Newell Brands reports 7% sales drop in Q3, cites tariffs and inventory adjustments; expects gradual recovery and positive growth in 2026

OPERATOR - (00:01:45)

Good morning and welcome to Newell Brands' third quarter 2025 earnings conference call. At this time, all participants are in listen only mode. After a brief discussion by management, we will open up the call for questions. To ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, press star 11 again. In order to stay within the time schedule for this call, please limit yourself to one question during the Q and A session. 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, Senior Vice President of Investor Relations and Chief Communications Officer. Ms. Freiberger, you may begin. Thank you, Michelle. Good morning everyone and welcome to Newell Brands' third quarter 2025 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.

Chris Peterson - President and CEO - (00:03:44)

Thanks, Joanne. Good morning everyone and thank you for joining us. The third quarter macro environment for general merchandise categories remained exceptionally dynamic and challenging. Numerous new tariffs were announced by both the U.S. and international markets, creating trade disruptions in affected categories. For perspective, we now anticipate Newell will incur 180 million in incremental cash to tariff costs this year, which is up from our estimate of 155 million just two months ago. These trade disruptions have affected short term consumer and retailer behavior. To respond to this, we employed a multifaceted plan. Specifically, we increased focus on productivity and overhead cost savings efforts. We sold incremental distribution and promotions and tariff advantage categories and we took pricing actions where necessary to offset the tariff costs. While our team executed our plan well, it was not sufficient to offset the macro headwinds. In the third quarter, both core and net sales came in down 7%, which was below our expectations due in large part to three discrete macroeconomic related factors, namely lower retailer inventory levels, a slowdown in a couple of key international markets like Brazil, and lower consumer demand as we priced for tariffs more aggressively than competition in several categories combined. These three factors reduced third quarter sales by 4 to 5 points, which along with 2 to 3 points of category compression, more than offset incremental tariff advantage Business Wins and a Strong Innovation Program the good news is that our consumer driven product and consumer innovation programs are getting stronger every day and Starting with the fourth quarter and extending throughout 2026, net distribution gains are expected to exceed distribution losses. This stands in stark contrast to the three discrete macroeconomic factors that weighed on our business during the third quarter, which we believe will be short lived. For example, our market intelligence suggests that the retailer inventory adjustment we experienced during the third quarter was largely one time in nature as higher inventory values due to tariffs were absorbed by the market and several large retailers shifted their business from direct import to domestic delivery. Relative to our international business, which accounts for roughly 40% of our total sales, we expect it will return to growth during the fourth quarter after heightened macroeconomic and political instability caused a slowdown in Brazil and Argentina, both top 10 international markets. For Newell, this slowdown interrupted six consecutive quarters of international core sales growth. Finally, competitive pricing actions have begun to manifest themselves across several key businesses like writing where we have a strong domestic manufacturing presence. As more pricing hits the market in categories where we are tariff advantaged, we expect the amount of incremental business wins. We secure to continue to increase. For these reasons, we remain confident that Newell's turnaround is on track and that the actions we are taking POSition us well to return to top line growth in the future. Let's now turn to our three business segments, starting with learning and development. Writing held its own during a back to school season that all in was roughly flat. Overall, we performed well with retail partners that prioritized and featured branded products, while isolated customers that shifted emphasis to private label alternatives experienced weaker sell through. That said, we did expect stronger results because we anticipated competitors would take pricing prior to replenishment orders being placed and shipped. Instead, competitors waited until after the back to school season had ended to implement meaningful increases, which we are now seeing in October reflected at shelf. Looking forward and on the heels of recent product successes such as Sharpie Creative Markers and Expo Dry and Wet Eraser. The 2026 Writing Innovation Program remains very strong. In addition, points of distribution will be considerably higher after a major retailer completes a total shelf reset this month and competitors who, unlike us, don't have strong domestic manufacturing capabilities raise prices. For these reasons, we feel very good about where we are headed with our writing business. In Baby, we proactively took three rounds of pricing to offset inflation and tariffs. Competitors largely followed and due to the strength of our Graco innovation program, we continued to gain market share despite leading pricing higher in the category. As we indicated last quarter, the Baby business was temporarily affected in the third quarter by a large retailer's decision to shift from direct import shipments to domestic fulfillment. Looking ahead, we have an exciting 2026 innovation pipeline for Baby, so this business is also trending well, turning to the home and commercial segment and starting with kitchen. We have been proactively pricing throughout the year to offset tariffs and protect margins, but several competitors did not immediately follow. As a result, we took the decision late in the third quarter to increase promotional activity to restore price competitiveness which will put near term pressure on sales and margins as the broader market adjusts to higher sourcing cost and and small kitchen appliances from Southeast Asia. Kitchen was also impacted by macro softness in Brazil and Argentina where Oster is the market leader which we expect to be transitory. In home fragrance, Q3 core sales were below expectations as some retail partners used the timing of the Yankee Candle brand restage to destock by liquidating older products before placing new orders. That said, where shelves have been reset with the new assortment, consumer demand has been strong, validating the direction of the relaunch. We remain confident that the restage will bring a return to growth in the fourth quarter of 2025 and for the full year 2026 as shelves are now largely reset and full advertising and promotion launch support is initiated. The commercial business, which is anchored by the Rubbermaid commercial products brand, continues to perform well across the institutional and hospitality verticals where demand has been consistent. However, in the third quarter this strength was more than offset by continued direct importY softness where store traffic remains below prior year levels despite near term top line challenges. The home and commercial team continues to execute our simplification plan, driving cost efficiencies and POSitioning the segment for profit improvement as demand stabilizes. Finally, the outdoor and recreation business has started to turn the corner with third quarter sales being essentially flat with last year simplification efforts. Tighter inventory management and portfolio pruning are all delivering tangible improvement and perhaps most importantly, we have a strong innovation lineup in place for 2026 that we are very excited about. We believe this business is on track to return to top line growth next year. Mark will go into more detail shortly, but but before doing that I would like to call out a few things from a total company standpoint that were particularly notable in the third quarter and share some high level thoughts on our updated guidance for the year. First, excluding the impact of the 125% China tariffs which we called out last quarter, normalized gross margin would have expanded by 40 basis points in the third quarter versus a year ago. Second, normalized overheads as a percent of sales declined approximately 120 basis points year over year, the first reduction in three years as we realized savings from our realignment plan and technology investments. Third, advertising and promotion spending reached its highest rate as a percent of sales in nearly a decade, reflecting our commitment to invest in brand building and innovation even in a soft demand environment. Fourth, Newell's balance sheet remains solid. Net debt ended the quarter at four and a half billion down from the prior year and our leverage ratio dropped by 20 basis points versus the second quarter. These proof points demonstrate that the fundamental structural economics of the company are much stronger today than before the transformation started. From a guidance standpoint, we are taking a more conservative view of consumer demand for the fourth quarter and we now expect our categories in aggregate to be down about 3%. We continue to expect sequential improvement in normalized profitability in the fourth quarter as we continue to drive productivity gains, disciplined overhead management and pricing actions that protect structural margins. We also expect cash flow to strengthen sequentially as tariff related costs subside and working capital improves. In closing, while near term demand remains uneven, our strategy is working and our teams are executing with focus, agility and discipline. I want to thank all of our Newell employees around the world for their continued resilience and execution in what remains a complex environment. Their focus and dedication make our progress POSsible. With that, I'll turn it over to Mark to walk through the financial results and provide additional detail on our performance and outlook.

