NWL - NASDAQ

Good morning, and welcome to Newell Brands Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's 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 Fourth 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-Qs 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.

Thanks, Joanne. Welcome, everyone, and thank you for joining us this morning. I'll start by sharing some company and business-specific observations related to fiscal 2025 and then comment on how we are approaching 2026 from a strategic standpoint. After that, Mark will walk through fourth quarter and full year financials before providing a 2026 outlook. Since deploying Newell Brands' new strategy in the summer of 2023, we have invested heavily in rebuilding our front-end capabilities, consumer understanding, brand building, innovation, marketing and go-to-market excellence to name a few. We've also focused on strengthening critical back-end capabilities such as manufacturing and distribution, procurement and information technology, while simultaneously reducing complexity and instilling greater discipline and accountability across the organization. This focus and attention drove swift and steady progress. And about 9 months ago, when we shared first quarter 2025 results, Newell Brands sales trends, structural economics and leverage ratio had all dramatically improved since the start of the turnaround journey. Frankly, with core sales down only 2% in the first quarter of 2025, we were confident at that time that core sales would positively inflect at some point during the year. That, of course, did not occur because tariffs intervened, driving the need for multiple pricing actions, which significantly affected consumer behavior and retail dynamics. For example, Newell's categories, which were originally expected to be flat during 2025, ended up being down 2 to 3 points and some large retailers shifted from direct import to domestic fulfillment. In addition, competition was slow to initiate pricing actions and select international markets were disrupted by second or third derivative tariff-related impacts. Simply put, 2025 proved more difficult than we anticipated at the start of the year. The good news is that the team acted decisively across sourcing, productivity, domestic manufacturing and pricing in response to these challenges. From a sourcing standpoint, we reduced China sourcing exposure to below 10%, which you may recall was closer to 35% just a few years ago. The decision to proactively diversify our supply chain away from China before tariffs even presented themselves has materially strengthened the resilience of our supply chain. From a productivity standpoint, we took an important step during the fourth quarter to further strengthen Newell by announcing a global productivity plan designed to enhance competitiveness, simplify the organization and support long-term value creation. The global productivity plan was enabled in part by the capabilities we've been building across the company, including greater use of automation, digitization and artificial intelligence to simplify processes, accelerate cycle time and enhance execution across functions. As we implement this plan, we are redirecting resources toward our highest value activities including innovation and brand building while creating a more agile and high-performing organization. These actions are fully aligned with our disciplined execution model and our long-term objective of delivering consistent, sustainable and profitable top line growth. Implementation of the plan is largely complete in the United States, Latin America and Asia and on track with our original plan. From a domestic manufacturing standpoint, we continue to invest behind automation and secured roughly $40 million of incremental tariff advantaged business wins in the second half of 2025. And finally, from a pricing standpoint, we successfully executed 3 rounds of pricing across impacted categories to protect the structural economics of the business. Importantly, these actions helped us to actually expand normalized operating margin for the year while increasing advertising and promotional support by 50 basis points. This also allowed us to maintain Newell's leverage ratio at about 5x. And while it might not always have been readily apparent, distribution momentum improved, and we saw continued share gains in parts of the portfolio as the year unfolded, which is why, in large part, fourth quarter sales came in modestly better than anticipated. Let's now turn to our 3 business segments, starting with Learning and Development. Learning and Development was the most resilient segment across the portfolio this past year. Writing performance was supported by strong brands such as Sharpie and EXPO, consumer-preferred innovation like Sharpie Creative Markers and EXPO Wet Erase, limited tariff exposure and best-in-class domestic manufacturing, which helped us secure a meaningful increase in points of distribution. In Baby, we delivered strong performance in a tariff-laden environment. The shift from direct import to domestic fulfillment is now behind us. And after 3 separate pricing actions, the Baby business is on very solid footing. For the full year, Graco's innovation program and improved go-to-market execution drove a 160 basis point increase in market share. And in the fourth quarter, Graco's market share was up over 350 basis points. The Home and Commercial segment was where we felt the most pressure during the year. And within that segment, Kitchen had the most difficulty given soft consumer demand, distribution losses and elevated promotional intensity. However, during the fourth quarter, we increased promotional activity and where appropriate, took selective price adjustments in the U.S. and Latin America to remain competitive in a highly promotional environment. As of today, Kitchen pricing and promotional levels are where they need to be to effectively compete and early consumer feedback on recent innovation launches such as Rubbermaid Easy Store Lids is encouraging. Moreover, we just secured a tariff-advantaged Kitchen win with a large U.S. retailer, which we will talk more about at CAGNY. Commercial performance reflected stable demand in institutional and hospitality channels, partially offset by continued softness in DIY. In Home Fragrance, performance improved as the year progressed, with the business returning to growth in the fourth quarter as the Yankee Candle relaunch was fully implemented across all retail channels in the U.S. Consumer response to improved innovation and execution has been encouraging, reinforcing our confidence in the direction of the business. In Outdoor & Recreation, top line performance stabilized and gross and operating margins bounced back as the year progressed, reflecting the benefits of simplification, tighter inventory management and improved execution. While demand still remains under some pressure, innovation is building and distribution is improving, so the segment is entering 2026 in its best position in years. To wrap up 2025 observations, our new strategy, operating model and culture were all tested throughout the year, and we're very pleased to report that execution held, which is why we can confidently state Newell exited 2025 stronger and more resilient than when the year began. As we enter 2026, a central theme will be disciplined commercial execution with our retail partners to convert key capabilities, which we spent the past 12 months further strengthening into improved performance while maintaining margin and cash discipline. For 2026, our guidance assumes that the categories we participate in will decline by approximately 2% for the year. Even in that environment, our innovation and improving distribution give us confidence that we can outperform our categories and grow market share, which would be the first time since the Jarden acquisition. While we recognize there may be external tailwinds such as the stimulus effect of higher consumer tax refunds, we are not relying on that dynamic in our category growth forecast and view it as potential upside rather than a baseline assumption. Innovation remains a key source of our confidence because we currently have more than 25 Tier 1 or 2 launches planned for 2026, which is the strongest innovation lineup we have had since the Jarden acquisition. We'll provide a deeper look into Newell's rebuilt innovation pipeline at CAGNY in a couple of weeks. That distribution is also expected to turn positive in 2026 for the first time since the Jarden acquisition, supported by line review and tariff-advantaged manufacturing wins. Our supply chain and procurement teams to continue to operate at world-class levels and should generate enough productivity savings to offset inflation and higher year-over-year tariff costs, while overhead discipline and productivity will enable increased investment behind innovation without compromising profitability. Consistent with this, we are planning for normalized operating margin to expand in line with our evergreen financial model, inclusive of a modest increase in advertising and promotion support, which as a percent of sales is already up 50% over the last 3 years. Mark will have more to say about this in a minute, but please note that we do not expect core sales growth in the first quarter, in part because, generally speaking, major shelf resets and the associated innovation and distribution gains that will follow are slated to really begin in the second quarter. In summary, while external factors may have delayed our turnaround by a few quarters, we remain confident that Newell Brands' methodical capability-based transformation into a world-class consumer products company is still very much alive and well. As we enter 2026, we are well positioned to convert the capabilities built over the last several years into improved performance while maintaining margin and cash discipline. Our capability set has been dramatically improved as evidenced by a much stronger innovation funnel, improving distribution trends, higher levels of more effective marketing support and a completely rebuilt and highly skilled team. I want to thank the Newell team for their continued focus, resilience and execution in a challenging environment. Their commitment and hard work are what made the progress we delivered in '25 possible and what makes Newell Brands' future so bright. With that, I'll turn the call over to Mark to walk through the financials and our outlook in more detail.

