Newell Brands Inc. (NWL) Q1 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Newell Brands First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. A live webcast of the 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 first quarter earnings call. On the call with me today are Ravi Saligram, our President and CEO; and Chris Peterson, our CFO and President, Business Operations. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those referred to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as in other materials in Newell's Investor Relations website. Thank you. And now, I'll turn the call over to Ravi.

Thank you, Sofya. A very hearty good morning, everybody, and welcome to our call. I am pleased and honored to share the highlights of our phenomenal first quarter results as we carry forward the strong momentum from the back half of 2020. The top line grew an outstanding 21% as normalized operating profit doubled and normalized earnings per share tripled versus last year. This is the third consecutive quarter of core sales growth for the company and by far, the best result yet. Even on a 2-year stacked basis, gross sales grew in the mid-teens. I'm particularly encouraged that the first quarter growth was in all 8 businesses, all 4 regions and all channels. Importantly, the collective power of our iconic brands is evident in this performance with top 18 out of 20 brands, demonstrating growth with Oster, Yankee Candle, Coleman, Rubbermaid and Dymo leading the pack. While top line strength was truly broad-based as 7 out of 8 business units grew sales at double-digit rates. Home Fragrances and Home Appliances businesses stole the show. We were also really pleased to see that the Writing business is moving past the pandemic-related woes, as more schools open up for in-person learning. The business returned to strong core sales growth in the first quarter, mirroring the levels of the company. All 4 geographic regions grew core sales at a double-digit rate with international markets up nearly 27%, continuing to outpace North America. In the U.S., we experienced strong consumer demand throughout the first quarter with acceleration in the last month. We started to lap initial lockdowns from 2020 in mid-March and also saw a lift in demand following the passage of fiscal stimulus. Shoppers continue to seek out home-centric products as well as those that favor personal well-being and outdoor activities. With the gradual reopening of the economy, we're also seeing an uptick across some categories such as Writing, that have been disproportionately hit by the pandemic. We expect continued evolution of consumer behavior throughout this year as vaccination rates and mobility improve. At the same time, we believe many of the new habits consumers formed will persist beyond the pandemic. Example, at-home cooking. We expect the shift towards online shopping to have a lasting impact on consumption trends. Newell's e-commerce sales growth accelerated into the mid-40s range during the first quarter, as global sales penetration improved about 4 percentage points versus last year to approximately 21%. While sustained growth in the digital business paved the way for such a strong top line outcome in Q1, sales trends were also healthy across other channels as we started to lap year-ago lockdowns in mid-March and mobility improved, particularly in the U.S. E-commerce is a notable competitive advantage and an engine for growth for Newell Brands. I am thrilled to share that we have recently filled a critical role in this area as we appointed Mike Geller as President of E-commerce & Digital. He joined us from PepsiCo where he served as Senior Vice President, E-commerce, Marketing, Technology and Data Science. Prior to that, Mike spent 10 years at Amazon. With extensive e-commerce expertise, his technology prowess, data science and analytics capabilities, his entrepreneurial zeal and intellectual curiosity, Mike will build on Newell's strong e-commerce foundation to make us a digital powerhouse and an omni leader. I am pleased to report that the leadership team now is complete. We've built a team that is best in class, diverse in thinking and unified in strategic direction and will pave the way for lasting success. The strength of the first quarter results reflects the progress we're making on the execution front, strengthening our brands, scaling innovations, increasing distribution, improving customer relationships, leveraging consumer trends as well as macro tailwinds. The common theme in this quarter was the broad-based strength in consumption, core sales growth across the entire portfolio, share gains in several categories and regions and strength in international. The Home Fragrance business delivered phenomenal results in the first quarter as consumption growth accelerated to about double the levels from the back half of 2020. In fact, this was by far our fastest-growing business, built from a core sales and POS perspectives, a reflection of pent-up demand following supply constraints in 2020. Consumers continue to seek out moments of serenity in their homes as they adopt a more holistic approach to well-being. We drove core sales growth more than double the rate of the overall company. To put it in perspective, Home Fragrance grew net sales at a double-digit rate both versus 2020 and 2019 despite closure of about 150 stores during this time frame and last year's exit from the fundraising business. We are successfully managing the purposeful transition of our business as we pivot towards expanding distribution across traditional, retail and direct-to-consumer channels while reducing our Yankee Candle retail store footprint. We're driving strong growth in our direct-to-consumer channel through personalization and loyalty programs that are maximizing lifetime customer value. Our recent launch of Yankee Candle Signature Collection, the most meaningful redesign of the Yankee line in years, is gaining traction. We're not just focused on winning in candles. We're gaining share in tracked channels, but also within the overall Home Fragrance category with an exciting pipeline of new products planned across, the sleep diffuser, wax melts, autumn wreaths and ScentPlug categories. The Food business, which now includes Calphalon cookware and cutlery, maintained a strong growth momentum as sales increased in the 20s, with a large portion of meals still prepared and eaten in the home. It is not surprising that consumption has remained strong, particularly in the food storage and fresh-preserving categories. I am delighted to share that early in April, Rubbermaid was named the most trusted food storage brand in Newsweek magazine. What an honor. We've driven strong share gains from Rubbermaid and are seeing solid traction on the Brilliance Glass and [Triton] food and pantry storage line. We continue to drive elevated demand for our canning business, where we also built on our leading share position with Ball leading the way. Heightened consumer interest in gardening bodes well for continuation of this trend, and we are continuing to bring new innovation and new users to the market. In the first quarter, Ball launched nesting jars that stack together, which helps make storage more compact and will reduce the amount of space needed for mason jars by 30%. FoodSaver continues to do well. Our VS3000 innovation launched in July 2020 has already sold 350,000 units and is moving the needle. Home Appliances delivered its strongest performance yet. Sales grew 38% with double-digit increases across all 4 regions as the category remained quite buoyant. In the U.S., double-digit growth in consumption was evident across most subcategories, including heated cooking, blending, coffee, pain management and air purifiers as stimulus provided additional fuel. Despite the lockdowns, Latin America posted very strong results across all countries with Brazil, Colombia, Chile and Peru being the standouts. Similar consumer trends played out in Asia Pacific and EMEA, where we saw broad-based sales growth. During the first quarter, we continued to build on the terrific fall 2020 launch of Mr. Coffee iced coffee maker by expanding its distribution with additional rollout plans in place for balance of the year as capacity comes online to meet demand. It's quickly becoming the number one selling coffee SKU in relevant retailers where the product is available. I'm pleased that this is another innovation that's gaining traction. Just last week, Crock-Pot, which celebrates its 50th