Mark Erceg - Chief Financial Officer - (00:12:57)

Thanks Chris Good morning everyone. Third quarter net sales were down 7.2% and core sales declined 7.4%, with the difference mainly driven by favorable foreign exchange. Normalized gross margin was 34.5%, down 90 basis points year over year as the positive impact from gross productivity and pricing was more than offset by headwinds from incremental tariff cost inflation and volume declines, excluding one time incremental 125% China tariff costs of about $24 million which we called out during our Q2 call. Q3 normalized gross margin would have expanded by 40 basis points year over year. Normalized operating margin was 8.9% which was down 60 basis points versus last year as 120 basis point improvement in normalized overheads was more than offset by the previously mentioned reduction in gross margin and an 80 basis point increase in advertising and promotion dollars. Excluding the impact of the 125% China tariffs, Q3 normalized operating margin would have expanded by 80 basis points to 10.3% in the third quarter versus a year ago. While Chris mentioned this earlier, it bears repeating from this point going forward we expect overheads as a percent of sales to continue declining over the next several quarters as efficiency work compounds and productivity enhancing AI based tools are widely leveraged across the company. Net interest expense of $83 million was up $8 million versus last year and a normalized income tax provision of $6 million with an effective tax rate of 7.9% was recorded in Q3. This resulted in normalized diluted earnings per share of $0.17, which was within the guidance range provided three months ago and slightly ahead of last year. Importantly, we were able to achieve this despite incurring about $55 million of net tariff P&L expense or approximately $0.11 per share in the third quarter year to date, operating cash flow was $103 million versus 346 million last year. And given the importance of cash, let's take a few moments that fully unpack this situation. At the start of the year, we knew operating cash flow for 2025 was likely to be below 2024 levels for two reasons. First, we needed to pay out in early 2025 a well above target bonus related to the 2024 performance year, which was considerably higher than the below target bonus payout in early 2024 related to the 2023 performance year. Second, during 2024 we enjoyed outsized working capital benefits, having reduced our cash conversion cycle by nine days. Now, that being said, three quarters into 2025, we are running behind plan as it relates to operating cash flow for several reasons. First, we now expect to incur approximately $180 million of gross tariff cash impacts this year, which is up from $155 million from our last earnings call. The increase is driven by higher import volumes from China following our second quarter shipment pause. Additional Reciprocal Tariffs on Southeast Asia and China the August 18 section 232 increase on steel and aluminum tariffs from 25 to 50% and additional items having been added to the tariff registry. Second, the discrete items Chris cited that negatively impacted third quarter sales created excess inventory which as a practical matter we will not be able to fully process through at this stage in the year. Finally, and I will speak more about this in just a few minutes, a reduced sales forecast and higher tariff costs for the full year leave us with less operating income than previously projected. Given these dynamics, our third quarter cash conversion cycle increased by about 4 days, but we still reduced our net leverage ratio down to 5.3 times, which was a 20 basis point improvement over last quarter. Moving to the fourth quarter outlook, we expect net sales to decline 4 to 1% and core sales to decline 5 to 3%, with the difference being primarily driven by foreign exchange. Given this range, the core sales improvement we are calling for between third quarter actuals and the midpoint of our fourth quarter outlook of 3.5 points can be reconciled as follows. First, we believe the bulk of any one time retailer inventory transitions away from direct import to domestic fulfillment are now behind us. In addition, retailer inventories have, generally speaking, already taken the higher inventorable value of products associated with tariffs and any reduction in open to buy dollars into account. Second, we expect our international business to return to growth in Q4 as Brazil recovers from the macroeconomic disruption that occurred during the third quarter and as consumer confidence improves following the Argentinian election, which incidentally and perhaps surprisingly is one of our top 10 international markets. Third, we have strengthened our fourth quarter promotion plans and we are finally starting to see competitive price movement across several key categories, both of which should accelerate our unit velocity. Fourth, we expect to have more