Newell Brands Inc. (NWL) Q2 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Newell Rubbermaid’s Second Quarter 2015 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. As a reminder today’s conference is being recorded. A live webcast of the call is available at newellrubbermaid.com on the Investor Relations homepage under Events and Presentations. A slide presentation is also available for download. I will now turn the call over to Nancy O’Donnell, Vice President of Investor Relations. Ms. O’Donnell, you may begin.

Thank you. Good morning, everyone. I want to welcome you to Newell Rubbermaid’s second quarter earnings call. Before we begin, our comments today include forward-looking statements. Such statements are based on assumptions and estimates, which could be materially different from actuall results. Please take note of Newell’s cautionary statements regarding forward looking statements in the 8-K that we filed with our press release and in our most recent SEC filings. Newell undertakes no obligation to uptake any forward looking statement. Also please note that we will discuss certain non-GAAP financial measures. We have provided in our press release and 8-K filing reconciliations of non-GAAP numbers to comparable GAAP financial measures. Our call today will be lead by our President and Chief Executive Officer, Mike Polk; and John Stipancich, our Chief Financial Officer. Now, I would like to turn the call over to Mike.

Thank you, Nancy. Good morning, everyone, and thanks for joining our call. Building on a very good first quarter set of results we’ve reported another strong performance in the second quarter against our toughest competitor from last year. As a result, this morning, we announced that we have increased our core sales and normalized EPS guidance for the full year. So let’s get into our second quarter performance. In Q2, core sales grew 5.1% and net sales grew 3.9%. Acquisitions and plan divestures contributed 480 basis points to net sales growth, which was more than offset by a 600 basis point negative impact due to foreign currency. Normalized gross margin increased 10 basis points to 40%, driven by productivity and pricing partially offset by negative impact of foreign currency and the mix effect from acquisitions which carry amortization charges. This improvement when coupled with 140 basis point reduction in overheads funded 150 basis point increase in advertising and promotion, with advertising spending up over 70% versus prior year. Normalized EPS was $0.64, $0.02 ahead of consensus and 8.5% ahead prior year. We achieved this EPS growth despite investing $0.07 in incremental advertising and promotion and having to overcome an $0.11 negative impact from foreign currency. Our second quarter core sales growth was broadbased with growth in all five segments and in all four regions. Combined our win bigger businesses grew core sales 6.5%. Writing core sales grew 10.8% driven by strengthened innovation, increased marketing support and pricing. These results were achieved despite having to comp a year ago period when the U.S. back-to-school selling skewed earlier than it did this year. Commercial products grew core sales 1.6%, successfully lapping nearly 10% growth in the prior year period with good underlying sell out trends in the U.S. and Europe as a result of strong innovation and excellent sales execution. Tools grew core sales 1.3% successfully lapping nearly 13% growth in the prior year period associated with last year’s expansion of our Brazilian business. We delivered strong results in Europe and Asia-Pacific and solid performance in the U.S. U.S. tool sell out in Q2 was very strong and we’re pleased with the momentum we are building in the business into the second half of the year. Importantly Baby core sales grew 6% in Q2 with very strong Japan and UK results complementing solid U.S. performance to more than offset Western Europe and Russia weakness. Home solutions grew core sales 1.2% with continued double-digit Rubbermaid food storage growth offsetting planned declines on our lower margin Rubbermaid consumer storage business. In Q2, our recently acquired Contigo, Bubba, and Baby Jogger brands delivered outstanding results growing double-digits compared to last year which was prior to your ownership. As you know we do not include acquisition growth in core sales until their first anniversary with the company. Have we included this growth our new brands would have contributed an incremental 30 basis points to our core sales growth in Q2. Our first half results are strong as well. Core sales grew 4.9% with all five segments in all four regions contributing. Our Win Bigger businesses lapped top comparators to grow core sales 6.9% with standout growth on writings of over 10%. We have returned our baby business to growth delivering 3.4% growth in the first half. We have had very good contribution from acquisitions which when combined with our strong core growth has offset the negative impact of currency to yield 4% net sales growth. Despite unprecedented currency pressure on our cost due to the strong U.S. dollar we have expanded normalized gross margins 30 basis points and we have increased advertising and promotion investment by 100 basis points while simultaneously increasing normalized operating margin 40 basis points as a result of making Newell leaner and more efficient through Project Renewal, all of this yielding 7.5% normalized EPS growth and very strong double-digit normalized EPS growth in a currency neutral basis. We are obviously very pleased with the first six months of the year. We built momentum in our business and view our results as further evidence of the progress we are making transforming Newel into a differentiated, highly competitive performer in our industry. Let me hand the call over to John to go through our results in more detail and then I’ll return to provide perspective on the balance of 2015.

