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

Good morning, and welcome to Newell Brands Second Quarter 2026 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, Michelle. Good morning, everyone, and welcome to Newell Brands Second Quarter 2026 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 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. 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 these non-GAAP measures and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and the 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. When we conducted our first enterprise-wide capability assessment 3 years ago, it was clear Newell Brands needed to rebuild the front-end commercial and operating capabilities required to compete effectively and grow consistently. That work included stronger consumer insights, a more disciplined innovation system, better brand management, improved category management, greater effectiveness of customer investments and a simpler and more powerful go-to-market model. Those new capabilities built over the past several years are now taking shape and coming together in a mutually reinforcing manner. For example, consumer-led innovation, supported by higher levels of advertising and promotion and stronger retailer activation is improving consumer demand and brand performance. Our innovation pipeline is broader and stronger than it has been in years. Year-to-date, all 6 business units have launched Tier 1 or Tier 2 innovation, with more to come in the second half. We are on track to deliver more than 25 Tier 1 or Tier 2 innovation launches for the full year. More importantly, the process is now more consumer-led, more disciplined and more closely integrated with our commercial plans. At the same time, stronger retailer relationships, better category management capabilities and improved service execution are translating into distribution gains. As discussed last quarter, we expected the company to return to top line growth in the second quarter, driven by stronger innovation, distribution gains and improved brand marketing. These rebate-built capabilities are now showing up in our second quarter results, which represents an important milestone in Newell's turnaround. We returned to year-over-year growth in both net sales and core sales for the first time in over 4 years, and results exceeded our expectations across all key financial metrics. Net sales increased 3% and core sales grew 2.3%, with both results above the high end of our guidance range. The improvement was broad-based, with 5 of our 6 business units delivering year-over-year core sales growth. In addition, 7 of our top 10 brands and 5 of our top 10 countries delivered year-over-year sales growth. From a geographic standpoint, it was particularly nice to see the U.S., our largest market, leading the way, delivering approximately 5% net sales growth during the second quarter, which was the first time our domestic business has grown since COVID. Total points of distribution across our U.S. business increased mid-single digits versus last year in the second quarter, providing tangible proof that retailers are responding to the stronger innovation, category plans and execution we are bringing to the marketplace. Based on existing customer commitments and activity already underway, we expect distribution to remain a contributor to growth during the second half of the year. While distribution gains were strong in the U.S., perhaps even more importantly, point-of-sale trends were favorable, which means consumers responded well to our new innovations. Specifically, 6 of our top 10 brands delivered year-over-year POS growth in the second quarter, while 8 of our top 10 improved their growth trajectory sequentially. We also continued to gain U.S. market share behind several priority brands, including Graco, Sharpie, EXPO and Coleman, to name a few. These results provide further evidence that stronger innovation, higher levels of advertising and promotion and improved retail execution are translating into better consumer demand. From a segment perspective, Learning & Development was the strongest part of the portfolio, delivering nearly 5% core sales growth in the second quarter, led by continued strength in Baby and a return to growth in Writing. Baby delivered double-digit sales growth, supported by strong consumer demand, increased distribution and new product innovation. Graco continued to build marketplace momentum with U.S. POS increasing at a strong double-digit rate in the second quarter and market share growing 2.7 points year-to-date. The strength was broad-based across major retail channels and reflected strong continued consumer demand for our rotating car seat platform, including the EasyTurn family of products. NUK also delivered double-digit U.S. POS growth and gained market share, supported by stronger innovation and particularly good momentum in e-commerce. Writing returned to core sales growth in the second quarter, supported by distribution gains, innovation and stronger back-to-school execution. While the back-to-school season is still early, the initial read has been encouraging, with improved retailer execution, new distribution and strong POS growth across several priority brands. We have seen particularly good momentum behind Sharpie. We continue to build on platforms such as Sharpie S-Gel and Sharpie Creative Markers through new colors, forms and use cases, while advancing a strong pipeline across the broader Writing portfolio. Home & Commercial also improved meaningfully. Kitchen & Home Fragrance returned to core sales growth in the second quarter, while Commercial remained below prior year but improved significantly versus the first quarter. Kitchen delivered its first quarter of core sales growth since early 2023, reflecting improved execution and encouraging consumer response across several priority brands. Ball's canning business is performing strongly, supported by innovation, improved merchandising execution and share gains across the measured channels, while Rubbermaid continues to benefit from strong consumer response to the Brilliance glass platform. In Home Fragrance, owned channels delivered a second consecutive quarter of growth and comparable retail stores returned to growth for the first time in more than a decade. These are encouraging signs, and we remain focused on strengthening the consumer proposition and improving execution across the business. In Commercial, the business delivered a meaningful year-over-year improvement in its core sales growth rate during the second quarter. We are focused on strengthening execution and advancing innovation behind durable platforms such as Rubbermaid commercial products and BRUTE, while building on targeted distribution wins with key customers. Outdoor & Recreation returned to core sales growth during the important second quarter outdoor season, delivering nearly 4% growth, with the U.S. leading the improvement. Coleman Snap 'N Go is a strong example of the consumer-led innovation we are bringing to market, addressing a real consumer need by making large capacity coolers easier to store, transport and use. We are also advancing innovation across our Contigo and bubba beverage platforms, with a focus on distinctive design and stronger consumer relevance. Our higher levels of brand support are increasingly being paired with more precise and engaging marketing. We are focused on building relevance around our strongest brands and innovations through programs that reach consumers in the right channels and create stronger retail activation. Coleman provides a strong example of how our marketing capabilities are becoming more visible. During the quarter, the team moved quickly to capitalize on a viral consumer conversation around a fictional Lazy River product, turning it into a highly relevant brand moment. The activation generated more than 90 million earned media impressions, nearly 48 million social impressions and 2.8 million consumer engagements, largely through organic activity. It also attracted nearly 30,000 new consumer subscribers to our database. This is the kind of modern, culturally relevant marketing capability we are building across Newell, one that strengthens consumer engagement and helps keep our brands part of the conversation. In just a few minutes, I will turn the call over to Mark, who will walk you through our second quarter results and share our updated financial outlook. Before doing that, I want to provide some brief perspective on the macro environment. So far, the consumer and category environment has held up better than originally expected. Coming into the year, we assumed the categories in which we compete would decline about 2%. Category growth was down about approximately 1% in the first quarter and was essentially flat in the second quarter, with the U.S. performing better than EMEA. Average selling prices across the market increased modestly in the second quarter, reflecting broad-based pricing actions by industry participants, whereas at Newell, our approach has been selective and targeted, focused on specific products and categories where appropriate. Even with the best -- the better first half category performance, we remain somewhat cautious about the second half, and are now assuming the categories in which we compete will decline about 1% for the full year. We expect Newell to grow faster than this, driven by the improved capabilities we have built over the past several years. On the cost side, we've seen significant volatility in the external environment, with input cost inflation significantly higher than what we expected at the start of the year and the tariff environment, which includes those issued under IEEPA, Section 122, Section 232 and Section 301 changing numerous times. In aggregate, current year input cost inflation, inclusive of all tariff impacts, is a meaningful headwind for the year, which we are more than offsetting with strong fuel productivity savings and restructuring actions. This is allowing us to bring compelling new innovations across our leading brand portfolio to market at prices that represent strong consumer value. Finally, I want to thank the entire Newell team for their commitment, agility and resilience. The progress we delivered in the second quarter reflects the hard work of thousands of employees around the world who are bringing our strategy to life every day. Q2 was an important proof point that Newell's strategy is translating into improved performance. The broad-based nature of our top line growth gives us confidence in the trajectory of the business. Based on second quarter performance and our expectations for the balance of the year, we are raising our full year outlook across all key financial metrics as we look to build on recent momentum through disciplined execution, profitable growth and strong cash generation, while continuing to earn the confidence of consumers, customers and shareholders. With that, I'll turn the call over to Mark.

