarters since the implementation of Newell's new corporate strategy and now stands at 34.4%, which is 610 basis points higher than it was just 7 quarters ago.

We have achieved this level of gross margin expansion without the benefit of any unit volume leverage or fixed cost absorption, which suggests at least to us that when the top line turns positive, there is potential for even larger gross margin expansion gains.

Because Newell's gross margin expansion has been so dramatic, let's spend a little more time talking about what has made that possible. The first significant source of normalized gross margin improvement comes from a reimagined, unified and optimized global plant network, where meaningful investments in automation and shop floor digitization are transforming Newell supply chain into a sustainable source of competitive advantage.

From a cultural standpoint, we have a strong frontline engagement program focused on continuous improvement, which we refer to as PEAK, which is a mountain climbing metaphor, which connotes a never-ending climb to the summit of continual improvement. Within PEAK, there are 6 levels of attainment and each level generally takes 12 to 24 months, depending on the phase, size and complexity of the site to complete.

Phase 1 is referred to as foundations. Phase 2 is base camp. Phases 3 through 5 are designated as climb 1, 2 or 3. Finally, Phase 6 is the summit where continual improvement has become the cultural norm, and as such, is fully embedded in everything we do.

Now with respect to our 42 plants. 15 of our smaller plants have not started their journey. Seven are in Phase 1 and 10 plants are in both Phases 2 and 3. This means we don't have any plants that have reached Phases 4 through 6 yet. So we have tremendous upside potential remaining.

That is why, and consistent with last year, we continue to expect 1 to 1.5 points of COGS savings per year from plant network optimization going forward.

We also expect procurement as depicted on Slide 42 to remain a major source of gross margin improvement and strategic advantage for Newell Brands. In 2024, Newell reduced its supplier base by approximately 14%, which brings the total cumulative reduction to about 45% since 2020. And this year, 2025, we expect another 10% reduction as part of our never-ending continuous improvement mindset.

Reducing the number of suppliers is all about aggregating our global purchase pools in order to lower costs, improve supplier payment terms and reduce working capital requirements with a smaller but more capable set of strategic suppliers, which we can leverage to supplement internal R&D ideation with supplier-led innovation as we proactively share our portfolio towards MPP and HPP segments.

We continue to expect procurement-related savings to amount to 2 to 3 percentage points of COGS per year.

The third area we'd like to discuss in more detail on Slide 43 is distribution and transportation. Since implementing the second go-live wave of Project Ovid in 2023, we have further optimized the One Newell system in the U.S., and frankly, the results have exceeded our expectations.

For example, our global fill rate in 2024 exceeded 95%, which was the highest level Newell has ever achieved since the Jarden acquisition. And during Q1 of this year, our global fill rate was 97%. Consistent with this, we have reduced customer penalties and shortages in the U.S. by 66% versus 2022.

On the international front, we've reduced the number of distributors across Latin America, Europe and emerging Asian markets by more than 40% since 2022 with additional albeit smaller levels of reduction expected in the future.

With a long list of additional continuous improvement efforts already identified, we remain confident that we can generate up to 0.5% of COGS savings each year from distribution and transportation systems.

The 3 areas we just covered, Newell's plant network, procurement team and distribution and transportation systems are all governed by an ongoing company-wide productivity initiative called FUEL, which stands for finding untapped efficiencies and leverage. In the early days, following the Jarden acquisition, Newell Brands' overall level of FUEL productivity savings was relatively low. Then starting with 2019 and moving through 2022, we captured annual COGS savings in the 3% range as our capabilities improved, which based on our benchmarking work, put Newell Brands on par with what best-in-class companies typically achieve.

More recently, we have dramatically outperformed what would be considered best-in-class productivity attainment, having saved on average approximately 6% of COGS during 2023 and 2024.

In 2025, we expect our level of attainment to be about 4%. And looking forward, we see a very long margin expansion runway in front of us.

Overheads are also an area where we have focused on reducing costs as much as possible. As you can see on Slide 45, we've reduced total head count by 14% and office expenses by 25% since 2022.

We've also continued to make progress on simplifying our ERP systems. Our goal remains to have 97% of our total company sales on one unified system by the end of 2026.

During 2024, we reduced our legal entities down to 227, which is a remarkable achievement considering that number was more than 500 just a few years ago.

In addition, from 2018 through 2024, we've reduced office space by just over 1 million square feet and we are on pace to finish fiscal 2026 with less than 70 corporate office locations versus 122 in 2018.

For 2025, we expect to deliver about $60 million in overhead savings while simultaneously building essential capabilities.

Now when we combine all the individual top line and margin expansion building blocks Chris and I just shared, we believe there's additional upside because of the symbiotic relationship that exists between some of the elements. For example, innovation drives sales, but it's also gross margin accretive, particularly if the innovation is targeted towards MPP or HPP offerings.

Pricing and revenue growth management, when done correctly, can grow the top line and have a dramatic positive impact on Newell's structural economics.

New business development expands the top line, drives fixed cost leverage throughout the entire supply chain and helps defray corporate and segment overhead expenses.

And our international business has gross margins that are higher than the company average, so international growth is also gross margin accretive.

This cumulative effect can be seen on Slide 46, which shows the significant expansion in normalized gross margin for each of the 7 full quarters since our new strategy was put in place. It also shows that on a 2-year stacked basis, the normalized gross margin expansion has been even more impressive at 590, 800 and 540 basis points for Q3 '24, Q4 '24 and Q1 '25, respectively.

A strict adherence to Newell's new strategy is also strengthening our balance sheet and improving cash flow. On Slide 47, you can see we've driven a $750 million improvement in operating cash flow and a 30-plus day improvement in our cash conversion cycle in 2024 versus 2022 and paid down approximately $500 million and $175 million of net debt in 2023 and 2024, respectively.

