Good morning and welcome to the Newell Brands Third Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. The live webcast of this call is available at ir. newellbrands.com. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Ms. Tsinis, you may begin..

Thank you. Good morning, everyone. Welcome to Newell Brands third quarter earnings call. On the call with 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, and we undertake no obligation to update forward-looking statements.

I'll refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q, and our SEC filings available in our Investor Relations website for further discussion of the factors affecting forward-looking statements.

Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those who 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 available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables, as well as other material on Newell's Investor Relations website. Thank you. And now I'll turn the call over to Ravi..

Gorge Coleman, Esta, Yankee, CAM, Sharpie, Rubber, Mate posted Paper Mate, Dima, XPO ball and Mr. Coffee delivered excellent top-line growth. Our brands strength, has also how to successfully implement price increases. We are laser focused on protecting the Company's gross market.

If necessary, we will take additional pricing actions, to ensure that we fully recoup the impact of inflation over time. Similarly, to the second quarter, e-commerce top-line grew mid-single-digits, with digital penetration closer trading 2%, slightly above last year and significantly ahead of the mid-teens level from 2018.

We continue to invest behind our omni capabilities and our vowed position to capitalize on consumer demands regardless of where they shop. Let me spend a few minutes on our business units, beginning with Writing, the third quarter superstar. Core sales increased at a double-digit rate, driven by broad-based strength in the U.S.

and international markets. Core sales grew on a two-year stack basis as well, even though the commercial channel has not fully recovered yet. This is a testament to the excellent health of our Writing business. Consumption in the U.S.

has been strong throughout 2021 and accelerated sequentially in the third quarter as we leaned into the business momentum with higher AMP investment. The vast majority of cathedral schools in the U.S. return to in-person learning.

During the back-to-school season, we saw strong rebound in everyday writing business, which benefited from innovations such as Sharpie S-Gel and Sharpie S-Note, strong merchandising plans and distribution gains.

We picked up considerable share during the quarter in our writing business as a whole, including key back-to-school categories, such as pens, pencils, glue, permanent markers, dry erase markers, and highlighters. Over the past few years, we've meaningfully enhanced Newell's position in the pen category.

Where we've gained over 850 basis points of share. Thus far in 2021, within highlighters, Sharpie S-note has tripled its share of the growing highlighter market segment. Core sales for our Baby business increased at a double-digit rate, supported by terrific domestic consumption growth, both relative to 2020 and 2019.

Q3 marked the 5th consecutive quarter of core sales growth, driven by expanded points of distribution, innovation, continued strength in e-commerce, as well rather stimulus funding.

While Baby is the most highly penetrative business online, within Newell's portfolio, we leveraged our omniProvus to further boost our digital penetration in the quarter into the mid-50s.

We believe Charles tax credits, as well as increases in disposable income, and durable goods consumption have all benefited the gear market, over the past several quarters. While the category is likely to moderate, we expect it to remain healthy. In the U.S. Graco continued to gain momentum and picked up share in the rapidly growing market.

Home fragrance standing in its fifth consecutive quarter of cost sales improvement. As core sales grew both [Indiscernible], they elevated 2,000 training levels, as well as relative to 2019, driven in large part by EMEA. In the U.S. Yankee Candle retail stalls, maintain their positive growth momentum, benefiting from consumers, increased mobility.

As we continue to expand our omni capabilities, we rolled out buy online and pickup in stores, as well as ship-from-store options across our Yankee Candle retail stores, which drove a favorable response from consumers and helped us to fulfill consumer demand.

As anticipated, consumption moderator relative to the elevated base period but was significantly ahead of the 2019 level. Home Fragrance, along with Writing and Food, are our growth and value accelerator businesses, and I see tremendous runway for growth ahead. The team is gearing up for the holidays as Q4 is a crucial period for the business.

In the third quarter, the full business toughest, double-digit core sales growth comparison of 2,000 And was exacerbated by supply challenges, including a COVID-related lockdown of Oster steam plant in New Zealand, resulting in core sales decline. However, both top-line and domestic consumption, were meaningfully ahead of the 2019 base.

Which highlights the stickiness of the habits, that consumers developed throughout the pandemic. We expect the category to mid-Q from normalized. And that's been most evident on the Cookware side. We drove strong share momentum in food storage and food preserving. Recent innovations such as Rubber Mate, take a launch new credit.

The updated Rubbermaid beverage line, as well as Brilliance class, have been instrumental in driving market share improvement for Rubbermaid, as they elevate the consumer experience. In fresh preserving, Ball pantry storage latch, and Ball nesting jobs have contributed to share gains for Ball.

In home appliances, core sales increased for the sixth consecutive quarter. Newell has [Indiscernible] the toughest double-digit comparison of the year. Latin America, once again led the charge. In this market, our beloved Oster brand is spearheading the trends for multi cooking functions.