Thanks, Mike, and good morning. Second quarter reported net sales were $1.56 billion a 3.9% increase versus last year. Core sales which exclude acquisitions, planned disposals and foreign currency increased 5.1%. The net impact of acquisitions and disposals contributed 480 basis points to reported net sales. Foreign currency had a negative impact of 600 basis points, as Mike mentioned all five of our segments delivered core sales growth in the quarter with writing and baby leading the pack. You may recall, we're comping against last year’s second quarter that benefited from a pull forward of about $15 million of sell-in orders for last year’s back-to-school season which results in about 100 basis points drag on core sales growth this quarter. On the other hand, Venezuela’s contribution of core growth this quarter is seasonally the highest of the year so netting these two offsetting factors so adjusting for the pull forward and excluding Venezuela, our underlying core sales growth in the quarter was about 4.2%. Reported gross margin was 39.8% an increase of 20 basis points from prior year. Normalized gross margin was 40% up 10 basis points over last year. Our improvement was driven by productivity, resin deflation, pricing and favorable mix which more than offset unfavorable currency, sourced labor inflation and the negative mix impacts from the gross margin structure of our recent acquisitions. Normalized SG&A expense was $374.9 million or 24% of sales which as a percentage of sales were flat to last year. A 140 basis point reduction of overhead fueled 150 basis point increase in advertising and promotion investments with all five segments benefiting from year-over-year increases in A&P spend. Notable investments included advertising support for Paper Mate, InkJoy pens, Irwin Vice-Grip hand tools and the Graco Nautilus 3-in-1 car seat, and we run numerous campaigns of Rubbermaid commercial to support our core business and new product launches. Normalized operating margin was 16% flat to last year reflecting the benefit of Project Renewal and other cost savings initiatives offset by increased investment in A&P and significant FX headwinds. Reported operating margin was 13.8% compared with 14.2% in the prior year. Interest expense of $18.1 million increased $3.1 million year-over-year reflecting the impact of our late 2014 debt refinancing and higher overall borrowings related to our acquisitions in the back half of last year. Our normalized tax rate was 24.5% compared with 27.2% a year ago due to the geographic mix of earnings. We still expect our full year normalized 2015 tax rate to be around 24%. Normalized EPS which excludes restructuring and other project costs was $0.64, an 8.5% increase to last year despite about $0.07 of incremental A&P investment and $0.11 of FX headwinds. On a reported basis second quarter EPS was $0.55 compared with $0.54 last year. And now I’ll move on to our segment results and starting with Writing, reported second quarter net sales increased 1.3% to $496 million. Core sales increased 10.8% led by strong volume growth EMEA and Latin America as well as pricing. In North America back to school selling droved solid growth as we comp against the timing related benefit in last year’s second quarter. Writing’s core sales growth for the first half was 10.1%. Q2 normalized operating margin in the Writing segment was 26.8%, 40 basis point decrease over the prior year as the benefit of increased sales and productivity was more than offset by negative foreign currency impacts and increased advertising and promotion spend. Net sales in our Home Solutions segment grew 14.4% to $438.5 million with acquisitions contributing $55.4 million. Core sales increased 1.2% due to the continued positive momentum in Rubbermaid food and beverage. This more than offset our continued exit of portion of the lower margin consumer storage business and a comparison against last year’s Calphalon pipeline fill at a major new customer. The first half of the year, the segment grew core sales by 1.1%. Home solutions normalized operating margin was 15.9% up 320 basis points reflecting the accretive impacts of acquisitions recent deflation and productivity. Our tool segment delivered net sales of $205.2 million, a 7.7% decrease driven by FX. Core sales grew 1.3% as we comp against double digit core growth in the prior year. Core growth in North America, EMEA and APAC was partially offset by a modest decline in Latin America where we had significant pipeline till last year related to our expanded product offerings in Brazil. Core growth for the first half of 15 was 2.2% normalized operating margin in the tool segment was 11.4% a 210 basis point decline driven by increased advertising and promotion and negative FX. Reported net sales in our commercial product segment decreased 5.8% to $210.6 million. Core sales which exclude the Rubbermaid medical business increased 1.6% driven by pricing and volume growth despite about a 10% core sales growth comp in the prior year. The core growth for the first half of the year was 5%, commercial products and normalized operating margin was 13.8% a 240 basis point decline due to higher advertising and promotion spend and negative FX. Our baby segment reported $210.7 million in net sales, up 14.7% increase compared to last year. The Baby Jogger acquisition contributed $26.7 million in sales during the quarter. Core sales grew 6% in the quarter reflecting good growth in North America and double digit growth in APAC, fueled by new product launches, and increased advertising and promotion. Core growth for the first half was 3.4%, Baby’s normalized operating margin was 8%, an increase of 110 basis points to last year despite a significant increased investment and advertising and promotion, thanks in part to the Baby Jogger acquisition. Looking now Q2 core sales by geography, North America core sales grew 1.4% lead by Baby and writing despite the 150 basis point impact from the back-to-school early sell on last year. In EMEA, core sales grew 6.5%, due to strong growth in writing tools and commercial products partially offset by continued weakness in Baby. In Latin America, core sales grew 40.2% reflecting good underlying core growth in writing and commercial products and pricing. Partially offset by slowing economy in Brazil, as well as comping our large new product launch in Brazil last year. Note our core sales growth in the first half for the region was 33.5% but that rate will tapper off in the back half of this year, as volume growth in Venezuela will tamper and as we see increasing softness in Brazil. This will be more produced in the third quarter as we lapped the SAP pull four from Q4 to Q3 last year. And finally Asia Pacific core sales increased 5.9% fueled by the strong double-digit growth in Baby Japan as that business has now returned to grow Moving on to cash in our balance sheet. In Q2, we generated $102.5 million in operating cash compared with $96.2 million in the prior year. The increase reflects improved payables, partially offset by higher inventories. We return $101.6 million to shareholders in Q2 including $51.2 million in dividends and $50.4 million to repurchase $1.3 million of our shares. As of the end of Q2 we have $312 million available under our authorized open market repurchase plan. And finally, our balance sheet metric continue to be strong giving us flexibility to support project renewal and for further acquisition should we chose to pursue them. Now, with that I’ll turn the call back over to Mike.

