Good morning, and welcome to Newell Brands Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. In order to stay within the time scheduled 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.newellbrands.com. I will now turn the call over to Nancy O'Donnell, Senior Vice President of Investor Relations. Ms. O'Donnell you may begin.

Thank you, Emma. Good morning, everyone. Welcome to Newell Brands second quarter earnings call. Joining me today are Ravi Saligram, our President and CEO; and Chris Peterson, our CFO and President Business Operations. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially. I refer you to the cautionary language and risk factors available in our press release and our Forms 10-K and 10-Q for a further discussion of factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer 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 as well as on Newell's Investor Relations website. Thank you. And now I'll turn the call over to Ravi.

Thank you, Nancy. Good morning, everyone, and welcome to today's call. I hope everyone is staying healthy and safe during these extraordinary times. Since the COVID-19 outbreak, Newell has taken decisive steps to effectively manage our business through this crisis. As we entered the second quarter, we focused on three key priorities to ensure long-term success while navigating these unprecedented short-term challenges. Our top priorities are to ensure the safety and well-being of our employees, keep our manufacturing and distribution facilities operational when possible, and maintain business continuity while maximizing cash flow and ensuring strong liquidity. As we successfully implemented measures for these priorities, we accelerated our turnaround plan to better position ourselves in a recessionary environment. The results we announced today reflect how being agile and decisive towards clear objectives has allowed us to achieve a much better-than-expected outcome in the second quarter, despite the U.S. economy experiencing its most significant contraction in history and continued global volatility and pandemic-related challenges. Although we are not back to break-even yet, second-quarter core sales outperformed our expectations. We are encouraged by the significant improvement in core sales performance each month, with April marking the lowest point and sales down over 25%. May showed improvement over April, and in June, the company achieved flat to modest sales growth compared to a year ago. We are increasingly seeing consumption growth rates rise sharply in various categories within the food, commercial, and appliance sectors, likely attributed to U.S. fiscal stimulus and changes in consumer behavior benefiting some of our categories. Across our portfolio, we've experienced twelve consecutive weeks of growth in U.S. point of sales. In the first half, POS was up slightly. We have actively leveraged our e-commerce capabilities and marketing investments to take advantage of the accelerating shift of consumer behavior towards online shopping. In the second quarter, our online POS reached 33%, an increase of 800 basis points compared to last year. Online sales represented 24% of total sales this quarter, reaching an all-time high, up 1000 bps from the previous year and double that of the second quarter of 2018. Every business unit has seen a significant improvement in online penetration, with some categories experiencing growth that has doubled or tripled year-over-year. Our e-commerce team, in collaboration with the business units, has effectively capitalized on the evolving consumer landscape. Consumer takeaway and sales performance vary widely across our business units and categories due to demand, supply, and retail closures. Let me quickly summarize each of our business segments. Starting with food, we have experienced exceptional double-digit growth in consumption and improved market share momentum across all major brands: FoodSaver, Ball, Rubbermaid, and Sistema. We expect to maintain this growth as we launch Rubbermaid Brilliance glass in September and introduce Rubbermaid food storage containers with antimicrobial product protection in the fourth quarter. This reflection demonstrates our renewed sense of urgency and innovation at Newell. Regarding Home Fragrance, U.S. consumption faced pressure in the second quarter due to the closure of all Yankee Candle retail outlets and most specialty retailers; however, we did see strong sales from stores that remained open during the pandemic. Online sales more than tripled, compensating for in-store losses. Supply challenges worsened due to shutdowns at our main distribution center and factory in South Deerfield, Massachusetts. As supply resumes, we anticipate trends to improve and are excited about our new product pipeline, which features innovations such as the Yankee Candle Sleep diffuser and WoodWick Auto Reeds in the second half. Now, moving to our commercial segment, after a few years of inconsistent performance, we have achieved two consecutive quarters of core sales and profit growth. The commercial team has driven significant growth in skincare by quickly entering the tabletop sanitizer market. In April, we expanded our contactless sanitizer stand offerings under the Rubbermaid brand to major accounts, alongside strong growth in other product categories. However, this growth has been tempered by challenges in the foodservice and hospitality sectors. I am proud of our team for their success in securing line review wins across various categories, such as closet and garage organization, refuse, and sanitation, which we anticipate will continue gaining momentum in the second half. We believe the Rubbermaid washroom and sanitizer solutions segment is becoming a critical growth driver for Newell. On Connected Home, POS faced challenges and declined in mid-single digits in the quarter, primarily due to