And recently launch Oster toaster oven with air fry, as well Oster rice cooker with air fry. Throughout 2021, Oster blenders of celebrating the 75th anniversary in the U.S. and Latin America with brand activation and new product launches in each region.

Domestic POS remains significantly ahead of 2019 levels, and only modestly below last year's level although the category continues to normalize relative to the outsized growth levels seen throughout the pandemic.

Despite the fact that people have come back to dine-in restaurants, consumers continue to show interest in cooking at home post the pandemic. In our Commercial business, sales -- core sales declined versus the elevated base as the business cycled against a significant search -- surge in washroom solutions.

On a two-year stack basis, core sales increased nicely during third quarter. The team has done a great job in landing new wins, both on the B2B and retail sites across the wide swap of categories, ranging from cleaning and refuse to material handling and others.

We saw healthy POS in track channels, but I've been significantly challenge on the supply side. The team is diligently addressing these constraints, as well as inflationary pressures. During the third quarter, core sales for connected home and security business were under pressure, despite very strong consumption in the U.S.

Core sound softness reflects both the challenging year-ago comparison, as we already stocking inventory at retail last year. As well as component availability challenges in the current year, mostly due to develop publicized chip shortage.

Outdoor recreation business delivered its third straight quarter of core sales growth at nearly 2%, against a difficult year-ago comparison of 8%. Core sales improvement was fueled by the strength in the outdoor equipment, and on-the-go beverage categories, with a matter of continuing to rebound unit improved consumer mobility.

We are encouraged by the momentum in the Outdoor and equipment unit with POS exceeding 2019 levels. The consumer continues to show interest in our goals, at trend bidding we think we'll endure. And one will continue to leverage throughout our innovation.

Coleman turning non-acquired growth, benefiting from enhanced product lineup in 2021, with strong plans in place for next year as well. Many of our Coleman products such as the, Skydome tent, cooler bag, and 2-burner stove are featured by USA Today as perfect gifts for people who love to travel, so keep them in mind for the holidays.

Strong results thus far give us confidence to improve our outlooks on both top-line and normalized earnings per share in 2021 despite significant inflationary and supply chain related pressures that continue to play the industry. Our updated guidance for 2021 implies that normalized operating profit is expected to grow high single digits.

A great outcome, particularly in the context of a difficult operating environment. Although we're certainly not immune to the external forces, the strategic decisions we've actioned over the past several years, have substantially strengthened the Company, and are made our portfolio much more resilient.

Firstly, we investment in omani(ph) channel capabilities that have been instrumental, in capturing consumer demand across all channels. On the direct-to-consumer side, recently completed migration of our sites in North America. The one consolidated platform, with a dedicated team focused on continuous improvement on consumer experience.

We substantially strengthened buying innovation, and marketing muscle, leveraging consumer insights and foresights, that we've sharpened brand positioning for many of our core brands. We have established joint business plans and enhanced relationships with key strategic retail partners.

We've instituted a new hybrid organizational model that brings our domain experts closer to our customers, and consumers while leveraging the center for scale inefficiencies. We have made productivity a way of life. We've reduced complexity in overheads, improved cash conversion cycle, and strengthened the balance sheet.

2021, has been a turning point for Newell, despite challenges posed by supply and inflation. Our teams have done an incredible job, executing in this environment, and we are poised to deliver 10 plus percentage core sales growth this year. Our first for our Company in recent history.

We recognized that 2021 has been a tale of two cities, a first-half, and second-half story. We delivered 23% core sales growth in the first half. In the second half, we're lacking strong growth from 2020.

The fact that we grew 3.2% in Q3, on top of last year's growth is an indication that our brands are resilient, are being rejuvenated, and we have the ability to grow even in this context of strong comp. The power of our diverse portfolio is coming through. The macro issues in the pandemic have taught us that we just cannot be reactive.

We're laser focused on continuing to strengthen the fundamentals and reducing complexity, including lowering SKU count, improving forecast accuracy, simplifying our IT infrastructure, and making it easier for customers to do business with us.

We are creating an integrated one newer distribution network through the consolidation of over 20 supply chains under the banner of Project Ovid. Looking forward, we expect supply challenges in inflation to persist. Therefore, our stance is one of preparedness, and realism, and taking proactive actions to successfully navigate the macro environment.

If 2021 was a year of turbo charging the top-line, 2022 will be focused on improving margins. Improving margins through five primary levers. First, an intense focus on pricing, and optimizing promotional spending. We have now taken price increases in 2021 across all of our 8 businesses in most geographies.

Our off share will be to maximize the impact of carryover pricing from '21 and to '22. And we will be prepared to take further increases in '22 based on inflationary trends to protect gross margin. Of course, will do this in consultation with our customers and ensure that our brands remain a great value for consumers.