anniversary this year, was recognized as the most trusted slow cooker brand in Newsweek. In other exciting news, NPD Mexico awarded Oster as the winner of 2020 market share growth in the kitchen electronics segment. In the first quarter, our Writing business rebounded nicely as core sales grew at a strong double-digit rate with broad-based growth across writing and creating expressions, labeling and fine writing businesses. We're finally beginning to put the 2020 pandemic-related disruption on this business in the rearview mirror. While the category also returned to growth in the U.S. in the first quarter, Newell's consumption grew at approximately double the rate of the market in the segments we compete as we gain meaningful share. Dymo captured over 400 basis points of incremental share, while our share in gel pens increased by more than 1,300 basis points on the heels of the successful year-ago launch of Sharpie S-Gel. Sharpie S-Gel has become a needle mover with excellent gross margins. The fourth quarter expansion of Sharpie S-Gel platform through Sharpie S-Gel fashion barrels in frost blue and pearl white as well as Sharpie S-Gel metal barrels in gun metal and champagne are off to a promising start and already are among our top selling pens. The rebound in our Writing business as well as the category is driven by the return of nearly 60% of school districts to in-person learning and cycling against the onset of the pandemic. Similar dynamics played out in the U.K. and Australia and New Zealand where our consumption growth significantly outpaced the market. Although admittedly, there's still a fair amount of uncertainty surrounding the timing of return to normalcy in schools and offices, we're excited about the prospects for the Writing business this year and together with our retail partners are planning for a normal back-to-school season. We continue to assume that offices may remain in a hybrid model for the balance of the year. Sales growth for our Baby business accelerated to mid-teens rate in the first quarter as we experienced a significant uptick in consumption levels across our baby gear and baby care categories. The strong outcome was driven by a combination of healthy share gains by Graco and NUK in the U.S., stimulus funding as well as cycling against comparatively depressed consumption levels in March 2020 as lockdowns were implemented. This team is knocking it out of the park with fantastic e-commerce penetration of more than 50% of global sales in the first quarter, up more than 700 basis points versus last year. Both Graco and NUK continue to bring news to the market in Q1 through launches such as Graco SlimFit 3, a 3-in-1 car seat, and NUK Space line of pacifiers in EMEA. I'm also pleased to announce a new addition to our Baby portfolio with the launch of Century, a sustainable and stylish baby brand for young families. Q1 was another strong quarter for the commercial business unit as low double-digit sales growth reflected sustained momentum in many consumer-facing categories such as outdoor and garage, organization, gloves and home cleaning. Consumers continue to direct discretionary spending towards home improvement projects, with home still being their hub. We're beginning to see traction in commercial demand for some of our products such as cleaning carts, step-on containers and professional gloves. However, lockdowns along with slow global reopening and back-to-office is still a limiting factor in commercial categories, particularly within the foodservice, travel and entertainment and hospitality verticals as well as in washroom solutions. With good momentum on recent launches, such as Rubbermaid Easy Install 7x7 in sheds, deck boxes and [Real Brew] as well as a robust innovation pipeline, we think commercial is very well positioned going forward. The Connected Home & Security business delivered double-digit growth. The team is making considerable progress on our complete innovation overhaul of their smoke alarm product line as part of UL 217 through advanced technology. This team leads in IoT and has made huge advances in automation in their Juarez plant. Similar to the rest of our business units, Outdoor & Recreation started off 2021 on a solid note as sales increased at a high single-digit rate, reflecting growth in the outdoor equipment business with particular strength in the international regions. In the U.S., consumption accelerated versus the second half of 2020, driven by broad-based demand across most of our growing equipment categories such as coolers, tents and stoves. Consumers are tired of being cooped up inside and have seen the call of the outdoors. Although core sales were still under pressure, consumption for technical apparel turned positive during the first quarter. We expect the beverage business to rebound as the on-the-go activities pick up and more schools reopen. While still early days, we are seeing traction from the recent introduction of 3 new product lines in Contigo's hydration portfolio. Coleman continues to bring news to the market with an exciting assortment of new products launched in the first quarter, including Skydome tent expansion, XPAND soft cooler collection and the Reunion steel-belted cooler collection. While the first quarter results came in ahead of our expectations, and Chris will explain the key reasons, we contended with a fair amount of challenges as well, including port congestion, the impact of Texas storms on raw material availability, a significant rise in inflationary costs, freight challenges as well as demand spikes across many categories. Our supply chain teams operated with excellence through these turbulent conditions and successfully managed broad-based demand surges. Looking out into the remainder of 2021 and beyond, we're laser-focused on building on the solid momentum in the business as our turnaround continues to gain traction. There's no change in the 5 strategic priorities that I laid out last quarter, which include: first, galvanize our employees behind our purpose to create a consumer-obsessed, customer-focused organization that is digital savvy and committed to providing moments of joy and peace of mind to consumers. Second, sustain top line growth by focusing on the end-to-end consumer journey, securing new distribution across channels, especially food, dollar and home centers, strengthening omnichannel capabilities while accelerating online penetration and focusing on scaling and modernizing our top brands. We will also strengthen efforts to improve supply availability to improve customer service levels through a strong focus on forecast accuracy. Third, become an innovation engine by sharpening our focus on consumer insights and trends and implementing an enterprise innovation operating model and building cross-business unit technology platforms. A distinguishing aspect of our go-forward innovation efforts is that in addition to our normal line extensions, refreshes and renovations, we will strive to launch 3 to 5 major needle mover, new product innovations per year that can be scaled to $50 million to $100 million in sales and have strong gross margins. Sharpie S-Gel, FoodSaver VS3000 and Mr. Coffee Ice are illustrative of this thinking. Fourth, accelerate international growth and improve profitability. And fifth, continue to make progress on reducing complexity, controlling overheads and strengthening the balance sheet. And in particular, for 2021, offsetting the significant surge in raw material inflation as well as labor and freight costs through a combination of productivity improvements and selective price increases. We're still in the early stages of realizing the full potential of our business and see tremendous opportunity for value creation through focused execution of our strategic priorities and serving as a force for good in the world. We feel good about the last 3 quarters and are confident about the second quarter 2021 as we see sales and consumption momentum continuing in April. The second half of 2021 is difficult to predict, given global uncertainties around COVID and evolving consumer habits. Nevertheless, we're optimistic and see more upside than downside. I'd like to conclude by thanking our 31,000 employees for their commitment, hard work and perseverance, all of which made it possible to deliver such an incredibly strong outcome, onwards and upwards. And now, I'll turn over the call to my partner in crime, the billion-dollar man, efficiency guru and complexity reductions czar, one and only, Chris Peterson.

