Newell Brands Inc. (NWL) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents a mixed picture: while there are positive developments like innovation launches and improved distribution, challenges persist with declining core sales and increased costs. The Q&A reveals cautious optimism but highlights ongoing cost pressures and margin challenges. Given the modest market cap, the stock may exhibit some volatility, but the overall sentiment remains balanced between positive innovations and negative financial pressures, leading to a neutral stock price movement prediction.

Key Financial Performance

Core Sales Declined by 3.5% year-over-year. The decline improved sequentially and versus a year ago due to better-than-expected consumer demand driven by innovation, higher advertising and promotion support, and net pricing benefits related to customer programs.

Learning & Development Segment Core Sales Returned to growth, led by Baby category which grew 4.9% year-over-year. Growth was supported by strong consumer demand, positive point-of-sale trends, innovation, and share gains.

Normalized Gross Margin Expanded by 70 basis points to 33.2% year-over-year. Improvement driven by gross productivity and favorable net pricing actions, which offset cost inflation, tariff costs, and lower volume.

Normalized Operating Margin Increased by 30 basis points to 4.8% year-over-year. Improvement attributed to net pricing benefits, better claims experience, and improved deduction management.

Net Interest Expense Increased by $12 million year-over-year to $84 million. No specific reasons for the increase were mentioned.

Operating Cash Flow Outflow of $233 million compared to $213 million outflow in the prior year. This is attributed to seasonality as Q1 is historically the smallest quarter.

Net Leverage Ratio Increased slightly to 5.4x from 5.3x year-over-year. This was due to net debt of $4.8 billion and trailing 12-month normalized EBITDA of $881 million.

Resin Costs Expected to increase by 40% year-over-year for the remainder of 2026. Resin costs represent about 5% of total cost of goods sold.

Diesel Costs Expected to increase by 25% year-over-year for the remainder of 2026. Diesel costs represent about 3% of total cost of goods sold.

Tariff Costs Expected to decrease by $26 million year-over-year to $120 million for 2026. This is due to changes in tariff regimes and lower China-sourced finished goods exposure.

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Operating Highlights

Innovation Strategy: Newell Brands launched 25 Tier 1 and Tier 2 innovations in 2026, up from 18 in 2025. These innovations span all business segments and are designed to improve value, expand usage occasions, and strengthen retailer support.

Learning & Development Segment: The Baby category grew 4.9% in Q1 2026, driven by strong consumer demand, innovation, and share gains.

Market Share Growth: Six of the top 10 U.S. brands gained market share in Q1 2026, with six brands showing year-over-year point-of-sale growth and seven improving sequentially.

Consumer Demand: Improved consumer demand for products, particularly in the U.S., driven by innovation and increased advertising and promotion.

Operational Efficiencies: Improved deduction management and customer program claims experience resulted in a $25 million net pricing benefit in Q1 2026.

Cost Management: Plans to offset $50 million in incremental commodity and transportation costs through productivity savings, cost management, and targeted pricing adjustments.

Tariff Management: Reduced China-sourced finished goods from 35% to under 10% of global cost of goods sold, creating a structural tariff cost advantage.

Trade Expertise Center: Centralized trade compliance and policy intelligence to ensure seamless cross-border operations and quick responses to trade policy changes.

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Risk or Challenges

Commodity and Transportation Inflation: The company faces approximately $50 million of additional costs due to higher resin and diesel prices. Resin costs are expected to rise by 40% for the rest of the year, and diesel prices are projected to average $5 per gallon, peaking in Q2.

Tariff Environment: The tariff landscape remains fluid, with new tariffs under Section 122 and revisions to Section 232 and 301. While the company expects some relief compared to initial projections, tariffs still pose a significant cost burden, with $120 million in tariff-related costs anticipated for 2026.

Leverage and Debt: The company’s net leverage ratio remains high at 5.4x, with $4.8 billion in net debt. This could limit financial flexibility and increase vulnerability to interest rate changes.

Consumer Spending Trends: Consumer spending in the company’s categories is slightly better than expected but still declining by 1%. Low-income consumer spending is declining, offsetting growth from high-income consumers.

