Good morning, ladies and gentlemen and welcome to Newell Brands Third Quarter 2022 Earnings Conference Call. As a reminder, today’s conference is being recorded. A live webcast of this call is available on our Investor Relations website. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Mr. 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 CEO; and Chris Peterson, our President and CFO. Before we begin, I would like to inform you that during the course of today’s call, we will be making forward-looking statements that involve risks and uncertainties. Actual results and outcomes may differ materially and we undertake no obligation to update forward-looking statements. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Forms 10-Q and other SEC filings available on our Investor Relations website for a 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 in other materials on Newell’s Investor Relations website. Thank you. And now, I will turn the call over to Ravi.

Thank you, Sofya. Good morning, everyone and thank you for joining us on our third quarter call. Following strong performance over the first half of the year, the company’s results decelerated in the third quarter, reflecting a tough operating environment as many retailers right-size their inventory positions, inflationary pressure on both the consumer and our business as well as the impact of a stronger dollar. Additionally, Q3 performance was unfavorably impacted by customers shifting orders into the first half. As a result of these factors, core sales turned negative in the quarter, declining 10.8% on top of 3.2% growth last year. This had a corresponding deleveraging impact on normalized operating margin, which contracted 120 basis points year-over-year, despite strong progress on productivity and cost containment actions. Core sales declined year-over-year in all business units, except the commercial business as the pullback in customer orders was a significant headwind. International markets outpaced North America as we did not experience the same level of retailer inventory reductions there. Core sales outside North America declined 1.4% as 4.8% growth in Latin America was offset by declines in EMEA and Asia-Pacific. Weak consumer confidence due to record inflation and concerns surrounding the war in Ukraine continue to weigh on the EMEA region, with the APAC region impacted by COVID-related restrictions and lockdowns in certain markets. Year-to-date, Newell’s core sales declined 1.3% on top of a challenging 15.2% growth comparison a year ago as normalized operating margin expanded 10 basis points year-over-year despite significant inflationary and foreign exchange headwinds. Many of our key brands continued to show strength year-to-date, including Rubbermaid Commercial Products, Sharpie, Paper Mate, EXPO, Elmer’s, Ball, Rubbermaid and Contigo. While domestic consumption moderated year-over-year, it continues to exceed 2019 levels, both during the third quarter and year-to-date. Going forward, we expect demand patterns to continue to be unfavorably impacted by inflationary pressure on the consumer, which has constrained discretionary spending, particularly for value-driven shoppers. In some categories, such as home fragrance, we have lost low-income shoppers, who were only able to enter the category last year due to the boost from the government stimulus. We expect some pandemic-related trends that elevated demand to continue to subside. Due to concerns about the high price of everyday goods and gas, a potential recession, rising interest rates and declining personal savings rate, we are seeing a more cautious consumer today, but one that is willing to purchase an offering that provides good value. We have been optimizing our product assortment to ensure it provides an appropriate value proposition to the consumer. We have also been activating shopper campaigns with a focus on value messaging to better connect with shoppers and customers. The commercial business unit was a true standout this quarter and year-to-date, registering core sales growth mark of 9% in both time periods, enabled by excellent execution and strong price realization with our innovation and assortment hyper-focused on reducing cost in use and delivering savings to our end users. It is leading to positive momentum in our B2B verticals and professional customers and distributors. Strength in the B2B professional channel was further fueled by improved mobility and return to the office as well as distribution gains, which helped offset the impact of moderating traffic at retail. In the B2B channel, customers seek performance, quality, and strong durability all of which are at the core of our Rubbermaid commercial product offerings. As a result of shifting consumer behaviors, the decision by many retailers to aggressively manage their inventory levels and reduce orders weighed on performance on the majority of our consumer-facing businesses. While core sales declined for six business units during the third quarter, we do not believe this is indicative of underlying operational health issues, but rather the dynamic environment we are in as well as base period comparisons. Let me illustrate this point through a discussion of our Baby and Writing business units. The Baby business was cycling against a challenging double-digit core sales growth comparison. While core sales declined in the quarter, it increased relative to 2020 and 2019 levels despite the headwind from retailer actions as well as the shift in timing of shipments into Q2 ahead of Project Orbit