Chris Peterson
Chief Executive Officer at Newell Brands
Thank you, Joanne, and good morning, everyone. During our call this morning, we would like to do several things. First, we will walk you through the substantial and impressive progress we made against our 2024 business and financial priorities, which was driven by the disciplined implementation of our new corporate strategy, operating model and culture transformation. Second, we'll provide some additional perspective on tariffs and how we are approaching both the challenges and opportunities they present us with. Third, we'll share our business and financial priorities for 2025.
Finally, after my prepared remarks, Mark will provide additional perspective on our 2024 4th-quarter and full-year results and share our preliminary financial guidance for 2025. Let's start with an update on how we performed against the five key business and financial priorities we established at the start of 2024. As we look-back on the year, we believe we have successfully delivered against our top priority, which was to fully operationalize our new strategy and operating model while strengthening our culture. At this point, our strategy has been rolled-out to all business segments, regions, brands and functions.
We have fully implemented our new operating model with brand-management in-place for our top-25 brands, one new geographic go-to-market organizations in-place and all supply-chain and back-office functions centralized and largely integrated. We have upgraded talent in key roles and strengthened our culture, which is focused on high-performance, innovation and inclusion. Doing so has allowed us to make significant progress toward unlocking the full potential of the organization and our portfolio of leading brands. Although we still have work to do, the new strategy, operating model changes and cultural transformation are clearly yielding positive results as evidenced by the fact that we reported another strong quarter with all key financial metrics in-line or above our guidance range.
Improving top-line performance was a key objective for 2024. And against that goal, we made noteworthy progress. The 4th-quarter and full-year core sales growth was in-line With our expectations with sequential improvement in the second-half versus the first-half of 2024. Importantly, core sales trends improved across all six business units, with three turning positive for the year as innovation drove annual core sales growth in the baby, writing and commercial businesses. In fact, both the Learning and Development segment and our international business as a whole have positive core sales growth in all four quarters of 2024, which we believe is solid evidence that our One operating model is working. While we are pleased with the strong progress in 2024, we are not satisfied with a 3.4% core sales decline for the company even as we continue to experience category contraction. We remain laser-focused on returning the company to sustainable and profitable growth and more broad-based share gains, and that is precisely why we have been moving swiftly in implementing our strategy. Dramatically improving the structural economics of our business was our third top priority. And there we drove exceptionally strong gross and operating margin improvement. Normalized gross margin improved sequentially each quarter and increased 460 basis-points to 34.1% for the full-year compared with 2023. Outstanding productivity, pricing and product mix delivered the highest full-year normalized gross margin reported since 2018. Normalized operating margin of 8.2% improved by 210 basis-points, which was driven by improved gross margin and was partially offset by higher A&P spend, incentive compensation and wage inflation. Since introducing our new corporate strategy in June 2023, we have reported six consecutive quarters of year-over-year gross margin improvement and five consecutive quarters of year-over-year operating margin improvement. Newell's strong margin performance helped drive substantial progress across our fourth key priority for 2024, which was improving cash-flow and strengthening our balance sheet. Strong double-digit normalized EBITDA growth and an eight-day improvement in our cash conversion cycle generated nearly $500 million of operating cash-flow, which in-turn allowed us to reduce debt and delever the balance sheet by nearly one full turn, allowing us to-end the year with a leverage ratio of 4.9 times. Our last stated goal for 2024 was to reduce complexity through business process redesign with a focus on simplification and accountability, technology standardization and enablement and continued SKU count reduction. Consistent with this objective, we further consolidated our ERP environment, eliminated 35 legal entities, reduced brands from 80,000 to about 55, rationalized almost 2,000 additional SKUs, bringing us below 20,000 versus over 100,000 in 2018, and we reduced the supply base by 25% over the past two years. Notably, we also reduced the number of distributors across Latin-America, Europe and Asia by 33% last year. And finally, we dramatically exceeded our weighted forecast accuracy target, which helped