Thanks, Ravi, and good morning, everyone. First quarter results were simply outstanding as the integrated set of strategies we put in place 2 years ago are driving accelerated financial results across all metrics. Before getting into the details, I want to provide a little color on the current operating environment and proactive choices we are making. We are off to a much stronger-than-anticipated top line start in 2021. With healthy consumer demand early in the year, we expected and guided for a strong outcome during the first quarter as a result of the strategic improvements we have made to drive profitable top line growth as part of our turnaround plan. Three factors contributed to over-delivery relative to our expectations. First, the U.S. stimulus package, which passed in March, turbocharged already robust demand across many of our categories. Second, the vaccination rate across the U.S. has been faster than anticipated, which led to more schools reopening their doors to in-person learning. And finally, operational improvements we have been driving across the company, particularly surrounding SKU count reduction, operating efficiency and the S&OP demand planning process are paying big dividends. Earlier this year, we made the proactive choice to invest in higher inventory levels on our top-selling SKUs. Because of the operating improvements we made, we were able to add capacity without incurring any significant capital expenditures. This allowed us to both meet the surge in consumer demand during Q1 and build inventory levels to support an improved top line outlook for Q2 and the balance of the year. Effectively, we have created more agility within our supply chain to respond to shifts in demand with the hard work from the past 2-plus years clearly paying off. The other changing dynamic has been inflationary pressure as the recent run-up in costs, particularly in resin, transportation, source finished goods and labor has translated into approximately $150 million of additional expenses in 2021 for a total gross impact of about $360 million. We plan to mitigate these headwinds through a combination of strong productivity savings, driven by our FUEL program, operating leverage from the combination of strong revenue growth and tight cost controls and selective pricing actions across businesses that are most impacted by inflationary pressure. The net result is that we are maintaining our operating margin expansion outlook for the year. In the U.S., we announced price increases in mid-April across 5 of our business units, including Food, Commercial, Outdoor & Recreation, Baby and Home Appliances, which are expected to go into effect in June. These pricing actions do not fully offset the inflationary cost pressure as we were using productivity savings and operating leverage as offsets as well. Now turning to first quarter results. Newell Brands' net sales increased 21.3% year-over-year to $2.3 billion, driven by core sales growth of 20.9%. Foreign exchange more than offset the unfavorable impact from business and Yankee retail store exits. This was the third consecutive quarter of core sales growth for the company. Growth was broad-based with each of our 8 business units and 4 geographic regions growing on a year-over-year basis. Importantly, core sales grew compared to both 2020 and 2019 levels. Normalized gross margin contracted 60 basis points year-over-year to 32.2% as fuel productivity savings and pricing were more than offset by significant inflationary pressure, particularly in resin, transportation and labor costs. Normalized operating margin expanded 410 basis points year-over-year to 10.1% with a better-than-expected outcome driven by operating leverage resulting from strong top line results, higher-than-anticipated fuel productivity savings and tight overhead cost controls. Normalized operating profit roughly doubled year-over-year to $230 million. Net interest expense increased by $4 million year-over-year to $67 million. The normalized tax rate was 22.4%, above the year-ago level of 7.1% as the company realized discrete tax benefits last year. We grew Q1 normalized diluted earnings per share more than 3x year-over-year to $0.30. Stronger-than-anticipated top line results and resulting operating leverage, in addition to disciplined cost management and productivity, enabled us to exceed our expectations. Let's turn to our segments. Core sales for Home Appliances increased 38.9%, driven by growth in all major regions. This was the first quarter without contribution from the Calphalon cookware business. As a reminder, cookware financial and operating results are now included in the Food business within the Home Solutions segment. Core sales growth for the Commercial Solutions segment increased 12.9% with double-digit increases across both the Commercial and the Connected Home & Security business units. Core sales for the Home Solutions segment increased 33.8% driven by double-digit growth across both the Food and Home Fragrance business units. The Learning & Development segment increased core sales 17.3%, a strong rebound, which reflected double-digit increases across both the Writing and Baby business units. The Outdoor & Recreation segment also returned to core sales growth, increasing 7.0%. Operating