Good morning, and welcome to the Newell Brands' Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. A live webcast for this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Ms. Tsinis, you may begin.

Thank you. Good morning, everyone. Welcome to Newell Brands' Fourth Quarter and Full Year Earnings Call. On the call with me today are Ravi Saligram, our CEO; Chris Peterson, our President; and the newest member of the executive team, Mark Erceg, our CFO. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially, and we undertake no obligation to update forward-looking statements. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q and other SEC filings available 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 we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures are available -- and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as other materials on Newell’s Investor Relations website. Thank you. And now I'll turn the call over to Ravi.

Thank you, Sofya. Good morning, everyone, and thank you for joining us on our year-end call. Fourth quarter results were in line with our expectations and brought to a close a difficult second half. The business continued to be impacted by a tough operating environment, including slowing consumer demand for general merchandise categories as well as inventory reductions at retail. Our team remains focused on executing our strategic priorities with excellence while navigating these challenges. They did a great job in reducing inventories in the fourth quarter and drove sequentially stronger cash flow performance. For the year, Core sales declined 3.4% against a very demanding year ago comparison of 12.5% growth and soft volumes more than offset favorable pricing. 2-year stacked growth exceeded 9%. The Writing and Commercial businesses delivered core sales growth in 2022, while core sales for the other businesses declined. The company's core sales and domestic consumption exceeded 2019 levels even as Home and Outdoor categories are continuing to normalize from peak pandemic levels. Many of our major brands such as Rubbermaid, Sharpie, Paper Mate, Rubbermaid Commercial Products, Ball, EXPO, Elmer's and Campingaz showed strength. Despite a much tougher than anticipated operating in macro environment in 2022, which weighed heavily on the company's results we made tangible progress across a number of focus areas. First, many of our iconic brands were recognized for their innovations. For example, Ball stack and store innovation earned Good Housekeeping Cleaning and Organization award. Graco won the JPMA Innovation Award for Child Restraint Systems with Graco Turn2Me car seat. Coleman RoadTrip 285 Stand-Up Propane Grill was recently ranked by Outdoor Gear Lab as the Best Portable Grill in 2022. In the U.S., new innovation under Mr. Coffee, Latte 4in1 received a Good Housekeeping, Best Gear and Best Coffee Award. Our latest innovation…

Thank you, Ravi, and good morning, everyone. Over the last 4 weeks, I've immersed myself in the business and the organization. And during that time, in many ways, I felt like I was getting reacquainted with an old friend. I say that because after spending the first 18 years of my career at Procter & Gamble, I spent the next 13 years learning the ins and outs of building products, transportation, luxury goods and health care information technology. Those unique experiences, I believe, prepared me well as I now come full circle and returned to my first true business love, which is consumer products, where deep consumer insights, differentiated innovation, creative 360-degree marketing, operational excellence and the first moment of truth all range to [crane]. I undoubtedly still have a great deal more to learn, but in my brief time at Newell Brands, I've already made some high-level observations, which I'd like to share with you. First, it is clear to me that over the last couple of years, Newell Brands under Ravi and Chris' leadership has built a great team within a strong mission-driven culture that guides the behavior of 28,000 dedicated professionals who strive each day to bring value to the business and the organization. Second, dramatic steps have been taken to simplify and streamline the business, which were necessary prerequisites for us to improve our speed, agility and financial performance going forward. Third, the bold actions recently announced as part of Project Phoenix to reduce overhead costs and create scale across manufacturing, distribution and transportation and customer service are our key business and organizational enablers which I believe will serve us very well in the years ahead. Finally, and perhaps most importantly, there is broad recognition across the entire company that while these past and current actions are all steps in the right direction, there's much more work that needs to be done. My interactions have led me to the conclusion that the organization is eager and excited about the future because Newell has a robust portfolio of leading brands with strong market share positions which when coupled with the right capabilities should allow us to continue on our journey towards becoming a world-class innovation-led consumer-driven company that can consistently grow sales and expand margins year after year and in doing so, generate meaningful levels of total shareholder return. Personally, I'm excited, honored and humbled to be part of that journey. And I'll now turn the call over to Chris.