implementation. Domestic consumption grew versus last year across baby gear and baby care categories, which have shown some resiliency given the non-discretionary nature of the products. We continue to see strength in our industry-leading turning car seats to major new innovations under both Graco and Baby Jogger brands. The NUK For Nature Collection is also delivering very strong performance. For writing, given the timing shift of some retailer orders for back-to-school into the first half of the year, it’s more appropriate to focus on year-to-date performance. Core sales increased low single-digits year-to-date, with domestic consumption also up versus last year. During the back-to-school season, the category grew modestly as the strong start due to earlier store resets was followed by a slowdown for the end of the season. We held our ground despite supply constraints across several categories, including mechanical pencils, ballpoint pens and highlighters. Dry erase markers and Glue Sticks were the best performing categories during the back-to-school season for us. Year-to-date, the office channel has seen steady growth as return to office continues to progress. While work is already underway in preparation for next year’s back-to-school season, as we look to the balance of this year, we are excited to expand our offerings in the vibrant children’s activity category. We recently launched Elmer’s squishies. This do-it-yourself kit includes everything to make your own surprise squishy toy in just 60 minutes. This is a fun new way to unlock creativity and imagination with kids and an exciting expansion of the Elmer’s brand into an adjacent category. We are continuing to invest in innovation and brand building in writing and ensure we have the right price pack architecture in key markets that convey strong value. 2022 has been a dynamic year as it relates to the operating backdrop, consumer and customer behavior as well as the overall macroeconomic and geopolitical environment. 2022 has also been a tale of two cities for Newell Brands with strong first half results, followed by a significant slowdown in the back half. We have been very disciplined with pricing actions over the past two years to help mitigate the impact of massive inflation. Despite progress on productivity and pricing, we do expect to take a step backward on gross margin this year due to fixed cost deleveraging, the high level of inflation and unfavorable currency impact. However, we remain as committed and focused as ever to rebuilding gross margin and reaching benchmark levels over time through productivity initiatives, inclusive of Project Ovid in Automation to being very disciplined around launching gross margin accretive innovation, three significant pricing actions internationally to offset the impact of transactional FX for proactive price mix and category management as we are assessing additional opportunities to optimize category mix within each business unit and a strong emphasis on revenue growth management, taking an even more aggressive stance on SKU reduction and supply network optimization. With the macro backdrop getting more difficult in recent months, we expect economic uncertainty and external disruptions to persist in the near-term. As a result, we think it’s prudent to plan for a recessionary environment in 2023 with a softer top line. We are acting with speed and agility as we adjust our playbook to this environment while taking actions that are within our control to maximize profits and cash. Within that context, the top five priorities we are laser focused on include: number one, accelerating cash flow generation as we significantly right-size the company’s inventories; number two, driving a recovery in gross margins as we turbocharge productivity and price internationally to mitigate the transactional foreign exchange impact; number three, significantly reducing overheads both in the U.S. and internationally by leveraging the scale of One Newell while closely managing discretionary expenses and optimizing advertising and promotion spending as well as the company’s office footprint; and finally, redirecting investment towards higher margin businesses, in particular, writing to turbocharge innovation and to best leverage the power of our brands and diverse portfolio to meet consumer and customer needs; and third, delivering the next level of simplification and complexity reduction by accelerating SKU rationalization, transforming manufacturing operations and creating a portfolio of mega brands. Importantly, we are applying a balanced approach between ensuring we effectively navigate through the short-term challenges and volatility while maintaining long-term focus. Our ultimate goal is to position the company to come out even stronger as the macros improve. We will harness the strength of our brands, build on our e-commerce and omni prowess, leverage our scale to drive a One Newell approach to realize synergies, reduce international fragmentation, continue to transform our supply chain to focus on manufacturing efficiencies and vigorously reduce complexity to build competitive advantage and drive sustainable and profitable growth. The decisive actions we have taken over the past several years to address pandemic-related challenges while executing on the turnaround agenda. We believe have enabled us to be a much more operationally agile and resilient consumer and customer-centric company. We continue to see a long runway ahead for value creation, onwards and upwards. And now I will turn it over to Chris.

