Good morning, and welcome to Newell Brands Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. In order to stay within the time scheduled for the call, please limit yourself to one question during the Q&A session.

As a reminder, today's conference is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Nancy O'Donnell, Senior Vice President of Investor Relations. Ms. O'Donnell you may begin. .

Thank you, Emma. Good morning, everyone. Welcome to Newell Brands second quarter earnings call. Joining me today are Ravi Saligram, our President and CEO; and Chris Peterson, our CFO and President Business Operations.

Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties. Actual results and outcomes may differ materially.

I refer you to the cautionary language and risk factors available in our press release and our Forms 10-K and 10-Q for a further discussion of factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer 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 as well as on the Newell's Investor Relations website. Thank you. And now I'll turn the call over to Ravi. .

FoodSaver Ball, Rubbermaid and Sistema. We hope to continue to see growth momentum in the second half as we launch Rubbermaid Brilliance glass in September. We are also planning to launch Rubbermaid food storage containers that contain antimicrobial product protection online with major retailers starting in the fourth quarter.

This would represent roughly six months to identify, qualify and ship this product in response to changing consumer needs. An illustration of the new sense of urgency and spirit of innovation back at Newell. Let's go to Home Fragrance. U.S.

consumption was under pressure in the second quarter, primarily due to the closure of all Yankee Candle retail stores and most specialty retail, although we saw strong takeaway retailers that stayed open throughout the pandemic. Online penetration more than tripled in the quarter, as consumers were unable to purchase candles in store.

The headwinds were further exacerbated by significant supply constraints, stemming from the shutdown of both our main distribution center and factory in South Deerfield Massachusetts.

As supply ramps back up, we expect trends to improve and are excited about the new product pipeline which in the second half includes Home Fragrance innovations, such as Yankee Candle Sleep diffuser, WoodWick Auto Reeds and others. Now commercial.

After inconsistent performance in the last few years, the commercial business has now delivered two consecutive quarters of core sales and profit growth. The commercial team has driven very high double-digit growth in skin care by mobilizing rapidly to enter the tabletop sanitizer business.

In April, under the Rubbermaid brand and scale the contactless sanitizer stand business in major accounts. We've also seen strong growth in step on containers, garage, microfiber et cetera. This growth has been partially offset by challenges in the foodservice and hospitality verticals.

I am very proud of this team for accelerating line review wins across a number of categories, including closet garage, organization refuse and sanitation, which we expect will continue to grow momentum in the second half.

We believe that the Rubbermaid washroom and sanitizer solutions business is fast becoming a key pillar to restore the commercial business as a growth driver for Newell. A few words now on Connected Home.

POS was challenged and declined in mid-single digits in the quarter, primarily related to production challenges in our Mexico Juarez plant, which is closed for nearly nine weeks due to state-ordered lockdowns. Production is now back up but top 10 customers still have very low in-stock levels.

Fortunately, we recovered enough to ship some much-needed stock for October's fire safety month. The team is also making significant progress towards a major restage of our entire fire alarm product line to relaunch next year. First is our Appliance & Cookware business.

Appliance & Cookware has been a real beneficiary of the stay-at-home lifestyle during the pandemic. It grew strong double digits in U.S. POS in the second quarter. And core sales grew mid-single digits globally, despite retail challenges early in the quarter.

We overcame retail closures and lockdowns in Latin America and drove core sales growth through excellent direct-to-consumer web sales, especially in Brazil and Colombia.

The Appliance & Cookware team is rolling out the restate of all heated cooking products with the Diamond Reinforced Nonstick cooking surface beginning in the second quarter and continuing into the second half. We're also excited about the launch of Mr. Coffee's new ice coffee maker in September.

This new product taps into a key consumer behavior and frustration, which is brewing great iced coffee at home, especially during COVID. Next is our outdoor business Outdoor & Recreation business. COVID hit this business hard in Q2 as national parks camp sites et cetera were closed.

Our beverage business was also unfavorably impacted due to lack of mobility. And people working from home since Contigo and Bubba are on-the-go brands. Our technical apparel business significantly declined, as did the entire apparel category. On a brighter note, as lockdowns began to lift, we experienced a resurgence in U.S.

POS growth beginning in June, which has continued into July. The camping category including stoves, grills, tents and shelters have seen strong growth. In June, we also saw a resumption of growth in Asia, an important geography for the Coleman brand.

We're excited about the Coleman's Skydome redesign tent and the hard cooler refresh that were launched earlier in the year. Mammoth will also be launching the world-winning warm tube insulation technology line in October.

We have strong new leadership in Outdoor & Recreation but I believe it'll take them some time to turn around this business in the persisting challenges. Next up is Baby. Despite a double-digit decline in April POS due to stay-at-home orders, Baby ended second quarter with a modest increase in U.S. POS. We continue to build on our online prowess in Baby.

Overall, Baby online sales penetration reached 51% in the second quarter, up 900 bps versus prior year. Graco gained share in the quarter and maintained its leadership position. We got off to a good start in the year launching innovations including the Modes Nest Travel System, which gained share.

SnugRide 30 Lite is driving share gains in infant car seats. We launched NUK safe temperature bottles in March, which built our leadership position in Germany. We're also excited about the launch of the new Aprica Cururee stroller in Japan. The stroller has four spinner-type wheels allowing for maneuvering easily into tight spaces including subways.

Last but not least, a very important profitable business for us Writing. Writing experienced significant softness around the globe. The global lockdowns that not only affected our supply chain, but also resulted in closure of schools, colleges and people working from home. In the second quarter, both U.S. POS and core sales were down meaningfully.

