Newell Brands Aktie

Good morning, and welcome to Newell Brands' Third Quarter 2016 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. Good morning, everyone, and welcome to Newell Brands' Third Quarter 2026 Earnings Call. Joining me today are Chris Peterson, our President and CEO; and Mark Erceg, our CFO.

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. Please refer 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 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 the 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.

And with that, I'll turn it over to Chris.

Thank you, Joanne. Good morning, everyone, and welcome to our third quarter earnings call. Top line growth accelerated sequentially, as Newell Brands delivered its second consecutive quarter of year-over-year sales growth, driven by broad-based market share gains. Net sales increased 3.7% and core sales grew 3.3%, with both results exceeding the high end of our 2% to 3% guidance range.

Growth was broad-based with 2 of 3 segments, 4 of 6 businesses, 7 top 10 brands and 7 top 10 countries growing during the third quarter. The U.S. continued to grow and international returned to growth, with positive core sales growth across Latin America, EMEA and Asia Pacific. This breadth provides further evidence that the capabilities we have built over the past several years are translating into better business performance.

Stronger sales and productivity drove expansion in Newell's normalized gross and operating margin. And in another positive sign, normalized operating margins expanded on 5 of 6 businesses. Normalized earnings per share came in at the high end of our guidance range, despite inflation that exceeded going in expectations. Trailing 12-month normalized EBITDA was up meaningfully, having grown 20% versus a year ago. With 2 consecutive quarters of top line growth, it is becoming increasingly clear that investments in consumer understanding, innovation, brand building, marketing and go-to-market capabilities are expanding distribution and driving growth.

Let's share a few examples, beginning with Learning and Development, which delivered its third consecutive quarter of core sales growth. Writing delivered mid-single-digit core sales growth, supported by our strongest U.S. back-to-school POS growth in 3 years. Sharpie, Expo, Elmer's and Prismacolor all performed particularly well as consumer-relevant innovation, distribution expansion and better back-to-school execution on both sell-in and on replenishment orders drove category expansion and market share gains.

Baby core sales was roughly flat in the third quarter, with growth in the U.S. offset by lower sales in Canada. Within the business, Graco delivered core sales growth during the third quarter, building on strong year-to-date consumer takeaway and car seat share gains. Our rotating car seat platforms, including Turn2Me and Easy Turn 360, continue to resonate with consumers. Recent results included low double-digit growth in POS and share gains at key mass retailers. In Baby Care, NUK also delivered positive U.S. POS and gained market share during the quarter as we continued to invest behind this year's full brand relaunch.

Turning to Home & Commercial. Core sales increased 6%, with all 3 businesses growing for the first time in 5 years. Commercial posted solid core sales growth as both U.S. B2B and DIY channels recorded gains. Innovation contributed to the improvement, including the new 34-gallon BRUTE container and an expanded BRUTE cleaning lineup featuring push brooms designed to tackle different surfaces and types of debris. The 34-gallon BRUTE container also earned a 2026 Pro Tool Innovation Award.

Kitchen delivered its second consecutive quarter of core sales growth, with positive momentum in the U.S. and Latin America. Rubbermaid Brilliance glass food storage continued to see strong demand, consistent with consumers' increasing preference for glass storage options. Crock-Pot also delivered growth supported by our design series, slow cookers, which combine everyday functionality with colors inspired by current design trends. Our collaboration with Valspar builds on that innovation by pairing 6 new Crock-Pot colors, with complementary paint palettes to help consumers personalize their kitchens. And while we don't usually comment on current quarter sales trends, October was, we believe, Crock-Pots' largest sales month ever.

Oster is another great illustration of how sustained investment can build a stronger innovation platform over time. We previously discussed our extreme mix performance blender, which laid the foundation for a broader lineup designed to address different consumer needs and price points. More recently, our new Vortex blender uses proprietary reversible motor technology and customized built-in preprogram settings, which made consistent results easier to achieve. Oster's QuietPro blender addresses consumers' noise concerns associated with blending, and our new Titan blender combines high-performance blending with a glass jar. Oster blenders delivered positive U.S. POS and sales growth in Latin America during the third quarter.

Home Fragrance delivered very strong core sales growth against a favorable prior year comparison. Yankee Candle returned to double-digit growth in the U.S. and gained market share, driven by growth in Yankee Candle retail stores, strong D2C performance and distribution gains in the grocery channel.

Following a return to growth in the second quarter, Outdoor & Recreation core sales declined in the third quarter, even as consumers continued to respond well to our 2026 relaunches of bubba and Contigo. bubba contributed positively, Contigo delivered core sales growth in the third quarter, and we grew share in the important hydration segment. In addition, Coleman Snap 'N Go was recently recognized among Times' Best Innovations of 2026. Demand continues to significantly exceed our initial expectations, and we are expanding availability ahead of the holiday gifting seasons since Snap 'N Go makes large capacity coolers easier to store, transport and use.

Starting with only one Tier 1 and Tier 2 innovation in 2023, we are on pace to launch about 25 this year, which we believe is a big part of our positive sales inflection in these past 2 quarters. Now that we have rebuilt our innovation funnel, it is important to point out that we do not expect the number of new Tier 1 and Tier 2 innovations we launch each year to increase further, because with 25 brands accounting for over 90% of the company's sales and profits, we believe we have achieved a steady state or going rate of innovation. That said, we will continue to focus on bringing differentiated, new consumer-preferred products to market while simultaneously building on the innovations we have already launched.

Consistent with that, we opened a new Atlanta design center in September at our corporate headquarters. This facility brings design, consumer insights, brand marketing, innovation and research and development together to co-collaborate in a new state-of-the-art dedicated consumer research environment with advanced prototyping capabilities, which we believe has the potential to translate into higher rates of future growth.

Before turning the call over to Mark, I want to provide some perspective on the consumer environment and the actions we are taking to protect profitability while continuing to invest in growth despite persistent inflationary pressures. The categories in which we compete were roughly flat globally in the third quarter, which was consistent with what we experienced during the second quarter, but slightly better than contemplated in our July outlook. Consumer conditions were stronger in the U.S. and Latin America, while EMEA and APAC remain more challenged amid ongoing macroeconomic pressures and the direct and indirect effects of the Middle East situation. Based on that result and what we are seeing so far in the fourth quarter, we now expect the categories in which we compete to be flat to down 1% for the full year, which is 1 to 2 points better than when we first started the year.

Inflation, excluding tariffs, has continued to run above expectations, particularly diesel fuel and transportation costs, with broader pressures across commodities like resins, purchase products and labor. At the start of the year, we expected an input cost inflation headwind of about $100 million. We increased that estimate by an additional $50 million during our first and second quarter earnings calls, respectively. And today, we are raising it by another $20 million. That means we are being forced to contend with the total in-year inflationary headwind of $220 million, which equates to approximately 4.6% of our total cost of goods sold.

Our primary response to the significant inflation challenge has been to increase productivity. Our fuel productivity program is now on track to deliver savings well above its original budget and ahead of our stretch target this year. These savings reflect improvements across procurement, product design and value engineering, manufacturing and distribution. We have also leveraged higher sales growth, maintained disciplined overhead cost management, used the 2026 in-year portion of IEEPA tariff refunds recorded during the second quarter and very selectively and reluctantly used limited pricing actions, covering less than 10% of our portfolio, to help offset these inflationary impacts. The net result is we are raising our sales outlook for 2026, while maintaining the midpoint of our operating margin and EPS guidance for the year despite the higher inflation outlook.

Turning to 2027. The macro environment remains volatile and difficult to predict. As such, we are planning the business in an agile manner so that we can adjust quickly to different scenarios. Our base plan assumes global category growth remains roughly in line with this year. We expect to maintain positive core sales growth by growing faster than the category, driven by a strong portfolio of innovation, distribution gains and marketing activation. We expect inflation of about $150 million, which is above normal levels, but below the $220 million in 2026.

Given the cumulative 2-year impact of inflation of $370 million or about 8%, we plan to take modest pricing early in 2027 as we cannot offset this level of impact from productivity alone. One notable area that might be excluded from these pricing actions is Baby Gear, where we are cautiously optimistic that the U.S.-China 30 for 30 initiative could bring relief to this product category. However, the scope, timing and extent of any relief remain unconfirmed since we need the formal implementation details from the administration before we can quantify the impact on Newell.

Relative to margins, we expect normalized operating margin to be down versus 2026 reported level, given the $100 million of tariff refund benefit in 2026 results related to 2025. Excluding this impact, we expect normalized operating margins to be up by more than our 50 basis point evergreen target. Finally, we expect a strong operating and free cash flow year with continued deleveraging.

Navigating this environment while sustaining profitable growth requires strong execution across our commercial and operational teams. With that in mind, I want to welcome Guillermo Beade, who joined Newell this week as Chief Operating Officer. Guillermo brings more than 30 years of global leadership experience at SC Johnson, PepsiCo and Unilever. Guillermo will lead our sales, central marketing and supply chain functions globally, building on the capabilities we have established, and bringing greater connectivity across these teams. I look forward to working with Guillermo as we build on our momentum to drive sustainable, profitable growth in the years ahead.

Finally, before I close, I want to thank our employees around the world. Their focus on our consumers and customers and their determination to deliver in a challenging environment is helping us build positive sales momentum across Newell.

I'll now turn the call over to Mark to walk through our financial results and updated outlook.

Thanks, Chris. Good morning, everyone. During our time together this morning, I will comment on third quarter results and a few notable business accomplishments achieved during the quarter before sharing our outlook for the fourth quarter and the full year.

Third quarter 2026 net sales increased 3.7% to approximately $1.9 billion, while core sales increased 3.3%. Both exceeded the top end of our guidance ranges, and year-to-date core sales growth was nearly 1%, following more than 4 years of declines. Favorable foreign exchange generally accounted for the difference between net and core sales growth. Normalized gross margin was 35.2%, up 70 basis points versus prior year as higher sales and productivity more than offset inflation and tariffs in the quarter. Normalized operating margin was 9.8%, up 90 basis points from 8.9% last year.

Higher sales and improved gross margin drove this improvement despite inflation running above our going-in expectations. A&P remained at approximately 6.9% of sales, and normalized overheads decreased 20 basis points. Net interest expense was $86 million compared with $83 million in the prior year period and the normalized effective tax rate was 9.5% versus 7.9% last year. Taken together, these results yielded $0.20 of normalized diluted earnings per share versus $0.17 a year ago.

Turning to cash flow. Year-to-date operating cash flow was $93 million compared with $103 million in the prior year period. The modest decline versus a year ago primarily reflects higher inventory levels to support anticipated sales growth, largely offset by higher accounts payable and tariff refund collections.

Newell's third quarter cash conversion cycle improved by 4 days year-over-year, primarily reflecting higher accounts payable as purchasing patterns normalized following last year's tariff-related pauses, partially offset by higher inventory to support higher sales growth. Capital expenditures totaled $131 million through the first 9 months of 2026 compared with $177 million last year. We now expect full year capital expenditures to be below our prior estimate of approximately $200 million. Trailing 12-month normalized EBITDA increased approximately $173 million year-over-year to $1.03 billion, and net leverage declined to approximately 4.5x. This compares favorably with 4.8x at the end of the second quarter and 5.3x a year ago.

During the third quarter, we entered into a new $800 million asset-based revolving credit facility, replacing our secured revolver and extending its maturity to 2031. In addition, our senior notes offering, with a 2031 maturity, attracted strong demand, with an order book approximately 5x oversubscribed. This allowed us to upsize the offering to $600 million at a coupon of 6.25%, which was [ 1/8 ] better than the notes they were placed. The proceeds were then used to fully redeem the June 2027 notes and repay a portion of our revolving borrowings under the new ABL facility.

During the third quarter, Moody's also revised their outlook on Newell from negative to stable while affirming our overall credit rating. Importantly, we ended the quarter with no short-term debt outstanding.

We also continue to advance our One Newell operating model during the third quarter by simplifying how we operate across businesses within each country. All 10 of our largest non-U.S. countries now operate with a single ERP system and a common organizational structure compared with only 4 countries in 2024. This multiyear effort reduces complexity, supports more coordinated execution across Newell. And after many long years of painstaking work, effectively represents the end of Newell's ERP consolidation journey.

Now let's turn to the outlook for the remainder of the year. For the fourth quarter, we now expect positive year-over-year growth in both net and core sales of 1% to 3%, which would have achieved marked our third consecutive quarter of positive sales growth. Normalized operating margin is expected to be between 8.4% and 9%, and normalized diluted earnings per share are expected to range from $0.17 to $0.19, with a low single-digit effective tax rate.

