Good morning, and welcome to Newell Brands Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. A live webcast of the call is available at ir.newellbrands.com. I will now turn the call over to Joanne Freiberger, SVP of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin.

Thank you. Good morning, everyone, and welcome to Newell Brands Second Quarter 2025 Earnings Call. On the call with me today are Chris Peterson, our President and CEO; and Mark Erceg, our CFO. Before we begin, I'd like to inform you that during today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially and we take -- 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 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 are available and reconciliations between GAAP and Non-GAAP measures can be found in today's earnings release and tables that were furnished to the SEC. Thank you. And with that, I'll turn the call over to Chris.

Thank you, Joanne. Good morning, everyone, and welcome to our second quarter earnings call. Newell Brands demonstrated tremendous agility during the second quarter, definitely managing the short- and long-term needs of the business as all constituents across the consumer products value chain were being challenged by a very dynamic global macroeconomic environment. Strict adherence to the key tenets of our strategy, coupled with another quarter of strong operational discipline drove Q2 results in line with expectations across all financial metrics. With normalized operating margin and normalized earnings per share results, both being particularly noteworthy. Normalized operating margin increased 10 basis points versus a year ago, to 10.7% with all 3 business segments being positive for the first time since Q3 of 2022. The increase in normalized operating margin was driven by normalized gross margin, which increased by 80 basis points to the highest rate in 4 years at 35.6%. This was the 8th consecutive quarter of meaningful year-over-year expansion in gross margin as we continue to focus on dramatically improving the structural economics of the business. Normalized earnings per share came in at $0.24, which was at the top end of our guidance range despite incurring a higher-than- expected tax rate in the quarter. Relative to the top line, second quarter core sales was minus 4.4%, which was within our guidance range, but frankly, slightly below our operating plan. You may recall that since our new corporate strategy was deployed in June of 2023, core sales trends have dramatically improved each 6-month period going from down 14.7% in the first half of 2023 to down 2.3% in the second half of 2024. With second quarter results now posted, first half core sales for '25 came in at minus 3.4%, which is an improvement versus a year ago, but does interrupt…

Thanks, Chris. Good morning, everyone. Second quarter 2025 core sales came in at minus 4.4% and while net sales contracted slightly more at 4.8% due to unfavorable foreign exchange and business exits. The international business, which accounts for nearly 40% of Newell's total sales, delivered a 6th consecutive quarter of positive core sales growth in both the Writing business, which is our most profitable business and the Home Fragrance business grew core sales. Normalized gross margin expanded by 80 basis points to 35.6% during the second quarter, which was the highest it has been in 4 years and represents the 8th consecutive quarter of substantial year-over-year improvement. Gross productivity savings and pricing more than offset headwinds from inflation, lower unit volume, which negatively impacted factory absorption and a slight tariff headwind, which I will elaborate on momentarily. During the second quarter, Newell's normalized operating margins also expanded, increasing by 10 basis points to 10.7%, with A&P levels as a percentage of sales being comparable to last year. This, of course, implies that overheads increased as a percentage of sales despite being down in absolute dollars as we continue to build out the essential capabilities required to consistently grow profitably in our industry. The reason we want to call this out is because starting with the third quarter and continuing into the fourth quarter of 2025, we expect overheads as a percentage of sales to decline for the first time since our new strategy was put into effect, which we think is notable. Net interest expense of $82 million reflected an increase of $4 million versus a year ago and a normalized income tax provision of $24 million was recorded in Q2, resulting in an effective tax rate of 19.2% which was higher than the mid-teens rate we projected 3 months…

[Operator Instructions] Your first question comes from Andrea Teixeira with JPMorgan.

Can you comment both Chris and Mark, if you're seeing the back-to-school, it seems as you pointed out, that category has probably outperformed what your expectations were? And then you -- if you can also comment from the exit rate across all categories, including outdoors and your stated innovation embedded in your guide?

