Newell Brands Inc.

Good morning, ladies and gentlemen, and welcome to Neal Brand's third quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After a brief discussion by management, we will open up the call for questions. In order to stay within the time schedule for the call, please limit yourself to one question during the Q&A session. As a reminder, today's conference is being recorded. A live webcast of this call is available at ir.nealbrands.com. I will now turn the call over to Sophia Sinas, Vice President of Investment Relations. Ms. Sinas, you may begin.

Thank you. Good morning, everyone. Welcome to Neil Brand's third quarter earnings call. On the call with me today are Ravi Saligram, our CEO, and Chris Peterson, our President and CFO. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements that 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, Forms 10-Q, and other SEC filings available on our investor relations website for further discussion of the factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those referred to as normalized measures. We believe these non-GAAP measures are useful to investors although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables, as well as in other materials on the World Investor Relations website. Thank you, and now I'll turn the call over to Ravi.

Thank you, Sophia. Good morning, everyone, and thank you for joining us on our third quarter call. Following strong performance over the first half of the year, the company's results decelerated in the third quarter, reflecting a tough operating environment as many retailers right-sized their inventory positions, inflationary pressure on both the consumer and our business, as well as the impact of a stronger dollar. Additionally, Q3 performance was unfavorably impacted by customer shifting orders into the first half. As a result of these factors, core sales turned negative in the quarter, declining 10.8% on top of 3.2% growth last year. This had a corresponding deleveraging impact on normalized operating margin, which contracted 120 basis points year over year, despite strong progress on productivity and cost containment actions. Core sales declined year over year in all business units except the commercial business as the pullback in customer orders was a significant headwind. International markets outpaced North America as we did not experience the same level of retailer inventory reductions there. Core sales outside North America declined 1.4% as 4.8% growth in Latin America was offset by declines in EMEA and Asia Pacific. Weak consumer confidence due to record inflation and concerns surrounding the war in Ukraine continue to weigh on the EMEA region, with the APAC region impacted by COVID-related restrictions and lockdowns in certain markets. Year to date, Newell's core sales declined 1.3% on top of a challenging 15.2% growth comparison a year ago, as normalized operating margin expanded 10 basis points year over year, despite significant inflationary and foreign exchange headwinds. Many of our key brands continue to show strength year to date, including Rubbermaid Commercial Products, Sharpie, Papermade, Expo, Elmer's, Ball, Rubbermaid, and Contigo. While domestic consumption moderated year over year, it continues to exceed 2019 levels, both during the third quarter and year to date. Going forward, we expect demand patterns to continue to be unfavorably impacted by inflationary pressure on the consumer, which has constrained discretionary spending, particularly for value-driven shoppers. In some categories, such as home fragrance, we have lost low-income shoppers who were only able to enter the category last year due to the boost from the government stimulus. we expect some pandemic-related trends that elevated demand to continue to subside. Due to concerns about the high price of everyday goods and gas, a potential recession, rising interest rates, and declining personal savings rate, we're seeing a more cautious consumer today, but one that is willing to purchase an offering that provides good value. We've been optimizing our product assessment to ensure it provides the appropriate value proposition to the consumer. We've also been activating shopper campaigns with a focus on value messaging to better connect with shoppers and customers. The commercial business unit was a true standout this quarter and yet today, registering core sales growth more than 9% in both time periods, enabled by excellent execution and strong price realization. With our innovation and assortment hyper-focused on reducing cost in use and delivering savings to our end users, it is leading to positive momentum in our B2B verticals and professional customers and distributors. Strength in the B2B professional channel was further fueled by improved mobility and return to the office, as well as distribution gains, which helped offset the impact of moderating traffic at retail. In the B2B channel, customers seek performance, quality, and strong durability, all of which are at the core of our Rubbermaid commercial product offerings. As a result of shifting consumer behaviors, the decisions by many retailers to aggressively manage their inventory levels and reduce orders weighed on performance on the majority of our consumer-facing businesses. While core sales declined for six business units during the third quarter, We do not believe this is indicative of underlying operational health issues, but rather the dynamic environment we're in, as well as base period comparisons. Let me illustrate this point through a discussion of our baby and writing business units. The baby business was cycling against a challenging double-digit course health growth comparison. While core sales