From a debt maturity standpoint, we have conducted 2 highly oversubscribed debt offerings, one last fall and one just a few weeks ago, which gives us a clear runway out to September of 2027 when we have a $500 million of debt maturing, which based on our internal modeling, we currently plan to pay off with cash on hand and available credit facilities.

We expect 2025 to be another strong cash flow year with operating cash flow expected in the range of $400 million to $500 million.

Turning to Slide 48. In 2024, we reported normalized EBITDA growth of over 15%, bringing trailing 12-month normalized EBITDA up to $900 million. Strong growth in normalized EBITDA and an 8-day improvement in our cash conversion cycle drove a meaningful reduction in our leverage ratio, allowing us to end fiscal 2024 at 4.9x.

We expect to finish this year, fiscal 2025, with a year-end leverage ratio of about 4.5x, which should move us closer to our longer-term ambition of being an invest-grade debt issuer at some point in the future.

Two years ago, when we unveiled Newell's new strategy at this very conference, we shared Slide 49, which laid out our annual Evergreen financial targets: low single-digit core sales growth, 50 basis points of operating margin improvement and free cash flow productivity of about 90%. Over the past 2 years, we have dramatically improved our core sales trends and drove both operating margin and free cash flow productivity at rates well in excess of these targets.

Nonetheless, we continue to believe that these financial targets are appropriate so we are not considering any changes at this time.

Our capital allocation strategy has also served us well, so we will continue funding high-return internal growth opportunities, deleveraging the balance sheet to achieve investment-grade status and strive to maintain a dividend payout ratio in the 30% to 35% range.

So with that, we'd like to stop where we started. In 2023, we initiated a capability-based multiyear turnaround strategy. And over the course of the past 2 years, we've been putting new operating models in place, strengthening the management team through a series of critical talent upgrades and redesigning Newell's culture to be high performance, inclusive and innovative.

As we stand here today in 2025, we now believe we have the right set of capabilities to successfully compete and win with consumers and leading retailers. And most importantly, there's clear evidence in the form of multiple proof points that Newell's strategy is working. And we believe we still have a significant runway ahead of ourselves for future value creation.

Thank you for your time and your interest in Newell Brands. And I believe we have time for just maybe a few questions.

Well, I guess I'll start where, I guess, we just left off. So over the past couple of years, Newell's undergone like many restructuring optimization initiatives and overhauled your commercial strategy, revamped the go-to-market model, simplified the organization and supply chain.

I guess, just relative to your Evergreen Targets, how much -- like -- how much of like returning to that Evergreen growth is a function of just some level of normalized and stable underlying market conditions versus strategic and tactical decisions that are directly within your control?

Yes. There's a -- we are certainly subject to macro conditions and market growth conditions. But what we're trying to do is develop a plan and a set of capabilities that allow us to grow faster than market growth by 1 point or 2 consistently every year. And we think if we can grow faster than the market by 1 point or 2 every year, that's how we get back with a normalized market to the long-term algorithm from a top line standpoint.

The other thing I would say is that some of market growth in some of our categories is in our control. So if you look, for example, at the EXPO dry erase marker that I mentioned where we have an 80% market share, what's important for us on that business is not do we go from 80% market share to 81%. What's important for us on that business is can we get the category growing faster. That's why we're launching the wet erase segment, which is a completely new segment that opens up new use cases that we believe will drive market growth.

This is an important point. So I want to just expand on it just a little bit. The other thing that we have found is while we may have categories that are down a couple of points, within those categories there's typically a bifurcation between what's happening with higher-income consumers and lower-income consumers.

And so as we migrate our strategy to be more MPP and HPP, we believe that we can grow within categories that, generally speaking, may be in decline in total dollars, but there are certainly pockets within it where innovation will still drive net sales in a favorable manner.

Got it. That's very helpful. And then, I guess, maybe just thinking about the near term, I mean, we've heard a lot about a challenged consumer environment at this conference so far. Are you able to comment on how consumption trends have performed, I guess, since you last reported last month? Is there -- is it generally in line, behind, better than your down 2% to down 1% market assumption?

Yes. So on our last quarter earnings call, we updated our outlook for the year to say we were expecting market growth to be minus 1% to minus 2% this year. And nothing, as we sit here today, changes that outlook from the consumption patterns that we've seen. So we -- as we sit here today, I think we're still very much on track with what we said at the last quarterly call.

Got it. And then just related to the tariff environment, like today and even at your last earnings call, you mentioned a lot of opportunities for market share and distribution to shift to your brands and your portfolio just given your advantaged supply chain.

As we've seen a moderation in the rate of tariffs on China, like have you seen any shifts in those expected plans, expected wins? And relatedly, with your own business, have you resumed purchases from China? Or just I'd love to hear any updated perspective.

Yes. So number one, we resumed purchases from China, particularly on the Baby business, which is our most tariff-exposed business. That whole baby gear industry is tariff exposed in China.

On the flip side, on our advantaged categories, we are gaining strong traction on that. When we announced our earnings call, we said of the 19 categories where we were tariff-advantaged, there were 2 of them that we had already secured wins. Since that time, we've secured wins on 2 more. So we now have 4 of them, which includes Rubbermaid Food Storage, the FoodSaver, Fresh Preserving, the Writing markers business and Home Fragrance where we have U.S. manufacturing capability.

And what we're hearing is that retailers are shifting from China and Asia-based sourcing and wanting to move -- derisk their supply chain to favor U.S. manufacturing, which we think is a good idea, and we're taking advantage of that aggressively with our sales pitch with retailers as we speak.

And we think we've got more to come. We're in process on the other 15 categories that we're aggressively pitching.

Perfect. And we'll leave it there. Thank you, guys, very much.

Thank you.