Okay. Let me start with back-to-school. So it's a little bit early to read consumer offtake with back-to-school. The next 4 weeks are going to be sort of the key 4 weeks in that. What I will say is we feel very good about our sell-in and our setup heading into the big back-to-school weeks. We had all-time record high fill rates. We shipped out really all of the pre-display setups heading into back-to-school at the highest quality level from a supply chain standpoint than we've ever done. We also, as I think we mentioned on the last call, secured a number of wins heading into back-to-school, where we got exclusivity on some of the categories where we have very high market share like EXPO markers, Sharpie markers with several retailers. So we believe we're well set up. We'll know a lot more over the next 4 to 6 weeks relative to consumer behavior on that. In terms of innovation, if I go through, we continue to feel very good about the innovation that we have in the Writing category. We've talked about the Sharpie creative markers, new colors, new tip sizes, that is continuing to resonate well with consumers. We also talked about on EXPO launching a more vibrant ink and also launching a Wet Erase, new to the world segment so that consumers can both use a Dry Erase and a Wet Erase Marker, and that is off to a very strong start. In the Baby category, we continue to go from strength to strength. Recall that we had very strong core sales growth in the first quarter, high single digits. We gave some of that back in the second quarter, which was expected because some retailers ordered baby gear, particularly before the tariffs went into effect. If…

Our next question comes from Brian McNamara with Canaccord Genuity.

So look, a ton of progress has been made in the turnaround, you're about 26 months in now, but with core sales moving in the wrong direction, what's driving that? If innovation is working, what isn't? And then I understand the market is tough, but some peers are growing significantly in spite of this. So why should current or prospective investors be confident the strategy is working?

Yes. I think -- and I covered -- I touched on this a little bit in the prepared remarks. We continue to make sequential progress on core sales growth. So if you look in the first half of this year, we were down 3.4%, which was an improvement versus the run rate in the first half of last year and a significant improvement from before we launched the strategy where in the first half of '23, we were down 14.7%. So we are moving in the right direction. This is not something when you're dealing with the front-end capability improvements that we've made and the innovation reboot that happens overnight. But what I will say is we do believe that we have a strong innovation pipeline that is manifesting itself in parts of the business that you can see already. We've returned the Writing and the Baby business to grow pretty consistently over the past several quarters. The International business is driving core sales growth. This quarter, we returned the Home Fragrance business to core sales growth this past Q2. And so while there's more work to do across the balance of the portfolio, I think we've been very clear that given the timing of the innovation development cycle, Outdoor & Rec is sort of the one that is going to be the laggard. Although I'll mention, even in the case of Outdoor & Rec, our core sales trends have improved sequentially and so we believe we're on the right track. The reason why this quarter, we were down 4.4%, which was a deceleration from last quarter, was really had to do with the timing of retailer shipments as well as a more challenging category growth dynamic that we're facing but we are confident that we are going to improve core sale trends going forward, starting with the back half of this year.

Yes. But if I could add just a couple of things. I mean, if you look at the gross margin in the second quarter that we just printed, and you compare that to the 2-year stack. We're up 680 basis points. We've said that this year, we're going to grow our op margin by about 110 basis points at the midpoint. We've said that our EPS on a tax-adjusted basis will be up double digits. We said that our trailing 12-month EBITDA by the end of the year will be up mid- to high single digits, we're delevering the company. We've also said based on the third quarter and full year guidance, we provided that in effect, we're calling Q4 core sales to be flat. We're also talking about the fact that our second half A&P is going to be the highest level since literally since 2017, right? So all the things that are out there that we've said will come to pass are coming to pass. We always said that sales will be the last long pole in the tent to come up, but we have a great innovation program that's coming out the door as we speak, and we're gaining distribution because of all of our tariff advantage business positions.

Our next question comes from Olivia Tong with Raymond James.

Lots of details so far on the innovation pipeline and some of the wins in terms of the additional categories that you're getting shelf space on. But based on your full year outlook, it looks like core sales would be up roughly 2% to 4% in Q4. So, can you talk about what drives such a material inflection from where you expect to be in the first 3 quarters versus Q4? Are there particular brands, categories, channels, et cetera, that are driving that?

I'll let Chris provide some backup detail. But if you look at the full year guidance we just provided and the third quarter guidance we just provided, I think you would see that core sales in the fourth quarter are effectively being called at roughly flat.

Yes. And then relative to that improvement of heading into the implied Q4 guide of relatively flat on core sales, I think there's a couple of things that are supporting that. Number one, the tariff distribution wins that we're getting do tend to be more Q4 weighted because of the timing of implementation, both from a shelf set standpoint and from an incremental merchandising standpoint. The second thing is some of the big innovation that we've launched, for example, the Yankee Candle relaunch. The big quarter for Yankee Candle is Q4. So we expect the innovation to have a more material impact in Q4 than Q3 slightly. And then I would say the third thing is, we have been working with a number of retailers on reinventing their store shelves. And some of those store shelf resets get implemented in October. And so we believe that the distribution gains are going to be bigger in the fourth quarter because of the underlying fundamental progress in addition to the tariff-related wins heading into Q4. So we think we're on the right track. And we think, as Mark said, from what we see today, we're not guiding to Q4, but the implied guidance would put us about flat in core sales in Q4.