cash flow was $25 million -- operating cash outflow was $25 million during the seasonally small quarter, reflecting an increase in working capital to support consumer demand increases both in Q1 and Q2. Importantly, 2021 is off to a strong start on the cash conversion cycle as we shortened it by about 13 days versus last year. We continue to strengthen our balance sheet during the first quarter as the company's net debt-to-normalized EBITDA leverage ratio moved down to 3.3x, which is a 0.2 point improvement relative to year-end 2020 and a 0.9 point reduction versus the year-ago period. We are steadily marching toward our leverage target of 3x and expect debt pay-down as well as EBITDA growth to contribute to this outcome. For perspective, in Q1, normalized EBITDA on a trailing 12-month basis increased about 10% compared to last quarter. During the first quarter, the company redeemed the remaining $94 million of its 3.15% senior notes that were scheduled to mature in April 2021 and repurchased $5 million of its 3.85% senior notes due 2023. We remain in a very strong liquidity position with over $2 billion in available short-term liquidity, including $682 million of cash on the balance sheet. Let me provide some context for our underlying assumptions for the balance of the year and how they've evolved since February. The macro backdrop remains quite dynamic, both as it relates to the pandemic as well as input cost fluctuations. While we are optimistic about progress on vaccine rollout and the impact of the latest U.S. stimulus on the consumer, uncertainty remains, particularly in the back half of the year where comparisons are tougher. With stronger-than-anticipated momentum in the business in the first quarter and, thus far, in Q2 as well as improved capabilities within our supply chain to address demand spikes, we are pleased to raise our full year outlook on top line. We continue to expect a stronger first half relative to the second half. In the first quarter, core sales grew not just on a year-over-year basis but relative to 2019 as well. On a similar note, our updated outlook implies that core sales will be up versus 2020 and 2019 in both Q2 and for the full year. For the back half of 2021, we expect core sales to be up versus 2019 levels. Here are the specifics on our outlook. For the full year 2021, we are raising our net sales forecast by approximately $400 million to $9.9 billion to $10.1 billion, which represents 5% to 8% growth versus last year. We now forecast core sales growth of 5% to 7%, up from our prior assumption of low single-digit growth. Although currency has gotten slightly less favorable relative to a few months ago, we continue to expect it to remain a tailwind and more than offset the unfavorable impact from closure of Yankee Candle retail stores and other minor business exits. Despite the meaningful uptick in inflation, we are still planning for normalized operating margin expansion of 30 to 60 basis points year-over-year to 11.4% to 11.7%. We expect the combination of productivity, pricing, overhead savings and incremental volume leverage as a result of better top line growth to more than cover the increase in inflationary pressure. We are still planning for higher advertising and promotion spending relative to year-ago levels to support a strengthening innovation pipeline as well as our digital initiatives. There is no change in our assumption of a high-teens effective tax rate. We are not factoring in any potential changes in the U.S. corporate tax rate policy at this time. Our normalized earnings per share outlook moves up $0.08 to $1.63 to $1.73. Share count is still expected to be up slightly versus 2020. Our operating cash flow outlook for the year remains strong and unchanged at approximately $1 billion driven by continued reduction in Newell's cash conversion cycle. Q2 is off to a strong start, and we are planning for net sales of $2.5 billion to $2.58 billion, which implies 18% to 22% growth year-over-year. Core sales are expected to increase 17% to 20% as we lap a 12.6% decline from a year ago. As a reminder, in Q2, we are cycling against the most significant disruption from the COVID-19 pandemic. Currency should be a tailwind, helping to mitigate the impact from Yankee Candle store footprint rationalization and minor business exits. Our outlook for the second quarter reflects normalized operating margin expansion of 130 to 180 basis points year-over-year to 11.5% to 12.0% as volume leverage, in combination with productivity savings, should more than offset the inflationary pressures as well as planned increases in advertising and promotional spending. This outlook assumes that the normalized effective tax rate is in the high teens for Q2, with normalized earnings per share in the $0.41 to $0.45 range as compared to $0.30 in the year-ago period. We are energized by the overwhelming progress our teams are driving on the turnaround plan. We continue to take decisive strategic actions to improve the appeal of our brands and products and upgrade our operating effectiveness and efficiency. Despite the disruption and volatility in the macros, we have not wavered from our strategic imperatives, which has put us on a much stronger footing. Operator, let's now open up the Q&A session.