incremental tariff advantage wins in the fourth quarter than in the third. And finally, our fourth quarter innovation and marketing program is judgmentally the strongest we will have fielded since the Jarden acquisition. Going a bit further into the P and L normalized operating margin for the fourth quarter is expected to be between 9% and 9.5%, which includes a significant favorable overhead impact from well above target incentive comp earned in the 2024 base period with a tax rate in the low teens. Normalized EPS is expected to be in the 16 to 20 cent range. Please note that this EPS range includes about $50 million or $0.10 per share of negative tariff impacts prior to any offsetting action. Turning to our full year 2025 financial projections, net sales are expected to decline 5 to 4.5% and core sales are expected to decline 5 to four percent. Normalized operating margin should be in the range of 8.4 to 8.6% and our EPS range is now 56 to $0.60. Within that range, we expect to incur a net 2025 P&L impact before any offsetting mitigating actions of $115 million related to tariffs, 10 million of which came through in Q2 and 55 million of which came through in Q3, leaving roughly 50 million in Q4. On a normalized EPS basis, this equates to approximately $0.23 per share, which impacted the second and third quarters by 2 and $0.11 respectively, leaving $0.10 for the fourth quarter. This updated normalized EPS range still assumes an effective tax rate in the mid teens and includes a higher level of expected interest expense due to our refinancing in May of this year. Finally, we are updating our full year operating cash flow guidance range to 250,000 to $300 million, which incorporates our prior commentary regarding third quarter actuals and our fourth quarter estimates. We acknowledge this is considerably lower than when the year began, but it would also be fair to recognize that $180 million in incremental cash tariff impacts has had a negative impact on our end year cash generation. Typically, we hold commentary related to the upcoming fiscal year for our fourth quarter earnings call. However, given the importance of cash and being mindful of our leverage ratio, we now expect to end the year at about five times. There are a few things we would like to point out today relative to 2026. Specifically, we expect operating cash flow to strengthen significantly next year as both cash taxes and incentive compensation decline year over year. In addition, based on our preliminary reviews, we expect 2026 capex spending to be meaningfully below 2025 levels since several major IT and supply chain initiatives will be behind us. Finally, we expect our cash conversion cycle to drop next year and working capital to improve as this year's tariff inventory effects normalize before handing things off to the operator. For your questions, we would like to offer three quick closing thoughts. First, while the macro environment remains fluid, we're confident our strategy is working. Looking ahead, we'll work to broaden distribution and continue to bring fewer but bigger and better supported product and commercial innovations to market. In fact, right now we have plans to launch over 20 gross margin, accretive, differentiated and consumer relevant Tier 1 or Tier 2 propositions next year. Second, these innovations, along with our base business will be supported by more effective advertising at higher rates for longer periods of time. Finally, while Tara's have arguably set us back a couple of quarters on our journey towards a positive and sustained inflection in top line sales and additional balance sheet deleveraging. We continue to march forward with confidence and conviction that Newell Brand's best days still lie ahead. And of course, I would be remiss if I didn't echo Chris comments about how proud we have been by the way, in which the Newell team has proactively addressed the unique challenges that have been presented this year. The team's agility, resilience and professionalism have been on full display throughout the year and Chris and I are honored to be part of the positive transformation being effective at Newell Brands. Operator. We'll now open the call to questions.

OPERATOR - (00:22:25)

Thank you. Your first question comes from Lauren Lieberman with Barclays. Your line is open. Hey, good morning, guys. So, I have a lot of questions. First off, we were all together in September and you had an opportunity to publicly comment on trends. And I know back to school was still. The season itself was still very early, but the shortfall here wasn't just back to school, obviously. So first, can we talk about when you had a sense of what was going on from an organic sales standpoint? Because the miss is stark, to say the least, and there's a number of drivers here, all of which, given your connectivity with retailers, I would have thought you would have had better visibility into by that point in the quarter. Thanks.