Got it. And then with respect to the pricing that you have implemented, could you talk about retailer response to the Baby pricing, any other actions that you might be contemplating? -- apologies if you talked about this at the beginning of the call, since I was a bit late.

Yes. No worries. On the pricing that we've taken, retailers have been generally constructive understanding that we're taking pricing that is largely cost-based. By the way, we're not solely relying on pricing to cover the tariff cost. We also are driving incremental productivity savings and tightening our overhead spending to ensure that we've got a competitive cost system. And then we're looking at where the tariff impact can't be mitigated or we need to take pricing for consumers. As we've taken the pricing, the general response from retailers has been understanding and they have accepted our pricing. The biggest challenge from a retailer discussion standpoint that we've encountered is the timing of when the pricing goes into effect. And obviously, most retailers, when we have that dialogue don't want to be disadvantaged versus other retailers. And so we're trying to be very mindful about not advantaging or disadvantaging one retailer versus another. From a consumer standpoint, that the pricing that we put in the market, in particular, on the Baby category, hasn't fully materialized yet in terms of retail prices for the consumer. As I mentioned, the third round of pricing that we took, which was also focused on Baby just went into effect on Monday of this week on July 28. So I would expect retail prices to begin to move up a little bit based on our pricing to the retailers over the next month or two. And we, of course, are monitoring consumer response and reaction to that. We believe that the whole category is going to price up. We have not assumed that the pricing is incremental in our outlook. We've largely assumed that there's going to be volume loss associated with the pricing and that so -- but -- so we think we've been prudent in our planning approach. But we'll see as we go along here, whether we need to adjust, but we're watching it very carefully.

Thank you. Your next question comes from Bill Chappell with Truist Securities.

Chris, I mean just kind of broader sense, I'm just trying to understand -- I get your enthusiasm for innovation, and I know for some of the categories, it's a long time coming. But just because innovation made a meaningful impact in Baby and Learning doesn't necessarily mean it will make a meaningful impact in Yankee Candle or Rec & Leisure or other type categories were a similar one. And so I'm just trying to understand, I guess, one, do you have some kind of background in the past where you've seen a meaningful impact from innovation? Have your competitors in these categories have not been innovating so you're kind of operating in a vacuum? And then how do you kind of peer that all with, it seems like you need the categories to grow to really grow, and you're now talking about the categories at the low end of what was kind of conservative outlook. So just trying to understand your confidence in that -- not just from distribution gains, but just for the categories and your business can grow again as we go into '26.

Yes. So I'd say a couple of things on that, just to unpack it. Category growth does affect Newell and category growth is driven by macro factors. And so it's not that we can't do better or worse, frankly, than category growth, but we have to plan for it accordingly because the general merchandise categories have been under pressure as consumers have been prioritizing food, housing, essentials, car insurance. Everything we're hearing is that those -- the category growth rates are expected to improve as we head into next year, but we're not macroeconomists. So we're not guiding to '26 at this point. But we don't believe that general merchandise is going to continue a downward trend from a category growth rate forever. And so that would be the first thing. Second thing is, relative to innovation, what we've seen from a competitive set which is part of our strategy is that in every category we compete in, we can find a competitor that drove significant growth through innovation. So we know that these categories are highly responsive to innovation. And we know that when you get innovation right, you can grow materially faster than the category. And in some cases, if you do the innovation correctly, you can actually drive category growth at the same time. So it's not the category growth is completely outside of the company's control. And so part of the reason why we believe that these 6 businesses are good businesses for us to be in is because we've seen them be responsive to innovation, not just in Baby and Writing, but we've got examples of where we're driving significant growth in the Kitchen business or the Home Fragrance or Commercial or Outdoor & Rec through new product innovation. And so -- we just --…

Your next question comes from Filippo Falorni with Citi.

I wanted to ask of the environment at the retailer level. Are you seeing any impact from inventory destocking in some of your categories? What are you seeing in terms of repurchasing level? And then in terms of your question on -- to the prior question on pricing, what do you see from a competitive response? We've seen some categories being a little bit more promotional, some private label taking share in certain categories. So, just curious what are you seeing from a competitive response to pricing at the promotional level?