However, we gained share in everyday Writing categories in the U.S., Australia and the U.K. Back-to-school display order shipped out close to the same level since last year. We're now watching BTS sell-through.

The situation is very fluid, with the recent COVID-19 surges and as more schools announce online classes, and switch to either hybrid or in-person classes later in the year. This may impact replenishment orders in the second half.

We're seeing a reluctant and hesitant back-to-school shopper given the uncertainty and lack of clarity related to school starts and many schools have not even published school lists. This lack of visibility is contributing to continued softness in U.S. consumption. On a brighter note, Sharpie S-Gel is off to a strong start.

We have picked up seven percentage points of share in the gel pen market in the U.S. since launch. We will continue to build on this momentum launching several new Sharpie products, including SGL metal barrel, expanded color range and the new S-Note line of creative markets for bullet journaling.

Company-wide our portfolio is showing good momentum, although, with a wide range of outcomes across business -- different business units. As we head into the second half, I’m encouraged that five out of eight businesses are posting final sales growth in July and our sales in July are off to a solid start.

Let me now shift to the progress we have made on the people agenda. I am really proud of how our 30,000 employees are managing through the challenges they're facing every day. I truly believe that rallying to this moment of crisis has inspired a teamwork and then a speedy core amongst our employees that has got a long way towards unifying the team.

In the last four years, we've had many issues with employee engagement and culture. Today we're in a different place. I genuinely believe our people are our most valuable asset and we are fostering a can-do winning culture. Most recently, we brought Chris Robins on Board to lead the Appliances & Cookware Group.

Chris is an excellent CPG leader with 20 years at S.C. Johnson and has served as business unit CEO of three organizations, including Philips Sonicare and most recently Char-Broil, where she lead to a strategic overhaul that included repositioning its brands and reinvigorating the innovation pipeline.

We're excited to have her lead the A&C team and building recent momentum. Of course, with Chris coming on Board, we now have Chris Peterson, Kris Malkoski and Chris Robins, we're are trying to figure out how we address all the Chrises. We also recently announced Lisa McCarthy as the permanent President of the Home Fragrance business.

Lisa has been with the Yankee Candle organization as CFO for many years and has recently been serving as Interim President. She has done a phenomenal job under a very difficult circumstances, and we're absolutely confident she's the right individual to solidify this business in its rightful leadership role in the category.

So with these changes, my new leadership team is largely in place and complete with one last hire pending for the e-commerce group. All of Newell's leadership team, both the old veterans and the newer additions are engaged and unified and focused on taking Newell Brands to the next level.

In conclusion, I am encouraged that our financial results are demonstrating good underlying momentum. We are strengthening our market positions in a number of categories and we are managing through this crisis safely and effectively. We continue to expect the back half results will represent sequential improvement versus our second quarter results.

For sure, we'll be a much stronger company going into 2021. Most importantly, we remain very optimistic about our opportunity to generate long-term shareholder value. At this point, I'll turn it over to Chris Peterson my friend and partner for a detailed review of our financial results and a supply chain update. Over to you, Chris. .

Thanks Ravi, and good morning everyone. Although Q2 was a difficult quarter results were ahead of our expectations, as we moved swiftly to address the challenges presented by supply chain disruption, retail store closures, and consumer and customer demand shifts resulting from the COVID-19 pandemic.

During the Q1 call, we signaled that we were facing significant supply chain challenges in Q2, with a number of our manufacturing and distribution facilities closed by government order. We are pleased to share that since then conditions have improved meaningfully and we have reopened all of our plants and distribution centers.

We are working hard to catch up with demand across several businesses particularly in categories that have experienced accelerated growth through the pandemic. We are leveraging consumer insights and selectively investing in additional capacity across a number of categories to capitalize on growth opportunities that have emerged in recent months.

We remained disciplined in our approach and continue to maintain focus on high velocity SKUs, which improves efficiency of our operations and reduces working capital tied up in inventory. As Ravi mentioned, during the quarter we pivoted to accelerate operational improvements across the enterprise in line with our turnaround plan.

Specifically, we accelerated progress on SKU count reduction taking out over 3,000 SKUs during the quarter. This brings our total reduction to about 35%, since we started the program 1.5 years ago. We doubled down on the fuel productivity savings program.

We're off to a strong start in the first half of the year with productivity in terms of year-on-year cost of goods savings, up over 40% from the prior year. This is being masked in the short-term, because of fixed cost deleveraging, but will position us well as the business improves.

We initiated and completed a zero-based review of overhead cost as a result of the simplification agenda we have been driving. This led to a restructuring action, which impacted about 4% of professional headcount. We continue to make progress rationalizing office space, IT applications and infrastructure, and tightening overhead cost controls.

This allowed us to reduce overhead costs significantly in the second quarter in both dollar terms and as a percent of sales, despite the revenue decline in the quarter. We made excellent progress on the digital technology re-platforming project. We have now converted over 50% of our U.S.

websites from disparate outdated legacy technologies, to a single new platform that significantly improves consumer experience access to data and insights, while at the same time reducing cost. We expect to have all the U.S. websites on the new platform by mid next year.

And we continued our efforts to maximize cash flow by reducing the cash conversion cycle. During the second quarter, net sales contracted 14.9% year-over-year to $2.1 billion as core sales declined 12.6% and currency was unfavorable by about two points.

We estimate that disruption related to COVID-19 was roughly a 13-point headwind to core sales growth in the second quarter. Top line trends improved significantly throughout the second quarter, as lockdowns were lifted specialty stores started to reopen their doors and our supply chain began to recover.

