Good morning, and welcome to Newell Brands Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. Today's conference call is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, VP of Investor Relations. Ms. Tsinis, you may begin.

Thank you. Good morning, everyone. Welcome to Newell Brands second quarter earnings call. On the call with me today are Chris Peterson, our President and CEO; and Mark Erceg, our CFO. 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 refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q and other SEC filings available in 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 we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures are available and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables that were furnished to the SEC. Thank you. And now I'll turn the call over to Chris.

Thank you, Sofya. Good morning, everyone, and welcome to our second quarter call. Second quarter results came in at the high end or ahead of plan across all key metrics. Core sales performance continued to improve sequentially. Gross margin increased versus last year for the fourth consecutive quarter driven primarily by outstanding productivity results. Normalized operating margin came in well above plan despite higher A&P investments. Normalized EBITDA improved 10% versus a year ago. EPS was much stronger than we anticipated, driven by both better operational performance and tax help. And we meaningfully reduced Newell's cash conversion cycle versus a year ago. We are off to a strong start in the first half of 2024, which gives us confidence to raise our outlook for the full-year on core sales growth, normalized operating margin improvement, normalized earnings per share and operating cash flow. Stepping back, as you may recall, a little over a year ago, we announced our new corporate strategy, which focuses on disproportionately investing in innovation, brand building and go-to-market excellence and our largest and most profitable brands and markets while driving further standardization and scale efficiencies across the supply chain and back-office functions. And just six months ago, we transitioned into a new operating model, which is designed to accelerate the new strategy by enhancing organization effectiveness and agility while creating a high-performing, innovative and inclusive culture. While still early days, we believe the strategy and operating model changes are clearly working. Since introducing the new strategy, we've now reported four quarters of results. And over the past year, we have improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023, to down 4.5% in the first half of 2024. Importantly, we also returned our most profitable segment, Learning & Development, as well as our combined international business to core sales growth in the first half of this year. We have improved normalized gross margins for four quarters in a row versus prior year and are up over 400 basis points on a trailing 12-month basis versus a year ago. We've improved operating margin by over 100 basis points on a trailing 12-month basis versus last year despite increasing investment in A&P. We have driven $717 million in operating cash flow over the past four quarters and reduced net debt by about $400 million. Normalized EBITDA has increased by 10% on a trailing 12-month basis versus prior year from $801 million to $882 million. We have taken a full turn out of Newell's leverage ratio, going from 6.3x last June down to 5.3x this June. And we have made significant progress improving the company's front-end capabilities of consumer understanding, innovation, brand building and go-to-market. From a segment perspective, Learning & Development delivered the second consecutive quarter of core sales growth, driven by both the Writing and Baby businesses. We believe the front-end capabilities are most advanced in this segment, which is both structurally attractive and has a strong pipeline of consumer-driven innovations. The Home & Commercial segment has made significant progress on improving the structural profitability of the business and driving selective growth in parts of the portfolio as we reposition it for sustainable and profitable growth. In this segment, we made the decisive and necessary choices to exit some unprofitable categories and SKUs while taking pricing to enhance the structural economics of the business. We expect to sequentially improve the top line performance of the Home & Commercial segment in the back half of this year as the front-end capabilities are improving rapidly. Lastly, the Outdoor & Recreation segment, which is the smallest one in Newell's portfolio, both from a revenue and profitability contribution perspective continues to be the weakest one and most in need of a turnaround. At this point, we have completely restaffed the team and have relocated the business to Atlanta while investing in the front-end capabilities required to get back to winning. While performance has been challenged, and we think it will be some time before we fully unlock the potential of the iconic brands such as Coleman, we believe the business has now bottomed and we expect trends to improve sequentially in the back half of the year, starting in the third quarter. Looking forward, for the company overall, we expect top line revenue trends to continue to improve sequentially in the back half of the year as the front-end capability investments continue to gain momentum. Last quarter, I spoke about the new Sharpie Creative Markers and Paper Mate InkJoy Bright gel pens, which continue to deliver strong performance as these iconic brands are attracting new purchasers to the categories. During the balance of the year, we will support and commercialize a series of recently launched or soon to be launched additional innovations, including Graco SmartSense Soothing, Bassinet and Swing, which detect and respond to baby's cries in seconds with soothing combinations to lull the baby back to sleep. Graco Ready 2 Jet Stroller, which features an easy-to-press button for one-handed folding, so mom can hold her child while folding up a stroller. On-the-Go Crock-Pot, which was one of the top-performing SKUs for the brand and is one of the first in the category to operate a portable food storage and warmer option. Multi-meal crock pot, which is an exciting launch