[Operator Instructions] Your first question is coming from Wendy Nicholson with Citi.

My first question -- I actually have two, if that's okay. My first is the raise in the beat is just fantastic, and it looks like there's maybe more room for upside as we go through the course of the year just given how strong 1 and 2Q are supposed to be. But Chris, I was a little bit surprised you didn't raise the outlook for our operating cash flow. That's the only metric that it looks like you didn't bump up, and I'm surprised by that. So just a question of are you making any incremental investments in working capital? Or is there some other headwind that's incremental that we should be aware of? And then, Ravi, just on the Writing business, obviously, easy comps to last year. I'm just wondering when you expect to see orders, is it the second quarter? Is it the third quarter? Orders and shipments, when will we know whether the Writing sort of business, not just for you, but the category as a whole, has kind of been permanently impaired by COVID and more people even if they go back to classrooms in person or still using an iPad, when will we have a sense of what that category really looks like?

Chris, why don't you go first?

Yes. So I'll handle the operating cash flow. I think -- look, our guidance on operating cash flow is still very strong. We still expect to deliver in line with our evergreen model of about 100% free cash flow productivity. The first quarter is always the seasonally smallest cash flow quarter. And given the strength in the revenue forecast and the uptick in revenue, we do expect a little bit more investment in working capital. Although for the year, we still expect working capital to be a help because we expect to make continued progress on our cash conversion cycle. I think we're being prudent in our guidance on operating cash flow, and we'll see how the year progresses as we go forward.

Wendy, let me answer your second question about Writing. Look, we're, first and foremost, quite excited to see the momentum. We started seeing a little bit in the last few months in consumption in Writing. And inventory levels were quite low as we ended the year. And it is great to see now both consumption and our own sales going up. The decisive improvement on market share is very exciting. Let me give you 3 sort of statistics to think about, which make us optimistic. Number one, as I mentioned in my prepared remarks, 61% of school districts are now back in person. Now that doesn't mean all the students are back, and that number is probably closer to 47% of K-12. And then, if you look at K-5, it's actually in excess of 70%. And as you know, the CDC just came out to say, in classrooms, the social distancing could be like 3 feet. That's making it easier for schools and as teachers are getting vaccinated, I think that's all boding well. There are some big school districts left but we're waiting to see the swing, California and New York. And so I think, look, we're planning right now for a normal back-to-school season. We've talked to all our retailers. They're certainly planning for that. And one thing to note, despite the fact that the whole office side is still on hybrid model way, even the total channel of office very modestly grew in the first quarter. So that's a little encouraging. And so the only one that, for us, when we look at Writing, we've got 3 really big pieces of business, back-to-school or school, K-12, universities and then offices. I think we're quite confident on the schools front, getting more confident about universities. The big question mark, and that's a portion of our business, is the offices at least this year. But with the innovations that we're driving, the market share that we're getting and don't forget, this business is not just U.S., it's global. And it goes beyond sort of everyday writing. When you look at Dymo, the market share gains we're making in Europe, in the U.S., the consumption increases and sales increases we're getting, I really think this Writing business is our ace up our sleeve. And when I said in my prepared remarks there's probably more upside than downside, to me, Writing is really that one. And it's a very well-managed business. That team is just outstanding. So I feel very good overall. And let's not forget the brilliant gross margins of this business.

Your next question is coming from Bill Chappell with Truist.

I guess, maybe a little more further update on the outdoor business. I understand the activity is picking up and the categories are picking up, but this is kind of the one category that was kind of the -- or one of your segments that was kind of the last to turn around. So maybe just where do you feel in terms of shelf space, in terms of market share, in terms of innovation pipeline? Are you back to where you'd hope to be? And do we expect to grow the category over the coming quarters?