Thanks, Chris, and good morning, everyone. Fourth quarter net sales were $1.9 billion, down 2.7% versus last year, and core sales declined 4.1%, with the difference between net and core sales driven primarily by favorable foreign exchange. Importantly, fourth quarter core sales exceeded our revised expectations for 3 reasons. First, consumer demand and POS trends improved in December, which supported stronger replenishment as we continue to selectively increase promotional support for businesses where competition has been slow to price. Second, our baby business has been performing exceptionally well behind a series of strong innovations like the Turn2Me Car Seat and the Siting Bastinett and Swing. Third, while we expected Latin America to improve sequentially versus the third quarter, both Argentina and Brazil performed better than expected. In the case of Argentina, core sales grew slightly in the fourth quarter as economic activity rebounded sharply after Javier Milei's reformed government picked up seats in their midterm elections and Brazil finished the quarter down only mid-single digits. By way of comparison, core sales for both countries were running down approximately 10% through November. Normalized gross margin 33.9% 70 basis points versus last year. However, if we back out $0.10 per share of tariff-related headwinds, gross margin would have been up significantly. And inclusive of all tariffs, normalized fourth quarter gross margin was up 730 basis points on a 3-year stacked basis, which we believe is clear evidence that the transformation of Newell's structural economics is still proceeding at pace. Normalized operating margin was 8.7%, up 160 basis points versus last year. While still very strong performance in the absolute, this was admittedly modestly below our expectations for 2 reasons. First, and as mentioned earlier, we did enhance our promotional activity in the fourth quarter versus our going-in plan to be more price competitive in select categories. Second, we continue to invest in advertising and promotion and at 6.5% of sales, fourth quarter A&P was the highest it's been in nearly 10 years. Normalized EBITDA in the fourth quarter increased nearly 12% to $241 million, reflecting a combination of productivity and overhead savings, partially offset by higher A&P levels to support our innovation and brand-building agenda. In Q4, net interest expense of $84 million represented an increase of $12 million from the prior year period and a normalized tax provision of $2 million was recorded in the quarter. Normalized diluted earnings per share at $0.18 came in at the midpoint of our expected range. Fourth quarter cash generation was strong at roughly $160 million, which helped us catch up after running behind earlier in the year due almost exclusively to the incremental $174 million of gross cash tariff costs we incurred this past year. During the fourth quarter, we repaid the full outstanding principal on $47 million of senior notes, which matured in December of 2025, and we finished the year with a net leverage ratio of 5.1x. Turning to the full year. Net sales were $7.2 billion, a decline of 5% and core sales decreased by 4.6%. Normalized gross margin was 34.2% in 2025, which was up 10 basis points versus 2024. This year-over-year progression is obviously very modest when compared to what was achieved from 2023 to 2024 when normalized gross margin expanded from 29.5% to 34.1%. But at the risk of stating the obvious, having to absorb $114 million of incremental gross tariff P&L costs clearly impeded our ability to meaningfully expand normalized gross margin this past year. That is why Chris and I are very proud of how well and quickly our teams responded, which allowed us to keep the structural margin gains we had worked so hard to secure since the adoption of our new corporate strategy. This is readily apparent when looking at 2025 normalized operating margin, which increased by 20 basis points from 8.2% in 2024 to 8.4% in 2025, inclusive of a 50 basis point increase in A&P support. Normalized earnings per share in 2025 were $0.57 compared to $0.68 in the prior year. On a tax-adjusted basis, the $0.68 would have been $0.04 lower, resulting in a $0.07 differential year-over-year. Please note that $0.05 of this $0.07 differential is directly attributable to the temporary 125% incremental China tariff, which because it was only in effect for a short period of time, we made no attempt to offset. Normalized EBITDA was $882 million compared with $900 million last year. This decline of only $18 million compares very favorably to the $114 million of incremental tariff-related P&L pressure we had to contend with in 2025. Full year operating cash flow was $264 million, which was in line with our updated expectations and reflects the impact of cash tariff costs as well as a higher cash bonus payout in 2025 compared to 2024. We continue to manage working capital with discipline and our cash conversion cycle improved by 2 days in 2025 versus 2024. Turning to 2026. We are initiating full year net sales guidance of down 1% to up 1% with core sales in the range of down 2% to flat. As Chris mentioned earlier, our outlook assumes low single-digit category contraction in aggregate and Newell Brand-specific market share growth. Said differently, based on the strength of our innovation programs, incremental net distribution gains inclusive of tariff advantaged wins and strengthened marketing plans, supported with higher levels of advertising and promotional activity, we expect core sales growth to outperform category growth for the first time since the Jarden acquisition. While we do not typically provide explicit gross margin guidance, it may be helpful to provide some context since tariff impacts will not fully annualize until the second quarter of 2026. The