Second, we'll accelerate our efforts to improve the profitability of our international business by reducing duplication, consolidating operations, and adopting a one Newell approach. Third, we will price innovations to be margin accretive. Fourth, we will continue to be more efficient with overheads.

Finally, we'll continue to be -- strive to be best-in-class in our productivity efforts, and drive about 3% to 4% improvement in costs, as we have done over the last few years. I'm extremely thankful to our 31,000 hardworking employees, for their unwavering commitment, tenacity, and perseverance.

I remain optimistic that Newell can create tremendous shareholder value, and our best days are ahead of us. On what set up puts, and now over to Chris..

building inventory on top selling and high-priority skews, Improving our forecasting process and adjusting it for longer lead times, diversifying our supplier base where feasible.

Accelerating automation across our factories and distribution centers, and enhancing compensation, benefits, training opportunities in working conditions for our frontline employees. In fact, during the third quarter, we announced meaningful wage increases across many of our factories and distribution centers starting in Q4.

We do not expect the supply pressures to dissipate in the near term, but we are confident that we are taking appropriate steps to both effectively manage them, and create more agility within our supply chain in the future.

We recently announced a new supply chain initiative Ovid, which is expected to transform Newell's go-to-market capabilities and end-to-end customer experience in the U.S., enhance customer service levels and drive significant operational efficiencies. We're planning to optimize the Company's distribution network in the U.S.

by consolidating 23 business unit - centric supply chains into a single integrated supply chain. We expect it will take about 18 months to fully implement Ovid. To minimize any potential disruption, we intend to roll it out in waves. During Q3, we passed an important milestone as we completed blueprinting and the integrated design phase.

We're now moving into the testing and implementation phase. Upon completion, Ovid is expected to streamline, automate, and digitize our supply chain and position us as a reliable retailer partner of choice. While Ovid was being contemplated prior to the recent events, once implemented, it should position us on a much stronger footing going forward.

Let's now move to third quarter results. Net sales grew 3.3% year-over-year to $2.8 billion, mostly driven by core sales increase of 3.2%. This was an excellent outcome as we cycled against 7.2% core sales growth in the year-ago period, with difficult comparisons across every segment, except for learning and development.

Normalized gross margin contracted 330 basis points year-over-year to 30.6%, gains from fuel productivity savings, favorable business mix, as well as pricing or more than offset by the inflationary headwind, which was nearly 800 basis points in the quarter.

Normalized operating margin came in at 11.4%, down from 14.9% a year ago, reflecting gross margin pressure, as well as a significant step-up in advertising and promotion expense. We continue to tightly manage costs and drive overhead to sales ratio lower year-over-year.

Net interest expense came down by $6 million year-over-year to $65 million reflecting debt reduction of about $750 million relative to last year. The normalized tax rate was 8% versus a normalized tax benefit of nearly 7% in the year-ago period due to a lower contribution from discrete items.

Normalized diluted earnings per share amounted to $0.54 as compared to $0.84 in Q3 of 2020. The unfavorable move in the tax rate accounted for about $0.12 year-over-year. Now, turning to our segment performance.

Core sales for the commercial solutions segment decreased 9.2% due to declines in both the commercial and connected home and security business units, which faced half-year ago comps. Core sales for home appliances grew 1.9%, primarily driven by Latin America.

Core sales for the home solutions segment were down 3.6% as core growth in the home fragrance business was more than offset by a decline in food, which lapped its toughest quarterly comparison of 2020. Core sales for The Learning and Development segment grew 19.6%, as both the writing and Baby business units delivered strong double-digit increases.

Core sales in the Outdoor and Recreation segment increased 1.7%. Newell's net sales were 8.5% above the third quarter of 2019, with each of the Company's segments exceeding levels from 2 years ago. On a 2-year stack basis, core sales increased in the low double-digits during Q3, as well as year-to-date periods.

Year-to-date in 2021, the Company's operating cash flow was $490 million versus $820 million in the year-ago period. This reflects an increase in working capital to support top line momentum and elevated in transit times for inventory, which more than offset significant operating income growth.

We continue to drive improvement in cash conversion cycle, which came down by another 10 days to 79 days. At the end of the third quarter, Newell's leverage ratio was 3.1 times down from 3.9 times a year ago. The improvement reflects our proactive choice, pay down debt, as well as a mid-teen increase in trailing 12-month normalized EBITDA.

In Q3, the Company redeemed approximately EUR300 million of a 3.75% notes that were due in October 2021. Furthermore, in mid-October, we announced our intention to redeem the remaining 250 million of the Company's 4% senior notes next month.

