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

Good morning, and welcome to Newell Brands' Third Quarter 2016 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Joanne Freiberger, Senior Vice President of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin.

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 reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables that were furnished to the SEC. And 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% to 3% guidance range. Growth was broad-based with 2 of 3 segments, 4 of 6 businesses, 7 top 10 brands and 7 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 5 of 6 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 2 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 3 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 Easy Turn 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 & Commercial. Core sales increased 6%, with all 3 businesses growing for the first time in 5 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 6 new Crock-Pot colors, with complementary paint palettes to help consumers personalize their kitchens. And while we don't usually comment on current quarter sales trends, October was, we believe, Crock-Pots' 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 preprogram settings, which made 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 & 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 Times' 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 in these past 2 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 remain 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 to 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, purchase 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 the 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 the 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. Given the cumulative 2-year impact of inflation of $370 million or about 8%, we plan to take modest pricing early in 2027 as we cannot offset this level of impact from productivity alone. One notable area that might be excluded from these pricing actions is Baby Gear, where we are cautiously optimistic that the U.S.-China 30 for 30 initiative could bring relief to this product category. However, the scope, timing and extent of any relief remain unconfirmed since we need the formal implementation details from the administration before we can quantify the impact on Newell. Relative to margins, we expect normalized operating margin to be down versus 2026 reported level, given the $100 million of tariff refund benefit in 2026 results related to 2025. Excluding this impact, we expect normalized operating margins to be up by more than our 50 basis point evergreen target. Finally, we expect a strong operating and free cash flow year with continued deleveraging. Navigating this environment while sustaining profitable growth requires strong execution across our commercial and operational teams. With that in mind, I want to welcome Guillermo Beade, who joined Newell this week as Chief Operating Officer. Guillermo brings more than 30 years of global leadership experience at SC Johnson, PepsiCo and Unilever. Guillermo will lead our sales, central marketing and supply chain functions globally, building on the capabilities we have established, and bringing greater connectivity across these teams. I look forward to working with Guillermo as we build on our momentum to drive sustainable, profitable growth in the years ahead. Finally, before I close, I want to thank our employees around the world. Their focus on our consumers and customers and their determination to deliver in a challenging environment is helping us build positive sales momentum across Newell. I'll now turn the call over to Mark to walk through our financial results and updated outlook.