that features two cooking pots, allowing users to cook at two separate temperatures and cooking methods at the same time. Rubbermaid Brilliance rounds as Rubbermaid continues to expand its very popular Brilliance line to provide a complete offering that allows consumers to select the size and shape based on their needs while offering 4x the protection, 100% leak-proof stain, odor and shadow resistant performance. Rubbermaid is partnering with Olympic gold medalist, Shawn Johnson East, and her husband, Andrew East, to highlight the unbeatable combination of performance and design from Rubbermaid Brilliance's award-winning food storage containers. Oster Sandwich maker, which the Oster team launched earlier this year in Latin America, leveraging the innovation platform strategy by taking a highly successful premium price point product launched from Brazil from a sister brand, Cadence, and introducing it across Latin American markets under the Oster umbrella. Oster Perfect Brew Maxima is a premium-priced espresso machine that we launched several months ago in Latin America and is already on back order in Mexico. It allows consumers to obtain a coffee shop-style beverage in less time due to thermal block technology and the ability to brew espresso and froth milk at the same time. Rubbermaid Commercial powered carts, which are battery-powered motorized carts, tow trucks and add-on accessories, which make it easier and safer to move heavy loads. This has been one of the most successful launches for Rubbermaid Commercial Products as it builds on an industry need for both safety and improved efficiency. And last but not least, this fall during peak season for the holidays, we are introducing a new FoodSaver Handheld Plus machine, which is a drawer-sized cordless vacuum sealer that pairs with our FoodSaver storage bags for easy-to-use food preservation now with the new marination function. It is the first and only core machine in the industry. In addition, we have activated two significant commercial campaigns with the Oster 100-year anniversary in Latin America and the Ball 140-year anniversary in North America. Both brands are driving sales growth in these markets, respectively. We continue to make progress on new business development, expanding our brand's distribution across both new and existing retailers, which has been one of the drivers of the strengthened top line results in recent quarters. We continue to advance the One Newell International strategy. On July 1, we completed two additional ERP consolidations in Brazil without any significant disruption. International continues to be a growth engine for the company and has returned to core sales growth already in the first half of 2024. We are in the early stages of seeing the fruits of our labor from critical front-end capabilities. The progress we have made so far is driving our confidence for continued sequential improvement in top line trends as we enter the back half of the year. Before turning the call over to Mark, I want to provide some perspective on Newell's exposure to potential tariff changes, which is a topic that has captured headlines recently due to the upcoming election in November. Having just posted our highest gross margin quarter in five years, we want to make sure we don't slide backwards. As such, for the last few years, we have been working to reduce our dependence on China sourcing. We began accelerating our efforts about six months ago. Specifically, we are continuing to pursue the following actions. First, where economically feasible, we have been in-sourcing production to Newell's existing manufacturing network. We have completed a number of in-sourcing projects in the Writing, Baby and Home businesses. Second, we have been shifting production to alternate geographies through both existing and new suppliers, which we have been proactively qualifying for major purchase pools. At this point, we have evaluated the country of origin on all suppliers and are not signing on any new suppliers that do not have existing or defined plans to establish manufacturing capabilities outside of China. As a result, sourced finished goods that Newell imports from China to the U.S. now only account for about 15% of the company's total cost of goods sold, including a large portion of baby products that are currently exempt from the 301 tariffs. Importantly, based on the work already in progress, we expect this exposure to drop to less than 10% by the end of next year as we continue implementing our plan. While we recognize this is an area of uncertainty, our exposure to China-based manufacturing is much lower today than it was previously. Additionally, there are a number of categories where Newell has significant U.S. and Mexico manufacturing capability, while competitors continue to source from China, including Writing, Coolers and Blenders to name a few. We plan to stay agile and connected as the U.S. economic policy unfolds so that we take advantage of opportunities for growth while minimizing potential negative impacts. We came into this year with the expectation that the external backdrop would be challenging, particularly for consumer discretionary goods, which is largely how it has played out thus far. While our categories remain under pressure, we are making progress on our strategic agenda, which has enabled us to deliver results at the high end or ahead of plan across key metrics in the first half of the year. This provides us with confidence to raise the financial outlook for 2024. Since implementing the new corporate strategy, we have taken decisive actions that enabled us to improve the company's top line trajectory, enhance the structural economics of the business, delever the balance sheet and improve cash flow performance while strengthening our team, Newell's front-end commercial capabilities and fostering a high-performance, high accountability culture. We remain laser-focused on returning the business to sustainable and profitable growth with the strength and performance in recent quarters reinforcing our confidence that we are pursuing the right strategy to accomplish this objective. I would like to thank our talented employees for their continued commitment to operating with excellence and delighting our consumers by lighting up everyday moments. I will now hand the call over to Mark.

