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    NEWELL BRANDS (NWL)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025 (Before Market Open)
    Pre-Earnings Price$7.18Last close (Oct 24, 2024)
    Post-Earnings Price$8.68Open (Oct 25, 2024)
    Price Change
    $1.50(+20.89%)
    • Newell Brands' trailing 12-month EBITDA has increased by 22%, driven by productivity improvements in the supply chain and centralization, as well as exiting unprofitable businesses, leading to significant margin expansion and a stronger portfolio.
    • The company is showing sequential improvement in core sales decline, from double digits last year to only 1.7% decline this quarter, and is gaining market share in more of its top 25 brands, indicating progress towards sustainable top-line growth expected in 2025.
    • After exiting unprofitable businesses, Newell expects distribution to be a positive driver in 2025, plans to increase A&P investment from historical 4% to 6-7% over time to support innovation, while achieving higher operating margins through gross margin improvements and overhead reductions.
    • Uncertainty in Achieving Sustainable Top-Line Growth: Despite sequential improvements, Newell Brands has not yet returned to sustainable profitable top-line growth and acknowledges it is premature to provide guidance due to macroeconomic uncertainties. The company states, "we are acutely aware that we have set out a goal of returning the company to sustainable profitable top-line growth... I expect that we're going to get to top line growth at some point during next year, during 2025, but it's a little premature for us to give guidance at this point given the uncertainty in the macro context."
    • Continued Underperformance in the Outdoor & Recreation Segment: The Outdoor & Recreation segment, including iconic brands like Coleman, remained significantly down with core sales declining 16.8% year-over-year in the third quarter. The company admits this segment "is going to take the longest to turn around" and meaningful innovation impact is expected in 2026. ,
    • Profitability Driven by Cost Savings Amidst Underutilized Capacity: The company's recent profit improvements have been driven largely by cost reduction efforts and productivity savings, rather than revenue growth. Newell Brands' capacity utilization is roughly 40%, indicating significant underutilization. The CFO acknowledges, "I'm not sure we're going to be able to drive EBITDA growth at a 22% rate... I think we can drive very strong EBITDA growth going forward." ,
    1. Sustainability of Profitability Improvements
      Q: Can profit gains continue even if growth remains uneven?
      A: The company sees strong opportunities for profit improvement, expecting revenue to improve due to category growth and front-end capability investments. They plan to drive margin improvement on both the gross margin and operating margin lines through productivity savings across the supply chain and back-office functions. While a 22% EBITDA growth in a year is exceptional, they are confident in continuing strong EBITDA growth and have reduced net debt-to-EBITDA from 6.5x to 4.9x over the past five quarters.

    2. Return to Sustainable Growth
      Q: When will the company return to sustainable growth?
      A: The company is focused on returning to sustainable, profitable top-line growth. They have invested in consumer insights, redesigned the innovation pipeline, and implemented a brand management model focused on their top 25 brands. Sequential improvement is evident, with core sales decline improving from double digits last year to down 1.7% this quarter. They expect to reach top-line growth at some point during 2025, though it's premature to give guidance given macroeconomic uncertainties.

    3. COVID Demand Normalization
      Q: Is COVID demand normalization ending?
      A: The company confirms that the pull-forward of demand during COVID and subsequent category decline are coming to an end. They expect category growth dynamics to be better next year, contributing to improved market conditions. Along with better market share due to innovation and brand investments, they are well-positioned for the future.

    4. Tariff Risks and Supply Chain Diversification
      Q: How are tariffs affecting supply chain strategy?
      A: The company has diversified its supply chain, reducing products sourced from China and sold in the U.S. from over 30% to below 15%, aiming for below 10% by the end of next year. With strong U.S. manufacturing facilities, they could benefit if tariffs are implemented in certain categories. Their primary residual tariff risk is in the Baby business, but these products have been exempted from tariffs in the past.

    5. Category Performance Outlook
      Q: Will key categories return to growth?
      A: The company expects categories like kitchen appliances to return to growth as the COVID pull-forward effect wanes. Industry projections indicate these categories will see core sales growth next year. Innovative products in Baby and Writing, such as the Graco SmartSense Bassinet priced at $400 (compared to competitors at $1,500), and premium S-Gel pens at $10, are expected to drive growth. A relaunch of Yankee Candle is also anticipated to boost Home Fragrance sales.

    6. Distribution and SKU Rationalization Impact
      Q: How is SKU reduction affecting sales?
      A: The company has reduced SKUs from over 100,000 to 20,000, tripling revenue per SKU. While SKU rationalization caused a distribution headwind in 2024, they expect distribution to become a positive driver of core sales in 2025. They anticipate gaining distribution next year as they no longer have the headwind of exiting unattractive businesses.

    7. Investment in Innovation and Advertising
      Q: How much is being invested in innovation and advertising?
      A: Historically spending about 4% of sales on A&P, the company increased this to nearly 5% this year and expects long-term spending to be around 6–7%. They aim to be ROI-driven, ramping up spending consistent with innovation launches. Despite increased A&P, operating margins improved by 200 basis points through gross margin enhancements.

    8. Cost Savings Initiatives
      Q: What savings are expected from cost initiatives?
      A: The FUEL productivity program is generating over 6% cost of goods sold takeout this year, significantly improving gross margins. This program continues into next year with expectations for further gains. They also see opportunities in back-office efficiencies, including implementing AI in customer and consumer service functions.

    9. Competitive Landscape Impact
      Q: How does a new competitor affect your business?
      A: The company views the entry of a strong innovator as positive, validating their strategy focused on innovation and branding. It demonstrates that their categories respond well to these efforts and shows what's possible with their leading brands.

    10. Retail Inventory and Shipping Dynamics
      Q: Are retailer behaviors impacting sales forecasts?
      A: The wide guidance range for Q4 is due to retailer shipping windows' timing, not inventory destocking. Retailer inventories are in a good place, but inventory intake for shelf resets doesn't align neatly with fiscal quarters. They expect the market to remain down low single digits during the holiday season, with consumers spending more on essentials than general merchandise.

    Research analysts covering NEWELL BRANDS.