Thanks, Chris. Good morning, everyone. During our time together this morning, I will comment on third quarter results and a few notable business accomplishments achieved during the quarter before sharing our outlook for the fourth quarter and the full year. Third quarter 2026 net sales increased 3.7% to approximately $1.9 billion, while core sales increased 3.3%. Both exceeded the top end of our guidance ranges, and year-to-date core sales growth was nearly 1%, following more than 4 years of declines. Favorable foreign exchange generally accounted for the difference between net and core sales growth. Normalized gross margin was 35.2%, up 70 basis points versus prior year as higher sales and productivity more than offset inflation and tariffs in the quarter. Normalized operating margin was 9.8%, up 90 basis points from 8.9% last year. Higher sales and improved gross margin drove this improvement despite inflation running above our going-in expectations. A&P remained at approximately 6.9% of sales, and normalized overheads decreased 20 basis points. Net interest expense was $86 million compared with $83 million in the prior year period and the normalized effective tax rate was 9.5% versus 7.9% last year. Taken together, these results yielded $0.20 of normalized diluted earnings per share versus $0.17 a year ago. Turning to cash flow. Year-to-date operating cash flow was $93 million compared with $103 million in the prior year period. The modest decline versus a year ago primarily reflects higher inventory levels to support anticipated sales growth, largely offset by higher accounts payable and tariff refund collections. Newell's third quarter cash conversion cycle improved by 4 days year-over-year, primarily reflecting higher accounts payable as purchasing patterns normalized following last year's tariff-related pauses, partially offset by higher inventory to support higher sales growth. Capital expenditures totaled $131 million through the first 9 months of 2026 compared with $177 million last year. We now expect full year capital expenditures to be below our prior estimate of approximately $200 million. Trailing 12-month normalized EBITDA increased approximately $173 million year-over-year to $1.03 billion, and net leverage declined to approximately 4.5x. This compares favorably with 4.8x at the end of the second quarter and 5.3x a year ago. During the third quarter, we entered into a new $800 million asset-based revolving credit facility, replacing our secured revolver and extending its maturity to 2031. In addition, our senior notes offering, with a 2031 maturity, attracted strong demand, with an order book approximately 5x oversubscribed. This allowed us to upsize the offering to $600 million at a coupon of 6.25%, which was [ 1/8 ] better than the notes they were placed. The proceeds were then used to fully redeem the June 2027 notes and repay a portion of our revolving borrowings under the new ABL facility. During the third quarter, Moody's also revised their outlook on Newell from negative to stable while affirming our overall credit rating. Importantly, we ended the quarter with no short-term debt outstanding. We also continue to advance our One Newell operating model during the third quarter by simplifying how we operate across businesses within each country. All 10 of our largest non-U.S. countries now operate with a single ERP system and a common organizational structure compared with only 4 countries in 2024. This multiyear effort reduces complexity, supports more coordinated execution across Newell. And after many long years of painstaking work, effectively represents the end of Newell's ERP consolidation journey. Now let's turn to the outlook for the remainder of the year. For the fourth quarter, we now expect positive year-over-year growth in both net and core sales of 1% to 3%, which would have achieved marked our third consecutive quarter of positive sales growth. Normalized operating margin is expected to be between 8.4% and 9%, and normalized diluted earnings per share are expected to range from $0.17 to $0.19, with a low single-digit effective tax rate. Based on our year-to-date performance and updated expectations for the balance of the year, we are raising our full year outlook for both net and core sales. Specifically, we now expect full year net sales growth of 2% to 3% and core sales growth of 1% to 2%. Despite significantly higher inflation, we are maintaining our normalized operating margin outlook of 10% to 10.4%. And after tightening the range to $0.74 to $0.76 from $0.73 to $0.77, now that only one quarter remains in the year, we are keeping the midpoint of our normalized diluted earnings per share outlook unchanged at $0.75, using an effective tax rate of about 20%. Just as a reminder, please note that this updated full year outlook continues to include approximately $100 million or $0.17 per share from the onetime out-of-period recovery of IEEPA tariff costs expense in 2025, which was recorded during the second quarter of 2026. At that time, we raised our full year normalized EPS guidance on both the top and bottom end of our ranges by that full amount. Moving to cash. We expected full year operating cash flow of approximately $400 million, which would have been up about 50% versus a year ago. However, after accounting for 2 onetime nonoperational items, we now expect full year operating cash flow of approximately $150 million. Since there's an understandable focus on operating cash flow as we continue to deleverage the company, let me explain these 2 changes in greater detail. First, as previously discussed, the termination of our nonqualified defined benefit plans is expected to generate approximately $60 million of net cash renewal, which is clearly a positive development. However, the underlying cash flows associated with this transaction are reported in different parts of the cash flow statement. The proceeds from the liquidation of the insurance assets are classified as investing inflows, while the benefit payments to participants are treated as operating outflows. Reporting the payments and related cash taxes and operating activities reduces our operating cash flow outlook by approximately $85 million, even though this presentation does not change the transaction's total $60 million net cash benefit to the company. Second, we now expect receivable factoring programs to contribute approximately $165 million less operating cash flow than in the prior year. This primarily reflects reduced capacity under the amended agreements and the benefit of having upsized the recent debt refinancing from $500 million to $600 million. As stated earlier, excluding these 2 onetime nonoperational items, we were tracking well against our previous operating cash flow guidance because we remain laser-focused on disciplined working capital management, cash generation and debt reduction, since deleveraging the company remains a top priority. Consistent with that, we expect total debt and outstanding factored receivables combined to decline by a couple of hundred million dollars versus year-end 2025, and we continue to expect net leverage to finish 2026 comfortably below 4.5x. In closing, we delivered 2 quarters of consecutive sales growth, expanded normalized gross and operating margins and have a clear line of sight to what we expect to be a third consecutive quarter of positive sales growth. None of this would have been possible absent the resourcefulness and professionalism of our team. Their tireless dedication gives us confidence in our ability to build on this progress and sustain profitable growth in the years ahead. Operator, please open the call for questions.

[Operator Instructions] And our first question will come from Olivia Tong with Raymond James.