April was the most challenging month and marked the trough renewal with the rate of decline moderating significantly in May and the business returning to slightly positive core sales growth in June.

While many of Newell's categories were negatively impacted by COVID-19, three business units Appliance & Cookware Food and Commercial delivered core sales growth in the second quarter, reflecting heightened demand for at-home cooking, food storage, sanitizer cleaning and organization products.

The e-commerce business delivered another quarter of strong double-digit growth ahead of Q1 levels as the pandemic continued to accelerate consumer shift toward online purchases.

Normalized operating margin contracted 200 basis points year-over-year to 10.2%, which was ahead of our expectations due to stronger-than-anticipated productivity gains and significant choices we made to reduce overhead.

As anticipated, top line softness resulted in fixed cost deleveraging putting significant pressure on normalized gross margin, which declined to 31.6% from 34.9% a year ago. Specifically, fixed cost deleveraging, due largely to plant closures negatively impacted gross margins in the quarter by over 200 basis points.

In addition, incremental COVID costs related – negatively impacted gross margin by about 100 basis points. Net interest expense came down by $7 million versus last year due to a lower debt balance. The normalized tax rate was 11.2%, below the year ago level as a result of discrete tax benefits. Normalized diluted earnings per share were $0.30.

Moving to segment results. Please note that, with new leadership hires, we updated the company's organization design, which necessitated changes in the company's segment reporting structure. Q2 financials reflect five operating segments Appliance & Cookware, Commercial Solutions, Home Solutions, Learning & Development and Outdoor & Recreation.

There are no changes to the Appliance & Cookware and Learning & Development segments. Outdoor & Recreation business is now a stand-alone segment. Commercial Solutions includes the Commercial and Connected Home & Security business while Home Solution comprises Home Fragrance and Food. Turning to results.

Core sales for the Appliance & Cookware segment grew 6.1%, reflecting strong consumption across major markets as heightened demand for at-home cooking products more than offset the headwinds from closed, specialty retail doors and temporary country-wide shutdowns in select international markets.

Core sales for the Commercial Solutions segment declined 6.8%. The Commercial business unit delivered its second consecutive quarter of core sales growth, largely driven by strong demand for sanitizing, cleaning, hand protection and organization products.

But this growth was offset by top line pressure in the Connected Home & Security business, which experienced supply chain constraints, due to the temporary closure of the manufacturing facility in Juarez Mexico. This facility reopened in early June, and is now rebuilding inventory to catch up with demand.

Core sales for the Home Solutions segment decreased 1.9%. The Food business continued its very strong momentum with core sales growth, accelerating sequentially in Q2 relative to Q1 as the increase in at-home consumption of meals translated into heightened demand for Rubbermaid food storage, vacuum sealing and fresh preserving products.

Home Fragrance core sales declined due to headwinds from retail store closures, including our own Yankee Candle retail stores through most of Q2, as well as supply disruption from the temporary closing of our plant and distribution center in Massachusetts. Both facilities began to ramp back up in the latter part of May.

The headwind from COVID-19 was most pronounced in the Learning & Development segment as core sales contracted 23.5%, reflecting weakness across both Writing and Baby businesses. Despite core sales softness, consumption and Baby products rebounded during the quarter.

In Writing, the category overall is seeing significant softness in consumer and commercial demand, particularly given the uncertainty surrounding the timing of school and office reopenings. Core sales for the Outdoor & Rec segment declined 21.5% as shelter and place mandates during the early part of Q2 weighed heavily on the business.

Sell-through in the Outdoor category bounced back in June as those restrictions were lifted and consumers began spending more time outdoors. Let's switch gears to cash flow now, which remains strong during the first half of the year.

Year-to-date cash flow from operations increased $141 million versus last year and the cash conversion cycle improved by over 20 days as the organization rallied behind initiatives to reduce complexity and free up cash from working capital. Laser focus on every facet of working capital management is bearing fruit.

SKU rationalization actions and a more effective management of the supply chain by focusing on high velocity SKUs is driving improvement in inventory. We are continuing to optimize inventory through a more robust planning process accounting for the dynamic shifts in consumer purchase behavior.

We drove faster receivable collections despite pressure from COVID-19 through operational improvements. but also took higher-than-normal bad debt reserves during the second quarter. On payables, we continue to work with our suppliers on extending payment terms.

During the second quarter, we strengthened the company's liquidity position and exited June with $619 million of cash and cash equivalents on the balance sheet which is $143 million ahead of the Q1 level.

We completed a $500 million debt offering repaying short-term debt so that at the end of the quarter we did not have any borrowings outstanding on the credit revolver or the accounts receivable securitization facility.

Including the quarter end cash balance Newell ended Q2 with over $2 billion in short-term liquidity which puts the company in a very strong position to manage its caps needs in this dynamic environment.

Although conditions have improved relative to a few months ago, we think it is prudent to continue to evaluate the company's capital allocation strategy as we gain more visibility into the trajectory and pace of economic recovery.

We intend to maintain the dividend for the upcoming quarter and there is no change in our commitment to delever the balance sheet over time. Now turning to guidance. We are planning prudently for the balance of the year so that we can swiftly adapt to shifting consumer behaviors and macro developments.

We continue to expect sequential acceleration in core sales trends for the company in Q3 relative to Q2. We are off to a strong start in July with sales growth improving versus June and consumer takeaway continuing to increase year-over-year as the supply chain constraints are easing.

A larger portion of the global economy and our retailer base already has reopened including about 20% of our own retail stores and consumption has improved relative to the extreme lows experienced in April.