Lauren Lieberman - Equity Analyst at Barclays - (00:23:11)

Yeah, thanks, Lauren. So if you look at the three factors that caused the miss, we knew that retailer inventory was going to decline in the third quarter. And in fact, we had talked about that and we thought we had appropriately captured that in our guidance. However, the magnitude of the retailer inventory reduction manifested itself much more significantly than what we expected in the month of September. And so, for example, we didn't know on the home fragrance business that retailers were not going to reorder the new product because they were going to be liquidating the old product. That really manifested in the month of September after the Back to school conference. The second thing is the international business. The international business, which had been tracking for six quarters in a row in positive growth, really fell apart in September. And for perspective, Brazil, which is one of our top 5 markets, ended the quarter down 25%. And Brazil had been growing in high single digits pretty consistently. That really manifested itself much more dramatically in September after the administration put a 50% tariff on Brazil. We didn't know that was going to happen. Likewise, in Argentina, which is one of our top 10 markets, there was an election coming up for the President's party in Argentina that caused retailers in the month of September to effectively Stop ordering. So we went from a business that was doing very well there to a. To a very negative situation in September. And so that, that sort of surprised us. And then I think the third thing was, you know, we took aggressive pricing action as we, as we were very public about our third round of pricing went into the market July 28th and was starting to get reflected at retail in early September. We expected our competitors to follow. And what happened was in a number of categories, not in all, but in a number of categories, we got scraped by competitors who did not price. And that also began to manifest itself more significantly in the month of September. So I think the month of September, as we've been pretty public about, is the largest month in the third quarter. It always has been. And so that's what caught us by surprise was the confluence of those three factors which really were back end weighted in the quarter. Okay. And then just following up on that aggressive pricing piece, let's talk about, if we can, categories, because I know, baby, obviously you needed to price. That's your one big category that was unavoidable in terms of tariffs. But on the others, I would not have thought your pricing needed to be, let's put it, that aggressive, given your lower tariff exposure. So I'm just surprised that you were on. Maybe I missed something, but kind of caught off sides. You were kind of caught off sides on pricing in categories where tariffs are not a big impact for you or shouldn't have been.

Chris Peterson - President and CEO - (00:26:39)

Yeah. So about 45% of our US business is imported from outside the US and we've been talking about diversifying our risk profile there, which we've been making good progress on. Interestingly, the baby pricing went reasonably well. So, you know, cumulatively, between the three price increases on baby gear, we've taken prices up close to 24%. Competition has largely followed in that category. And as I mentioned in the prepared remarks, we actually gained share in the third quarter. And so although the baby sales were down, the POS on baby was up. Significantly, it was more a function of the retailer shift from direct import to domestic delivery from one of the largest retailers in the country. That put a temporary reduction on revenue in the baby business. The place where we really got caught offside was much more related to the kitchen business. So on the kitchen business, we had brands like Calphalon, Mr. Coffee, Crock Pot that are imported from Asia, some of which from China. And we price to recover the structural economics and competitors basically didn't follow us during this period. Now, part of that is understandable because we generally are the market leader in the categories in which we play. And competitors may have been waiting to see what we did before they took action. But the pricing that we put in the market turned out to position us as being uncompetitive in those businesses that are primarily sourced businesses.

Lauren Lieberman - Equity Analyst at Barclays - (00:28:34)

Okay, great. And then last thing and then I'll pass it along. I guess it's two questions but just the direct import to direct delivery shift that I know you had spoken to. So was it bigger? I think it was supposed to be a one point shift, 3Q to 3. So just wanted to check on that. And then also just the headwind from tariffs. I don't know if I was interpreting correctly, but the $24 million in the quarter, I think that's about half of what it was anticipated to be. So was there a shift? Also part of the profit head when we're going to see in 4Q is flow through of tariff timing because of the slower sales growth. You didn't sell through as much of that on the water tariff inventory in 3Q and so you're seeing more of the hit in 4Q.

Chris Peterson - President and CEO - (00:29:24)

Yes. On the tariff side, I think the 24 million that Mark was talking about was just the one time tariff from the 125% that manifested itself. But the total tariff hit in Q3 was much bigger than that which was $0.11. And I think that was roughly what we thought. So I don't think there was a change in sort of tariff expectation on that relative to the retail inventory reduction. I think when we, when we started, when we guided for Q2 or for Q3. I'm sorry, we expected retailer inventory reduction to be about a point of headwind from the DI to direct delivery switch that we knew about heading into the quarter. We believe that based on the data we have that it was about two points more than that. Not all because of direct import to direct to domestic delivery, but also because of this retailers pulling back on inventory on things like the home fragrance restage. So we think we were expecting sort of a one point headwind from retail inventory reduction. We think in the quarter we wound up with more like a three point headwind from retail inventory reduction.

Lauren Lieberman - Equity Analyst at Barclays - (00:30:39)

Okay, all right, great. I'll pass it on. Thanks so much. Thank you. Our next question comes from Filippo Filorni with Citi. Your line is open. Hi, good morning everyone. So Chris, obviously you mentioned very challenging environment on the macro side and you're.