production setbacks at our Juarez plant in Mexico, which was closed for nearly nine weeks. Production has resumed, but our top ten customers are still experiencing low stock levels. Fortunately, we managed to recover sufficiently to ship necessary stock for October’s fire safety month. The team is also making progress on a major relaunch of our entire fire alarm product line scheduled for next year. In our Appliance & Cookware division, this segment has benefited significantly from the stay-at-home lifestyle during the pandemic, achieving strong double-digit U.S. POS growth in the second quarter and mid-single-digit growth globally, despite early retail challenges. We navigated through retail shutdowns in Latin America, driving core sales growth through exceptional direct-to-consumer sales, especially in Brazil and Colombia. The Appliance & Cookware team is continuing the rollout of new cooking products with the Diamond Reinforced Nonstick cooking surface, set to launch in the second half, along with the new Mr. Coffee iced coffee maker in September, addressing consumer demand for brewing great iced coffee at home. Next, our Outdoor & Recreation segment faced significant challenges in Q2, with closures of national parks and camps, affecting our beverage sales and other on-the-go brands like Contigo and Bubba. Our technical apparel segment also saw a decline, along with the apparel category overall. However, as lockdowns eased, we witnessed a resurgence in U.S. POS growth starting in June, which has continued into July, particularly in the camping category. Growth also resumed in Asia, an important market for Coleman. We are enthusiastic about the redesign of Coleman's Skydome tent and the refresh of our hard cooler offerings launched earlier this year. We have strong new leadership in the Outdoor & Recreation sector; however, I believe it'll take time for them to address the ongoing challenges. Moving on to Baby, despite a double-digit decline in April POS due to stay-at-home orders, Baby concluded the second quarter with a modest increase in U.S. POS. We are enhancing our online capabilities in this segment, with overall online sales penetration reaching 51% in the second quarter, up 900 basis points from the previous year. Graco gained market share and maintained its leadership position. We launched innovations like the Modes Nest Travel System and SnugRide 30 Lite, which have strengthened our share in the infant car seat market. We also introduced NUK safe temperature bottles in March for our leadership position in Germany, and we're excited about the rollout of the new Aprica Cururee stroller in Japan, designed for easy maneuverability in tight spaces. Lastly, in our Writing division, we faced significant declines globally due to lockdowns impacting our supply chain and the closure of schools and offices. Second-quarter U.S. POS and core sales saw a notable decrease, although we gained share in everyday Writing categories in the U.S., Australia, and the U.K. Our back-to-school display orders shipped at levels comparable to last year, and we are monitoring back-to-school sell-throughs, noting that the recent COVID-19 surges and school announcements regarding schedules could affect replenishment orders in the second half. Consumers are cautious as uncertainty surrounds school starts, impacting spending patterns. On a positive note, Sharpie S-Gel has launched successfully, gaining seven percentage points of share in the gel pen market in the U.S. We plan to build on this momentum by launching several new Sharpie products. Overall, our portfolio demonstrates good momentum, though outcomes vary across different business units. As we move into the second half, I'm encouraged that five out of eight businesses are showing sales growth in July, which has started off solidly. Now, let's shift to the progress we've made on our people agenda. I am immensely proud of how our 30,000 employees are handling the daily challenges they face. I believe that rallying together during this crisis has fostered a spirit of teamwork and urgency that has significantly unified our team. In the past four years, we have faced employee engagement and culture issues, but today we find ourselves in a different situation. Our people are our most valuable asset, and we are cultivating a winning culture. Recently, we welcomed Chris Robins to lead the Appliances & Cookware Group. With 20 years of experience at S.C. Johnson and leadership roles in three organizations, including Philips Sonicare, we're excited for her to lead the A&C team and sustain our recent momentum. With Chris joining us, we now have Chris Peterson, Kris Malkoski, and Chris Robins, and we're figuring out how to manage all the Chrises. We've also named Lisa McCarthy as the permanent President of the Home Fragrance business. Lisa, a longtime CFO of Yankee Candle, has excelled as the Interim President and has proven to be the right leader to solidify this business's position in the category. With these changes, my new leadership team is nearly complete, with just one last hire for the e-commerce group pending. All of Newell's leadership, from veterans to newer members, is engaged, unified, and focused on elevating Newell Brands. In closing, I am optimistic that our financial results reflect significant underlying momentum. We are enhancing our market positions in several categories while managing through this crisis safely and effectively. We anticipate that second-half results will demonstrate sequential improvement compared to the second quarter. We are confident that we will emerge as a much stronger company going into 2021. Most importantly, we remain optimistic about our ability to generate long-term shareholder value. Now, I will turn the call over to Chris Peterson for a detailed review of our financial results and an update on our supply chain. Over to you, Chris.

