Newell Brands Inc. (NWL) Earnings Call Transcript & Summary

Good morning, everybody. I'm Steve Powers, Deutsche Bank's U.S. consumer goods analyst. And I'm thrilled to welcome everybody to the 20th Annual Deutsche Bank Global Consumer Conference. To kick things off this morning, we're very pleased to welcome Newell Brands back to the conference. Newell is, as you may know, a leading global consumer goods company with a very strong portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman and Yankee Candle. The company is also in the midst of a sizable turnaround aiming to reduce complexity, leverage scale and improve both cash and profits. To help tell Newell's story, please join me in welcoming President and Chief Executive Officer, Chris Peterson. He is officially on week 3 of his tenure and Chief Financial Officer, Mark Erceg. Chris and Mark will lead us through a presentation. And at the end, if there's time, we'll take a few questions.

Thanks, Steve. Good morning, everyone. Although I've only been CEO for 3 weeks now, I've spent the last few months with the leadership team going through a complete current state capability assessment in order to develop a new integrated set of where to play and how to win strategies, with the goal of driving significantly improved shareholder value. The purpose of today's presentation is to outline this work, the choices we are making and the value creation potential we see ahead. Before getting started, we expect to make some forward-looking statements during today's presentation. Please refer to the slide for more details. The key messages we would like for you to take away from today's presentation are the following. We have significantly strengthened the company's operational foundation over the past several years. Today, we are announcing a major pivot in the company's operational foundation over the past several years. Today, we are announcing a major pivot in the company's front-end strategy, focusing on meaningfully improving critical front-end capabilities, including consumer understanding, brand management, innovation and go-to-market, distorting resources to the largest pools of value to maximize return on investment. Turning to scale into a competitive advantage, enabling cost savings that provide fuel for reinvestment and transitioning to a high-performance organization that can move with speed and agility. We see significant runway for value creation by unlocking the power of our brands, scale and operational discipline to drive top line growth, margin expansion and cash flow generation. We have a highly experienced and capable leadership team to help drive implementation of the new strategy. Our two newest members include CFO, Mark Erceg, who's here with me today; and President, Brand Management and Innovation, Melanie Huet, each of whom have joined the company in the past 6 months. Newell is an $8.5 billion consumer products company. 25 brands represent about 90% of sales. Over 20% of sales are completed via e-commerce. 10 countries represent about 90% of sales. About 35% of the business is international. We employ about 28,000 people. The company's top 10 brands and countries are listed on the slide below. The company operates a diverse portfolio with three business segments: Learning & Development, Home & Commercial and Outdoor & Recreation. North America is the largest geographic region followed by EMEA, Latin America and then APAC. Over the last several years, we have significantly strengthened the company's operational foundation. This included a number of operational excellence and simplification initiatives, such as Project Ovid, which transformed the U.S. from 23 unique supply chains to a single integrated distribution and transportation network, leveraging enterprise procurement to drive cost savings and supplier rationalization, with further opportunities ahead, which Mark will talk more about. Standing up a fuel productivity savings program that has driven 3% to 4% annual cost of goods sold takeout per year for the past few years, reducing legal entities by 30%, consolidating ERP systems from over 40 to now 2, representing about 95% of sales, reducing IT applications by 90% from close to 7,000 now to 700. Over the past 5 years, we've reduced SKU count by over 70% from 102,000 to 28,000. Importantly, we have tripled average revenue per SKU over this period, and we believe there's more opportunity ahead of us. Earlier this year, we announced Project Phoenix. This project simplifies and streamlines Newell's operating model, moving us to three business segments, unifying the supply chain, creating a One Newell international go-to-market organization and a One Newell sales model for the top 4 U.S. retailers. We are well underway and on track to deliver $220 million to $250 million in annualized pretax savings once fully implemented. Now let's turn to the new company strategy. As a precursor to the strategy, we started with a capability assessment. And we defined 11 key capabilities that we believe are required to win in the industry, starting from consumer and customer understanding, including brand building, innovation, go to market, procurement, supply chain, among others. For each of these 11 capabilities, we subdivided the 11 capabilities into 5, on average, sub-capabilities, leading to 55 sub-capabilities. We went through a very comprehensive database assessment of where we stood on these 55 sub-capabilities versus best-in-class competition, and through that, we identified both areas of strength and areas of significant opportunity for us. That level setting of where our starting point was critical to inform the strategic choices that we made as a leadership team and we're about