Thanks, Chris. Good morning, everyone. We believe that our second quarter results provide additional evidence that the interventions we have made to operationalize Newell's new corporate strategy are having a positive impact on the business. For example, core sales came in at minus 4.2%, which was towards the high end of our outlook and represented a vast improvement versus our 2023 run rate. Pricing in international markets, particularly Latin America was a meaningful contributor to core sales in Q2 and a 3% headwind from currency tends for most of the difference between core sales at minus 4.2% and net sales at minus 7.8%. In addition, this was another quarter of rapid and meaningful gross margin expansion. Newell's world-class supply chain and procurement professionals once again delivered exceptionally strong productivity. And as we continue to focus on providing consumers with more MPP and HPP offerings and exit structurally unattractive categories and SKUs, we benefited from both positive pricing and favorable mix. Consistent with this and as a direct result of the strategies we have implemented, second quarter normalized gross margin increased by 490 basis points versus last year to 34.8%, which builds on the 170, 570 and 410 basis point expansions that occurred during the three sequential quarters that preceded it, respectively. During Q2, Newell's normalized operating margin also rose sharply, increasing by 170 basis points versus last year, to 10.8%. The increase in normalized operating margin versus last year was due to strong productivity, positive pricing and favorable mix, as well as ongoing organizational restructuring-related savings partly offset by higher year-over-year spending in three areas. First, we significantly increased A&P investment levels in absolute dollar terms and as a percentage of sales even as we shifted some A&P spending originally planned for the second quarter into the third quarter. Second, we continue to make targeted overhead investments in several critical front-end commercial capabilities. Third, based on the strong financial results we have delivered to date and are projecting over the balance of the year, incentive compensation is being accrued at a higher level than last year. Net interest expense increased by $2 million to $78 million, primarily due to higher interest rates, and a normalized tax benefit of about $14 million was recorded in the quarter. Normalized diluted earnings per share came in at $0.36, which was 50% higher than a year ago and well above our $0.18 to $0.21 guidance range. Now to be fair, about $0.10 of our Q2 earnings per share over delivery versus going in expectations was driven by an earlier-than-expected realization of certain tax benefits. However, fully adjusting for these tax items still produces a second quarter operational earnings per share beat of $0.05 to $0.08. Turning to cash flow, Newell generated $64 million of operating cash flow during the first six months of 2024. Now that it's admittedly down compared to the same period in 2023. But as you know, we just lapped an outsized benefit from massive working capital improvements last year, which was largely driven by a significant contraction in inventory levels. Operationally, our focus on cash remains as strong as ever, as evidenced by more than 20-day improvement in our year-over-year second quarter cash conversion cycle and a further step down in our leverage ratio to 5.3x at the end of Q2. This was slightly down sequentially versus Q1 and was 1 full turn better than Q2 of 2023. The year-over-year improvement was driven by $373 million of net debt reduction and a 10% increase in our trailing 12-month normalized EBITDA. Moving on to our third quarter outlook, we've assumed the following: Core sales are expected to be flat to down 2%, with net sales declining in the range of 4% to 6%. The four-point differential between core and net sales is largely due to foreign exchange. Third quarter normalized operating margin of 8.3% to 8.8% would represent an increase of 10 to 60 basis points versus last year as an increase in SG&A expense in both absolute dollars and as a percentage of sales due in part to higher levels of A&P investments should be more than offset by strong gross margin improvement. For the third quarter, we expect a slight year-over-year increase in interest expense, a normalized tax rate in the mid-20% range and normalized earnings per share of $0.14 to $0.17. Please note that our projection for a Q3 tax rate in the mid-20s is higher than usual due to the realization of certain tax benefits in the second quarter instead of the third quarter, as previously mentioned. For the full-year, we are the first to acknowledge that the macroeconomic environment remains choppy, but we believe the transformation of our business is clearly underway. As such, we have the confidence to improve our full-year financial outlook across several key financial metrics, starting with core sales. We are now calling for a core sales decline of 3% to 4% versus a 3% to 6% decline previously. This tighter, more optimistic full-year range is driven by modest first half over delivery versus our going-in expectations and the development and deployment of stronger second half marketing and innovation programs. And then within our full-year core sales estimate is an assumption that our categories remain under pressure, contracting low-single-digits. For the full-year, we now expect a net sales decline of 6% to 7% versus 5% to 8% previously. The new range includes a larger than previously contemplated headwind from foreign exchange based on current spot rates. Normalized operating margin is now projected to be between 8% and 8.2% versus our prior range of 7.8% to 8.2%. At the midpoint, our revised normalized operating margin outlook now represents a 110 basis point year-over-year improvement. If achieved, this would more than double the 50 basis point annual expansion called for in our evergreen financial model. We are also raising our normalized earnings per share guidance range to $0.60 to $0.65 from $0.52 to $0.62. Within this updated range are two key assumptions we want to specifically point out. First, we now expect a low double-digit normalized tax rate for the year instead of our prior mid-teens tax rate estimate. Second, we have built in a higher level of interest expense than we had before in the event we choose to proactively refinance a portion of our upcoming debt obligations at some point during the balance of the calendar year. Finally, due to stronger-than-anticipated delivery in the first half, we are raising our forecast for operating cash flow by $50 million to $450 million to $550 million, including about $150 million to $200 million in cash restructuring and related charges. And on a related note, we still expect Newell's leverage to land around 5x by the end of this year. And longer term, we remain committed to achieving investment-grade status and continue to target a leverage ratio of about 2.5x. So to summarize, close adherence to our new strategy since its deployment a little over one year ago, coupled with a maniacal focus on operational execution has allowed us to meaningfully improve our top line trends and deliver four consecutive quarters of year-over-year gross margin improvement and three straight quarters of year-over-year operating margin expansion while investing more in advertising and promotion and beefing up several critical front-end capabilities. During that same period, our cash performance and EBITDA growth has been strong, allowing us to pay down debt and lower our leverage ratio. We believe that these results and the actions we continue to take to strengthen the business and the organization have set the stage for Newell's reemergence as a world-class consumer products company. While there is still plenty of work to be done, we are encouraged by the progress we are making to unlock and monetize Newell's full potential. And because we firmly believe we are on the right path, we have improved our full-year outlook for core sales, normalized operating margin, normalized earnings per share and operating cash flow.

