Newell Brands 2026 Q3 Earnings Call

Thank you. Good morning, everyone, and welcome to Newell Brands Third Quarter 2026 Earnings Call. Joining me today are Chris Peterson, our President and CEO, and Mark Erceg, our CFO. 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 undertake no obligation to update forward-looking statements. Please refer 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 factors affecting forward-looking statements. Today's remarks will also refer to 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 the non-GAAP measures and reconciliation between GAAP and non-GAAP measures can be found in today's earnings release and tables that were furnished to the SEC. With that, I'll turn it over to Chris.

Thank you, Joanne. Good morning, everyone, and welcome to our third quarter earnings call. Top-line growth accelerated sequentially as Newell Brands delivered its second consecutive quarter of year-over-year sales growth, driven by broad-based market share gains. Net sales increased 3.7% and core sales grew 3.3%, with both results exceeding the high end of our 2%-3% guidance range. Growth was broad-based with two of three segments, four of six businesses, seven top 10 brands, and seven top 10 countries growing during the third quarter. The U.S. continued to grow and international returned to growth, with positive core sales growth across Latin America, EMEA, and Asia Pacific. This breadth provides further evidence that the capabilities we have built over the past several years are translating into better business performance.

Stronger sales and productivity drove expansion in Newell's normalized gross and operating margin, and in another positive sign, normalized operating margins expanded on five of six businesses. Normalized earnings per share came in at the high end of our guidance range, despite inflation that exceeded going-in expectations. Trailing 12-month normalized EBITDA was up meaningfully, having grown 20% versus a year ago. With two consecutive quarters of top-line growth, it is becoming increasingly clear that investments in consumer understanding, innovation, brand building, marketing, and go-to-market capabilities are expanding distribution and driving growth. Let's share a few examples, beginning with learning and development, which delivered its third consecutive quarter of core sales growth. Writing delivered mid-single-digit core sales growth, supported by our strongest U.S. back-to-school POS growth in three years.

Sharpie, Expo, Elmer's, and Prismacolor all performed particularly well as consumer-relevant innovation, distribution expansion, and better back-to-school execution on both sell-in and on replenishment orders drove category expansion and market share gains. Baby core sales was roughly flat in the third quarter, with growth in the U.S. offset by lower sales in Canada. Within the business, Graco delivered core sales growth during the third quarter, building on strong year-to-date consumer takeaway and car seat share gains. Our rotating car seat platforms, including Turn2Me and EasyTurn 360, continue to resonate with consumers. Recent results included low double-digit growth in POS and share gains at key mass retailers. In baby care, NUK also delivered positive U.S. POS and gained market share during the quarter as we continued to invest behind this year's full brand relaunch.

Turning to home and commercial, core sales increased 6%, with all three businesses growing for the first time in five years. Commercial posted solid core sales growth as both U.S. B2B and DIY channels recorded gains. Innovation contributed to the improvement, including the new 34-gallon BRUTE container and an expanded BRUTE cleaning lineup featuring push brooms designed to tackle different surfaces and types of debris. The 34-gallon BRUTE container also earned a 2026 Pro Tool Innovation Award. Kitchen delivered its second consecutive quarter of core sales growth, with positive momentum in the U.S. and Latin America. Rubbermaid Brilliance Glass Food Storage continued to see strong demand, consistent with consumers' increasing preference for glass storage options. Crock-Pot also delivered growth, supported by our design series slow cookers, which combine everyday functionality with colors inspired by current design trends.

Our collaboration with Valspar builds on that innovation by pairing six new Crock-Pot colors with complementary paint palettes to help consumers personalize their kitchens. While we don't usually comment on current quarter sales trends, October was, we believe, Crock-Pot's largest sales month ever. Oster is another great illustration of how sustained investment can build a stronger innovation platform over time. We previously discussed our Extreme Mix Performance Blender, which laid the foundation for a broader lineup designed to address different consumer needs and price points. More recently, our new Vortex Blender uses proprietary reversible motor technology and customized built-in pre-programmed settings, which make consistent results easier to achieve. Oster's QuietPro Blender addresses consumers' noise concerns associated with blending, and our new Titan Blender combines high-performance blending with a glass jar. Oster blenders delivered positive U.S. POS and sales growth in Latin America during the third quarter.