to go through today. So let me start with the where-to-play choices. We've made 5 where-to-play choices that are specific that are outlined on this slide. I'll take them each in turn and go through a little more detail on each one of them. The first where-to-play choice is to distort our investment to our largest and most profitable brands. Newell today has 80 master brands, but 25 of those 80 brands account for 90% of the company's sales and profit. Importantly, over 2/3 of those brands have market-leading positions in their home markets, so we're operating with a position of strength from a brand equity standpoint. What we're doing specifically with this choice is we are going to focus our innovation resources, distribution, advertising and promotion and our best talent on these 25 brands because we believe these are the brands that have the best return on investment potential and where we have the best right to win. Second choice we're making is to expand distribution, focused on the fastest-growing channels and winning retailers. We believe we can -- we've got the portfolio of leading brands and the scale as a company to win with leading retailers and drive white space distribution expansion and growing channels with attractive markets, so specifically what we're doing is we're centralizing management of the top 4 retail customers in the U.S. We are expanding joint strategic planning capability across a set of key customers. We are creating, which we have not had, a One Newell new business development function to open new customers, new distribution and new opportunities. And we're looking to leverage the scale of the portfolio to unlock distribution opportunities in a broader sense. Third where-to-play choice is focused on the geographic profile of the company. And again we're focused on -- the choice we're making is to focus on the top 10 countries and to grow internationally as a One Newell organization. For many years, we've operated as a fragmented business unit by business unit in these countries. We are now going to integrate into a consolidated One Newell go-to-market operation. If you look at the geographic profile of the company: The company has 50 countries where we have on-the-ground operations, but 10 of those 50 countries represent 90% of the sales, again an opportunity to drive scale and efficiency by focusing on those 10. We also have a very fragmented international distributor network with over 1,500 distributors that we're managing across the network. Specifically what we're doing is we're making the choice that the U.S. is the top priority since that's about 2/3 of the company's business. We are going to focus our resources on driving growth and improving profitability in the key countries, the top 10 countries that I mentioned. We are going to move to a One Newell organization and go-to-market capability in the largest countries across the portfolio. And on the distributor network side, we're going to -- much like we've done on the SKU count front, we're going to move to fewer, bigger distributors. And that means shifting to a rationalized distributor model; and in some countries, smaller countries moving to a distributor model, which we think is -- has opportunity to drive both efficiency, scale, cost savings and broader distribution reach. The fourth where-to-play choice that we're making is to disproportionately invest in mid- and high-price-point segments. The company's portfolio today -- about 30% of our portfolio today can be comprised of opening-price-point products. 70% is in mid-price point and high price point. Importantly, the reason we're making this choice is that we believe we have the right brand equities to command higher pricing. And we believe that we should get paid for innovation when we bring superior innovation to the marketplace. Additionally, mid- and high-price-point segments tend to be the segments of the categories that drive category growth. And we believe that we are the company that can uniquely drive category growth because of our market-leading positions in many of these categories. Finally, profit pools, when you look at the profitability of the categories, are disproportionately skewed to medium-price-point and high-price-point products versus opening-price-point products, so specifically what we're doing is we're redirecting our innovation resources to focus more directly on mid- and high-price-point segments. And we are implementing channel segmentation strategies to make sure that our innovation pipeline is relevant for the key channels of trade. And the fifth where-to-play strategy talks about the consumer segments, and here we're making a pivot relative to the consumers that we're targeting. For many years, the company was focused on targeting Gen X and baby boomers, but over the last few years, as we've done the analytics, we've seen that millennials and Gen Z now spend more money on our category than Gen X and baby boomers, so we are going to purposely target Gen X -- I'm sorry, Gen Z and millennials and deepen our understanding of that cohort. By targeting millennials and Gen Z, we believe we will be more relevant to the largest and growing part of the market. And also we expect that, that advertising and targeting will halo out to other nearby age populations. So those are the where-to-play choices that we're making. We did a similar thing on the how-to-win choices. We started with the capability assessment that we had done, and from that capability assessment, we're making 5 how-to-win choices. Again I'll go through -- we've put a summary of the 5 on this page, but I'll go through each one in a little more detail. The first how-to-win choice is to invest in significantly improving