Filippo Filorni - Equity Analyst at Citi - (00:30:58)

Revising your category growth down 3%. I guess. What's the visibility there? I know this number has been revised down a couple, a couple of times this year. And I know it's challenging to forecast, but like, what gives you the confidence that this 3% is the run rate? And then just a follow up on. Q4, your core sales guidance assume worse than category. Is there an assumption in Q4 of further destocking at the retailer level or market share losses? Thank you.

Chris Peterson - President and CEO - (00:31:31)

Yeah, so we, you know, when we thought about the Q4 guide, you know, obviously we wanted to set the Q4 guide in a place that recognized that we've just come off of a miss in Q3. And so, you know, the category has been running down kind of around 2 to 3%. We took the more conservative view relative to Q4 at setting it at minus 3. And then we also, because of this price scrape experience, we wanted to build in some potential for that price scrape experience to continue into Q4. And so we guided, I think down 3 to down 5. The down 3 would assume the high end of our range would assume that we grow in line with the market. The down five end of the range would assume primarily that we get price scraped in a meaningful way. And that continues. We think we've taken remedial action to get our pricing more competitive, as I mentioned in the prepared remarks. But we didn't want to go into Q4 over promising relative to what we're seeing on those two factors. So that's what informed our guide for Q4.

Filippo Filorni - Equity Analyst at Citi - (00:32:58)

Got it. And then just on the category then, like in your share gains and the potential for increasing shelf space in your. Categories where you are manufacturing advantage versus. Your competition, like do you feel that we're going to see more debt in Q4 or is that a bigger opportunity for 26?

Chris Peterson - President and CEO - (00:33:23)

We think both. So we had said earlier that in our tariff advantage categories, we have been proactively selling to get incremental shelf space and incremental merchandising. We remain on track for $35 million of additional business this year. That number has not changed relative to what we expect this year. And more of that is coming in Q4 than was in Q3, which is a reason for sequential improvement as we go into next year. We're more optimistic that number is going to be bigger in 26 versus 25. We're also, it bears repeating, pretty optimistic about where we're heading in calendar year 2026. And the reason for that is because, as Mark mentioned in the prepared remarks, we have now over 20 tier 1 and tier 2 initiatives lined up ready to launch next year. For perspective, in 2023. When we started the turnaround effort, we had one. In 24, we went to eight. This year we launched 15. Next year it'll be over 20. And if you look at those innovations that we're launching next year, they really span every segment. And I think I mentioned in my prepared remarks including outdoor and rec, which was the one that we've been pretty clear was going to take until 2026 until we got the innovation ready to launch. So we've got a full slate of innovation launching next year. The retailer reaction to the innovation has been very strong. In fact, a number of our leading retailers have commented it's the strongest innovation portfolio they've seen from newell in over 10 years. We also know that as we head into next, into both in Q4 and into next year, that from the line reviews that we've had, our net distribution is turning positive in Q4 and we expect that to accelerate as we go into next year. So we think we're taking the right action to get the company growing faster than the market growth and we think that we're set up in a positive way as we head into 2026.

Filippo Filorni - Equity Analyst at Citi - (00:35:46)

Got it. Thank you so much, guys.

OPERATOR - (00:35:50)

Thank you. Our next question comes from Peter Grohm with ubs. Your line is open.

Peter Grohm - Equity Analyst at UBS - (00:35:57)

Great, thanks. Good morning, everyone. So I wanted to ask a follow up to that and it's just kind of a clarification on the category growth and the guidance and I apologize if I missed it, but the 3% down assumption versus call it currently running down 2 to 3% and the commentary that it's coming off of miss versus expectations, which I think would suggest that you're embedding some flexibility here. But I guess I'm just curious on that, the category assumption, because it does seem like when you listen to other companies in CPG or other consumer sectors, it seems like there's a lot of consumer uncertainty and in many ways trends are actually getting worse sequentially. So is it not plausible that the. Category would deteriorate to kind of that. 3% number as we move through the balance of the year? Or is there something I'm kind of missing there?

Chris Peterson - President and CEO - (00:36:48)

No, I think it's certainly plausible. We meet with a number of different input sources, including people like Circana. We obviously talk to retailers about their outlook and we look at macroeconomic forecasts as we try to estimate the market growth. I would say that the two biggest themes that we're seeing relative to the consumer standpoint and general merchandise more broadly is number one, there is a significant pullback among the low income consumer households. So it is notable. Low income consumers remain under a lot of pressure and their purchase behavior in general merchandise is down significantly versus a year ago for the bottom third of U.S. households. And that trend has been continuing. We haven't seen it accelerate or decelerate, but it remains a headwind for the category. The other notable trend that we're seeing from an age group is that the younger consumer, those 18 to 24, also are pulling back significantly on general merchandise purchases. And that trend has been with us for a little while now. And we think that trend is also relatively stable. So I think we felt like setting the category growth rate assumption sort of at the low end of what we've seen so far was the right place to head into Q4 from a assumption standpoint based on what we've seen across all of the data that we look at. Okay, that's helpful.

