Prepared remarks
Good morning, and welcome to Newell Brands First Quarter 2026 Earnings Conference Call. Operator provided 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, SVP of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin.
Thank you. Good morning, everyone, and welcome to Newell Brands First 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 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 first quarter earnings call. We had a strong start to the year with Q1 results ahead of expectations across all key financial metrics. All three segments delivered core sales growth above plan, with the Learning & Development segment returning to core sales growth. Core sales at minus 3.5% improved both sequentially and versus a year ago for two primary reasons. First, we experienced better-than-expected consumer demand for our products driven by improving point-of-sale and market share trends, which we believe is directly related to our focus on innovation and higher levels of advertising and promotion support. Stronger consumer demand was most pronounced across the U.S. brand portfolio, where six of our top ten brands gained market share in the first quarter. In addition, for the first time in over four years, six of our top ten brands delivered year-over-year point-of-sale growth and seven top-ten brands improved their sequential trajectory versus the fourth quarter. These notable proof points provide clear evidence that our new innovation strategy and heightened levels of A&P investments are having the desired effect, namely allowing Newell to once again engage and delight consumers with high-quality products that deliver real solutions and benefits with strong consumer value. As we discussed at CAGNY, 2026 is the first year since we initiated our turnaround strategy that we have a robust consumer-relevant innovation pipeline supported by competitive A&P levels and strong retail activation plans. During the course of the year, we plan to launch 25 Tier 1 and Tier 2 innovations, up from 18 last year, and those innovations span every one of our businesses. Importantly, we are now bringing to market fully vetted consumer-preferred ideas that are designed to improve value, expand usage occasions and give retailers more reasons to support our brands. Those efforts are translating into better point-of-sale results, improved share trends and stronger distribution opportunities. The second reason first quarter core sales came in better than expected was a net pricing benefit related to customer programs due to better claims experience and improved deduction management. Our focus on improving the return on investment of our customer spending and improving operational discipline and spend management is paying off. These two items, which led to top-line overdelivery, drove normalized operating margin above our outlook even after increasing A&P investment compared to prior year. Normalized earnings per share came in $0.03 better than the upper end of our guidance range due to higher-than-expected core sales, better-than-expected normalized operating margin and a lower-than-expected first quarter effective tax rate. From a segment perspective, Learning & Development was the strongest part of the portfolio in the quarter. The segment returned to core sales growth led by Baby, which grew 4.9% in the first quarter, supported by strong consumer demand, positive POS trends, innovation and share gains. Both Home & Commercial and Outdoor & Recreation exceeded plan and improved sequentially. Based on these solid first quarter results, we remain confident that Newell's strategy is working. At the same time, the external environment remains dynamic, particularly as it relates to petro-based cost inputs and tariffs. So let's spend some time on each of those two important areas. Currently, we see an additional approximately $50 million of commodity and transportation inflation versus our original plan with higher resin costs accounting for about 60% of the total increase. That said, resin is now a much smaller part of Newell's overall cost structure. For perspective, direct resin purchases represent roughly 5% of 2025's total cost of goods sold, which is down materially from about double that level historically. Our sourcing and supply chain teams manage our resin exposure through established contract structures rather than spot market purchases. This provides better visibility, reduces exposure to short-term spot market volatility and creates some lag time in how costs flow through the P&L, which gives the business more time to respond. Moving to tariffs. The framework has shifted materially since our last call. IEEPA tariffs were invalidated. New tariffs under Section 122 were put in place at a temporary 10% replacement rate. Existing tariffs under Section 232 were revised and new Section 301 investigations are now underway for potential new tariffs. The tariff environment clearly remains very fluid with a few important things to note. First, our initial outlook assumed a higher tariff baseline. So the current tariff