declined in the quarter, it increased relative to 2020 and 2019 levels, despite the headwind from retailer actions, as well as the shift in timing of shipments into Q2 ahead of Project Arbit implementation. Domestic consumption grew versus last year across baby gear and baby care categories, which have shown some resiliency given the non-discretionary nature of the products. We continue to see strength in our industry-leading turning car seats for major new innovations under both Graco and Baby Jogger brands. Nook for Nature Collection is also delivering very strong performance. For writing, given the timing shift of some retailer orders for back-to-school into the first half of the year, it's more appropriate to focus on year-to-date performance. Core sales increased low single digits year-to-date with domestic consumption also up versus last year. During the back-to-school season, The category grew modestly as a strong start due to earlier store recess was followed by slowdowns for the end of the season. We held our ground despite supply constraints across several categories, including mechanical pencils, ballpoint pens, and highlighters. Dry erase markers and glue sticks were the best performing categories during the back to school season for us. Here today, the office channel has seen steady growth as return to office continues to progress. While work is already on the way in preparation for next year's back-to-school season, as we look to the balance of this year, we're excited to expand our offerings in the vibrant children's activity category. We recently launched Elmer's Squishies. This do-it-yourself kit includes everything to make your own surprise squishy toy in just 60 minutes. This is a fun new way to unlock creativity and imagination with kids and an exciting expansion of the Elmer's brand into an adjacent category. We are continuing to invest in innovation and brand building and writing and ensure we have the right price pack architecture and key markets that convey strong value. 2022 has been a dynamic year as it relates to the operating backdrop, consumer and customer behavior, as well as the overall macroeconomic and geopolitical environment. 2022 has also been a tale of two cities for new brands with strong first half results followed by significant slowdown in the back half. We've been very disciplined with pricing actions over the past two years to help mitigate the impact of massive inflation. Despite progress on productivity and pricing, we do expect to take a step backwards on gross margin this year due to fixed cost deleveraging, the high level of inflation, and unfavorable currency impact. However, we remain as committed and focused as ever to rebuilding gross margin and reaching benchmark levels over time through productivity initiatives, inclusive of Project Ovid and automation, to being very disciplined around launching gross margin accretive innovation, three significant pricing actions internationally to offset the impact of transactional effects, for proactive price mix and category management as we are assessing additional opportunities to optimize category mix within each business unit and a strong emphasis on revenue growth management, taking an even more aggressive stance on SKU reduction and supply network optimization. With the macro backdrop getting more difficult in recent months, we expect economic uncertainty and external disruptions to persist in the near term. As a result, we think it's prudent to plan for a recessionary environment in 2023 with a softer top line. We're acting with speed and agility as we adjust our playbook to this environment while taking actions that are within our control to maximize profits and cash. Within that context, the top five priorities we are laser focused on include, number one, accelerating cash flow generation as we significantly right-size the company's inventories. Number two, driving a recovery in gross margins as we turbocharge productivity and price internationally to mitigate the transactional foreign exchange impact. Number three, significantly reducing overheads, both in the U.S. and internationally, by leveraging the scale of 1 new, while closely managing discretionary expenses and optimizing advertising and promotion spending, as well as the company's office footprint. And finally, redirecting investment towards higher margin businesses in particular writing to turbocharge innovation and to best leverage the power of our brands and diverse portfolio to meet consumer and customer needs. And fifth, delivering the next level of simplification and complexity reduction by accelerating SKU rationalization transforming manufacturing operations, and creating a portfolio of mega brands. Importantly, we're applying a balanced approach between ensuring we effectively navigate through the short-term challenges and volatility while maintaining the long-term focus Our ultimate goal is to position the company to come out even stronger as the macros improve. We will harness the strength of our brands, build on our e-commerce and Omnipros, leverage our scale to drive a one-year approach to realize synergies, reduce international fragmentation, continue to transform our supply chain to focus on manufacturing efficiencies and vigorously reduce complexity to build competitive advantage and drive sustainable and profitable growth. The decisive actions we've taken over the past several years to address pandemic-related challenges While executing on the turnaround agenda, we believe have enabled us to be a much more operationally agile and resilient consumer and customer-centric company. We continue to see a long runway ahead for value creation. Onwards and upwards, and now I'll turn it over to Chris.