Thanks, Chris. Good morning, everyone. Second quarter 2026 net sales increased 3% to approximately $2 billion, while core sales increased 2.3%. Favorable foreign exchange generally accounted for the difference between net and core sales. Normalized gross and operating margin as reported versus the prior year period was 40.8% compared with 35.6% and 16.2% versus 10.7%, respectively. The large increase in both normalized gross and operating margin was primarily due to the recording of a receivable for nearly $100 million of recoveries related to IEEPA tariffs expensed in 2025. Excluding this onetime benefit, both normalized gross margin and normalized operating margin would have been up slightly year-over-year. Separately, $26 million of recoveries related to IEEPA tariffs incurred before they were nullified and expensed during the first quarter of 2026 were recorded in the second quarter. Within the second quarter, current year IEEPA tariff recoveries, when coupled with stronger sales and higher levels of gross productivity, slightly more than offset approximately $23 million of non-IEEPA current year tariff expense recognized during the second quarter and more than $60 million of inflationary pressures. During the second quarter, A&P investment increased by $9 million to support the strongest innovation program in 10, if not more years, which brought A&P spending as a percentage of sales, up by 30 basis points to 5.7%. In addition, approximately $30 million of restructuring and other savings, including benefits from the previously announced productivity plan, offset wage inflation and higher variable compensation expense, allowing second quarter normalized overhead as a percentage of sales to drop by 60 basis points versus a year ago to 18.8%. Net interest expense was $87 million compared with $82 million in the prior year period, and the effective tax rate was 26.5% versus 19.3% last year. All of this taken together yielded $0.42 of normalized diluted earnings per share versus $0.24 in the prior year period. Now one might ask how $0.42 compares to our original Q2 guidance range of $0.16 to $0.19, if the nearly $100 million of onetime recoveries related to IEEPA tariffs expensed in 2025, which equates to $0.17 per share, is excluded. In that case, $0.42 minus $0.17 yields $0.25 per share. Going one step further, if we also back out approximately $26 million or $0.04 per share of recoveries related to IEEPA tariffs incurred during the first quarter of 2026 before they were nullified that were also recorded in the second quarter, we would have still exceeded the high end of our EPS guidance range. Turning to cash flow. Operating cash flow was an outflow of $204 million during the first half of 2026 compared with an outflow of $271 million in the prior year period, an improvement of $67 million. Year-to-date operating cash flow benefited from lower incentive compensation payments and better working capital management as our cash conversion cycle improved by 15 days year-over-year, driven primarily by higher days payable outstanding. We also implemented a new automated cash application and deduction management system that is accelerating cash application, improving deduction resolution and strengthening receivables management. Please note that because the cash related to the tariff recoveries accounting entry recorded in the second quarter has not been collected yet, nothing has been reflected in year-to-date OCF results. We received the first portion of the cash recovery in July, and we expect to recover a substantial portion of these funds before the end of the calendar year, but the timing of the remaining collections is subject to the government's process and remains difficult to predict. Trailing 12-month normalized EBITDA was approximately $1 billion, which produced a net leverage ratio of 4.8x compared with 5.4x at the end of the first quarter and 5.5x a year ago. Before sharing our updated outlook for the year and third quarter, let's spend a few minutes talking about tariffs, overall inflationary impacts and how we are accelerating productivity efforts to try and mitigate as much as possible, the need for broad-based pricing actions. As it relates to tariffs and excluding any IEEPA refunds and including everything we currently know about the existing tariff regime, along with our internal assumptions regarding the new Section 301 forced labor tariffs and potential additional tariffs related to structural excess capacity, we expect $127 million of net P&L tariff headwind for 2026, which will be $12 million higher than what we experienced during 2025. On the inflation front, we went into 2026 expecting around $100 million of inflationary impacts. As we sit here today, we now expect that number to be closer to $200 million, with about $50 million of that increase presenting itself since our last earnings call. We have been dealing with these significant challenges by leaning aggressively into our fuel productivity program, overhead reduction efforts and AI enablement initiatives. So any pricing actions we take can be as small and is targeted as possible. That said, we want to be very clear about something. Specifically, when we look at our underlying run rate tariff costs and underlying inflationary impacts, the pricing actions we have taken don't come anywhere close to offsetting the cumulative cost impacts we have seen across our direct purchase pools, labor markets and third-party services. With that understanding and based on our second quarter performance and our latest expectations for the balance of the year, including category growth assumptions and current year tariff and inflationary impacts, we are raising our full year outlook across all key financial metrics. We now expect full year net sales growth of 1% to 2% and core sales growth ranging from flat to 1%. Normalized operating margin is expected to be between 10% and 10.4%. And assuming a full year effective tax rate of around 20%, normalized diluted earnings per share are expected to be between $0.73 and $0.77. You will recall that the previous normalized EPS range was $0.56 to $0.60. This means that $0.17 or 100% of the onetime recovery related to IEEPA tariffs expensed in 2025 has simply been added to the low and high ends of our prior estimate. The in-year 2026 portion of the IEEPA tariff refund we recorded in the second quarter is being used alongside our aggressive productivity and cost control efforts to offset the significant inflationary pressures we have been experiencing. We believe this negates the need for broad-based pricing actions, which we believe is prudent for 2 reasons. First, you will recall that last year, we took major pricing actions on April 1, May 1 and July 28 to protect our structural economics. And while we were successful in doing so, it did cause us to lose some positive sales momentum. Second, we continue to believe that a meaningful portion of the inflation we are facing will roll over and normalize at some point, so we don't want to lean into pricing actions we may choose to subsequently unwind. Moving to cash. We are also raising our operating cash flow outlook to approximately $400 million, which assumes we will receive substantially all of the IEEPA tariff recovery by year-end and also reflects the updated inflation outlook. As previously indicated, Newell expects to generate an incremental $60 million of cash by the end of the year, which will be recognized as cash from investing activities from liquidating the life insurance assets associated with specialized nonqualified defined U.S. benefit plans for certain participating former senior executives. Capital expenditures were $84 million during the first half of 2026 compared with $118 million last year. So we remain on pace to invest about $200 million, which is about $50 million lower than our past 3-year average now that a number of major IT and supply chain initiatives have been successfully completed. From a leverage standpoint, we now plan to finish the year comfortably below 4.5x. For the third quarter, we expect both net sales and core sales to increase between 2% and 3%. At the midpoint, this means we expect to see sequential increases in core sales performance versus Q2. Normalized operating margin is expected to be between 9.5% and 10.2%, and normalized diluted earnings per share are expected to range from $0.18 to $0.20, with an effective Q3 tax rate of about 10%. In closing, Newell Brands returned to sales growth in the second quarter with results exceeding expectations across all key financial metrics as a reconstituted innovation program supported by considerably higher A&P levels is driving meaningful and we believe durable distribution gains. Chris touched on this earlier, but it bears repeating. The capability-based turnaround initiated 3 years ago is beginning to take hold. This is evidenced by the fact that 5 of our 6 business units delivered year-over-year core sales growth and 7 of our top 10 brands and half of our top 10 countries, led by the U.S. at approximately 5%, delivered year-over-year net sales growth in the second quarter. Moreover, the team continues to display amazing resourcefulness and agility in dealing with and operating in a very complex and fluid cost environment, which we believe will allow us, over time, to fully monetize Newell's portfolio of leading brands. We acknowledge there's still a long way to go, but this is a big first step. Chris and I, along with the rest of the executive leadership team, very much recognize and appreciate the hard work and dedication of the Newell Brands team, and we want to say thank you, we're just getting started. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Lauren Lieberman with Barclays.