Based on our year-to-date performance and updated expectations for the balance of the year, we are raising our full year outlook for both net and core sales. Specifically, we now expect full year net sales growth of 2% to 3% and core sales growth of 1% to 2%.

Despite significantly higher inflation, we are maintaining our normalized operating margin outlook of 10% to 10.4%. And after tightening the range to $0.74 to $0.76 from $0.73 to $0.77, now that only one quarter remains in the year, we are keeping the midpoint of our normalized diluted earnings per share outlook unchanged at $0.75, using an effective tax rate of about 20%. Just as a reminder, please note that this updated full year outlook continues to include approximately $100 million or $0.17 per share from the onetime out-of-period recovery of IEEPA tariff costs expense in 2025, which was recorded during the second quarter of 2026. At that time, we raised our full year normalized EPS guidance on both the top and bottom end of our ranges by that full amount.

Moving to cash. We expected full year operating cash flow of approximately $400 million, which would have been up about 50% versus a year ago. However, after accounting for 2 onetime nonoperational items, we now expect full year operating cash flow of approximately $150 million. Since there's an understandable focus on operating cash flow as we continue to deleverage the company, let me explain these 2 changes in greater detail.

First, as previously discussed, the termination of our nonqualified defined benefit plans is expected to generate approximately $60 million of net cash renewal, which is clearly a positive development. However, the underlying cash flows associated with this transaction are reported in different parts of the cash flow statement. The proceeds from the liquidation of the insurance assets are classified as investing inflows, while the benefit payments to participants are treated as operating outflows. Reporting the payments and related cash taxes and operating activities reduces our operating cash flow outlook by approximately $85 million, even though this presentation does not change the transaction's total $60 million net cash benefit to the company.

Second, we now expect receivable factoring programs to contribute approximately $165 million less operating cash flow than in the prior year. This primarily reflects reduced capacity under the amended agreements and the benefit of having upsized the recent debt refinancing from $500 million to $600 million. As stated earlier, excluding these 2 onetime nonoperational items, we were tracking well against our previous operating cash flow guidance because we remain laser-focused on disciplined working capital management, cash generation and debt reduction, since deleveraging the company remains a top priority. Consistent with that, we expect total debt and outstanding factored receivables combined to decline by a couple of hundred million dollars versus year-end 2025, and we continue to expect net leverage to finish 2026 comfortably below 4.5x.

In closing, we delivered 2 quarters of consecutive sales growth, expanded normalized gross and operating margins and have a clear line of sight to what we expect to be a third consecutive quarter of positive sales growth. None of this would have been possible absent the resourcefulness and professionalism of our team. Their tireless dedication gives us confidence in our ability to build on this progress and sustain profitable growth in the years ahead.

Operator, please open the call for questions.

[Operator Instructions] And our first question will come from Olivia Tong with Raymond James.

A couple of questions here. First, I was wondering if you could talk about the moderation in the Q4 core sales relative to Q3? And how much of that Q3 growth came from volume versus pricing mix and how you think about sell-in versus sell-through?

And then on -- and then you mentioned that pricing in Baby. Is that primarily due to the potential legislation relief that you see? Would you have raised Baby pricing, if not for that? Or is it a function of perhaps some price sensitivity amongst consumers, particularly Baby?

Sure. So let me start with the vast majority of the core sales growth in Q3 is being driven by volume. Pricing was effectively close to 0 for the company in the third quarter. Recall that we had a couple of categories at the beginning of this year that we took price down. We had a couple of categories that were highly resin dependent that we took price up. The net of those was effectively 0.

The other thing I would say about core sales in Q3 is that this was really driven by consumer demand and retailer demand for the products. There was not a significant change or any change of note in retail inventories. So the -- so we feel very good about the core sales delivery in the third quarter. Relative to the fourth quarter guide of 1% to 3%. We're excited about having our second quarter of core sales growth, and we're excited that we were able to guide Q4 to positive core sales growth, which I think last quarter, we set our implied guide was sort of flat to modest growth.

Given the strength that we're seeing from consumers and responding to the innovation that we've put in the market and the marketing that we're putting in the market, that's what gives us the confidence to effectively raise the outlook for Q4 to the 1% to 3% range. And what we've been telling the team internally is that, "Hey, the first quarter, we get the core sales growth. It's a data point. The second quarter, it's a straight line. And when we get to the third quarter, then we'll have a trend." And so we're very focused on delivering positive core sales in the fourth quarter and then sustaining that, as I mentioned, in the next calendar year.

On the Baby piece, the government created a body called the Board of Trade, which is a sort of an organized approach for the current administration to negotiate trade policy with China specifically. And in the latest visit with President Xi and President Trump, there was an announcement from the administration that there was $30 billion of goods where the U.S. was going to reduce tariff rates in exchange for China reducing tariff rates on $30 billion of goods. We were very excited to see and have been actively lobbying for baby gear products to be part of that list. And in fact, they were included in that list, which means that if the list gets -- or when the list gets finalized and actually implemented, we would expect baby gear tariffs to reduce. And in that environment, we would not take pricing. So we've been sort of in a wait-and-see mode on the baby products. That's one of the ones that we're waiting for further details on the specific implementation, timing, amounts and details, but we believe it's an encouraging sign because that would significantly reduce our tariff exposure headed into 2027 once the details become known.

Great. And then just following up, you mentioned -- you had about 25 Tier 1, Tier 2 innovations this year. You mentioned probably about the same next year. So as you think about that, can you talk about the opportunity for the next tranche of launches, whether the margins are similar, the productivity of those relative to [ 25, 26 ] launches?

And then you added Guillermo to -- in the COO role. How does he help sort of ensure the success of that next tranche of launches in addition to building on the first tier? And what decisions will we move to him in terms of sales, marketing and supply chain?

Yes, sure. So on the innovation side, we -- as I mentioned in the prepared remarks, we think 25 launches, Tier 1, Tier 2 launches, is about the right number to sustain strong momentum because there's a limit with 25 brands to how -- to focusing your investment dollars and your communication dollars from a consumer standpoint.

Also, the other important thing to remember here is, generally, when we launch an innovation, we think about the innovation is having sort of a 3-year life cycle. And so as we go into next year and we have 25 launches next year, we're not only supporting the 25 launches next year, but we're supporting year 2 of the 25 from this year, and I think the 18 or 19 that we have from the year before. And so it's a very robust set of innovation for us to talk about what consumers we believe that we're on the right cadence from a product life cycle management. Now obviously, what we're trying to do is drive the innovations to be bigger -- to have a bigger impact, individually and in total. And that's a continuous process that we're focused on. But I think the pacing that we're on, I now feel like, is good. And so that's the piece on the innovation.

Relative to Guillermo, one of the things that we saw, so Mark alluded that we implemented our last major SAP conversion across Europe, primarily October 1, and it has gone very well. And so we're now complete effectively with those ERP changes, and we're operating with sort of one global ERP system around the world, which is very exciting because that's going to allow us not only to reduce CapEx going forward, but it's also going to really allow us to leverage scale more effectively.

So as we think about the next journey over the next several years, we saw an opportunity to bring together our front-end marketing capability, center marketing capability, our go-to-market teams in each of the regions around the world and our supply chain and procurement organization to drive faster and more effective operations relative to how we bring products to market, supply products through retailers and connect to both consumers and retail customers. And so that's really the focus of the role. And I think he's going to be a great addition to the team that allows us to sustain strong top line growth, and in addition to continuing the fuel productivity program that we've had, the margin improvements and strong cash generation.

And our next question is going to come from Peter Grom with UBS.

Great, guys. So there -- you guys gave some pretty helpful color on '27, expectations around category growth, core sales, inflation. Mark, I was curious how we should be thinking about your ability to kind of offset the incremental $150 million of inflation through those pricing actions and productivity just based on what you know today. And then obviously, the cost environment remains very volatile. So if you can maybe just unpack what underpins that $150 million assumption, that would be helpful.

Yes, I think we feel pretty good about that. Look, in 2025, inflation was about $90 million. As Chris indicated this year in '26, it's been about $220 million. Next year, we're thinking about $150 million. We've been using our fuel productivity efforts and other means to control overhead to allow us to expand our margins.

If we go back to 2023, you'll recall, our normalized operating margin was 6, all right? In 2024, we took that up to 8.2. 2025, we took it up to 8.4, despite all those challenges, including tariffs. And then for 2026, right now, we have a normalized operating margin guidance range of 10 to 10.4. Now that does include the $100 million about a period tariff recovery. But if you strip that out, you'd be at 8.6 to 9, which center lines at 8.8. Well, 8.8 compares pretty good to 8.4 in the prior year. So we're going to be up about 50 bps this year despite massive challenges, and we think things will start to roll over next year, and we'll have another year, as Chris said, of levels of A&P support, better and stronger innovation, better go-to-market capabilities, et cetera, et cetera. So we feel really good about our algorithm and are very confident that we'll be able to deliver against our financial evergreen targets into next year.

The last thing maybe I would say to your question is, on pricing, we feel pretty good about where we're headed. We've held off on pricing this year. So if you look at pricing as a contribution to our core sales this year, it's effectively 0, and all of our growth has been driven by volume and mix. And we've used this very strong productivity to offset the $220 million of inflation.

As I mentioned in the prepared remarks, when you look at the $150 million next year, which is really being driven by transportation and sort of the annualization of the commodity move up, which is driving the above normal element of it, that 2-year cumulative inflation, which represents about 8%, we can offset a big part of that with productivity and cost containment actions, but not all of it. And so what we're looking at is modest pricing that we would put in next year. We believe that the cost justification is there. And we believe we'll have a plan that's not a sticker shock plan that we'll be able to implement relatively smoothly.

That's super helpful, guys. And then, Chris, you touched -- where you mentioned to Olivia that you were pleased with organic sales growth in the third quarter. I was wondering if we could maybe get a report card, if you will, just on how the quarter played out across your various segments versus your expectations. At least from an outsider's perspective, commercial looks to be strong. Learning and Development was positive [indiscernible] flow, albeit on a bit of a tougher comp. So just characterize how the quarter played out relative to your expectations? And then are there any puts and takes and notable call outs that we should be aware of as we think about 4Q and into '27?

Yes. So I think relative to the quarter, if I just go through sort of the reporting units, as I mentioned, Writing had a very strong core sales growth, up mid-single digits. We had a great back-to-school season. And it's always important in the third quarter, Writing is one of our most important businesses because we have the replenishment orders, which are a little bit hard to predict. But the POS was stronger, if anything, than we expected going in to the back-to-school season and coming out of it, and that resulted in stronger replenishment orders. So we grew Writing significantly faster than what we had thought coming into the quarter.

Baby was interesting because Baby, the core sales were roughly flat. And Baby, if you recall, was coming off the first half of the year where we were up almost double digits through the first 6 months. And so the Baby core sales is not really reflective of the underlying performance from a consumer standpoint, it's more a shipment timing pattern piece that's driving that. Year-to-date, Baby is still up high mid-single digits on core sales growth and continuing to -- the innovation we've got on that business is continuing to resonate.

I think that the Home & Commercial segment was probably the standout in the third quarter at 6%. We had double-digit core sales growth in Home Fragrance. We had Kitchen up nicely, and we had Commercial returning to core sales growth for the first time. And so that was exciting to see.

And then Outdoor & Rec, which had turned positive in the second quarter, which is important because the second quarter is the biggest Outdoor & Rec season, did flip back to a decline in Q3. That was probably the one that we were the most negatively surprised at. But the combination, when you put all of that together, was that we came in above our forecast, above plan and above the high end of our guidance range, really driven by, I think, the Home & Commercial and the Writing business primarily.

And if I could, it's really encouraging that we've had such a broad-based build-out. But it's also notable that this is the first time since the second quarter of '22 that both the U.S. and international were positive. So it's not just a segment build-out. It's also happening geographically. And Chris mentioned the fact that 7 of our top 10 brands grew, but also 15 of our top 25 grew. So we feel like we're pushing out broadly now.

And the next question will come from Lauren Lieberman with Barclays.

A couple of questions. I don't know if I missed it if you had updated leverage target for the end of the year change in the operating cash flow. And I was just hoping we could get a little bit more color on the reduction in factoring, which is definitely a positive to see. But how should we think about that into '27? Is there further headwind from reducing clients on that to improving quality, I think, from a Wall Street standpoint, it's a good thing to see, but just a good thing to have our arms around in terms of magnitude as we look into next year.

