Good morning and welcome to the Newell Brands Third Quarter 2021 Earnings Conference Call. As a reminder, today's conference is being recorded. The live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Ms. Tsinis, you may begin.

Thank you. Good morning, everyone. Welcome to Newell Brands third quarter earnings call. On the call with 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, and we undertake no obligation to update forward-looking statements. I'll refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q, and our 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 other material on Newell's Investor Relations website. Thank you. And now I'll turn the call over to Ravi.

Thank you, Sofya. Good morning, everyone. And welcome to our call. We delivered solid results in the third quarter, which reflects the effectiveness of our strategy, as well as the resilience and agility of our operating model and portfolio. Yesterday, core sales grew 15.2% versus 2020, as each business unit contributed to such a terrific outcome. Normalized operating profit improved over 21% and normalized earnings per share increased about 14%. We further strengthened our track record as the third quarter marks the fifth consecutive quarter of core sales growth and sixth straight quarter of domestic consumption growth for the company. Core sales in the quarter increased 3.2%, driven by excellent performance across five business units: Writing, Baby, Home Appliances, Home Fragrance, and Outdoor & Recreation. This was no small feat, given the difficult year-ago comparison of 7.2% core sales growth, which embedded a recovery across the majority of Newell's business. To normalize for pandemic-related shifts, we think it's useful to compare this year's top line to 2019. On a two-year stack basis, Newell's core sales grew low single digits in the third quarter. We also saw strong domestic consumption, relative to 2019 across each of our business units. These terrific results are a testament to the significant progress that we've made in forging stronger relationships with shoppers, as we leveraged consumer insights and foresight in new product launches. The resurgence in our writing business continues. Bradford's team has done a superb job during the important back-to-school season, with outstanding performance in consumption and share momentum as anticipated. Top-line trends moderated against elevated year-ago results in our food and commercial businesses. However, sales as well as domestic consumption for both business units remained about 2019 levels. Consumer behavior will undoubtedly evolve and categories will continue to normalize. But we believe that the home mindset will endure as well the heightened interest in our outdoor activities and personal well-being. It's also evident in the company's consumption trends as domestic TOS remains significantly ahead of 2020 and 2019 levels, both in the third quarter and year-to-date, despite supply constraints. Cost outs in North America merit that with the total company. Outside North America, Latin America shone once again, delivering another quarter of double-digit growth despite elevated comparisons. I'm also delighted that the strength of our iconic brands continues to shine through this year, harnessing the benefits from our fortified innovation funnels and our brand-building efforts. Yesterday, many of our largest brands had great growth: George Coleman, Esta, Yankee, CAM, Sharpie, Rubbermaid, Paper Mate, Dymo, XPO ball, and Mr. Coffee delivered excellent top-line growth. Our brand's strength has also allowed us to successfully implement price increases. We are laser-focused on protecting the company's gross margin. If necessary, we will take additional pricing actions to ensure that we fully recoup the impact of inflation over time. Similarly, to the second quarter, e-commerce top-line grew mid-single digits, with digital penetration trading closer to 2%, slightly above last year and significantly ahead of the mid-teens level from 2018. We continue to invest behind our omni-channel capabilities and our vowed position to capitalize on consumer demands regardless of where they shop. Let me spend a few minutes on our business units, beginning with Writing, the third quarter superstar. Core sales increased at a double-digit rate, driven by broad-based strength in the U.S. and international markets. Core sales grew on a two-year stack basis as well, even though the commercial channel has not fully recovered yet. This is a testament to the excellent health of our Writing business. Consumption in the U.S. has been strong throughout 2021 and accelerated sequentially in the third quarter as we leaned into the business momentum with higher AMP investments. The vast majority of cathedral schools in the U.S. returned to in-person learning. During the back-to-school season, we saw a strong rebound in everyday writing business, which benefited from innovations such as Sharpie S-Gel and Sharpie S-Note, strong merchandising plans, and distribution gains. We picked up considerable share during the quarter in our writing business as a whole, including key back-to-school categories such as pens, pencils, glue, permanent markers, dry erase markers, and highlighters. Over the past few years, we've meaningfully enhanced Newell's position in the pen category, gaining over 850 basis points of share. Thus far in 2021, within highlighters, Sharpie S-Note has tripled its share of the growing highlighter market segment. Core sales for our Baby business increased at a double-digit rate, supported by terrific domestic consumption growth, both relative to 2020 and 2019. The third quarter marked the fifth consecutive quarter of core sales growth, driven by expanded points of distribution, innovation, continued strength in e-commerce, as well as stimulus funding. While Baby is the most highly penetrative business online, within Newell's portfolio, we leveraged our omni-channel approach to further boost our digital penetration in the quarter into the mid-50s. We believe child tax credits, as well as increases in disposable income and durable goods consumption have all benefited the gear market over the past several quarters. While the category is likely to moderate, we expect it to remain healthy. In the U.S., Graco continued to gain momentum and picked up share in the rapidly growing market. Home fragrance stands in its fifth consecutive quarter of core sales improvement. As core sales grew significantly, they elevated to higher training levels relative to 2019, driven largely by Europe, the Middle East, and Africa. In the U.S., Yankee Candle retail stalls maintained their positive growth momentum, benefiting from consumers' increased mobility. As we continue to expand our omni-channel capabilities, we rolled out buy online and pickup in stores, as well as ship-from-store options across our Yankee Candle retail stores, which drove a favorable response from consumers and helped us fulfill consumer demand. As anticipated, consumption moderated relative to the elevated base period but was significantly ahead of the 2019 level. Home Fragrance, along with Writing and Food, are our growth and value accelerator businesses, and I see a tremendous runway for growth ahead. The team is gearing up for the holidays as the fourth quarter is a crucial period for the business. In the third quarter, the full business faced a double-digit core sales growth comparison of the year 2020, which was exacerbated by supply challenges, including a COVID-related lockdown of the Oster steam plant in New Zealand, resulting in core sales decline. However, both top-line and domestic consumption were meaningfully ahead of the 2019 base, which