the company's ability to understand consumer wants and needs. We've just hired, who started with us 2 weeks ago, a new head of consumer understanding and consumer insights. That person is charged with building and significantly upgrading our capability there. They have a long history of consumer understanding and insights in the industry as part of their background. We believe, with a significant upgrade in our ability to understand consumer wants and needs, that we will be able to dramatically improve the innovation pipeline that we're bringing to market. On the innovation pipeline, we are focused on fewer, bigger innovations supported longer; and so the specific choices we're making on innovation are to focus the innovation on the top brands that we talked about, the top 25 brands. We're implementing a new project tiering system, which we have not had in the past, where we tier the innovations corporately across the company based on size, return on investment potential. That allows us to distort company resources behind the largest innovations which we think will give us a better chance of success. We're also instituting innovation centralized tracking to ensure that, when we launch innovation, the innovation is gross margin accretive. And we're developing multiyear technology platforms. Second how-to-win choice is to create compelling brand-building and brand communications capabilities. This includes initiating a brand management structure inside the marketing function. The company has not had brand managers. We are going to appoint brand managers and build out a brand management function in the company so that we have clear brand strategies that we believe are compelling and competitive and can win versus competition. We're deploying, to do that, a Newell brand-building framework. Melanie Huet, who's joined us, who I mentioned earlier, is leading this effort for the company. She comes from a long background, at many CPG companies, of brand management. We're redesigning our brand communication process and governance, and we're continuing to invest in digital and performance marketing. The third how-to-win strategy is to win with the shopper in category and go-to-market expertise, and here there's a number of initiatives that we're focused on. We're strengthening our category development and shopper insights functions. We're going to develop a revenue growth management capability, including strategic pricing, trade frameworks and improved cost-to-serve dynamics. Much of our trade fund management today is not pay for performance and not optimized. We have a big amount of money that's spent against the trade. We are going to move that into a more pay-for-performance and higher-quality pan-Newell trade management system. And we're increasing analytical rigor and data-driven decision-making. The fourth how to win, which we've been working on but we still see opportunity ahead of us, is to build a global, scaled and advantaged supply chain. We've made a lot of progress over the last several years with things like Project Ovid, the -- and the FUEL productivity savings, but we believe there's still significant opportunity ahead of us. Specifically we're focused on driving operational excellence, simplification and competitive advantage. As part of Phoenix, we've now centralized manufacturing into a single corporate organization. That organization will be focused on driving global, highly automated, unified manufacturing base. We also are bringing procurement completely into a best-in-class One Newell procurement organization. We've talked about Project Ovid, which we have completed this February, and we still have opportunity ahead of us to optimize and drive cost and efficiency now that we're into a pan-Newell distribution and transportation network. And then we've been very successful on the FUEL productivity savings, but we expect to keep that going and try to accelerate it. The fifth how-to-win choice is really about becoming a high-performance organization and a great place to work. Over the past several years, from a culture standpoint, the company has been focused on improving employee engagement. We've made very good progress there. We now think we're ready to take the next step and move to a high-performance organization. And what that means is we want an organization that attracts, develops and retains high-quality talent. We want to continue to value diversity and domain expertise, but we want to really transform the culture to ignite a passion for winning, a focus on high-impact items. We want to drive higher accountability for results and act with a bias for speed and agility. When you put it all together, this is the flywheel that we're trying to get into from a how-to-win perspective. We think proprietary consumer understanding can lead to superior innovation. When you couple that with superior brand building and communications and outstanding go-to-market execution, that should enable us to return to strong top line growth. It's underpinned with operational excellence, simplification and scale. We've made a lot of progress on that front over the last few years, but there's still opportunity ahead of us. And of course, it's all built on the foundation of our leading brand positions and a high-performance organization. So putting it all together. We think we've got a set of integrated where-to-play and how-to-win strategies that we are going to move forward with. And we think that this strategy, as we move into implementation, will both delight consumers and create significant shareholder value. And so with that, let me turn it over to Mark, who's going to provide some more specifics on the significant runway for value creation ahead.