tariff environment remains dynamic. As we have consistently communicated, tariffs pressure demand and price competitiveness in impacted categories and create short-term cash and P&L headwinds. In 2025, the total gross cash tariff impact was $174 million and the total gross P&L impact before offsetting actions was $114 million. For 2026, our current outlook assumes a total gross cash tariff impact of $130 million with an estimated total gross P&L impact of $150 million. On a P&L basis, that implies roughly $0.30 of headwind in 2026, which on a year-over-year incremental basis is $0.07 more than 2025. For modeling purposes, the $0.30 should present itself 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. Our mitigation approach remains focused on sourcing actions, productivity, capturing tariff advantage business wins and targeted pricing. But because of an incremental $0.07 of tariff-related P&L impacts, gross margin is expected to be relatively flat in 2026 compared to 2025. Moving further into the P&L, we expect normalized operating margin between 8.6% and 9.2%, which at the midpoint represents a 50 basis point improvement over 2025. Please note that this is fully consistent with our long-term financial evergreen model. Since normalized gross margin is expected to be relatively flat, and we plan to once again increase advertising and promotion as a percentage of sales, it would be logical and safe to assume that virtually all of the expected increase in normalized operating margin will come from overhead reduction, where we expect our recently announced productivity plan to generate more than $75 million of year-over-year savings and lower overheads as a percentage of sales by nearly 100 basis points. In 2026, we expect normalized earnings per share in the $0.54 to $0.60 range with about $20 million of higher interest expense and an effective tax rate in the high teens. We are initiating full year operating cash flow guidance of $350 million to $400 million, which at the midpoint represents a 40% increase over 2025. The increase in operating cash flow is driven by mid-single-digit EBITDA growth, lower cash taxes, a lower cash bonus payout, lower cash tariffs and a slight reduction in working capital. We are also planning for a CapEx budget of $200 million 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. All of this taken together should reduce our net leverage ratio by about half a turn, moving us closer to our longer-term ambition of once again being an investment-grade debt issuer. For the first quarter, which due to seasonality is always the smallest quarter of the year, we expect net sales to decline 5% to 3% and core sales to decline 7% to 5%, with the difference between net and core sales driven by favorable foreign exchange. As indicated earlier, we feel very good about our full year core sales guidance given the strength of our innovation program, known net distribution gains and strong A&P investment plan. So let's talk about why we are confident first quarter core sales will be an anomaly in a year that otherwise is expected to be a big step forward in our financial turnaround. First, we don't anticipate or see any issues with first quarter POS trends or consumer offtake, but we do expect retailer shipment timing and major shelf resets to skew a portion of replenishment and innovation shipments into April and May. This will help the second quarter at the expense of the first. Second, international, which represents close to 40% of total company sales and Latin America, in particular, are both improving as market conditions normalize after a period of political and tariff-induced volatility and are expected to turn positive in the second quarter. Third, we will be lapping a prior year base period that includes a point or 2 of positive tariff-related ordering and timing dynamics. This will no longer be a factor starting with the second quarter. In fact, starting in the second quarter, we expect performance to improve meaningfully as innovation and shelf reset-driven shipments build in both April and May and distribution gains begin to exceed distribution losses. From there, our expectation for relatively even core sales growth across the remaining 3 quarters of the year. First quarter normalized operating margin is expected to be 2.5% to 3.5% and normalized EPS is expected to be in the range of negative $0.12 to negative $0.08. Please also note that Q1 EPS guidance reflects the annualization of tariff impacts, our decision to maintain A&P investment behind innovation and the fact that Q1 due to seasonality is the smallest quarter of the year. Finally, from a pricing standpoint, there will be modest permanent price resets in select Baby and Kitchen categories beginning in January to restore everyday price architecture where needed. In closing, in the fourth quarter, we delivered double-digit EBITDA growth, generated strong operating cash flow and improved leverage sequentially. This allowed us to finish the year with our structural economics intact and another year of capabilities having been built or meaningfully improved. We believe 2025 clearly demonstrated that Newell's turnaround has been built on a solid capability-based foundation, which due to the commitment and professionalism of our team allowed us to quickly adjust to dramatic changes in the external environment. We are confident our strategy is working and remain committed to investing in innovation and brand building. We are starting 2026 with our strongest innovation program ever, a measurable increase in our known points of distribution and the highest level of advertising and promotional support we have ever fielded. We are fully convinced that Newell Brands' best days are ahead. With that, we're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Olivia Tong from Raymond James.