Thanks, Ravi, and good morning everyone. Although Q2 was a difficult quarter, results were ahead of our expectations, as we moved swiftly to address the challenges presented by supply chain disruption, retail store closures, and consumer and customer demand shifts resulting from the COVID-19 pandemic. During the Q1 call, we signaled that we were facing significant supply chain challenges in Q2, with a number of our manufacturing and distribution facilities closed by government order. We are pleased to share that since then conditions have improved meaningfully and we have reopened all of our plants and distribution centers. We are working hard to catch up with demand across several businesses, particularly in categories that have experienced accelerated growth through the pandemic. We are leveraging consumer insights and selectively investing in additional capacity across a number of categories to capitalize on growth opportunities that have emerged in recent months. We remained disciplined in our approach and continue to maintain focus on high velocity SKUs, which improves the efficiency of our operations and reduces working capital tied up in inventory. As Ravi mentioned, during the quarter we pivoted to accelerate operational improvements across the enterprise in line with our turnaround plan. Specifically, we accelerated progress on SKU count reduction, taking out over 3,000 SKUs during the quarter. This brings our total reduction to about 35%, since we started the program 1.5 years ago. We doubled down on the fuel productivity savings program. We're off to a strong start in the first half of the year, with productivity in terms of year-on-year cost of goods savings, up over 40% from the prior year. This is being masked in the short term because of fixed cost deleveraging, but will position us well as the business improves. We initiated and completed a zero-based review of overhead costs as a result of the simplification agenda we have been driving. This led to a restructuring action, which impacted about 4% of professional headcount. We continue to make progress rationalizing office space, IT applications and infrastructure, and tightening overhead cost controls. This allowed us to reduce overhead costs significantly in the second quarter in both dollar terms and as a percent of sales, despite the revenue decline in the quarter. We made excellent progress on the digital technology re-platforming project. We have now converted over 50% of our U.S. websites from disparate outdated legacy technologies to a single new platform that significantly improves consumer experience access to data and insights, while at the same time reducing costs. We expect to have all the U.S. websites on the new platform by mid-next year. We continued our efforts to maximize cash flow by reducing the cash conversion cycle. During the second quarter, net sales contracted 14.9% year-over-year to $2.1 billion as core sales declined 12.6%, and currency was unfavorable by about two points. We estimate that the disruption related to COVID-19 was roughly a 13-point headwind to core sales growth in the second quarter. Top-line trends improved significantly throughout the second quarter, as lockdowns were lifted, specialty stores started to reopen their doors, and our supply chain began to recover. April was the most challenging month and marked the trough renewal, with the rate of decline moderating significantly in May and the business returning to slightly positive core sales growth in June. While many of Newell's categories were negatively impacted by COVID-19, three business units: Appliance & Cookware, Food, and Commercial delivered core sales growth in the second quarter, reflecting heightened demand for at-home cooking, food storage, sanitizer cleaning, and organization products. The e-commerce business delivered another quarter of strong double-digit growth ahead of Q1 levels as the pandemic continued to accelerate consumer shift toward online purchases. Normalized operating margin contracted 200 basis points year-over-year to 10.2%, which was ahead of our expectations due to stronger-than-anticipated productivity gains and significant choices we made to reduce overhead. As anticipated, top-line softness resulted in fixed cost deleveraging putting significant pressure on normalized gross margin, which declined to 31.6% from 34.9% a year ago. Specifically, fixed cost deleveraging, due largely to plant closures negatively impacted gross margins in the quarter by over 200 basis points. In addition, incremental COVID costs negatively impacted gross margin by about 100 basis points. Net interest expense came down by $7 million versus last year due to a lower debt balance. The normalized tax rate was 11.2%, below the year-ago level as a result of discrete tax benefits. Normalized diluted earnings per share were $0.30. Moving to segment results. Please note that, with new leadership hires, we updated the company's organization design, which necessitated changes in the company's segment reporting structure. Q2 financials reflect five operating segments: Appliance & Cookware, Commercial Solutions, Home Solutions, Learning & Development, and Outdoor & Recreation. There are no changes to the Appliance & Cookware and Learning & Development segments. The Outdoor & Recreation business is now a stand-alone segment. Commercial Solutions includes the Commercial and Connected Home & Security business, while Home Solution comprises Home Fragrance and Food. Turning to results. Core sales for the Appliance & Cookware segment grew 6.1%, reflecting strong consumption across major markets as heightened demand for at-home cooking products more than offset the headwinds from closed specialty retail doors and temporary country-wide shutdowns in select international markets. Core sales for the Commercial Solutions segment declined 6.8%. The Commercial business unit delivered its second consecutive quarter of core sales growth, largely driven by strong demand for sanitizing, cleaning, hand protection, and organization products. But this growth was offset by top line pressure in the Connected Home & Security business, which experienced supply chain constraints due to the temporary closure of the manufacturing facility in Juarez, Mexico. This facility reopened in early June, and is now rebuilding inventory to catch up with demand. Core sales for the Home Solutions segment decreased 1.9%. The Food business continued its very strong momentum with core sales growth accelerating sequentially in Q2 relative to Q1 as the increase in at-home consumption of meals translated into heightened demand for Rubbermaid food storage, vacuum sealing, and fresh preserving products. Home Fragrance core sales declined due to headwinds from retail store closures, including our own Yankee Candle retail stores through most of Q2, as well as supply disruption from the temporary closing of our plant and distribution center in Massachusetts. Both facilities began to ramp back up in the latter part of May. The headwind from COVID-19 was most pronounced in the Learning & Development segment as core sales contracted 23.5%, reflecting weakness across both Writing and Baby businesses. Despite core sales softness, consumption and Baby products rebounded during the quarter. In Writing, the category overall is seeing significant softness in consumer and commercial demand, particularly given the uncertainty surrounding the timing of school and office reopenings. Core sales for the Outdoor & Rec segment declined 21.5% as shelter and place mandates during the early part of Q2 weighed heavily on the business. Sell-through in the Outdoor category bounced back in June as those restrictions were lifted and consumers began spending more time outdoors. Let's switch gears to cash flow now, which remains strong during the first half of the year. Year-to-date cash flow from operations increased $141 million versus last year and the cash conversion cycle improved by over 20 days as the organization rallied behind initiatives to reduce complexity and free up cash from working capital. Laser focus on every facet of working capital management is bearing fruit. SKU rationalization actions and a more effective management of the supply chain by focusing on high velocity SKUs is driving improvement in inventory. We are continuing to optimize inventory through a more robust planning process accounting for the dynamic shifts in consumer purchase behavior. We drove faster receivable collections despite pressure from COVID-19 through operational improvements but also took higher-than-normal bad debt reserves during the second quarter. On payables, we continue to work with our suppliers on extending payment terms. During the second quarter, we strengthened the company's liquidity position and exited June with $619 million of cash and cash equivalents on the balance sheet, which is $143 million ahead of the Q1 level. We completed a $500 million debt offering repaying short-term debt so that at the end of the quarter we did not have any borrowings outstanding on the credit revolver or the accounts receivable securitization facility. Including the quarter-end cash balance, Newell ended Q2 with over $2 billion in short-term liquidity which puts the company in a very strong position to manage its capital needs in this dynamic environment. Although conditions have improved relative to a few months ago, we think it is prudent to continue to evaluate the company's capital allocation strategy as we gain more visibility into the trajectory and pace of economic recovery. We intend to maintain the dividend for the upcoming quarter, and there is no change in our commitment to delever the balance sheet over time. Now turning to guidance. We are planning prudently for the balance of the year so that we can swiftly adapt to shifting consumer behaviors and macro developments. We continue to expect sequential acceleration in core sales trends for the company in Q3 relative to Q2. We are off to a strong start in July with sales growth improving versus June and consumer takeaway continuing to increase year-over-year as the supply chain constraints are easing. A larger portion of the global economy and our retailer base already has reopened, including about 20% of our own retail stores, and consumption has improved relative to the extreme lows experienced in April. We do expect the Writing business to be the most challenged business in Q3 as a result of delays and uncertainty regarding the timing of school and office reopenings. This will have a negative gross margin mix impact on the business in Q3 as the Writing business has the highest gross margins in the company. Importantly in Q2, we grew market share in everyday writing driven by pens and expect the business to recover strongly once the pandemic subsides. Stringent cost control measures remain in place with the savings from the organization restructuring program expected to contribute to back-half results. And we expect a more normal tax rate in Q3 this year compared to the large tax benefit in the year-ago third quarter. While visibility to the course of the pandemic and the pace and timing of an economic recovery is limited, we are taking the necessary actions not just to manage the business through the immediate challenges but to come out stronger afterwards with the turnaround efforts fully underway. I would like to join Ravi in thanking our employees especially those on the front lines whose unwavering dedication and tireless work is helping to propel the company forward in these unprecedented times. Operator, let's open up for questions.