We do expect the Writing business to be the most challenged business in Q3 as a result of delays and uncertainty regarding the timing of school and office reopenings. This will have a negative gross margin mix impact on the business in Q3 as the Writing business has the highest gross margins in the company.

Importantly in Q2, we grew market share in everyday writing driven by pens and expect the business to recover strongly once the pandemic subsides. Stringent cost control measures remain in place with the savings from the organization restructuring program expected to contribute to back half results.

And we expect a more normal tax rate in Q3 this year compared to the large tax benefit in the year ago third quarter.

While visibility to the course of the pandemic and the pace and timing of an economic recovery is limited, we are taking the necessary actions not just to manage the business through the immediate challenges but to come out stronger afterwards with the turnaround efforts fully underway.

I would like to join Ravi in thanking our employees especially those on the front lines whose unwavering dedication and tireless work is helping to propel the company forward in these unprecedented times. Operator let's open up for questions. .

[Operator Instructions] We'll take our first question from Wendy Nicholson with Citi. .

Hi, good morning. I guess two things. First just big picture on the segment reclassifications. It's kind of crazy just how many restatements we've seen over kind of the last I don't know five years. And I get it that through the divestiture process and all of that there have been a lot of changes made.

But I guess my question is sort of for the people who are working in those segments or working in the line of business. If you can comment on kind of how they're reacting to all the new management whether what we see from a P&L segment reporting perspective, impacts the chain of command within the company etcetera, etcetera. That would be helpful.

And then just a specific question on the Appliances & Cookware and the Food business. Given that we've seen such strong growth there not just for you guys, but for the industry as a whole, how are you thinking about that business in the back half? I know you talked about a little innovation.

I'm just worried that everybody's bought so much home storage stuff and new coffee makers that maybe we don't need them for as far as I can see. Thanks..

Thank you, Wendy. Chris why don't you answer the segment one and I will talk a little bit more about the how leadership acts and then I can talk about A&C. .

Okay. So I'll start with the segment. So as we've hired new business unit presidents and brought them into the management of the company the way that we've organized the reporting relationships in the organization structure necessitated because of SEC rules a change to the segment structure.

So we continue to have eight business units, but the key leadership and the reporting relationships with Ravi is what drove the segment reporting change that we made and announced this morning. .

Thanks Chris. Wendy, I think a couple of things. First I share your pain on it and we know -- we didn't take it lightly because the last thing we needed to do was another change in segments but we also want to confirm with all the applicable laws.

And I did feel that from a reporting standpoint, we have CH&S which has some characteristics similar to our commercial business. And so we thought a connection there though CH&S will still the operation of it we still have a CEO Tom Russo who's very competent.

He'll report into Mike McDermott and he will still be a freestanding unit but the reporting relationship's to Mike which is why that had to be reclassified. Similar to that Home Fragrance, we thought that Lisa was very good as I mentioned in my prepared remarks would benefit from the experience of Kris Malkoski. Lisa has just gotten to this position.

Her training is from finance. Kris is a great marketer. And also Kris in her last job with Arc had been the biggest supplier to anti cattle. So we thought that would be a great connection and the two are doing beautifully. So that's really why it happened. But Home Fragrance business still operates as a separate unit in terms of its own operations.

So this is -- it's not creating any kind of confusion or any issues in terms of chain of command. So that's I think the elaboration on that piece. As far as Appliances & Cookware, look we're pleased that it's getting some tailwind and momentum.

And if there's a redeeming feature to this horrible disease that people stay at home and bond and cook more they need more appliances. So the category's on fire and we're benefiting. Clearly our teams are doing a very good job capitalizing on it. But we are losing share still. The category is growing a lot faster.

Only reason I say it is that it's not all hunky-dory. There's still some underlying issues, which I talked about in the past. So this is not like it'll go on forever. Now having said that we've brought in Chris Robins who hopefully will start getting that innovation -- genuine innovation match consumer needs.

We actually think the iced coffee launch is really a good launch because at the opening price points, there isn't one home iced coffee maker right now. And with all the coffee shops that have been closed et cetera or just in the process of reopening, people especially millennials want to make coffee at home, iced coffee at home.

So I think it's on trend and a good thing..

And then if I can just jump in on your question on Food. On Food, we see that as a sustainable trend. And actually in the Food business we are -- it's one of the businesses where we're supply constrained. So just -- we're growing very strongly, but we could sell more as supply becomes available.

And given the dynamics associated with the pandemic, we are working hard to increase capacity in that business. And I expect that we'll see that trend of strength continue in that business going forward..

Yeah, I think that's a great point Chris. When you think about what we said at CAGNY, there are two businesses, which were question marks Food and Commercial. To me there is no question mark. I think it's exactly what you said. And great job by the team last year to put good foundations on Food.

Now with COVID, we're just capitalizing on it but that team is just doing a great job and as is Commercial..

Got it. That’s very helpful. Thank you..

Thank you Wendy..

We'll take our next question from Lauren Lieberman with Barclays..

Great, thanks. Good morning..

Good morning, Lauren..

Good morning.

I was hoping you could talk -- I want to talk a little bit about the Outdoor segment, because this is a business that I recall in the last recession really did benefit in the way that you described that you're starting to see with people having different types of vacations and spending time differently; but that I think in the ensuing years there was perhaps a strategy under prior management of the Coleman brand that could, kind of, deal with opening price point competition at a large retailer.

And otherwise like the margin structure of the brand and of the division really came down dramatically. And a lot of the equity it sort of eroded. So I was just curious I know you've been thrown into this environment in the middle of enacting a turnaround plan.

But I'd love to hear a little bit more about where you stand on repairing marginal structure in that business, innovation and what's happening in terms of incremental distribution in more specialty channels, but anything there would be really helpful.