Thank you, Mark, and good morning, everyone. I'd like to echo Ravi's sentiment by welcoming Mark to the team. Mark and I have known each other for a long time, having worked together at P&G. Although Mark has only been here for a short time, I can already see what a great fit he is for the organization and look forward to partnering with him and the rest of the leadership team to unlock the full potential of the business. I would also like to thank Ravi for his leadership and partnership over the past several years. I've admired his passion, commitment and people-first mindset, which are infectious and have reinvigorated the company's culture. I'm honored and excited to become the next CEO of Newell Brands. In my new capacity, I look forward to working with our leadership team, the Board and all of Newell's dedicated and talented professionals around the world to drive shareholder value creation through diligent and thoughtful execution of our strategic agenda. Before jumping into results, I'd like to take a few minutes to talk about some of the key business and organizational initiatives we have recently taken to strengthen the company's operational foundation. As we've mentioned before, a key component of our aspiration to become a TSR leader in our industry, is predicated on creating a scaled world-class supply chain that positions Newell as the retailer partner of choice from a service, reliability and capability standpoint, and leads to breakthrough value creation in terms of margins, cash and reduced complexity. Consistent with that, on February 1, we seamlessly implemented the second go-live wave of Project Ovid across the remaining Food categories as well as the Writing, Outdoor and Rec and Commercial businesses. Having reached this major milestone in Newell's supply chain transformation journey, we are…

[Operator Instructions] And our first question comes from the line of Bill Chappell with Truist.

Thanks. Good morning. And congratulations to everyone. First part of question on Project Phoenix. Obviously, over the years, even before your 2 tenures, there have been a lot of projects, a lot of consolidation of divisions from 5 to 3 and 3 to 5 and what have you. How is this different? I mean what do you see that in cost savings that you haven't already gotten from the prior projects that really gets you confident about how this makes a big change? Like I said, it's been done, it seems attempted multiple times before in the past decade.

So Bill, I think let me kick that off. Look, first is, it was really the idea germinated when we were looking at the Food business and Appliance business. And the customers and the merchants are the same, and we were not approaching it on an integrated basis. The consumer is the same because they reside in the kitchen. And as we started thinking about it and this whole notion of consumer life moments and occasions and really was driven from a consumer and customer standpoint, saying, "Hey, where do these reside and how do you group the businesses?" So as you know, Newell sort of veered a bit from centralization to decentralization over times. But for us, we have taken in the last 3 years, a more holistic approach of having the businesses for front facing, and we were unifying the back to leverage scale. This is just the next evolution of that. And so we said, hey, it really makes sense, candles in the home. COVID also taught us that Home is the hub. So that made sense then to bring those businesses. The commercial piece was really -- it shares the Rubbermaid brand. And so we said, let's bring that together. The key was this has helped us because we had different CFOs and HR for each of the businesses. This has helped us reduce it, create bigger jobs for people improve the span of control, et cetera. Second, I think this is very historic about doing international as integrated one Newell as a whole because there's been a lot of fragmentation. So there's One Newell market approach, go-to-market approach, I think, is going to be quite amazing. I don't think we've ever unified supply chain globally. And I think that we just feel that will allow for better decisions on near shoring up, hey, do you source, do you manufacture, taking leverage of our total footprint globally, which we think long term will help the gross margins. So when you look at those fronts, and then there's a lot of, I think, as a company -- because these were all separate companies in the past. One of the keys to standardizing processes, which we did in Ovid, and we've learned a lot from that and then getting to common measurement systems. So I just think it would create a more efficient company and so this was not just a, hey, let's take cost out for the sake of cost out. It was very strategic in how we went about it.

Okay. I'll follow up on that. The second question is just in terms of consumer demand, trying to understand if there are areas where you're seeing meaningful pullback from consumers due to recessionary environment or if you're just expecting that to happen as we move through the year? And if the former, then where are you seeing the biggest pressure points?

I think well, 2 points. One, I'll just reiterate. One, we are about 2019 from the pandemic levels overall. So that's encouraging. The stack growth 2 years is 9%. But having said that, clearly, there are a couple of phenomena. One is due to the stimulus that occurred as well as the pandemic on several businesses and categories that was forward acceleration from a consumer standpoint. For instance, appliances is probably the prime candidate. Then you had the phenomenon of like candles during COVID where people were burning a lot. And you brought we brought in a lot of low-income consumers, that now without the stimulus have left the fold. So you are seeing even before the recession, there are a couple of impacts, which are the retailers destocking, consumer former acceleration that are [cut] (ph) in different categories. So I think when you take a look into that, those are the things that we are seeing those trends persisting in the first half.

[Operator Instructions] Next question comes from Olivia Tong with Raymond James.

I wanted to talk about your sales expectations and what’s embedded in your core revenue outlook for this fiscal year because we assume that Q2 is going to see similar pressure as Q1? And it would imply sort of a low single-digit core sales growth in the second half at the midpoint. So can you provide some color on your views on trends as you begin to lap the destocking in the second half of the year? And what your full year outlook reflects in terms of your view on shelf space or retailer losses and what you think the underline category growth is as you exit this period of destocking?

