Q4 2024 Earnings Summary
- Significant increase in new product innovation, with Tier 1 initiatives increasing from 1 in 2023 to mid-teens in 2025, expected to drive core sales growth.
- Portfolio rationalization nearing completion, reducing brands from 80 to 55 in 2024 and aiming for 50 brands in 2025, focusing on top 25 brands representing 90% of sales and profits, which should minimize revenue headwinds and improve margins.
- Return to growth in key segments, with the Learning & Development segment delivering core sales growth in all four quarters of 2024 and expected to continue in 2025, along with consistent growth in the international business.
- Newell Brands forecasts a continued decline in core sales for Q1 2025, expecting them to be down 2% to 4%, which is more than analysts anticipated. This weakness is attributed to significant foreign exchange headwinds and a lack of meaningful innovation launches in Q1, as new products are scheduled for later in the year. Management acknowledged a "big currency dislocation" impacting Q1 earnings per share.
- The Outdoor & Recreation (O&R) segment, representing about 10% of the company's revenue, is expected to continue declining in 2025, with a return to core sales growth unlikely until 2026 when key innovations are slated for launch. This prolonged underperformance in a significant segment may weigh on overall company performance.
- Ongoing divestitures and business exits are contributing to revenue headwinds, as Newell Brands continues to simplify its portfolio. Management indicated that they are exiting approximately five more brands in the first half of 2025, leading to about a one-point headwind to core sales for the year. There is uncertainty whether the anticipated margin benefits will offset the revenue loss, and this strategic shift may impact top-line growth in the near term.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -6% (from $2,076M to $1,949M) | The decline reflects softening global demand, continued SKU rationalization, and distribution losses, partly influenced by macroeconomic headwinds and FX volatility. These factors continued from prior quarters, where lower volumes and portfolio adjustments also weighed on sales. |
Home & Commercial Solutions | -8% (from $1,276M to $1,169M) | The segment underperformed due to product line exits and distribution challenges, which carried over from earlier quarters. Continued pricing actions helped partially offset these declines, but persistent weak demand and currency headwinds remained a challenge. |
Outdoor & Recreation | -8% (from $165M to $152M) | Similar to prior quarters, soft global demand and distribution issues constrained sales. Ongoing macroeconomic pressures and SKU adjustments contributed to reduced volumes, though operational efficiencies and lower restructuring costs offered slight offsets. |
Operating Income | Improved to $9M from -$1M | The turnaround was driven by cost-saving initiatives (e.g., restructuring and productivity improvements) that built upon prior quarters’ actions. While inflationary pressures persisted, margin improvements and lower restructuring charges bolstered results. |
Net Income | Reduced loss to -$54M from -$86M (37% improvement) | Lower restructuring costs, improved gross margins, and productivity gains carried forward from earlier quarters helped narrow the loss. However, higher interest expense and ongoing macro headwinds continued to weigh on overall profitability. |
Interest Expense | Rose to $72M from $7M (↑900%+) | The sharp increase reflects the impact of higher interest rates and rating-driven rate adjustments on certain debt instruments. This trend, foreshadowed in previous periods, accelerated as the company’s financing costs grew significantly despite ongoing efforts to reduce indebtedness. |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
O&R Segment Underperformance | Discussed as the weakest unit across Q1-Q3 2024. Leadership and strategy overhauls were highlighted, with limited product launches expected before 2025. (Q1: , Q2: , Q3: ) | Still seen underperforming, with recovery not expected until 2026 due to delayed innovation. However, segment represents only about 10% of revenue, minimizing impact. (Q4: ) | Sentiment remains cautious, no immediate turnaround. |