Because again this is a business that I would think sort of like Appliances & Cookware should be something that really works for the foreseeable future as we're all kind of sticking closer to home? Thanks..

Let me get started and then I can have Chris to see if he has any additional points. So clearly the business was hit pretty badly by COVID. It's coming out as we mentioned in June. So -- but Lauren I think -- look there are some fundamentals on this business that in the past really got screwed up.

And especially on the Coleman side, great brand great equity, but we've made mistakes unfortunately in the past and we're now working through them. And there's I think really we're squeezed on one hand with high-end competition like Yeti on one side and then private label from a very large retailer that you mentioned.

So what we've got to do really on Coleman is how do we get the innovation pipeline going. We started with a hard cooler refresh, which is actually a pretty good refresh we're going. We've got two new tents, which I talked about, which is a good thing. And even the large retailer has accepted and excited about those two new tents.

So -- and now the category with parks opening up and more sort of road trips and people are going to do camping more. So we -- it's in a good place to take advantage of that. And the Coleman brand is still a superb brand. But my comments if I sounded a little pessimistic on the prepared remarks, it was not meant to be.

It's just saying look there are some fundamentals we need to fix. It's going to take some time. We now have two great guys that we've brought in from the outside who are true outdoor people, Jim Pisani and Bill Kirchner and they've already started having impact. So I think we'll get this right. It's going to take us a little time.

And in the meanwhile we're pushing -- and by the way in Japan, for instance, we've got a great franchise with the Coleman brand, premium brand. Chris and I visited there. That team really is doing a good job. So there's no structural issues there. And Asia as a whole as I mentioned is bouncing back up. So it'll take us some time.

But overall, I am quite optimistic longer term, but it's not going to just happen immediately. And remember, with like something like Food, the fundamentals started getting put in place in 2019 and now the team just went and moved forward, whereas in Outdoor, that's not been the case.

Chris, anything you want to add?.

Yeah. The only thing I would add on this is, the Outdoor & Rec business is really three different businesses. There's the Outdoor business, which Ravi talked about, which is Coleman, which you're right is benefiting from the stay-at-home and outdoor trend, and we're seeing that clearly in the point-of-sale data.

And if we look back at the last recession in 2008, we did gain market share because of the positioning of the brand. The second business is the Contigo container business, and Ravi talked a little bit about this in his prepared remarks.

That business is really more about mobility, and so that category is a little more under pressure than the outdoor business. And then the third business is the technical apparel business. And the apparel business has probably been the hardest hit of any of the businesses from a category growth standpoint.

So, it's kind of a tale of three cities in total for Outdoor & Rec..

And that outdoor piece, the camping piece is actually beginning to bounce back in the U.S. as we look at POS growth in June and July. And I think there's nothing structurally wrong with the beverage business, because I think we had good -- Contigo has been an innovative brand.

It is just I think we need to wait for people to move back and go back to the offices, et cetera..

Okay. Next question..

We'll take our next question from Nik Modi with RBC Capital Markets..

Hi. Good morning, everyone. Ravi, I was hoping you can just talk about the year of the pen initiative. I know that was -- seems to be a big deal for this year.

Just any thoughts around can you repurpose it? Are you -- can you scale back the funds and redeploy? Will it go to the bottom line? Any thoughts around that? And then I guess a bigger picture question is even before the Jarden acquisition was completed the thesis around Newell was you have a big company with capabilities that can really be superior to those smaller competitors, because the categories are very fragmented.

And I would suppose that in a situation like we're going through right now a lot of those smaller more fragmented players are coming under a lot more duress than you are.

So, any thoughts around that, I mean is that something that you're seeing in the marketplace?.

Sure Nick. So, first look, sometimes command proposes but not disposes. And who would have thought that COVID would come about when we launched the year of the pen? That doesn't -- but I think this setback is more temporary. And I think the Sharpie S-Gel and all the things we did with other pens is quite remarkable.

The fact that Sharpie, as I mentioned in my prepared remarks, has been able to get a 7 percentage point share increase that is massive. And just credit to the innovation. And a great -- Laurel and her team have done a remarkable job. And so, it's just -- it's unfortunate right now, because people are working from home and colleges schools are closed.

So, I think that's had an impact. We did shift monies so -- that we had earmarked to later quarters. And so the team has done a very diligent job of managing the spend and being very responsible. And despite moving all that spend, the fact that we've been able to get 7 percentage points of share increase is quite remarkable.

And now we're launching some new stuff. I mean I just looked at the colored Sharpie S-Gels and they're beautiful. So -- and we've got to look at this as, look, COVID's not here forever. And hopefully at the end of this year and next year, as we get into next year, we will have a vaccine and this will be behind us.

And what is going to be interesting is, even if schools and offices are put off till the end of the year. Next year I think we'll have a real nice bounce back. So I am very bullish about the Writing business longer term. I'm very bullish about our pens. Yes, second half will be challenged. There's no doubt about it.

But we have to look at the longer-term here. .

And then to your question on competition, we are seeing benefit as a result of the fact that we are the scale player in most of the categories versus subscale competition. The place where that's probably the most prevalent is in the e-commerce space, and Ravi talked about this in his prepared remarks.

But in the second quarter about a third of our business was done from a POS standpoint online. And so to have a 33% penetration is pretty remarkable, and what's even more remarkable about the position that we're in is that we make the same or higher margins on business that we do through e-commerce than we do through brick-and-mortar business.

And there are very, very few consumer companies that can make that statement. So, I think we're competitively advantaged there. And I think that that's going to bode well for us as we go forward here..