A couple of questions here. First, I was wondering if you could talk about the moderation in the Q4 core sales relative to Q3? And how much of that Q3 growth came from volume versus pricing mix and how you think about sell-in versus sell-through? And then on -- and then you mentioned that pricing in Baby. Is that primarily due to the potential legislation relief that you see? Would you have raised Baby pricing, if not for that? Or is it a function of perhaps some price sensitivity amongst consumers, particularly Baby?

Sure. So let me start with the vast majority of the core sales growth in Q3 is being driven by volume. Pricing was effectively close to 0 for the company in the third quarter. Recall that we had a couple of categories at the beginning of this year that we took price down. We had a couple of categories that were highly resin dependent that we took price up. The net of those was effectively 0. The other thing I would say about core sales in Q3 is that this was really driven by consumer demand and retailer demand for the products. There was not a significant change or any change of note in retail inventories. So the -- so we feel very good about the core sales delivery in the third quarter. Relative to the fourth quarter guide of 1% to 3%. We're excited about having our second quarter of core sales growth, and we're excited that we were able to guide Q4 to positive core sales growth, which I think last quarter, we set our implied guide was sort of flat to modest growth. Given the strength that we're seeing from consumers and responding to the innovation that we've put in the market and the marketing that we're putting in the market, that's what gives us the confidence to effectively raise the outlook for Q4 to the 1% to 3% range. And what we've been telling the team internally is that, "Hey, the first quarter, we get the core sales growth. It's a data point. The second quarter, it's a straight line. And when we get to the third quarter, then we'll have a trend." And so we're very focused on delivering positive core sales in the fourth quarter and then sustaining that, as I mentioned, in the next calendar year. On the Baby piece, the government created a body called the Board of Trade, which is a sort of an organized approach for the current administration to negotiate trade policy with China specifically. And in the latest visit with President Xi and President Trump, there was an announcement from the administration that there was $30 billion of goods where the U.S. was going to reduce tariff rates in exchange for China reducing tariff rates on $30 billion of goods. We were very excited to see and have been actively lobbying for baby gear products to be part of that list. And in fact, they were included in that list, which means that if the list gets -- or when the list gets finalized and actually implemented, we would expect baby gear tariffs to reduce. And in that environment, we would not take pricing. So we've been sort of in a wait-and-see mode on the baby products. That's one of the ones that we're waiting for further details on the specific implementation, timing, amounts and details, but we believe it's an encouraging sign because that would significantly reduce our tariff exposure headed into 2027 once the details become known.

Great. And then just following up, you mentioned -- you had about 25 Tier 1, Tier 2 innovations this year. You mentioned probably about the same next year. So as you think about that, can you talk about the opportunity for the next tranche of launches, whether the margins are similar, the productivity of those relative to [ 25, 26 ] launches? And then you added Guillermo to -- in the COO role. How does he help sort of ensure the success of that next tranche of launches in addition to building on the first tier? And what decisions will we move to him in terms of sales, marketing and supply chain?

Yes, sure. So on the innovation side, we -- as I mentioned in the prepared remarks, we think 25 launches, Tier 1, Tier 2 launches, is about the right number to sustain strong momentum because there's a limit with 25 brands to how -- to focusing your investment dollars and your communication dollars from a consumer standpoint. Also, the other important thing to remember here is, generally, when we launch an innovation, we think about the innovation is having sort of a 3-year life cycle. And so as we go into next year and we have 25 launches next year, we're not only supporting the 25 launches next year, but we're supporting year 2 of the 25 from this year, and I think the 18 or 19 that we have from the year before. And so it's a very robust set of innovation for us to talk about what consumers we believe that we're on the right cadence from a product life cycle management. Now obviously, what we're trying to do is drive the innovations to be bigger -- to have a bigger impact, individually and in total. And that's a continuous process that we're focused on. But I think the pacing that we're on, I now feel like, is good. And so that's the piece on the innovation. Relative to Guillermo, one of the things that we saw, so Mark alluded that we implemented our last major SAP conversion across Europe, primarily October 1, and it has gone very well. And so we're now complete effectively with those ERP changes, and we're operating with sort of one global ERP system around the world, which is very exciting because that's going to allow us not only to reduce CapEx going forward, but it's also going to really allow us to leverage scale more effectively. So as we think about the next journey over the next several years, we saw an opportunity to bring together our front-end marketing capability, center marketing capability, our go-to-market teams in each of the regions around the world and our supply chain and procurement organization to drive faster and more effective operations relative to how we bring products to market, supply products through retailers and connect to both consumers and retail customers. And so that's really the focus of the role. And I think he's going to be a great addition to the team that allows us to sustain strong top line growth, and in addition to continuing the fuel productivity program that we've had, the margin improvements and strong cash generation.