Thanks, John. Let’s now turn to the balance of 2015. This morning, we increased our 2015 full year guidance to 4% to 5% core sales growth and $2.14 to $2.20 normalized EPS, which represents 7% to 10% growth compared to prior year. Our best estimate for delivery is at the mid-points of each component of this new full year guidance. We are increasing guidance despite our expectation that for the full year negative foreign currency impact will now be $0.36 to $0.39 slight worse than previously communicated as a result of the further weakening of currencies particularly in Brazil and Canada. We’ve take broad based actions to deal with the currency impact and are making good progress covering the exposure. The expansion of project renewal has helped and we will need to take further pricing to cover the full impact. Despite the unprecedented ForEx challenge our conviction to steadily increase brand support remained strong given the core growth acceleration and market share increases we are experiencing. In 2015, our guidance assumes we increase A&P investment by nearly 20% and end the year with A&Pas a percentage of sales around 5%. Our strategic objective is to increaseA&Pinvestment to about 7 percentage points of sales over the next few years. We are unweavering in this ambition because we believe it is key to enabling both the deployment of our portfolio to new wide space geographies while also investing per share growth in our home markets. We expect to achieve both growth goals plus simultaneously delivering highly competitive earnings results and margin development. In 2015, on a currency neutral basis, the $2.17 mid-point of the new normalized EPS guidance range represents very strong double-digit EPS growth of over 25% versus prior year given our current assumptions on currency. If circumstances develop that give us flexibilities to deliver beyond the mid-point of the full-year normalized EPS guidance range we would likely prioritize investing back into the business to accelerate early 2016 results if we could do so productively rather than further strengthen already highly competitive earnings growth in 2015. Our 2015 full year guidance assumes that we sustain mid single digit core growth on our Win Bigger businesses with tools acceleration in the second half and writing deceleration in Q4 as we rebalance retailer inventories in advance of the potential consolidation in the U.S. office superstore channel. Our guidance also assumes the Baby sustains mid single digit growth for the balance of the year and then strong growth on Rubbermaid food storage offsets planned declines on the lower margin Rubbermaid consumer storage business resulting in low single digit Home Solutions growth for the full year. We expect to offset the negative impact transaction Forex with positive pricing in productivity and that we continue to reduce overheads which when coupled with growth enables us to increase advertising and promotion support. There are two factors that could influence where we fall in our full-year guidance ranges. The first factor is the planned positive momentum shift on our Baby business, we expect Baby to deliver solid single digit core growth for the full-year, we are well staged to achieve this outcome in North America and Japan behind strong innovation, great customer partnering in increased marketing support. We will continue to invest significant marketing support behind Baby innovation in 2015 in order to reignite growth while accepting the related operating margin contraction. Second factor that could influence the full-year outcome is foreign exchange and in particular the impact of Venezuela on our overall results. Our guidance assumes we overcome the $0.36 to $0.39 of negative foreign currency impact to deliver EPS growth in the range of 7% to 10%. We are on track to achieve this outcome despite the slight worsening of the Forex outlook since our last earnings call. We assume the major currencies hold at current market rates and in Venezuela we continue to transact and translate at the SICAD rate given that our last option was at the SICAD rate given that we expect to access another SICAD in the next few months and given that we expect to remix dividends at the SICAD rate. Last month’s SICAD option for the transformation industry set the SICAD rate at 12.8 bolivars per U.S. dollar, we have to reflect that this devaluation from 12 bolivars per dollar to 12.8 bolivars per dollar in our revised guidance. Importantly, we are executing well in Venezuela and in the seasonally high Q2 back-to-school period our growth was about evenly split between volume and price. We expect Venezuela to contribute roughly 90 basis points so the total company full year core growth rate in 2015, 20 basis points above the 2014 rate of contribution. As previously shared, we are on track towards the mid-point of our revised full year core growth guidance range of 4.5%, our expected full-year core sales growth contribution from Venezuela of 90 basis points implies that we are tracking towards 3.6% core sales growth excluding Venezuela. We believe either mid-point is highly competitive given we have observed the negative impact of our European exits and the planned contraction of the Rubbermaid consumer storage business in core sales. So let me close now by saying we had a very good first half of the year delivering strong competitive results, growth continues to accelerate and despite unprecedented foreign currency pressure, we are delivering very strong normalized EPS growth. We have increased our 2015 full year guidance to reflect the building momentum in the business and are tracking towards our long-term guidance of consistent 4% core sales growth and 10% normalized EPS growth as we enter the accelerations stage of the growth game plan in 2016. Our building momentum is a function of the short choices we’ve made. We are investing to create advantage in brand development and innovation capabilities and are backing them up with category leading marketing investment. We have tested nearly 750 new product concepts over the last 5 quarters and our concept test results are consistently well a head our research suppliers industry benchmarks. As a result our innovation funneled value as nearly doubled since 2013 with value per project up over 150%. The projects in the funnel has been steadily moving from concept to product leveraging strength and execution within our R&D and the new product design capability we have invested to cerate in our purpose built design center in Kalamazoo Michigan. These new ideas for growth and the near doubling of our advertising and promotion investment happen and enabled by our determination to make no linear and more efficient and to unlock the craft capacity for growth for project Newell. Coupled with the actions we have take it to strengthen our portfolio, these choices are yielding accelerate growth and margin expansion also beginning to scale the company. We are on about to completely transform Newell delivering a highly competitive differentiated story about category leading growth in margin development. That’s the growth gain plan into action and that’s the Newell Rubbermaid. Let me now pass the line to the operator for questions.

[Operator Instructions]. We will go first to Chris Ferrara of Wells Fargo.

Hi, good morning guys.

Hi Chris.

Good morning.

I hate to lead with the Venezuelan question, but it was such contributor to this quarter, so let me get out of the way. So, I guess first half if you guys had to move - I guess what triggered move to [indiscernible] for you guys and if you did have to move to samadhi for 2016. How does that affect you view of getting to that acceleration phase and those delivering 4% plus core sales growth even without the contribution from Venezuelan that you even seeing.