highlights the stickiness of the habits that consumers developed throughout the pandemic. We expect the category to normalize. And that's been most evident on the Cookware side. We drove strong share momentum in food storage and food preserving. Recent innovations such as Rubbermaid's new credit, the updated Rubbermaid beverage line, as well as Brilliance glass, have been instrumental in driving market share improvement for Rubbermaid as they elevate the consumer experience. In fresh preserving, Ball pantry storage latch and Ball nesting jobs have contributed to share gains for Ball. In home appliances, core sales increased for the sixth consecutive quarter. Newell has weathered the toughest double-digit comparison of the year. Latin America once again led the charge. In this market, our beloved Oster brand is spearheading the trends for multi-cooking functions. We recently launched Oster toaster ovens with air fry, as well as Oster rice cookers with air fry. Throughout 2021, Oster blenders celebrated their 75th anniversary in the U.S. and Latin America with brand activation and new product launches in each region. Domestic point of sale remains significantly ahead of 2019 levels and only modestly below last year's level, although the category continues to normalize relative to the outsized growth levels seen throughout the pandemic. Despite the fact that people have come back to dine-in restaurants, consumers continue to show interest in cooking at home post-pandemic. In our Commercial business, core sales declined versus the elevated base as the business cycled against a significant surge in washroom solutions. On a two-year stack basis, core sales increased nicely during the third quarter. The team has done a great job in landing new wins, both on the B2B and retail fronts across a wide range of categories, ranging from cleaning and refuse to material handling and others. We saw healthy point of sale in track channels, but have been significantly challenged on the supply side. The team is diligently addressing these constraints, as well as inflationary pressures. During the third quarter, core sales for the connected home and security business were under pressure, despite very strong consumption in the U.S. Core sales softness reflects both the challenging year-ago comparison since we were already stocking inventory at retail last year, as well as component availability challenges in the current year, mostly due to the well-publicized chip shortage. The outdoor recreation business delivered its third straight quarter of core sales growth at nearly 2%, against a difficult year-ago comparison of 8%. Core sales improvement was fueled by strength in outdoor equipment and on-the-go beverage categories, continuing the rebound from improved consumer mobility. We are encouraged by the momentum in the Outdoor and equipment unit with point of sale exceeding 2019 levels. The consumer continues to show interest in our goals and trends, and we think we'll endure. We will continue to leverage throughout our innovation. Coleman turned in non-acquired growth, benefiting from an enhanced product lineup in 2021, with strong plans in place for next year as well. Many of our Coleman products, such as the Skydome tent, cooler bag, and two-burner stove, are featured by USA Today as perfect gifts for people who love to travel, so keep them in mind for the holidays. Strong results thus far give us confidence to improve our outlook on both top-line and normalized earnings per share in 2021 despite significant inflationary and supply chain-related pressures that continue to affect the industry. Our updated guidance for 2021 implies that normalized operating profit is expected to grow high single digits. A great outcome, particularly in the context of a difficult operating environment. Although we're certainly not immune to the external forces, the strategic decisions we've made over the past several years have substantially strengthened the company and made our portfolio much more resilient. Firstly, we invested in omni-channel capabilities that have been instrumental in capturing consumer demand across all channels. On the direct-to-consumer side, we have recently completed the migration of our sites in North America to a consolidated platform, with a dedicated team focused on continuous improvement in consumer experience. We substantially strengthened buying innovation and marketing initiatives, leveraging consumer insights and foresights that have sharpened brand positioning for many of our core brands. We have established joint business plans and enhanced relationships with key strategic retail partners. We've instituted a new hybrid organizational model that brings our domain experts closer to our customers while leveraging the center for scale efficiencies. We have made productivity a way of life. We've reduced complexity in overheads, improved the cash conversion cycle, and strengthened the balance sheet. 2021 has been a turning point for Newell, despite challenges posed by supply and inflation. Our teams have done an incredible job executing in this environment, and we are poised to deliver over 10% core sales growth this year. Our first for our company in recent history. We recognize that 2021 has been a tale of two cities, a first half, and second half story. We delivered 23% core sales growth in the first half. In the second half, we're lacking strong growth from 2020. The fact that we grew 3.2% in Q3, on top of last year's growth, indicates that our brands are resilient, are being rejuvenated, and we have the ability to grow even in this context of strong comparisons. The power of our diverse portfolio is coming through. The macro issues in the pandemic have taught us that we just cannot be reactive. We're laser-focused on continuing to strengthen the fundamentals and reducing complexity, including lowering SKU count, improving forecast accuracy, simplifying our IT infrastructure, and making it easier for customers to do business with us. We are creating an integrated new distribution network through the consolidation of over 20 supply chains under the banner of Project Ovid. Looking forward, we expect supply challenges and inflation to persist. Therefore, our stance is one of preparedness and realism, and taking proactive actions to successfully navigate the macro environment. If 2021 was a year of turbocharging the top-line, 2022 will be focused on improving margins. Improving margins through five primary levers. First, an intense focus on pricing and optimizing promotional spending. We have now taken price increases in 2021 across all of our eight businesses in most geographies. Our focus will be to maximize the impact of carryover pricing from 2021 into 2022. We will be prepared to take further increases in 2022 based on inflationary trends to protect gross margin. Of course, we will do this in consultation with our customers and ensure that our brands remain a great value for consumers. Second, we will accelerate our efforts to improve the profitability of our international business by reducing duplication, consolidating operations, and adopting a one Newell approach. Third, we will price innovations to be margin accretive. Fourth, we will continue to be more efficient with overheads. Finally, we will continue to strive to be best-in-class in our productivity efforts, and drive about 3% to 4% improvement in costs, as we have done over the last few years. I am extremely thankful to our 31,000 hardworking employees for their unwavering commitment, tenacity, and perseverance. I remain optimistic that Newell can create tremendous shareholder value, and our best days are ahead of us. And now I'll turn it over to Chris.