We'll take our first question from Wendy Nicholson with Citi.

Hi, good morning. I guess two things. First just big picture on the segment reclassifications. It's kind of crazy just how many restatements we've seen over the last I don't know five years. And I get it that through the divestiture process and all of that there have been a lot of changes made. But I guess my question is sort of for the people who are working in those segments or working in the line of business. If you can comment on kind of how they're reacting to all the new management whether what we see from a P&L segment reporting perspective impacts the chain of command within the company etcetera, etcetera. That would be helpful. And then just a specific question on the Appliances & Cookware and the Food business. Given that we've seen such strong growth there not just for you guys, but for the industry as a whole, how are you thinking about that business in the back half? I know you talked about a little innovation. I'm just worried that everybody's bought so much home storage stuff and new coffee makers that maybe we don't need them for as far as I can see. Thanks.

Thank you, Wendy. Chris, why don't you answer the segment one and I will talk a little bit more about how leadership acts and then I can talk about A&C.

Okay. So I'll start with the segment. So as we've hired new business unit presidents and brought them into the management of the company, the way that we've organized the reporting relationships in the organization structure necessitated, because of SEC rules, a change to the segment structure. So we continue to have eight business units, but the key leadership and the reporting relationships with Ravi is what drove the segment reporting change that we made and announced this morning.

Thanks, Chris. Wendy, I completely understand your concern. We didn't make the decision lightly, as another change in segments was not something we wanted. However, we also need to adhere to all applicable laws. From a reporting perspective, we have CH&S, which shares some characteristics with our commercial business. Thus, we thought it would be appropriate to connect them, though CH&S will still operate independently. Our capable CEO, Tom Russo, will report to Mike McDermott, maintaining its status as a separate unit. This reclassification was necessary for reporting purposes. Similarly, with Home Fragrance, I believe Lisa has shown great potential, as I mentioned earlier, and will benefit from Kris Malkoski's experience. Lisa is new to her role and has a finance background, while Kris excels in marketing and has significant experience from her time with Arc, where she was a major supplier to anti-cattle. We thought this would be a strong pairing, and the two are working well together. Home Fragrance will continue to operate independently without causing any confusion in the chain of command. That explains the rationale behind the changes. Regarding Appliances & Cookware, we are pleased to see increased momentum. If there’s any silver lining to this unfortunate situation, it’s that people are spending more time at home, bonding and cooking, which increases the need for appliances. The category is thriving, and our teams are doing an excellent job taking advantage of this trend. That said, we are still losing market share as the category is growing even faster. I mention this to highlight that the situation isn't completely positive; there are still some underlying issues that I've discussed before, and this growth may not last indefinitely. On a positive note, we've brought in Chris Robins, who we hope will drive genuine innovation that aligns with consumer needs. We believe that the iced coffee launch is promising, as currently, there isn't a home iced coffee maker at the entry price points. With many coffee shops closed or reopening, particularly among millennials, there is a growing desire to make coffee, especially iced coffee, at home. Therefore, we think this aligns well with current market trends and is a positive development.