Yes. That's a great question, Bill. To me, the candid answer is it's work in progress because there are 3 different businesses within Outdoor & Recreation. There's the outdoor equipment, the largest business, and that is really doing well. The Coleman brand, Jim Pisani and Bill Kirchner are really doing a great job turning it around. We're seeing also real tailwinds in the sense of 10 million more campers just in the U.S. You're seeing minority groups getting into camping that they didn't in the past. And our business in Japan and Asia Pacific is doing extremely well. A lot of innovations now. We're catching up with the tents, the dome tents and the great cooler line that we got last year. Now, we've got some soft cooler refreshers and the steel-belted cooler. So quite positive about the outdoor equipment side. And so that -- and that's the big piece of the business. So there are 2 other businesses for us, and that is the beverage business, which is Contigo and bubba. And this business did not get helped. In fact, it was a headwind with the pandemic because it's an on-the-go business. And so it did suffer. And we have fallen behind a little bit on innovation. But we're turning the corner. We've got a new team on this. They are better understanding the insights. We've just launched 3 new lines of hydration, esthetically much better, much better on the key points of spill-proof and temperature control and those, I think, will give us headwinds. We're already seeing some upticks in April. So I feel quite positive about the future of beverages. And bubba has always been a good brand, and that's doing well. So -- and we're being -- look, the -- it's always had good distribution. The third business, which is Marmot and ExOfficio, our technical apparel business, that has struggled, but we've got a whole new team in place. And Jim has brought in some great people who have put in merchants, they have revamped the line. So towards the tail end of the year, I think we'll start really seeing some improvements. Already, this year, we started -- in the quarter, we started seeing a minor uptick on consumption. Marmot.com actually had a terrific quarter. So I do feel that's work in progress. So overall, when you look at the 3, I still -- it is -- it's not the same place that, say, Food is. But I really think this team, we've got a great team. As you know, Jim came from Timberland, really understands this. He's brought in terrific players. So confident that by the end of this year, we'll have this business coming too.

Your next question is coming from Andrea Teixeira with JPMorgan.

So you had an impressive growth in appliance and cookware and as well as Home Solutions, in particular in candles. Ravi, can you please help us understand the breakdown of volumes against price/mix, in particular, as you innovated and you premiumized? And given that appliances have a long cycle, how are you planning to lap those benefits from stay-at-home tailwinds and continue -- obviously, you're embedding in your guidance some deceleration, potentially going negative. But I wanted to understand that perhaps there is still a long tail of potential innovation there or pricing and other dynamics? And if you can also kind of help us with Baby also had a good impact, and you called out in your presentation that you have this benefit from stimulus. And how do you think this is shaping for given that we all know that the headwinds from growth rates going negative?

Okay. Let me hit appliances first and then Baby. And Chris, after I finish with those things, you want to add, feel free to. So let's take appliances. This is -- look, I'm really pleased with the new team. They're making good progress. There's no question probably of all our businesses, the stimulus helped this business the most, just given the nature of the products and the price points and so on. Having said that, that was more in the U.S. because the strength of this business was really international, which had just an incredible -- because while we were slightly above expectations on the U.S. side, it was really -- the team hit the ball out of the park internationally. When I said standouts in Colombia, in Chile, Peru, Brazil, those were just huge, huge numbers. And because despite lockdowns and so on, that team created a real direct-to-consumer business, and that has just gained huge momentum. In Latin America, the team did take a price increase. So that's obviously to your question about volume price/mix, that helped a bit in Latin America. But in EMEA and Asia Pacific -- in Asia Pacific, in Australia, we were doing SAP. So you saw a little bit of pull forward for SAP in Australia. But on the whole, I'd say it was a very good international performance in U.S. Don't forget, we now have good innovations coming out like the iced coffee. And your question about how do we sustain? Well, we're now putting out a full iced coffee line with frappe and so on coming out in the rest of the year. We still are just gaining distribution. Remember, last year, we were just in one retailer. And now we're going in and already, everyone is clamoring to get it. So the new issue for us is getting the supply going on there. So I think that is the appliance story. Chris, is there other things you want to add? And then I'll come back and hit Baby?

No, the only other thing I would say is, I think when you look at the quarterly trends, you have to look at the base period as well as the current period. And so we're looking at the business both compared to 2020 and to 2019. And I think we're very encouraged when we look at the business across both time periods because obviously, we're growing versus last year, but we're also growing versus 2 years ago. And I think that gets to the fundamental turnaround progress that we're making as a company. And the strengthening innovation pipeline that Ravi talked about, the SKU count reduction program, which is enabling us to operate with much stronger discipline, I think, are all contributing to the strong results.

One other thing, Andrea, in appliances, we didn't have a marketer for very long. Chris has come in and really rebuilt the team. We brought a great marketing eye who used to be with SC Johnson. So I think that team -- I'm now a lot more confident about the future of appliances than I was perhaps 6 months ago or a year ago. So -- and this performance is just indicative that they're getting momentum. On Baby, look, the perennial question is birth rates, right? So a couple of things. You still have immigration that's helping. And then when you look at in the U.S. -- but when you look at like kids 1 to 4 and so on, that has stayed pretty steady. So a lot of our products are not just for the infant side, but really are more on the gear side. And so we progress through the life cycle of Baby becoming child and so on. So I think that helps us. Second, the power of the Graco brand is just fantastic. I mean, this is a leader. It's gaining share. The innovations -- this team really -- that's 3-in-1 car, the SlimFit, just great idea, but there are so many innovations coming out. And this new Century brand, which is really going after millennials, very much about environmentally conscious and good price value. So -- and then we're now undertaking a whole effort on Baby Jogger, which this is one of those that we need to bring some life back to it. So very -- feel very good. This is a solid, great business. And don't forget, we also have business in other parts of the world where growth rates -- birth rates are much better.