Home Fragrance delivered very strong core sales growth against a favorable prior-year comparison. Yankee Candle returned to double-digit growth in the U.S. and gained market share, driven by growth in Yankee Candle retail stores, strong D2C performance, and distribution gains in the grocery channel. Following a return to growth in the second quarter, Outdoor and Recreation core sales declined in the third quarter, even as consumers continued to respond well to our 2026 relaunches of Bubba and Contigo. Bubba contributed positively, Contigo delivered core sales growth in the third quarter, and we grew share in the important hydration segment. In addition, Coleman Snap 'N Go was recently recognized among Time's Best Innovations of 2026. Demand continues to significantly exceed our initial expectations, and we are expanding availability ahead of the holiday gifting seasons, since Snap 'N Go makes large-capacity coolers easier to store, transport, and use.

Starting with only one tier 1 and tier 2 innovation in 2023, we are on pace to launch about 25 this year, which we believe is a big part of our positive sales inflection these past two quarters. Now that we have rebuilt our innovation funnel, it is important to point out that we do not expect the number of new tier 1 and tier 2 innovations we launch each year to increase further, because with 25 brands accounting for over 90% of the company's sales and profits, we believe we have achieved a steady state or going rate of innovation. That said, we will continue to focus on bringing differentiated new consumer-preferred products to market while simultaneously building on the innovations we have already launched. Consistent with that, we opened a new Atlanta design center in September at our corporate headquarters.

This facility brings design, consumer insights, brand marketing, innovation, and research and development together to co-collaborate in a new state-of-the-art dedicated consumer research environment with advanced prototyping capabilities, which we believe has the potential to translate into higher rates of future growth. Before turning the call over to Mark, I want to provide some perspective on the consumer environment and the actions we are taking to protect profitability while continuing to invest in growth despite persistent inflationary pressures. The categories in which we compete were roughly flat globally in the third quarter, which was consistent with what we experienced during the second quarter, but slightly better than contemplated in our July outlook. Consumer conditions were stronger in the U.S. and Latin America, while EMEA and APAC remained more challenged amid ongoing macroeconomic pressures and the direct and indirect effects of the Middle East situation.

Based on that result and what we are seeing so far in the fourth quarter, we now expect the categories in which we compete to be flat to down 1% for the full year, which is 1-2 points better than when we first started the year. Inflation, excluding tariffs, has continued to run above expectations, particularly diesel fuel and transportation costs, with broader pressures across commodities like resins, purchased products, and labor. At the start of the year, we expected an input cost inflation headwind of about $100 million. We increased that estimate by an additional $50 million during our first and second quarter earnings calls respectively, and today we are raising it by another $20 million.

That means we are being forced to contend with a total in-year inflationary headwind of $220 million, which equates to approximately 4.6% of our total cost of goods sold. Our primary response to this significant inflation challenge has been to increase productivity. Our FUEL productivity program is now on track to deliver savings well above its original budget and ahead of our stretch target this year. These savings reflect improvements across procurement, product design and value engineering, manufacturing, and distribution. We have also leveraged higher sales growth, maintained disciplined overhead cost management, used the 2026 in-year portion of IEEPA tariff refunds recorded during the second quarter, and very selectively and reluctantly used limited pricing actions, covering less than 10% of our portfolio, to help offset these inflationary impacts.

The net result is we are raising our sales outlook for 2026 while maintaining the midpoint of our operating margin and EPS guidance for the year, despite the higher inflation outlook. Turning to 2027, the macro environment remains volatile and difficult to predict. As such, we are planning the business in an agile manner so that we can adjust quickly to different scenarios. Our base plan assumes global category growth remains roughly in line with this year. We expect to maintain positive core sales growth by growing faster than the category, driven by a strong portfolio of innovation, distribution gains, and marketing activation. We expect inflation of about $150 million, which is above normal levels, but below the $220 million in 2026.