Thanks, Chris. And welcome, everyone. I'm going to use my time this morning to take you through the key drivers of economic value we plan to unlock in the years ahead based on a comprehensive strategic assessment we just conducted. As it relates to the top line, we believe we can dramatically improve our financial results and deliver on our targets by building out and focusing on new product development, pricing and revenue growth management and distribution expansion capabilities. Importantly, while all 3 of these capabilities have the potential to expand margins, in addition to accelerating our top line growth, we have 4 specific areas that we believe provide us with unique and meaningful margin expansion opportunities, namely a reimagined, unified and optimized global plant network; a best-in-class procurement and distribution and transportation network and additional overhead reduction, all of which I'll elaborate on shortly, but first, let's dig into the 3 top line expansion opportunities we identified, starting with new product development. As part of our strategic assessment, we conducted an exhaustive review of our new product development system. That review clearly showed that, because we had inconsistent pre- and post-launch financial reviews and no initiative tiering system to deliberately distort resources to our biggest innovations, we have been launching thousands of new SKUs per year which collectively have had low revenue per SKU and dilutive economics. Going forward, by applying the appropriate level of financial rigor behind a clear initiative tiering system that's designed to generate fewer but bigger innovations with high-velocity SKUs and accretive margins, we expect to be able to generate 1 to 2 incremental points of top line growth per year. The next area I'd like to talk about is pricing and revenue growth management. Up until very recently, it would have been virtually impossible to fully examine the price architecture of our product offerings because, quite simply, we had too many SKUs to unpack. Now that a huge amount of heavy lifting has been completed, which has brought our SKU count down from over 100,000 a few years ago to about 28,000 at the end of 2022, we can see that many of our price-size-quantity discount curves are distorted. This means that, at times, we're leaving potential value for ourselves on the table. This reality, coupled with very limited trade fund management system capabilities and over $1 billion of trade fund spending that was not optimized due to a lack of pay-for-performance criteria, represents a significant opportunity going forward. The culmination of this work will be a logical price architecture across all brands; a unified and comprehensive, new trade fund management system with clear pay-for-performance criteria established for all customers. When completed, we believe pricing and revenue growth management has the potential to add 1 to 2 points of top line growth per year. The third area we're excited about and which we see as being a top line accelerator is distribution expansion. Over the past many years, we've had limited progress expanding distribution domestically to new or underserved customers and trade channels and no meaningful new international expansion. However, as part of our new strategic plan, we're spinning up sales hunter teams to unlock white space opportunities. And as part of our new annual strategic planning process, we will be formalizing One Newell international expansion plans for focus brands and focus countries. These efforts, like the ones we're implementing for new product development and pricing and revenue growth management, have, we believe, the potential to add 1 to 2 incremental points of annual top line growth. As I indicated earlier, while all 3 of these top line growth acceleration areas should also help us expand margins, there's 4 specific margin expansion opportunities we're also very excited about, the first of which is our reimagined, unified and optimized global manufacturing network. Today, we have a business unit network of 46 plants with approximately $1 billion of 4-wall costs. 90% of those plants are single sourced, and in total, they're running at about 40% capacity utilization. Moreover, many of those plants, based on the end markets they are serving, are in geographically suboptimal locations. As part of the recently announced Project Phoenix, we are in the very early stages of building out a One Newell optimized global manufacturing network with fewer, more multisource plants designed to initially run at approximately 70% capacity utilization to allow for seasonal production spikes and future growth. Beyond just lowering our manufacturing costs, more regional low-cost and, where appropriate, automated production will also reduce shipment costs, lower in-transit inventory and improve customer service. On a going basis, we expect to add 1 to 1.5 points of COGS savings per year based on this initiative. Project Phoenix is also bringing together and unifying our procurement teams, which until very recently had contended with fragmented purchase pools and nearly 25,000 vendors. Because procurement was historically run by the individual business units, we find ourselves today with about 60% of our $4 billion direct material and sourced finished goods spend pools having only one qualified vendor. This situation, as you can imagine, does not always lead to the lowest possible acquisition price. Therefore, we are striving to create a best-in-class procurement function which based on benchmark data will have nearly 30% less vendors in total but also multiple qualified vendors for key purchase pools to ensure continuity of supply and competitive pricing. We are confident in our procurement team will be able to lower COGS by 2% to 3% per year through a variety of actions, including price negotiations and value-added engineering. The next area