We have significantly strengthened Newell's Balance Sheet over the past several years and recently indicated that we are targeting a leverage ratio of 2.5 times, below our prior goal of 3 times. We intend to grow our EBITDA into this target, with no immediate plans for additional new debt tender offers.

This morning, we updated our outlook for 2021 accounting for, the stronger than anticipated performance in Q3, further escalation, and costs in the fourth quarter, continuation of supply chain disruption, as well as a relatively healthy consumer backdrop in the U.S.

We are pleased to once again raise our top-line forecast for 2021 as a result of healthy consumption and the early actions we have taken to alleviate the supply chain constraints. Our revised top-line guidance implies that core sales are expected to grow versus 2019 during each quarter of 2021.

Our outlook also indicates the core sales will be up versus 2020 in the first and second half of 2021, as well as for the full year. Let's go through the details of the full year of 2021 outlook. We currently forecast net sales of $10.38 billion to $10.46 billion up from $10.1 billion to $10.35 billion previously.

This represents about 11% year-over-year growth. We are raising our core sales outlook to 10% to 11%, from 7% to 10% previously, with the majority of the upside in the fourth quarter. While the U.S.

dollar has strengthened recently, currency favorability is still expected to modestly outweigh the impact from Yankee Candle retail store closures and other minor business exits.

As a result of further escalation in costs, including our decision to raise wages for the frontline, starting in Q4, we now expect full-year normalized operating margin to be slightly down relative to 11.1% in 2020.

Our updated forecast implies that normalized operating profit grows at a high single-digit rate, a solid result when factoring in the unprecedented level of inflation. We anticipate an increase in the absolute level of advertising and promotion spending.

This forecast assumes a mid-teens normalized effective tax rate and a slight increase in shares outstanding. We're pleased to improve our full year normalized earnings per share outlook to $1.69 to $1.73 from a previous range of $1.63 to $1.73.

There is no change in our full year operating cash flow guidance of approximately $1 billion as we continue to expect acceleration in Newell's cash conversion cycle. Focusing on the fourth quarter, we're guiding for net sales of $2.6 billion to $2.68 billion, with core sales expected to be within a range of down 2% to up 1%.

Our guidance assumes normalized operating margin of 8.7% to 9.2% versus 11.4% in the year-ago period as inflation is expected to outweigh the continued benefits from productivity and pricing. We are forecasting a normalized effective tax rate around 20% and normalized earnings per share in the $0.29 to $0.33 range.

While we're still early in our budgeting cycle for 2022, I wanted to provide a high-level perspective on how we are approaching it. We're encouraged by the progress our teams have made on the innovation side and have a strong funnel of new ideas planned for next year.

However, we anticipate a more muted top-line delivery, due to a very difficult comparison. While inflation is expected to remain above normal levels, we are looking at significant benefits from carryover pricing as well as productivity. This should result in stronger margin performance in 2022, relative to 2021.

We will continue to build operational excellence across the organization, as we roll out additional automation projects, and make strides with Haven implementation. We intend to provide more specifics during the fourth-quarter call, as has been the norm in recent years.

We believe we have a strong path for value creation, and we'll continue to diligently execute on our strategic agenda, to ensure that we position Newell Brands for sustainable and profitable growth. Operator, let's now open the call for Q&A..

Thank you. [Operator Instructions]. Will pause for just a moment to allow everyone an opportunity to signal for questions. Your first question comes from Bill Chappell with Truist Securities..

Thanks. Good morning..

Good morning, Bill..

Just a question on writing in particular. I mean, how that played versus your expectations in the quarter. whether there's still some carryover as you move in to next year. And how much that may be contributed to the upside. I know you had a muted outlook, we're really sure on the tail of back-to-school and back -to-office.

So, any color there would be great..

Sure, Bill. Good morning. How are you? This is Ravi..

Hi, Ravi..

Look. I think writing performed very well. I think the big thing was we weren't sure when we went into their quarter, we knew we'd have a good back-to-school, but there were the worries about the Delta Variant. I think what became evident was, this is one of the issues keeping the schools open for impacts and learning was a fairly bipartisan view.

So, we watch it, we can see that super majority of schools opened, and so that was great. But also, credit to our team, because they really hit the ball out of the park on merchandising, on e - commerce, on getting distribution, on innovation. They just had the whole package, and this is, as we have said before, one of the businesses.

[Indiscernible], because we manufacture most of our products except for Dymo, which comes from China in Tennessee. And so, we were able to have good supply. So, I think that really helped. And this is still in the backdrop because we had expected maybe offices to start opening up, but because of Delta, they didn't as much.

Despite all of that, the fact that the business did extremely well, I think it's positive and we're seeing that positive momentum continuing. We're very pleased. And yes, it did probably a bit better than our expectation. But look maybe not the highest margin business, we will take that any day..

Sure. No, absolutely.