Lots of detail on the innovation pipeline and shelf wins. But based on your full year outlook, it looks like you are expecting sales to flatten out over the course of the year. So could you help us understand your level of visibility, some of the shelf space wins and what gives you so much confidence in what is a pretty material inflection. It sounds like you're expecting to grow quite a bit ahead of the category. And why -- I guess, why should we have confidence in that given the challenges and the mix performance in 2025, are there channel upgrades that are contributing to the expectation for your sales to outpace category? And then secondly, if you could just talk a little bit more about -- expand on what you brought up at the -- towards the end of the call about the Baby and Kitchen price interventions that are going in place in January.

Yes. Thanks, Olivia. So let me start by saying that we are planning the year, as we said in the prepared remarks, for the category to remain challenged. And so the current assumption that's embedded in our guidance is for the categories to be down 2% in '26. We felt like it was prudent not to assume that the categories bounce back from what has been sort of a low single-digit decline. The reason why we're guiding stronger than that with our core sales at minus 2% to flat is -- are the 3 reasons that we mentioned in the prepared remarks, which is we have our strongest set of innovations slated for next year that we've had since the Jarden acquisition. And if you think about it, when we got started on the turnaround strategy in the summer of '23 we had to hire brand management teams. We completely redid the innovation pipeline, and all of that work is now culminating to a full set of innovation that is going to launch across every single business unit this year. And so we mentioned in the remarks that we've got '25 Tier 1, Tier 2 innovations launching this year. That's the largest number since we've been tracking Tier 1, Tier 2 innovations. Importantly, every single business unit is launching Tier 1 and Tier 2 innovation. And the other point I would say is where we have done this already last year, we have seen very strong results. In the Baby business last year, I think I talked about the Graco easy-turn rotating car seat, that car seat at the end of the year turned out to be the #1 selling baby item as tracked by Circana in the United States. So when we get it right, with good innovation and we launch it and support it, we've proven that we can resonate with consumers. And I think that's why you saw the Baby business in the fourth quarter up 350 basis points in market share, which is a pretty remarkable achievement. Similarly, the relaunch of Yankee Candle which really hit in the fourth quarter, and the fourth quarter is the big season. The Yankee Candle business in the U.S. was up 6% in core sales growth in the fourth quarter. And so once again, when we get the right products, the right innovation supported with right marketing, we are seeing that it's resonating. And what has us excited is that, we have that across all of our businesses as we head into 2026 as sort of the first point. The second point I would say is that we've obviously spent a lot of 2025 selling in all of this innovation in line reviews and solidifying promotional slots behind the innovation. And we have secured wins that we have visibility to for when retailers are going to reset their shelf sets to give us more space at retail. And that's going to start kicking in, in a big way, really starting April or May. So although the first quarter guide is low, we believe that starting in Q2 from what we're seeing from a retail shelf set timing standpoint and from an innovation standpoint, Q2 is the quarter where we're going to start to see that come to bear. And so we're expecting from our internal forecast sort of Q2 through Q4. If you did the math on our guidance, if we're going to be down, call it, 4% on net sales at the midpoint in the first quarter, effectively minus 1% to plus 1% for the year. We believe we're going to be back to net sales growth effectively starting in Q2 because of that. And then the third thing is we've got strong A&P behind that and good results. On the question on pricing. This is another factor, I would say that's influencing the dynamics. So recall that when the tariffs came into effect and they came into effect in multiple waves, we took 3 rounds of pricing. The first round that we took was April 1. The second round we took was May 1, and the third round was July 28. And effectively, if you think about that timing, we were leading pricing in most of the categories that we competed in. And because we were leading pricing in some categories, competitors were quick to follow in other categories, we got scraped and competitors were slower to follow. As we sit here today, competitors have largely caught up with our pricing. And so we don't see the price -- the same price gaps today that we had in sort of the third and fourth quarter. Specifically on the pricing where we've taken pricing adjustments, -- in the Baby business, we had priced for effectively 3 rounds of 10% tariffs from China or about 30% tariff rate. When the tariffs got rolled back from 30% to 20%, we have adjusted our pricing back to account for the tariff rollback. And that pricing rollback is going into market or went into market in the month of January. So what's interesting about that is we were up 350 basis points in market share in the fourth quarter without the benefit of the price rollback. So we're pretty excited about where we're headed on Baby for those reasons. The other one on Kitchen that we've made a move on is we launched one of our big innovations at the end of last year that we launched, which is really going to be focused on commercializing this year is the Easy Store -- Rubbermaid Easy Store Lid food storage innovation, which is targeted at the mid-tier of the Rubbermaid food storage line. Because we manufacture that product in the United States and Ohio and because we've automated that plant and because of recent trends in resin pricing, we've decided to take a 15% price reduction on that product that's going into effect also or went into effect in the month of January because we believe we're tariff advantaged, and we believe we can do this without sacrificing structural economics. I don't think it's been fully reflected at retail yet. So we are waiting for retailers to reflect that. But we believe that when that gets reflected at retail, the combination of tariff-advantaged category with strong innovation with a sharper price point is going to lead to strong growth on that business as well.