Portfolio rationalization and brand exits | Ongoing brand exits from 80 down to ~50. Exiting tail brands to focus on top 25 driving ~90% of sales. Contributes to a headwind on core sales. (Q1: , Q2: , Q3: ) | Continued exit of non-strategic brands, expecting 5 more to be dropped, ending at 50 total. Headwinds to core sales persist into 2025 but expected to subside by 2026. (Q4: ) | Consistent topic, strategy nearing completion with a positive impact expected beyond 2025. |
New product innovation pipeline | Emphasis on boosting innovation from Q1-Q3, focusing on mid/high-price points. Projects like Sharpie Creative Markers, Graco SmartSense, and Mr. Coffee lines. (Q1: , Q2: , Q3: ) | Ramp-up in Tier 1 initiatives, aiming for mid-teens launches in 2025. Focus on premium price points to lift average selling prices and drive growth. (Q4: ) | Steadily expanding, seen as key to returning to growth in 2025–2026. |
Focus on cost savings, margin improvements, and capacity utilization | Frequent across Q1-Q3, with programs like FUEL and Project Phoenix yielding improved gross margins. Targeting efficiency gains via supply chain optimization. (Q1: , Q2: , Q3: ) | Sixth consecutive quarter of gross margin improvement (up 350 bps in Q4), driven by productivity and pricing despite lower volumes. (Q4: ) | Maintained priority, margins continue to strengthen. |
Return to sustainable top-line growth | From Q1-Q3, management cited innovation, distribution gains, and category improvements as levers. Expected to see progress in 2025, with some units already back to positive core sales in Q3. (Q1: , Q2: , Q3: ) | Q4 focus on launching new products and improving distribution to drive growth by late 2025. Cautious about macro uncertainties but confident in strategy. (Q4: ) | Consistent goal, incremental signs of improvement but full return pushed to 2025. |
Foreign exchange headwinds | Mentioned each quarter as a factor affecting net vs. core sales. Q1-Q3 faced ~2–3% FX impact on sales. (Q1: , Q2: , Q3: ) | Q4 showed ~2.6% FX headwind. Planning pricing actions for 2025 to offset continuing FX pressures. (Q4: ) | Continues to affect results, mitigated through pricing. |
Reliability of guidance and historical downward revisions | Addressed in Q1, with management emphasizing improved forecasting. Little or no mention in Q2/Q3. (Q1: ) | Leadership highlighted progress in meeting Q4 targets, aiming to offer prudent yet achievable forecasts, with Q4 EPS exceeding guidance. (Q4: ) | Reaffirmed confidence, fewer downward revisions reported. |
Reduced reliance on China sourcing | Mentioned in Q2 and Q3 as part of tariff mitigation. Goal to reduce to below 10% of total COGS by the end of 2025. (Q2: , Q3: ) | Reiterated target of dropping China sourcing to under 10%. In-sourcing and supplier diversification remain central strategies. (Q4: ) | Ongoing shift, expected to continue reducing risks. |
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Operating Margin Expansion
Q: How do you see operating margin expansion phasing through the year, and does it give confidence in achieving long-term margin targets?
A: We feel very good about the margin improvements made, which are structural rather than cyclical. Despite top-line compression, we've improved margins through productivity programs, automation, gross margin-accretive innovation, mix management, and pricing strategies. Our goal is to reach gross margins of 37–38%, with A&P at 6–7% and overheads around 17%, leading to operating margins of 13–15% compared to 8% this year. Recent adjustments have increased profitability even as sales declined, and we're confident in our turnaround plan.
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Core Sales Growth Drivers
Q: What are the key drivers behind the expected return to core sales growth?
A: The return to core sales growth is driven by several factors. First, we expect category growth to improve from down low single digits to about flat in '25. Second, we've significantly ramped up our new product innovation pipeline; in '23, we had 1 Tier 1 initiative, in '24 we had 8, and in '25 we'll have mid-teens. Third, we're expanding distribution; our net distribution was negative in '24 but is expected to turn positive in '25. Additionally, we're focusing on improving product mix and pricing, moving from opening price points to medium and high price points. Finally, we've increased investment in advertising and promotion (A&P) from 4% in 2022 to 5.5% in '24, aiming for closer to 6% in '25, enhancing our brand support.
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Tariff Impact and U.S. Manufacturing
Q: Would new tariffs be a net positive or negative over 12–24 months?