And then it can all not seem, in terms of supply chain, as -- I don't think you really said anything there, but as you looking on Home Appliances and getting things from Asia going into the holiday season, are you -- is it any concerns you don't have enough inventory for what looks to be a pretty strong upcoming holiday season? I know Home Fragrance, you make it all here, but thinking more of anything that you're bringing overseas..

Yeah. Bill, on that one, we're actually in very good shape. One of the things that we did early on when we saw the supply chain pressure starting to build, and particularly with ocean freight, is we adjusted our planning process to add expected lead time to the planning process. We did that probably about 6 months ago, 4 to 6 months ago.

As a result, we early ordered a bunch of our top selling skus. That's why if you look at our balance sheet, part of the reason why our inventory levels are significantly higher than they were last year, and we've used cash to build inventories.

So, we feel particularly in the appliance category, that we are well-positioned to meet strong demand from an inventory standpoint..

That's great. Thanks so much..

Thank you, Bill..

Your next question comes from Andrea Teixeira with JPMorgan..

Thank you. And I wanted to just go back to what you just said, Chris, on building inventory ahead of the holidays.

And you had done it, I mean, a fantastic -- working some of getting market share in small appliances, but we also have to be cognizant of this cycle of these products, right? And some of these have been bought and I would say household penetration probably increased.

I was wondering, what is your take on that and what are your customers saying in terms of demand ahead of the holiday? And I also wanted to double check when the cadence of pricing, and what is the carryover that you mentioned before into 2022.

And you said that you want to take additional actions into 2022, so I'm hoping to see the cadence of your gross margin progression as we enter 2022..

Andrea, we'll split the question into 2 pieces. I'll have Chris answer the pricing piece and I'll just give you a view on appliances. Clearly, the number 1 business for us when you go into holiday, the Superbowl is for Home Fragrances.

And we believe we are well poised on the Home Fragrance side, not that's all our customers, but also in our own retail stores. As far as small appliances go, they've been very -- I'm very pleased to see the progress, the team has been making, and that we've had so many quarters of growth, yes.

Clearly, as we look down the future, you have to say, has there been some acceleration of consumer purchases. But having said that, I think there are several categories within appliances, and we're driving a lot of innovation. So, with the old Mr. Coffee Iced, we now have ice coffee pulp, we've got Hot and cold.

So, we got a lot of new innovations coming into the market there, that will help us sell. We've actually brought in new users, so I think in the main, I feel we're in a good place, but the end of the day -- look, you have to view Newell not -- you can't look at it just as one particular business, but the entire portfolio.

And that has been the beauty of how we manage the portfolio in entirety to work each quarter and to work the long term to say, how do you drive growth as a whole?.

On the pricing front, let me try to provide a little bit of perspective. At this point, we have announced pricing on every single one of our business units. The inflation impact is affecting our business units a little bit differently. The two most significantly affected business units are the Commercial business and the Food business.

And then there are other businesses like Writing and home fragrance, for example, that are much less affected by inflation. But everybody is affected.

Because of that difference in terms of how the inflation is impacting the business units, and because the inflation picture has continued during the year to get significantly more of a headwind, we've announced pricing on different timings.

And so, the first set of pricing broadly that we put into place -- went into place kind of in the April, May, June time period. The good news about that pricing is that pricing is now fully reflected in retails. And at least to date, we have not seen any negative reaction to consumer demand from the pricing that we put in so far.

And so that -- we take that as a very positive sign. There is a second round of pricing, broadly, that's going into effect that we've already announced that largely is going into effect in either November or beginning of January.

And so, when you look at the pricing impact in the P&L, the pricing impact in the P&L is going to get significantly bigger as we go forward sequentially from here. So, pricing will be a bigger help in Q4 than it was in Q3.

In Q1 of next year, pricing should be largely implemented and will be a bigger help in Q1 of next year than it is in Q4 of this year. At the same time, inflation, we think Q3, if spot right -- if spot rates stay where they are, Inflation will have been the biggest impact for us in Q3 of this year, and will begin to mitigate as we lap base periods.

So that gap if you will, between inflation pricing and productivity, we think Q3 was the biggest delta of that gap. And we think that gap starts to close, and reduce sequentially each quarter going forward..

That's great, super health focused on. Best of luck..

Your next question comes from Olivia Tong, with Raymond James..

Great. Thank you. Good morning. My question first around project of [Indiscernible]. I know this was planned before the global supply chain challenges start, but can you just talk about why now is the right time for presumably there likely be some disruption as you do switchovers and consolidate.

So, continue to expand a little bit more on that and if you had to expand the plan more recently, given all the logistics challenges [Indiscernible].