Great. I want a slightly annoying thing and pick on the one thing that didn't really inflect, which was Commercial. So you've gone through a lot of the really positive things on the call, but I want to talk a bit about the Commercial business. Just line of sight into that business improving? Kind of what it takes? Is it innovation? Is it market growth and level of business investment? But curious a bit just to -- on that Commercial division.

Yes. Thanks for the question. You're right. The Commercial business improved sequentially but was still negative in the quarter, as you rightly point out. I think we are optimistic in the Commercial business going forward, starting with Q3, that trends are going to continue to sequentially improve. That business, we're focused on bringing new innovation. We are currently launching a revamped BRUTE trash can that is a superior trash can versus what we had previously. We've also launched the line of BRUTE farm products that is getting strong pickup across rural channels. And in that business, which includes the Spontex business in Europe, we launched a very strong innovation on the Spontex brand with the [ Flex and go ], which is a superior performing sponge product that's about -- positioned from a pricing standpoint, about 100% higher than the base product. All of those initiatives are getting strong consumer and retailer reaction. We think that we're on the right track there. It's just going to take a little bit longer than the other segments to inflect from a positive standpoint. But we believe you're going to see that business inflect in the near term, possibly in the third quarter.

Okay. Fantastic. And then just on -- and I apologize if I missed this because I was looking at a couple of things at once this morning. But just thoughts on back-to-school season? Sell in, I'm guessing, is going well, but how much that's falling kind of into 3Q versus 2Q? We've seen some new stories about how much consumers are intending to spend on back-to-school. So just got any thoughts on back-to-school season. That would be great too.

Yes. Obviously, it's a critical time for back-to-school. I'd just make a couple of comments. First, we feel very good about the sell-in of back-to-school. Our fill rates were very strong in terms of the setup of back-to-school. We also took a slightly different approach this year. Last year, a lot of the stores, we wound up getting set up later than the private label brands last year. And so we got off to a slower start from a POS standpoint at the beginning of the season last year and then we caught up in the middle and end of the session. This year, we didn't want to do that. So we put a concerted effort with merchandising activity to get our brands set up at the very start of the season, and that appears to be working in a strong way. We've got -- the first 3 weeks of POS data, which is effectively the first 3 weeks of July, we get real time. So far in the U.S. business in the first 3 weeks, we have gained market share in each of those 3-week periods, and our POS is tracking right in line with our forecast. It's very early. The first 3 weeks are not the biggest weeks. The biggest weeks are still ahead of us, but we're off to a much stronger start from a consumer offtake trend this year versus last year. And we're excited to see that we're gaining share. The brands that are gaining share out of the gate are Sharpie, Elmer's, Prismacolor, to name a few, where we think we're very well set up going into the season. The -- from a shipment timing standpoint, I don't think there was a huge change in shipment timing between Q2, Q3 that was different than what we expected. I think the shipment timing sort of went according to our plan. And so that was not a factor that drove either Q2 or Q3. And you see that in our guidance where we delivered 2.3% core sales growth, and we're guiding Q3 to be 2% to 3%, which is, as Mark said, at the midpoint, even a little bit higher than Q2.