A: It's hard to predict, but tariffs could be a net positive for us over the midterm due to our significant U.S. manufacturing base. About half of our business is manufactured in the U.S., giving us a competitive advantage over firms reliant on imports. We're engaging with retailers to promote Made in the U.S.A. products, which could be a tailwind. However, we could face headwinds from tariffs on sourced goods and potential retaliatory tariffs from China, Mexico, and Canada. Overall, our U.S. manufacturing investments (approximately $2 billion since 2017) position us well to leverage this environment.
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Portfolio Rationalization
Q: Is divesting low-margin businesses an ongoing strategy, and how close are we to the desired portfolio?
A: The process of shedding low-margin brands will largely conclude in '25. We started with 80 brands 18 months ago and ended '24 with 55. We plan to reduce this to around 50 brands, focusing on the top 25 that represent 90% of sales and profits. While divestitures have been a headwind, we don't expect this to impact '26 as it has in previous years.
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Pricing Strategy Amid FX Pressures
Q: How are you approaching pricing amid FX pressures, and how did pricing contribute to Q4 core sales?
A: Pricing contributed about 1 point to Q4 core sales, mostly in markets with significant currency devaluation. We're seeing higher FX pressure in Q1 and plan to implement more pricing actions in international markets, impacting Q2 more than Q1. Almost all net pricing expected in '25 is driven by currency movements. We're confident these actions will drive over 100 basis points of operating margin improvement through the full year.
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Interest Expense and Refinancing
Q: Is the expected $5–10 million increase in interest expense included in guidance, and does it account for upcoming refinancing?
A: Yes, our guidance incorporates the projected refinancing around midyear. The increase in interest expense is already factored in, so it's not an incremental headwind. We refinanced debt that was yielding 5.7%, and while the new debt has higher coupon rates, our credit metrics are improving. We expect attractive rates when we refinance the remaining $1.25 billion of '26 notes.
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Guidance Flexibility
Q: How would you characterize the degree of flexibility in your guidance, given uncertainties and past over-delivery on margins?
A: We aim to be prudent in our guidance, focusing on delivering what we promise while working to potentially over-deliver. We have internal targets higher than our public guidance. We feel more flexibility in the P&L now than a year or two ago. We're entering the year with a higher A&P budget to support top innovations, but we have discretionary spending we can adjust if macro factors disrupt plans. We also have upside plans to invest more if things go better than expected.
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Category Growth Visibility
Q: How do you assess visibility in category growth across your major segments amidst consumer sluggishness?
A: Predicting category growth involves some uncertainty, but we expected categories to be down low single digits in '24, which turned out to be accurate. For '25, we forecast global category growth to be about flat. We use various data sources, including Sircana and Euromonitor, retailer insights, macroeconomic forecasts, and historical trends to make our projections. While there will be some variability across geographies and categories, we see nothing that changes our expectation for improved category performance in '25.
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China Tariff Exposure
Q: What's your practical tariff exposure to China, especially regarding the baby business and waivers?
A: Currently, 15% of our goods are sourced from China; we expect this to reduce to 10% by year-end, with the majority related to the baby business, which is currently exempt from Section 301 tariffs. The latest 10% tariff applies to all China goods, so we'll see how that impacts us. In most cases, we are not competitively disadvantaged due to industry reliance on China. We have no exposure to retaliatory tariffs from China since we don't export from the U.S. to China.
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Q1 Core Sales Decline
Q: Q1 core sales are expected to be down more than anticipated; what's driving this?
A: Q1 is our smallest quarter due to seasonality, so we don't read too much into it. Our guidance of minus 2% to minus 4% core sales decline in Q1 is still an improvement over last year. There's little innovation launched in Q1, but our 2025 innovation pipeline is three times the size of 2024's. Additionally, currency dislocations due to tariff discussions are impacting EPS by nearly a nickel in Q1, but we expect to mitigate this over the year. Overall, we're confident in returning to core sales growth in the back half of the year.