Thank you, Ravi. And good morning, everyone. During the third quarter, we delivered solid results as we continued to drive our strategy into action. Strong operational execution, coupled with financial discipline, enabled us to generate better-than-anticipated operating profits and sustained progress on the cash conversion cycle. We accomplished this in the context of a choppy operating environment as our teams did a terrific job navigating through a myriad of supply and logistical bottlenecks. Before getting into the details, I want to provide a little color on the current operating environment and proactive choices we are making. Similar to other companies, throughout the third quarter, we continued to experience significant inflation and supply chain disruption. Escalation in costs has been an ongoing dynamic throughout 2021. While inflationary pressures have been broad-based, the largest impact for us has been around commodities, particularly resin, ocean freight, sourced finished goods, and labor. The expected headwind from inflation on 2021 cost of goods sold is now forecast to be about $40 million worse, relative to our expectations last quarter. We currently expect inflation to represent 9% of our full-year cost of goods sold, as compared to our expectation of about 3% at the start of the year. We have taken numerous actions to alleviate the headwind from inflation, including leaning in on our productivity initiatives, implementing price increases across all of our businesses with some announcing multiple rounds, continuing to exercise disciplined control over expenses, driving efficiency from promotional spending, and leveraging strong top-line growth. The full benefit from the mitigating actions to offset the unprecedented inflationary pressures will not flow through until next year, given the timing lag on pricing. We do expect that Q3 represents the largest gap between pricing and inflation impact to the P&L and expect this gap to narrow sequentially from here. Despite this dynamic and the continued escalation in costs for Q4, we are raising our normalized EPS guidance for this year towards the higher end of the previous range. A strong outcome is a testament to the resilience and excellent execution by our teams. Moving onto the supply chain. Lead times for sourced products, some components, and raw materials have increased significantly from pre-pandemic levels as a result of port congestion, limited container availability, as well as shortages in the labor force and truck drivers. This has been an ongoing challenge throughout 2021. However, the significant progress we have driven on SKU rationalization over the past few years, along with an early start on mitigating tactics, has put us in an advantageous position and allowed us to largely meet the strong demand. Some of the actions we've taken early in 2021 and throughout the year include building inventory on top-selling and high-priority SKUs, improving our forecasting process and adjusting it for longer lead times, diversifying our supplier base where feasible, accelerating automation across our factories and distribution centers, and enhancing compensation, benefits, training opportunities in working conditions for our frontline employees. In fact, during the third quarter, we announced meaningful wage increases across many of our factories and distribution centers starting in Q4. We do not expect the supply pressures to dissipate in the near term, but we are confident that we are taking appropriate steps to both effectively manage them and create more agility within our supply chain in the future. We recently announced a new supply chain initiative Ovid, which is expected to transform Newell's go-to-market capabilities and end-to-end customer experience in the U.S., enhance customer service levels and drive significant operational efficiencies. We're planning to optimize the company's distribution network in the U.S. by consolidating 23 business unit-centric supply chains into a single integrated supply chain. We expect it will take about 18 months to fully implement Ovid. To minimize any potential disruption, we intend to roll it out in waves. During Q3, we passed an important milestone as we completed blueprinting and the integrated design phase. We're now moving into the testing and implementation phase. Upon completion, Ovid is expected to streamline, automate, and digitize our supply chain and position us as a reliable retail partner of choice. While Ovid was conceived prior to the recent events, once implemented, it should position us on a much stronger footing going forward. Let's now move to third quarter results. Net sales grew 3.3% year-over-year to $2.8 billion, mostly driven by core sales increase of 3.2%. This was an excellent outcome as we cycled against 7.2% core sales growth in the year-ago period, experiencing difficult comparisons across every segment except for Learning and Development. Normalized gross margin contracted 330 basis points year-over-year to 30.6%, with gains from fuel productivity savings, favorable business mix, and pricing more than offset by the inflationary headwind, which was nearly 800 basis points in the quarter. Normalized operating margin came in at 11.4%, down from 14.9% a year ago, reflecting gross margin pressure, as well as a significant step-up in advertising and promotion expense. We continue to tightly manage costs and drive the overhead-to-sales ratio lower year-over-year. Net interest expense came down by $6 million year-over-year to $65 million reflecting debt reduction of about $750 million relative to last year. The normalized tax rate was 8% versus a normalized tax benefit of nearly 7% in the year-ago period due to a lower contribution from discrete items. Normalized diluted earnings per share amounted to $0.54 as compared to $0.84 in Q3 of 2020. The unfavorable move in the tax rate