us achieve a 95% global fill rate, the highest in Newell's history. Now let's shift to the elephant in the room, which of course is tariffs. As we've discussed previously, Newell has been actively pursuing a tariff mitigation strategy for some time, which we discussed at length during our second-quarter earnings call and which we believe leaves us better-positioned than most to navigate both the challenges and opportunities being presented by recent announcements. As a reminder, we manufacture about half of our products and source the remainder. For the last few years, we have been primarily working to reduce our dependence on China sourcing. We began accelerating our efforts about a year-ago, and we are continuing to pursue the following actions. First, we're economically feasible, we in-sourced production from China and invested in Newell's existing manufacturing network. We've already completed multiple in-sourcing projects, including both finished goods and raw-material components in the writing, baby and home businesses. Second, we have been shifting production out of China and into alternate geographies through both existing and new suppliers, which we have been proactively qualifying for major purchase pools. At this point, we have evaluated country of origin for all Chinese suppliers and are not signing on any new suppliers that do not have existing or defined plans already in-place to establish manufacturing capabilities outside of China. As a result, sourced finished goods that newle imports from China to the United States now only account for about 15% of the company's total cost-of-goods-sold, including a large portion of baby products that are currently exempt from 301 tariffs to provide relief for young families. Importantly, based on the work already in-progress, we are on-track for this exposure to imports from China to be less than 10% by the end of this year. With respect to Mexico and Canada, we are monitoring the situation closely. Imports from Mexico to the US represent about 5% of Newell's total cost-of-goods-sold, while imports from Canada are negligible. While we recognize this will likely be an area of ongoing uncertainty, we also believe it can be a potential source of competitive advantage. For example, there are several categories where competitors continue to source from China, while Newell has significant US manufacturing capability, including writing, coolers, food storage and candles to name a few. Our strategic shift in 2023 to a one supply-chain model and continued investment in Newell's expanded US manufacturing footprint positions us to be competitively advantaged in certain product categories, and we are currently having active dialogue with several strategic retailers to ensure they are aware of our strong US manufacturing footprint, which has some additional capacity, which can be quickly brought online on a first come, first serve basis. Turning to 2025, we expect the macroeconomic backdrop to be dynamic. Lower-income consumers remain under pressure from the cumulative impact of inflation over the last several years. The recent substantial appreciation of the US dollar, along with evolving tax policies and potential tariffs and trade regulations in the US contribute to a fluid and complex operating environment. Within this context, we plan to drive continued strong progress on the turnaround agenda and have established five major priorities for 2025. First and foremost, our goal is to return the company to top-line growth through continued execution of the corporate strategy with emphasis on product and commercial innovation, distribution expansion and international growth. On the innovation front, we are launching and investing behind an increasing number of Tier-1 and Tier-2 mid and high-priced new products across the business. I'll share a few examples of these with you today. In the baby business, we launched the Graco SmartSense soothing and Swing, which detect and respond to baby's cries in seconds with soothing sound and motion in the second-half of 2024. The product is off to a strong start and we plan to expand distribution and fully support it throughout 2025. Just last month, Graco launched the new Easy 360 two-in-one rotating convertible car seat that will help parents easily get their little one in and out-of-the car. The seat features a 360 degree one-hand turn and has a slim design to save precious space in the car. In our writing business, building on the successful first year of Sharpie Creative markers, we are excited to expand the line with 12 new Earthtone colors and a new find tip for enhanced precision and outlining. These new products also provide the vibrant paint-like ink and the control of a marker that consumers love. Our research confirms that creative enthusiasts are eager for even more color variety and this expansion delivers exactly that, offering new ways to blend, layer and express creativity. Another important writing business innovation launch will be with Expo, the leader in presentation markers, we developed a proprietary ink designed to enhance vibrancy and color on Expo dry erase markers. This new ink improves readability from across classrooms