Yes. Great question, Lauren. So we're still comfortably targeting to be below 4.5x levered at the end of this year, which as you know, will represent a meaningful reduction as we continue on our deleveraging journey. When we first began, we were 6.5x. And so we feel really good about what we've been able to do with respect to that.

As far as a specific question on cash, look, I think we feel really good about the underlying cash delivery of the business. If you go back to 2025, our operating cash flow was, call it, $265 million or something to that effect. If you build up from there, we're going to have about another $150 million of cash EBITDA this year. We're going to have between lower bonuses paid and less cash taxes, like another $150 million, which is operational in effect. And then there's about $150 million that comes off the top for working capital, principally inventory, because at the end of the day, our sales base is growing, and we also want to get ahead of the next shoe that might drop on the 301 tariffs. And so we think that's a prudent thing to do. If you put all that together, we were on pace to deliver against that $400 million of operating cash flow. Then we have these 2 onetime nonoperating elements, I think people understand what happened with respect to the COLI liquidation, that's pretty straightforward. That $60 million of net cash in the door, everything there works out really well.

On the factoring side of the house, we did redeem -- I'm sorry, we did renegotiate our factoring facilities. When we did that, we did end up with a little less capacity because of interest rates going up. We also ended up with just a little bit less capacity just based on the way that those negotiations went and given where our current credit ratings sit. But that said, we said we ended the quarter with no short-term debt. We expect to finish the year with effectively no short-term debt. And we took an extra $100 million in when we refinanced the [ 27s ]. So what we have now is the opportunity to use that money at 6.25 instead of factoring. And basically, if you look at the economics of it, it's effectively a push. When you factor, you also have a little bit more in the way of restrictions where the money we took in through the upsizing has no restriction. So economically, we're a little bit indifferent to all of that.

Now as we think about next year, next year, while it's still early days, we don't see any reason why we wouldn't be projecting out somewhere in the 400 plus range for the operating cash flow based on all the pieces of the puzzle that we see because we'll have strong underlying EBITDA growth again. We're going to have less restructuring charges. As we continue to move forward, we think our CapEx is running much better now that we completed the ERP integrations. All the supply chain elements used to be 250. We're going to be below 200 this year. We would expect that to continue into next year. So we're confident we'll be able to continue our deleveraging into '27 and actually feel really very good about our cash position overall. I think we took 4 days out of the cash conversion cycle this year, continue to show real operational discipline as it relates to all of that. So again, these are 2 nonoperating onetime events that I don't think too much have you read through on.

Okay. Great. And then just wanted to follow up again on Outdoor & Rec. So just curious about POS versus -- I know broadly, there were no big inventory dynamics in the quarter. But just curious on POS trends for Outdoor in the third quarter, I know seasonally, it's not the most important here, but you did mention still positive trends on hydration and then clearly with Coleman and Snap 'N Go. So just another thought into 4Q and kind of anything more specific on what fell short this quarter?

Yes. I think it's more of a shipment timing issue than a POS issue. So our forecast for Q4 has O&R bouncing back in Q4 and turning back to positive core sales growth. We obviously don't guide at that level, but when you see that -- when you see a business that goes positive and then goes negative and then comes back to positive, you've got to sort of look at a little bit of longer term trend to really get a sense of what's going on. So I -- as I said, we were -- that was the one business that sort of from a shipment standpoint did come in a little below what we thought. But we believe we're on track to get that business back to growth sustainably. It's just a little choppy as we move into that.

And our next question will come from Steve Powers with Deutsche Bank.

Chris, I wanted to talk a little bit more about the pricing into next year, really the kind of more of philosophy that you're using to guide that pricing in terms of -- I don't know if it's focused on any particular segments or if it's more in areas where the costs are hitting you hardest or it's more focused behind some of your innovation, I'm curious in the context of 2 things. One, just through the elasticity assumptions around some of that pricing. And then also the durability of that pricing, if we've got some cost relief, are you pricing in such a way that you think you could hold that pricing through any cost relief? Or is it really tied to the inflation itself, if that makes sense?

Yes. So first of all, I would say that when we talk about pricing, we're trying to be much more strategic as we head into the pricing plan for next year. And so there's different ways you can take pricing. We can take pricing by taking a straight list price increase. We can drive sort of assortment mix to take pricing. We can pull back on promotional depth or frequency and/or we can reduce sort of customer programming are all options to do that or we can drive pricing up through new product innovation. And I think the answer is what we're trying to do is look at each business and each geography somewhat independently to understand what are the underlying cost trends given this elevated inflation that we're seeing. And then what is the right execution of moving the pricing up to effectively deal with that underlying cost pressure.

And the answer is going to be different by business and by geography. The U.S. is subject to much more inflation than many of the other regions around the world because of the impact on transportation cost here is higher than in some other countries where the transportation is subsidized. The exposure of different businesses because of where they're manufactured and because of the competitive environment is also different. And so we're trying to take all of that into account as we go forward.

As I mentioned, I also don't want to overstate this pricing impact because if you think about it, we're generating fuel productivity savings that are 4% of cost of goods sold or something like that. Now we're doing a lot of work to do that. We have a 2-year cumulative impact of inflation of 8%. So it's not like we need to take significant pricing here. But on average, if we got that sort of a low single-digit number by maybe in some categories, we take mid-single-digit pricing that are significantly impacted, and in other categories we may not take any pricing, that's sort of what we're talking about here, which I think we can do in a way that I think can actually grow the categories be fully cost supportive and be durable and not put us really at a competitive disadvantage.

By the way, one of the things we're also seeing is we're seeing some of our competitors are already taking pricing. So this is not a situation where, in many cases, we need to lead pricing. In particular, we're seeing private label pricing in the categories where we compete against private label move up right now. So our price gaps are narrowing because we're seeing some of the retailers move on their own private label before we move on our branded products.

Perfect. You actually preempted my follow-up on competitive pricing. Holistic answer, and I'll leave it there.

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

Yes. The question was exactly that same question regarding sensitivity prices in competitors. I was just hoping, if Chris, you can talk about like when you took pricing ahead of your competitors, which is not the case now, but thinking about the price gaps, but more importantly, how the consumer can absorb, like what are the learnings you've had in terms of that affordability? And what are the things you're doing now? And if you can kind of explain the price increase that you're seeing, like I'm assuming when you say very selectively, the magnitude or if you're doing any RGM to the price points that are less sensitive and taking pricing on those vis-a-vis like the more price competitive ones.

Yes. So I think this is a very different situation. And it's exactly the way -- the way your question is phrased is the way we've been thinking about it. So if you go back to when we did -- when we put the new strategy into effect in 2023, if you recall, at that point in time, we took a pretty significant price increase on parts of our business where we were not making any money, where we were gross margin 0 or negative, and that was like a 15% price increase.

We also -- when tariffs first came into effect in 1.5 years or 2 years ago, we took significant pricing there and we led the pricing up. And those price increases might have been 10% or 12% or something. And where we led the pricing and we got ahead of people, we did see a significant negative volume reaction until competitors caught up. And so when we were talking about 2025, we were talking about being scraped effectively by the competitive set. And so this year, we haven't done that. And as I said, when you think about 2026, our pricing on average has been about 0, and we've really driven the core sales growth driven by the innovation, volume growth, mix improvement, et cetera.

As we go into next year, I don't think there's any business or any category where we're talking about price increases to anywhere where we expect the magnitude to be close to what happened in 2023 or '24. These are much more modest price increases. And importantly, I think they're going to be timed such that they're likely to happen and when the competitive set moves, including in the categories where we compete with private label where the retailers move. And so I think that positions us in a very different way. And I also think it allows us to do it sort of strategically where we get to logical price points and price pack architectures that -- it may wind up not really even being consumer noticeable in many cases. And so that's why we're sort of excited about it, but that's the way we're approaching it.

And we're also excited that we're able to, with our fuel productivity program and our overhead cost containment program, not be forced into a situation where we have to price fully for inflation. So we're pricing less than inflation is what we're talking about here over the 2-year period.

Yes, that's super helpful. And then a question to Mark. The operating cash flow, the $400 million, then you take out, I believe you mentioned the factoring of receivables was a decline of about 150, correct me if I'm wrong, that would -- and then the other impact of the pension would be definitely nonrecurring. But thinking about like how you now don't need as much as from what I understand, like you don't need the factoring of receivables as much as you do now, what is the normalized -- you did in the past, what is the normalized free cash? I mean, should we think about like into 2027, something in the order of like 250? Or is that a good kind of guardrail?

Well, I think what I would say is if you think about having an operating cash flow number of approximately $400 million, as we talked about our CapEx programs, having historically been in the 250 range, this year will be below 200. I think it's reasonable to assume that next year will be below 200 as well. And we don't see a need for that to creep up over the next several years.

So I think at the end of the day, we will have the ability to pay down some measure of debt each year going forward. Obviously, we're going to be driving our EBITDA growth. As Chris indicated, our trailing 12 months adjusted EBITDA is up 20% for the quarter we just printed. We've taken 2 turns off our leverage ratio over the last couple of years, whilst we've had to deal with basically a top line compression situation and bleeding out excess inventory. And now that we start having the positive flywheel on the sales line, we can monetize that through the P&L and increase our rate of EBITDA delivery and hopefully take our leverage ratio was down even faster.

We talked about this $2 billion investment we've made in our manufacturing network and we talked about the marginal economics that come off each of those automated lines. And on a gross margin basis, it's effectively $0.50 on the dollar. And on an op margin basis, it's about $0.45 on the dollar. So we think the flywheel is now starting to move and we're very comfortable that we're going to be able to continue to deleverage the company in the years ahead, like we've done in the past.

Yes. If you look at the -- this year, to Mark's point, if you were to say, exclude the pension item, which we actually believe is a positive, as Mark mentioned, and you were to exclude the impact of the factoring reduction, our guidance says we're still on track with the $400 million. So we're not changing our operational underlying guidance of $400 million for this year. These are the 2 items explain 100% of the difference in the guide. And so neither one of those do we believe is recurring into next year.

We also, as Mark mentioned, expect this year to not only reduce factoring but to pay down debt, because we expect factoring and debt in total to be down $200 million. And there's no change on our end-of-year leverage being comfortably below 4.5x. So this is a little bit of -- I know it can be a little bit confusing, but we're going to get $145 million of inflow in investing from the pension settlement and we're going to have $85 million of outflow in operating. That results in $60 million that we're going to use to pay debt down. We think that's a positive because it delevers the company. Even though the way the accounting works, it looks a little funny because it reduces operating and it doesn't give you credit for the $145 million that's coming in next week on the investing side.

And we took an extra $100 million with the refinancing we did recently, and so that money is now being effectively used versus having to then factor where there's a fee associated with it.

Absolutely. And then the cost of factoring obviously is higher than when you raise, right, the money. So it's kind of improving your overall capital structure by -- or your overall cost.

It's close to a push, yes. It's close to a push, given where we are, but that 6.25 money was, I think, prudent for us to take in to just improve the company's overall liquidity position. But we're very comfortable with what we've been able to achieve on the deleveraging side of the house. And again, now that the positive flywheel is coming through the sales line and pushing through the P&L, we feel even better about our prospects going forward.

And the next question is going to come from Filippo Falorni with Citi.

I wanted to get your perspective on the holiday season which is upcoming. And especially just general health of the consumer in your categories as we hear from a lot of your peers about some income -- some lower income consumers feeling more the pressure of higher gas prices. How do you think that will play out in the coming holiday season? And any initial expectation from your retail partners as you head into the important season of the year?

Yes. Good question. So from a consumer standpoint, it's actually interesting. I mentioned on the prepared remarks that our category growth in the third quarter was about flat globally, which was a little better than we had thought coming into the quarter. We had sort of thought it might be minus 1. And part of what's driving that is the U.S. was actually positive on category growth. Europe was negative, and that -- those were the 2 biggest things that were different from the flat.

In the U.S., what's happening is the low-income consumer last year, recall, had been pulling back on consumer purchases of durable and discretionary general merchandise items. What's happening now is they've sort of bottomed out. So the trend among the low-income consumer is actually getting better because they're not declining their spend as much. So if last year, their spend of the bottom 1/3 of U.S. households was down 10% to 15%, this year, it might be only down 5%. So it's a material improvement in the year-over-year trend from that low-income consumer.