accounted for about $0.12 year-over-year. Now, turning to our segment performance. Core sales for the commercial solutions segment decreased 9.2% due to declines in both the commercial and connected home and security business units, which faced tough year-ago comparisons. Core sales for home appliances grew 1.9%, primarily driven by Latin America. Core sales for the home solutions segment were down 3.6%, as core growth in the home fragrance business was more than offset by a decline in food, which faced its toughest quarterly comparison of 2020. Core sales for the learning and development segment grew 19.6%, as both the writing and baby business units delivered strong double-digit increases. Core sales in the outdoor and recreation segment increased 1.7%. Newell's net sales were 8.5% above the third quarter of 2019, with each of the company's segments exceeding levels from two years ago. On a two-year stack basis, core sales increased in the low double-digits during Q3 as well as year-to-date periods. Year-to-date in 2021, the company's operating cash flow was $490 million versus $820 million in the year-ago period. This reflects an increase in working capital to support top line momentum and elevated in-transit times for inventory, which more than offset significant operating income growth. We continue to drive improvement in the cash conversion cycle, which came down by another 10 days to 79 days. At the end of the third quarter, Newell's leverage ratio was 3.1 times, down from 3.9 times a year ago. The improvement reflects our proactive choice to pay down debt as well as a mid-teen increase in trailing 12-month normalized EBITDA. In Q3, the company redeemed approximately EUR300 million of a 3.75% notes that were due in October 2021. Furthermore, in mid-October, we announced our intention to redeem the remaining $250 million of the company's 4% senior notes next month. We have significantly strengthened Newell's balance sheet over the past several years and recently indicated that we are targeting a leverage ratio of 2.5 times, below our prior goal of 3 times. We intend to grow our EBITDA into this target, with no immediate plans for additional new debt tender offers. This morning, we updated our outlook for 2021 accounting for the stronger than anticipated performance in Q3, further escalations, and costs in the fourth quarter, the continuation of supply chain disruptions, as well as a relatively healthy consumer backdrop in the U.S. We are pleased to once again raise our top-line forecast for 2021 as a result of healthy consumption and the early actions we have taken to alleviate the supply chain constraints. Our revised top-line guidance implies that core sales are expected to grow versus 2019 during each quarter of 2021. Our outlook also indicates the core sales will be up versus 2020 in the first and second half of 2021, as well as for the full year. Let's go through the details of the full year 2021 outlook. We currently forecast net sales of $10.38 billion to $10.46 billion, up from $10.1 billion to $10.35 billion previously. This represents about 11% year-over-year growth. We are raising our core sales outlook to 10% to 11%, from 7% to 10% previously, with the majority of the upside in the fourth quarter. While the U.S. dollar has strengthened recently, currency favorability is still expected to modestly outweigh the impact from Yankee Candle retail store closures and other minor business exits. As a result of further escalation in costs, including our decision to raise wages for the frontline starting in Q4, we now expect full-year normalized operating margin to be slightly down relative to 11.1% in 2020. Our updated forecast implies that normalized operating profit grows at a high single-digit rate, a solid result when factoring in the unprecedented level of inflation. We anticipate an increase in the absolute level of advertising and promotion spending. This forecast assumes a mid-teens normalized effective tax rate and a slight increase in shares outstanding. We're pleased to improve our full-year normalized earnings per share outlook to $1.69 to $1.73 from a previous range of $1.63 to $1.73. There is no change in our full-year operating cash flow guidance of approximately $1 billion as we continue to expect acceleration in Newell's cash conversion cycle. Focusing on the fourth quarter, we're guiding for net sales of $2.6 billion to $2.68 billion, with core sales expected to be within a range of down 2% to up 1%. Our guidance assumes a normalized operating margin of 8.7% to 9.2% versus 11.4% in the year-ago period as inflation is expected to outweigh the continued benefits from productivity and pricing. We are forecasting a normalized effective tax rate around 20% and normalized earnings per share in the $0.29 to $0.33 range. While we're still early in our budgeting cycle for 2022, I wanted to provide a high-level perspective on how we are approaching it. We're encouraged by the progress our teams have made on the innovation side and have a strong funnel of new ideas planned for next year. However, we anticipate a more muted top-line delivery, due to a very difficult comparison. While inflation is expected to remain above normal levels, we are looking at significant benefits from carryover pricing as well as productivity. This should result in stronger margin performance in 2022 relative to 2021. We will continue to build operational excellence across the organization, as we roll out additional automation projects and make strides with Haven implementation. We intend to provide more specifics during the fourth-quarter call, as has been the norm in recent years. We believe we have a strong path for value creation, and we'll continue to diligently execute on our strategic agenda, to ensure that we position Newell Brands for sustainable and profitable growth. Operator, let's now open the call for Q&A.