Great. Thanks, Chris..

We'll take our next question from Steve Powers with Deutsche Bank..

Hey, thanks. Well, I mean I think you indicated that point-of-sale was up slightly year-to-date versus your core sales running down 9% or so.

Do you have a sense of how much that gap is indicative of the kind of structural rebalancing of inventories across the value chain that works against you as a supplier versus it's just being indicative of thin channel inventories that you'll stand to make up? It sounded like you expect some degree of catch-up.

But I guess, I'm not fully clear on how much or how quickly you think that might occur..

Yeah. Steve thanks for the question. As you know, we're not really providing guidance. And I don't want to get too deep into it. I'll just talk conceptually to it, which is that, yeah, we had a lot of supply challenges and so retailers used up their inventories. And in some places even safety stocks have been a bit of an issue.

Now that we're opening up we're in the process of ramping up. But that doesn't mean we're too bright. We're ramping up and getting it out there. And then we have to see how consumption flows. So - but at least in July as both Chris and I noted in our prepared remarks we're off to a solid start on sales.

And -- but we'll have to just see where consumption goes because that's -- because remember there's one important -- there are two things. There was a federal stimulus and there was an unemployment $600 checks which are all coming to an end.

And so it'll be interesting to see the inflection points and how that consumption will go which we really don't know. And we have to watch and see. .

Okay, thank you. Appreciate it..

Okay. We'll take our next question from Bill Chappell with SunTrust. .

Thanks, good morning. Ravi I just want to dig a little bit more into the term challenged for back-to-school.

And just trying to understand like as you look at it from a manufacturing standpoint and building inventory standpoint like what are you expecting? I mean is there a certain percentage of your base that's going back regular versus virtual? Are you assuming those virtual come back -- the sales come back at some point? It just might be three months, it might be six months from now? Are you assuming some of the sales just don't ever come back at all because you missed kind of the event of back-to-school? And then maybe how much of your total business is actually tied to back to school? I think there's just kind of a perception that you being the largest player in pens and paper and everybody is going virtual that the next couple of quarters are going to be torched.

And so just trying to understand what you're doing, if that's the case or if that's not even the case?.

Yes. Bill let me kick it off and then I'll also have Chris provide any details that I might miss. So clearly back-to-school is an important part of our business, but not the only part of our business. So -- and what you see is you start seeing sell-in occurring usually in June, July.

And you also then start seeing consumption in July, but it starts peaking in August towards the end of August Labor Day is when you see it. So this month August is an important month. The interesting thing is that -- what we're seeing is at least our estimates is that even half at -- probably only about half of the schools have issued school list.

That's an estimate for us. And so that is sort of the -- what you're seeing as shopper behavior is because of lack of clarity they're being a bit hesitant and reluctant. So I think that is one of the issues for us. Our sell-in went in normally pretty much close to what we had done which I said so in my remarks.

The issue will now be sell-through and then the effect on replenishments which occur late in August or in the August time period and we'll just have to see. What we think could happen is that, unlike typical back-to-school years, this year it may be elongated. And also we'll just have to see online, how that'll go because online seems to be okay.

But whether this will just sort of instead of one big bump which occurs this may just sort of dribble through the year.

And it's very possible that if schools and everyone says, look hey, we're going to all open up in January, or universities and there's a massive of back to offices in late fall or in January you may see a new type of bump occurring towards the end of the year which may replicate kind of the back-to-school and so -- and whether that occurs in December or in January we have to see, but that's a possibility.

That has not -- and usually there is a little bump, but this may be a bigger bump than usual. So I think the second half I wish I could -- we had a crystal ball to tell you exactly what's happening because we're -- our team is trying to keep every bit on top. Last comment and then I'll see if Chris wants to add anything.

Our focus right now is share and really being the leader driving share. We have outstanding relationships with all the big retailers. We're in consort with them talking to them and figuring out because they too are looking at this and seeing where is going to go.

And look it's really the kinds of things that are affected by schools' closures things like dry erase markers pourable glue there are certain categories that get affected by this and highlighters. And some of these we are really -- we have quite a strong leadership position. So it affects us quite a bit. So we just have to see.

Chris anything that you might want to add?.

Yes. The only other two points that I might mention is the first one is, the back-to-school season represents about 25% of the writing business for the year. And so 75% of the business is not related to back-to-school. It's more ongoing business.

So although back-to-school is meaningful and we talk about it all the time it's not -- it's 25% of the business. Second thing I would say is that, as we think forward and Ravi talked about the dynamic in terms of how this year might play out.

But if we think forward to 2021 or 2022 we do view the impact that we're likely to see this year as temporary and onetime in nature. And we believe that as we get through to the other side of the pandemic, we're going to see a major bounce back in this business that will benefit the company as we get past the pandemic.

The challenge is going to be navigating from where we are today to that period. And I think that's why we've put in place sort of a nimble and agile planning process. So that we do that in a way that allows us to grow market share, so we come out stronger on the other side..

And Bill, one thing we are looking into is, if there's fundamental shifts in how people work in offices or the online looking sort of ahead we've already cranked up our innovation engines to look at what does this mean for our whole learning and development business and we're quite excited about that and so that we're always at the forefront.

This is our most profitable business. We intend to keep it that way. We're very excited about this. Yes temporary setback but long-term we will prevail. .

Thank you..

We'll take our next question from Olivia Tong with Bank of America..

Good morning, good afternoon. Wanted to ask one near-term question then two sort of longer-term ones.