Yes. On the retailer inventory, we did see a little bit of an impact in Q2, but it was primarily on -- we have a part of our business that's about somewhere between 5% and 7% of our U.S. business that is direct import. And when we say direct import, we -- if we were producing product in Asia, the retailer takes possession of the product in Asia and then imports the inventory to the U.S. And when the China tariffs went into effect, we had a couple of retailers basically stop their direct import business for a period of time, which had their inventory levels back up a little bit or go down a little bit in that part of the business. So we did see a little bit of an impact from direct import being cut off. It didn't affect sort of out of stocks at retail, but it did affect our shipments in the short term. That's really the only notable impact. We haven't seen retailer inventory where we're supplying on the majority of our business direct from our U.S. distribution centers. We haven't seen a dramatic change in retailer inventory. We believe -- continue to believe that the retail inventories are in reasonably good shape. From a pricing standpoint, it's a little bit hard to tell, partly because of the Amazon Prime Day effect, which other retailers then follow. And so we're trying to get unpacked kind of what's happening with the everyday price and then what's happening with the promoted prices. But because of the noise in the system with tariffs, it's a little bit fuzzy to really unpack that. Broadly, what we're seeing is that in most categories where everybody is affected by tariffs, pricing is moving up, but it's not moving up at the same -- on the same timing. We're not seeing, generally speaking, more aggressive promoted prices. But what we are seeing is in some cases, competitors are delaying the date of the price increase because they still have inventory onshore that hasn't been subject to the tariffs. We expect this situation on pricing from a competitive standpoint to really get a lot clearer over the next 3 to 6 months as the pre-tariff inventory sort of runs out and the price increases become more visible at retail. So it's a bit fuzzy. I will admit at the moment, but we're watching it every day. And what we're excited about, as I mentioned on that is that in over half of our business where we're not subject to tariffs, we're not taking pricing. And so on those categories, we think our advantage from a consumer value standpoint is going to strengthen over the next 3 to 6 months. And then on the categories where we have taken pricing, we think generally, competitors are going to take pricing but it will be different by category, and we may have to adjust depending on the specifics of the category in the competitive set.

And your last question comes from Peter Grom with UBS.

So 2 quick ones for me. Maybe just tying all this commentary around the sequential improvement in sales. Guys, can you maybe just help us understand how much of it is -- or quantify maybe how much of it is driven by kind of the distribution gains and the innovation versus what's expected from a category growth perspective? And then I guess just maybe looking out over the next several years, I know a lot of the discussion today is on the top line. But I'd be curious how we should be thinking about kind of the margin progression, right? I mean you guys have done a tremendous job on gross margin, operating margin despite sales being down. So as -- or if or when top line returns to grow, how should we think about kind of the benefits from a profit standpoint?

Yes. So let me take the first one on category growth, and then I'll let Mark talk margin. Relative to our core sales guidance, for the year, we had started, I think, the year with a minus 1% to minus 3%. In this update, we tightened to the bottom end of the core sales range of minus 2% to minus 3% for this year. And really, what drove that entire change was our outlook on category growth. So we had said -- I think last quarter, we were reflecting 1 to 2 points of category decline. At this point, what we have in the outlook is closer to 2 points of category decline, and that's why we've adjusted our core sales outlook for the year, entirely due to category growth. We continue to believe that the actions in our control, on distribution gains on innovation are very much on track, and we're not changing our outlook as a result of those items, so to speak. So that's where we are from a top line standpoint.

Yes. As far as the longer-term question is concerned, I mean when we first put the strategy out at Deutsche Bank a number of years ago, we said our interim targets were to have gross margin in the 37% to 38% range. We acknowledge and recognize that we needed to get A&P levels up. We said that ultimately, we think the end spot there is probably somewhere in the 6.5% range because some brands have more, some brands have less. We talked about the fact that we do need to get our overheads down and that's why we're really excited that starting with the third quarter of this year, overhead as a percent of sales will start arcing downward, which will be another catalyst to really start driving op margin at a greater rate. As we've been building up the capabilities, a lot of that gross margin progress has gone into A&P and has gone into the overhead line, but we think that's going to inflect. And once that inflect, frankly, we don't see going back the other direction. So we're really very bullish on what we think we can do as it relates to that. We told people from the beginning that once we get to that first base camp of that 37% to 38% range, we'll then talk about what's next. But as you think about what we've been building, we've been building an integrated system. And that integrated system has very high fill rates. We've got great customer service. We have the ability to monetize the next incremental unit at a very high rate because of the automation programs we put into effect. And so the math that we've done internally makes both Chris and I and the rest of the leadership team, very optimistic about our future here at Newell.

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