Thank you. Will pause for just a moment to allow everyone an opportunity to signal for questions. Your first question comes from Bill Chappell with Truist Securities.

Thanks. Good morning.

Good morning, Bill.

Just a question on writing in particular. I mean, how that played versus your expectations in the quarter. whether there's still some carryover as you move into next year. And how much that may contribute to the upside. I know you had a muted outlook, we were sure on the tail of back-to-school and back-to-office. So, any color there would be great.

Sure, Bill. Good morning. How are you? This is Ravi. Look. I think writing performed very well. I think the big thing was we weren't sure when we went into their quarter, we knew we'd have a good back-to-school, but there were worries about the Delta Variant. I think what became evident was this is one of the issues keeping the schools open for impacts and learning was a fairly bipartisan view. So, we watched it, we can see that the super majority of schools opened, and so that was great. But also, credit to our team, because they really hit the ball out of the park on merchandising, on e-commerce, on getting distribution, on innovation. They just had the whole package, and this is, as we have said before, one of the businesses that... because we manufacture most of our products except for Dymo, which comes from China in Tennessee. And so, we were able to have good supply. So, I think that really helped. And this is still in the backdrop because we had expected maybe offices to start opening up, but because of Delta, they didn't as much. Despite all of that, the fact that the business did extremely well, I think it's positive and we're seeing that positive momentum continuing. We're very pleased. And yes, it probably did a bit better than our expectation. But look maybe not the highest margin business, we will take that any day.

Sure, I understand. Regarding the supply chain, I didn’t hear you mention much about that, but as you consider Home Appliances and the imports from Asia for the holiday season, are there any concerns that you might not have enough inventory for what appears to be a robust holiday season? I realize Home Fragrance is produced domestically, but I’m more curious about any overseas products.

Yeah. Bill, on that one, we're actually in very good shape. One of the things that we did early on when we saw the supply chain pressure starting to build, and particularly with ocean freight, is we adjusted our planning process to add expected lead time to the planning process. We did that probably about six months ago, four to six months ago. As a result, we early ordered a bunch of our top selling SKUs. That's why if you look at our balance sheet, part of the reason why our inventory levels are significantly higher than they were last year, and we've used cash to build inventories. So, we feel particularly in the appliance category that we are well-positioned to meet strong demand from an inventory standpoint.

That's great. Thanks so much.

Thank you, Bill.

Your next question comes from Andrea Teixeira with JPMorgan.

Thank you. And I wanted to just go back to what you just said, Chris, on building inventory ahead of the holidays. And you had done it, I mean, fantastically well, working some of getting market share in small appliances, but we also have to be cognizant of this cycle of these products, right? And some of these have been bought and I would say household penetration probably increased. I was wondering, what is your take on that and what are your customers saying in terms of demand ahead of the holiday? And I also wanted to double-check the cadence of pricing, and what is the carryover that you mentioned before into 2022? And you said that you want to take additional actions into 2022, so I'm hoping to see the cadence of your gross margin progression as we enter 2022.

