Ravi Saligram
Chief Executive Officer at Newell Brands
Thank you, Sofya. Good morning, everyone, and thank you for joining us on our third quarter call. Following strong performance over the first half of the year, the company's results decelerated in the third quarter, reflecting a tough operating environment as many retailers rightsize their inventory positions, inflationary pressure on both the consumer and our business as well as the impact of a stronger dollar.
Additionally, Q3 performance was unfavorably impacted by customers shifting orders into the first half. As a result of these factors, core sales turn negative in the quarter, declining 10.8% on top of 3.2% growth last year. This had a corresponding deleveraging impact on normalized operating margin, which contracted 120 basis points year-over-year, despite strong progress on productivity and cost containment actions.
Core sales declined year-over-year in all business units, except the commercial business as the pullback in customer orders was a significant headwind. International markets outpaced North America as we did not experience the same level of retailer inventory reductions there. Core sales outside North America declined 1.4% as 4.8% growth in Latin America was offset by declines in EMEA and Asia Pacific. Weak consumer confidence due to record inflation and concerns surrounding the war in Ukraine continue to weigh on the EMEA region, with APAC region impacted by COVID-related restrictions and lockdowns in certain markets.
Year-to-date, Newell's core sales declined 1.3% on top of a challenging 15.2% growth comparison a year ago as normalized operating margin expanded 10 basis points year-over-year despite significant inflationary and foreign exchange headwinds.
Many of our key brands continued to show strength year-to-date, including Rubbermaid Commercial Products, Sharpie, Paper Mate, EXPO, Elmer's, Ball, Rubbermaid and Contigo. While domestic consumption moderated year-over-year, it continues to exceed 2019 levels, both during the third quarter and year-to-date. Going forward, we expect demand patterns to continue to be unfavorably impacted by inflationary pressure on the consumer, which has constrained discretionary spending, particularly for value-driven shoppers.
In some categories, such as home fragrance, we have lost low-income shoppers, who were only able to enter the category last year due to the boost from the government stimulus. We expect some pandemic-related trends that elevated demand to continue to subside. Due to concerns about the high price of everyday goods and gas, a potential recession, rising interest rates and declining personal savings rate, we are seeing a more cautious consumer today, but one that is willing to purchase an offering that provides good value. We have been optimizing our product assortment to ensure it provides the appropriate value proposition to the consumer.
We've also been activating shopper campaigns with a focus on value messaging to better connect with shoppers and customers. The commercial business unit was a true standout this quarter and year-to-date, registering core sales growth north of 9% in both time periods, enabled by excellent execution and strong price realization with our innovation and assortment hyper-focused on reducing cost in use and delivering savings to our end users. It is leading to positive momentum in our B2B verticals and professional customers and distributors. Strength in the B2B professional channel was further fueled by improved mobility and return to the office as well as distribution gains, which helped offset the impact of moderating traffic at retail.
In the B2B channel, customers seek performance, quality, and strong durability all of which are at the core of our Rubbermaid Commercial Product offerings. As a result of shifting consumer behaviors, the decision by many retailers to aggressively manage their inventory levels and reduce orders weighed on performance on the majority of our consumer-facing businesses. While core sales declined for six business units during the third quarter, we do not believe this is indicative of underlying operational health issues, but rather the dynamic environment we are in as well as base period comparisons. Let me illustrate this point through a discussion of our Baby and Writing business units.
The Baby business was cycling against a challenging double-digit core sales growth comparison. While core sales declined in the quarter, it increased relative to 2020 and 2019 levels despite the headwind from retailer actions as well as the shift in timing of shipments into Q2 ahead of Project Ovid implementation. Domestic consumption grew versus last year across baby gear and baby care categories, which have shown some resiliency given the nondiscretionary nature of the products. We continue to see strength in our industry-leading -- turning car seats to major new innovations under both Graco and Baby Jogger brands. NUK For Nature Collection is also delivering very strong performance.