and conference rooms while expanding usability beyond traditional whiteboards to glass, plastic and other clear surfaces. In addition, we are launching a new wet erase liner under the Expo brand that creates a whole new segment of semi-permanent markers. Rubbermaid commercial products will be launching the first of several new brute farm products, a line of animal feeders that are extremely durable and easy to clean. Importantly, this product-line is based on significant front-end consumer research as our team spent time talking to and visiting hundreds of farmers over 18 months and incorporated this insight into the product development. These animal feeders have a market-leading 10-year warranty and are made in the USA. Our kitchen business launched the Oster Extreme Mix Professional Blender with first-to-market patented titanium coated blades. This lab-tested powerful 1,600 watt high-performance motor and reversible motor technology unique to the Oster brand, Processes even the toughest ingredients in a matter of seconds. Oster Extreme Mix will be available in both the US and Mexico. Later this year, the kitchen business will launch rubbermaid easy store food storage, which builds on years of consumer feedback to deliver a durable and easy-to-use solution that stacks simply and is built to store your way. This product will offer a secure grip lid that opens with ease yet seals securely and comes in several shapes and sizes to efficiently store all of your leftovers. In our home fragrance business, this is an exciting year for Yankee Candle as we continue to innovate and elevate our brand. First, we are revitalizing our core portfolio with the Yankee Candle relaunch, introducing a soy wax blend for a cleaner burn and an even better fragrance experience for our consumers. These year-round favorite fragrances are still housed in our iconic jar vessel now enhanced with beautiful new label designs that further reinforce our fragrance first strategy in-home fragrance. We are also introducing Yankee Candle Premium, a sophisticated new line designed to attract a younger consumer in our aesthetic admirer segment. We know this consumer is willing to pay more for high-quality products and this collection delivers featuring custom glass vessels with artisanal watercolor graphics, proprietary soy wax blend and seven new fragrances designed by master perfumers. Within the Outdoor and Recreation segments, main product innovations are targeted for 2026. We have some 2025 commercial initiatives with exciting influencers, namely Ally Love, renowned fitness expert for Contigo brands and Country Music sensation Kane Brown for Coleman brands. These are just a few examples of the increased innovative product launches for 2025 that we expect to drive our first priority of returning the company to top-line growth during the back-half of this year. The second 2025 priority is to drive operating margin improvement well-ahead of our evergreen financial model, which calls for a 50 basis-point improvement each year. By building on the meaningful gains achieved in 2024, we expect the continuation of our fuel cost-savings program and other cost-savings initiatives to more than offset the impact of inflation and the increase in A&P we have planned to support our innovation program. Third, continue to delever the balance sheet and improve the cash conversion cycle. Within this, we are planning to fully fund all the necessary high-return capability improvement and restructuring projects to build a multi-year productivity improvement runway. Fourth, drive operational excellence via complexity reduction, technology standardization and enablement and continued SKU count optimization. And lastly, advance our transformation into a high-performance, innovative and inclusive culture by exemplifying our values, leadership, passion for winning, integrity, ownership and teamwork. In summary, during 2024, amidst a challenging operating environment with contracting categories, foreign-exchange headwinds and continued inflation, we delivered significant year-over-year sales performance improvement as we strengthened the company's front-end selling and marketing capabilities, drove very strong gross and operating margin improvement, while purposely increasing our level of A&P investment and we meaningfully delevered the balance sheet through both debt reduction and EBITDA growth. While much work remains and the macroeconomic backdrop is still uncertain, we are laser-focused on returning the company to sustainable top-line growth, continuing to drive above-algorithm operating margin improvement and strengthening the balance sheet. Finally, I want to recognize and thank our incredible team for their hard work and dedication in delivering our 2024 goals. Their contributions have been pivotal to our success, and we deeply appreciate the commitment, grit and passion they bring to brands every day. The measurable progress on our strategy and turnaround agenda enhances our confidence that we are taking the right actions to strengthen the organization, improve its financial performance and create value for our shareholders. With that, I'll now hand the call over to Mark.