Andrea, I'll break down your question into two parts. Chris will address the pricing aspect, while I'm happy to share our perspective on appliances. Home Fragrances continues to be our primary focus as we approach the holiday season and the Super Bowl. We believe we are well positioned in the Home Fragrance market, both with our customers and in our own retail locations. Regarding small appliances, I'm very encouraged by the progress the team has made, and we've experienced several consecutive quarters of growth. Looking ahead, there has been some increase in consumer purchases. However, we see multiple categories within appliances, and we are driving significant innovation. For example, with our Mr. Coffee Iced, we now have ice coffee pulp options, as well as hot and cold features. We are introducing many new innovations that will support our sales efforts and attract new customers. Overall, I believe we are in a strong position, but it's important to view Newell as more than just one specific business; we must consider the entire portfolio. This holistic approach has been crucial in managing our portfolio effectively each quarter and over the long term to achieve overall growth.

On the pricing front, let me try to provide a little bit of perspective. At this point, we have announced pricing on every single one of our business units. The inflation impact is affecting our business units a little bit differently. The two most significantly affected business units are the Commercial business and the Food business. Then there are other businesses like Writing and home fragrance, for example, that are much less affected by inflation. But everybody is affected. Because of that difference in terms of how the inflation is impacting the business units, and because the inflation picture has continued during the year to get significantly more of a headwind, we've announced pricing on different timings. The first set of pricing broadly that we put into place went into effect around April, May, June. The good news about that pricing is that pricing is now fully reflected in retails. And at least to date, we have not seen any negative reaction to consumer demand from the pricing that we put in so far. We take that as a very positive sign. There is a second round of pricing, broadly, that's going into effect that we've already announced and that largely is going into effect in either November or beginning of January. When you look at the pricing impact in the P&L, the pricing impact in the P&L is going to get significantly bigger as we go forward sequentially from here. Pricing will be a bigger help in Q4 than it was in Q3. In Q1 of next year, pricing should be largely implemented and will be a bigger help in Q1 of next year than it is in Q4 of this year. At the same time, we think Q3 was the biggest impact for us in terms of inflation, and will begin to mitigate as we lap base periods. So, that gap between inflation, pricing, and productivity, we think Q3 was the biggest delta of that gap. We think that gap starts to close and reduce sequentially each quarter going forward.

That's great, super helpful. Best of luck.

Your next question comes from Olivia Tong, with Raymond James.

Great. Thank you. Good morning. My question first around project Ovid. I know this was planned before the global supply chain challenges started, but can you just talk about why now is the right time for presumably there likely to be some disruption as you do switchovers and consolidate? So, continue to expand a little bit more on that and if you had to expand the plan more recently, given all the logistics challenges.

Yeah. Let me try a couple of things. We kicked off Project Ovid about 10 or 11 months ago. We didn't announce it until Barclays, but we kicked it off 10 or 11 months ago. And the reason why we thought now is the right time, is because we've made a lot of progress on SKU rationalization. So, if you recall, at the end of 2018 when we started with the turnaround plan, the company was trying to sell over 100,000 SKUs. We've now reduced that through last year to 47,000. As of today, we're at 42,000 and we're on our way down to 30,000. Because we've taken that SKU count reduction out, and improved the fundamentals of the operation, we believe we're now at a point where we can take the next step, which is to go from 23 unique supply chains into a single integrated supply chain. We think this is going to allow us to move from shipping less-than-truckload shipments in small quantities, forcing our retailers to order from us 23 different ways into the ability to order from us in a single way and ship full truckloads. From both a service and cost standpoint, we think that this is going to be a major step forward for the company and really leverage the scale of Newell going forward. Now, when we kicked Project Ovid off, the supply chain constraints were not as they are today. We kicked the project off without that external backdrop in place. I think the team has done a pretty amazing job of keeping on track. Unfortunately, we secured the two big new mixing distribution centers prior to the current supply chain dynamics. So, we're monitoring it. We're going to be prudent on the implementation dates to ensure that we execute the transition with excellence. But if anything, the savings from the project have only gotten bigger as transportation costs have risen. In fact, we think the project is likely going to generate more value to us today than when we first started the project 9 months ago or 10 months ago.

Chris, I want to provide some context. Olivia, we need to think about the new journey ahead. I've been here nearly three years, and we initially approached this as a turnaround, but it has evolved into a transformation of the company focused on building capabilities for the long term while ensuring short-term health. In the first year, we concentrated on stabilizing the organization, enhancing our culture, empowering our people, and assembling the team along with a hybrid structure. Our next phase focused on innovation, brands, e-commerce, and driving the top line, which is evident in our current momentum. The next step is to improve our gross margins, and we believe that, in addition to pricing, optimizing our supply chain through automation and increased efficiency is essential to make it easier for our customers to do business with us. This is an ongoing effort, and we need to simplify operations on our side too. Additionally, we have an international focus. All of this is part of our journey to enhance shareholder value, and we are carefully managing the execution burden on our teams to avoid any mistakes. I believe we've struck a good rhythm and are confident that all these elements will progress positively as we move forward.