And our next question is going to come from Peter Grom with UBS.

Great, guys. So there -- you guys gave some pretty helpful color on '27, expectations around category growth, core sales, inflation. Mark, I was curious how we should be thinking about your ability to kind of offset the incremental $150 million of inflation through those pricing actions and productivity just based on what you know today. And then obviously, the cost environment remains very volatile. So if you can maybe just unpack what underpins that $150 million assumption, that would be helpful.

Yes, I think we feel pretty good about that. Look, in 2025, inflation was about $90 million. As Chris indicated this year in '26, it's been about $220 million. Next year, we're thinking about $150 million. We've been using our fuel productivity efforts and other means to control overhead to allow us to expand our margins. If we go back to 2023, you'll recall, our normalized operating margin was 6, all right? In 2024, we took that up to 8.2. 2025, we took it up to 8.4, despite all those challenges, including tariffs. And then for 2026, right now, we have a normalized operating margin guidance range of 10 to 10.4. Now that does include the $100 million about a period tariff recovery. But if you strip that out, you'd be at 8.6 to 9, which center lines at 8.8. Well, 8.8 compares pretty good to 8.4 in the prior year. So we're going to be up about 50 bps this year despite massive challenges, and we think things will start to roll over next year, and we'll have another year, as Chris said, of levels of A&P support, better and stronger innovation, better go-to-market capabilities, et cetera, et cetera. So we feel really good about our algorithm and are very confident that we'll be able to deliver against our financial evergreen targets into next year.

The last thing maybe I would say to your question is, on pricing, we feel pretty good about where we're headed. We've held off on pricing this year. So if you look at pricing as a contribution to our core sales this year, it's effectively 0, and all of our growth has been driven by volume and mix. And we've used this very strong productivity to offset the $220 million of inflation. As I mentioned in the prepared remarks, when you look at the $150 million next year, which is really being driven by transportation and sort of the annualization of the commodity move up, which is driving the above normal element of it, that 2-year cumulative inflation, which represents about 8%, we can offset a big part of that with productivity and cost containment actions, but not all of it. And so what we're looking at is modest pricing that we would put in next year. We believe that the cost justification is there. And we believe we'll have a plan that's not a sticker shock plan that we'll be able to implement relatively smoothly.

That's super helpful, guys. And then, Chris, you touched -- where you mentioned to Olivia that you were pleased with organic sales growth in the third quarter. I was wondering if we could maybe get a report card, if you will, just on how the quarter played out across your various segments versus your expectations. At least from an outsider's perspective, commercial looks to be strong. Learning and Development was positive [indiscernible] flow, albeit on a bit of a tougher comp. So just characterize how the quarter played out relative to your expectations? And then are there any puts and takes and notable call outs that we should be aware of as we think about 4Q and into '27?

Yes. So I think relative to the quarter, if I just go through sort of the reporting units, as I mentioned, Writing had a very strong core sales growth, up mid-single digits. We had a great back-to-school season. And it's always important in the third quarter, Writing is one of our most important businesses because we have the replenishment orders, which are a little bit hard to predict. But the POS was stronger, if anything, than we expected going in to the back-to-school season and coming out of it, and that resulted in stronger replenishment orders. So we grew Writing significantly faster than what we had thought coming into the quarter. Baby was interesting because Baby, the core sales were roughly flat. And Baby, if you recall, was coming off the first half of the year where we were up almost double digits through the first 6 months. And so the Baby core sales is not really reflective of the underlying performance from a consumer standpoint, it's more a shipment timing pattern piece that's driving that. Year-to-date, Baby is still up high mid-single digits on core sales growth and continuing to -- the innovation we've got on that business is continuing to resonate. I think that the Home & Commercial segment was probably the standout in the third quarter at 6%. We had double-digit core sales growth in Home Fragrance. We had Kitchen up nicely, and we had Commercial returning to core sales growth for the first time. And so that was exciting to see. And then Outdoor & Rec, which had turned positive in the second quarter, which is important because the second quarter is the biggest Outdoor & Rec season, did flip back to a decline in Q3. That was probably the one that we were the most negatively surprised at. But the combination, when you put all of that together, was that we came in above our forecast, above plan and above the high end of our guidance range, really driven by, I think, the Home & Commercial and the Writing business primarily.