Supply Chain and Sourcing Risks: While the company has reduced its reliance on China-sourced goods to under 10%, remaining exposure in Baby gear and other categories could pose risks, especially given the dynamic tariff environment.

Operational Cash Flow: Operating cash flow for Q1 was an outflow of $233 million, reflecting seasonal trends but also highlighting potential liquidity challenges.

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Guidance & Outlook

Revenue and Core Sales Growth: Net sales are now expected to be between flat and positive 2% for the full year, compared with the previous expectation of negative 1% to positive 1%. Core sales are now expected to be between negative 1% and positive 1%, compared with the prior expectation of negative 2% to flat.

Normalized Operating Margin: The outlook for normalized operating margin remains unchanged at 8.6% to 9.2% for the full year.

Normalized Earnings Per Share (EPS): The bottom end of the normalized diluted EPS range has been increased by $0.02, bringing the range to $0.56 to $0.60 versus the previous range of $0.54 to $0.60.

Second Quarter Projections: Net and core sales are expected to be flat to up 2% in Q2 2026. Normalized operating margin is projected to be between 9.6% and 10.2%, and normalized diluted EPS is projected to be in the range of $0.16 to $0.19.

Commodity and Tariff Impacts: Commodities and transportation are expected to add about $50 million of incremental cost to 2026 versus the original budget. However, about half of this negative impact is expected to be offset by lower tariff costs. Plans are in place to offset the remaining gap through productivity, cost management, and targeted pricing actions.

Consumer and Category Environment: The company now assumes a 1.5% category decline for the full year, an improvement from the initial assumption of a 2% decline. This is based on better-than-expected consumer spending trends in Q1.

Innovation and Product Launches: The company plans to launch 25 Tier 1 and Tier 2 innovations in 2026, up from 18 in the previous year. These innovations are expected to drive consumer engagement, improve value, and expand usage occasions.

Capital Expenditures: CapEx is planned at $200 million for 2026, down from a historical run rate of about $250 million, as several large ERP integrations and supply chain projects have been completed.

Cash Flow and Leverage: Operating cash flow for the full year is expected to be in the range of $350 million to $400 million, with expectations to be towards the lower end of the range. The company plans to reduce its year-end leverage ratio by about half a turn.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What factors led to the decision to raise the category growth outlook?

A:The category growth year-to-date through the first quarter was negative 1%, better than the planned minus 2%. Tax refunds in March and April offset consumer impacts from gas and energy. Additionally, underlying business improvements and distribution wins contributed to the decision. However, the company took a cautious approach due to the seasonally small first quarter.

Q:Has the Yankee Candle shelf presence improved as expected?

A:Yes, the Yankee Candle shelf presence has improved after delays last year. The shelves are now in good shape, and the Home Fragrance business had a strong Q4. Q1 was down due to less liquidation of sale products, but innovation and distribution wins are on track for Q2.

Q:What is the pricing strategy given higher resin costs?

A:The company made pricing adjustments in the Rubbermaid Food Storage and Baby businesses months ago, which are performing well. They plan selective pricing actions, potentially through reduced promotional depth or list price increases, to address $50 million in incremental commodity costs. Productivity actions and tariff benefits will offset some of these costs.

Q:What are the drivers of the expected Q2 inflection?

A:Drivers include stronger POS trends than core sales growth in Q1, innovation launches (e.g., Coleman Snap 'N Go cooler, Graco car seats, Sharpie products), distribution wins, and contributions from Writing, Baby, Outdoor & Recreation, and Kitchen businesses. The international business is also expected to perform better in Q2.

Q:What factors contribute to Q2 EPS margin challenges?

A:Key factors include $0.07 tariff impact (up from $0.02 last year), $50 million in commodity cost increases ($10 million affecting Q2), and increased A&P investments. Tariff impacts will improve in the back half of the year, contributing to stronger performance later.

Q:How has domestic manufacturing been improved to handle potential supply disruptions?

A:The company has automated U.S. manufacturing plants, increasing line speeds and reducing labor needs. This has created excess capacity, allowing for quick scaling within 3 months to address supply disruptions, particularly for competitors reliant on Asian sourcing.

Q:Review of Unclear Management Responses

A:None of the questions were avoided or lacked clarity. All responses were detailed and addressed the questions directly.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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