Very helpful, thanks. If I could just ask a follow-up on sales. So, you mentioned this in the first quarter where every sub-segment was about 2019. Do you think this is the right base now off of which to grow over? Are there any comp issues that make this not the right way to think about it? Then just specifically for Q4, the sales outlook assumes a pretty big deceleration on the two-year stack. Is this more the uncertainty in the environment, or on relative to the success of recent pricing, or is there something else going into that?

Let me provide some insight on that, Olivia. We see 2019 as a solid reference point, representing a pre-pandemic environment that helps guide our expectations, although this perspective may evolve over time. As we approach Q4, it's important to consider that our Baby business has been experiencing growth and gaining momentum, similar to our teams. However, the end of the stimulus and the lack of significant increases in birth rates, along with a robust Q4 last year, present challenges for comparison. The Baby business is facing tough comparisons this Q4, which is noteworthy. On the other hand, our Writing segment continues to show solid growth thus far. It's essential that we don’t focus too narrowly on any specific quarter or business segment due to the various factors at play. Ultimately, our goal, Olivia, is to achieve sustainable, profitable growth over time, and I genuinely believe we are making progress in that direction.

The only thing I would add to that, Olivia is that last year in Q4, there was Amazon Prime Day, which moved to Q2 of this year. And so, we are in Q4 lapping the loss of Amazon Prime Day.

Thank you.

Your next question comes from Peter Grom with UBS.

Hey good morning, everyone.

Morning.

Just wanted to ask around the phasing of margin progression as we think about next year. Because when I look at the guidance, you are still kind of exiting this year with operating margins down north of 200 basis points year-over-year. Chris, like I totally understand the commentary that the pricing benefit will ramp in Q1. But is it still fair to assume that you think margins will be under pressure in the first half of the year, and I guess going back to Ravi's initial comments around 2022 being the year of margin expansion. How should we think about your ability to hit your long-term target of 50 basis points for next year? Thanks.

I believe now is the right time for questions. While it may be early for us to provide quarterly guidance for next year, I want to emphasize that we are confident next year will be a year of margin growth for the company. The reason for this is that much of the inflation impact we experienced this year has a timing lag in terms of pricing. If we look at our two business units that have faced the most inflation, which are commercial and food, we are operating on basic pricing and accounting. This means inflation hits us immediately in these areas. In fact, we have already seen a significant inflation impact from resin changes reflected in our financials. The delay in pricing causes a short-term drag. However, as we move into next year, we anticipate that the benefits of carryover pricing and productivity will exceed the inflation impacts based on our current forecasts, which consider future spot rates. Additionally, in our planning for next year, we are not anticipating that inflation will be temporary. Instead, we expect it to remain significantly above normal, and we are setting our plans accordingly. Despite these expectations, we are still optimistic that we will achieve substantial margin growth next year.

One quick add, and Chris did a great job of giving you a view on that. When we started this process, I was taking prices increases. Back when I think the whole world, including us, thought that inflation was going to be concentrated. So by the initiative pricing moves, we were more on that because we thought, hey, those productivity and pricing, we may not have tried to cover it. Over time as we've seen this become very realistic, our pricing posture is very clear. We are going to recoup inflation, and that standard will continue to be introduced in 2022. And so, I think that should give some reassurance on the margin front.

Great. Thanks.

Your next question comes from Chris Carey with Wells Fargo Securities.

Hi, I guess it's still morning on the East Coast, good morning. I wanted to follow up on the pricing commentary. Pricing and productivity will exceed your inflation forecast for next year, and you anticipate significant margin improvement. When you mention margin improvement, are you referring to the full year? I have a clarification question as a follow-up.

Yeah, that's right. I think it's premature for us to give quarterly guidance for next year, as we were just in the middle of our budget plan. But for the full year, that's what we're expecting.

Okay. Alright. Thanks for that. And then it's connected to the prior questions, but I guess that historically, a criticism or perhaps an observation of the business is that it's quite disparate. Clearly, that's improved with SKU rationalization and some businesses that have been sold. I guess with this Project Ovid, is the idea that these businesses can all actually make sense together to create a more scaled, efficient platform, or the historically, this combination of disparate brands come together creating a more scaled organization that makes sense together over time? Or are there still going to be decisions that need to occur over time about pruning and improving the portfolio, which I suppose is always an observation, but more in the context of this supply chain initiative that you're doing to try and create a more scaled organization?

I think that captures the vision well. In our current eight businesses, we find a lot of common ground with the top retailers. The top four retailers we work with in the U.S., Walmart, Target, Amazon, and Costco, are consistent across all our business units. This is beneficial because it supports our integrated supply chain network. By shipping to the same customers at the same locations, we can avoid overwhelming these retailers with multiple orders and shipments from numerous locations. If we can consolidate to a single order with one invoice and a full truckload, it significantly enhances efficiency for both us and the retailers, giving us a competitive edge over smaller rivals. Regarding portfolio adjustments, we've been consistent in our approach. We see strong organic growth potential in both revenue and profit across our business units. While there may be future portfolio moves, they will likely focus on minor acquisitions or divestitures driven by creating shareholder value. We recognize that Newell is fundamentally about the home, catering to both indoor and outdoor needs. In the past, our strategy was more of a holding company approach, but now we're integrating our backend and front end. Expect to see increased connections between our brands and more promotional efforts as we tap into the unexploited connections as we continue to progress in our turnaround.