At the same time, the high income consumer continues to spend more because they continue to benefit from higher equity prices, higher home values. And the middle income consumer has been sort of hanging in there around flat line. And so when we look at that consumer picture, the biggest difference year-over-year in terms of why the category growth is improving is the low-income consumer is declining less than they were a year ago. So that's sort of broadly what's happening from our view of the consumer environment.

Relative to the holiday season, we think it's going to be a decent holiday season. We certainly are not expecting with higher gas prices and higher cost of living a blowout holiday season. But we do think holiday spending will be up versus a year ago. We believe that we're well positioned for the holiday season. We continue to expect in the fourth quarter, significant distribution gains this year versus last year for the Newell portfolio. And we think that importantly, as we've launched new product innovation, we're not seeing really any barrier to consumers responding to that new product innovation when we come with a product that has great features and benefits under a leading brand name at a good value proposition. And so that's what we're focused on. And I think we're well positioned. But obviously, there's -- the next 2 months are going to be critical as we head into the Turkey 12 and the holiday season coming up.

Right, Chris, very helpful. And then maybe one quick follow-up for Mark. In the $150 million that you mentioned in terms of cost inflation for next year for '27, can you give us a breakdown of how much is resins versus transportation and maybe what's your underlying assumption for oil prices?

Yes. Right now, as far as diesel is concerned, which is the principal variant, we're going to assume that where we are today is where we are tomorrow, generally speaking. I think that's the most conservative approach that we can take as it relates to that.

As far as breaking down the specifics within the $150 million, I think what I'd prefer to do is rather give you a general sense of how we're looking at the current year, [ 220 ], because that's a lot more definitive. And if you look at that, what I would tell you is resin and source-finished goods accounts for about 45% of that. And then labor and overhead, because again, this is basically COGS inflation, runs around $50 million as does transportation, both of those collectively put together, labor and overhead and transportation is equal to about another 45. And then about 10% comes from metals and packaging and glass and other commodities. So I would expect it to be somewhat similar based on the fact that we're going to be assuming that oil being elevated, so therefore, resin remains elevated, diesel remains elevated, transportation remains elevated. And of course, there's always typically someone wage inflation across your supply chain. So I would think those percentages would stay somewhat comparable as it relates to the 150.

Thank you. And this concludes today's conference call. A replay of today's call will be available later today on the company's website at ir.newellbrands.com. Thank you for your participation. You may now disconnect, and have a great day.

Great. So to close out the day, we are pleased to welcome Newell Brands to the stage. Today, we're joined by Chris Peterson, President and CEO; and Mark Erceg, the company's CFO. So thank you both for being here again this year.

We're excited to be here.

So I'm going to start with some questions around top line. So second quarter marks the first quarter of core sales growth for the company since second quarter of 2022. So for those in the audience that might be less familiar with recent results, can you maybe give us a walk through kind of what drove this long-awaited inflection?

Sure. So 2023, we launched a turnaround strategy. And a big part of that turnaround strategy was capability improvement on the front-end parts of the business that were required to drive sustainable top line growth. So these are things like consumer insights, brand building, new product innovation and go-to-market. What was exciting is since we launched that turnaround in 2023, in '23, core sales for the company was down 12%. So we clearly needed to do something different.

We improved in '24 and '25 sequentially, but we were still down. What's exciting about last quarter is all of those things came together, and we delivered 2.3% core sales growth. Importantly, within that 2.3% core sales growth, 7 of our top 10 brands grew, 5 of our 6 business units grew and the U.S. led the growth with 5% core sales growth.

We also are forecasting or provided guidance for Q3, which we're in right now, for that growth to accelerate a little bit with core sales between 2% to 3%. And as we sit here today, we're very comfortable with that top line guidance and the bottom line guidance that we provided as well.

Okay. Great. As you mentioned, U.S. core sales were up 5% in the quarter. And U.S. distribution was up mid-single digits, which is driven by IO reinvention, your tariff advantage position in some categories and so you shelf space gains across retailers and channels. Curious to talk about how you're working to convert these distribution wins into sustained consumer pull so that you kind of keep or expand that shelf space from here at the next year's line review?

Yes. Distribution gains are important, but you're right that we need to earn sustaining those distribution gains. And so what we're excited about is that we're driving POS and consumer offtake that is supporting those distribution gains. So if I look at our POS data last quarter, we grew POS on 6 of our top 10 brands. 8 of our top 10 brands increased their sequential rate of POS growth. And so the things I talked about of better consumer understanding, strong new product innovation, better consumer brand building and stronger retailer execution, all are things that help us sustain better consumer offtake to ensure that the distribution gains are sustaining and, in fact, continue in the future.

Okay. And in the past, you've highlighted areas where your share of distribution lags your dollar share. So using this metric to kind of pitch for additional shelf space to retailers. So how much runway do you still have left there? I guess, said differently, is distribution like a multiyear core sales driver?

It clearly is a multiyear core sales driver. First of all, if you step back and look at when we put the turnaround strategy in place, and one of the things we looked at was where was the company from a capability standpoint. We were not tracking distribution. I mean, talk about starting from 0. And so we put in place a very sophisticated tracking system. We now track distribution on all of our brands at all of our retailers in the U.S. which is how we know that our distribution this year is up mid-single digits.

But we still have a significant number of brands, even with the distribution gains that we've made this year, where our share of distribution is below our market share. And that generally means when we see that, that we have opportunity to go for more distribution. So we're excited about the start of this journey, but I do think that there's opportunity ahead for the company to continue to grow distribution across the portfolio given our starting point.

Are there particular categories that stand out where the gap is the biggest?

It's very different by brand, by category. We tend to look at it on a brand basis and say, where are the brands the most under shared. It's not linear. There isn't a common theme. I would say all of our business units have opportunity for distribution gains to get to fair share. So we are closing some of that gap with the mid-single-digit distribution increase this year. But to your question, I do think we've got a multiyear journey here.

Okay. And also, I'm guessing there's also no real pattern in terms of retailers.

There is not. Yes.

Let's talk about innovation. So you've discussed upping the quality of innovation as kind of as core of these turnaround plans. And you often talk about Tier 1 and Tier 2. Can you just explain what that means? Like what is Tier 1 innovation, what is Tier 2? I'll stop there and then I'll follow up.

So Tier 1 and -- so when we put the new strategy in place, we completely retooled the way the company does new product innovation. We wanted to be consumer-led rather than customer-led. We wanted to make sure that we had a tiering system. So we put the tiering system in place. We actually manage 4 tiers of innovation. And the things that differentiate something into a Tier 1 or 2 versus a Tier 3 or 4, we look at how much revenue is it going to generate and what's the net present value of the innovation.

So the Tier 1 and 2 would be our largest innovations. And at that level, we would expect it to be a meaningful driver of market share and revenue growth for the business unit in which it's operating.

Okay. And what innovation should we look out for the balance of '26 and into '27 to the degree you can tell us about '27 already?

Yes. So we're pretty excited. I mean we've got a lot of them, and I've mentioned several of them. But this year, we're going to -- we're on track to launch 25 Tier 1 and Tier 2 innovations, which will be the highest number since the company had the tiering system in place. So when we put the tiering system in place, in 2023, we only launched one that qualified as a Tier 1 or Tier 2 initiative. Then in '24, we got to 8. Last year, we got to 19 and this year, 25. And what's important about those 25 is they -- every single one of our 6 business units has a Tier 1 or Tier 2 innovation. Most have multiple Tier 1 and Tier 2 innovations. They span the majority of our brands.

Our top brands are all have a Tier 1 or Tier 2 innovation. We think 25, by the way, is about the right number to sustain the company. So we don't think we need to go from 25 to some bigger number as we go into next year.

And the other thing I would say about it is that when we launch these innovations, we generally support them for several years because they operate on sort of an S-curve in terms of consumer adoption. And so there's sort of a layer cake type effect where this year, we're supporting the 25 from this year plus the 19 from last year and the 8 from the year before. Next year, we'll have another probably 25, and then we'll have 25, 25 and 19. So the cumulative effect of innovating at scale, we think, is going to be a tailwind for the revenue trajectory of the company as we go forward.

To your specific question on what are some of the ones I'm the most excited about. Certainly, we've talked about the Graco EasyTurn car seats line of products. Those are very exciting. We have a toddler version. We now are launching an infant version, and that is driving significant market share gains. It's driving consumer trade up because they tend to be priced higher. And our gross margin on that product is higher than the fleet average.

So it's good from a revenue, from a market share and from a gross margin standpoint. Similarly, the Coleman Snap 'N Go cooler, which we've talked a lot about is off to a phenomenal start. I think relative to the expectation we had when we unveiled it last year as an idea, that innovation this year is tracking about 10x higher from a revenue standpoint than our expectation going into it. So it's dramatically outperformed.

The Rubbermaid Brilliance Glass that we've launched in the market. We're having trouble staying in stock. I think that business is up almost 100% this year from last year. And so I could keep going, but you get the idea. What we're trying to do is launch innovation that is differentiated, consumer preferred, driving innovation, generally driving trade up and driving gross margin accretion at the same time.

Okay. Great. One little sidebar question is while North America has been strong, we talked about the U.S. core sales growth of 5%. International saw some softness in the second quarter. I know trends were weak a year ago in Brazil and Argentina in September, so easy comp in 3Q. But how do you think about the underlying health of the international business? And can this return to being a growth driver?

Yes. Good question. So we were down 2.7% in international in Q2. We do expect the international business to return to growth in Q3. Some of that is lapping the Argentina and Brazil effect. But more importantly, we think the international business is a growth driver for the company. Prior to sort of this disruption period we had, we grew international for 6 quarters in a row. So we have a track record of knowing how to grow that international business. And if you look at our market share in international, our market shares internationally are smaller than our market shares in the U.S.

Additionally, we still have a significant amount of white space in front of us. And now that we are, for the first time, really operating in a One Newell environment where we've consolidated our sales force, our legal entity, our IT system, that's opening up opportunities for us to drive stronger international growth because we can cross-sell across the portfolio in a much more effective manner than we were previously able to do.

Okay. And can you just remind for everyone here how big international is?

International is about 39% of the business. The U.S. is 61%. So it's a meaningful part of the business.

And the biggest market within that?

So the biggest -- the top 10 international markets represent -- our international countries represent 90% of the business. And those would be the 5 big Western Europe countries, Canada, Mexico, Brazil, Japan and Australia.

Segment perspective. So commercial is the one business that didn't inflect to growth in the second quarter. I guess why? Is this just sort of later in the innovation and distribution gain cycle? Or are there sort of structural elements that make the model different there in some way?

Yes. I think it's a little bit just later in the innovation cycle. We've got 3 really exciting innovations that are in market actually now on that business. We're restaging the entire BRUTE line of core trash cans with a larger trash can that's with more features and benefits targeted to the professional community. That is a major innovation that's just launching this quarter.

We have also launched a BRUTE line of farm products. I think farm feeders that gets us into a whole new category of products. And then the other business that's in that is a business called -- a brand called Spontex, which is a European brand. And we've launched a very strong trade-up proposition with this flex and wash sponge that's priced about 100% premium to the baseline that's driving significant market share and trade-up. So I think you're going to see commercial get back to growth here, possibly even in the third quarter based on the strength of these innovations that are hitting the market now.

Okay. Great. Let's talk about back-to-school. So back in August, when I saw you in New York, you talked about the season having a slow start, but that the company was gaining share and that there was evidence that there was a sort of a delayed but still healthy back-to-school season in total with another month of data now in reality. I think everybody is back to school in the next couple of days. So how have things progressed?

Yes. So I think the last time on our earnings call, we were 3 weeks in and a little bit more than that when you and I met last talked. Today, we're 8 weeks into the back-to-school season, so about 75% of the way through it. And things have improved from a category standpoint. So as we sit here today, we would say the category is up about 1%, which is a little better than what we had expected.

We are growing market share importantly on brands like Sharpie, Elmer's, Prismacolor and EXPO. We are very much on track with our plan from a POS standpoint. We have seen the category accelerate just in the last week or 2 in terms of POS offtake. So this trend of consumers waiting and buying closer to the start time of school, we certainly have seen that be a factor this year. And we think that's probably consumers just trying to delay purchase until the last minute. We've also seen in the Northeast, in particular, the school start date has been pushed back this year because of the Labor Day timing. But we're very encouraged by the category trends and by the POS offtake, which is in line with our plan. We expect in writing to grow this quarter significantly faster than the category [indiscernible].