If I could address your question about Food. We view this as a sustainable trend. Our Food business is currently supply constrained. We're experiencing strong growth, but we could sell more as supply becomes available. Due to the pandemic dynamics, we're putting in significant effort to increase capacity in this sector, and I anticipate that this trend of strength will persist moving forward.

Yeah, I think that's a great point, Chris. When you think about what we said at CAGNY, there are two businesses, which were question marks: Food and Commercial. To me there is no question mark. I think it's exactly what you said. Great job by the team last year to put good foundations on Food. Now with COVID, we're just capitalizing on it but that team is just doing a great job and as is Commercial.

Got it. That’s very helpful. Thank you.

Thank you, Wendy.

We'll take our next question from Lauren Lieberman with Barclays.

Great, thanks. Good morning.

Good morning, Lauren.

I want to talk about the Outdoor segment, as this is a business that I remember during the last recession really benefited in the way you described regarding changes in vacation habits and how people are spending their time. However, I believe in the following years there was perhaps a strategy from previous management of the Coleman brand that struggled against lower price point competition at major retailers, which led to a significant decline in the brand and division's margin structure. A lot of its equity was essentially eroded. I'm curious to hear how you're approaching the repair of the margin structure in that business, the innovation taking place, and what's being done regarding increased distribution in more specialty channels. Any insights on this would be helpful, as I believe this segment, much like Appliances & Cookware, should perform well in the near future since we are all staying closer to home. Thank you.

Let me begin, and then I can have Chris share any additional thoughts he may have. Clearly, the business was significantly affected by COVID, but as we mentioned in June, we are starting to recover. However, Lauren, there are some fundamental issues within the business that have been problematic in the past, particularly with the Coleman brand, which has a strong reputation. Unfortunately, we've made some mistakes, but we are actively addressing them. We face challenges from high-end competitors like Yeti and private label products from major retailers. Our main focus for Coleman is to boost our innovation. We have initiated a refresh of our hard cooler line, which is progressing well, and I’ve also mentioned two new tents that have received positive feedback from retailers. With parks reopening and more people taking road trips, camping is likely to see an uptick in interest, putting us in a good position to capitalize on that. The Coleman brand remains strong. If my previous comments sounded a bit pessimistic, that wasn't my intention; I merely want to highlight that we have some fundamentals to address, which will take time. We've recently brought on two experienced professionals from outside the company, Jim Pisani and Bill Kirchner, who are already making a positive impact. I believe we will get this sorted out, though it may take a bit of time. Meanwhile, our franchise in Japan is performing well, and our team there is doing a tremendous job without any structural issues. Overall, Asia is starting to show recovery. While it may take time, I am optimistic about the long-term outlook, though results won't be immediate. It's worth noting that in the Food sector, foundational work began in 2019 and the team has been able to progress since then, unlike what we’ve seen in Outdoor. Chris, do you have anything to add?

The only thing I would add on this is, the Outdoor & Rec business is really three different businesses. There's the Outdoor business, which Ravi talked about, which is Coleman, which you're right is benefiting from the stay-at-home and outdoor trend, and we're seeing that clearly in the point-of-sale data. If we look back at the last recession in 2008, we did gain market share because of the positioning of the brand. The second business is the Contigo container business, and Ravi talked a little bit about this in his prepared remarks. That business is really more about mobility, and so that category is a little more under pressure than the outdoor business. The third business is the technical apparel business. The apparel business has probably been the hardest hit of any of the businesses from a category growth standpoint. So, it's kind of a tale of three cities in total for Outdoor & Rec.

The outdoor and camping segment is starting to show signs of recovery in the U.S. based on point-of-sale growth in June and July. The beverage business is fundamentally sound, as Contigo has been an innovative brand. We just need to wait for people to return to their offices and similar activities.

Okay. Next question.

We'll take our next question from Nik Modi with RBC Capital Markets.

Hi. Good morning, everyone. Ravi, could you share your thoughts on the year of the pen initiative? It seems to be significant this year. Can it be repurposed? Is it possible to scale back the funds and redeploy them? Will it contribute to the bottom line? Additionally, before the Jarden acquisition, the premise regarding Newell was based on being a large company with capabilities that outmatch smaller competitors in fragmented categories. Given the current situation, are those smaller, more fragmented players feeling greater pressure than you are? What are you observing in the marketplace?