Mark Erceg - Chief Financial Officer - (00:38:43)

And then I guess, Mark, you kind of mentioned that tariffs pushed back the return to sales growth by a couple of quarters. And the commentary to Filippo's question was helpful just in your confidence in the ability to outperform, but just, I don't know. Given the exit rate, do you have any initial views on how we should be thinking about category growth or sales growth looking out to 26? I think what I would say is at this point in time, as Chris indicated, we're going to be a little bit conservative on our category growth rate assumptions. We haven't guided anything with respect to 26, but I do think this might be a good opportunity to at least share an observation. Certainly we all had wished when we started this year that we were going to grow the top line at a better rate than we were obviously going to demonstrate. But we have to take into account the context and we also have to take into account how the company was able to respond to the challenges that we faced. You know, we've had $180 million of gross cash impacts and $155 million of net P and L effects that we've been speaking to. As far as where we find ourselves, that equates to 23 cents a share of headwind. And if you look at where we are now currently guiding, it's effectively 56 to 60 cents. So call the midpoint of that 58. Last year we did 68 cents a share, but we had a 7% tax rate. If you adjust for that, that would basically be on an equivalized basis, 62 cents last year. So our guidance range right now at the midpoint is 58 versus 62 and we have a 23 cent headwind. If you look at our EBITDA estimates for this year, they'll be about 900. Last year was 900. Our leverage ratio will be 5. Last year it was 5. So clearly, while we have had to take some impacts from the top line, effects from international markets slowing, from retailers pulling back on inventory, from us leading on price, if you really look through all that, I think the company has demonstrated an ability to react and react well and swiftly and we've been able to keep the integrity of the financial structure of the company moving forward. So as we look forward to 26, we're more optimistic. The challenges that we've given voice to today, we really do think are temporal. And we're going to get back to the base fundamentals of our category innovation, our consumer innovation. And we're going to be out there leading across a whole range of fronts. So we're actually very excited about it. The category is going to do what the category is going to do, but the things we are driving and we can affect, we feel very, very good about. And we're definitely in a much better position today than we were when this calendar year started.

Peter Grohm - Equity Analyst at UBS - (00:41:21)

Great. Thank you so much.

OPERATOR - (00:41:22)

I'll pass it. Thank you. Our next question comes from Andrea Teixeira with JP Morgan. Your line is open. Thank you. Good morning. I was hoping to see if you can comment a bit on your visibility in regards to the inventory destocking that you spoke about. And sorry if I missed some of the nuances. So that's one question. And then the second question is, have you taken pricing in Brazil and in some of these countries ahead of this or not ahead of because of the tariffs. And then the third point is, can you comment a little bit on the exit rate? It sounds as if, because you took pricing ahead of your competitors and then now you did mention on the release that as you saw pricing coming through, you saw better consumer. Like take. Can you. I mean we don't see, obviously we don't see everything in scanner. Can you comment to that? Like, how are you seeing that consumer coming back? Or kind of the price gaps narrowing relative to what maybe would be helpful in writing, particularly to see how the price gaps have narrowed or back to historicals. Thank you.

Andrea Teixeira - Equity Analyst at JP Morgan - (00:42:46)

Okay, let me try to take those in turn. On the inventory destocking, we have pretty good visibility on if a customer is going to move from direct import to domestic delivery. They give us significant a few weeks or months of notice on that because we've got to manage that with them to make sure we have the inventory onshore before they start ordering. So we typically get a month or maybe 2 of lead time notice on that. We have accomplished all of that move that we've been notified of. And our amount of business that is direct import today is much lower than it has been at any point previously. I think at one point it was 10% of our US business. It's down now probably to about 5% of our US business with the most recent moves. So as we stand here today on that shift, we do not believe that there's any additional shift from direct import to domestic delivery that we're going to face in either Q4 or going into next year that we know about. We have not been notified on any additional categories. So that one we feel we've got pretty good visibility to and we don't believe that will be a go forward topic that we're going to talk about because we believe that one time impact really hit us in Q3 and is now in the rearview mirror relative to retail inventory. Beyond that shift in delivery method, we get reasonable visibility primarily because many of our retailers, we have access in their systems to look at their weeks of COVID on our business. And as we look at the weeks of COVID on our business, our customer teams are flagging where we think we have risk from retailer inventories being too high relative to what they need. From a replenishment standpoint, it's not a perfect science. Typically in our categories, retailers might hold eight to 10 weeks of inventory throughout their system. And could they move the retail inventory up or down by a week or two? Yes. When we start to get concerned is when they are three or four weeks either too high or too low. As we sit here today, we don't see that. We believe that the retailer inventories are at our largest customers where we have visibility consistent with historical norms. So we don't believe that retailer inventories are out of line relative to historical norms. And that's why we said in the prepared remarks that we think that retailer inventory headwind is now behind us from what we can see on the pricing side. I'll start with Brazil. We did take pricing in Brazil in certain categories when the tariffs went into effect. And we saw in that market both a significant macro slowdown. And in the categories where we took pricing, we got scraped from a pricing standpoint. So we had a double impact in the Brazil market that affected our business. We have since corrected our pricing actions in those markets to be more competitive. And we believe the macro Environment, which was negatively impacted, is starting to stabilize in that market. The other one that I'll mention is in Argentina. It wasn't so much a pricing dynamic. There was a significant concern in that market around the elections that happened last Sunday relative to President Milei's party and whether they were going to be voted in or out of power. Effectively, his party wound up doing better than I think what anybody expected. That has reinvigorated confidence in the economy. A number of retailers in that market effectively stopped ordering product for a significant period of time pending the outcome of that election. Now that that election is over with, those customers are reordering. So we expect that market to be back on track and are seeing positive trends as a result of that. On the pricing in the U.S. i'll start with writing, which you asked specifically about. We were hoping that and sort of expecting that during the replenishment part of back to school that a number of our competitors that were subject to tariffs would take prices up. We did not see that. However, we have seen in the month of October, just in the last two weeks, retail prices have moved up for a large majority of our competitor products. We have not moved prices up because we have domestic manufacturing. And so we've seen generally prices move up on competitive brands, high single to low single digits. And we believe from our discussions that that is going to allow us to sell more aggressively at expanding our distribution and it's going to create a competitive pricing advantage for us versus our competitive product. So again, that move just happened within the last week or two. It's a little bit too early to say what the consumer dynamic will be as a result of that, but we are seeing the price advantage because of our tariff advantage. On writing, we believe will start to manifest itself in the fourth quarter. And then on Baby, where I mentioned we took three rounds of pricing and we've now fully priced for the tariff impact. Generally we've seen competitors follow. What's interesting on that is in Baby, we had assumed that the elasticity would be about one for one. So as we took pricing up by 24%, effectively we assumed unit volume would be down on those items by 24%. So far that appears to be about right. And in fact it's going a little better than that because we are gaining market share on Baby both as consumers trade down from super premium brands to Graco and based on the strong innovation that we have, that is, I think, doing better than the competitive set. So we feel good about the Baby business you're going to see in the Third quarter core sales for baby were down. That really is a function of this direct import to domestic delivery shift. I expect that trend will turn back positive here as we go forward.