Yes. Thanks, Olivia. I'll take that. So I think our -- as I mentioned in the prepared remarks on our revenue outlook, there's really 3 or 4 trends that are going on that inform our outlook. One is normalization of categories from peak COVID levels, and that's particularly impacting the Home and the Outdoor businesses, where we're continuing to see sort of a return to pre-pandemic category levels. Second is consumer pressure on discretionary categories because of inflation in food and housing, which is taking a greater share of consumer wallets. Third is the retailer destocking impact and then finally, we've seen over the last 2 years, almost 20% input cost inflation, and we've largely priced for that as we've talked but that also is putting pressure on categories from a volume standpoint. If you look at the trend during the year, we're guiding for core sales growth of minus 16% to 18% in Q1. We're not going to give quarterly guidance, but I don't think it's a fair assumption to say that we expect that to continue in Q2. I do think that, that Q1 is uniquely negative because of the comparison. If you look at the 2-year stack on Q1, it's almost 27% or 28% that we're comping. So it is the toughest comp. As we mentioned in the remarks, we do expect the back half to be better than the front half, but I don't think it's the right assumption to think that Q2 is going to be down as much as Q1.

Got it. And then Chris, congrats first. I wanted to get your view in terms of potential for a strategic review as you move into the CEO position, whether you think there is another look at the categories you're in, the brands you have, how you think about that for the longer term?

Sure. Yes, I think the way I'm thinking about that is I think that we put the turnaround plan in place about 3 or 4 years ago. And I think, as we've talked, we've made significant progress on that. But the macro environment is different today than it was then. And because of the progress that we've made I think that now is an opportune time to relook at the company's strategy going forward. And so I intend to do that with the leadership team. I don't expect that we're going to have a revolution in the strategy, but I think it's likely that we will evolve the strategy. But I want to take the time to confer with the leadership team and also understand sort of the current environment. I expect that will take us several months to get through, and we'll be ready to share something as soon as we get through that process.

[Operator Instructions] Our next question comes from Peter Grom with UBS.

Ravi, Chris, Mark, congrats to you all. Maybe just one quick housekeeping item. Does the top line impact embed any -- the top line outlook and then any potential impact from what's going on at one of your largest retail partners that's been in the news quite a bit recently? And then, I guess, just maybe a bigger picture, taking a step back, the business has changed a bit over the past few years. But kind of taking the guidance into consideration, sales are really retrenching here. And Chris, you mentioned normalization and kind of consumer pressures. But just kind of bringing it back to the long-term core sales target of low single digits. I mean is there something you've learned over the past year or 18 months or so, that kind of changes your confidence in your ability to deliver on that target kind of longer term as we kind of get through this period of disruption?

I'll just do the first one very quickly. The answer is no. And in terms of any particular retailers issues affecting us. So Chris?

Yes. Maybe just to build on Ravi's answer on the first one. I think the retailer you're talking about is likely Bed Bath & Beyond. They represent less than 2% of the company's revenue. And we are working very collaboratively with them in terms of kind of a win-win go-forward partnership. I'll leave it at there, but it is not a significant part of the company's business. On the long-term algorithm, I don't think there's anything that causes us to change the goal in the evergreen model of getting to long -- or getting to low single digit, consistent, sustainable core sales growth. And so we are still committed to that as our evergreen top line target. Obviously, we've been impacted by a lot of the trends that we've talked about, which has us off of that for this year, but we very much are working hard to get back there as quickly as we possibly can.

I think the one thing I'd add just sort of when you look back. Look, these last 3.5 years, we've had so many things, right? We've had the pandemic then supply constraints, inflation, foreign exchange, war of Ukraine, et cetera. So to me, the Holy Grail is 2019 as the base here. And the fact that in 2022, we were still up versus '19 and the stack growth was 9%. Should really -- our brands remains strong. I know Chris and the team are really going to take it to the next level. So I think once the economy turns, I do feel that they have a green model that Chris and I espoused is still intact.

Great. And then just this might be a hard question to answer, just given the uncertainty of the current environment. But Chris, we've kind of seen -- when new CEOs come in, the initial outlook tends to be somewhat conservative to set the team up for success. And so I guess how would you characterize your confidence in this guidance today? Do you feel like you've embedded enough flex should things deteriorate from further from here, either from a consumer demand perspective or inflation or FX? Just kind of the confidence that this is kind of the worst it can kind of get and things could get better, there could be upside to the earnings as we move through the balance of the year?