If you could, please open the call for questions. Thank you. Our first question comes from Peter Grom with UBS. You may proceed.

Thanks, operator. And good morning everyone. Hope you're doing well. So I was hoping to get some perspective on the gross margin performance in the quarter, strongest quarterly results since 2019. Can you maybe just unpack the moving pieces here? How did this compare to your own expectations? And I guess, how should we think about the progression from a gross margin perspective for the balance of the year and beyond? And it's been a while since we've talked about these long-term gross margin targets. But I just want to be curious whether the result today gives you confidence on kind of the path forward here. Thanks.

No, thanks for the question. And yes, we're really pleased with the plot that we've been laying forward as it relates to gross margin expansion. You may recall that we talked about the fact that we have seen our level of savings step up significantly. From 2019 to 2022, our supply chain organization was taking out about 3% of COGS. And then in '23 and '24, we're now running more at double that rate, around roughly 6% of COGS coming out averagely over those two years. They are doing that by driving automation, looking at four-wall costs, frankly looking at the entirety of the supply chain end-to-end. It wasn't that long ago that we didn't have an integrated supply chain. When we did integrate the supply chain and put the product supply professionals in charge of that, that obviously has given us additional fuel to drive through the P&L. We're also benefiting from the pricing actions that we took in July of last year, and we're also really starting to see a lot of benefits from mix management. The teams have gotten really good about looking at SKU level financial data. We've been looking at our pricing and promotion strategies very, very critically. And we believe that, that work has a huge amount of legs still associated with it going forward. And then, of course, we've talked about the fact that we're trying to drive our initiative programs to have more larger, more impactful initiatives that are accretive gross margin-wise as they come out the door. So we think, frankly, we're just getting started and are very excited about the plot ahead.

Yes. The only thing I would add to that, Peter, to your question on the balance of the year gross margin is we still expect to drive gross margin improvement in the balance of the year. Of course, as we get into the balance of the year, we will begin to lap a little bit tougher comps. And so our guidance assumes that we drive gross margin improvement in the back half of the year, but likely not at the level year-over-year of improvement that we saw in the first half of the year. But all of the programs Mark talked about continue to be in place, and we see a multiyear runway of gross margin improvement ahead. I think we have set out what we think this business is capable of getting to over the long-term at around 37% or 38% gross margin, and we still believe that that's the right longer-term target for us to be shooting for.

Great. Thanks so much. I'll pass it on.

Thank you. Our next question comes from Bill Chappell with Truist Securities. You may proceed.

Thanks. Good morning.

Good morning, Bill.

I just want to understand kind of your outlook on the back half in terms of some of the categories. And obviously, you have a seasonal business, and you've had a good start for the first half. But as we move to the back half, particularly back-to-school and the holidays and kind of the fragrance, the home fragrance, the appliance and obviously, the writing is much more pronounced in terms of their impact on the sales. So what gives you confidence from the first half that these are going to really down and kind of return to us in the back half? Maybe any update you're seeing on back-to-school or what you're hearing from the retailers about the upcoming holiday season. Anything like that would be helpful.