Okay. Great. And then historically, when we talk about back-to-school, there was always like the first order and then there was replenishment. To what degree is that still a dynamic in the category? Was it being pushed later?

It is still a dynamic in the category and September is a big month. September is the biggest month of the quarter. So although we're 8 weeks in, we still have the unknown of the replenishment orders. Typically, I would say 2/3 of back-to-school is locked up from the preorders to stage the stores. And then there's 1/3 that sort of comes through the replenishment. And that's why we look at both the shipment trends and the POS trends because the POS trends are sort of a forward-leading indicator on the replenishment orders. And the fact that the POS trends are in line with our forecast so far and that the category is actually growing this year by albeit by only 1% and that we're on track to grow faster than the category, I think, are all positive indicators relative to the replenishment period.

Yes. Okay. You'd mentioned when we're talking about the second quarter, and you mentioned that you've given 3Q guidance and confirm the year. But the thing is when you do the math with your implied 4Q, I know you didn't guide 4Q, but we can all do the math. There is actually scope in the range for fourth quarter core sales to be down. So it's a wide range, but at the low end of the range, it would be a decline. So can we just talk about why that's on the table? We've talked about a lot of positive dynamics in the business -- so what would have to happen? Maybe that's a good way to put it for core sales to be down in the fourth quarter?

Yes. So I would say a couple of things maybe as perspective. And I'll start with what you said, which is that we have not guided for Q4. We've only guided for Q3 and for the full year. And actually, when we guided at the end of Q2, we raised our guidance for the full year to now flat to plus 1%. So at the midpoint, we're forecasting the year to be up on core sales this year.

From a category growth standpoint, our guidance assumes a negative 1 category growth number. We saw a negative 1 in the first quarter. In the second quarter, we were actually flat. And so you could argue maybe we're being a little bit conservative on the category growth number for the back half of the year. I think we don't want to get ahead of ourselves on category growth given the external environment, which remains very dynamic. But I will be disappointed if we grow when we report Q3, if we're guiding to a negative number for Q4. I don't think that's likely to happen.

Okay. And just filling in the blanks here, too, curious about visibility on retail orders and holiday plans and maybe any thoughts on retail inventory levels heading into holiday season?

Yes. Retail inventory levels are in pretty good shape. We haven't seen any sort of overstock or things that we need to work down. If anything, on a number of our innovations, we're sort of chasing supply because we can't supply demand fast enough. And so we have a couple of our big innovations on -- actually on allocation right now. And so that's been more the thing that we're worried about internally, not big enough to move the whole needle from a company perspective, but we don't see any glut or any big outage on retail inventory levels at the moment.

Okay. Let's talk a little bit about margins. Mark, it is your turn, so no other way. So gross margins this year are going to have a nice benefit from tariff refunds, 140 basis points. So I know it's still early, but we've definitely already been getting questions about 2027 gross margins and building blocks knowing you're just mechanically going to have this difficult lapse. So a bit forward-looking, but it would be great to cover off on gross margins for '27?

I guess what I'd say is we feel really good about our ability to drive gross margin expansion in a normalized environment. If you go back 3 years ago, when we first initiated our new strategy with our very choiceful where to play and how to win choices, we've been able to drive gross margin up roughly 500 basis points over that 3-year horizon. That was despite the fact that we had a big tariff headwind in '25. That was roughly $0.23 a share. That's despite the fact that in '26, we've had about $200 million of inflationary impacts, largely tracing back to macroeconomic factors coming out of the geopolitical situation in the Middle East. And we were able to do that despite having over that time frame, generally speaking, negative sales leverage, okay?

So now as we think about projecting out into '27, what do we know? We know that our fuel productivity program, which we believe is world-class, will continue to operate at pace. So we feel very good about that. We believe that the tariff environment has probably hit peak tariff, at least as it relates to our product sets based on what we currently know about the tariff regime in the current fiscal year. So we went from about $115 million of impacts in '25 to about $127 million this year, excluding all the tariff refund noise. But we believe that will likely roll over into '27.

So year-over-year, there should be actually some tariff favorability as it relates to that, broadly speaking. We also believe that the inflationary shocks that we've incurred this year, we believe are temporal in nature. And that when things sort out in the Middle East, that will roll down and it won't be at the same rate that we've had to offset in the current environment.

We also know that the innovation that we've been launching has been doing very well, and we know that the innovation in order to get through our screening process has to be gross margin accretive. So this year, we have 25 Tier 1, Tier 2s that are gross margin accretive. We also know that the prior year launches in '24 and '25, where the innovation is doing well, they'll be leveraged into years 2 and 3 and 4, right? And so we know that in '27, there'll be even more gross margin accretive innovation coming to pass.

So when you put all those things together, plus -- and I think this is maybe the one that some people miss, the benefit we'll start getting out of our domestic production facilities that we spent $2 billion to automate since 2017 have really good favorable marginal economics. And we've been able to get that 500 basis points of gross margin despite all those headwinds. And now we're going to be looking at a situation where we're going to get unit volume leverage through that highly automated set. So we feel very, very good about '27. We don't guide on gross margin, as you know. But when we look at that in totality, we feel really pretty good about where the company is currently sitting.

Okay. So a lot of positives but I'm guessing you don't want people walking away from this conversation, though, modeling gross margin up inclusive of the 140 basis points this year?

Right. What we've done is we've been very clear -- we've been very clear that in the current year, there's about $0.17 of favorability related to out-of-period tariff recoveries for monies that we had to pay and incurred in 2025. So when you look at our current year guidance range of $0.73 to $0.77, there is that $0.17 that's in there for that specific reason.

Okay. Perfect.

And that number that Mark is talking of about $100 million did manifest in gross margin. So if you take that out-of-period adjustment out of this year's gross margin and use that as the starting place and then say we're going to go forward for all the factors Mark talked about, I think that's probably the right way to think about it.

Okay. Great. Let's talk a little bit more about productivity. So fuel has been really successful the last couple of years. I think the run rate is around 200 basis points a year. Is that right?

It's about $200 million this year that it's generating. On a basis point standpoint, we've been taking out roughly 4.5% of COGS each year over the last couple of years.

Okay. I apologize for...

We believe world-class is 3%. So that team has been hitting it out of the park.

Okay. So how much of this has been, at this point, sort of capturing low-hanging fruit versus now you get to like the harder work. And as we think going forward, what is the right run rate for productivity going forward? And what keeps driving that income?

Yes. We're increasingly excited about the fuel productivity program and what that team has been able to accomplish. So when we finished last year, we had 39 plants that had initiated the PEAK program. As we sit here today, that number is 47. We've talked about the fact that there's really 6 stages to the program. And this is kind of our Lean Sigma cost takeout program. You start in foundations, you go to base camp and then there's climb 1, 2 and 3 and then you hit the summit. So there's 6 stages to the overall program.

As we sit here today with 47 sites that are enrolled in the program, which is 90% of the total targeted sites, we only have 25 -- we have 25 of those 47 that are basically at either foundations or base camp, okay? So think about that. So 25 of the 47 are literally in the first or second stage of a 6-stage program. We have no sites, none that are at [indiscernible]. Okay? So this program just continues to build itself out. And the tools and the capability sets that the team is learning compounds on itself. And so presently, we track thousands of individual projects, literally thousands of individual projects, which contribute to us being able to take out [ $200 million ] and roughly $15 million this year of hard savings, like we don't play games, like it's real math. It's real savings. And that's been equating to 4%, 4.5% of COGS take out each and every year.

So we think there's still tremendous runway available. And I have to tell you, the AI enablement tools that we're bringing to bear, they unlock a lot of supply chain value as well. And so once we start putting that on top, Chris and I believe that we can continue to post world-class cost takeout for years, for years going forward.

Okay. I won't ask the question on future margins, don't worry. Okay. So one shorter-term question I did want to ask though was we've heard at least once today about higher freight costs than maybe companies expected 6 or 8 weeks ago. So just curious what you're seeing, that's impacting you or not? I know over the long term, you've got it covered, but just shorter term?

Yes, there's no question that the cost of diesel is having an impact on the business. I think we're at $92, $93 a barrel as we sit here today on the WTI. Obviously, diesel over the last couple of days kind of hit an all-time high in excess of $5 a gallon. So that does impact us. When we started this year, we thought we have about $100 million of inflationary impacts.

At the end of the first quarter, you heard us up that by an additional $50 million. At the end of the second quarter, we added another $50 million on top of that. Most of that's coming to us in 2 sources. It's either resin, which is obviously dependent on the price of oil or it is direct transportation costs, i.e., diesel.

Now I think the team has done a remarkably good job of being able to offset those challenges, which is what has basically allowed us to manage the year, I think, very efficiently and effectively. And that's why you saw us in the last quarterly release, we were basically able to add that $0.17 to both the low and high end of our range, which was the out-of-period refund monies that we received. A lot of companies had to use those out-of-period refund monies to offset intra-year challenges. We were able to push that through on both the bottom and the top end because we made additional choices on the fuel productivity program, on the overhead spend.

We obviously are benefiting now from being able to take our revenue forecast up, and we did that in the last quarterly release. And so that then manifests itself through the factory systems and gives us unit volume leverage. And so we feel pretty good about our ability to be agile and then handle those. But certainly, it will be some impact, and we have to see how long it now durates at this higher price. I mean it could roll back over tomorrow for all we know.

For sure. Okay. Great. I want to spend a moment on capital allocation. So you're set to end the year below 4.5x on leverage, which is great. So you've spoken to a longer-term target of 2.5x. Why is 2.5x the right level?

A couple of reasons. So first, when we started our journey, I think we were around 6.5x levered. And we did say in our last quarterly call that we will be comfortably below 4.5x when the dust settles on this current fiscal year. So we feel really good. Again, we've been able to take 2 turns off despite the tariff challenges, despite the inflationary challenges. So we feel good about that. We believe it's important to be an investment-grade issuer because, obviously, it lowers our cost of capital.

If you did the math right now and you basically imputed through and you said, if you are already at an investment-grade status, what would that do to your average cost of debt? Ours would come down roughly 135, 140 basis points if you actually did that math. That's over $70 million a year of interest expense. That's a lot of money, right? And so obviously, we want to be able to have a lower cost of capital. We want to have a balance sheet that allows us to be opportunistic as it relates to maybe small strategic tuck-ins when the time comes. And it just gives everyone a little more confidence when the balance sheet is in better regard.

Yes. Okay. And Chris, on your first day as CEO, you cut the dividend. We definitely hear from some investors who'd like to see you guys do that again in order to pay down debt faster. So what would be your response to that?

Yes. I think, first of all, it's never fun or easy to cut the dividend. I've only done it once in my life, and it was on the first day I became CEO. So I didn't shy away from it, and it needed to happen at that point in time. I feel very differently today. We do get some questions from investors on this. Equally, we get a number of investors who come and say, don't touch the dividend. So depending on who you talk to, you get very different messaging. What we look at is the operating cash flow that we're expecting to generate this year, which we've guided to about $400 million. We've said that our CapEx is going to be about $200 million.

So if you look at our free cash flow, our free cash flow is sufficient to not only pay the dividend, but also to pay debt down and end the year with less debt. So we're expecting to pay down north of $100 million of debt this year. And I expect that number will go higher next year. And so we think that we can drive this delevering on the balance sheet, both through debt paydown and EBITDA growth. And we think we're generating sufficient cash, free cash flow in the business to do both fund the dividend and so we're very comfortable where we are. And we think that there are enough investors that value the dividend that we don't think that's the right move to touch the dividend right now.

Okay. So Mark, you mentioned tuck-in M&A when the time is right. You guys have done such a great job focusing the company on priority brands, geographies. You sold licensed and shut down a good number of brands. And you've got visibility to leverage getting to 3x or lower. So how do you think about the opportunity to acquire new brands? Like are there certain areas that you would look to broaden? Is leverage the only hurdle to making the decision that it's okay to go now, but I'd like to get in a little bit more of the thought process of going the other way, starting to add.

Yes. I guess what I would say, and then Chris, I'm sure, will add some additional color is, look, we're not at that point yet, right? We have a long way to go still, and we are committed to getting ourselves back to investment-grade status. Now along that journey and over the course of the last many years, we have been building a flywheel that is highly integrated and is scaled on the supply chain side of the house and across all the corporate capability sets as well.