Sure, Nick. Sometimes the commands suggest actions but do not take them. Who could have predicted the arrival of COVID right when we launched the year of the pen? However, I believe this setback is temporary. The Sharpie S-Gel and our other pen innovations are impressive. As I noted earlier, Sharpie has achieved a remarkable 7 percentage point increase in market share, which is significant. This success is due to our innovation, and Laurel and her team have done an exceptional job. Unfortunately, the current situation, with people working from home and educational institutions closed, has had an impact. We redirected some funds that we had planned for later quarters, and the team has managed spending diligently and responsibly. Even with these adjustments, achieving a 7 percentage point increase in market share is quite extraordinary. We are also launching new products; I recently saw the colored Sharpie S-Gels, and they look fantastic. We need to keep in mind that COVID won't last forever. Hopefully, by the end of this year and into next year, as vaccines become available, this situation will be behind us. It will be interesting to see how things play out, especially if schools and offices remain closed until the end of the year. I anticipate a strong rebound next year. I am optimistic about the long-term prospects for our Writing business and our pens. Yes, the second half will present challenges, but we need to focus on the long-term outlook.

And then to your question on competition, we are seeing benefit as a result of the fact that we are the scale player in most of the categories versus subscale competition. The place where that's probably the most prevalent is in the e-commerce space, and Ravi talked about this in his prepared remarks. But in the second quarter, about a third of our business was done from a POS standpoint online. To have a 33% penetration is pretty remarkable, and what's even more remarkable about the position that we're in is that we make the same or higher margins on business that we do through e-commerce than we do through brick-and-mortar business. There are very, very few consumer companies that can make that statement. I think we're competitively advantaged there, and I think that that's going to bode well for us as we go forward here.

Great. Thanks, Chris.

We'll take our next question from Steve Powers with Deutsche Bank.

Hey, thanks. Well, I mean I think you indicated that point-of-sale was up slightly year-to-date versus your core sales running down 9% or so. Do you have a sense of how much that gap is indicative of the kind of structural rebalancing of inventories across the value chain that works against you as a supplier versus it's just being indicative of thin channel inventories that you'll stand to make up? It sounded like you expect some degree of catch-up. I just am not fully clear on how much or how quickly you think that might occur.

Thank you for the question, Steve. We're not really providing guidance on this matter, so I won't delve too deeply. Conceptually, we've encountered significant supply challenges, which led retailers to deplete their inventories, and in some cases, even their safety stocks faced issues. Now that we're beginning to open up, we're in the process of ramping up production. However, that doesn't mean we're overly optimistic. We're working to increase our output and we'll need to monitor consumption patterns closely. As Chris and I mentioned in our prepared remarks, July started off strong in terms of sales, but we need to observe how consumption evolves. It's important to remember that both federal stimulus measures and the additional unemployment benefits have come to an end. This will create interesting inflection points that affect consumption, which we're currently unable to predict. We'll have to keep an eye on it.

Okay, thank you. Appreciate it. We'll take our next question from Bill Chappell with SunTrust.

Thanks, good morning. Ravi, I just want to dig a little bit more into the term challenged for back-to-school. I'm trying to understand like as you look at it from a manufacturing standpoint and building inventory standpoint like what are you expecting? I mean, is there a certain percentage of your base that's going back regular versus virtual? Are you assuming those virtual sales come back at some point? It just might be three months, it might be six months from now? Or are you assuming some of the sales just don't ever come back at all because you missed the event of back-to-school? And then maybe how much of your total business is tied to back to school? I think there's just kind of a perception that you being the largest player in pens and paper and everybody is going virtual that the next couple of quarters are going to be torched. I'm just trying to understand what you're doing, if that's the case or if that's not even the case?

Certainly. Bill, I'll start off and then Chris can add any details I may miss. Back-to-school is an important aspect of our business, but it's not the only one. We typically expect sell-in to begin around June and July, with consumption picking up in July and peaking around Labor Day at the end of August. Therefore, August is a crucial month for us. Interestingly, our estimates suggest that only about half of the schools have released their school supply lists. Shopper behavior indicates that due to the uncertainty, there is some hesitation and reluctance. This is a concern for us. Our sell-in has returned to normal levels, as I mentioned earlier. The current focus is on sell-through and how it will impact replenishments that happen later in August. We might experience an elongated back-to-school season this year, unlike the usual timeframe. We're also monitoring online sales, which seem stable. There is a possibility that rather than seeing a single surge of sales, the demand may gradually extend throughout the year. If schools and universities announce openings for January or there is a significant return to office activities in late fall or January, we might see a different kind of surge similar to back-to-school sales. We'll have to wait and see if that occurs as it hasn't typically been the case, although this year could be different. Our primary focus now is on gaining market share and leading in that area. We have strong partnerships with major retailers and are working closely with them to navigate this situation as they assess the trends as well. The types of products impacted by school closures, such as dry erase markers and pourable glue, are significant for us, and we hold a strong position in those categories. We need to monitor the situation closely. Chris, do you have anything to add?

Yes. I want to mention two additional points. Firstly, the back-to-school season accounts for approximately 25% of our writing business for the year, meaning that 75% is related to ongoing business. While the back-to-school period is significant and often discussed, it only constitutes a quarter of our total business. Secondly, as we look ahead, it's important to consider what Ravi mentioned about the dynamics of this year. When we reflect on 2021 or 2022, we expect the challenges we face this year to be temporary and one-time occurrences. We anticipate a significant rebound in our business as we move beyond the pandemic. The key will be effectively navigating from our current position to that recovery period. We've established an agile planning process to ensure that we grow our market share and emerge stronger on the other side.