OPERATOR - (00:49:50)

Thank you. Our next question comes from Brian McNamara with Canaccord Genuity. Your line is open.

Brian McNamara - Equity Analyst at Canaccord Genuity - (00:49:58)

Good morning guys. Thanks for taking the questions. First off, a week after you guys. Reported Q2, a large competitive year in. Small kitchen appliances suggest the US market, excluding this competitor, declined at like a mid to high single digit clip in its category, suggesting you guys outperform pretty well. I'm just curious how this particular category performed in Q3 given the pretty weak September.

Chris Peterson - President and CEO - (00:50:22)

Yeah, I think, you know, so if you look at the some of the small kitchen appliance competitors that have reported, and not all of them have reported, but a couple of them reported organic sales growth down mid teens. So certainly we did better than that. And I think we're not alone in being disrupted by this trade disruption. And the trade disruption not only hit us, but it hit retailers too because effectively when the 145% tariff rate went into China, everybody stopped ordering. And when you stop ordering, you create sort of a kink in the supply chain which then when you finally turn back on, it takes a while for you to get the inventory back, you know, through the ocean channel into the US and then shipped to retailers. And so there's a bit of choppiness that really is impacting the import business more than the self manufactured business. And I think if you look at the competitive set, you'll generally see that where CPG companies that manufacture in the US are better positioned to navigate this because they don't have the same type of trade disruption as those that are importing product from outside the US and that's certainly been true on our business. If you look at our self manufactured business versus our imported business, what we're trying to do, as I mentioned before, and what gives us confidence that we're on the right track from a strategy perspective is we think as we head into next year we've got the strongest innovation pipeline that we will have ever had in the last 10 years. We think from what we know from the line review process, our distribution, our net distribution in the US is going up versus this year. We continue to make very strong progress on overhead cost reduction and I expect that to accelerate, particularly as we've made significant progress on artificial intelligence across the company. You know, we're up to close to 100 use cases being implemented and we've now moved fully into agentic AI which we are starting to leverage more broadly across the company. And then I think as Mark went through, we see as we head into next year a very strong cash bounce back for the company as we expect cash taxes to be down, we expect working capital to ratchet down as tariffs are fully embedded already into the inventory level. We're going to get some year over year help from incentive comp and we expect CapEx to be lower next year as some of the big projects that we've been doing are finalized going into next year. So you know, we'll obviously talk more as we always do at the fourth quarter call on our outlook for 26. But we're trying to navigate the short term choppiness while ensuring we keep our eyes on sort of the midterm turnaround plan.

Brian McNamara - Equity Analyst at Canaccord Genuity - (00:53:49)

Great. And just a quick follow up. I think a key debate on the stock is whether you guys can sustainably grow again. So with AP spending at a decade high, the tariff inventory adjustment at the retail level, a one time event international expected to return to growth, why would Q4 be guided lower relative to your implied guidance prior? I think prior guidance implied flattish kind of core sales growth.

Chris Peterson - President and CEO - (00:54:17)

Yeah. So I think our Q4 guide is probably maybe 3 points below what the implied guide was last quarter. And it's really three things. Number one, we've taken three equal things. Number one, we've took a little bit more conservative view of the market. I think I mentioned -3. I think previously in our applied guide we would have been probably assuming minus two, we've taken a little bit more conservative view on international just because of what we saw in Brazil and Argentina. And so that maybe is another point that we've derisked in the Q4 guide. And then we've taken as I mentioned, a little bit more conservative view on price scraping because we don't know how quickly competition is going to raise price. And so that's maybe another point as well. So Those are the three factors that would cause us in Q4 to take a little bit more conservative view.