So at some point in time, I think we would be a very good acquirer of businesses because we can bolt those in and drive a very high level of synergy effects throughout that process. But they would have to be things that are very much in line with our core capabilities, our core businesses that go through the same distribution channels. And so like I said, we're not there yet. Chris may have some additional color to add, but it would have to be something that is on the merits, clearly very logical, tight and clean.

Yes. The only thing I would add is we see tremendous opportunity in our existing brand portfolio. So we don't think we need to do any acquisition to drive significant value creation from top line growth, margin expansion and deleveraging. And so we've got a very strong base plan. And as a result, I think our bar for doing something from an acquisition standpoint is pretty high. It would have to be a very strong strategic fit. It would have to be accretive. It would have to accelerate our deleveraging impact as opposed to take us backwards. And I'm not a believer in large-scale acquisitions for this company. So just to be clear.

Okay. Great. One thing we were talking -- sneaking in 2 questions. A year ago, it was a little bit different direction. But a year ago, we were talking a lot about tariff advantage categories, right? The world was shifting, right, when we were sitting here last year, and there was a lot of anticipation of how that would all shake out. Where do you think you are right now on sort of capturing that opportunity of having such a big percentage of the portfolio manufactured domestically?

Yes, it's certainly been a big advantage. So we have 15 U.S. manufacturing plants. In many cases, we are tariff advantaged in that manufacturing footprint. And as Mark said, we've automated those manufacturing plants, so they are highly cost competitive. And in many cases, have the best cost in the category. If you look at the distribution gains that we've had this year in the U.S. of, call it, mid-single digits, that's a function of a whole number of things.

Part of it is innovation, part of it's better brand building, part of it's better retail execution. But part of it is the tariff advantage selling, too. And we've seen that in the writing category where we've got the world's largest writing factory in Tennessee. We've seen that on things like I mentioned Rubbermaid coming out of Ohio. We've seen that on a number of our businesses that are made in the U.S.A. that retailers are increasingly looking to lean into to avoid the tariff dynamic and the uncertainty of sort of that tariff environment.

So we think it's a big deal. We've moved our -- last thing I would say on this is we've moved our manufacturing index. We used to manufacture about 45% of our business in the U.S., and we're now up to about 55%. So we've meaningfully improved the amount of our business that's manufactured in the country by in-sourcing things into our U.S. manufacturing footprint. And part of what's enabled that is this automation effort that we've driven across the manufacturing base.

Okay. So my final question is just assuming we're here together again, so consider this an invitation. We're sitting here again a year from now. What are the maybe 3 operating or financial measures that you would want investors to be looking at to say something has changed, they're on the right path, the turnaround has continued.

It's very simple. The 3 things that we're focused on that we talk every day are core sales growth first. And we had 1 quarter of core sales growth in Q2 at 2.3%. We're on our way to a second quarter this quarter, and we need to sustain that. And I think as we sustain that and demonstrate that through the capability set that I went through, that has the potential for the company to completely re-rate in terms of how investors look at this company.

Second thing is operating margin. We think we've got significant opportunity on the gross margin line and on the overhead line. And we think we have funded the necessary A&P increase at this point. So we think operating margin would be the second.

And then third for us is the cash flow and delevering. And we believe we're on track to continue the delevering path. We're excited that we've gone from 6.5x to below 4.5x, but we'd like to continue the journey to get to 2.5x. And we think those 3 things are the things that we talk about. Those are the 3 things we think investors care about.

Okay. Great. All right. We're going to move to breakout, but thank you so much for being with me this year. Please join me in thanking Newell for coming.

Thank you.

Good morning, and welcome to Newell Brands Second Quarter 2026 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, Michelle. Good morning, everyone, and welcome to Newell Brands Second 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 the 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.

When we conducted our first enterprise-wide capability assessment 3 years ago, it was clear Newell Brands needed to rebuild the front-end commercial and operating capabilities required to compete effectively and grow consistently. That work included stronger consumer insights, a more disciplined innovation system, better brand management, improved category management, greater effectiveness of customer investments and a simpler and more powerful go-to-market model.

Those new capabilities built over the past several years are now taking shape and coming together in a mutually reinforcing manner. For example, consumer-led innovation, supported by higher levels of advertising and promotion and stronger retailer activation is improving consumer demand and brand performance. Our innovation pipeline is broader and stronger than it has been in years. Year-to-date, all 6 business units have launched Tier 1 or Tier 2 innovation, with more to come in the second half. We are on track to deliver more than 25 Tier 1 or Tier 2 innovation launches for the full year. More importantly, the process is now more consumer-led, more disciplined and more closely integrated with our commercial plans. At the same time, stronger retailer relationships, better category management capabilities and improved service execution are translating into distribution gains.

As discussed last quarter, we expected the company to return to top line growth in the second quarter, driven by stronger innovation, distribution gains and improved brand marketing. These rebate-built capabilities are now showing up in our second quarter results, which represents an important milestone in Newell's turnaround. We returned to year-over-year growth in both net sales and core sales for the first time in over 4 years, and results exceeded our expectations across all key financial metrics. Net sales increased 3% and core sales grew 2.3%, with both results above the high end of our guidance range. The improvement was broad-based, with 5 of our 6 business units delivering year-over-year core sales growth. In addition, 7 of our top 10 brands and 5 of our top 10 countries delivered year-over-year sales growth.

From a geographic standpoint, it was particularly nice to see the U.S., our largest market, leading the way, delivering approximately 5% net sales growth during the second quarter, which was the first time our domestic business has grown since COVID. Total points of distribution across our U.S. business increased mid-single digits versus last year in the second quarter, providing tangible proof that retailers are responding to the stronger innovation, category plans and execution we are bringing to the marketplace. Based on existing customer commitments and activity already underway, we expect distribution to remain a contributor to growth during the second half of the year.

While distribution gains were strong in the U.S., perhaps even more importantly, point-of-sale trends were favorable, which means consumers responded well to our new innovations. Specifically, 6 of our top 10 brands delivered year-over-year POS growth in the second quarter, while 8 of our top 10 improved their growth trajectory sequentially. We also continued to gain U.S. market share behind several priority brands, including Graco, Sharpie, EXPO and Coleman, to name a few. These results provide further evidence that stronger innovation, higher levels of advertising and promotion and improved retail execution are translating into better consumer demand.

From a segment perspective, Learning & Development was the strongest part of the portfolio, delivering nearly 5% core sales growth in the second quarter, led by continued strength in Baby and a return to growth in Writing. Baby delivered double-digit sales growth, supported by strong consumer demand, increased distribution and new product innovation. Graco continued to build marketplace momentum with U.S. POS increasing at a strong double-digit rate in the second quarter and market share growing 2.7 points year-to-date. The strength was broad-based across major retail channels and reflected strong continued consumer demand for our rotating car seat platform, including the EasyTurn family of products. NUK also delivered double-digit U.S. POS growth and gained market share, supported by stronger innovation and particularly good momentum in e-commerce.

Writing returned to core sales growth in the second quarter, supported by distribution gains, innovation and stronger back-to-school execution. While the back-to-school season is still early, the initial read has been encouraging, with improved retailer execution, new distribution and strong POS growth across several priority brands. We have seen particularly good momentum behind Sharpie. We continue to build on platforms such as Sharpie S-Gel and Sharpie Creative Markers through new colors, forms and use cases, while advancing a strong pipeline across the broader Writing portfolio.

Home & Commercial also improved meaningfully. Kitchen & Home Fragrance returned to core sales growth in the second quarter, while Commercial remained below prior year but improved significantly versus the first quarter. Kitchen delivered its first quarter of core sales growth since early 2023, reflecting improved execution and encouraging consumer response across several priority brands. Ball's canning business is performing strongly, supported by innovation, improved merchandising execution and share gains across the measured channels, while Rubbermaid continues to benefit from strong consumer response to the Brilliance glass platform.

In Home Fragrance, owned channels delivered a second consecutive quarter of growth and comparable retail stores returned to growth for the first time in more than a decade. These are encouraging signs, and we remain focused on strengthening the consumer proposition and improving execution across the business.

In Commercial, the business delivered a meaningful year-over-year improvement in its core sales growth rate during the second quarter. We are focused on strengthening execution and advancing innovation behind durable platforms such as Rubbermaid commercial products and BRUTE, while building on targeted distribution wins with key customers.

Outdoor & Recreation returned to core sales growth during the important second quarter outdoor season, delivering nearly 4% growth, with the U.S. leading the improvement. Coleman Snap 'N Go is a strong example of the consumer-led innovation we are bringing to market, addressing a real consumer need by making large capacity coolers easier to store, transport and use. We are also advancing innovation across our Contigo and bubba beverage platforms, with a focus on distinctive design and stronger consumer relevance.

Our higher levels of brand support are increasingly being paired with more precise and engaging marketing. We are focused on building relevance around our strongest brands and innovations through programs that reach consumers in the right channels and create stronger retail activation.

Coleman provides a strong example of how our marketing capabilities are becoming more visible. During the quarter, the team moved quickly to capitalize on a viral consumer conversation around a fictional Lazy River product, turning it into a highly relevant brand moment. The activation generated more than 90 million earned media impressions, nearly 48 million social impressions and 2.8 million consumer engagements, largely through organic activity. It also attracted nearly 30,000 new consumer subscribers to our database. This is the kind of modern, culturally relevant marketing capability we are building across Newell, one that strengthens consumer engagement and helps keep our brands part of the conversation.

In just a few minutes, I will turn the call over to Mark, who will walk you through our second quarter results and share our updated financial outlook. Before doing that, I want to provide some brief perspective on the macro environment.

So far, the consumer and category environment has held up better than originally expected. Coming into the year, we assumed the categories in which we compete would decline about 2%. Category growth was down about approximately 1% in the first quarter and was essentially flat in the second quarter, with the U.S. performing better than EMEA. Average selling prices across the market increased modestly in the second quarter, reflecting broad-based pricing actions by industry participants, whereas at Newell, our approach has been selective and targeted, focused on specific products and categories where appropriate.

Even with the best -- the better first half category performance, we remain somewhat cautious about the second half, and are now assuming the categories in which we compete will decline about 1% for the full year. We expect Newell to grow faster than this, driven by the improved capabilities we have built over the past several years.

On the cost side, we've seen significant volatility in the external environment, with input cost inflation significantly higher than what we expected at the start of the year and the tariff environment, which includes those issued under IEEPA, Section 122, Section 232 and Section 301 changing numerous times. In aggregate, current year input cost inflation, inclusive of all tariff impacts, is a meaningful headwind for the year, which we are more than offsetting with strong fuel productivity savings and restructuring actions. This is allowing us to bring compelling new innovations across our leading brand portfolio to market at prices that represent strong consumer value.

Finally, I want to thank the entire Newell team for their commitment, agility and resilience. The progress we delivered in the second quarter reflects the hard work of thousands of employees around the world who are bringing our strategy to life every day.

Q2 was an important proof point that Newell's strategy is translating into improved performance. The broad-based nature of our top line growth gives us confidence in the trajectory of the business. Based on second quarter performance and our expectations for the balance of the year, we are raising our full year outlook across all key financial metrics as we look to build on recent momentum through disciplined execution, profitable growth and strong cash generation, while continuing to earn the confidence of consumers, customers and shareholders.

With that, I'll turn the call over to Mark.

Thanks, Chris. Good morning, everyone. Second quarter 2026 net sales increased 3% to approximately $2 billion, while core sales increased 2.3%. Favorable foreign exchange generally accounted for the difference between net and core sales. Normalized gross and operating margin as reported versus the prior year period was 40.8% compared with 35.6% and 16.2% versus 10.7%, respectively. The large increase in both normalized gross and operating margin was primarily due to the recording of a receivable for nearly $100 million of recoveries related to IEEPA tariffs expensed in 2025. Excluding this onetime benefit, both normalized gross margin and normalized operating margin would have been up slightly year-over-year.

Separately, $26 million of recoveries related to IEEPA tariffs incurred before they were nullified and expensed during the first quarter of 2026 were recorded in the second quarter. Within the second quarter, current year IEEPA tariff recoveries, when coupled with stronger sales and higher levels of gross productivity, slightly more than offset approximately $23 million of non-IEEPA current year tariff expense recognized during the second quarter and more than $60 million of inflationary pressures.