Thank you, Ravi and good morning everyone. Third quarter results were generally in line with our updated outlook. During Q3, we enhanced Newell’s financial flexibility and maintained strong cost discipline as we took decisive action to lessen the effect on our business from retailer inventory rebalancing, softer consumer demand, inflation and a stronger dollar. Results were impacted by top line deleveraging as well as the actions we took to manage the company’s supply plan. Net sales for the quarter decreased 19.2% year-over-year to $2.3 billion driven by lower core sales, the impact of the sale of the CH&S business at the end of Q1, unfavorable foreign exchange and certain category and retail store exits. Core sales declined 10.8% as lower volume more than offset higher pricing. Core sales were negatively impacted by a significant pullback in orders from major customers as they right-size their inventory. The previously disclosed timing shift of customer orders from Q3 to the first half lowered core sales this quarter by a couple of points. Normalized gross margin declined 120 basis points to 29.4% and versus the same period last year. Fixed cost deleveraging and significant headwinds from foreign exchange and inflation more than offset benefits from pricing and fuel productivity savings. Normalized operating margin contracted 120 basis points versus last year to 10.2% as an increase in advertising and promotion expense as a percent of sales and gross margin contraction more than offset the benefit from lower overhead costs. Net interest expense declined $8 million from the year ago period to $57 million. The normalized tax benefit was $58 million, largely reflecting a significant benefit from discrete tax items during the quarter. This resulted in normalized diluted earnings per share of $0.53, close to $0.54 a year ago. Turning to segment results. Core sales for the Commercial Solutions segment grew 9.2%, reflecting successful pricing actions to cover inflation. Core sales for the Home Appliance segment declined 23.2%, driven by softening demand across product categories. Core sales for the Home Solutions segment decreased 11.6% as core sales were under pressure across both the food and home fragrance businesses. Core sales for the Learning & Development segment declined 9.9%. Core sales for the Baby and Writing businesses contracted against challenging double-digit comparisons from last year and were unfavorably impacted by a shift of customer orders into the first half of this year. Core sales for the Outdoor & Rec business declined 18.4% as performance was hindered by a shift of retailer orders into the first half of this year and softening demand. Moving on to the cash flow and balance sheet, year-to-date through cash - through Q3, operating cash flow was a use of $567 million as an increase in working capital use temporarily extended the cash conversion cycle. Inventory levels remain elevated due to significantly greater than expected reduction in retailer orders during Q3 as well as slowing demand. Furthermore, the timing of our pullback on the supply plan weighed on payables. We continue to adjust our demand and supply forecast to reflect current realities, and expect to significantly reduce the company’s inventory levels by year end. These actions should generate a significant amount of cash flow in Q4. Given the lead times on our supply plan, we do expect to end 2022 with an elevated level of working capital, which we plan to right-size in 2023. This will lead to a significantly lower level of operating cash flow in 2022 than typical with an expected bounce back in 2023. In Q3, the company strengthened its financial flexibility by refinancing its prior senior unsecured revolving credit facility and upsizing borrowing capacity under the facility to $1.5 billion. Additionally, in September, Newell raised $1 billion through the issuance of $500 million of 6.375% notes due 2027 and $500 million of 6.625% notes due in 2029. In October, we used the net proceeds of the offering, together with available cash to redeem $1.1 billion of outstanding senior notes that were coming due in April of 2023. We have cleared the runway on our debt profile and do not have any major maturities until mid-2025. For the remainder of the year, we expect the macroeconomic and operational environment to remain difficult, with further pressure from retailer inventory reductions. Due to high inflation on Essentials, we expect discretionary spending levels to remain constrained, pressuring shoppers and driving continued normalization in demand. We expect significant headwind from foreign exchange, given the strengthening of the U.S. dollar against other currencies. We are essentially moving to the lower end of our previous outlook for full year 2022 and as we reflect these assumptions