Mark Erceg
Chief Financial Officer at Newell Brands
Thanks, Chris. And good morning everyone.
While we are still writing the first several chapters in Newell's turnaround story, we are pleased to report that core sales, normalized operating margin and normalized earnings per share were all better than the guidance we provided on our fourth quarter call. We believe this is further evidence that the interventions being made to operationalize Newell's new corporate strategy and improve the structural economics of the business are beginning to take hold.
Core sales at minus 4.7% represented a nearly 50% improvement on a run rate basis when compared to a 9% decline in the back half of 2023, and was the best core sales performance posted since the second quarter of 2022. As expected, pricing in international markets, particularly Latin America, which was largely in response to currency movements and inflation, was a meaningful contributor to core sales performance.
Investments in Newell's front-end commercial capabilities, particularly innovation and the new business development, as well as the more streamlined organizational structure following our organizational realignment, also positively contributed to the company's top and bottom line results. A 3% headwind from currency, largely driven by hyperinflationary conditions in Argentina, accounts for most of the difference between core and net sales which contracted 8% year-over-year to $1.7 billion. We offset the bulk of this currency headwind with pricing in the market.
Perhaps even more encouraging than the sequential improvement in Newell's core sales trend was the 410 and 220 basis point expansion in normalized gross margin and normalized operating margin versus year ago to 31.2% and 4.6%, respectively. This was the third consecutive quarter of normalized gross margin improvement and the second straight quarter of normalized operating margin expansion year-over-year.
Savings from best-in-class productivity, Project Phoenix and organizational realignment along with favorable mix and pricing were the largest drivers of normalized operating margin expansion in Q1, which more than offset the impact of lower net sales, inflation and higher advertising and promotion investment levels. While we're on the topic of advertising and promotion, it bears repeating that we remain committed to putting more A&P dollars to work behind compelling consumer-led product innovations such as Sharpie Creative Markers and Paper Mate Inkjoy Gel Bright, which is why our A&P spend was up versus last year in both absolute dollars and as a percentage of sales.
In addition, and in a similar vein, the fact that overhead spending increased versus last year as a percentage of sales despite being down in absolute dollar terms due to over $50 million of Project Phoenix and organizational realignment savings is not lost on us. The increase in overhead spending as a percentage of sales versus a year ago was largely due to top line deleveraging, annual wage inflation and discrete investments being made to enhance several critical front-end commercial and consumer-facing capabilities required to support our new strategy.
Importantly, we believe these organizational investments are starting to come to fruition as evidenced by the green shoots Chris mentioned earlier. As such, we remain fully committed to them and while we do expect overhead as a percentage of sales to remain elevated in the near-term, we believe it will start turning down as our revamped product innovation funnel continues to improve and comes to market.
Net interest expense rose $2 million versus last year to $70 million, primarily due to higher interest rates, all of which netted out to flat normalized earnings per share for the quarter despite a much higher-than-expected quarterly tax rate. From a cash flow standpoint, Newell generated $32 million of positive operating cash flow in the first quarter of 2024 compared to a use of $77 million in the first quarter of 2023. Working capital reduction, together with operating income growth resulted in positive operating cash flow, which due to the seasonality of our business has been very hard historically to achieve during the first quarter.
Notably, this is the first time Newell has generated positive first quarter operating cash flow since 2020 and only the second time first quarter operating cash flow was positive since the Jarden acquisition in 2016. Newell's strong cash performance also helping the company's leverage ratio down to 5.4 times at the end of Q1, which was better than we had originally anticipated.
Moving on to our second quarter outlook, we have assumed the following. Core sales are expected to decline 4% to 6%, with net sales down 7% to 9%. As with the first quarter, most of the difference between core net sales is expected to be driven by foreign exchange. We expect normalized operating margin of 9.1% to 9.6%, which is flat to up 50 basis points versus last year.
The second quarter normalized operating margin performance is expected to be driven by a meaningful improvement in gross margin, partly offset by an increase in SG&A spending in both absolute dollar terms and as a percentage of sales, primarily driven by a step-up in A&P as we continue to invest behind new consumer-led innovations. We expect a slight uptick in interest expense, a normalized tax rate around 20% and normalized earnings per share in the range of $0.18 to $0.21. With a stronger-than-anticipated start to the year and with full knowledge that Q1 is traditionally our smallest quarter, we remain confident in our full year outlook.
Consistent with that, we are affirming 2024 guidance, which assumes the following. A core sales decline of 3% to 6% with a net sales decline of 5% to 8%. Normalized operating margin of 7.8% to 8.2%, which at the midpoint represents a 100 basis point improvement. If achieved, this would double the 50 basis point annual expansion called for in our evergreen financial model. A normalized earnings per share guidance range of $0.52 to $0.62, which includes a mid-teens normalized tax rate and a $15 million to $20 million step-up in interest expense.
Now you may recall from our last discussion that this EPS guidance range at its midpoint represents high single-digit growth versus last year once a $0.26 year-over-year tax differential is accounted for. For the full year, we continue to forecast operating cash flow of $400 million to $500 million including about $150 million to $200 million in cash restructuring and related charges. From a leverage standpoint, we continue to expect Newell's leverage to drop to about 5 times by the end of Q4 and longer term, we remain committed to achieving investment-grade status and continue to target a leverage ratio of about 2.5 times.
In closing, it is worth noting that in the last three full quarters since our leadership transition and the development and adoption of our new corporate strategy, Newell returned to normalized gross margin expansion with year-over-year increases of 170 basis points in Q3, 570 basis points in Q4 and now 410 basis points in Q1 of 2024.
Over that same three-quarter period, we have also generated $685 million of operating cash flow, paid down about $360 million of debt and lowered our leverage ratio from 6.3 times to 5.4 times. Therefore, while we are the first to acknowledge that much more work remains as part of our business and organizational transformation to a world-class consumer products company, we are encouraged by the significant progress Newell's highly professional and dedicated employees have delivered in such a short period of time and remain supremely confident in our ability to fully operationalize and monetize Newell's new corporate strategy in the years ahead.
Operator, if you could, please open the call for questions.