During the second quarter, A&P investment increased by $9 million to support the strongest innovation program in 10, if not more years, which brought A&P spending as a percentage of sales, up by 30 basis points to 5.7%. In addition, approximately $30 million of restructuring and other savings, including benefits from the previously announced productivity plan, offset wage inflation and higher variable compensation expense, allowing second quarter normalized overhead as a percentage of sales to drop by 60 basis points versus a year ago to 18.8%. Net interest expense was $87 million compared with $82 million in the prior year period, and the effective tax rate was 26.5% versus 19.3% last year.

All of this taken together yielded $0.42 of normalized diluted earnings per share versus $0.24 in the prior year period. Now one might ask how $0.42 compares to our original Q2 guidance range of $0.16 to $0.19, if the nearly $100 million of onetime recoveries related to IEEPA tariffs expensed in 2025, which equates to $0.17 per share, is excluded. In that case, $0.42 minus $0.17 yields $0.25 per share. Going one step further, if we also back out approximately $26 million or $0.04 per share of recoveries related to IEEPA tariffs incurred during the first quarter of 2026 before they were nullified that were also recorded in the second quarter, we would have still exceeded the high end of our EPS guidance range.

Turning to cash flow. Operating cash flow was an outflow of $204 million during the first half of 2026 compared with an outflow of $271 million in the prior year period, an improvement of $67 million. Year-to-date operating cash flow benefited from lower incentive compensation payments and better working capital management as our cash conversion cycle improved by 15 days year-over-year, driven primarily by higher days payable outstanding. We also implemented a new automated cash application and deduction management system that is accelerating cash application, improving deduction resolution and strengthening receivables management.

Please note that because the cash related to the tariff recoveries accounting entry recorded in the second quarter has not been collected yet, nothing has been reflected in year-to-date OCF results. We received the first portion of the cash recovery in July, and we expect to recover a substantial portion of these funds before the end of the calendar year, but the timing of the remaining collections is subject to the government's process and remains difficult to predict. Trailing 12-month normalized EBITDA was approximately $1 billion, which produced a net leverage ratio of 4.8x compared with 5.4x at the end of the first quarter and 5.5x a year ago.

Before sharing our updated outlook for the year and third quarter, let's spend a few minutes talking about tariffs, overall inflationary impacts and how we are accelerating productivity efforts to try and mitigate as much as possible, the need for broad-based pricing actions. As it relates to tariffs and excluding any IEEPA refunds and including everything we currently know about the existing tariff regime, along with our internal assumptions regarding the new Section 301 forced labor tariffs and potential additional tariffs related to structural excess capacity, we expect $127 million of net P&L tariff headwind for 2026, which will be $12 million higher than what we experienced during 2025. On the inflation front, we went into 2026 expecting around $100 million of inflationary impacts. As we sit here today, we now expect that number to be closer to $200 million, with about $50 million of that increase presenting itself since our last earnings call.

We have been dealing with these significant challenges by leaning aggressively into our fuel productivity program, overhead reduction efforts and AI enablement initiatives. So any pricing actions we take can be as small and is targeted as possible. That said, we want to be very clear about something. Specifically, when we look at our underlying run rate tariff costs and underlying inflationary impacts, the pricing actions we have taken don't come anywhere close to offsetting the cumulative cost impacts we have seen across our direct purchase pools, labor markets and third-party services.

With that understanding and based on our second quarter performance and our latest expectations for the balance of the year, including category growth assumptions and current year tariff and inflationary impacts, we are raising our full year outlook across all key financial metrics. We now expect full year net sales growth of 1% to 2% and core sales growth ranging from flat to 1%. Normalized operating margin is expected to be between 10% and 10.4%. And assuming a full year effective tax rate of around 20%, normalized diluted earnings per share are expected to be between $0.73 and $0.77. You will recall that the previous normalized EPS range was $0.56 to $0.60. This means that $0.17 or 100% of the onetime recovery related to IEEPA tariffs expensed in 2025 has simply been added to the low and high ends of our prior estimate.

The in-year 2026 portion of the IEEPA tariff refund we recorded in the second quarter is being used alongside our aggressive productivity and cost control efforts to offset the significant inflationary pressures we have been experiencing. We believe this negates the need for broad-based pricing actions, which we believe is prudent for 2 reasons. First, you will recall that last year, we took major pricing actions on April 1, May 1 and July 28 to protect our structural economics. And while we were successful in doing so, it did cause us to lose some positive sales momentum. Second, we continue to believe that a meaningful portion of the inflation we are facing will roll over and normalize at some point, so we don't want to lean into pricing actions we may choose to subsequently unwind.

Moving to cash. We are also raising our operating cash flow outlook to approximately $400 million, which assumes we will receive substantially all of the IEEPA tariff recovery by year-end and also reflects the updated inflation outlook. As previously indicated, 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 from liquidating the life insurance assets associated with specialized nonqualified defined U.S. benefit plans for certain participating former senior executives.

Capital expenditures were $84 million during the first half of 2026 compared with $118 million last year. So we remain on pace to invest about $200 million, which is about $50 million lower than our past 3-year average now that a number of major IT and supply chain initiatives have been successfully completed. From a leverage standpoint, we now plan to finish the year comfortably below 4.5x.

For the third quarter, we expect both net sales and core sales to increase between 2% and 3%. At the midpoint, this means we expect to see sequential increases in core sales performance versus Q2. Normalized operating margin is expected to be between 9.5% and 10.2%, and normalized diluted earnings per share are expected to range from $0.18 to $0.20, with an effective Q3 tax rate of about 10%.

In closing, Newell Brands returned to sales growth in the second quarter with results exceeding expectations across all key financial metrics as a reconstituted innovation program supported by considerably higher A&P levels is driving meaningful and we believe durable distribution gains.

Chris touched on this earlier, but it bears repeating. The capability-based turnaround initiated 3 years ago is beginning to take hold. This is evidenced by the fact that 5 of our 6 business units delivered year-over-year core sales growth and 7 of our top 10 brands and half of our top 10 countries, led by the U.S. at approximately 5%, delivered year-over-year net sales growth in the second quarter.

Moreover, the team continues to display amazing resourcefulness and agility in dealing with and operating in a very complex and fluid cost environment, which we believe will allow us, over time, to fully monetize Newell's portfolio of leading brands. We acknowledge there's still a long way to go, but this is a big first step. Chris and I, along with the rest of the executive leadership team, very much recognize and appreciate the hard work and dedication of the Newell Brands team, and we want to say thank you, we're just getting started.

Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Lauren Lieberman with Barclays.

Great. I want a slightly annoying thing and pick on the one thing that didn't really inflect, which was Commercial. So you've gone through a lot of the really positive things on the call, but I want to talk a bit about the Commercial business. Just line of sight into that business improving? Kind of what it takes? Is it innovation? Is it market growth and level of business investment? But curious a bit just to -- on that Commercial division.

Yes. Thanks for the question. You're right. The Commercial business improved sequentially but was still negative in the quarter, as you rightly point out. I think we are optimistic in the Commercial business going forward, starting with Q3, that trends are going to continue to sequentially improve. That business, we're focused on bringing new innovation. We are currently launching a revamped BRUTE trash can that is a superior trash can versus what we had previously. We've also launched the line of BRUTE farm products that is getting strong pickup across rural channels.

And in that business, which includes the Spontex business in Europe, we launched a very strong innovation on the Spontex brand with the [ Flex and go ], which is a superior performing sponge product that's about -- positioned from a pricing standpoint, about 100% higher than the base product. All of those initiatives are getting strong consumer and retailer reaction. We think that we're on the right track there. It's just going to take a little bit longer than the other segments to inflect from a positive standpoint. But we believe you're going to see that business inflect in the near term, possibly in the third quarter.

Okay. Fantastic. And then just on -- and I apologize if I missed this because I was looking at a couple of things at once this morning. But just thoughts on back-to-school season? Sell in, I'm guessing, is going well, but how much that's falling kind of into 3Q versus 2Q? We've seen some new stories about how much consumers are intending to spend on back-to-school. So just got any thoughts on back-to-school season. That would be great too.

Yes. Obviously, it's a critical time for back-to-school. I'd just make a couple of comments. First, we feel very good about the sell-in of back-to-school. Our fill rates were very strong in terms of the setup of back-to-school. We also took a slightly different approach this year. Last year, a lot of the stores, we wound up getting set up later than the private label brands last year. And so we got off to a slower start from a POS standpoint at the beginning of the season last year and then we caught up in the middle and end of the session.

This year, we didn't want to do that. So we put a concerted effort with merchandising activity to get our brands set up at the very start of the season, and that appears to be working in a strong way. We've got -- the first 3 weeks of POS data, which is effectively the first 3 weeks of July, we get real time. So far in the U.S. business in the first 3 weeks, we have gained market share in each of those 3-week periods, and our POS is tracking right in line with our forecast. It's very early. The first 3 weeks are not the biggest weeks. The biggest weeks are still ahead of us, but we're off to a much stronger start from a consumer offtake trend this year versus last year. And we're excited to see that we're gaining share. The brands that are gaining share out of the gate are Sharpie, Elmer's, Prismacolor, to name a few, where we think we're very well set up going into the season.

The -- from a shipment timing standpoint, I don't think there was a huge change in shipment timing between Q2, Q3 that was different than what we expected. I think the shipment timing sort of went according to our plan. And so that was not a factor that drove either Q2 or Q3. And you see that in our guidance where we delivered 2.3% core sales growth, and we're guiding Q3 to be 2% to 3%, which is, as Mark said, at the midpoint, even a little bit higher than Q2.

And our next question comes from Filippo Falorni with Citi.

I was wondering if you can give a little bit more color on the shelf space gains in North America? How much contribution you realized there in the quarter? And obviously, if you look at your reported results in organic, North America, very strong. I'm curious internationally also, like what drove the weakness there in the quarter? And could you see more of the shelf space that you realize in North America also in the international business?

Yes. So the shelf space gains really are driven by the capabilities that we've put in place. It's the strong new product innovation, the category growth stories, the higher A&P and the stronger service execution that we're delivering to retailers. All of that has come together in a way that allowed us to win line reviews last year as we went into this year's reset season. And as I mentioned in the prepared comments, our level of distribution in the U.S. market is up mid-single digits, and we're seeing that really across a lot of our categories. Because the new product innovation is spread across all 6 business units, and every one of our business units has Tier 1 or 2 innovation. We're seeing distribution gains. It's not every retailer in every category, but in aggregate, our level of distribution is going up.

I will say that we're also excited that our consumer offtake has also turned positive in the second quarter. So it's not that this was pipeline shipments. This is really being driven by consumer demand, which is up versus a year ago, and our POS trends are leading the way on this. And so we're excited about that. And we think we've got continued distribution gains that we've secured that are going to come as we move into the back half of the year.

On the international business, you're right, the international business was down in the second quarter in total. There were some unique things that happened in the international business, particularly Europe has been a little bit softer with the Middle East spillover in that market, and some consumer pull back in terms of consumer demand. In Latin America, we've had very strong consumer demand, but there were some shipment timing challenge in that business. I do expect that you're going to see international turn more positive and improve sequentially as we go into the third quarter. And so we're confident that the international business is going to come back as we go into the back half of the year here.

And if I could just add one thing. You may recall that the international business had grown for 6 straight quarters up to the third quarter of last year. And then due to some second and third derivative effects of the tariffs, we saw some very large markets like Brazil stepped down meaningfully. Chris just alluded to it. But as we think about Q3 and going forward, we're confident that the international business is going to come back online. And now that the U.S. business, our largest business, just demonstrated the ability to grow, we're actually really excited about having both of the lead horses pulling in the same direction at the same time. And that turnaround in international is reflective of the same capability build-out that we've been affecting across the domestic markets.

Our next question comes from Brian McNamara with Canaccord Genuity.

This is Madison Callinan on for Brian. Congrats on the strong results. Commercial [indiscernible], but what are the other brands in the top 10 that are still declining in POS? Is there a common reason for any of them? And what are those expected to return to growth? In all, is modest core sales growth now the expectation from here?

Yes. So as we mentioned, 7 of the top 10 brands drove core sales growth in the quarter. Of the brands that didn't grow in the quarter, some of it is related to timing of innovation on the brands. So as an example, we grew in Writing, as I mentioned, because Sharpie had a very strong result. We're growing on Elmer's. We're growing on Prismacolor, but Paper Mate, which is one of our top 10 brands, was down in the quarter. We have strong innovation coming on Paper Mate. Because of the timing of that innovation and the timing then of the reset on that brand, that turnaround on that specific brand is a little bit on different timing than the business in total. And so that's typically what you see in the top 10 brands is that because the innovation is set to launch at different timing throughout the year, you can get -- it's unusual to see all top 10 brands growing at the same time, is the way I would answer that.