And our next question comes from Filippo Falorni with Citi.

I was wondering if you can give a little bit more color on the shelf space gains in North America? How much contribution you realized there in the quarter? And obviously, if you look at your reported results in organic, North America, very strong. I'm curious internationally also, like what drove the weakness there in the quarter? And could you see more of the shelf space that you realize in North America also in the international business?

Yes. So the shelf space gains really are driven by the capabilities that we've put in place. It's the strong new product innovation, the category growth stories, the higher A&P and the stronger service execution that we're delivering to retailers. All of that has come together in a way that allowed us to win line reviews last year as we went into this year's reset season. And as I mentioned in the prepared comments, our level of distribution in the U.S. market is up mid-single digits, and we're seeing that really across a lot of our categories. Because the new product innovation is spread across all 6 business units, and every one of our business units has Tier 1 or 2 innovation. We're seeing distribution gains. It's not every retailer in every category, but in aggregate, our level of distribution is going up. I will say that we're also excited that our consumer offtake has also turned positive in the second quarter. So it's not that this was pipeline shipments. This is really being driven by consumer demand, which is up versus a year ago, and our POS trends are leading the way on this. And so we're excited about that. And we think we've got continued distribution gains that we've secured that are going to come as we move into the back half of the year. On the international business, you're right, the international business was down in the second quarter in total. There were some unique things that happened in the international business, particularly Europe has been a little bit softer with the Middle East spillover in that market, and some consumer pull back in terms of consumer demand. In Latin America, we've had very strong consumer demand, but there were some shipment timing challenge in that business. I do expect that you're going to see international turn more positive and improve sequentially as we go into the third quarter. And so we're confident that the international business is going to come back as we go into the back half of the year here.

And if I could just add one thing. You may recall that the international business had grown for 6 straight quarters up to the third quarter of last year. And then due to some second and third derivative effects of the tariffs, we saw some very large markets like Brazil stepped down meaningfully. Chris just alluded to it. But as we think about Q3 and going forward, we're confident that the international business is going to come back online. And now that the U.S. business, our largest business, just demonstrated the ability to grow, we're actually really excited about having both of the lead horses pulling in the same direction at the same time. And that turnaround in international is reflective of the same capability build-out that we've been affecting across the domestic markets.

Our next question comes from Brian McNamara with Canaccord Genuity.

This is Madison Callinan on for Brian. Congrats on the strong results. Commercial [indiscernible], but what are the other brands in the top 10 that are still declining in POS? Is there a common reason for any of them? And what are those expected to return to growth? In all, is modest core sales growth now the expectation from here?

Yes. So as we mentioned, 7 of the top 10 brands drove core sales growth in the quarter. Of the brands that didn't grow in the quarter, some of it is related to timing of innovation on the brands. So as an example, we grew in Writing, as I mentioned, because Sharpie had a very strong result. We're growing on Elmer's. We're growing on Prismacolor, but Paper Mate, which is one of our top 10 brands, was down in the quarter. We have strong innovation coming on Paper Mate. Because of the timing of that innovation and the timing then of the reset on that brand, that turnaround on that specific brand is a little bit on different timing than the business in total. And so that's typically what you see in the top 10 brands is that because the innovation is set to launch at different timing throughout the year, you can get -- it's unusual to see all top 10 brands growing at the same time, is the way I would answer that. And so what we're trying to do is employ the same playbook from a consumer insights superior innovation, strong category insights, great retail execution across all of the top 25 brands in the company, which represent 90% of our sales and profit, so that we get the majority of them growing and we grow in total as a company, recognizing that it would be highly unusual for every single one of those brands to be growing in the same quarterly period. But we believe if we can get the majority growing, which we have done in the second quarter, that the company in total can grow sustainably, and that's what we're excited about as we look forward.