Chris, let me answer to the second part of your question and then I will pass the samadhi question over to John. But, you know the things that I - the reason we are unpacking the growth so that you have more visibility into Venezuela contribution is to set up some visibility to the underline performance in the company. So, John talked about Q2 if you adjusted for the writing timing and excluded Venezuela from our core sales growth numbers you would have 4.2% core sales growth in the quarter which is good indication of the underline performance in the company. I gave you another data point which is we expect on the full year Venezuela contribute 90 basis points, which against the mid point revised guidance range is equipped with 3.6% core growth on the full year. I think that’s 20 basis a head year ago so if you adjusted last years numbers you can see the sequential improvement in our growth rates underlining expend as well. So I think we are right on track to getting to 4%, 4 plus percent a core growth next year underline so excluding Venezuela just I think that’s within our reach now especially with the strengthening innovation funnel that I referenced in continuing work on cost which is enabling us to invest at higher A&P rates back into the business. So I think we are right on track to the acceleration phase with or without Venezuela in the numbers for 2016.

Yes Chris, with respect to samadhi we are still very comfortable based up on our ability to access the SICAD options and the information that we have coming up for the next round of auctions. As you know there was a auction last month in the grow transportation industry that out SICAD 12 way which cost us to revalue and move from 12 to 12 8. So we are still comfortable that SICAD is the right number for us, but we are obviously watching closely. If we did and have to move to sumari in Q3 , the impact on us would probably be about $0.2 before any mitigating action on 2015, so we would scramble and try to cover it obliviously if that when the case but you know that’s gets for us right now is certainly SICAD is the near-term future.

There is a key sort of event in SICAD later this year with the parliamentary elections and I think things stay in the current space that we’re in certainly through that moment in time and then we’ll see what happens after that. Look the facts and circumstances for every company are different, we accessed SICAD in 2014, we haven’t needed because went long, we’re able to access enough dollars to go long on raw materials and we’ve been able to price within the law to manage the margin impact of all that. We expect access another SICAD auction shortly and we’ll see how much, how many dollars we can access and how long position we can take, but right now, the circumstances for us are such that we feel very comfortable and the advice were being given would suggest that we continue to translate and transacted SICAD.

Got it. I guess a couple quick follow-ups, John, when you said $0.02 is that would be for the back half the year if you had to move there for Q3?

Correct.

Okay, and just on different notes, what is the outlook for commodities? Last quarter is a commodities were going to be I guess flat for the year and then just on the China writing launch that supposed to come up in the middle of 2016, can you is or any sort of data or analysis or color you can give us on what you are thinking in terms of share of potential incremental sales contribution from that early on? Thanks.

Yes. So on commodities as you know we’ve seen the benefits certainly present pricing; John referenced that in his comments. I think if I looked at inflation in total across all elements that influence our cost of goods, inflation this year is going to be pretty much flat year-over-year which is the first time we’ve seen that in a long time. Benefiting from resin deflation but we continue to see labor rate increases in some other raw material increases. They net against each other to effectively hot inflation flat. In that, it certainly is contributing to our ability to move gross margin up given the pricing and productivity activities we’ve been executing. We did see resin - from the middle of Q2 through the most recent period we have seen a little bit of a bump in resin prices and we don’t know how that will play out through the balance of the year pretty every industry outlook says those prices holds at that level, at that higher levels for the balance of the year but it’s really going to be dependent on the supply and input cost relationship with oil, now drifting back down you would think that would put down work pressure on resin prices. However, there are supply chain constraints in some of the components that go into resin manufacturing and there are supply constraints on the facilities themselves that is causing pricing to hold up a little bit more strongly than we would normally expect. And so it’s unclear how that’s going to breakdown for the balance of the year, our assumptions are that the current rates holds for the balance of the year and we actually see some inflation in resin going into 2016. China launch, Bill and Mark, and Chirsty were in Shanghai this week with a team working through route to market assumptions, we haven’t, Chirsh, we haven’t kind of put any data out there yet, I need to speak with them when they get back over the next couple of weeks to talk about how broadly we think we can go and what timing we think we can launch, is it first half or is it early second half and some of the route for market assumptions are really in our ability to skill those who really drive whether it’s first half or second half. We haven’t decided yet, we’ve got the brand, we’ve got the product, we got the packaging, we know where we would source the product from, which is within our own network. So we’re lined out on the hard stuff, we need to make sure we like the route for market assumptions we’ve built in and I need to understand the breath of cities that the team is going to recommend to go within until we resolve just exactly how broadly we’ll go. I can’t really quote what type of share and revenue impact we would expect. But over the next couple of months maybe by the end of Q3, we’ll start to talk about that little bit more openly.

Got it. Thank you.

Yup.

Our next question comes from Joe Altobello of Raymond James.

First on baby. Obviously this was a nice on. Quarter after the first quarter. Margins also were up nicely this quarter. When do you guys expect to get baby operating margin back in double digits? Is that something that is 2017 or 2018?

Yes hi Joe, it is John. With respect to Baby right now obviously we’re pleased to trend that business back to growth after the difficult year last year and I think as you heard there are two things that are going to challenge the margin on it little bit, one is we’re going to continue to advertise and promote the business right now because we are seeing a nice return on that in terms of the top line and the second piece we are getting to get some compression on as well as some pricing actions that we have to do to continue to defend the core in the North American market right now. So we’re going to do that is going to be the first priority for us overall over the next year or so. But eventually we will return to focusing more on the margin but for the short term it is more about making sure the business is continuing to grow, we protect obviously the price point levels that we are taking the pricing actions on.