is distribution and transportation. Now I know you've heard us talk about Project Ovid a lot in the past because we are understandably very proud of what's been accomplished. However, we still have a tremendous amount of opportunity to optimize the One Newell system we have put in place domestically and to address our highly fragmented international distribution system. We recently shared a few headlines in an 8-K filing regarding our plans to reduce domestic warehouse network space. We are looking to go from nearly 30 DCs encompassing approximately 19 million square feet down to approximately 20 sites with about 15 million square feet of space. The savings generated from this move, along with a dramatic reduction in the number of international distribution partners from more than 1,500 to roughly 500, should allow us to save up to 0.5% of COGS each year. The last area I want to briefly mention is overheads. Newell Brands has done a great job reducing complexity and lowering overhead costs over the past several years. That said, we still have a tremendous opportunity to reduce the size of our real estate footprint, complete the last vestiges of our ERP consolidation as a precursor to adopting S/4HANA and to further reduce the number of legal entities we operate. We also see an opportunity to turn our early-stage GBS organization into a true source of competitive advantage. These cost savings and complexity reduction efforts, among others, should save up to $25 million per year; and generally speaking, should allow us to move away from episodic restructuring efforts to an ongoing, sustained head count productivity program. Putting this together, you can see that the capability assessment we recently completed and the associated pivot we're making in our front-end strategy has the potential to add up to 3 to 6 points of top line contribution and up to 100 basis points of gross margin expansion per year. Now that said and importantly, we're not here today saying it'd be appropriate to change our long-term core sales and operating margin evergreen financial targets at this time. They remain as follows: low single-digit core sales growth and 50 basis points of operating margin improvement. However, we are making a slight modification to our evergreen free cash flow productivity target, which will now be set at approximately 90% per year. While we remain confident in the strong cash flow generation potential of the business, our capability assessment has presented us with exciting incremental opportunities to fund high-return new product development and supply chain projects in the near term. As we aggressively pursue these opportunities, we expect CapEx spending to increase from roughly $300 million per year to approximately $350 million per year for the next several years. On balance, our capital allocations and strategy calls for us to fund high-return internal growth opportunities; and delever to 2.5x, which we believe would be an investment-grade leverage ratio, while targeting a 30% to 35% dividend payout ratio. Despite the tremendous opportunities our brutally honest strategic assessment has demonstrated, we are -- and the high degree of confidence Chris and I have on our Board of Directors, our executive team and all of Newell Brands' dedicated professionals around the world, we recognize and acknowledge that, while the path forward is clear, it will not be a straight line. Over the next 12 to 18 months, we continue to expect a challenging macroeconomic environment characterized by high to moderate inflation, which will likely continue to constrain consumer discretionary spending; further normalization in category trends, particularly for products with long purchase cycles; modest and selective trade destocking; and potentially a mild recession. During that time, we will be focused on building out the front-end capabilities Chris gave voice to earlier while also accelerating our back-end capabilities which we're already headed in a positive direction. We'll also use this time to work through our brand rationalization efforts. As we do our work against the macroeconomic backdrop I just described, over the next 12 to 18 months, we expect core sales growth below our evergreen target; operating margin expansion at our evergreen target; and free cash flow productivity at or above our new, modified target. We also expect our leverage ratio to be high during this period. Beyond that, when we have a more normalized operating environment with modest to low inflation, stable trade inventory levels and low single-digit GDP growth; we have put in place strong front-end capabilities and we're well down the path of building out a best-in-class supply chain; and we are supporting our priority brands with higher levels of A&P investment, we would then expect core sales growth and operating margin expansion at or above our evergreen target, free cash flow productivity at target and a reduced leverage ratio. So returning to where we started. Now that we have a much stronger operational foundation in place, we are executing a pivot in our front-end strategy. This will be characterized by a meaningful improvement in consumer understanding, brand management, innovation and go-to-market front-end capabilities. We will also actively distort resources to our largest value pools while turning Newell's scale into a competitive advantage enabling cost savings that provide fuel for reinvestment as we transition to a high-performing organization that moves with speed and agility. We believe these strategic choices and actions provide us with significant runway for value creation by unlocking the power of our brands, scale and operational discipline to drive growth, margin expansion and cash flow generation in the years ahead. We thank you for your attention. And given the fact we have about 10 minutes remaining, we'd be happy to take any questions you might have.