Yeah. Let me try a couple of things. We kicked off project COVID about 10 or 11 months ago. We didn't announce it until Barclays, but we kicked it off 10 or 11 months ago. And the reason why we thought now is the right time, is because we've made a lot of progress on SKU rationalization.

So, if you recall, at the end of 2018 when we started with the turnaround plan, the Company was trying to sell over a 100,000 SKUs. We've now reduced that through last year to 47,000. As of today, we're at 42,000 and we're on our way down to 30.000.

And so, because we've taken that SKU count reduction out, and improve the fundamentals of the operation, we believe we're now at a point where we can take the next step, which is to go from 23 unique supply chains into a single integrated supply chain.

We think this is going to allow us to move from shipping less than truckload shipments in small quantities, enforcing our retailers to order from us 23 different ways into the ability to order from us in a single way and ship full truckloads.

From both a service and a cost stand point, we think that this is going to be a major step forward for the Company, and really leverage the scale of Newell going forward. Now, when we kicked project on and off, the supply chain constraints, were not how they are today. We kicked the project off without that external backdrop in place.

I think the team has done a pretty amazing job of keeping on track. Unfortunately, we secured the two big new mixing distribution centers, prior to the current supply constrain dynamics. And so, we're monitoring it. We're going to be prudent on the implementation dates that we go and make sure that we execute the transition with excellence.

But if anything, the savings from the project have only gotten bigger as transportation costs have gotten bigger. In fact, we think the project is likely going to generate more value to us today than when we first started the project 9 months ago or 10 months ago..

Chris, if I could add some context. Olivia, we have to think about the new journey. I've been here 2 years, Chris, close to 3. And we've embarked on -- we've started it as a turnaround, but we're really talking about a transformation of the Company in terms of capabilities and looking at the long term while making sure that the short-term is healthy.

If you think about the first year, we spent a lot of time on stabilizing the organization, getting the culture, revving up the people, bringing the team in, the hybrid structure, etc. Next, our next phase was all about innovation, about brands, about e-commerce, and really getting the top-line, which is why you're seeing that momentum.

The next one is really all about how do we get our gross margins and in addition to the pricing, the supply chain, whether it's automation or [Indiscernible] we think are critical because we have to be easier to do business with our customers. This has been going on for years and years. We have to make it easier for our side of the Company.

With that -- and then the next one is, Button will be international. All of this is about a journey of driving shareholder value, and we obviously managed very carefully the execution of burden on our teams, and make sure that we don't slip up. But I think these have been managed to a good cadence.

And we're very confident that all of these will go along quite well as we progress followed..

Very helpful, thanks. If I could just ask a follow-up on sales. So, you mentioned this in the first quarter where, every sub-segment was about 2019.

Do you think this is the right base now off of which to grow over? Are there any comp issues that make this not the right way to think about it? Then just specifically for Q4, the sales outlook assumes a pretty big deceleration on the 2 years stack.

Is this more the uncertainty in the environment, or on relative to success of recent pricing, or is there something else going into that?.

Let me just give a quick view on that Olivia. First 2019 is a good where we think about that as pre-pandemic and that serves as a good guide. But over time, that will change. But 2009 [Indiscernible] good base. So having said that [Indiscernible] as we approach Q4 recognized couple of things.

One is that we've had a Baby business that has just been growing, and has [Indiscernible], like in the teams. And for all the reasons I mentioned in the prepared remarks.

But one of the things that's happened, the stimulus did end, and so -- and without a huge rise in birth rates, there's only so many how -- and there's a huge comp last year in the Q4, which is also very strong. So, we're -- the Baby business is comping very high on Q4, so that clearly -- we don't have that.

We still have Writing, which is growing in pretty well and so far, the businesses. I think we shouldn't get hung up about any particular quarter or business because we've got puts and takes. The overall thing is -- what we're striving to do, Olivia, is to get to sustainable, profitable growth over time.

And I really think that we're well on our way to do that..

The only thing I would add to that, Olivia is that last year in Q4, there was Amazon Prime Day, which moved to Q2 of this year. And so, we are in Q4 lapping the loss of Amazon Prime Day..

Thank you..

Your next question comes from Peter Grom with UBS..

Hey good morning, everyone..

Morning..

Just wanted to ask around the phasing of margin progression as we think about next year. Because when I look at the guidance, you are still kind of exiting this year with operating margins down north of 200 basis points year-over-year. Chris, like I totally understand the commentary that the pricing benefit productivity will ramp in Q1.

But is it still fair to assume that you think margins will be under pressure in the first half of the year, and I guess going back to Ravi 's initial comments around 2022, being the year of margin expansion. How should we think about your ability, to hit your long-term target of 50 basis points for next year? Thanks..

Yeah. I think it's the time for the question. I think it's premature for us to give quarterly guidance for next year, but what I would say is that we certainly believe that next year is going to be a year of margin growth for the Company.