as well as our Q3 results. Our updated net sales forecast is $9.35 billion to $9.43 billion, as we expect a core sales decline of 3% to 4%. We continue to forecast a nearly 8% headwind from the divestiture of the CH&S business, foreign exchange, certain category exits and closure of some Yankee Candle retail stores. For the full year, we expect a high single-digit benefit from price increases to be offset by a low double-digit decline in volume. This guidance contemplates normalized operating margin contraction of about 70 to 100 basis points versus last year to 10.0% to 10.3%. We are updating the normalized earnings per share outlook to $1.56 to $1.61, and anticipated tax rate in the mid-single-digit percent range. As a result of higher-than-anticipated inventory levels, and additional updates to our supply plan that will negatively impact payables, we now expect to deliver operating cash flow significantly below our prior guidance range of $400 million to $500 million. For Q4, we are forecasting net sales of $2.18 billion to $2.26 billion, including a core sales decline of 9% to 12%, and a more than 10% headwind from the sale of the CH&S business, foreign exchange, certain category exits as well as closure of some Yankee Candle retail stores. We expect normalized operating margin of 5.1% to 6.5% as compared to 9.9% last year, reflecting significant fixed cost deleveraging and an increase in the A&P to sales ratio. We are forecasting normalized earnings per share in the $0.09 to $0.14 range with the normalized effective tax rate in the high teens range and a similar share count to Q3. While it is too early to discuss specific guidance for 2023, we want to provide some context on how we are approaching next year. We expect the external environment to be difficult next year, and we are taking significant actions across all areas that are within our control to ensure we navigate this backdrop as well as possible and position the company to thrive in a post recessionary environment. Specifically, for next year, we expect consumers’ disposable spending power to remain under significant pressure due to inflation in food, housing and energy. We expect continued normalization of home and outdoor categories from COVID peak demand levels, and we expect retailers to plan open to buy dollars for general merchandise categories conservatively as we likely move into a more recessionary environment. As such, we intend to plan the top line prudently and are looking at a number of different scenarios to ensure we set the cost structure and supply plans appropriately. Currency is expected to be a meaningful headwind based on spot prices. This is largely driven by the euro, yen and pound. To combat this, we are planning for significant incremental pricing actions outside the U.S. to protect the structural economics of the business and mitigate the transactional foreign exchange impact, particularly in Japan and Europe. We expect supply chain pressures to ease as there is greater availability of ocean containers, freight carriers and raw materials, and we expect a significantly more favorable cost inflation environment as both commodity and transportation prices move off their peaks and the Chinese yuan devalues versus the U.S. dollar. We are planning to take significant actions to accelerate productivity and efficiency throughout the organization, including accelerating fuel productivity plans, driving automation and fully implementing Project Ovid based on the strong results we achieved during the first go live this past July. In combination, we expect this to yield a recovery of gross margins from this year’s depressed levels. We are also planning to take significant actions to rightsize overhead costs based on the simplification agenda we have been driving over the past few years. We are early in the planning stages for this, and we will share more details in the next few months. We also expect to bounce back on cash flow from timing of inventory purchases and payables. We made a tremendous amount of progress over the last 3 to 4 years that we believe positions us to be much more resilient at managing the external headwinds and quickly pivoting our plan of action in response to changing external dynamics. It takes time for the impact from these actions to be fully reflected in the company’s results, particularly given the long lead times on sourced businesses. However, we are taking the necessary steps to optimize Newell’s cost structure, reduce inventory and maximize cash flow so that we are in the best position to navigate through this dynamic environment. We will provide more details on our fourth quarter call. We remain laser-focused on maintaining operational agility and strategic execution to position Newell for sustainable and profitable growth over the long-term.