If there are questions in the room. Folks in the back have paddles. And you can raise your hand. Before we get started: I guess -- so there's a lot in there, but a lot of it, I think it's fair to say, you previewed it in your CAGNY presentation, so this is not a completely new strategy. It kind of builds, in my hearing, on a lot of what you've talked about previously, but with that being said, I guess, there is some incrementality in what you've said today. And I'm curious to see or to hear how it changes, if at all, the priorities you laid out for 2023 and what the organization is going to be focused on in the back half of the year.

Yes. So I think the priorities that we laid out for '23, which -- we're rightsizing the company's inventory and returning to strong cash flow generation this year. We've guided to $700 million to $900 million of operating cash flow this year -- is the first priority. The second priority was focused on gross margin improvement, continuing to drive strong productivity savings. The third priority was around overhead reduction and implementation of Project Phoenix, which drives a lot of overhead reduction. We also wanted to continue the work on simplification, SKU reduction, et cetera. That remains a strong priority. And then the fifth priority we laid out for this year was really moving into the new operating model because the new operating model of moving to the 3 segments and moving to a One Newell approach in international does require a change in a lot of people's job scopes, so those priorities remain for this year. I think the way we think about this strategy -- and we do think the strategy is a significant departure from how the company has been operating over the past several years, particularly on the front-end capability, not so much on the supply chain and the back-end capability, but we believe this strategy is the road map for us over the next 3 years. And we think it works in concert with the priorities that we have laid out for this year.