First, in terms of the quarter, can you just talk about the -- how much of the decline you think was related to supply disruptions? So orders that did come in but you couldn't satisfy them, but you think maybe you're coming back or you can't satisfy them going forward versus like retail closures where they're canceled? And then longer term, obviously a few retailers have now filed the chapter 11.

So how much exposure do you have to those retailers? And then just, lastly for Writing if we're going to be working from home for longer remote learning for longer all these things and to an earlier question you said that 25% of sales is back-to-school, but 75% isn't with more people potentially switching to working from home permanently or into next year, how are you thinking about potential longer-term changes to the category to adapt talking about not just everyday writing but potentially expanding into adjacent categories or something like that? That would be helpful.

Thank you..

Chris why don't you tackle one and two..

Yes. So, on the impact of COVID in the quarter, we estimate that the supply chain disruption coupled with retail store closures represented about 75% of the negative impact of the 13 points to core sales growth that we talked about.

So it was a much more significant impact from supply and retail store closure than the consumer purchase behavior in the category is sort of the answer to the first question.

The second question remind me?.

Retailers?.

The retailers who have come out of chapter yes. .

On the retailers that have come out of chapter 11 we've put a very rigorous process in place. I have a meeting once a week to go through that. We're in pretty good shape there. We did take as I mentioned in the prepared remarks a higher bad debt reserve in the second quarter.

It was sort of about $5 million or something that we took as an incremental reserve. So it was not huge and that was largely for retailers that declared bankruptcy. But we've been ahead of the curve on this and we've been very aggressive at putting retailers that we think are in trouble on credit hold so that we limit our accounts receivable exposure.

So I feel very good about the quality of our accounts receivable and I don't think we have significant risk from a bad debt or collection standpoint. And you've seen that in our accounts receivable numbers where our days outstanding have come down significantly versus year ago in the second quarter as we've managed receivables more tightly. .

So let me address your last question which is what if stay-at-home, trends are there forever. Look there's been a lot of noise about this. Certainly we've heard some tech companies which you've talked about working through fall, some through the end of the year one most recent onset July of next year.

Yes, there's some of those, but you also don't hear about a lot of others who actually started going back to work. In fact we have opened up many of our offices on a voluntary basis clearly. So there's also -- as we have done a lot of work on this we hear just as much as people want to.

Right now, there are some factors especially because of school openings and stuff not being able to find ways to take care of their kids most companies have been pretty flexible. So -- but it is -- I think I'm not sure I'd say that this will be a complete sea change forever on both on schools universities and offices.

And for us schools -- all three play an important role as opposed to just one segment or the other. So that's sort of point number one. Point -- so we think this is hey a second half of this might die as a '20 issue, but not a permanent one.

But secondly, we are looking at just as we're capitalizing on the stay-at-home trends from a Food standpoint and Appliance standpoint on the Writing and the whole Learning business. We're looking at are there to your point adjacent categories are there new innovations. We're doing a lot of work, which we're not ready to publicize yet.

And -- but trust me on that that there's a lot of work going on looking at that because we've got amazing brands and so saying hey are there adjacencies to actually capitalize on this so that we're not being ostriches as well, so more to come down the road. .

We'll take our next question from Joe Altobello with Raymond James. .

Great, thanks guys. Good afternoon. Just a couple of quick sort of big picture questions. I guess first for Chris you mentioned the COVID impact on core sales in the quarter was about 13 points. Should we expect any lingering impact in Q3? It sounds like there's still a little bit left I guess in Food. .

Joe, did we lose you or?.

Hi.

Do you hear me?.

Yes, we can hear you..

Okay, great. Sorry, I don't know how much of that you caught but I want to go back to the 13 points core sales growth that got impacted in Q2. I was just curious. Is there any lingering impact in Q3? Because it does sound like you mentioned earlier there's still a little bit left in food. Everything quite--.

So on that one I think as we mentioned we're not going to provide guidance but what I will say is that we do expect Q3 to be sequentially significantly better than Q2. And on that 13 points of the COVID impact, the reason why we think Q3 is going to be better as the supply chain is now back in full operation.

And so we're entering Q3 with a supply chain that is at full capacity. We still haven't rebuilt safety stocks fully and we haven't caught up with demand everywhere, but we are doing that quickly as we speak. The retail store openings are in much better shape as we head into Q3 versus where we were in Q2.

Although we do expect traffic particularly at malls and things like that to be lower than typical which would be a continued headwind. The biggest probably headwind we see that's COVID-related as we mentioned in the outset is in the Writing business just because of the uncertainty with regard to the school and office reopenings.

But certainly the COVID headwinds are significantly behind us relative -- heading into Q3 versus what we saw when we were heading into Q2. .

And that assumes that you won't have a whole set of new lockdowns in case this just persists..

And just a follow-up on that. Given your commentary on June and July it sounds like shipments in POS have finally converged to some degree.

And so with that should we expect shipments to at least track retail in aggregate in the second half?.

Yes. Again, we're not going to give specific guidance but we're -- the pandemic is still impacting our business. And I think we've tried to provide as much as we see right now, but relative to the impact on each of the different categories. We've got a number of categories that are benefiting and we've got some that are being negatively impacted. .

Got it. Understood. Thanks guys..

We'll take our next question from Kevin Grundy with Jefferies. .

Hey thanks. Good morning everyone. First a housekeeping question then a bigger question on productivity. The housekeeping question probably for Chris. Can you just remind us how much of your Writing business goes through Nielsen channels? It seems like that's going to be a key swing factor here certainly in 3Q.

So, I think that'd be helpful for folks as you kind of look to the Nielsen data as a potential barometer. And then broadly just on a little bit more maybe on Project FUEL and the role of productivity.