regime is actually a help versus our going-in expectations. In fact, we believe tariff help will offset about 50% of the previously mentioned incremental commodity hurt with the remainder being offset by higher levels of productivity savings and targeted price and promotion adjustments where necessary. Second, the best-in-class sourcing, manufacturing and trade capabilities we have built over the past several years have positioned us well on a relative basis versus competition. For example, we have reduced China-sourced finished goods from a peak of roughly 35% of global cost of goods sold to under 10% and our remaining China exposure, principally in Baby gear, is an industry-wide challenge, not one unique to Newell. In addition, our highly automated domestic manufacturing footprint creates what we believe is a structural tariff cost advantage across 19 product categories. Third, and before moving on, I want to recognize Newell's Trade Expertise Center, TEC, as we call it, is a highly professionalized centralized capability that brings together trade compliance, policy intelligence, analytics and operational execution to ensure Newell stays compliant, keeps goods moving seamlessly across borders and responds quickly and efficiently as trade policy changes. To close out this section, please note that we will actively pursue tariff refunds related to approximately $120 million of IEEPA tariffs paid in 2025 and neither our Q1 actuals nor our outlook include any benefit from these potential refunds. Having touched on first quarter performance and what we are seeing and expect relative to commodity cost and tariff impacts, I want to turn to the overall Consumer & Category Environment and how we see our top-line growth prospects for the balance of the year. Consumer spending in the categories in which Newell competes came in slightly better than we expected in the first quarter at down 1%. We continue to see category growth from the high-income consumer cohort being slightly more than offset by declines from low-income consumers. Additionally, it appears the tax refund stimulus boost is largely offsetting higher fuel and energy costs so far. Importantly, consumers are still responding when the value proposition is clear. When innovation solves a need, trusted brands are well supported, price and value are appropriately balanced and retail execution is strong. Coming into the year, we assumed our categories in aggregate would decline about 2 percentage points. However, based on what we saw in the first quarter, we're now assuming a 1.5% category decline for the full year. This slight improvement in underlying consumer and category dynamics when coupled with better-than-expected first quarter results and what we know about the strength of our innovation, marketing and distribution plans for the balance of the year puts us in a position to predict a return to top-line growth in the second quarter. Additionally, given the stronger-than-expected first quarter results and our second quarter outlook for core sales growth, we are also raising our full year outlook for net sales, core sales and normalized earnings per share. Before closing, I want to thank all of the Newell employees for their dedication to the turnaround effort and their agility and resilience in dealing with a dynamic operating environment. With that, I'll turn the call over to Mark to walk through the financials and outlook in more detail.
Thanks, Chris. Good morning, everyone. First quarter 2026 net and core sales declined versus a year ago by 1.1% and 3.5%, respectively, with 2.7 points of favorable foreign exchange and 0.3 points of exits and other impacts accounting for the difference between net and core. Normalized gross margin in the first quarter expanded by 70 basis points to 33.2%. Gross productivity and favorable net pricing actions more than offset cost inflation, tariff costs and lower volume. Normalized overhead dollars were slightly lower year-over-year as we continue to execute against the previously announced global productivity plan. During Q1, we recorded $6 million of restructuring charges, bringing cumulative charges under the plan to $46 million. We continue to expect total restructuring and restructuring-related charges associated with the plan of approximately $75 million to $90 million, the rest of which should be largely incurred by the end of 2026. As expected, A&P as a percentage of sales was just north of 5%, which was about 30 basis points higher than a year ago as we continue to invest behind the strongest innovation program Newell has fielded since at least the Jarden acquisition. All of this brought Newell's normalized operating margin to 4.8%, which was 30 basis points above a year ago and ahead of our expectations. As Chris indicated, we did record approximately $25 million of net pricing benefit, which flowed through the balance of our first quarter P&L due to a refinement of estimates related to customer programs, reflecting better claims experience and improved deduction management. This benefit contributed about 160 basis points to core sales growth and about 110 basis points to our gross margin rate for the quarter. In English, this means that the work we have been doing to generate a better return on our annual invoice-to-net investment in the U.S. of roughly $1 billion is starting to pay off. That work began several years ago with Ovid, which consolidated 23 separate U.S.