Brian McNamara - Equity Analyst at Canaccord Genuity - (00:55:14)

Versus. What the implied guide was previously helpful context. Thanks guys. Best of luck.

OPERATOR - (00:55:22)

Thank you. Our next question comes from Olivia Tong with Raymond James. Your line is open. Thanks. Good morning. I wanted to ask you about the innovations that are coming, the 20 tier 12 innovations which you talked about for next year. As you think about in the planning for that you mentioned in previous remarks, the backdrop's more challenging. It sounds like the Yankee relaunch is off to a bumpy start. And you also talked about how low income and younger Consumers are pulling back. So as you think about the planning for that, can you talk about your conversations with retailers, the seemingly deceleration in terms of categories and just the general sort of malaise across these categories and launching innovation in that, how you may have to think about the growth expectations for that as we think about 2016. Thank you.

Chris Peterson - President and CEO - (00:56:17)

Yeah, good question. So what we're seeing is, and I mentioned sort of the broader consumer points, but the other point that we're seeing is when we come with compelling innovation that represents a good value, we are seeing consumers respond to that. So the reason we're growing market share, for example, in Baby, is because we've launched outstanding innovation behind the Graco SmartSense, bassinet and swing, the Graco 360 Easy Turn 2 in one rotating convertible car seat, which are off to great starts. The reason why we're growing, and where we're growing in the writing category is because of the Sharpie Creative Markers and the Expo Wet and Dry Erase. The reason that we're the place where we're growing the fastest in outdoor and rec is behind the Coleman Pro coolers that we've launched. And so it's an interesting market because although the consumer is pulling back on general merchandise categories, we are seeing, if you come with a compelling innovation that represents a good value, and I differentiate good value from low price. You can have a good value proposition that's at the MPP or the HPP price point, but it has to be a good value and it has to be a compelling proposition. But when we do that, we are seeing the consumer broadly respond to that, and that's why we believe that it's right for us to continue to drive and invest behind innovation as we go into next year. I'm frankly pretty excited about what we've got planned next year, and we'll try to showcase. We don't want to showcase it all on the earnings call today for competitive reasons, but we'll try to showcase some of it at some of the upcoming investor conferences that we go to. But I think it is pretty broad across our top 25 brands. And every single business unit that we have has a strong innovation pipeline next year. And so we are now at a point where we're a little over about two and a half years into the new strategy. And recall, when we put the new strategy in place, one of our big planks was rebuilding and implementing brand management, completely rebuilding our innovation process. 2026 is really the first year that we'll have full innovation across all of our businesses. Launching in the market as a result of that effort.

Olivia Tong - Equity Analyst at Raymond James - (00:59:00)

Got it. Thank you. Thank you. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.

OPERATOR - (00:59:11)

Hey guys. Thanks and good morning. I was hoping we could just go.

Steve Powers - Equity Analyst at Deutsche Bank - (00:59:16)

Back a little bit to where we started. And just in terms of what happened in the quarter, can you just talk. A little bit about where you were coming into September? Were you in line with your prior guidance range? Because if you were, then I think the drop off we're talking about in September is low to mid teens. You can factor in the size of. September and then extrapolating from that just a little bit about what you've seen so far in October and whether the guide taking your points about the conservatism you've laid in. I'm just curious as to how much of a ramp is implied in the fourth quarter guide, especially because Yankee seems part of the problem or part of the setback in 3Q. And we know how big a business that is in December. So it seems a lot is dependent. On that in the full year. So just some perspective there would be great. Thanks.

Chris Peterson - President and CEO - (01:00:12)

Yeah. So let me try to help here. So in the third quarter, the plan that we had heading into the third quarter had September as so when we start at the beginning of the third quarter, when we guided for Q3, the plan that we had that our guidance was based on had September as the biggest quarter and had September up meaningfully versus year ago. And so that was the plan that we assumed when we guided. And there were a lot of reasons why we thought that was going to happen from a shipment timing standpoint, et cetera. What we saw was that September certainly came in well below our expectations, as we mentioned, but September was not meaningfully off of what we saw in. In fact, if anything, September was a little better versus prior year compared to July and August, but it was off of our forecast meaningfully, if that makes sense. As we go into what we're seeing so far in October, I think certainly the October results and you mentioned Home Fragrance, for example. Home Fragrance is running up in the month of October versus year ago. And that's a big turn from what we saw in September and frankly in Q3 where it was down significantly. So we've seen the turn in that business already in the month of October. Certainly the October results we've taken into account as we've guided for Q4. And we don't believe that we're basing our guidance on a hockey stick or something like that for Q4.

Steve Powers - Equity Analyst at Deutsche Bank - (01:02:03)

Okay, that helps a lot and I will pass it on from there. Thank you so much.

OPERATOR - (01:02:10)

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@ir.noblebrands.com youm may now disconnect. Have a great day. .