Okay. Was there a question in the room?

Yes, sure. I just wanted to know what your incentives are for basically driving up the share price. Did you both buy perhaps some shares? Do you have options or whatever? And the second one is like -- I find it quite interesting if you'll have like 25 of 80 products basically making up 90% of your profits. So there are 2 ways of approaching it. One is perhaps getting rid of the other 55, or basically driving up sales for the other 55. And so what made your mind up to basically focus also on those 55 and not getting rid of them? So I find your brands are exceptionally great, but it's like I think you can get more out of it. And so for me it's like perhaps focusing more on less would be perhaps better. And the last one is like getting from 4x debt to 2.5x. You can't just get it from basically free cash flow. You must have -- like are you paying down debt? Or what is your -- like your incentive on getting the balance sheet in proper order?

Okay, so let me try to take those one at a time. So on the brand side, to be clear: Our choice that we're making is to focus our resources disproportionately on the top 25 brands. Relative to the other 55 brands, as we've looked at those brands, they really fall in a couple of different buckets. There are some brands that we believe we should just discontinue straightaway because they're small. They tend to be nonprofitable. And so we've gone through; and there are maybe 15 or so of those brands, out of the 55, that we are likely to just discontinue and run out effectively straightaway. There's another group of those brands that we believe we cannot focus front-end capability against but continue to sell and sort of milk them as we continue to drive them and run them out over time. And then there's a third group in that bucket that are brands that can be sort of put underneath one of the master brands, so to speak. And a good example of that is if you look at our Ball jar business, for example, which is a fresh preserving business in the U.S. Ball is the leading brand with 85%, 90% market share, but the same -- in Canada, there's a brand called Bernardin that is effectively the Ball jar business in Canada. And so we believe that, by focusing the innovation exclusively on Ball in the U.S., we can continue to sell the Bernardin but leverage the U.S. innovation pipeline rather than innovating against the two separately. And so we consider that sort of a [ fold-in ]. So that's the approach that we're taking on the brands, which will be a meaningful change as we focus the efforts on the top 25 brands rather than a dispersed focus against all 80 brands. Second question, I think, was on incentives. And on incentives, both Mark and I are highly incentivized to drive the stock price up. The vast majority of our compensation comes in the form of performance-based restricted stock and/or restricted shares, along with bonus, that are directly tied to revenue growth, margin expansion, earnings per share growth and cash flow generation. Those are the 4 metrics that we are incentivized against. And we believe, if we drive those 4 things higher, the stock price will go up. From a leverage perspective, what I would say there is that we're going to generate this year about $700 million to $900 million we've said of operating cash flow. We expect to spend about $300 million or so on CapEx, so free cash flow is likely in the $400 million to $600 million range. Our dividend is about $120 million or so per year, so we are going to have excess cash that we're generating. And the intent with that excess cash is to pay down debt. And so we believe, through the combination of debt paydown and EBITDA growth, we will drive our leverage ratio down over time.

Okay, great. We have a couple of minutes left. I -- Mark, you brought up or alluded to the network optimization update or the next project that was an update of a couple of weeks ago or last week. I guess the first question is why were the initiatives in that project not contemplated as part of Ovid, why the incrementality so soon after Ovid theoretically wrapped up. And then as I kind of looked at the savings opportunity versus the cash costs that you laid out both in people and CapEx, it seems like a lot of cash costs, so should we, I guess -- just maybe reconcile that for me. And then as we look forward in the context of the strategy, should we expect more of these kind of one-off restructurings as you hit stride? And if so, is that contemplated in the higher CapEx, or is that incremental to the higher CapEx?

With respect to Project Ovid, we always expected to have a Phase 2 associated with it. Phase 1 was to get the legal entity consolidation in place so we could present ourselves as One Newell to the customer. That was a pretty heavy lift given the fact we previously had dozens of diffused supply chains and multiple invoices that we would have to present to the customer each and every time. Once we had done that work, we wanted to quickly then pivot to the second stage of it, which is optimizing it even more fully. This will allow us to drive higher levels of full truckloads versus less than truckloads. And it will also allow us to take out a significant amount of cost, as you saw in the filing that we had. We feel really good about the economics associated with that. Yes, with these types of things, there's always some cash outlay related to it, but we have a very high threshold established internally where projects that we fund need to have at least a 30% rate of return. And I'll take 30% rate of returns all day long. As far as the next part of your question, as far as what this might look like going forward, I suspect that there will be, as part of the work that we do on the supply chain harmonization, some opportunities for us to also take out significant costs. And we'll cross those bridges as we come to them. The thing that I think is most notable, though, is of those 46 facilities that we talk to, again, 90% of those are effectively single mode in the sense that they're producing for one category of business, which is clearly suboptimal. We talked about the fact that they're in geographically suboptimal locations as well. And the biggest piece of that whole commentary was the fact that we're running the entire network right now around 40% capacity utilization. And I don't need to explain to anybody what going from a 40% capacity utilization to something that's more normalized around 70% can mean, as far as economic value-added considerations.

Okay, great. With that, we're out of time. We're going to continue this conversation over the coming months and quarters, I'm assuming.

Definitely.

But thank you very much for the update, Mark, Chris. Thanks for joining us. And thanks, everybody in the room, for joining us as well.

[ Thank you ].

Thank you.