Yes one of our competitive battles, Joe is with the Chinese company that has made some in roads into Wal-Mart on Baby, a company called Goodbaby and they are the owners of the Chinese company owns Evenflo, they also own a brand called [indiscernible] here and they also have a brand called [Erbenee] which is at Wal-Mart, I think it maybe exclusive to Wal-Mart, I’m not sure about that actually I think it may now be broader than simply Wal-Mart and so we are fighting that fight, we are going to defend the core as John said and we are doing that constructively and we are going to layer in the right innovations to Wal-Mart to the other retailers that currently are leaning into the relationship with Goodbaby. We view them as our core competitor in the U.S. and we believe we can now innovate them and we’re going to play for the market share, we are going to protect and grow our market share in the U.S., point-of-sale growth in the U.S. is strong despite the competitiveness of the marketplace and high single digit type of growth which is great, the 4Ever Car Seat will become available to all customers in the third quarter which will be really terrific addition to our retailers portfolios and I think this is one of the exciting things about the categories and the competitiveness of it with the other exciting things about the category for us is the high return on net assets that this category generates or we create a lot of value, so I’m moving to take the margin squeezed in order to sustain the growth because it does in the end create a ton of value given the very high return on net assets.

Got it. Thank you. Then in terms of advertising, obviously you guys have been investing heavily so far this year. Are you happy with the auto line that you are seeing an incremental investment and why is 7% the right number in terms of a to us? Thanks.

Yes I think 7% may seem like a random number that we plan our business categories country sell. We look out over the horizon, the strategic plan horizon to do that in the 7% is really an outcome based on the initiatives we believe we need to fund over the next 3 years to 5 years. We think we've reached the 7% A&P ratio hopefully by 2018 full year, maybe 2019. It will take us that long to get the A&P ratios up. In part because we need to be disciplined in how we deploy the portfolio into whitespace geographies. What we are not going to do is compromise our investment in our home markets for the sake of the point portfolio around the world. There is one big consumer goods Company's that made that mistake a few years back and it is still costing them and we are not going to make that mistake. We will govern the rate which we deploy based on our ability to preserve our investment in our home markets because we're so much opportunity consolidate market share home. 7% is an outcome. It's a function of our country/category sell planning and we believe that puts us in a very competitive position relative to our peer group of industry peers and that will likely result in A&P ratios that are near double-digit on riding and A&P ratios of businesses like tools and commercial products that are in the 3% to 5% range and that will all blend down to that 7% number that we talked about externally.

Got it, okay thanks guys.

We will next Olivia Tong of Bank of America Merrill Lynch.

Thanks good morning.

Hi, Olivia.

Hi, how are you.

Good, how are you.

Good, thank you. Just first on the organic revenue growth outlook, you've had a great first half and as we think about the second half it doesn't sound like from your prepared remarks that you expect any major slowdowns in Q4 you obviously have the benefit of some of the acquisitions folded into the quarter. If the first half is at the high end of your physical guidance range perhaps can you provide a bit of flavor for other factors we should be thinking about for the second half to complete his results back from that current run rate?

Sure. Good question. We made the assumption in Q4 and I have built it into the script so that people are aware that we will decelerate on writing in Q4 relative to the run rate we've had up until now. That is the deliberate choice we are making to plan that business for success going into 16 in the context of what we think will be the office superstore channel consolidation pending the regulatory approval of that transaction. You shouldn't expect writing to decelerate in Q4. That will be partially offset by tools acceleration in the back half of the year. But the other thing you should expect is that home solutions sustains its low single digits and the net effect of that I believe will be something below the 4.5%, the 4.5% midpoint range to do something right in the middle. It's really tough to be precise. We have just come through that back to school window sell in window which was executed really well by the team second half and the easy will ramp down quite substantially. And we don't know in this upcoming auction that we hopefully access over the next few weeks to months, we are not sure how many dollars will be available so it is unclear how much inventory we will be able to bring in connected to that auction and how hard we will be able to push our Venezuelan business without that clarity. These are all the variables that contribute to the outcome we've called.

Got it, that’s very helpful. On advertising can help give us a sense of order magnitude or spend across the visions and the reason I ask you as I look like the margins in tools and commercial products and you call that higher A&P spending in both of those and I know those have greater FX pressure but just wondering if what the levels of spend there were relative to other divisions and if it’s higher than other areas when using that can start materializing sales uplift, I know the comp were difficult but just kind of try to understand those dynamics.

Yes, so one of the things that is maybe a little bit different about this company because we are smaller and than some of the big folks that you follow is that, we manage our resources very dynamically and the money flows to where the ideas are in the business. The top team really allocates the A&P around initiatives and so we don’t focus too much on segment margins when it comes to the A&P impact in them. We focus on gross margins within the segments and we focus on the direct cost in over heads in those segments, but if we got big initiative that we are launching in the segment we will take or a competitive issue we have got, we will accept the margin contraction for the investment and in the subsequent quarter we’ll dynamically move resources around. And that’s certainly what we’ve done over the last number of years and I expect we will continue to do that. On balance the economics are working up really quite well. The 150 basis point increase given flat normalized operating margins in the growth acceleration tells me the algorithms working. We’re spending, the moment behind the Vise-Grips innovations within tools and the continued success of innovations within commercial products; we expect tools to accelerate the top line and the back half of the year. In our first half growth on commercial products is around 5%, which if you - in any given quarter, you’ll have timing related issues that you have to kind of lapse, I think commercial products would probably in the year right about word is in at the mid-point. And so I think the primary answer I would give you is about how we manage resourcing which is small group of people in the center deciding where the A&Pought to be allocated, segment president’s are part of that discussion and it’s my leadership team that really are making those decisions. And on balance we’re looking to deliver an outcome at the corporate level.