And so what we're trying to do is employ the same playbook from a consumer insights superior innovation, strong category insights, great retail execution across all of the top 25 brands in the company, which represent 90% of our sales and profit, so that we get the majority of them growing and we grow in total as a company, recognizing that it would be highly unusual for every single one of those brands to be growing in the same quarterly period. But we believe if we can get the majority growing, which we have done in the second quarter, that the company in total can grow sustainably, and that's what we're excited about as we look forward.

And just to add a little more color. For the brands that are growing, both Graco and Sharpie grew core sales in the second quarter by double digits. Brands like Oster and Coleman were up high single digits. Yankee Candle was up mid-single digits. So the businesses that have leaned further into the capability rebuild are demonstrating meaningful growth. And so we're very confident that the strategy we've been affecting, which is broadening out, will allow us to continue to provide our shareholders with a solid business model that is sustainable.

Our next question comes from Peter Grom with UBS.

So I wanted to get some perspective just on the category. You noted a very strong first half, but you sounded a bit more cautious on kind of the path from here. And I'm curious, is that just -- are you simply trying to be conservative? Or is there something you're seeing more real time that's informing that view?

Yes. No, I think it's a little bit more just being -- wanting to be a little bit cautious on the category growth. So as I mentioned, we went into the year with an assumption that the category was going to be down 2%. And really, the reason why we did that was because the last couple of years, it had been running at that pace. We wound up down 1 in the first quarter and effectively flat in Q2.

And what we're seeing, from a category dynamic standpoint, is that the high income consumer is still driving significant growth in the general merchandise category, call it mid-single-digit growth. And that's what's leading sort of the growth side. The middle income consumer is relatively flat to down sort of low single digits. The thing that's interesting in the second quarter is that the low-income consumer, which had been running down more, is now annualizing that. So they seem to be stabilizing and their year-over-year decline is reducing, which is why the category, if you follow me, is -- seems to be doing a little better at roughly flat.

As we've gone into the -- as we planned the business for the back half of the year, given all of the moving parts in -- with gas prices, with commodity cost inflation, with -- et cetera, we didn't want to get above our skis on that. There is a case where if the category continues to be flat in the back half of the year, I would expect that we would be -- we would do better than what's embedded in our guidance range as a result of that. We just felt like it was prudent not to get too far ahead of ourselves on the category growth assumption.

That makes a ton of sense. And then I guess just on the pricing discussion, it sounds like you're not choosing to lean into price for a variety of different reasons and kind of using refunds as more of the offset to the impact. And obviously, inflation remains volatile. So curious how we should think about that playbook should inflation persist? And then I guess, related -- I mean, do you have any visibility on how your peers are handling the situation?

Yes. So we've taken 2 pricing actions since last week reported earnings that I think we've talked a little bit about. We've priced for resin-oriented products that represents about -- a little bit less than 10% of our total business. And largely, those resin-specific products are in the Commercial business and in the Outdoor & Rec, the Coleman cooler business, which are very resin dependent. Those price increases have now gone into effect on both of those brands. It appears that the industry has moved up because the price spike that we had earlier, and resins was just too high for people to move past. And so we don't believe that we are competitively out of step with what the market has done.

With regard to the majority of the business where we have not taken pricing, you're right that what we're doing is we're using the top line growth momentum, coupled with better fuel productivity savings and the in-year part of the tariff refund to effectively offset what is a significantly higher inflationary environment than what we had planned going into the year and also what we had thought 3 months ago when we reported last quarter. Part of that is because we also think that some of this inflation might be peak inflation. We're already starting to see resin prices roll down a little bit. And so as Mark said appropriately in his remarks, what we don't want to do is price for peak inflation and then have to take the pricing back. We're trying to sort of navigate through this in a way that's compelling.

I do think that our fuel productivity program is a huge competitive advantage, and we are hitting it out of the park. We're running way ahead of plan in terms of productivity savings that the fuel team is delivering this year. And I think that's going to position us from a consumer value standpoint in a much more competitive way versus our competitive set. So we're pretty optimistic that the combination of our tariff-advantaged manufacturing footprint that we've talked about, coupled with this fuel productivity program, is going to position our brands now to have superior innovation, but also at compelling consumer values, which we think is going to lead to continued market share gains and top line growth.

Our next question comes from Olivia Tong with Raymond James.

Great. Now that you've secured the refunds, can you talk about the deployment of those funds and reinvestment opportunities going forward? And what's been embedded into the outlook and how you think about not only this year, but past the -- into the next 12 months?

And then I don't know if you said it, but was there any benefit to this quarter from the pull forward of [ Prime Day ] into Q2 and -- and then I have a follow-up.

I'll take the first question and then Chris can comment on the second. So we were very clear in making sure that the entirety of the 2025 tariff refund values were passed through 1 for 1 into our current year guidance, and that's what you saw, right? Because it was $100 million, which was $76 million after tax, which was $0.17, and that's what we took up the low and the high end of our guidance range by. There were some additional in-period refund amounts that we spoke to, and there was $26 million that, related to the IEEPA tariffs that were in Q1 of '26 that we obviously got effectively refunded to us. But those are all in year in period items, just like the fact that the inflationary environment went from $100 million at the start of the year to $200 million, and we had to contend with all of that.

The other thing I would point out is that on an underlying basis, our tariff exposure year-over-year, last year was about $115 million on a P&L basis. This year, it's $127 million, if you just strip out all of the noise, right? So the tariffs themselves still are a pressure point in the current year.

We've dealt with that by doing a number of things. Chris alluded to the fuel productivity program, which is kind of our secret weapon. That team continues to do amazing things. I mean they have been literally taking out mid-single-digit COGS as a percent of sales each and every year for the past several years. We had 47 sites now that are active in the peak program. That's up from 39 at the end of last year. So effectively, what that means is over 90% of our targeted sites are enrolled in the program. So that's the exciting thing.

And then you might say, well, gee, if 90% of them are already enrolled, have you already got all those -- the juice out from the squeeze? And the answer is no, because of those 47 sites, 16 are in the foundation stage, 9 are at base camp, 15 are a Climb 1 and only 7 are at Climb 2, right? So as you move along the continuum, you get more and more efficient, more and more savings is derived. And so this is going to be something that is a capability set that we have uniquely developed here at Newell, which is operating at world-class levels, which is going to allow us to continue to do exceptionally well.

And then I guess the last thing I would say just so that there's no confusion at all. If you look at the $0.42 we delivered in the second quarter, if you back out the $0.17 that related to the 2025 portion of the IEEPA tariff refund, that would bring you from $0.42 minus $0.17 down to $0.25. And then if you took out the first quarter piece, which is again out of period, that's another $0.04, that would take you from $0.25 basically down to $0.21, and we guided to $0.16 to $0.19. And the reason we were able to beat and exceed was because of the fuel productivity program, because of the incremental sales gains.

So we feel really good about where we are, and we guided to a Q3 that at the midpoint, has sequential growth. We talked about the fact that this is broadening out and it should be across both the U.S. and the international markets. And then if you do one final thing and look at our op margin guidance for the full year, which was 10% to 10.4%, if you strip out the elements of the refund related to 2025, which are all the out-of-period elements, right? Our guide would basically have us at 8.6% to 9%, right, on an op margin basis, with the midpoint being 8.8%, which basically means that's about a 50 basis point improvement from [ 25 ], right? So our algorithm, our financial algorithm that we've laid out, we continue to deliver against that consistently despite massive volatility in the marketplace. And once all this starts to normalize, I think you're going to see really good things start to happen.

Just the 2 other questions that you asked, Amazon Prime Day, which moved from an execution standpoint from July last year to June this year, did have an impact on POS results, but did not have an impact -- material impact on shipments because we typically ship the inventory to Amazon in advance of the execution. So there was not a material change in our shipment patterns as a result of the Prime Day move, just to clean that one up.

And then I think on your other question on what does this mean going forward as we think for next year, obviously, we're not in a position to guide for 2027 at this point. But I think the reason why we wanted to call out specifically the $100 million or the $0.17 a share that was related to [ 25 ] as being out of period is we think that, that portion of the tariff refund is not repeatable as we go into '27. We think all of the stuff that has happened in year this year, we do think it of as a base that we're going to grow from as we go into next year.

Great. That's super helpful. Just following up a bit on promotion and price mix. You said pricing won't be able to offset inflation this year, totally understandable. But sort of looking at a different way. There's a lot of newness, but you also have a pretty tough consumer backdrop. And given that back to school and holiday in the second half, can you talk about your level of confidence that you can hold the pricing and promo plans, especially given the level of competition that's out there right now?

Yes. I think we feel pretty good about that. And again, it's because we're not taking broad-based pricing. The 2 areas where we've taken pricing that represent, as I mentioned, less than 10% of our business. We've seen the whole industry move up. Interestingly, in some of our other businesses, we've seen competition price, and we have not, because we've got the U.S. manufacturing footprint and we've got this fuel productivity program that we've talked about. And so I think we're pretty well set up and well positioned from a consumer value standpoint heading into the back-to-school and heading into the holiday season.

By the way, we are -- I should mention, we are monitoring the inflation environment. Inflation has moved, as Mark said, from -- when we came into this year, $100 million headwind to a $200 million headwind, which is a big increase. We're pretty excited that we've been able to offset that without having to take significant pricing, but that's affecting not just us, it's affecting the whole industry. We are monitoring that. And if the situation continues or gets worse, we may choose to enact future pricing. But as we sit here today, we don't have anything imminent that we think we need to do to deliver the plan and the guide, assuming that the current macro environment sort of holds where it is.

[Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan.

I want to pick up from Chris with what you just said about pricing. Do you see conversely any pressure to potentially having to give back some of the tariff benefit? Or if you will? I mean, obviously, Mark has just pointed out that you're still higher year-over-year. But just to see some affordability improvement, we have heard some of your key customers taking some promo ahead of even the manufacturers themselves. I mean that was more, I think, on the grocery side. But just thinking ahead if -- as you're looking to this innovation, obviously, you have this 21 -- 29, sorry, Tier 1, Tier 2 innovations, should we be thinking the innovation is coming in at a higher price level and higher margin? And if you have to reinvest in some of the initial price points, that would be great.

Yes. So let me start with the innovation point. So we are, as you know, from the strategy that we put in place 3 years ago, where we decided that we were going to completely revamp the way we do new product innovation we put in the tiering system, we moved to consumer-led innovation and completely rebuilt the consumer insights function to make the innovation much stronger. One of the choices we also made was to focus that innovation more at the middle and higher price points within the category. And I would say the majority of the innovation that we're launching is focused at the mid-tier with some pockets at the upper tier.

And the reason why we chose to do that and not focus on the opening price point is that we felt like if we were going to bring innovation and invest in innovation, we wanted to get paid for it. It turned out to be a good choice for more than we thought at the time. When we made that choice, we did it thinking that innovation should drive category growth. And in order to drive category growth, you really needed to focus on the mid-tier and the sort of the lower part of the premium tier.

What we're seeing in the market today is that the mid and the premium tier parts of the market are actually growing faster than the opening price point part of the market. And the reason for that is because the high income consumer is the one driving all of the growth in general merchandise. And so we think we're doubly benefited from that. Just because the innovation is coming at the mid-price point or the lower end of the upper part of the tier does not mean that it can't be a great consumer value. We are focused on making sure that the innovation is a great consumer value, which is why we're focused on all of the productivity savings to be able to offset the inflationary impact. I don't believe that we're going to need to price that innovation down because we're seeing very strong consumer response to it so far. The other thing I would say is as we launch that innovation, it is giving us a mix benefit on the top line as well as sort of another thing that's happening within the P&L.

And then on your point relative to the tariff refunds, I think I mentioned in the prepared comments that if you look at the new tariff cost this year from the new tariff regime plus the tariff refunds, plus the inflation all in and say what was the total input cost picture for Newell this year, inclusive of all tariff refunds even from the prior year from Q1, et cetera, it is still a headwind this year. And so it's not like we're in a situation where we have some sort of input costs going down. Input costs are going up because the inflationary impact is more than the tariff help. And so we think we're being prudent in terms of how we're planning that, and we think we're actually likely -- because we're not planning to take broad-based pricing likely to be well positioned, as I mentioned earlier, in the back half of the year.

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.

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.