And any disruption -- this is super helpful. You took us around those 2 major areas, but any potential call-outs in terms of like -- and by the way, nothing but impressive to see your supply chain kind of pivot from everything that we've seen everywhere, right? Anything we may be aware of in terms of disruptions that could hit your second quarter? Or things now -- from now only get better in terms of supply chain?

Yes. In terms of the supply chain, we continue to be operating in a very disruptive environment because of container shortages coming from Asia, port congestion, trucking shortages. We are struggling in some locations to recruit labor to our plants. That being said, as I mentioned in my prepared remarks, we made a proactive choice earlier this year to build more inventory and invest more in inventory in our top-selling SKUs. And we factored those disruptions into our supply chain in plan. And so although our teams are still dealing with day-to-day disruption in a number of areas of the supply chain, we are in a dramatically better position today than we were 6 months ago or 9 months ago. We do expect it to be a difficult supply operating environment for the rest of the year. But we are very confident. And I think you've seen the results that we've been able to demonstrate by supplying the surge in core sales growth in Q1. Also, if you look at our balance sheet, we've built significant inventory in Q1 so that we are in a very strong position to be able to supply and take up our guidance for the year and for Q2 versus our initial expectations. So still an area of focus, but we are in a significantly better place than we've been.

Your next question is coming from Kevin Grundy with Jefferies.

Great. And congratulations on the strong quarter and continued progress. Quick housekeeping question, a broader question on capital allocation. The housekeeping question is just POS trends in the month of April. If you can provide that, I think that would be helpful. And then the question on capital allocation, where you guys continue to make really strong progress to your credit on cash flow and reducing leverage. But you should be below your leverage target or certainly close to it by the end of the year. And Ravi, as you rightly pointed out, there's still tremendous opportunity for value creation, which I think many folks would agree with. So understanding it's a Board decision with respect to share repurchases, how are you currently thinking about capital allocation when you get to your leverage target? And then what would sort of be the view against leaning in against buybacks, maybe even by the end of this year, certainly, if not next, just given the opportunity in front of you? So your comments there would be helpful.

So let me quickly hit the consumption. I'll get Chris to talk about capital allocation and then come back and give some philosophical view on that. On consumption, Kevin, it's been throughout Jan, Feb, March was positive. March obviously spikes as we saw the stimulus. We definitely saw big spikes. April, positive momentum continuing. So I guess, that's basically all I can say.

And on capital allocation, I think our view remains the same, which is our #1 source of investment funds is to invest fully in the business when we see opportunities to drive significant return on investment in the business. Our second priority is to pay the dividend and maintain our current dividend. And our third priority is to reduce the leverage ratio. And I think your point is accurate. We do expect to get to our long-term leverage target by the end of this year, which is the 3x leverage ratio. I think we haven't said what we plan to do after that point. I think we've been so focused on getting to that point that we have a little bit of time still ahead of us. That being said, what will guide our decision on capital allocation is certainly a view toward shareholder value creation going forward.

And the only thing I'd add there is building on what Chris said. We'll have a lot of options. The good news is as long as my billion-dollar man continues to prove that he can spew out those billions, which I'm very confident he will, it gives us a lot of options. Number one, we really are very keen on getting that debt level down and we're showing that. After that, it gives us a lot of options because the key is we've been in a turnaround, right? So now, I think we're actually seeing the end of the turnaround. So now, we've got to say, what do we want to be when we grow up? And how do we really take shareholder value to a huge level and how do you best deploy capital? So in the second half of the year, this is the sort of thing that Chris and I are going to talk a lot about with our Board and enunciate our sort of longer-term strategy. And we can then, hopefully, towards the end of the year, we'll have a better view on it.

I appreciate it. A quick point of clarification. Is it fair to say that return of capital to shareholders likely would be the bias as opposed to a return to M&A, just given all the work that the company has done, that the Board has done to sort of rightsize the portfolio in recent years?

Yes. I'd just be very quick on it. Look, first, let's digest this one. And this team is not about delusions of grandeur and building an empire. We've got great brands. Let's get the full potential out of those, and then we'll worry about what we want to do later.

Your next question is coming from Steve Powers with Deutsche Bank.

So 2 questions for me. From the commentary, it seems like a lot of businesses are doing well. Others are still working towards improvement. I guess, what I'm most curious about is if you can step back and just talk about aggregate market share momentum and whether when the dust settles on the full year, you expect the total portfolio to be able to gain weighted average market share? Or if that's a bit too ambitious for the state of the transformation? Just some thoughts there would be great. And then secondly, Chris, I know there are a lot of puts and takes on inflation and pricing, productivity and business mix and maybe I missed it, but did you give a range or could you give a range on expected gross margin for the year? Both of those would be helpful.

Yes. Let me quickly tackle the first one while -- and then hand it over to Chris on gross margin. So Steve, I think here's the thing. Right now, because we've got a different set of portfolios each with their own hot buttons, and we're really looking at it brand by brand, category by category. And there are some winners and where market share will be -- where we're doing very well. So I think we talked about Writing. We've talked about some of our Food brands. And so I think commercial, difficult business to track because it's so driven by distributors and so on. But we're pretty confident we're a leader and continuing to do extremely well there. So Baby, clearly gaining share. So I think -- and then this is not just overall share, but we also track how do we do on Amazon and stuff and there clearly, we're gaining share. There are some businesses that are going to be tougher, like appliances because of the -- where a lot of our businesses are opening price point. So we may gain on units, but maybe not on dollars because there are a lot of brands that are very premium priced. So that may be tougher. So with our portfolio, tough to tell whether even looking overall, is that meaningful? The issue for us is each of our businesses, what are the drivers of winning? What is the role of that business? And how do we win?