Great. Thank you, Mike.

Sure.

We’ll go next to Jason Gere with KeyBanc.

Okay. Good morning.

Hi, Jason.

Two questions, the first one if you could talk a little bit about Brazil? We've heard some of the more industrial Company's talking about the slowdown in the impact there are given that some of your businesses as consumers they are there is a little bit of a twinge of industrial in them. I guess maybe if you could talk a little bit about the macro and how you see that building out versus the micro and how much more distribution opportunities do you still see for your categories in that market. I guess a little bit of context around Brazil there.

Hey, Jason. It’s John. In Brazil right now, we are definitely seeing little bit of softness in Brazil’s mostly for us tools business in commercial products business overall, a little bit hard because we did have such as big push in the tools business last year with our product launch as we expanded the offerings in Brazil and we are getting ready to introduce the second wave of that coming up right now. So Brazil still presents a great opportunity for us but certainly the economics are as compelling as they were before hand.

Okay, great. That provides great color. Just a second question I guess really on I guess within the last week Camelback was acquired that's a competitor to Contigo and Bubba, and I was just wondering if that's an area where you guys see a lot of growth opportunities and I'm just wondering about the role that maybe Camelback with their buyer out there that provides them I think more opportunity to some of the sports channels. That was an area that think you guys were talking about with Contigo and Bubba as well or can you maybe provide a little bit of context about the growth opportunity that you see with a stronger other player out there as well. Does that help the category? Do you anticipate more competitive pressures? Just a little bit of context around that news. Thanks.

Thanks, Jason. Yes. We’re really aware of that news and we know the brand very, very well, we admire this brand, it’s been built and this morning the channel and it’s an excellent competitor. Vista outdoor that bought the business obviously has tremendous channel synergies in the space they’ve got a big sporting goods business they do ammunition they do some other things that also gives them synergies in the military channel which is a big chunk of Camelback’s business. So this is a company that we need to watch in the space. And it’s a brand that has very good prospects. So I think this will be one of the interesting competitive battles to watch over the coming years. That said, we are $6 billion Company, we can deploy resources in a way that can flood any individual country category, our product family sell, like this one and so I think we’ll have way more resourcing to deploy against this opportunity than anybody else in this space and you should expect us to do that. This is the fastest durable water bottle and category is the fastest growing general merchandise category in the United States across all of the categories that we track, we look at everything from types to refuse to obviously durable water bottles and it’s the fastest growing category. So it’s an exciting space, there is plenty of room for competition, we are growing very, very strongly, strong double-digit growth in the comp basis and that is extremely encouraging, we believe we have a ton of opportunity still to fill out the distribution and the Ignite team there is no better innovation capability in the industry than the team we’ve got that we bought effectively in Chicago. So we are excited about the prospects. We welcome the competition and we have a lot of information for Camelback as a competitor.

Okay. Great. Thank you and thank you for taking the questions.

Sure.

We will go next to Lauren Lieberman with Barclays.

Thanks, good morning. Could you talk a little bit about working capital? Inventory was up a bunch. It looks like and you covered it with payables and receivables, so things were a little choppy. If you could talk about those dynamics that those would be great. Thanks.

Hey Lauren, the working capital for us inventory right now so you have to be a little bit cautious because we have the inventory coming in from acquisitions, it is a big piece of it and as Mike mentioned we had a lot of inventory where we went long in Venezuela that added as well and then you add the timing shift that we have in writing, so those are all some of the pieces of the inventory. That being said we have some fairly aggressive plans to get inventory out in the back half and as you know working capital is becoming a much higher area of focus for us right now as the balance of the business really starts to come online and perform very well. So you should see us if we are doing our jobs taking inventory back out in the back half overall and gradually doing a much better job in terms of managing the inventory piece.

One comment on payables, Lauren, if you benchmark our payables days relative to some of the biggest players in the consumer goods industry and some of our near end peers, our payables days are really not as long as they should be and so well I don’t view the progress on payables as opportunistic, I view it as strategic as we look to manage working capital, and so that is - you should expect us to continue to push those days out over time to the degree it makes economic sense to do that.

Okay. Great, because my follow-up to that was just going to be if you had any update to cash flow targets. I think we are waiting for updates of five-year target. I was curious if you had any thoughts on that yet?

Actually we are sitting down to review the financial model this afternoon. The five-year forward-looking 2016 through 2020 financial model this afternoon, we're going to look at that. There is a conference coming up in about a month and maybe we will unveil it there. But we have no comment right now. We just have to take it forward through this; we got our Board meeting coming up in a couple of weeks and we’re going to walk them through the forward-looking view given the momentum that is building the business and then we will be prepared to talk about that.

Great, and then it is a great conference I have heard, so, I look forward to it.

I look forward to that too.

Thank you.

We will go next to Bill Schmitz of Deutsche Bank.

Hi Mike good morning.

Hi Bill.

Hey what was the U.S. growth excluding the pipeline still in writing for the quarter, and I don’t know does that that $50 million come back in the third quarter?

Right now if you looked at North American growth numbers I believe they were 1.4, is that right reported core? I think it's about 150. The impact of the writing timing issue is about 150 basis points on North American results. So the underlying North American - 100? 100 okay. It's around 2.5% sort of in line with GDP growth in North America.

I was talking about writings specifically.

For writing, 150. So another 150 bps on writing for North America.