Got it. Can I just follow up with one question around your -- the retailer views on your categories, especially in light of a K-shaped economy and outside of learning and development, which you touched on some levels of consumer discretion in the vast majority of your home category. So are there any changes as we look at fiscal '26 on how much shelf space retailers are providing? And then the level of competition, competitive response, particularly at the lower end in these categories.

Yes. We continue to see the trends that I've talked about really over the last year continue, which is that the higher income consumers, if you look at household income, the top 1/3 of U.S. households are spending more on general merchandise categories. The middle-income consumers are spending about the same. And really, it's the lower income consumers that have pulled back in terms of their general merchandise spending. So we are seeing that trend continue. Interestingly, that trend started really in about April of last year, something like that. And so we will annualize that trend at some point. But we have not assumed, as I mentioned, that category growth improves in '26 versus '25. As we have discussions with retailers, there are some reasons for optimism on category growth. We're about to enter sort of a mini stimulus period where arguably, there's going to be $100 billion that the U.S. federal government returns and tax refunds incremental this year versus last year. As we've talked with the major retailers, we do believe that there's likely to be a sort of a mini stimulus effect of that. It's not as big as the COVID stimulus effect. But we haven't really reflected that in our guidance just in the spirit of we don't want to get ahead of the category growth assumption from a planning standpoint, but we certainly will be prepared if we see that to respond and react to it. And then the other trend that we've talked about in the past from a consumer dynamic standpoint has been the 18- to 24-year-old. So we're seeing consumers 25-plus continue to spend slightly higher on general merchandise than prior year, but a pretty significant pullback in consumers 18 to 24 in terms of their general merchandise spending. We think that's also due to sort of economic pressure on that cohort. But again, I think we're not counting on those trends changing in our guidance for this year.

Our next question comes from the line of Lauren Lieberman from Barclays.

So thinking ahead on the conversation about visibility into shelf resets and excitement about innovation and retailer engagement. I just want to think back to second half of '25. And you had some similar levels of excitement around same sorts of dynamics on distribution wins, on innovation. And there was sort of a slower flow-through. I mean one of the things that I think about Yankee Candle was just like it took longer to reset those shelves. It took longer to sell through existing inventory. So it may not be a perfect analogy, but I just wanted to get a sense for how much wiggle room you think you're leaving yourselves for a similar dynamic to play out? Because like you said, I mean, by the end of the year, Yankee was doing what you hoped it would do. It just took a little longer to get there. And I wanted to get a sense for if you've kind of factored that, let's call it, greater conservatism into the plans as we look forward to the next 2 quarters or so?