And the reason for that is what I said earlier, which is a lot of the inflation impact that hit us this year, there's a timing lag between pricing and inflation. And even if you look at the 2 business units that we have suffered the most inflation, which are commercial and food.

We're on [Indiscernible] accounting, which means in those businesses that the inflation hits us immediately, in those businesses, and those have been the two biggest impacts. We've probably taken the -- a big inflation impact from the move in resins already in the P&L. The lag and pricing create a drag in the short-term.

But when we get into next year, we're expecting the benefit of carryover pricing plus productivity to be higher than the inflation impacts next year. If based on our current forecast, which is based on spot rates going forward.

By the way, we are also -- as we think about the planning for next year, we're not assuming that inflation is going to be transitory. We're assuming that inflation is going to be significantly above normal next year.

And we're building our plan assuming that and we're still confident despite that, that we're going to have significant margin growth next year..

[Indiscernible] one quick adds and Chris did a great job of giving you a view on that. When we started this process, I'm taking price increases stroke when way back when I think the whole world, including us, thought that inflation was going to be concentrate.

So [Indiscernible] by initiative pricing moves we're more on that because we thought, hey, those productivity and pricing, we may not have tried to cover it. Over time as we've seen this will become very realistic, and now our pricing posture is very clear. We are going to recoup inflation and that stand continue introduce that in 2022.

And so, I think that should give some reassurance on the margin front..

Great. Thanks..

Your next question comes from Chris Carey with Wells Fargo Securities..

Hi. I guess it's still morning on the East Coast, good morning. So just -- I just wanted to follow up on that pricing commentary, if I could. Pricing and productivity will be higher than your forecast for inflation next year, and you expect significant margin progression.

When you say margin progression, you're speaking about the full-year, [Indiscernible] the cadence will grow over time. This is more just a clarification question that I have a follow-up..

Yeah, that's right. I think it's pretty mature for us to give quarterly guidance for next year, as we were just in the middle of our budget plan. But for the full year that's what we're expecting..

Okay. Alright. Thanks for that. And then it's connected to the prior questions, but I guess that historically, a criticism or perhaps an observation of the business is that it's quite disparate. Clearly, that's improved with SKU rationalization and some business es that have been sold.

I guess with this Project Ovid is the idea that these businesses can all actually make sense together to create a more scaled, efficient platform, or the historically this combination of an [Indiscernible] and platform Company come together creating a more scaled organization that makes sense together over time, or are there still going to be decisions that need to occur over time about pruning and improving the portfolio, which I suppose is always an observation, but more in the context of the supply chain initiative that you're doing to try and create a more scaled organization of Walton I suppose..

Yeah. I think that's exactly the vision and it's well said in your question. If you look at our businesses, the 8 businesses we have today, the place where we have a lot of commonality is in the top retailers. And so, if you look at the top 4 retailers that the Company does business within the U.S. Walmart, Target, Amazon, and Costco.

Those top 4 retailers are pretty consistent across every one of our business units. And the thing that's good about that is that's why this integrated supply chain network makes a lot of sense. Because we're shipping to the same customers, the same locations.

And instead of forcing those retailers to give us 23 separate orders and then we ship from 23 locations and we have 23 invoices and we're shipping 23 small part -- less than truckload shipments, if we can have them give us one order on one set of terms and ship one full truck, that is a huge efficiency for both us and for the retailer, and I think it allows us to create a competitive advantage versus many of our sub scale competitors.

So that's largely the thinking behind that. On the portfolio pruning point, I think we've been pretty consistent there. Which is why we think we've got strong organic growth opportunities, in both top and bottom line, and each of our business units.

It doesn't mean that we're not going to do some portfolio moves in the future, but we're likely going to be more on the tuck-in, or acquisition or tuck-out divestiture side. We're going to be driven by a shareholder value creation, as we think about any portfolio moves.

One connection that we think about it under pandemic has helped, that truly Newell is all about the home. Both indoors and outdoors of any products really cater to that. So, whether it is.

the mom, whether it is the kitchen, there lot of connections. And we've just not -- in the past, there was more for holding Company approach, now we're really integrating the back-end that Chris said, but also the front.

You'll see us do more connections between our brands, more promotional opportunities, because we think that there's a lot of connections, which we have just not exploited. And I think we're going to do that as we become more and more mature on the turnaround and go-forward..

Okay. Thanks so much..

Your next question comes from Kevin Grundy with Jefferies..

Great. Thanks. Morning everyone, two for me this morning, if I may, the first one on [Indiscernible] for Chris.

Can you comment now on the margin in working capital opportunity there, but particularly within the context of what you've already outlined, Chris, so that will be the gross margin benchmarks and the overhead benchmarks, which in aggregate are some 500 to 700 basis points of opportunity.