Thank you. Our first question is coming from the line of Bill Chappell from Truist. Your line is open.

Thank you. Good morning.

Good morning, Bill.

Good morning, Bill.

Wanted a little more color on kind of the inventory reductions at retail as you go into seasonal categories, I mean, in particular, like appliances, where you’re gearing up and shipping to make sure all the shelves are stocked. I mean how is that working? And do you feel like we’re kind of done with the process or you’re aware of where all the reductions will come? Or are there still other categories that have yet to hit peak season where this could happen again?

Yes. So I think what we’re seeing is retailers continue to pull back on inventory levels, particularly at many of our top retailers in the U.S. And so what we’ve contemplated in our guidance is very much a continuation of that dynamic in Q4 that we saw starting in Q3. We are trying to navigate it as best as possible. Our inventory positions at retail continue to be in good shape. It’s more that we’re getting caught up with broader actions that retailers are taking. And in some cases, as we’re heading into the holiday season, we’re concerned that retailers are operating with lower than what we would like inventory levels on our items. But we expect that retailers are continuing because they are overstocked in general merchandise broadly, we think the environment remains challenging through at least the end of this year, and that’s what’s contemplated in our guidance.

And Bill, just what I’d add there is, unfortunately, for us, a lot of the buildup of inventories that some of our key customers is either private label or competitive product or other categories not related to us, but they have got to work that down before they consider us. And even though our inventory levels are in good shape or as Chris mentioned, some places where we are actually a little concerned that it is approaching lower levels I think this could – I think that reduction, even though we’re hearing things where they are beginning to get a hold of this, it could continue all the way through like first quarter of next year. So we’re taking a prudent view of it. And that’s also affecting our own views on how we’re managing inventories and our supply plans where we’re taking very strong action to make sure that we are not overbuilding.

Got it. Thanks for the color. And then just one follow-up. Maybe just looking at baby since you have so many price points from kind of popular price to super premium, are you seeing consumer trade down happening in that category or as a kind of a proxy for others? Or is that more of a recession-resistant type area where people want to – the super premium holds up extremely well?

Yes. I wouldn’t call us super premium. We’re probably premium with Graco and then really appealing to a very broad segment with Graco and maybe Baby Jogger a little bit more on the higher end. I think our brands are really – despite looking at Q3 results. So if you look at year-to-date and if you look at how baby business has done versus ‘19 and even versus is continuing to show positive point of sale. Our brands on Graco and Baby Jogger are quite strong. This new innovation that we introduced, which is the Turn to Me for infants, which has been a big pain point for parents. I think is really doing extremely well. We just introduced in one of the club merchants, another innovation, and that is just selling extremely well with an online retailer. On their Prime Day, we saw a strong baby business. So we’re not seeing the phenomenon now recognize being the leaders. We took price increases first. And so some of the other competitors have taken their time because we are the leader and some of them may not quite follow. But I think our brand strength speaks for itself. Now there are a few items where we’ve been quite focused on margins as well, and the baby business interestingly has held up gross margins this year. So overall, we feel pretty good about the operational health of the baby business.

Great. Thanks so much.

Thank you. And our next question is coming from the line of Kevin Grundy with Jefferies, your line is open.

Great. Thanks, good morning, everyone. First question for you on debt leverage and free cash flow, so you finished the quarter at 3.9x the business is under pressure for all the reasons discussed as well as this drag from working capital. A few questions with it. One, if you could just perhaps discuss the cadence around the improvement that you’re expecting in working capital, maybe some parameters around what we should expect with free cash flow and free cash flow conversion. And then relatedly, maybe just touch on your covenants and then how you’re thinking about sort of stress testing the model given the difficulty of the environment as well as the stronger dollar? So your thoughts there would be helpful. And then I have a quick follow-up.