Yes. And on the margin side, what I would say is that certainly, we're seeing significant inflationary pressures, as I mentioned in the prepared remarks. It's about $150 million worse than what we thought when we talked last in February. That means it's a headwind for this year of about $360 million, which is roughly 350 basis points on the gross margin line of inflationary pressure. We are offsetting that with fuel productivity savings, which are -- we're making incredibly strong progress on. We are, as I mentioned, are implementing pricing, not fully to offset inflation, but across the categories that are the most impacted by inflation. And then we're driving operating leverage through strong top line growth and tight cost control. We don't guide on specifically what the outcome is for gross margin. But we do guide for operating margin, and we expect the combination of those 4 factors to result in us driving operating margin up for the year by 30 to 60 basis points. And that compares to last year where we grew operating margin as well. If you recall, when we started the turnaround plan, in 2018, our operating margin was 9.1% reported. And this year, we're guiding to 11.4% to 11.7%. Our 30 to 60 basis point guidance for this year is very much in line with our evergreen model despite the significant inflationary pressure. And so the underlying progress that we're making is even stronger if you were to look sort of underneath the covers in terms of the progress from an operating efficiency and effectiveness standpoint across the company.

Okay. If I could just circle back quickly on the first question, Ravi. Is there a way to think about it in terms of percentage of the portfolio that's holding or gaining share? If it's not, that's okay. I'm just trying to get a sense for whether you feel like exiting the year, a majority of it, 2/3 of it? Just how much you feel like you're actually ahead of the curve on versus those businesses that are still coming up the curve?

Yes. Look, Steve, I would just say on that, that we're gaining market share on Writing, we're gaining market share on Baby, we're gaining market share on Home Fragrances, to name a few. Some of our businesses, we don't get market share data that -- because the coverage universe isn't broad enough when you think about like commercial or CH&S, but we're very excited about the top line prospects and what we're driving in those businesses. And then as Ravi mentioned, probably the business that we still are making efforts on is appliances, where we're seeing green shoots, but there's still more work to be done.

And the only other one like on the outdoor equipment, I think we're doing well, but we still have work to do on beverage and on technical apparel.

Your next question is coming from Joe Altobello with Raymond James.

Great. So first question, if I look at your EPS guidance, you beat the high end in Q1 by $0.16. You raised the full year by about $0.08, even with a better top line, which implies that some of the cost pressures that you're seeing, the $150 million or so of incremental cost pressures you called out this morning, may not be fully offset. So how should we think about that in the second half of the year?

Yes. So that's a fair way of looking at it. So we did over-deliver in the first quarter. The biggest difference of why we didn't flow the full over-delivery in Q1 through to the full year is because of the inflationary pressure. And obviously, there's a timing difference between the inflationary pressure and the impact of pricing, which really impacts the back half of the year. What I would say, though, is that if you look at the full year result, we're still very pleased with the progress we're making because if you look at the first half, we're going to be up versus -- on top line, up versus prior year and up versus '19. If you look at the back half, we're going to be up versus '19. And if you look at the margin progress we're making, we're very much in line with our evergreen model. And if you were to look at the core EPS growth on a tax-adjusted basis, our guidance is for very strong growth versus prior year-end versus 2 years ago.

Yes. Definitely understood. And just if I could ask a second one. I believe your categories prior to the pandemic were growing at an average of around 1% or so annually. How are you thinking about that going forward given that you mentioned earlier that some of the positive demand trends you're seeing are likely sustainable? Has that outlook gotten better?

I think the outlook has gotten better and certainly in the short term. What we're seeing, particularly in the U.S., is that household income is rising at an accelerated rate because of all of the fiscal stimulus. And a lot of that is flowing into our category. So our category growth rates are clearly getting stronger. We, I think, are taking advantage of that and generally growing faster than the category growth rates in the majority of our businesses. And I think that's a testament to the underlying progress that we're making on the strategic initiatives, as Ravi and I talked in the prepared remarks.

Is that long term though? Or is that more transitory over the next few quarters?

Look, I think it's -- with this pandemic and in the second half, still being so uncertain, we really don't know how the complexion of the world and the categories will change. So I think it is very tough sitting today to say long term, how will some of these categories grow. I think what you've got to think about us is now we've created a capability to pivot and be very agile and look at the trends and leverage them. And we're very committed to creating sustainable profitable growth and growing the top line. So I think we will feel -- as we go, we will just be nimble and figure that out, but it's very tough to say how is long term, some of these things are going to go. But there are some things I would say, look, there are some businesses, whether it's food, food containers, organization, some of these are going to stick. Candles are going to stick. Writing is going to stick. So I think we're in many categories that we feel pretty good in terms of long-term prospects. I think that -- are we done Sofya? Thank you so much, everybody. We appreciate your questions. Onwards and upwards. Move forward.

Thanks, everybody.

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