For Writing, given the timing shift of some retailer orders for back-to-school into the first half of the year, it's more appropriate to focus on year-to-date performance. Core sales increased low single digits year-to-date, with domestic consumption also up versus last year. During the back-to-school season, the category grew modestly as the strong start due to earlier store resets was followed by a slowdown for the end of the season. We held our ground despite supply constraints across several categories, including mechanical pencils, ballpoint pens and highlighters. Dry erase markers and glue sticks were the best-performing categories during the back-to-school season for us.
Year-to-date, the office channel has seen steady growth as return to office continues to progress. While work is already on the way in preparation for next year's back-to-school season, as we look to the balance of this year, we're excited to expand our offerings in the vibrant children's activity category.
We recently launched Elmer's Squishies. This do-it-yourself kit includes everything to make your own surprise squishy toy in just 60 minutes. This is a fun new way to unlock creativity and imagination with kids and an exciting expansion of the Elmer's brand into an adjacent category. We are continuing to invest in innovation and brand building in Writing and ensure we have the right price pack architecture in key markets that conveys strong value. 2022 has been a dynamic year as it relates to the operating backdrop, consumer and customer behavior as well as the overall macroeconomic and geopolitical environment. 2022 has also been a tale of two cities for Newell Brands with strong first half results, followed by a significant slowdown in the back half.
We have been very disciplined with pricing actions over the past two years to help mitigate the impact of massive inflation. Despite progress on productivity and pricing, we do expect to take a step backwards on gross margin this year due to fixed cost deleveraging, the high level of inflation and unfavorable currency impact.
However, we remain as committed and focused as ever to rebuilding gross margin and reaching benchmark levels over time through productivity initiatives, inclusive of Project Ovid and automation; two, being very disciplined around launching gross margin accretive innovation; three, significant pricing actions internationally to offset the impact of transactional FX, or proactive price/mix and category management as we are assessing additional opportunities to optimize category mix within each business unit and a strong emphasis on revenue growth management, taking an even more aggressive stance on SKU reduction and supply network optimization.
With the macro drop -- backdrop getting more difficult in recent months, we expect economic uncertainty and external disruptions to persist in the near term. As a result, we think it's prudent to plan for a recessionary environment in 2023 with a softer top line. We're acting with speed and agility as we adjust our playbook to this environment while taking actions that are within our control to maximize profits and cash.
Within that context, the Top 5 priorities we are laser-focused on include: number one, accelerating cash flow generation as we significantly rightsize the company's inventories; number two, driving a recovery in gross margins as we turbocharge productivity and price internationally to mitigate the transactional foreign exchange impact; number three, significantly reducing overheads both in the U.S. and internationally by leveraging the scale of One Newell while closely managing discretionary expenses and optimizing advertising and promotion spending as well as the company's office footprint.
And finally, redirecting investment towards higher-margin businesses in particular Writing to turbocharge innovation and to best leverage the power of our brands and diverse portfolio to meet consumer and customer needs. And third, delivering the next level of simplification and complexity reduction by accelerating SKU rationalization, transforming manufacturing operations and creating a portfolio of mega brands.
Importantly, we're applying a balanced approach between ensuring we effectively navigate through the short-term challenges and volatility while maintaining the long-term focus. Our ultimate goal is to position the company to come out even stronger as the macros improve. We will harness the strength of our brands, build on our e-commerce and omni prowess, leverage our scale to drive a One Newell approach to realize synergies, reduce international fragmentation, continue to transform our supply chain to focus on manufacturing efficiencies and vigorously reduce complexity to build competitive advantage and drive sustainable and profitable growth.
The decisive actions we have taken over the past several years to address pandemic-related challenges while executing on the turnaround agenda, we believe, have enabled us to be a much more operationally agile and resilient consumer- and customer-centric company. We continue to see a long runway ahead. for value creation, onwards and upwards.
And now I'll turn it over to Chris.