So, while we all appreciate the significant volatility here in this environment Chris, can you comment maybe on the size of the opportunity what the contribution was in the first half of the year what it could be this year and beyond? I think that'll help folks with their modeling.

And then Ravi just -- it would be great to get your thoughts as well, just the process in place organizationally to drive this sort of behavior down to your business unit leaders in terms of driving this productivity and thinking about it as an enabler to drive reinvestment and balancing that with margin expansion. Thanks for all that..

Yes. So, let me start with the first two. So on Writing Nielsen covers probably about a quarter to a third of our Writing business.

So, it is apples-to-apples, but it is not fully indicative of the trends because it misses big segments of the Writing business, particularly the international part of the business, the office part of the business, and a number of the specialty and online retailers.

So, we have POS data that is more extensive than that because we get POS data from some retailers that aren't reported in Nielsen, which is why when we talk POS, it's generally a little bit broader than that, but that's the Nielsen coverage on Writing.

Relative to gross margins and FUEL, you're right, we feel very, very good about the progress we're making there. And we're generating significant productivity. As I mentioned our productivity through the first half of this year is up 40% versus where we were at the first half of last year and that's sustainable progress over time.

If I were talking about the gross margin results in Q2, there were really four things that were negative that impacted the gross margin in Q2 which is why we wound up down 330 basis points. The first was the fixed cost deleveraging associated with plant closures which I mentioned is a little over 200 basis points of headwind.

That should really be more of a one-time item and should not repeat going forward. Because as the manufacturing plants and distribution centers reopen, we should be largely through that cost. So, I view that more as a one-timer. The incremental COVID costs that I mentioned which is about 100 basis points in the quarter.

That was as a result of social distancing, expedited freight, additional PP&E. That likely will continue for some period of time going forward. So, I think that probably is here to stay at least in the short-term. The third impact is the business unit mix which is negative as a result of the temporary reduction in the Writing business primarily.

And I expect that as we said in our prepared remarks that the Writing business will likely continue to be a source of mix drag on gross margin going forward. And then foreign exchange tariffs and inflation is a headwind but productivity is more than enough to offset that. And so we're encouraged by the progress that we're making on productivity.

And we think you'll see our gross margin trends improve versus what we saw in the second quarter because the fixed cost deleverage is behind us. But still we're going to be facing headwinds going forward because of the COVID cost the BU mix and the FX tariff and inflation..

one is the SKU reduction the other is productivity. So it's got a lot of attention. And even without that I think that's been a strong embrace. But our teams know about FUEL our BUs know about it. We talk about it at every operational review and so there's a lot of commitment..

Okay. I appreciate the color. Thanks, guys. Good luck..

We'll take our last question from Andrea Teixeira with JPMorgan. .

Thank you for squeezing me in. Just following up on the supply chain disruptions and the comments that the POS data is up year-to-date by about one point. And of course there is -- some of your lost players went to competitors and what you lost it's, obviously, difficult to regain.

But how much would you say that POS demand is striking now in July and as you were close to ship to consumption? So and lastly what are the categories that were mostly impacted by the supply chain disruptions? I can pinpoint some of the commentaries at you but I just want to make sure I understood correctly. Thank you. .

Yes. The categories that were the most impacted by the supply disruption were the Connected Home & Security business because we have basically a single manufacturing location in Juárez, Mexico that was closed for almost two months.

The Home Fragrance business, which had its largest and most significant facility in Massachusetts closed for about six to eight weeks. And then the Writing business had one of our major packing centers that was in Mexicali that was temporarily closed for a period of time.

Those were the businesses that were the most impacted by the supply chain disruption. As I mentioned, we're excited that we have now reopened all of our facilities. We're back to full capacity largely across the supply chain. And now we're in process of rebuilding safety stocks both internally and with retailers.

With regard to your question on market share, we are growing market share in a number of categories and there are other categories that were not yet growing market share as we mentioned and Ravi went through in the prepared remarks. Broadly, we are not losing market share.

Broadly, what I would say is the dynamics that were experienced are more associated with category growth rates than they are with major shifts in market share in terms of the company in total. .

Okay. And then Chris just a little bit more color on what you're looking into July. So if you're shipping -- you're saying you're shipping July with consumption.

And I'm assuming July is actually stronger than the one point consumption that you gave on the POS? Is that the way to think see?.

No. I think what we said relative to July is that we -- if you look at the sequential trends we said April was the worst month in the trough at about minus 25% sales. May was better than April. June was better than May. And June we actually got to a modestly positive core sales growth and July is better than June. So that's what we're seeing so far.

But obviously it's early days in the quarter and we're not going to give guidance beyond that point. .

And we did not make any specific comments on the relationship between sales and consumption in July or beyond. .

Right. .

Okay.

And then July is not the bulk of your Back-to-School sales right? That would be in August?.

Yes. So if you look at back-to-school typically what you see is that June and July are the shipments in for the season. And generally in Back-to-School about two-thirds of the Back-to-School season is the setup for Back-to-School. And that shipped in about in line with our expectations and it's relatively similar to prior year.

There's about one-third of back-to-school that is replenishment orders and those replenishment orders typically happen in August and September, and so that's sort of how to think about the Back-to-School.

And as Ravi mentioned what we think may happen is there may be an elongated back-to-school season as some schools start virtually and then don't start physically until later and that may shift to the replenishment orders out later in the year or in the early next year..

Okay, Chris. Thank you. .

Okay. I think that's a wrap. Stay healthy and safe. We'll talk to you next quarter. Thank you very much. .

A replay of today's call will be available later today on our website, ir.newellbrands.com. This concludes our conference. You may now disconnect..