Yes. It's a good question, and it's certainly something that we've been thoughtful on. And I think if I go back to part of the reason why we didn't want to assume that the category growth rate improved is we felt like we were better off from a planning standpoint, assuming the category continues to decline and so that we didn't get ahead of ourselves from an inventory and from a guidance perspective. Relative to your point on the innovation, the shipment timing, it's a little bit different in some of our other businesses because they tend to be harder resets as opposed to Yankee Candle, which because of the SKU intensity and the omnichannel nature of the business can take a little bit more time. So I do believe that we have a forecast that does not assume that everything goes right, let's put it that way, because we know that there's going to be some parts of our plan that don't go right during the year. And then there's other parts of our plan that we're looking -- we're still working on because it's not like we go on vacation once we put the plan to bed. We continue to work on this. So I feel like we've got a forecast that both doesn't assume everything goes right and also has potential for upside if things that we're obviously working on. And we're trying to be prudent and not get ahead of ourselves.

Okay. Great. And then let's take a like more constructive perspective almost -- what does it take, do you think, for your categories to get back to stable? Like if you -- wisely, right, assuming down 2% this year, but let's look forward over like the next 5 years. Like what do you think on a longer-term basis is sort of the likely, let's call it, structural growth rate of your categories? And what does it kind of take to get back there?

Yes. I think that what I would say is a couple of things in terms of longer-term category growth. So we've often talked about, if you look back over long periods of time in the categories that we compete in, the category growth rate is somewhere 0% to 1% over long periods of time. And then our evergreen model would suggest that with strong innovation and strong brand building, in leading brands, we should be able to grow 1 point or 2 faster, which sort of gets you to our evergreen target of growing kind of 2% to 3% from a core sales standpoint that we're targeting. So on the question of what does it take for the categories to go from minus 2% to, let's call it, plus 1%. I think there's a couple of things. I think, first of all, we are subject to the consumer macro economy because some of our categories are durable and discretionary. And what that means is if real incomes are growing, that helps category growth. And there is reason to believe that over the next 5 years, the country after suffering a period where real incomes were going down over the last couple of years, that, that can turn around and real incomes can begin to grow going forward. And if that happens, then I think that benefits general merchandise spending is sort of the first point. The second point I would say is we still have a couple of categories that are at the tail end of -- because of the purchase cycle timing of people bought a lot of stuff during COVID and those products that they bought may have 3-, 4-, 5-year life cycles. And those products are now starting to wear out. And that trend of peak consumers having been taken out of the market should start to wane as well. And then the third thing I would say is that if we do our job right, one of the jobs of a leading branded player in the category is actually to drive category growth. And so as an example, on the Baby business, we don't need more babies to be born in the U.S. for us to drive growth on the Baby business. We've shown that we can do that by premiumizing the category by offering better features and benefits and driving trade up. And part of the responsibility of the branded player is to do that. So as our innovation gets stronger and more robust, I think we have an important role to play to drive trade up as well.

Our next question comes from the line of Peter Grom from UBS.

So Chris, you mentioned the potential for external tailwinds related to tax refunds. And I understand you're not embedding any benefit from this in your guidance. But I'd be curious if there's a way to frame what it could do to your categories and top line growth, whether that's something you've seen over time, any work you've done more recently or just what the retailers may be saying?

Yes. We've tried to have conversations. So first of all, the conversations we've had with our leading retailers, they also are watching this. And obviously, we've talked with Circana and others about this. If you think about in the U.S., maybe $100 billion incremental being inserted in sort of tax refund this year. And if you were to compare that to COVID and say, well, in COVID, maybe it was $1 trillion or something like that. So this is 1/10 of what a COVID stimulus might be. If you go back and look at what happened with the stimulus in COVID, we saw a double-digit category growth rate as a result of that stimulus. And so if you were to -- one way to triangulate is to sort of do that math and you might get to a point or 2 of impact for a period of time. But again, it's pretty speculative. And so we don't have a great crystal ball on this. We've never really seen this in recent times. And so that's why our view was to sort of be prepared. And when I talk about be prepared, one of the other things that we've done maybe to try to help be prepared is we got focused about a year ago, and we haven't talked that much about it, on reducing our cycle time and our lead time on production. And so we've taken probably 10 days out of our lead time on production across the company over the last year or so. And that effectively allows us to respond much more in real time to consumer demand shifts without having to pre-stage extra working capital. And so I think that's the biggest piece that we're focused on. We're going to know a lot more in the next 2 months because the tax refunds start this month in the month of February and then the biggest month for them is March. So I think by the time we get to our next earnings release, we'll have a much better view.

Our next question comes from the line of Andrea Teixeira from JPMorgan.

So I was hoping to see if you can kind of quantify -- I mean, we can walk the organic sales growth against your category consumption you mentioned, but to just quantify the issue of timing for the shipments into the first quarter. And then if you can comment on how the exit rate on the key cohorts of your consumption have changed. And I think -- I mean, by division, of course, by the use, how you're seeing that happening? Like how do you see that evolving, I should say, out of the fourth quarter and into the first quarter? And then if you can comment again on the cadence beyond or perhaps give us like the first half against the second half because as Olivier was saying, obviously, it's embedding a pretty hockey stick recovery into the second half. Obviously, cautious about your pipeline, but just to give us some sort of reassurance given that in 2025, you also expected that to happen, but the innovation did not come through as strongly as you anticipated.