And Bill, one thing we are looking into is, if there are fundamental shifts in how people work in offices or the online looking sort of ahead we've already cranked up our innovation engines to look at what does this mean for our whole learning and development business and we're quite excited about that and so that we're always at the forefront. This is our most profitable business, and we intend to keep it that way. We're very excited about this. Yes, a temporary setback but long-term we will prevail.

Thank you.

We'll take our next question from Olivia Tong with Bank of America.

Good morning, good afternoon. I have one short-term question and then two longer-term ones. First, regarding the quarter, can you discuss how much of the decline you believe was due to supply disruptions? Specifically, how many orders you received that you couldn't fulfill compared to cancellations from retail closures? For the longer term, with several retailers filing for Chapter 11, what is your exposure to those retailers? Lastly, concerning Writing, if remote work and learning continue for longer, and given your earlier comment that 25% of sales are for back-to-school while 75% is not, with more people potentially working from home permanently or into next year, how are you considering potential long-term changes to this category? Are you looking at expanding into adjacent categories or similar areas? That would be helpful. Thank you.

Yes. So on the impact of COVID in the quarter, we estimate that the supply chain disruption coupled with retail store closures represented about 75% of the negative impact of the 13 points to core sales growth that we talked about. So it was a much more significant impact from supply and retail store closure than the consumer purchase behavior in the category is sort of the answer to the first question.

On the retailers that have come out of Chapter 11 we've put a very rigorous process in place. I have a meeting once a week to go through that. We're in pretty good shape there. We did take, as I mentioned in the prepared remarks, a higher bad debt reserve in the second quarter. It was sort of about $5 million or something that we took as an incremental reserve. It was not huge and that was largely for retailers that declared bankruptcy. We've been ahead of the curve on this, and we've been very aggressive at putting retailers that we think are in trouble on credit hold so that we limit our accounts receivable exposure. I feel very good about the quality of our accounts receivable, and I don't think we have significant risk from a bad debt or collection standpoint. You've seen that in our accounts receivable numbers where our days outstanding have come down significantly versus the year ago in the second quarter as we've managed receivables more tightly. Let me address your last question about whether stay-at-home trends will be permanent. There has been a lot of discussion on this. We've heard from some tech companies about delays in getting back to work, with some pushing their timelines to mid-next year. However, there are also many companies that have already started returning to the office voluntarily. We've made progress on this, and we see that employees want to return as well. Currently, factors such as school openings and the need for childcare have led many companies to be flexible. That said, I would hesitate to say that this will result in a significant long-term change for schools, universities, and offices. All three are interconnected and important. In our view, the second half of this year may reflect an ongoing situation, but it will not be permanent. Additionally, we are exploring ways to leverage the stay-at-home trends in our Food and Appliance sectors, along with our Writing and Learning business. We are actively investigating adjacent categories and new innovations, and while we aren't ready to share specifics yet, we are putting in a lot of effort to ensure we take advantage of these opportunities. More updates will follow as we move forward.

We'll take our last question from Joe Altobello with Raymond James.

Great, thanks guys. Good afternoon. Just a couple of quick sort of big picture questions. I guess first for Chris you mentioned the COVID impact on core sales in the quarter was about 13 points. Should we expect any lingering impact in Q3? It sounds like there's still a little bit left I guess in Food.

Joe, did we lose you or?

Hi. Do you hear me?

Yes, we can hear you.

Okay, great. Sorry, I don't know how much of that you caught but I want to go back to the 13 points core sales growth that got impacted in Q2. I was just curious. Is there any lingering impact in Q3? Because it does sound like you mentioned earlier there's still a little bit left in food.

So on that one I think as we mentioned we're not going to provide guidance but what I will say is that we do expect Q3 to be sequentially significantly better than Q2. The reason why we think Q3 is going to be better is the supply chain is now back in full operation. We still haven't rebuilt safety stocks fully and we haven't caught up with demand everywhere, but we are doing that quickly as we speak. The retail store openings are in much better shape as we head into Q3 versus where we were in Q2. Although we do expect traffic particularly at malls and things like that to be lower than typical which would be a continued headwind. The biggest probably headwind we see that's COVID-related as we mentioned in the outset is in the Writing business just because of the uncertainty with regard to the school and office reopenings. But certainly the COVID headwinds are significantly behind us heading into Q3 versus what we saw when we were heading into Q2.

And that assumes that you won't have a whole set of new lockdowns in case this just persists.

And just a follow-up on that. Given your commentary on June and July it sounds like shipments in POS have finally converged to some degree. And so with that should we expect shipments to at least track retail in aggregate in the second half?

Yes, we are not providing specific guidance, but the pandemic continues to influence our business. We have made an effort to share what we can observe at this moment, noting that various categories are experiencing different effects. Some categories are benefiting, while others are facing negative impacts.

Got it. Understood. Thanks, guys.

We'll take our next question from Kevin Grundy with Jefferies.

