NEWELL BRANDS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Newell Brands Inc.’s (“Newell Brands,” the “Company,” “we,” “us” or “our”) consolidated financial condition and results of operations. The discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. Forward-Looking Statements This report contains forward-looking statements within the meaning of the federal securities law. These statements generally can be identified by the use of words such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “could,” “resume,” “are confident that,” “remain optimistic that,” “seek to,” or similar statements. The Company cautions that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to: • the Company’s ability to optimize costs and cash flow and mitigate the impact of soft global demand and retailers’ inventory rebalancing through discretionary and overhead spend management, advertising and promotion expense optimization, demand forecast and supply plan adjustments and actions to improve working capital; • the Company’s dependence on the strength of retail and consumer demand and commercial and industrial sectors of the economy in various countries around the world; • the Company’s ability to improve productivity, reduce complexity and streamline operations; • risks related to the Company’s substantial indebtedness, potential increases in interest rates or changes in the Company’s credit ratings including the failure to maintain financial covenants which if breached could subject us to cross-default and acceleration provisions in our debt documents; • the impact on the Company’s operations and financial condition resulting from the current global macroeconomic environment, including the impact of tariffs imposed by the U.S. and retaliatory tariffs imposed by foreign countries, and the Company’s ability to effectively execute its mitigation plans; • competition with other manufacturers and distributors of consumer products; • major retailers’ strong bargaining power and consolidation of the Company’s customers; • supply chain and operational disruptions in the markets in which we operate, including as a result of geopolitical and macroeconomic conditions and any global military conflicts including those between Russia and Ukraine and in the Middle East; • changes in the prices and availability of labor, transportation, raw materials and sourced products, including significant inflation, and the Company’s ability to offset cost increases through pricing and productivity in a timely manner; • the Company’s ability to effectively execute its turnaround plan, including the Realignment Plan and other restructuring and cost saving initiatives; • the Company’s ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend; • the risks inherent to the Company’s foreign operations, including currency fluctuations, exchange controls and pricing restrictions; • future events that could adversely affect the value of the Company’s assets and/or stock price and require additional impairment charges; • unexpected costs or expenses associated with dispositions; • the cost and outcomes of governmental investigations, inspections, lawsuits, legislative requests or other actions by third parties, including but not limited to those described in Footnote 14 of the Notes to Unaudited Condensed Consolidated Financial Statements , the potential outcomes of which could exceed policy limits, to the extent insured; • the Company’s ability to maintain effective internal control over financial reporting; • risk associated with the use of artificial intelligence in the Company’s operations and the Company’s ability to properly manage such use; • a failure or breach of one of the Company’s key information technology systems, networks, processes or related controls or those of the Company’s service providers; • the impact of U.S. and foreign regulations on the Company’s operations, including environmental remediation costs and legislation and regulatory actions related to product safety, data privacy and climate change; • the potential inability to attract, retain and motivate key employees; • changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities; • product liability, product recalls or related regulatory actions; 20 Table of Contents • the Company’s ability to protect its intellectual property rights; • the impact of climate change and the increased focus of governmental and non-governmental organizations and customers on sustainability issues, as well as external expectations related to environmental, social and governance considerations; • significant increases in the funding obligations related to the Company’s pension plans; and • other factors listed from time to time in our SEC filings, including but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other filings. The information contained in this Report is as of the date indicated. The Company assumes no obligation to update any forward-looking statements contained in this Report as a result of new information or future events or developments. In addition, there can be no assurance that the Company has correctly identified and assessed all of the factors affecting the Company or that the publicly available and other information the Company receives with respect to these factors is complete or correct. Overview Newell Brands Inc. is a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex and Campingaz. Newell Brands is focused on delighting consumers by lighting up everyday moments. The Company sells its products in over 