The mom, whether it is the kitchen, there are a lot of connections. We have not taken a holding company approach in the past; now we are truly integrating both the backend and frontend as Chris mentioned. You will see more connections between our brands and additional promotional opportunities because we believe there are many connections we have yet to capitalize on. I think we will pursue this as we continue to mature in our turnaround and move forward.

Okay. Thanks so much.

Your next question comes from Kevin Grundy with Jefferies.

Great. Thanks. Morning everyone, two for me this morning if I may, the first one on the margin in working capital opportunity there, but particularly within the context of what you've already outlined, Chris, so that will be the gross margin benchmarks and the overhead benchmarks, which in aggregate are some 500 to 700 basis points of opportunity. Can you just comment on, will it be incremental to that, or do you see it more as an accelerant to reaching those targets over time? So that's the first question and then just the second question. I didn't hear any commentary, I guess, on share repurchases. I think you guys have left the door open for that in the past. I think your updated thoughts to the board's updated thoughts there and whether Chris, the small tweak your capital structure target now down to 2.5 from 3 if that changes your thinking at all with respect to returning cash to shareholders. So, thank you for both of those.

Very good. Thanks, Kevin. So on the margin, certainly, we expect it to be a significant contributor to gross margin improvement. I think that we view it not as incremental to the 3738 target that we had put out previously. I think we view it as a building block to getting to that target over time. On the overhead part, we do not expect it to have a material impact on overhead. What I will say is that embedded in this year's guidance is a pretty significant overhead investment that we've made in the team and consulting costs, etc., for the Project Ovid initiative, but that's already embedded in our existing guidance. When we actually complete the project, that cost will come out. The sort of above-the-going costs that we've got built in this year on overhead is likely to go away as we get to 2023. On the share repurchase question, just to be clear. As I mentioned in the prepared remarks, we retired about $300 million in Euro of debt in Q3. In Q4 we've called our June 22 notes of $250 million, which we expect to retire in Q4 of this year. As we go into next year, we do not expect any more reduction in the level of our gross debt. We think that as we move into next year, we're going to move to our leverage target through EBITDA growth, not through debt reduction. As a result, we think that as we move into next year, it will open up the opportunity for share repurchase, as we expect to generate more than enough cash to cover investment in the business and the dividends fully. So, we are moving into a period next year where the capital allocation begins to get freed up.

Very good. Very clear. Thank you, guys. Good luck.

The final question comes from Lauren Lieberman with Barclays.

Great. Thank you. And I just had one question on your relative competitive positioning because I think the fact that you were so forward-thinking in building inventory ahead of the holiday season, knowing what you know about the length of your supply chain and ocean freight, etc. I was just curious how your in-stock positions are comparing in key categories to competitors. I know market share is a very tough thing to measure in a lot of consumer businesses. But just even qualitatively, how would you describe that environment, the degree to which you're picking up, whether it's share or it's already enhancing your relationships with retailers because of your service levels during the upcoming holiday season? Thanks.

I think it really varies; it's not a one-size-fits-all situation. Despite building up inventory, where we import does have an impact. Regarding shares, the Writing business has been a significant winner not just with distant fans but overall. Throughout this year, especially year-to-date, our Candle business has been doing exceptionally well. We believe we are making considerable progress. In the Baby business, we have been gaining share, and there are other areas where we are seeing the same. However, some businesses have faced unexpectedly high demand, which can also depend on the price points we operate at. For instance, in appliances, despite our impressive growth, we focus more on entry-level price points, which may hinder our share improvement even though revenue has increased. Overall, we are pleased with the good growth we are experiencing, and we feel we are starting to get our supply issues right. We faced challenges in July and August but are now back on track, particularly in the outdoor and beverage segments. Our Food business, particularly with products like Ball, has faced significant demand, creating challenges due to Ball's dominant position in that market. We are doing everything we can to maximize our top-line opportunity while working closely with our customers. However, service levels have been difficult; I wish they were better, as I'm sure every competitor does too. While I wouldn't say everything is perfect, I believe we are doing our best. One positive note is that our brands are in a better and more revitalized state than before. Regarding our Baby business, I am excited about the Baby Jogger city turn, which allows you to rotate the car seat to face the baby. I look forward to using it one day when I have grandkids. Additionally, Baby is making strides to rejuvenate that business. We have strong brands, and with time, we will improve both our top line and market shares wherever possible.

That's great. Thank you for such a thorough and candid answer, have a great weekend.

You too, Lauren.

Thank you, Lauren.

This concludes our call today. A replay of the call will be available later today on our website, ir.newellbrands.com. Thank you. You may now disconnect.