Sure. So let me start by saying when we started this year, we knew that we were heading into a macro backdrop where we were expecting our categories to be down low-single-digits as consumers remain under pressure from the cumulative impact of inflation over the last several years. And that outlook in terms of category growth has not changed. It's effectively what we've seen in the first half of the year and what we're assuming in the back half of the year. And so far, we haven't seen anything to adjust that sort of fundamental macro backdrop. Now if you look at our specific performance, what gives us confidence to say that our core sales trend is going to be better, even better still in the back half of this year versus the front half of this year are really three things. The first is the rate of innovation contribution to the top line is higher in the back half of the year than the front half of the year. And I talked a little bit about that in the prepared remarks where we had a great launch of Sharpie Creative Markers and Paper Mate Inkjoy Bright Gel pens in the front half of the year. But in the back half of the year, we have a lot more innovation coming to market that's being launched as we speak. And so we're expecting the contribution from new product innovation to increase in the back half versus the front half. The second thing that's happening is we had talked about, as part of our capability improvement actions, the new business development group that we started about 12 months ago, and that group continues to gain traction. And so at this point, we have a higher contribution of confirmed new distribution gains that are coming in the back half of this year as compared to the front half. And so we know that our distribution is strengthening from that capability in the back half versus the front half. And the third thing that's driving this is the international business. So I mentioned that we returned to growth in the international business in the front half of this year, but we have now made a lot more progress in the operating model changes that we initiated six months ago, driving the One Newell international capability. And we're expecting the international business in total to accelerate core sales growth in the back half of this year versus front half. So when you put those three things together, they're driving a better tailwind from the implementation and the realization of the integrated strategy. Relative to back-to-school, it's early days on the back-to-school season. Obviously, it's a big contributor to the company's results. We feel very good about the sell-in for back-to-school. We believe that we are set up for market share gains in the back-to-school period, driven by the strength of our innovation and the distribution and promotional setup that we have going into the back-to-school period. We also this year had very strong operational results in terms of fill rate and inventory. So we've had effectively no issues in getting the back-to-school displays and in-store materials set up. Of course, we won't see the consumption from a consumer standpoint until the next two months or so. And so we'll have a better update on that at the end of next quarter as we always do. But we feel as good as we can going into the back-to-school season on writing relative to prior years.

I appreciate the clarification. It seems that the feedback from the retailers regarding both back-to-school and the upcoming holiday season aligns with what you expected back in January. Given the mixed signals about consumer health, would you say that's an accurate assessment?

That's a fair statement. Yes, we entered this year expecting our categories to decline by low-single-digits. For the first six months, our categories have indeed declined by low-single-digits. Everything we're hearing from retailers indicates that this situation is likely to continue in the latter half of the year. The macro environment hasn't changed from our expectations. What has changed, and gives us more confidence, is the progress we are making at Newell in enhancing our front-end capabilities. This improvement is enabling us to deliver at the higher end of our range and has led us to revise our core sales outlook positively for the remainder of the year.

Perfect. Thanks so much.

Thank you. Our next question comes from Andrea Teixeira with JPMorgan. You may proceed.

Thank you everyone and good morning. I was trying to understand all the impacts; I appreciated your explanation about the import impact and the reduction to 10% sourcing from China. However, we have been noticing an increase in maritime container rates and overall transportation costs. I wanted to know if there is any additional pressure or if these costs are mostly hedged or contracted through the end of the year. Additionally, I assume that the third quarter has some benefits from the back-to-school season. I wanted to discuss what mix effects we might be seeing from that innovation. Are the innovations you’re introducing margin-enhancing, and how should we view that going forward? Also, regarding Coleman and outdoor products, my impression is that they tend to have lower margins. Please correct me if I'm mistaken. As these products come back and improve, are you confident that their margins are better or at least comparable to what they were before? I’m interested in how the innovation has positively impacted our margins on a like-for-like basis.

Okay. Let me try to address each of the points. So first of all, from an inflation standpoint, we went into the year assuming that inflation was going to be sort of a low-single digit headwind. That continues to be our outlook, and that's where we're pacing. We've seen a little bit of more inflation from resin. Labor and overhead continues to be about in line with what we expected in terms of inflation pressure. If anything, from a transportation standpoint, to your question on ocean freight, we've actually done a little better than we were expecting. So heading into the year, we have contracted for 100% of our containers, and we're getting pretty much full adherence to our contracted rates. So we have not experienced and don't believe we're going to experience significant ocean freight inflation or container availability issues. So from an overall standpoint, our input cost inflation remains about the same despite some small puts and takes. Relative to Q3, from a mix standpoint. What I would say is we don't think that the overall business unit mix is going to be dramatically different in Q3 of this year versus Q3 of last year. The only exception to that is recall that we have exited some structurally less profitable parts of the business. And so we do believe that as a result of the continuation of those activities, mix should continue to be a help in Q3. And when we look at the business mix, we are expecting gross margin to be up in Q3 versus a year ago as we continue to expect strong productivity results from the supply chain teams and we continue to expect a mix benefit as we mix the portfolio to more structurally attractive parts of the portfolio. Last comment is on Outdoor & Rec. I mentioned in the prepared remarks, the Outdoor & Rec business is the segment that requires the most amount of turnaround at this point. The good news is it's our smallest segment, both in terms of revenue and profit. And at this point, we believe that the trend has bottomed in Q2. So we are expecting in Q3 the top line trend to begin to sequentially improve versus the front half of the year. And we think we're on a multi-year journey to get that business back to bright. So that's our expectation for the Outdoor & Rec business. And we've made pretty dramatic action there. I mean, moving the business from Chicago to Atlanta, effectively restaffing the entire leadership team of that business has happened over the last three to six months. And so we believe we're in a much stronger position to take that business forward in a more profitable way over the next couple of years.

Thank you.

Thank you. Our next question comes from Lauren Lieberman with Barclays. You may proceed.