Yes. So let me try to take a couple of those. So first of all, this is not really a first half, second half story, it's really a first quarter and then second through fourth quarter story. So this is different than a first half, second half story because we expect Q1 to uniquely be sort of the low quarter and we expect Q2 through Q4 to be relatively even and the business to bounce back immediately in Q2 from what we can see. So that would be the thing I would say there, and we've tried to quantify that. If you look at our net sales guide, as I mentioned, we're -- at the midpoint of our guidance, our net sales guidance was down 4% in Q1. And with a net sales guidance of minus 1% to plus 1%, that would imply that for Q2 through Q4, we're guiding net sales to be positive 1% in those 3 quarters. And as we said in the prepared remarks, we believe it's going to be relatively even across those 3 quarters. If I go to the business units, interestingly, from a consumer offtake standpoint, consumer offtake improved in the fourth quarter across virtually every single one of our businesses. So when we look at our POS data, the Q4 consumer offtake trend was the strongest quarter that we had during the calendar year last year. And I mentioned a few of the businesses, but writing continues to be in very good shape with strong innovation. We mentioned on writing that we had a major reset win at one of the leading retailers that reset their entire writing aisle that we led a writing aisle reinvention program with. That writing aisle reinvention program is doing well, and Newell is gaining share as a result in that retailer and more broadly. On Baby, I mentioned that we're going from strength to strength. We've had a couple of great innovations this past year. I mentioned the EasyTurn rotating convertible car seat, which was the #1 innovation in Baby in 2025. We also launched the Graco SmartSense Bassinet and Swing. Importantly, we've got a very strong innovation set in addition that's coming in '26 with more innovation on car seats and a pretty exciting innovation on strollers that we'll talk more about at CAGNY that's coming that we're excited about. If you go to the Home and Commercial business, Kitchen, as I mentioned, was probably the most tariff-impacted category or business for us last year. But Kitchen started to return to stronger performance in Q4 with the launch of the Rubbermaid Easy Store food storage product and some of the launches on Oster in Latin America that led to stronger performance there. Home Fragrance returned to growth in the fourth quarter from both a top line and a consumer offtake standpoint. And what's exciting about Home Fragrance is that Yankee Candle U.S., which is where we had the major launch was up 6%. I think the Home Fragrance business was up 2%. But as we go into next year, that relaunch that we launched in the U.S. is now -- we're now going to launch that in Europe. And we are relaunching next year, both Chesapeake Bay and WoodWick, which we've been working on for the last couple of years. So the innovation that we've had on Yankee Candle is going to expand globally, and we're relaunching the other 2 smaller brands in that portfolio, which should lead to a strong year. In commercial, the business-to-business side of that business in the Mapa/Spontex business has had pretty good years supported by innovation. It's really the DIY part of the business that was a struggle this past year. We believe that, that business has stabilized heading into next year. And then finally, on Outdoor & Rec, I think we've talked for some time that this is the business that is -- was likely going to take the longest because we had to reset the entire team. We have now done that, and we've rebuilt the innovation pipeline, and we have very strong innovation launching in 2026, which we'll talk more about at CAGNY that we expect to see that. So if you go forward on each of the businesses, what I would say for next year, we're expecting core sales improvement in every single business that we have in the company in '26 versus '25. So it is a broad-based approach because our strategy was to have a broad-based set of innovation as referenced by the 25 Tier 1, Tier 2 projects. Mark, you may want to just comment on the Q1 piece.

Yes. Before I get to that, I just wanted to build a little bit on some of the comments Chris just offered and shared because the innovation that we brought forward in '25, consumers did respond well to it. At the end of the day, what really happened was we had to take 3 rounds of pricing, which Chris clearly spoke to earlier. And then there were some knockdown effects, places like Latin America, which had been growing at double-digit rates, then turned negative as they started to see the second and third derivative effects of the tariffs playing out in their home market. So the consumer response was always very strong. And now as Chris said, that's going to build and carry over because the innovation stream that was out there in '25 remains into '26, and we're putting another top off on top of it that also is going to be driving the business in the right direction. And then despite all that, we were still able to expand our normalized gross margin. We expanded our normalized op margin. We put another 50 basis points into A&P. We effectively held our EBITDA. We effectively held our leverage ratio. So all in all, we feel like '25 was a really strong performance by the team put in proper context. Now as we think about going forward, Chris said it very well. This is a Q1 phenomenon, and it's a Q1 anomaly in some regards. But for the balance of the Q2 through Q4 period, we expect to be doing pretty well in the marketplace. And that's because Q1 is the smallest quarter of the year. There was retailer shipment timing and major shelf resets that we know are going to be basically pushing into the second quarter at the expense of the first. International will be down still, we believe, in the first quarter, but we expect that to inflect and turn positive into the second and stay positive for the balance of the year. When we think about the P&L elements within the first quarter, we do have $0.07 of incremental tariff charges. We will have a little higher interest expense, and we're still planning to spend on A&P. So our A&P plan for the first quarter of '26 has us spending A&P at least 50 basis points more than the base period, if not 100 to support the strong innovation program. So we have, I think, a very comprehensive plan that doesn't lean in too far in any given area. Last year, we started the year thinking our categories would be flat. In the benefit of hindsight, that was a mistake. It ended up down 2% to 3%. This year, we're assuming that it doesn't get any better throughout the entirety of the year when we believe that there's reason to believe that, that might be different. So we feel really good about where we are. We think we have a very strong bottoms-up plan. We believe we've built flexibility and degrees of freedom into that plan, and we're just eager to get out there and make it happen.

