Newell Brands Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategy Implementation: Since summer 2023, invested in front-end capabilities, brand building, innovation, etc. Focused on strengthening back-end capabilities and reducing complexity. Reduced China sourcing exposure to below 10%, announced global productivity plan leveraging automation, digitization, AI. Invested in domestic manufacturing and executed 3 rounds of pricing to protect margins.
• 2025 Performance: Learning and Development was resilient, Baby performed well, Home and Commercial had pressure but improved, Outdoor & Recreation stabilized. Fourth quarter sales came in better than anticipated due to improved distribution momentum and strong performance in some segments.
• 2026 Outlook: Central theme is disciplined commercial execution. Expect categories to decline by ~2% in 2026, but confident in outperforming categories with innovation, improving distribution, and margin/cash discipline. Strongest innovation lineup since Jarden acquisition, distribution expected to turn positive, and normalized operating margin expected to expand.

Segment Performance

• Learning and Development: Most resilient segment. Writing performance supported by strong brands like Sharpie and EXPO, with innovation and best-in-class domestic manufacturing leading to increased points of distribution.
• Baby: Performed strongly in tariff-laden environment. After 3 pricing actions, the business is solid. Graco's innovation program and improved go-to-market execution drove 160 basis points increase in market share in full year, with 350 basis points increase in fourth quarter.
• Home and Commercial: Faced pressure, especially Kitchen due to soft demand, distribution losses, and promotional intensity. However, increased promotional activity and selective price adjustments in Q4. Home Fragrance returned to growth in Q4. Outdoor & Recreation saw top line stabilization and margin improvement as the year progressed.

Guidance

• Full Year 2026: Net sales guidance: down 1% to up 1%; core sales: down 2% to flat. Normalized operating margin: 8.6% - 9.2% (midpoint 50 basis points improvement over 2025). Normalized earnings per share: $0.54 - $0.60. Operating cash flow: $350 million - $400 million. CapEx budget: $200 million.
• First Quarter 2026: Net sales expected to decline 5% - 3%; core sales: decline 7% - 5%. Normalized operating margin: 2.5% - 3.5%; normalized EPS: negative $0.12 - negative $0.08.

Risks

• Tariff Impact: Tariffs pressure demand and price competitiveness in impacted categories, creating short-term cash and P&L headwinds. Uncertainty in tariff dynamics.
• Consumer Macro Economy: Some categories are durable and discretionary, sensitive to real income growth. Lower income consumers' pullback in general merchandise spending can impact performance.
• Supply Chain: Potential disruptions despite efforts to diversify supply chain away from China.

Question and Answer

Q: Lots of detail on the innovation pipeline and shelf 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.

A: Chris Peterson responded that they are guiding stronger than category decline due to strongest set of innovations since Jarden acquisition, every business unit launching Tier 1 and Tier 2 innovation, and visibility to shelf space wins starting April/May. On Baby and Kitchen price interventions, in Baby, priced for tariffs and adjusted back as tariffs rolled back, pricing went into market in January. In Kitchen, launched Rubbermaid Easy Store Lid innovation with 15% price reduction in January due to tariff advantage.

Q: Thinking ahead on the conversation about visibility into shelf resets and excitement about innovation and retailer engagement. I just want to think back to second half of '25. And you had some similar levels of excitement around same sorts of dynamics on distribution wins, on innovation. And there was sort of a slower flow-through. I mean one of the things that I think about Yankee Candle was just like it took longer to reset those shelves. It took longer to sell through existing inventory. So it 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've kind of factored that, let's call it, greater conservatism into the plans as we look forward to the next 2 quarters or so?

A: Christopher Peterson said they are thoughtful, have a forecast that doesn't assume everything goes right, and has potential for upside if things work out, being prudent and not getting ahead of themselves.

Q: 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, any work you've done more recently or just what the retailers may be saying?

A: Christopher Peterson said had conversations with retailers, $100 billion incremental tax refunds possible, but speculative. Focused on reducing cycle time and lead time on production to respond to demand shifts.

Q: 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 the use, how you're 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, cautious 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.

A: Christopher Peterson and Mark Erceg responded that Q1 is low, Q2-Q4 expected to be even. Consumer offtake improved in Q4 across businesses. Innovation stream from '25 carries over to '26. Q1 is smallest quarter, with retailer shipment timing and shelf resets skewing shipments. International improving, and lapping prior year base period starting Q2.

Q: The company has generally lacked innovation before the new strategy was implemented a few years ago and therefore, 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, so 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 kitchen appliances that pretty consistently has buzz across social media with their new products. Is there anything tangible you can point investors to that suggests 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?

A: Christopher Peterson said sequence of innovations is cumulative, with 70% of launched Tier 1 and Tier 2 innovations meeting or beating targets. Examples like Graco EasyTurn car seat and Yankee Candle relaunch show success. Mark Erceg added that A&P levels have increased from 4% of sales, and showing leading innovations and support plans gets retailers excited, with a long fuse but signs of business wins through line reviews.