150 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors. The Company has three operating segments: Home and Commercial Solutions (“H&CS”), Learning and Development (“L&D”) and Outdoor and Recreation (“O&R”). Business Strategy In 2023, the Company initiated a multi-year turnaround plan based on a comprehensive capability assessment and a clear set of “where to play” and “how to win” strategic choices with the goal of improving the Company’s top line, expanding margins and improving cash flow. During 2024, the Company fully deployed its strategy, transitioned to a new operating model, rebuilt its front-end capabilities and continued with its simplification agenda. This strategy is beginning to yield tangible results as evidenced by improving trends in net sales and gross margin expansion. The Company is implementing this strategy while continuing to address key global challenges such as shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail and consumer landscape; continued macroeconomic and geopolitical volatility; a soft macro backdrop; significant cumulative inflationary pressures on consumers; recently announced tariffs by the current U.S. presidential administration and other countries’ retaliatory actions in response to such tariffs; and an evolving regulatory landscape. In order to successfully navigate these challenges and deliver strong performance, the Company intends to continue creating and leveraging scale to unlock the full potential of the Company’s portfolio of leading brands through maintaining a disciplined approach and executing with excellence on the Company’s key priorities for 2025 including: • Returning to profitable top line growth through product and commercial innovation, distribution expansion and international market penetration; • Expanding gross and operating margin, building on the significant gains achieved in 2024; • Further deleveraging the balance sheet and improving cash flow efficiency; • Driving operational excellence through complexity reduction, technology standardization and continued stock-keeping unit (“SKU”) optimization; and • Strengthening our high-performance culture, emphasizing accountability, innovation and inclusion. The Company is deeply committed to sustaining its turnaround momentum and driving long-term profitable growth. Execution of these strategic imperatives, in combination with other initiatives aimed to build operational excellence, will better position the Company for long-term sustainable growth. One such initiative is the organizational realignment (“Realignment Plan”), which was designed to strengthen the Company’s front-end commercial capabilities, such as consumer understanding and brand communication, in support of the “where to play” and “how to win” strategies the Company initiated in 2023. In addition to improving accountability, the Realignment Plan was designed to unlock operational efficiencies and cost savings, reduce complexity and free up funds for reinvestment. As part of the Realignment Plan, the Company has made several operating model changes, which entailed: standing up a cross-functional brand management organization, realigning business unit finance to fully support the new global brand management model, further simplifying and standardizing regional go-to-market organizations, and centralizing domestic retail sales teams, the digital technology team, business-aligned accounting personnel, the Manufacturing 21 Table of Contents Quality team, and the Human Resources functions into the appropriate center-led teams to drive standardization, efficiency and scale with a One Newell approach. The Company has also further optimized the Company’s real estate footprint and pursued other cost reduction initiatives. These actions were primarily implemented by the end of 2024. Remaining actions, subject to applicable local law and consultation requirements, are expected to be implemented by the end of fiscal year 2025. In addition, the Company continues to review its operating footprint and non-core brands, which will result in future restructuring and restructuring-related charges. Recent Developments Update on Tariffs The current U.S. presidential administration has announced and/or imposed a series of new tariffs on foreign imports into the U.S., including without limitation significant tariffs on products manufactured in China. Tariffs on imports into the U.S., most significantly from China, and any retaliatory tariffs on exports from the U.S. to other countries, will increase costs for the Company and could impact the level of trade between the U.S. and its various trading partners around the globe in general. We believe that the Company is well positioned to respond to the current tariff environment, primarily because the Company maintains a significant U.S. manufacturing presence of 15 production facilities and manufactures, in the U.S. and two of its facilities in Mexico, products representing over half of the Company’s U.S. revenues that are not presently subject to the recently announced U.S. tariffs. This manufacturing presence is expected to provide a competitive advantage to the Company in certain categories where its competitors are exposed to import tariffs. The Company also has a scaled, centralized procurement team that is proficient in sourcing raw materials and finished products from over 50 countries around the world. The Company is actively working on the deployment of a mitigation strategy to offset the impact of this tariff exposure through a number