Our next question comes from the line of Brian McNamara from Canaccord Genuity.

So the company has generally lacked innovation before the new strategy was implemented a few years ago and therefore, doesn't really have the muscle memory there. I think you had 1, 8 and 15 Tier 1 or Tier 2 innovations, respectively, over the last 3 years, so 24 in total, correct me if I'm wrong, but core sales continue to decline. So can you comment on your relative hit rate on those? You have a large competitor that we all know of in small kitchen appliances that pretty consistently has buzz across social media with their new products. Is there anything tangible you can point investors to that suggests the 25 Tier 1 or 2 innovations this year will be successful? And when would you expect this higher level of A&P spend to pay off?

Yes. Good question, and you're exactly right. So in 2023, we had one Tier 1, Tier 2 innovation. 2024 was 8. In '25, our plan was 15. We actually wound up with some of the Tier 3s doing a little better. So we wound up with 19. And this year, we've got 25. What's important about that sequence, though, is that when we launch an innovation, our plan with the innovation is to support the innovation for a multiyear period. It's not just a one-and-done thing. And so you could almost think about these things as cumulative. So if you thought about 2024, we had the 1 from '23 and then the 8 in '24. So there were 9 things that we were talking about. If you think about this year, we've got the 18 or 19 from last year plus the 25 from this year. And so there is a plethora of innovation across our top brands that we're talking about. And that gives us dramatically greater consumer purchase behavior drivers that we can go after. Now to your question on, how have we done with the innovation that we've been launched. It's interesting because we've obviously put in a tracking system as part of this as well. And if we look at the innovations that we've launched that are Tier 1 and Tier 2 innovation, we are basically delivering what we expect in aggregate. And what I mean by that is not every single one is working. There's probably about 70% of them that are meeting or beating their targets and 30% that are not. But the 70% that are meeting or beating are meeting and beating by more than the ones that are not. So when we look at the revenue growth that we expected in aggregate from the portfolio, we're actually slightly better than what we thought going in. So that's a good sign because we're not trying to be perfect on every innovation. Otherwise, we'd be too slow is sort of the first thing. The second thing is when you say, well, what are the proof points and give me some examples, I think I talked about some of them. The Graco EasyTurn rotating car seat was the #1 baby innovation last year. That was an innovation that got started as part of this new strategy. The Yankee Candle relaunch, which delivered 6% revenue growth in the fourth quarter, which is the biggest quarter for Home Fragrance is a direct result of the strategy here. The Sharpie Creative Colors and Tip Size, the EXPO Wet Erase and Ink Restage, the Oster Extreme Mix Blender, all of these things are examples of where we've done it, and we've met or exceeded expectations. And so I think we've got -- it's not a -- we haven't been doing this as an organization for 10 or 20 years, but we've now been doing it for 3 years working on it and launching. And so I think the muscle continues to build. The other thing I would say on this that is important is we've taken, in many cases, a leapfrog strategy in this innovation process. And so one of the areas that we leaned in on artificial intelligence early on is on digital marketing content creation. So we are now creating with AI, both video, still photography and copyright content that is allowing us to go much faster in terms of the amount and the cost of creating digital content, which is increasing the ROI of what we're doing. We also have put that AI into our product development cycle. And so for example, we're able to go from a sketch to 3D CAD drawings with an AI app that has taken the cycle time down dramatically to do that. We then have created digital personas that we can do consumer testing with as part of a virtual focus group, which also accelerates cycle time. And that whole investment in the ecosystem of that AI capability, I think, is enabling us to be stronger, better and faster. And that is starting to show up in how we've made such progress so quickly at ramping up the innovation pipeline.

The other thing I would offer is during this entire period of time since we've been revamping our strategy, we've had to cull the herd quite a bit. We went from 80 brands down to 50. We had meaningful pockets of just unprofitable businesses that were so untenable. There was nothing to do but frankly, walk away from them. And you asked a very important question about are we seeing the return on the increase in A&P support. And there is a long fuse on that admittedly. But where we were starting from was 4% of sales, which was barely giving our brands the ability to get their gloves up. The way we're really seeing that manifest itself in business wins is when we go into these line reviews, we show them these leading innovations based on consumer ideas, and then we show them the support plans. And the fact that we can now show them meaningful support plans and that we're putting our own money behind these innovations gets the retailers excited. And so one of the reasons our hit rate has gone up significantly, in my view, is because the A&P levels are there for us to then drive it through the consumer purchase cycle.