Newell Brands reported mixed results in the third quarter of 2023, with a 9.2% decline in core sales. Despite this, the company made significant strides in its five major priorities, including improving operating cash flow and gross margin. The company also completed the Project Phoenix organization design changes, which led to pre-tax savings of $140 million to $160 million this year.
Key takeaways from the call:
- The company reported strong savings of $49 million from Project Phoenix in the quarter.
- Operating cash flow improved significantly, generating $679 million of positive cash flow year-to-date.
- The company captured a discrete tax benefit of $73 million in the third quarter.
- For the fourth quarter, net sales are expected to decline by 14% to 11% compared to last year.
- The company plans to reduce its portfolio from 80 brands to 60 by the end of the year.
- The company is open to divestitures or exiting certain businesses that are not profitable.
Despite a challenging macroeconomic environment, Newell Brands remains committed to returning to top-line growth. The company has implemented a new integrated corporate strategy focused on improving consumer-facing capabilities and investing in its top brands and markets.
During the earnings call, the company reported a contraction in normalized operating margin of 220 basis points to 8.2%, mainly driven by higher incentive compensation charges. Net interest expense increased by $12 million to $69 million due to higher interest rates, despite a decrease in net debt.
The company's leverage ratio improved from 6.3 times to 6.1 times at the end of the third quarter, with a target of achieving investment-grade status with a leverage ratio of about 2.5 times. Despite macroeconomic challenges, the company remains committed to unlocking the full potential of its portfolio of brands. The company is open to divestitures or exiting certain businesses that are not profitable, but they believe they are the best owner of the current portfolio of 80 brands.
Newell Brands CEO, Chris Peterson, discussed the company's cash position and gross margin, stating that they are in a good position. He also highlighted the company's efforts to set the business up for future success, including making capability investments to drive the front end of the operation. Peterson mentioned the implementation of an innovation process, a brand management structure and a new selling capability focused on incremental distribution opportunities.
In terms of retailer relationships, Peterson indicated that Newell Brands has strong relationships with retailers, with better relationships than two years ago, thanks to the implementation of Ovid and simplification work. He stated that retailers recognize the company's journey and are supportive. On the topic of inventory, Peterson mentioned that weeks of coverage at top retailers have come down, and retailers would face significant out-of-stock risk if they reduce inventory further. Regarding pricing, Peterson stated that Newell Brands has largely led pricing due to its market-leading brands, and competition has generally followed suit. However, there are select cases where competition has not fully followed, and the company will react appropriately to maintain market share.
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