Thanks. Good morning. Two questions. One was just on retailer inventories, just kind of where you think things stand, if you're seeing any more cautious behavior from retailers in any categories in particular. And then the second was just on commercial. I think the business had core sales growth last quarter, but then inflected to down this quarter. So just any kind of update on that, if it's timing effects or anything you're seeing in the market? Thanks.

Yes. Thanks, Lauren. On the retail inventories, we believe we're still in pretty good shape. We haven't really seen a meaningful change in retail inventories in this year's numbers in the front half. I think we said we felt heading into the year that retail inventories were in a pretty good shape. We continue to believe that that's the case. So we're not seeing major swings in our fundamental results as a result of big retail inventory changes. Of course, there are always retail inventory changes related to seasonal businesses. So when you ship in for the back-to-school, retailers build up inventory and then you see how the consumption is during the season. But there's nothing that we see that gives us pause or says we believe were either over-inventoried or under-inventoried at this point relative to sort of healthy levels across the retail landscape. On the commercial business, the commercial business, you're correct, did grow in Q1. It was down slightly in Q2. I would say that's more of a timing. If you look at the front half of the year, the commercial business delivered core sales growth in total in the front half of the year. Part of what we're doing in the commercial business as well is there's a good part of that business that is very structurally attractive. There's also a small part of that business that was structurally less attractive that tended to be more of the consumer-oriented products that were sold in DIY. We have decided to move away from some consumer-focused businesses that are less structurally attractive as part of our overall strategy. This shift was particularly evident in Q2 due to the summer selling season and the effect on outdoor Rubbermaid Commercial type products. However, we remain confident in the health of this business. In the first half of the year, we recorded growth in core sales, and we consider this business to be one of the stronger performers within our overall portfolio.

Thank you.

Our next question comes from Brian McNamara with Canaccord Genuity. You may proceed.

Hi, good morning guys. Thanks for taking the questions. First, I know you have kind of flagged it would take the longest to recover and turn around. But outdoor continues to struggle with, I think it's like eight straight quarters now, pretty significant double-digit declines. You're not alone there, but the weakness appears more acute than some of other brands we see in the space. So I guess what gives you confidence that we've kind of reached this bottom?

Yes, I think there are two key points. I agree with your assessment. In the Outdoor & Rec business, while the market is indeed challenging, we are not performing as well as we should be. There are a couple of factors contributing to this. First, the leadership team in that division needed a complete overhaul, and we have successfully accomplished that and restaffed nearly the entire team, as I mentioned. The new team has been in place for the last three to six months and possesses much greater capability than the previous one. This is the first reason for my confidence. The second reason is that the strategies pursued by previous brand teams for several Outdoor brands were fundamentally flawed. We have now made changes. For instance, Coleman had been exclusively focused on camping in recent years, but I believe the total addressable market for camping is much more limited compared to the broader market for outdoor activities. And so we have pivoted our focus on the Coleman brand to focus on more outdoor activities, including the sidelines, backyard, and beach. We're not abandoning camping, but we are expanding the aperture. And when you do that, the total addressable market that we're now going after with Coleman has tripled versus the previous total addressable market, first point. Second point, we've done a lot of work to redefine who is the target consumer and begin to repopulate the innovation pipeline. Because we had to get the new team in place, the new team is now in place. We now have a much stronger innovation pipeline on that business than we've had at any point since I've been with the company. That being said, the innovation pipeline is still sort of going to unfold over the next 24 months. So it's not all going to launch this quarter because of the cycle time. But you will start to see us get back with better marketing campaigns and the beginning of a new innovation pipeline starting in the back half of the year, and then we expect that to accelerate in calendar year '25 and even more in calendar year '26.

Got it. Great. That's helpful color. I guess secondly, we've heard from a whole host of consumer companies and now banks reporting recently, flagging low income consumer weakness, while some higher income cohorts are trading down. What's your view of the current consumer health overall? And how does that impact the potential return to top line growth next year?

Yes. I think our view continues to be that the consumer is under pressure, as I mentioned previously, because the cumulative impact of inflation has outstripped the cumulative wage gains, if you look at the time period from 2019 to today. And that has caused consumers to prioritize food and essentials at the expense of more durable discretionary products. At the same time, we had a COVID surge in demand back in 2021 that took some consumers out of the category for a period of time. I think the thing that we're starting to get a little bit more optimistic as it relates to 2025 is we believe that that COVID bump and pulling people out of our categories is now likely going to be behind us as we go into next year is the first thing. The second thing I would say is we have a number of categories where when as consumers are under pressure should benefit. So for example, food prices and restaurants have gone up dramatically. And if consumers spend more time eating at home, that should benefit our kitchen business because our kitchen business is all about enabling consumers to eat more at home, when you think about our kitchen appliances, our food storage business, our fresh preserving business, et cetera. And so we believe that as our innovation pipeline ramps up, we believe that we have an opportunity to end-tight more consumers into our categories as we go forward, and that's what we're focused on doing.

Great. Thanks very much. Best of luck.

