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reported mixed results in the third quarter of 2023, with a 9.2% decline in core sales. Despite this, the company made significant progress across its top five priorities, including improving operating cash flow and gross margin. The company also completed Project Phoenix organizational design changes, which generated 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 made a modest fiscal profit of $73 million in the third quarter.
- For the fourth quarter, net sales are expected to decline 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 abandoning 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 core brands and markets.
During the earnings conference call, the company reported a contraction in normalized operating margin of 220 basis points to 8.2%, driven primarily by higher incentive compensation charges. Net interest expense increased $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 the goal of achieving investment grade status with a leverage ratio of approximately 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 owners of the current portfolio of 80 brands.
Newell Brands CEO Chris Peterson analyzed the company’s cash position and gross margin and said they are in a good position. He also highlighted the company’s efforts to prepare the business for future success, including making investments in capacity to boost the initial phase of the operation. Peterson mentioned the implementation of an innovation process, a brand management structure and a new sales capability focused on incremental distribution opportunities.
In terms of relationships with retailers, Peterson noted that Newell Brands has strong relationships with retailers, with better relationships than two years ago, thanks to the Ovid implementation and simplification work. He stated that retailers recognize the company’s journey and support it. On the issue of inventory, Peterson mentioned that weeks of coverage at major retailers have been reduced and retailers would face significant out-of-stock risk if they reduce inventory further. On pricing, Peterson said Newell Brands has largely led the way on pricing because of its market-leading brands, and the competition has generally followed suit. However, there are select cases where the competition has not fully followed and the company will react appropriately to maintain its market share.
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