of actions, including pricing, productivity and in some cases relocation of manufacturing. At this time, it is difficult to predict the rate or duration of these tariffs, and there can be no assurance as to the extent to which the Company will be able to offset the impact through mitigation actions. Additional tariffs or further increases to the U.S. tariffs, retaliatory actions taken by other countries, or failure to effectively deploy the Company’s mitigation plans could have a significant negative impact on the Company. Results of Operations Three Months Ended March 31, 2025 vs. Three Months Ended March 31, 2024 Consolidated Operating Results Three Months Ended March 31, (in millions) 2025 2024 $ Change % Change Net sales $ 1,566 $ 1,653 $ (87) (5.3)% Gross profit 503 504 (1) (0.2)% Gross margin 32.1 % 30.5 % Operating income 21 16 5 31.3% Operating margin 1.3 % 1.0 % Interest expense, net 72 70 2 2.9% Other expense, net 4 5 (1) (20.0)% Loss before income taxes (55) (60) 5 8.3% Income tax benefit (18) (51) 33 64.7% Income tax rate 32.7 % 85.0 % Net loss $ (37) $ (9) $ (28) NM Diluted loss per share $ (0.09) $ (0.02) NM - NOT MEANINGFUL 22 Table of Contents Net sales for the three months ended March 31, 2025 decreased 5%. Net sales were unfavorably impacted by soft global demand and net distribution losses. Business exits, primarily in the H&CS segment, also unfavorably impacted net sales by approximately $8 million, or less than 1%. These unfavorable factors were partially mitigated by launches of product innovations in the L&D segment and pricing actions, primarily in international markets to offset inflation and unfavorable foreign currency movement. Changes in foreign currency unfavorably impacted net sales by $44 million, or 3%. Gross profit was essentially flat compared to the prior year. Gross margin improved to 32.1% as compared with 30.5% in the prior year. The improvement in gross margin was driven by gross productivity, pricing and lower restructuring-related charges of approximately $5 million, partially offset by the volume impact of lower sales as described above and inflation. Changes in foreign currency exchange rates unfavorably impacted gross profit by $10 million, or 2%. Notable items, other than those noted above, impacting operating income for the three months ended March 31, 2025 and 2024 were as follows: Three Months Ended March 31, 2025 2024 $ Change Restructuring and restructuring-related costs (See Footnote 3 ) (1) $ 25 $ 39 $ (14) Transaction costs and other (2) 2 (4) 6 (1) For the three months ended March 31, 2025, restructuring-related costs reported in cost of products sold and selling, general and administrative expenses (“SG&A”) were $3 million and $11 million, respectively, and primarily relate to facility closures associated with various discrete initiatives as well as previously announced but substantially completed restructuring activities. For the three months ended March 31, 2024, restructuring-related costs reported in cost of products sold and SG&A were $8 million and $5 million, respectively, primarily related to facility closures associated with the Network Optimization Project and Project Phoenix, previously disclosed, and other discrete initiatives. Restructuring costs were $11 million and $26 million for the three months ended March 31, 2025 and 2024, respectively, primarily related to the Realignment Plan. (2) Transaction costs and other for the three months ended March 31, 2025 primarily related to hyperinflationary currency movements. For the three months ended March 31, 2024 transaction and other costs primarily related to a release of a bad debt reserve due to a recovery of a receivable from an international customer. Operating income was $21 million as compared to $16 million in the prior year period. The improvement reflects benefits from gross productivity, savings from restructuring actions primarily related to the Realignment Plan and lower restructuring and restructuring-related charges of $14 million. These improvements were partially offset by higher advertising and promotion costs of $6 million. Interest expense, net increased by $2 million due to higher interest rates and lower interest income. The weighted average interest rates for the three months ended March 31, 2025 and 2024 were approximately 6.0% and 5.6%, respectively. See Footnote 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information. Other expense, net for three months ended March 31, 2025 and 2024 includes the following items: Three Months Ended March 31, 2025 2024 Foreign exchange losses, net $ 1 $ 3 Discount on factored receivables and other, net 3 2 $ 4 $ 5 The income tax benefit for the three months ended March 31, 2025 was $18 million as compared to $51 million for the three months ended March 31, 2024. The Company’s effective income tax rates for the three months ended March 31, 2025 and 2024 were benefits of 32.7% and 85.0%, respectively, due to a decrease in the forecasted tax rate for 2025 that was primarily driven by improved forecasted pretax book income year over year. See Footnote 10 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information. 