Can you just comment on, while [Indiscernible] be incremental to that, or do you see it more as an accelerant to reaching those targets over time? So that's the first question and then just the second question. I didn't hear any commentary, I guess on share repurchases. I think you guys have left the door open for that in the past.

I think your updated thoughts to the board's updated thoughts there and whether Chris, the small tweak your capital structure target now down to 2.5 from 3 if that changes your thinking at all with respect to returning cash to shareholders. So, thank you for both of those..

Very good. Thanks, Kevin. So on [Indiscernible] certainly we expect [Indiscernible] to be a significant contributor to gross margin improvement. I think that we view it not incremental to the 3738 target that we had put out previously. I think we view it as a building block to getting to that target over time.

On the overhead part, we do not expect [Indiscernible] to have a material impact on overhead. What I will say is that embedded in this year's guidance as a pretty significant overhead investment that we've made in the team and consulting costs, etc., for the [Indiscernible] project, but that's already embedded in our existing guidance.

And when we actually complete the project, that cost will come out. And so eventually that sort of above the going costs that we've got built in this year on overhead is likely to go away as we get to 2023. On the share repurchase question, just to be clear. As I mentioned in the prepared remarks, we retired about 300 million Euro of debt in Q3.

In Q4 we've called our June 22 notes of 250 million, which we expect to retire in Q4 of this year. As we go into next year, we do not expect any more reduction in the level of our gross debt. We think that as we move into next year, we're going to move to our leverage target through EBITDA growth, not through debt reduction.

As a result, we think that as we move into next year, it's going to open up the opportunity for share repurchase, as we expect to generate more than enough cash to cover investment in the business, and the dividends fully and so we are moving into a period next year where the capital allocation begins to get freed up..

Very good. Very clear. Thank you, guys. Good luck..

The final question comes from Lauren Lieberman with Barclays..

Great. Thank you. And I just had one question on your relative competitive positioning because I think the fact that you were so forward thinking in building inventory ahead of the holiday season, knowing what you know about the length of your supply chain and ocean freight, etc.

I was just curious how your in-stock positions are comparing in key categories to competitors. I know market share is a very tough thing to measure in a lot of Europe businesses.

But just even qualitatively, how would you describe that environment, the degree to which you're picking up, whether it's share or it's already enhancing your relationship with retailers because of your service levels during the upcoming holiday season? Thanks..

I think -- let me give that a shot. I think it really varies, it's smaller one size fits all. Because despite building up the inventory for the businesses, where we're importing that has an impact, but I'll just tell you on shares. The Writing business as I mentioned, really big winner on the share from not distant fans but overall.

We think throughout the year, this year, on a year-to-date basis, our Candle business, I hate to use the word saying has been on fire. But it's been doing amazingly well. we do believe that we're making a lot of traction. The Baby business, we've been gaining share. I think we've got different businesses where we are gaining share.

And the -- but there's some businesses where the demand has been so high and unexpected that -- and also it depends on the price points we play at. Like in appliances, while we've had terrific growth, we operate more on the opening price points and so there were -- saw on a dollar basis.

Even though we've had good growth, we may not be seeing the share improvement. I think it varies outdoor where we bring stuff. I mean, we're really pleased to see the good growth that is happening. And I think we're beginning to really get supply right.

We had some issues during July, August, but I think we're now back on track there and the outdoor -- the beverage side, especially, we are getting back on track. I think it varies. Our Food business, some of the demand has been so high on things like Ball. Certainly, that has been a challenge for us.

But Ball, that is really the very -- the -- it's got such a dominant share of that business. So that has been complicated for us from lids, bottles, etc. It varies and -- but let's put it this way, everything we can do from maximize the top-line opportunity, we're doing, working in close collaboration with our customers.

But it's been tough on service levels because, I wish our service levels were better, but every competitor today, I think is wishing they'll be better. I can't say it's nirvana, but I do think that we're doing our best.

I really feel the one thing I can tell you though, our brands are in a better shape and rejuvenate, at far better today than they were. I know one of your favorite businesses of ours is Baby, I will tell you about -- you didn't ask me, but I will tell you because you usually ask about our baby innovation.

I'm very excited about the Baby Jogger city turn, where you can turn the car seat to have the baby face you. Now I wish I had grandkids; my daughter is going to get married. So hopefully I can start using this someday. But that and the specific [Indiscernible] strollers. I think Baby [Indiscernible] we're doing a lot to rejuvenate that business.

So [Indiscernible] brands and good shake. So, we'll get the top-line and the shares where we can..

That's great. Thank you for such a thorough and candid answer, have a great weekend..

You too Lauren..

Thank you, Lauren..

This concludes our call today. A replay of the call will be available later today on our website, ir. newellbrands.com. Thank you. You may now disconnect..