Yes. I think I'll just give you sort of a high-level conceptual answer to that, which is we tried to reflect in the guidance. Everything we knew about the current environment. We tried to be realistic in what we know based on the go-forward tailwinds and headwinds for the business this year. And we did want to take a prudent bias on the core sales because our focus this year is to get cash flow back. And the best way to get cash flow back is not to overbuild inventory, and we wanted to manage our supply and demand plan in a way that ensured that we had an above average cash flow year. We are, as we mentioned in the prepared remarks, seeing significant headwinds in terms of the tax rate, which is going from 2.5% to a high teens rate, which is our kind of long-term normalized operating rate. We are seeing interest expense probably is going to be up about $45 million this year versus last year. And we've got the headwinds, as we mentioned, of incentive comp reset and foreign exchange in addition to the core sales deleveraging. On the flip side, we feel very good about Ovid and the benefits that Ovid is going to generate. We've built our productivity, our gross productivity assumptions are well above 4% of cost for this cost of goods sold for this year. So it's a step up in gross productivity that's embedded in our guidance because of Ovid, because of the fuel productivity program and automation. And we've embedded in, as we talked, the Phoenix overhead savings and international pricing along with carryover pricing. And so I feel good about sort of where we are based on what we know today.

Our next question comes from Kevin Grundy with Jefferies.

Great. And just to echo my congratulations as well. In a difficult environment like this, it may not seem that way, but I think a lot of folks on this call that have followed the company for a while, it's certainly in a better place than it was post the yard merger, so congrats on that. Question on Project Phoenix to start, if we could. It seems like another step along with Ovid to drive efficiencies and reduce complexities in the organization, which was inherently more complex and in many cases, perhaps to decentralized coming out of Jarden merger. But at the same time, it's a lot of change in what's a very dynamic and challenging environment. Can you just comment on how the organization is handling all this change and why we should not be worried about a potential risk to result at least in the near term? And then I have a follow-up.

Yes, Kevin, thank you so much. Look, that's a great question. And I would say we absolutely could not have done this 3 years ago. And you may recall when Chris and I started here, our engagement scores for about 37 to 45. We went up to 75 world-class norms -- much consultants told us to take us 10 years we got there in 2 years, and we have maintained that last year when we did it in November. So the organizations culture is a competitive advantage and very strong, but they could absorb it and this whole idea of what One Newell is imbued in their employees. And the way we handle it, there was meticulous planning. We started the Phoenix idea and process. So we started working on it through July and brought in layers of people systematically over time to give them ownership. Our communication has truly been outstanding to make sure people understood why we were doing it. And finally, the people that we had to exit, we treated them with enormous dignity and respect. And so much so if you go back to LinkedIn and take a look, even though who exited our sharing for Newell and what be able to succeed. So I think that culture has been very strong, people understand why we need to do this. And I think it's a journey. Look, Ovid was the great test to see whether we could centralize distribution and that was very successful. That gave us the courage to centralize manufacturing to put sales all under our Chief Customer Officer. So I think so far, the reaction of the organization has been actually very positive. We've been as concerned about the people left behind to make sure they're embracing this. The other part of it has been because of our previous history, we've also made sure there is role clarity, reduce duplication. So I think people are feeling even more empowered. So I'd say the chances of this succeeding are very high.

Excellent. Ravi. Chris, probably for you just on margins, just to kind of step back and make sure that we're not missing the floors for the trees here. Currently, in dealing with a lot in terms of volume deleverage, FX cost, et cetera. But longer term, sort of thinking with margins versus your original benchmarks. But since then, you have Project FUEL, we have Ovid, now you have Project Phoenix, I think the commentary has been that there's no reason this cannot be a 17% to 18% EBITDA margin business longer term as we sort of look past this volume deleverage and so forth as we come out of the cycle. Is that still the view? Is that where investors should sort of anchor longer-term expectations? Or is it potentially even superior to that now just given some of the programs that you've announced? And then I'll pass it on.

Yes. I think that there's no question that we are shooting for a much higher margin profile in this business. And I think we have the opportunity to drive that over time versus where we are today. So -- I think that sort of a mid- to high teens EBITDA or EBIT margin is very much in our long-term sites as we've talked. When we did the original benchmarking, we thought that gross margin, we ought to be targeting to get the company's gross margin up to 37% to 38%. We've taken a series of backward steps for a variety of reasons associated with fixed cost deleveraging inflation, et cetera. But I think our guidance this year is for gross margin to turn and start to move positive. And I think that trend, we are very focused on driving that. And then we continue to believe that although we may have some deleveraging effect this year, we believe that getting our overhead down towards that 16% -- 15%, 16% level is the right thing as well. So I think that, that can yield margins that are much stronger than where we are today. And I think a lot of that continues to be in our control. Although we are subject as we've seen in the short term to the macro trends, which means it's not going to be a straight line, as I've said many times before.