23 Table of Contents Business Segment Operating Results Home and Commercial Solutions Three Months Ended March 31, (in millions) 2025 2024 $ Change % Change Net sales $ 812 $ 893 $ (81) (9.1)% Operating income (loss) (2) 16 (18) NM Operating margin (0.2) % 1.8 % NM - NOT MEANINGFUL H&CS net sales for the three months ended March 31, 2025 decreased 9%, which reflected soft demand across all businesses, as well as net distribution losses. Business exits also unfavorably impacted net sales by approximately 1%. Pricing actions partially offset these unfavorable factors. Changes in foreign currency unfavorably impacted net sales by $28 million, or 3%. Operating loss for the three months ended March 31, 2025 was $2 million as compared to operating income of $16 million in the prior year. The decrease in operating income is primarily due to lower gross profit of $15 million resulting from unfavorable fixed cost leverage associated with the lower sales volume, as described above, and inflation, partially offset by gross productivity and lower restructuring and restructuring-related charges of $10 million. Learning and Development Three Months Ended March 31, (in millions) 2025 2024 $ Change % Change Net sales $ 572 $ 559 $ 13 2.3% Operating income 98 94 4 4.3% Operating margin 17.1 % 16.8 % L&D net sales for the three months ended March 31, 2025 increased 2%, as growth in the Baby business, primarily as a result of improved orders from major retailers and launches of product innovations, was partially offset by a decline in the Writing business due to soft demand in certain markets, partially offset by contribution from launches of product innovations. Changes in foreign currency unfavorably impacted net sales by $11 million, or 2%. Operating income for the three months ended March 31, 2025 increased to $98 million as compared to $94 million in the prior-year period. The increase in operating income is primarily due to higher gross profit of $7 million primarily due to higher net sales and gross productivity, partially offset by inflation and higher advertising and promotion costs of $2 million. Outdoor and Recreation Three Months Ended March 31, (in millions) 2025 2024 $ Change % Change Net sales $ 182 $ 201 $ (19) (9.5)% Operating loss (5) (18) 13 72.2% Operating margin (2.7) % (9.0) % O&R net sales for the three months ended March 31, 2025 decreased 9% as improvements in certain international markets of approximately 11%, were more than offset by declines in the U.S. of approximately 19%, primarily due to distribution losses. Changes in foreign currency unfavorably impacted net sales by $5 million, or 2%. Operating loss for the three months ended March 31, 2025 was $5 million as compared to $18 million in the prior-year period. The improvement in operating performance was due to higher gross profit of $7 million driven primarily by gross productivity and favorable pricing, as well as lower restructuring-related charges of $2 million and lower amortization of certain tradenames of approximately $2 million. 24 Table of Contents Liquidity and Capital Resources Liquidity The Company’s $1.2 billion, 4.200% senior notes will be maturing on April 1, 2026 (the “2026 Notes”). Following the issuance of these financial statements the Company plans to take additional steps to increase its liquidity, including pursuing a refinancing of all or substantially all of the Company’s 2026 Notes prior to their maturity. The Company believes it will be able to refinance the 2026 Notes prior to maturity in light of its most recent debt refinancing in November 2024, which was significantly oversubscribed. However, there can be no assurance that such financing would be available on terms acceptable to the Company, or at all. Absent such a refinancing; however, the Company will require additional liquidity to continue its operations over the next twelve months from the issuance of these financial statements. In the event such refinancing is not available to the Company in full or at all, the Company would need to undertake various actions including: drawing down up to the full available capacity on the Company’s Credit Revolver; deferring or eliminating discretionary capital expenditures as well as advertising and promotion expense; reducing or eliminating future dividends; and liquidation of certain assets. The Company believes the aforementioned individual actions or a combination of such actions, its cash generating capability, and available cash and cash equivalents, would provide adequate liquidity to fund its operations, support its growth platforms, pay down debt and debt maturities as they come due, including the 2026 Notes, and execute its ongoing business initiatives over the next twelve months from the issuance of these financial statements. However, there can be no assurances that the Company will be successful in generating the additional liquidity, through a debt refinancing on terms acceptable to the Company or otherwise, that would be necessary to meet its obligations over the next twelve months from the issuance of these financial statements. If the Company is unable to make the payment on the 2026 Notes upon maturity, the Company would be in default of such senior notes, which would trigger cross-default provisions within other debt instruments and would have a significant adverse effect on the Company’s business, financial condition and operating results. The Company regularly assesses its cash requirements and the available sources to fund these needs. The Company believes the extent of the impact of this rapidly changing retail and consumer landscape, which reflects major retailers’ focus on tight control over their inventory levels, fluctuating interest rates and indirect macroeconomic impacts from geopolitical conflicts as well as recently imposed tariffs by the current U.S. presidential administration, including