-based legal entities into one go-to-market organization. It has subsequently continued with the implementation of a customer trade fund management system and improved deduction management software. Going forward, we will continue to strive to improve the return characteristics of our customer programs, which may actually result in more trade fund dollars being invested, but in a more efficient and optimal manner than in the past. Net interest expense of $84 million represented an increase of $12 million from the prior year, and we reported a normalized effective tax rate of 0% for the quarter. The combination of all these factors resulted in a normalized $0.05 loss on diluted earnings per share, which was ahead of the guidance we provided during our last earnings call. From a cash standpoint, operating cash was an outflow of $233 million versus an operating cash outflow of $213 million in the year-ago period. Please note that Q1 historically is always the smallest quarter of the year due to seasonality, so this cash performance is not unusual or unexpected. Our net leverage ratio for the quarter was approximately 5.4x based on net debt of $4.8 billion and trailing 12-month normalized EBITDA of $881 million. This compares to approximately 5.3x in Q1 of 2025 when we had $4.7 billion of net debt and $884 million trailing 12-month normalized EBITDA. Having covered first quarter results and before providing our full year and second quarter outlook, let's take a few minutes to discuss commodity costs and tariff impacts in a bit more detail. Following the start of Operation Epic Fury, oil, using WTI as the benchmark, increased from a pre-conflict average of about $60 to $65 a barrel to a peak of $113 before retrenching slightly. This directly impacts Newell in two ways. As indicated earlier, resin purchases represented about 5% of 2025 total company cost of goods sold and the price of polyethylene and polypropylene are directly tied to the price of oil. Using polyethylene as an example, because it represents more than 50% of our total resin use, the average price we paid during the first quarter was very comparable to the prior year. However, for the balance of the year, we are currently assuming the cost per pound will be up about 40% versus a year ago and about 40% higher than what we paid during the first quarter of 2026. The second way the price of oil directly impacts Newell is inbound and outbound freight, which represents about 3% of 2025 total company cost of goods sold. In this case, the average price of a gallon of diesel during the first quarter of 2026 was about $4, which was up a modest 3% versus a year ago. That has changed rapidly, of course, and we are now assuming diesel will average about $5 per gallon for the balance of the year with the price peaking during Q2 before gradually tapering off throughout the second half of the year. Because resin is an input component that gets converted into finished goods and is subsequently inventoriable, the incremental P&L impact is expected to be weighted more towards the back half of the year, whereas since diesel and bunker fuel are essentially expensed as incurred, often in the form of a fuel surcharge, they have a more immediate effect on the P&L. To boil all this down and based on the assumptions we are currently using, commodities and transportation are now expected to add about $50 million of incremental cost to 2026 versus our original budget. But that is likely to change. So from a sensitivity standpoint, we can offer you the following. All else being equal, every $5 move in the per barrel price of oil up or down equates to about $5 million of either incremental cost, which we would develop plans to offset, or benefit, which we could choose to reinvest or drop to the bottom line. It is also worth noting that there is some good news because while commodity costs have risen meaningfully, we expect about half of this negative impact to be directly offset by lower tariff costs. Recall that during 2025, we incurred $115 million or $0.23 per share of new tariff-related P&L charges, $0.02 in the second quarter, $0.11 in the third and $0.10 in the fourth. At the start of 2026, we expected to incur $146 million or $0.30 per share of comparable tariff-related P&L charges. Those charges were forecasted to present themselves as follows: $0.065 in each of the first and second quarters, $0.09 in the third quarter and $0.08 in the fourth quarter. As we stand here today, with all the changes we are aware of and with the key assumption that when the current 10% Section 122 tariffs expire, they are replaced by some combination of new tariffs that on average carry a 15% effective rate, we now expect to