Yes, sure. So clearly, this year is going to be under pressure due to working capital. If you look at the inventory level that we are operating at, at the end of September were probably about $500 million higher than a typical level. And because we’ve made an intervention to pull back on the supply plan, that’s having a negative impact on our payables. And so the combination of that has working capital being a significant use of cash in the short term. We expect inventory levels to go down at the end of Q4 versus Q3 and but we don’t expect them to get to sort of a going level until we get into the first half of next year. Payables will lag that a little bit because of the supply plan pullback, but we do expect to right-size working capital in the first half of next year. The net result of that is that we’re likely to have free cash flow for this year to be negative for the company, which will result in a temporary phenomenon of leverage being higher than what we would like, but we expect very much to recover during next year as we right-size the company’s working capital. So I would expect that we will see a below – a low free cash flow year this year because of this working capital phenomenon and a bounce back in 2023. From a covenant standpoint, we’re in great shape. And we’ve looked at a number of different scenarios, both for the current year and for next year, and we have no concerns over covenants going forward. Last thing I will say is that we continue to be committed over the midterm to get the leverage ratio down to 2.5x. Because of the free cash flow dynamic this year, we will likely end this year with short-term debt on the balance sheet. And I expect next year, we will pay that short-term debt down.

Okay. Very good. Thanks for the color. Just a quick follow-up on Ovid. That clearly is going to unlock a lot of value for shareholders longer-term. The worry, of course, is sort of the near-term and the macro environment. So related to that, how does the environment change the pace or the scope of Ovid? And then two, as we just sort of think about our models for next year. Can you quantify the potential benefit from Ovid as we’re thinking about the likelihood of top line deleverage and currency? Thanks, with that. I’ll pass it on.

Yes, sure. So first of all, on the timing question on Ovid, we are very excited about the implementation that we went through in July. I think I commented on this earlier on the last call that the execution of that first wave went very well. And everything we’re seeing today would suggest that it went, if anything, better than we expected. And so that has given us a lot of confidence in the overall model. We are not changing the timing of the initiative, and we plan to do the second and final wave early in 2023, and we’re very much on track to do that. Two of the new mixing centers, I think I talked previously about the new build distribution center being up and running last spring, the Gastonia or new distribution center outside of Charlotte will go live next month. And so we’re a few weeks away from that coming online. And we feel very good about the progress. The net result of Project Ovid going, the second wave happening in the first part of next year is that we expect higher than typical fuel productivity savings next year as a result of Project Ovid. It’s too early to quantify the exact amounts of overall productivity savings. But certainly, with Project Ovid being a major contributor, we’re expecting productivity savings to be a higher-than-normal contributor next year than what it’s been this year.

Very good. Thank you.

Thank you. And our next question is coming from the line of Andrea Teixeira with JPMorgan. Your line is open.

Thank you. So can you please speak on the cadence of the retail destocking ahead? And if you could – I understand from your comments that this is going to linger, but if you could potentially lap it by Q1 next year? And to your point about the low single-digit shipment decline for the full year as you’re tracking, what is your estimate of the volume consumption decline compared to that low single-digit? I’m assuming it’s lower, but I just want to reconfirm given the destocking.