Thank you. Our next question comes from Chris Carey with Wells Fargo Securities. You may proceed.

Hey, good morning everyone. So I actually wanted to follow-up on that last comment, Chris, but also ask a follow-up. So regarding this comment on 2025 and the COVID bump seemingly behind you and consumers ready to return to the category, it's quite an interesting conversation, which we've covered on this call around purchase cycles, length of purchase cycles and how long these gaps can last. So are you seeing signs that consumers are returning to certain of your categories that have longer, but got more predictable purchase cycles? Or is this a bit more theoretical based on where X years into a certain cycle and typically, the consumer will return. So it's really about as this happening or is this more expected to happen?

So I think I would say a couple of things. It's obviously hard to predict. The thing that we're seeing that's giving me some encouragement is, I'll give you an example. One of the innovations I talked about in the prepared remarks was the Oster Perfect Brew espresso machine that we launched in Latin America. We launched that product in Latin America. It's priced about $900, which is a pretty significant price point for the Oster brand. The product sold out. We sold our entire year's volume in the first two months. And we're starting to see some examples of that where when we come with a compelling innovation, even if it's at a high price point, we're seeing consumers be attracted to those and really perform at a strong level. And so as we start to see signs of that, that's what's giving me the confidence. The Sharpie creative markers that we launched, which got the Sharpie brand into the paint market. We've gone from effectively close to 0% market share to 35 points of market share in paint markers in a period of six months. I mean, that's pretty dramatic. And those Sharpie creative markers are an incremental purchase. So what it's starting to give me confidence is that when we come out with compelling innovation that we can communicate to consumers in a compelling way, we're seeing consumers buy and respond. And the response that we're seeing is greater than what we're anticipating. And so that's why I'm starting to get a little bit more confident relative to our ability to drive these categories back to growth in the current environment. Last comment on the pricing for the foreign exchange and international. I think the pricing for foreign exchange and international is not a meaningful contributor to the sequential improvement in core sales growth. So I think it was actually a smaller impact in Q2 than it was in Q1. But obviously, we are pricing where we see currency issues affecting our cost base. But that fundamentally is not a major contributor to the core sales improvement. It's been relatively consistent over the past, I would say a year or more.

The only thing I would add to that is we have to do our part to create the consumer demand, right? So if you look at the A&P in the quarter we just printed, it was at 5.3%. That's the highest we've been in the past six years. And if you look at our A&P plans for the balance of this year, we're going to be spending considerably more money in A&P overall. It will be up at least low double digits. And in the back half, the back half is up roughly 30% versus the first half in support of that. And as Chris talked about our business, the strength is starting to broaden out. If you go back to Q1, right, international grew, albeit very modestly, and then only one of our six major product groupings grew at that same point in time, which was Baby, right? We have six major product groupings in three segments. We have writing, Baby, Commercial, Kitchen, Fragrance and Outdoor & Rec. In Q2, international grew again, which is roughly 40% of our business, but then two of our six business segments, both in the LED segment grew. As we look at our third quarter projections, we're confident that international will grow faster than it grew in the first half. And we're confident that at least three of our six segments will grow, okay? Maybe more than that. So we're building out the capability sets doing the work to get the consumer orientation correct, the market appeal correct, the innovation correct, the pricing and promo correct, and that's what's also helping us and giving us more confidence, right? I mean the consumers will be coming along, but we also have to help them come along and find and select our brands.

All right. Thanks guys.

Thank you. Our next question comes from Filippo Falorni with Citi. You may proceed.

Hi, good morning everyone. I wanted to ask about like some of your assumptions in the second half of the year, particularly from pricing versus volume at a core sales line and maybe even like some level of quantification of the contributions from Argentina and upper inflationary pricing. And then for the U.S. market specifically, we've seen more recently some companies talk about retailers leaning in more on promotional activity. So maybe you can talk about what you're seeing in your categories. And from a private label standpoint, we've also seen a pickup in some of your categories in track channels. So wondering, I know track channel doesn't cover the entirety of our business. So wondering what you're seeing overall from a private level standpoint? Thank you.