incur $120 million or $0.24 per share of P&L tariff-related costs, which is $26 million or $0.06 per share better than originally expected. To help complete your models, our estimated 2026 P&L tariff impact is $0.10 in Q1, $0.07 in Q2, $0.05 in Q3 and $0.03 in Q4, all of which is off by $0.01 due to rounding. Finally, to wrap this section up, please note three things. First, I just stated that the Q1 2026 P&L impact from these tariffs was $0.10, and our original estimate was $0.065. Q1's tariff impact ended up higher than expected, but that was primarily a function of sales coming in stronger than planned for certain tariff-impacted categories. In other words, we sold more inventory than anticipated in these categories, which brought forward tariff costs that had been held in inventory at the end of last year. Second, with respect to the potential IEEPA tariff refund we are entitled to, we are accounting for this under a loss recovery model. Under that framework, a receivable can only be recorded when recovery is both probable and reasonably estimable. As of March 31, we did not record a receivable given remaining uncertainties, including the appeals process and implementation of the refund process itself. Thus, our current earnings and operating cash flow outlook does not include any impact from potential IEEPA tariff refunds, including refunds related to approximately $120 million of IEEPA tariffs paid in 2025. Third, while there is a gap between the incremental commodity hurt we expect to incur and the incremental tariff help we now anticipate, plans are in place to make up the balance through a combination of gross productivity, disciplined cost management actions and where necessary, select and targeted net pricing actions. Turning to our outlook and based on our first quarter overdelivery and projected sales growth over the balance of the year, we are raising our full year estimates for net sales, core sales and normalized earnings per share. Specifically, net sales are now expected to be between flat and positive 2% compared with our previous expectation of negative 1% to positive 1% and core sales are now expected to be between negative 1% and positive 1% compared with our prior expectation of negative 2% to flat. The outlook for normalized operating margin remains unchanged at 8.6% to 9.2%. We continue to expect an effective tax rate in the high teens and the bottom end of our normalized diluted earnings per share range has been increased by $0.02, bringing the range to $0.56 to $0.60 versus $0.54 to $0.60. From a cash standpoint, as previously disclosed, Newell Brands decided to terminate its U.S. nonqualified defined benefit plans. These were specialized nonqualified plans for certain participating former senior executives and are separate from our broad-based employee benefit programs. As part of the process, we are liquidating the associated life insurance assets. And as a result, 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. Given this additional cash infusion, we have been leaning in on inventory purchases to bring in more inventory at what we believe will ultimately be lower tariff rates and to ensure adequacy of supply as business trends improve. Consistent with this, while we are leveraging our operating cash, we are leaving our operating cash flow range for the full year at $350 million to $400 million, and we now expect to be towards the lower end of that range. CapEx is still being planned against a $200 million budget for 2026 versus a historical run rate of about $250 million, now that several large ERP integrations and supply chain projects have been successfully completed, and we continue to have plans to reduce our year-end leverage ratio by about half a turn. For the second quarter of 2026, we expect both net and core sales to be flat to up 2% behind consumer-relevant innovation, net distribution gains and higher levels of A&P support. Normalized operating margin is projected to be between 9.6% and 10.2% and normalized diluted earnings per share is projected to be in the range of $0.16 to $0.19. Please note that second quarter normalized operating margin and normalized earnings per share include approximately $25 million of incremental year-over-year tariff costs, considerably higher diesel costs and an expected year-over-year increase in advertising and promotional support, both in absolute dollars and as a percentage of sales. In closing, first quarter results were better than planned across all key metrics, with all three segments delivering core sales above our expectations. While we continue to face a dynamic cost and tariff environment, the capabilities we have built and the agility and dedication of the Newell team gives us the confidence to raise our full year outlook for net sales, core sales and normalized EPS while maintaining our operating margin outlook as we continue to prioritize cash generation and deleveraging as we seek to fully unlock the value of Newell's portfolio of leading brands for our shareholders. Operator, we'll now open the call to questions.