Okay. That is helpful. And then does that $50 million pipeline, does that come back in the third quarter?

It reverses but - it does - we get the benefit of writing in the first part of Q3 certainly, we are going to have stronger back-to-school performance this year than we did last year, so we will get back and then some, and but you got to remember that the SAP pull forward in Venezuela and Mexico from last year at the end of Q3 was a blend of writing and tools business. So, some of that backs out as a result of having lapped that spike, and then in Q4 you get a writing benefit at the beginning of Q4 related to the flip on SAP, but then we’re going to pullback hard on retailer inventories towards the end of the year on writing in advance of the likely, although pending regulatory approval, Superstore consolidation. So, that’s the inside-baseball view on writing pacing.

Okay. That's great. You guys in the last - do you think you're taking market share in tools and commercial? I know it's hard to find the data [indiscernible] I can't find it anywhere.

If you look at the market share data, you have to be real - in both categories you have to be really careful not to use it, because the coverage is not like what you would experience in other places. What we do to kind of get a sense for how we’re doing is we have point-of-sales sell out data that we get transactional data that we get from most of our retailers and we can cover probably 60% of the tools universe in the U.S. and that gives us an indication of how our business is progressing which is the number I quoted to you, high-single digits, nearly double-digit tools for example sell out in the second quarter, and then we have to benchmark that against what other people report because we don’t have category transaction data from that POS, from our retailers typically. So, I look at what Stanley Black & Decker reports or what some of the others report to get a sense as to whether our share is moving in the right direction or not. We believe that our market share in Latin America is growing in tools based on that type of analysis growing in tools; we believe our market share in Europe is growing in tools. We believe our market share in North America is holding at the moment as we pivot our focus to strategic partnership with Lowe’s.

Okay. Great. How about on the commercial side and then I will let you go. Thanks.

Commercial, it’s really sketchy. We end up getting sell out data from our distributors and we can benchmark these sell out data relative to sell out data in prior year periods. We also get some home center transaction data through our POS database. We think 5% growth in commercial products, which is largely in North American numbers they share build number in North America. So, the headline response would be tools holding in North America, growing in the rest of the world. Commercial products growing in North America and we really don’t have a big business outside of North America. We have those two pilots going on in Brazil and in China where we are definitely growing share but they are small and in Europe, the composition of our European commercial products business is really different there, it’s more of a washroom solutions business than what you will see everywhere else in the world, so I don’t think it’s a good proxy for our overall progress. But the numbers are essentially holding in Europe.

Great. Perfect. Thanks so much.

Thanks.

We’ll go next to Bill Chappell with SunTrust.

Thanks, good morning.

Hi Bill.

Just to follow-up and I might have missed this, on Venezuela, can you break out what Venezuela will be in terms of core growth for the full year, and maybe what it was last year?

Right now, Bill, I think for us full year we are looking at about 90 basis points of contribution as a company for Venezuela overall for the full-year and that's about 20 basis points ahead of prior year. That is right now basically our best guess in terms of where Venezuela lands.

And just as I’m looking at your kind of raise of full-year guidance by 50 basis points, was that largely Venezuela changes or it was just core strength?

No, it’s core underlying strength, the Baby recovery was sharper than we thought it would be and our prospects for Baby are stronger in the back half of the year, but the Rubbermaid food storage is extremely strong right now, perhaps a little bit stronger than we anticipated it being. And underlying writing momentum is quite good, so remember that, because of the timing related issues on writing, we’re really under representing the core sales growth there and a part of that is Venezuela but very, very good underlying momentum, sell out growth just as a data point, Bill, sell out growth on writing in the first part of the year and this would exclude the commercial products portion of the writing market, because we can’t track that as easily, but sell out growth is measured through POS, the POS data we get from our retailers was double-digit in the second quarter. And so that’s really encouraging and that’s above what we expected it to be. So we’re coming into the big consumption window now and time will tell whether that sustains or not; we anticipated it’s sustaining because we’ve got higher display levels in Back-to-School we did year ago, we got better innovation, we were spending a very high level of advertising on writing as a percentage of sales in the third quarter. So all of those things should conspire to give us a very good sell out experience and that, if we continue to sell out at rates above our prior expectations then I think we could get beyond the mid-point of that core sales guidance range we’ve said, we expect to be in the middle. But if sells out works at Back-to-School we may be able to get beyond that. So but I don’t think Venezuela will contribute more in the back half of the year because I think access to dollars will be less than they were a year-ago same timeframe. And therefore we won’t access as much raw materials and we won’t have the freedom to push volume into the market at [her] [ph] pricing in the way we did in the prior year window. So I think Venezuela’s contribution, I don’t expect it to get beyond 90 basis points and it may actually slip a little bit depending on what happens with the next auction.

Got it. Maybe just to tie into that if I look at the kind of the excitement of back-to-school of 3070% innovation market share gains and 30% just it's a better Back-to-School season, is that the best way to look at it?