those most recently announced reciprocal tariffs, some of which are currently delayed, and countries’ retaliatory actions in response to such tariffs, will continue to be driven by numerous evolving factors the Company cannot accurately predict and which will vary. For further information, refer to Risk Factors in Part I - Item 1A and Recent Developments in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation s of the Company's most recent Annual Report on Form 10-K, filed on February 14, 2025. At March 31, 2025, the Company had cash and cash equivalents of approximately $233 million, of which approximately $185 million was held by the Company’s non-U.S. subsidiaries. Cash, cash equivalents and restricted cash increased (decreased) as follows for the three months ended March 31, 2025 and 2024 (in millions): 2025 2024 Increase (Decrease) Cash provided by (used in) operating activities $ (213) $ 32 $ (245) Cash used in investing activities (27) (50) 23 Cash provided by financing activities 270 60 210 Exchange rate effect on cash, cash equivalents and restricted cash 3 (3) 6 Increase in cash, cash equivalents and restricted cash $ 33 $ 39 $ (6) The Company has historically generated the majority of its operating cash flow in the third and fourth quarters of the year due to seasonal variations in operating results, the timing of annual performance-based compensation payments, customer program payments, working capital requirements and credit terms provided to customers. 25 Table of Contents Cash Flows from Operating Activities The change in net cash used in operating activities reflects a decrease in factored accounts receivable in the current year and higher incentive compensation payments in the current year, partially offset by an increase in accounts payable in the current period and lower restructuring payments. Cash Flows from Investing Activities The lower cash used in investing activities was primarily due to higher proceeds from sale of assets. Cash Flows from Financing Activities The change in net cash provided by financing activities was due to the period-over-period net change in short-term debt. See Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. Capital Resources The Company maintains a $1.0 billion senior secured revolving credit facility (the “Credit Revolver”) maturing in August 2027. Under the Credit Revolver, the Company may borrow funds on a variety of interest terms. The Credit Revolver agreement (i) requires the Company to satisfy financial covenants testing the Company’s Collateral Coverage Ratio and Total Net Leverage Ratio (each further defined in the Credit Revolver, as amended), (ii) requires the Company and certain of its domestic and foreign subsidiaries (the “Guarantors”) to guaranty Company obligations under the Credit Revolver and (iii) requires the Company and other Guarantors to grant a lien and security interest in certain assets consisting of eligible accounts receivables, eligible inventory, eligible equipment and eligible intellectual property, and all products and proceeds of the foregoing, subject to certain limitations. Other than outstanding borrowings under the Credit Revolver, availability under the Credit Revolver is subject to change in accordance with the terms of the agreement, including in response to changes in the Company’s pledged collateral value or outstanding letters of credit under the Credit Revolver. At March 31, 2025 there was $870 million of availability based on the value of the pledged collateral prior to giving effect to outstanding borrowings and letters of credit under the Credit Revolver. The Credit Revolver provides for the issuance of up to $150 million of letters of credit, so long as there is sufficient availability for borrowing under the Credit Revolver. At March 31, 2025, the Company had approximately $35 million of outstanding standby letters of credit issued against the Credit Revolver and $350 million of outstanding borrowings under the Credit Revolver resulting in a net availability of approximately $485 million. See Footnote 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. On April 14, 2025, Moody’s Corporation (“Moody’s”) downgraded the Company’s senior unsecured debt rating to “B1”. As a result of Moody’s downgrade, certain of the Company’s outstanding senior notes aggregating to approximately $2.3 billion are subject to an interest rate adjustment of 25 basis points, with such adjustment to take effect in the fourth quarter of this year. The change to the interest rate due to the downgrade will increase the Company’s interest expense by approximately $6 million on an annualized basis (approximately $2 million in 2025). The Company was in compliance with all of its debt covenants at March 31, 2025. Risk Management From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate, foreign currency rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. See Footnote 9 of the Notes to Unaudited Condensed Consolidated Financial Statements for further information on the Company's derivative instruments. Significant Accounting Policies and Critical Estimates For further information on significant accounting policies and critical estimates, refer to the Company's most recent Annual Report on Form 10-K, filed on February 14, 2025 and Footnote 1 of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. 26 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information previously reported under Part II, Item 7A. in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.