Questions and answers
Operator provided instructions. And our first question will come from Lauren Lieberman with Barclays.
I just wanted to first talk about the decision of what you're seeing in terms of category growth and the more optimistic outlook. There's a question of whether tax refunds were maybe helping consumers a bit in the first quarter, and now we've got higher gas prices. So what are you seeing that gives you the confidence to raise that category growth outlook at this point in the year?
Yes. Thanks, Lauren. As I mentioned in the prepared remarks, year-to-date through the first quarter and what we've seen so far in April, the category growth we have seen has been negative 1%. We planned the year going into it at minus 2% and we decided to move the plan for the year up to minus 1.5%. That 0.5-point change reflects the experience through the first four months being at minus 1%. It doesn't assume the balance of the year will necessarily move significantly off that minus 1.5% assumption. The tax refunds, much of which came into the market in March and April, do appear to be offsetting the consumer impact from higher gas and energy in the near term. The bigger factor that caused us to raise our core sales growth outlook was the underlying improvement in the business and additional distribution wins that we've received since we reported a couple of months ago. We're continuing to win broader distribution gains and more display presence. That real improvement, coupled with what we've seen year-to-date on category growth, is the reason we felt comfortable raising guidance. On the core sales guidance range, we could have raised it further, but we chose a prudent approach because the first quarter is generally our seasonally smallest quarter. We reflected what we've seen, what we know from the consumer response to our innovation and distribution wins and year-to-date category growth, but we did not want to overextend our expectations for the balance of the year.
Okay. Helpful. One quick follow-up. Some of the new product activities that you had at the end of 2025, I'm thinking in particular around Yankee Candle — would you say that shelf sets and presence are now on all those fronts as you expected? I think that was part of the disappointment in the second half of last year. Did some of that just take longer to get into place? Would you say everything is now as you'd originally expected, just with a bit of a delay?
Yes, I think that's right. On Yankee Candle, we launched last summer and it took longer to get those shelves into a good place than we anticipated. I think that has now resolved itself and we feel like the shelf is in good shape on Home Fragrance. We had a very strong Q4 in the Home Fragrance business with core sales growth, which is the biggest season there. We sold so much in Q4 that we didn't have as much to liquidate on sale in Q1 this year, so Q1 was down a bit in Home Fragrance largely because we weren't liquidating sale product. Importantly, as we mentioned on our last call and at CAGNY, a lot of the innovation we're launching this year and many of the distribution wins we expect are setting in the second quarter. We remain on track for those, which gives us confidence to guide that Q2 will be the quarter Newell returns to core sales growth.
Operator provided instructions. And the next question will come from Andrea Teixeira with JPMorgan.
I was hoping you could comment on the pricing strategy now that resins are higher. I understand that you had to invest in Rubbermaid containers because competitors did not follow. What are you assuming for pricing in your new guidance range? Also, you mentioned the Writing business is back to growth and you're calling for a second-quarter inflection. What are the drivers of that inflection? Is that still momentum in Baby or are other categories recovering that will drive the inflection? As you think about the categories, which are recovering and will drive that inflection, please?
On pricing, as we said on the last call, we did make pricing adjustments on the Rubbermaid Food Storage business and on Baby, primarily because the tariff rate changed and to remain competitive several months ago. Those adjustments have been in market and are performing well. Both businesses are accelerating. Over the last six months we've gained several hundred basis points of market share in Baby, driven by innovation such as the Graco 360 EasyTurn 2-in-1 rotating car seat as well as the SmartSense Swing and Bassinet. Looking forward, while we have roughly $50 million of incremental commodity cost headwind from resins and transportation, we expect about half of that to be offset by tariff benefit. We also expect additional productivity actions across our supply chain and overhead base to help mitigate commodity cost headwinds. There may be a remaining piece, and we are evaluating where selective pricing actions might be necessary. Those could include adjustments to promotional depth or targeted list price increases. We believe pricing actions will be selective rather than broad-based. Regarding the Q2 inflection, several factors give us confidence. In Q1, our POS trends were stronger than core sales growth, indicating improving consumer offtake. Six of our top ten brands drove market share growth in the quarter, which bodes well for replenishment orders heading into Q2. We have many innovations in early-stage launch that have seen strong response, such as the Coleman Snap 'N Go cooler, where we've raised our forecast multiple times in the last three months. We continue to raise forecasts on some Graco car seats and new Sharpie offerings. We are also securing additional distribution wins. The categories we expect to contribute most to the Q2 inflection are Writing, Baby, Outdoor & Recreation and Kitchen. Additionally, the international business, which was slower in Q1 largely due to shipment timing, should be a stronger contributor in Q2.