The biggest driver is news in advertising. But in terms of the consumer involvement with the brand. But sell out is driven by the effectiveness of our sales execution and number of displays we have, the amount of phasings we have at retail, the placement on shelf of that inventory whether it’s right at the end of the isle, near the and it’s the first impression a consumer has walking down the isle. So there is a lot of executional things that have to work get back to in that six, seven, eight week back-to-school period, it’s unbelievably enhanced our ability to get those displays are enhanced by the fact that we are really in the industry. The only one that spending at this level, which is why we are driving disproportionate sell-out performance. So the advertising support we have on there is really significantly ahead of the competitive set and it’s the combination of all those activities that drive the sell out performance. I hesitate to put a percentage on anyone component, they all work sort of synergistically to drive the outcome. Now we’ll see, we’ll see how it plays out, I’m very encouraged, I know the displays are going to be up, I know the quality of the displays are better. Last year we tried to do displays that were multi-brand displays, this year we’ve gone to dedicated brand displays on Sharpie and on Expo and then Paper Mate. So I expect we will get more placement as a result of having done that. Then we have got widely successful new launch on this Mr. Sketch as we launch washable scented markers which will make moms decades worth of moms. We will be pleased and wonder why it’s taking us so long. But these things are doing really well in the period prior to back-to-school. We’ve got washable Mr. Sketch; we’ve got two-in-one Paper Mate choice with the stylus on one end and a pen on the other. We’ve got new colors on Sharpie, we’re launching Sharpie Extreme, we’ve got new colors on Expo, we’ve got InkJoy Minis. We’ve got a chock-full innovation funnel. But in the end, it’s the synergistic effect of all that advertising and great sales execution and we’re very well positioned on all those fronts. So we’ll see and as you remember we got to have a good replenishment ordering at the back half of the quarter in order to have all the numbers hold together. So that’s the cycle at back-to-school and we’re very pleased with how it’s set up at this point.

Perfect. I’ll debrief my wife on the Mr. Sketch news.

Exactly.

We’ll go next to Stephanie Wissink of Piper Jaffray.

Thank you. Good morning, everyone. Just a caution for you, Mike on the 4% topline growth, can you characterize that for us the respective price versus units particularly with respect to price, is some of the game you are seeing like for like or your point innovation driven, are you seeing the customer actually trading up into a higher price point range within your core brand. Thank you.

Steph, it’s a very good question. Our pricing is largely happening where we have transaction Forex issues. We did for the first time this year take price and writing in North America, first time in five years. And that seems to be holding the real value though that I think over time will play out in price, probably won’t show up as a, if we were to do price volume analysis this wouldn’t show up in price but drop in volume. But as we innovate, I talked about the 750 concepts factored to moving from concept of product, the fact that our innovation funnel values doubled, the fact that project size is up by 150 basis points. Every one of those projects has a gross margin that’s accretive almost every one of those projects has a gross margin that’s accretive to its core line. That’s one of the filters that we apply in the gate keeping process. The reason their gross margin accretive is because the concepts have more value and therefore they can carry a higher price and so that won’t show up in our price volume metrics. That will show up as volume as we innovate in that space, price really only reflects pricing related to either invoice price increases or reductions in gross to net spending. So that type of premiumization will show up in vol mix and not in price. We expect over time to get more price realization if you want to call it that through innovation. And that’s part of the logic behind the criteria we place on gate moves through the innovation funnel. We also expect to get more strategic fewer pricing on these businesses. As we become more disciplined and being able to account for the cost to serve our customers and charging for that cost to serve. We started that in 2015 by establishing bracket pricing in the U.S. establishing three to four different tiers of customers based on order quantity and size of a customer relationship, and that will continue to be refined over time as we get better understanding the cost to serve tier-by-tier. And our spending and pricing will be proportionate to size of those customers and the efficiency of dealing with those customers. As it needs by within the rule set by Robbins and patent. But we can capture more value through strategic pricing as a result of having a clear understanding of our cost to serve, customer-by-customer. And we plan on doing that.

Thank you very helpful. Best of luck in the back half.

Thank you.

Your last question comes from Rupesh Parikh of Oppenheimer.

Thanks for taking my question. I wanted to touch on home solutions segment profitability. Maybe you could talk about some of the dynamics driving the increase in the margins there and whether you expect these kinds of margins gains to sustain themselves for the remainder of the year?

Hi, Rupesh. The biggest benefit that we have at home solutions right now and we've talked about it for a couple of quarters is the continued momentum on the food and beverage business for us which is the Tibetan section margin accretive so we mix up in that business is doing very well. We continue to deprioritized the consumer bulk storage business which has a much lower margin profile. As you may have heard my talk about before we're converting more and more of our production capacity to support that food and about the growth overall so that gives up definitely to benefit overall. Resin deflation has helped us a little bit this year as well as Mike mentioned we're seeing a little bit of potential uptick in resin pricing going into next year overall that if we can continue to continue to push on our food and have is this as well as acquisitions which you know we talk about our acquisitions above and can TCO. Gross margin accretive to the Company but to the segment their gross margin accretive purpose of bringing those business into the segment has helped as we'll in terms of the overall profitability of the business. You will see us continue to make some progress against subject to resin cost inputs which will be kind of a major factor in that business.

Great. I resin prices, if you look at that segment have you fully see the benefits at lower resin prices or should we still see favorability forward?

As we see we sit here and hope that with the lower input cost we would see that flow through in resin with the lower energy costs over to the bigger dynamics in the constraint might talked about earlier was the resin capacity right now as well as the market for some of the other components that you used to conferred the feedstocks into resin pixel right now we watch this very closely overall and you know it looks like it's going to be a little bit of pressure going into next year. Hopefully we will be happily surprised and it will go down the other way but right now it would not be counting on resin deflation being a good guy for us next year.

Okay, thank you for all the color.

Thank you. End of Q&A

This concludes our question-and-answer session. I will not turn the call back over to Mr. Polk for closing remarks.

Thanks very much Elisa. Thank you to all of you on the call for your interest in the company and most importantly I would like to thank all the Newell people who work tirelessly to make these results happen. Look forward to reconnecting at our next opportunity, talk to you soon. Bye.

A replay of today’s call will be available later today on our website newellrubbermaid.com. This concludes our conference for today. You may now disconnect.