Yes. So let me try to pick them off here. So from a pricing versus volume standpoint, what I would say is that you recall that we took a meaningful price increase in about 30% of the U.S. business last July 1st. That has led to carryover pricing benefit in the first half of this year. As we go into the back half of this year, we will lap that. So I'm expecting that the pricing benefit in the back half of this year will be lower than in the front half of this year, and it will be fundamentally more of a volume story than a pricing story, first thing. Second thing, with respect to Argentina. We do have a business in Argentina. It represents less than 1% of the company's sales. So it's a small business. It is not in our top 10 countries. We have local manufacturing in Argentina. We are continuing to operate that business. And we are pricing for inflation. We're managing it a little bit more on a cash basis. And we're having really no issue at getting cash out of the country. So we feel pretty good about the team's ability to execute in a hyperinflationary market. It is not a material impact on the company because it's such a small percent of the company's business. It does, because of the pricing impact, contribute to the international pricing because of the significant pricing that we're taking there. And we're seeing the inflation rate in Argentina come down. So the pricing benefit from Argentina is becoming smaller as the inflation level comes down in that market. So that's our situation there. From a U.S. promotion standpoint, I think we're getting a lot of requests for increased promotional activity from retailers and we're being selective about it. I would say our promotional stance is not materially different from where we were last year. It's not that the market has all of a sudden gotten way more promotional, the only exception to that are there are a couple of categories where there remains excess inventory that our people are trying to liquidate. And an example of that might be the Outdoor & Rec type segment, where there still are a lot of companies that are working off excess inventory at higher promotion levels. But overall, on balance, we're not seeing a sea change relative to U.S. promotional pressure. And then lastly, in terms of private label. I would say the private label environment remains relatively consistent in our categories. We're not seeing a meaningful increase or a meaningful decrease in private label. And the private label penetration in our businesses is very different. There are some businesses that have much higher private label penetration, like candles, for example. There are some businesses that have exceptionally low private label penetration like writing. And we haven't seen a material change in that broadly across the company at this point. Yes. For our U.S. business, it would be just under half, probably around 40% of our imports, with about 15% coming from China and 25% from other countries. This represents a significant change as we have considerably decreased our reliance on China for sourcing. Additionally, we are closely watching several categories where our competitors remain highly dependent on China sourcing while we are not. Depending on the outcome of the China tariffs, we may need to quickly increase production to add more capacity if our competitors are priced out of the market in some of our businesses. At the same time, we will need to respond to any tariffs we face in China. However, I believe our starting point is much more balanced now compared to where we were three or four years ago.

Got it. That’s very helpful, Chris. I have a quick follow-up regarding your comment about imports from China, which was really informative regarding the 15% of COGS and your goal to reduce that to less than 10%. I was wondering what the total figure is when considering all overseas imports. In the past, you mentioned that about half of your sales come from overseas imports. I'm just curious about that figure.

Yes. For the U.S., it's likely a little less than half. I would estimate that around 40% of our U.S. business consists of imports, with approximately 15% from China and the remaining 25% from outside of China. This represents a significant change, as we have greatly decreased our reliance on sourcing from China. Additionally, we are closely watching the situation, as many of our competitors are still heavily reliant on China sourcing, unlike us. Depending on the outcome of the China tariffs, we may need to quickly increase production to add more capacity if our competitors are priced out of the market in some of our business areas. Simultaneously, if we face tariffs on certain businesses in China, we will have to respond accordingly. However, I believe our starting position is much more balanced today compared to where we stood three or four years ago.

Got it. Thank you. Super helpful. Thank you.

Thank you. And our final question comes from Olivia Tong with Raymond James. You may proceed.

Great. Thanks. I would like to hear your assessment on the competitive environment because you're clearly driving better results versus your peers. And as you discussed during your prepared remarks, it sounds like you have a lot less exposure to China manufacturing. So as you look at flattening out the top line in the second half, how much of that is just less pressure on the categories, in reference to Chris' question, about sort of a return to replenishment cycle, potentially we're four years post-COVID, are people coming back to the category, things starting to break down and needing to be replaced? And how much of that is your innovation?

So we don't think, in the back half of this year, we don't think any of it is category driven. We're still expecting in the back half of the year, the categories we compete in to be down low-single digits. What's really changing is our execution. And it's not one strategy that we're employing, it's the integrated set of strategies that we put in place. And so when you look at the strategy that we deployed a year ago, and then the operating model changed to that's accelerating that and the culture change, that integrated set of choices is driving better contribution from innovation, better contribution from new business development and better contribution from international. I think those are more company-specific than sort of category changes that we're assuming. And that's what we're excited about, frankly, because what we've been focused on since we put the strategy in place about a year ago is focusing on the things that we could control to try to get the company operating with excellence. And I think we're starting to see that show up through the financial results. We're not ready to declare success yet. There's still a lot of work to be done ahead of us because our objective is to outperform the category consistently over time. And we think we're on the pace to be able to do that as we go forward here.

Got it. And then just on China production. You mentioned it's going to 10% from 15%. Can you say how much of that is Baby? And then just for comparison, what percent of your goods were produced in China during the previous tariff increase to 25%?

Yes. We were probably at around 35% to 40% of our goods when the previous tariffs were implemented, and the amount we're currently paying in China tariffs has decreased by about half. This is a significant reduction as we've adjusted our supply chain. Of the 15 points that are now under 10%, I'd estimate that roughly half of that is related to Baby products. Baby is the category most affected moving forward as we finalize these changes. Additionally, during the previous tariff implementation, we successfully advocated for the government to exempt most Baby products from tariffs, which is why they are not included on any current tariff list.

Great. Thank you. Best of luck.

Thank you. This concludes today's conference call. Thank you for your participation. A replay of today's call will be available later today on the company's website at ir.newellbrands.com. You may now disconnect. Have a great day.