The other point to note is that about a year ago we expected to positively inflect in the back half of last year as well, but the tariff regime forced us to take pricing on April 1, May 1 and July 28 to remediate $115 million of P&L impacts. Those prices are effectively in the base and many haven't fully annualized yet. Given where commodities and tariffs sit today, we believe only a very small portion of the $50 million commodity increase will need to be addressed by targeted pricing actions. We do not see a need for major interventions that would disrupt the positive share and POS trends Chris cited.
Operator provided instructions. The next question will come from Olivia Tong with Raymond James.
One short-term question, and then I have a follow-up. Your Q2 EPS guide implies significant cost inflation and margin pressure given the commodity and cost environment. Is that the only reason for the margin change, or did you assume any additional spending given the strength and confidence in your top-line expectations? Is that just the flow-through of cost inflation? And then I have a follow-up.
Great question. There are three primary drivers. One, year-over-year tariff impact: last year in Q2 we had $0.02 of tariff P&L impact; this year we expect $0.07, which is a $0.05 difference. Two, the commodity increase of about $50 million, roughly $30 million of resin and $20 million of diesel, presents itself over the balance of the year. Roughly, about $10 million of that may impact Q2, $25 million in Q3 and $15 million in Q4. Those are approximate figures. Three, we continue to invest behind A&P, and we expect A&P in Q2 to be up meaningfully. We're investing because we've been rebuilding the business and are seeing traction on innovation, retail execution and distribution gains. Those three factors primarily explain the EPS and margin outlook for Q2.
The biggest driver is the tariff timing. Tariffs move from effectively a year-over-year headwind of $0.05 a share in Q2 to a material improvement in Q3 and Q4 because of the timing of implementations and subsequent changes. If you strip out the tariff impact, you would see stronger operating margin and bottom-line performance compared to the prior year.
Yes, it is a $0.13 differential in the back half just on the tariff piece alone.
Got it. That's helpful. We've talked a lot about your domestic manufacturing. Can you discuss the changes you've made over the last few years in standing up those domestic facilities so that should competition face sourcing challenges, you can flex and step up? How quickly could you respond if competitors have constraints?
It's a good question and one we've been working on for the last six to seven years. We've been automating much of our U.S. manufacturing footprint. We have 15 manufacturing plants in the U.S. and two USMCA-compliant plants in Mexico. As we've automated, we've increased line speeds and reduced labor needs in many areas. For example, in a Writing plant in Tennessee, we moved line speed from 150 units a minute to 500 and reduced line workers from six or seven down to one. We made those automation investments on a return-on-investment model that assumed constant volume, but they effectively gave us excess capacity in U.S. factories. Today, in most of our U.S. manufacturing plants, we have the ability to scale up relatively quickly to compensate for supply disruption. We have seen a couple of instances where competitors ran into trouble in select categories, and we can generally ramp up within about three months across our U.S. footprint for a material upside order. We haven't baked that potential into guidance, but we view it as a real opportunity should supply disruptions among competitors present themselves.
Thank you. This concludes today's conference call. Thank you for your participation. A replay of today's call will be available later today on the company's website at ir.newellbrands.com. You may now disconnect, and have a great day.