Thank you. Good morning everyone. I have a housekeeping question followed by a larger question about productivity. The first question is for Chris. Can you remind us what percentage of your Writing business goes through Nielsen channels? This seems to be a crucial factor for the third quarter, so it would be helpful for everyone to understand this in relation to the Nielsen data as a potential indicator. Additionally, could you provide more insight into Project FUEL and its impact on productivity? Given the significant volatility in the current environment, can you discuss the size of the opportunity, its contribution in the first half of the year, and what it might look like for this year and beyond? This would be useful for our modeling. Also, Ravi, I would appreciate your thoughts on the processes in place to encourage this behavior among your business unit leaders, particularly in terms of enhancing productivity, enabling reinvestment, and balancing that with margin expansion. Thank you for addressing these points.

Yes. So on Writing, Nielsen covers probably about a quarter to a third of our Writing business. It is apples-to-apples, but it is not fully indicative of the trends because it misses big segments of the Writing business, particularly the international part of the business, the office part of the business, and a number of the specialty and online retailers. We have POS data that is more extensive than that because we get POS data from some retailers that aren't reported in Nielsen, which is why when we talk POS, it's generally a little bit broader than that. But that's the Nielsen coverage on Writing. Relative to gross margins and FUEL, you're right, we feel very, very good about the progress we're making there. We're generating significant productivity. As I mentioned, our productivity through the first half of this year is up 40% versus where we were at the first half of last year, and that's sustainable progress over time. If I were talking about the gross margin results in Q2, there were really four things that were negative that impacted the gross margin in Q2 which is why we wound up down 330 basis points. The first was the fixed cost deleveraging associated with plant closures which negatively impacted gross margins in the quarter by over 200 basis points. This should really be more of a one-time item and should not repeat going forward because as the manufacturing plants and distribution centers reopen, we should be largely through that cost. The incremental COVID costs that I mentioned which is about 100 basis points in the quarter. That was as a result of social distancing, expedited freight, additional PPE. That likely will continue for some period of time going forward. The third impact is the business unit mix which is negative as a result of the temporary reduction in the Writing business primarily. I expect that as we said in our prepared remarks that the Writing business will likely continue to be a source of mix drag on gross margin going forward. And then foreign exchange, tariffs, and inflation is a headwind but productivity is more than enough to offset that. We're encouraged by the progress that we're making on productivity. We think you'll see our gross margin trends improve versus what we saw in the second quarter because the fixed cost deleverage is behind us. Still we're going to be facing headwinds going forward because of the COVID cost, the BU mix, and the FX tariff and inflation.

Let me address the last part of your question, Kevin, which was about how we are driving behavior and ensuring ownership. This is something we mentioned at CAGNY, and while it was in its early stages then, as CEO, I have emphasized that it will be one of our key focuses. We believe it will be quite significant over the next four to five years. We have done a great job getting all the business units to adopt it. In fact, when we updated our short-term incentives for the second half, we included two operational measures: SKU reduction and productivity. This has received a lot of attention. Even without these changes, there has been strong support for this initiative. Our teams are aware of FUEL, and we discuss it in every operational review, which shows a high level of commitment.

Okay. I appreciate the color. Thanks, guys.

We'll take our last question from Andrea Teixeira with JPMorgan.

Thank you for squeezing me in. Just following up on the supply chain disruptions and the comments that the POS data is up year-to-date by about one point. Of course, some of your lost players went to competitors and what you lost it's, obviously, difficult to regain. But how much would you say that POS demand is striking now in July and as you were close to shipping to consumption? So and lastly what are the categories that were mostly impacted by the supply chain disruptions? I can pinpoint some of the commentaries at you but I just want to make sure I understood correctly. Thank you.

Yes. The categories that were the most impacted by the supply disruption were the Connected Home & Security business because we have a single manufacturing location in Juárez, Mexico that was closed for almost two months. The Home Fragrance business, which had its largest and most significant facility in Massachusetts closed for about six to eight weeks. The Writing business had one of our major packing centers that was in Mexicali that was temporarily closed for a period of time. Those were the businesses that were the most impacted by the supply chain disruption. As I mentioned, we're excited that we have now reopened all of our facilities. We're back to full capacity largely across the supply chain. We're in the process of rebuilding safety stocks both internally and with retailers. With regard to your question on market share, we are growing market share in a number of categories and there are other categories that were not yet growing market share as we mentioned and Ravi went through in the prepared remarks. Broadly, we are not losing market share. What I would say is the dynamics that were experienced are more associated with category growth rates than they are with major shifts in market share in terms of the company in total.

Okay. Chris, could you provide a bit more insight into what you expect for July? If you're indicating that July's shipping aligns with consumption, does that mean July is actually performing better than the one-point consumption figure you mentioned for the POS? Is that the correct way to interpret it?

No. I think what we said about July is that if you look at the sequential trends, April was the lowest month with about a 25% decline in sales. May improved compared to April, and June showed further improvement over May, with modestly positive core sales growth in June. July is also better than June, and that's what we are observing so far. However, it's still early in the quarter, and we won't provide guidance beyond this point.

And we did not make any specific comments on the relationship between sales and consumption in July or beyond.

Okay, Chris. Thank you.

Okay. I think that's a wrap. Stay healthy and safe. We'll talk to you next quarter. Thank you very much.

A replay of today's call will be available later today on our website, ir.newellbrands.com. This concludes our conference. You may now disconnect.