And our next question comes from Andrea Teixeira with JPMorgan.

Thank you, operator. Good morning, everyone, and congrats to all. I think I can speak to most of the ones on this call that I think you sounded -- you did not sound as negative about the [PEF] ahead when you announced the 3Q earnings and later with Project Phoenix. Can you help us bridge a little bit of what's gone worse since November and December, perhaps the consumer or the retailers that took a more conservative step on our views on the inventory levels? And also on a clarification on the commentary about the higher management compensation in 2023. I guess with results materially lower in the year, how can compensation normalized area this year? I think you're adjusting -- probably adjusting out some of the external factors within the compensation metrics. So I just want to see if we can bridge that to the commentary that you gave, despite those savings in the Project Phoenix, you pretty much will offset everything with labor inflation and management company. If you can bridge those -- those components that will be super helpful.

Let me answer your final -- the last question first, very quickly. Essentially, this year, look, our compensation is performance-driven and variable to the great part. And there's an LTI component as well. So we really -- because we didn't make our numbers, obviously, the STI component was very low for 2022, and it also affected our LTI. So when we look at '23, we start with the assumption that it will be normalized and you assume the target numbers. So that is a big, big jump, plus the [indiscernible] inflation. And that is why we said the Phoenix was offsetting that.

Okay. Relative to the change perhaps in what we're seeing from November. I don't think we've -- I think this is the first time we've given guidance for this year. And the reason why we gave guidance for the first time on this call is because we want to give guidance when we have clearer visibility on the macros. And there are -- it is a -- a difficult macro environment from a forecasting standpoint because there's a lot of uncertainty and a lot of variability in the range. I think as we've seen the macro trends continuing over the last few months as we saw where Q4 came in, as we saw how we started off in January and as we got more visibility to the forecasting, we felt like that helped inform our top line guidance on core sales growth for this year. I think many of the comments that we made are still applicable. We do expect this year to be a significantly above-average gross productivity year as a result of benefits from the Ovid program, fuel productivity, automation, and as a result, we're expecting gross margin to be up this year. I think the piece that's offsetting that from a margin rate standpoint is really the overhead rate and that's really because of the top line deleverage more than anything else. Our overhead costs in total are relatively flat in dollar terms as we mentioned, because of the wage inflation, the incentive comp and select capability investments that we're making which are offsetting the Phoenix savings. So -- and then obviously, the interest expense has moved with -- as the Fed has raised rates and rates on short-term borrowing has gone up. And from a tax rate standpoint, we're planning for sort of a full operational tax rate, as I mentioned before.

Can I just add something? Look, we've had the full year of '22 to look at what happened. And really, they're being a bit repetitive, but the forces of [indiscernible] retailer destocking, consumer forward acceleration, all that and then an impending or imminent recession. When you look at all of that, I think it's really a consumer environment, which has softened. So I think we're just being prudent about that. Our brands inherently are -- we're continuing to strengthen our brands. So I would just look at that and very important, Chris has really been very clear that the major focus of 2023 is to get that cash flow back.

And our last question will come from the line of Lauren Lieberman with Barclays.

Great. Thanks. Mark, hi again, in years. Just wanted to ask one quick question was when you’re just looking at the outlook for this year. How you’re thinking about still like lingering destocking activity versus consumption? If you talked about it earlier in the call, apologize I missed it, but clarity on that would be great, if possible.

Yes. It’s good question, Lauren. And I would say that we do expect some lingering retailer destocking, largely, we expect that to be complete in the first half of the year. And so clearly, if you look at the Q1 guidance, where we’re guiding core sales down 16% to 18%, we are not seeing our underlying POS trends down that much. And part of the difference there is retailer destocking. I would say that the retailers made significant progress on destocking from our view and what we’re hearing in the back half of last year, but we don’t believe that it’s fully over yet. We do expect, from what we’re hearing that the retailer destocking will largely be complete by the first half of the year, although hard to predict entirely, but that’s what we’re – that’s what we’re planning for, and that’s what we’re hearing from the major retailers that we interact with today.

When we just why we think second half would be slightly better than the first half.

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