Yes. I think let me take a shot at it and then maybe Chris can add to it. I’ll try to parse the question in a few things. Look, one is that we did take significant price increases. So as I’ve said, we’ve had a bounce up from price increase, but obviously, unit volume has declined. And so – and there is sort of a wash, if you will. And so that trend, I think you are going to see that, and that’s what’s embedded in our overall revenues see that because there is other headwinds as well that come into play. Volume is that – the unit volume has definitely been negatively affected, but we’re glad we took the price increases when we did. And we will continue next year to drive the price increases internationally. From a cadence standpoint, I think it’s tough for us to really predict how the retailers will react. What we are trying to do is work at all levels of our retailers given our strong relationships brand by brand, SKU by SKU to see where have safety stocks are really coming down and where there are very good high-velocity items where maybe they have gone too low to work with them to try and work on improving because we don’t have the problem that we’re overstocked. Our issue is really to make sure that we get to appropriate levels. So – and when I said first quarter of next year that this could continue, that’s just based on everything we’re seeing, saying it could happen earlier, but that’s our sort of best guess. I don’t think there is a specific cadence to it because we can’t predict where they are.

And just to quantify what Ravi is saying, our guidance for the full year is for core sales to be down 3% to 4%. That includes a high single-digit contribution from pricing and a low double-digit decline in volume for the year.

Okay. So that – just one clarification on that low double digits like what are the categories, again, that obviously, the ones that were benefiting the most from consumption, rider home fragrances and food storage and small appliances. Can you talk to the ones that are not being as impacted?

Well, the ones that – look, where the unit declines are occurring the most is, obviously, I think appliances is really where one because the stimulus and where I think – and given that there are long purchase cycles, that’s why that business is the most severely affected. Second, the unit volumes are also negatively affected in home fragrances because we’ve lost a ton of low-income consumers, who came in due to the stimulus. So those would be some of the two businesses. And then, third would probably be outdoor in certain categories, where we’re continuing to do well. As we’ve said, the commercial business continues to do well in our writing business year-to-date, we’re up low single digits in terms of growth in writing. So those would be the two businesses that are still doing well. And then on food, pockets of food, like the Ball brand has continued to do extremely well for us as well as Rubbermaid, and Rubbermaid Brilliance is doing extremely well. So those would be a quick snapshot of where we are.

That’s very helpful. Thank you.

Thank you. One moment for our next question. And our next question is coming from the line of Stephen Powers with Deutsche Bank. Your line is open.

Hey. Great. Thanks and good morning. As part of your preparations for the environment you foresee ahead, you talked about further prioritization of SKU simplification and obviously inventory reduction. I guess I am left wondering are there charges, obsolescence charges or outside promotions that you foresee as part of accomplishing that simplification or clearing that inventory? I guess that’s question number one. And then I am also curious as to how your preparations for the year ahead, impact your new product agenda for ‘23. In terms of the innovation you are going to bring to market, is that likely a reduced agenda, a more focused agenda, just how you are thinking about innovation into a much more difficult environment for the consumer?

So, Stephen, I will answer the innovation piece. I will let Chris talk about inventory reductions. And one of the things to understand is our obsolete is really not the greatest sense more excess that there are no expiration date. But Chris, lying to amplify on that piece and then I will pick up on the innovation side.

Yes. As Ravi said, it’s unlikely that we are going to have significant obsolescence charges. We don’t see that as an issue. And the background for that is the way that we are planning to right size our inventory is predominantly through reducing the supply plan. And we think that’s the better way to do it because that avoids disrupting the marketplace by trying to liquidate product in the market at excessive discounts. Most of the higher than going level of inventory that we have, as Ravi said, is good inventory that doesn’t have an expiration date that’s excess rather than things that have been discontinued. And so the one thing that, that will impact in terms of the P&L that we are seeing and is embedded in our Q4 guidance is that as we pull back on the supply plan, there is manufacturing fixed cost absorption issue. And that’s probably affecting the Q4 gross margin by maybe 100 basis points or so because of the actions we are taking. That’s a temporary phenomenon. But we think it’s the right thing to do for the long-term.