And if I could, it's really encouraging that we've had such a broad-based build-out. But it's also notable that this is the first time since the second quarter of '22 that both the U.S. and international were positive. So it's not just a segment build-out. It's also happening geographically. And Chris mentioned the fact that 7 of our top 10 brands grew, but also 15 of our top 25 grew. So we feel like we're pushing out broadly now.

And the next question will come from Lauren Lieberman with Barclays.

A couple of questions. I don't know if I missed it if you had updated leverage target for the end of the year change in the operating cash flow. And I was just hoping we could get a little bit more color on the reduction in factoring, which is definitely a positive to see. But how should we think about that into '27? Is there further headwind from reducing clients on that to improving quality, I think, from a Wall Street standpoint, it's a good thing to see, but just a good thing to have our arms around in terms of magnitude as we look into next year.

Yes. Great question, Lauren. So we're still comfortably targeting to be below 4.5x levered at the end of this year, which as you know, will represent a meaningful reduction as we continue on our deleveraging journey. When we first began, we were 6.5x. And so we feel really good about what we've been able to do with respect to that. As far as a specific question on cash, look, I think we feel really good about the underlying cash delivery of the business. If you go back to 2025, our operating cash flow was, call it, $265 million or something to that effect. If you build up from there, we're going to have about another $150 million of cash EBITDA this year. We're going to have between lower bonuses paid and less cash taxes, like another $150 million, which is operational in effect. And then there's about $150 million that comes off the top for working capital, principally inventory, because at the end of the day, our sales base is growing, and we also want to get ahead of the next shoe that might drop on the 301 tariffs. And so we think that's a prudent thing to do. If you put all that together, we were on pace to deliver against that $400 million of operating cash flow. Then we have these 2 onetime nonoperating elements, I think people understand what happened with respect to the COLI liquidation, that's pretty straightforward. That $60 million of net cash in the door, everything there works out really well. On the factoring side of the house, we did redeem -- I'm sorry, we did renegotiate our factoring facilities. When we did that, we did end up with a little less capacity because of interest rates going up. We also ended up with just a little bit less capacity just based on the way that those negotiations went and given where our current credit ratings sit. But that said, we said we ended the quarter with no short-term debt. We expect to finish the year with effectively no short-term debt. And we took an extra $100 million in when we refinanced the [ 27s ]. So what we have now is the opportunity to use that money at 6.25 instead of factoring. And basically, if you look at the economics of it, it's effectively a push. When you factor, you also have a little bit more in the way of restrictions where the money we took in through the upsizing has no restriction. So economically, we're a little bit indifferent to all of that. Now as we think about next year, next year, while it's still early days, we don't see any reason why we wouldn't be projecting out somewhere in the 400 plus range for the operating cash flow based on all the pieces of the puzzle that we see because we'll have strong underlying EBITDA growth again. We're going to have less restructuring charges. As we continue to move forward, we think our CapEx is running much better now that we completed the ERP integrations. All the supply chain elements used to be 250. We're going to be below 200 this year. We would expect that to continue into next year. So we're confident we'll be able to continue our deleveraging into '27 and actually feel really very good about our cash position overall. I think we took 4 days out of the cash conversion cycle this year, continue to show real operational discipline as it relates to all of that. So again, these are 2 nonoperating onetime events that I don't think too much have you read through on.

Okay. Great. And then just wanted to follow up again on Outdoor & Rec. So just curious about POS versus -- I know broadly, there were no big inventory dynamics in the quarter. But just curious on POS trends for Outdoor in the third quarter, I know seasonally, it's not the most important here, but you did mention still positive trends on hydration and then clearly with Coleman and Snap 'N Go. So just another thought into 4Q and kind of anything more specific on what fell short this quarter?