So, let me tackle the second part of your question. And let me start with a little bit on just SKU reduction, we are continuing to be aggressive in the sense of we started with over 100,000 SKUs. We were down to 37,000. Hopefully, by the end of this year, it will be more like 30,000. And long-term, our goal is to get to 15,000, 20,000 SKUs. So, what that means is we have got to be very focused on not just SKU reduction, but new SKU generation. And that’s where we are putting a lot of attention is to make sure our marketers are not spending a lot of time generating just refreshes and use SKUs and generating activity, which then further creates proliferation. So, one of the evolutions of our innovation operating model is really on innovations that are bigger, better and more consumer-centric, which are meaningful, and also prioritizing the businesses which have the higher gross margins. So, actually, we are investing even more innovation on the writing side, on the writing business and totality and creating in addition to your normal line extensions and to really create a group within the writing group that is looking at breakthrough innovations, whether it’s digital or with the whole new world of the metaverse, etc. So, because I think innovation is still the heartbeat of this company and part of the DNA. But it has to be very much gross margin accretive. So, we are very – feel very strongly. Also, second that they are meaningful sizes. So, take for instance, the ones that I just talked about, the Graco and Baby Jogger Turn to Me. They are real meaningful innovations. They are now rapidly – have very good consumer velocity since they have been introduced. So, a lot more focus on not only consumer insight-driven and foresight-driven, but also customer acceptance. And also another plan just to make sure it’s not just at the premium end, but we have the right, good, better, best offerings because in recessionary environments, that value focus becomes very important. So, we are putting a lot of emphasis on price pack architecture and making sure we have got the right sort of pack sizes and where – and hitting the right types of price points. So, on – yes, we have said, “Hey, next year, we are being prudent on soft top line.” That doesn’t mean that we are in any way back hiding on innovation because when this macro improves, we want to be the strongest company that emerges because of all the investments we have made in capabilities, which we have done a lot and that our execution that really products come to play.

Okay. Thanks for that Ravi and thanks Chris as well.

Thank you. One moment for our next question. And our next question is coming from the line of Olivia Tong with Raymond James. Your line is open.

Great. Thank you. My first question is on cash, and it’s just around given all the pressures that we are seeing that are now extending into next year. It creates a bit of a tough spot with respect to the dividend. So, just wondering if you could update us on your priorities with respect to cash in light of the challenges and clearly, your desire to continue to rein in your debt levels. And then just one quick clarification. I think you said that you expect advertising to increase in Q4. Just if you could give a little bit more detail around that, that would be great. Thank you.

Yes. So, let me tackle the cash question. Our focus remains consistent that we believe we have got an opportunity to generate significant operating cash flow, and that’s our first priority with regard to capital allocation. With that cash flow, we continue to invest in the business where we see strong return on investment projects. And typically, we are looking for 30% plus rates of return on that capital investment. Beyond that, we pay a dividend that I think we have been relatively clear that we expect to maintain as flat. We continue to expect that. There has been no change in our outlook on the dividend. In the short-term, because of the increase in working capital that I mentioned that’s putting pressure on cash flow this year, we will wind up with short-term debt at the end of this year and a higher leverage ratio than typical, but we view that as a temporary phenomenon. And we believe that we are going to right-size our working capital in the first half of next year. With that right-sized working capital in the first half of next year, we will use that to pay down the short-term debt is the current plan. The ultimate goal of getting to a 2.5 leverage ratio in the mid-to long-term remains the same.

Yes. On the A&P question, really, it’s the ratio because with the top line coming down, obviously, the ratio looks higher. But I think look, we have got two things there when we talk A&P. You have got also a lot of the displays and stuff that you need with holiday. And second, as we have new product launches, etc. that are supporting them. But we have right-sized our A&P spending, making sure that it is against the businesses with the higher margins and where it makes the most sense.

Thank you. So, I think we’ve covered all the questions. We appreciate everyone’s time today and the continued interest in Newell Brands.

Thanks everyone. Thank you very much.

Thank you. Ladies and gentlemen that concludes our conference for today. Thank you for your participation. You may now disconnect.