Company's Q3 2025 Earnings Call: Contradictions Emerge on Sales, Innovation, and Pricing Strategies

Date of Call: October 31, 2025

Financials Results

• Revenue: Third quarter net sales down 7.2% (core sales down 7.4% YOY)
• EPS: Normalized diluted EPS $0.17 in Q3, slightly ahead of prior year; Q4 EPS guidance $0.16–$0.20; FY2025 EPS guidance $0.56–$0.60
• Gross Margin: Normalized gross margin 34.5%, down 90 bps YOY (would have expanded +40 bps excluding one-time 125% China tariff ~$24M)
• Operating Margin: Normalized operating margin 8.9%, down 60 bps YOY (would have expanded to 10.3%, +80 bps, excluding 125% China tariffs)

Guidance:

• Q4 net sales expected down 4% to 1%; core sales down 5% to 3% (FX explains difference)
• Q4 normalized operating margin 9.0%–9.5%; normalized EPS $0.16–$0.20 (includes ~ $50M / $0.10 of tariff impact)
• FY2025 net sales expected down 5% to 4.5%; core sales down 5% to 4%
• FY2025 normalized operating margin 8.4%–8.6%; EPS $0.56–$0.60
• FY2025 operating cash flow guidance $250M–$300M; expect year-end leverage ~5x
• Expect stronger operating cash flow, lower CapEx and improved working capital in 2026 as tariff effects normalize

Business Commentary:

* Sales and Market Challenges: - Newell Brands reported a 7.2% decline in net sales and 7.4% in core sales for Q3 2025. - The decline was due to various macroeconomic factors, including new tariffs affecting short-term consumer and retailer behavior, lower retailer inventory levels, international market disruptions, and lower consumer demand tied to aggressive pricing.

• Geographic and Product Segment Impact:
• International core sales faced a slowdown in Brazil and Argentina, contributing to a 4% to 5 points reduction in third-quarter sales.

• This slowdown was attributed to macroeconomic instability and political issues in these top international markets.

• Pricing Strategy and Market Response:

• Newell Brands implemented aggressive pricing actions to offset tariff costs, which in some categories did not align with competitor pricing, affecting competitive positioning.

• The pricing strategy was particularly evident in kitchen appliances, where competitors did not adjust prices to match the increased costs from tariffs.

• Operational Efficiency and Financial Sustainability:

• Despite the sales challenges, the company achieved a 120 basis point reduction in normalized overheads as a percentage of sales.
• This reduction was a result of savings from the realignment plan and technology investments, highlighting improved operational efficiency.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted material near-term headwinds (Q3 net sales down 7.2%, incremental cash tariff costs now ~$180M) while repeatedly stating confidence in the turnaround: "we remain confident that Newell's turnaround is on track" and that "net distribution gains are expected to exceed distribution losses" starting Q4 and into 2026.

Q&A:

• Question from Lauren Lieberman (Barclays): When did you get a sense of the organic sales miss given retailer connectivity? Why was pricing so aggressive in categories where tariffs are not a major impact? Was the direct-import-to-domestic-delivery shift bigger than expected, and how should we interpret the $24M tariff amount and potential timing of tariff P&L/flow-through into Q4?
  Response: The Q3 miss was a September-heavy surprise driven by three factors — larger-than-expected retailer destocking (about a 3-point headwind vs. an expected 1 point), abrupt international weakness (Brazil down ~25%) and competitors delaying price increases which left us uncompetitive in some sourced categories; the $24M referenced was the one-time 125% China tariff item, while the total Q3 tariff P&L hit was ~$0.11 per share.

• Question from Filippo Falorni (Citigroup): What's the visibility and confidence behind the -3% category run rate for Q4 versus prior revisions? On Q4 core sales guidance: does it assume further retailer destocking or share losses? And will tariff-advantaged distribution wins occur more in Q4 or in 2026?
  Response: Q4 guide is deliberately conservative (category -3%) to allow for possible continued price-scraping; it does not assume sizable additional DI-to-domestic shifts, and management expects more tariff-advantaged distribution wins to materialize in Q4 (supporting sequential improvement) with a larger opportunity in 2026.

• Question from Peter Grom (UBS): Given other CPGs noting consumer weakness, is it plausible the category deteriorates to the -3% you assume, and how should investors think about sales growth looking into 2026?
  Response: Yes, continued category weakness is plausible given ongoing pullback by low-income and younger consumers, but management expects the headwinds to be temporal and is optimistic for 2026 driven by a stronger innovation slate, improving distribution and normalization of tariff impacts.

• Question from Andrea Teixeira (JPMorgan): How much visibility do you have into inventory destocking and DI-to-domestic shifts? Did you take pricing in Brazil or other markets because of tariffs? And what are you seeing on exit rates and consumer response as prices move?
  Response: They have clear visibility into DI-to-domestic moves (DI now ~5% of U.S. business and the known shifts are completed), they took local pricing in Brazil but have since adjusted to be competitive, and recent competitor price increases (in Oct) should allow Newell's domestically manufactured, tariff-advantaged SKUs to regain velocity in Q4.

• Question from Brian McNamara (Canaccord Genuity): How did small kitchen appliances perform in Q3 versus peers given weak September, and why is Q4 guided lower versus the prior implied guide?
  Response: Small kitchen was disrupted by import/trade dislocations (imported brands hit harder; domestically manufactured lines fared better), and Q4 was guided lower to de-risk three items versus prior implied guide: a more conservative category view, international weakness (Brazil/Argentina), and potential ongoing price-scraping by competitors.

• Question from Olivia Tong Cheang (Raymond James): With consumer pullback (low-income and younger cohorts) and a bumpy Yankee relaunch, how are you planning 20+ Tier 1/2 innovations for 2026 and what feedback are you getting from retailers?
  Response: Retailers have responded positively in line reviews; management's view is that compelling, good-value innovation still wins despite broader pullbacks, and they plan to launch 20-plus margin-accretive Tier 1/2 innovations across top brands in 2026 supported by higher A&P.

• Question from Stephen Robert Powers (Deutsche Bank): Were you in line with prior guidance entering September and how large was the September drop; what are you seeing in October and how much ramp is embedded in the Q4 guide, especially given Yankee Candle's importance in December?
  Response: September was materially below their internal forecast (it was the main driver of the quarter shortfall) even though July/August were similar to last year; October shows improvement (e.g., Home Fragrance up) and the Q4 guide incorporates observed October trends without assuming a dramatic rebound.

Contradiction Point 1

Sales Performance and Market Conditions

It involves differing perspectives on the company's sales performance and market conditions, which are crucial for investor expectations and strategic planning.

When did you first sense the organic sales trend? Why did the guidance miss? Given your retail connections, why was visibility limited? - Lauren Lieberman (Barclays Bank PLC, Research Division)

2025Q3: The miss was due to three factors: retailer inventory declines, international market slowdowns, and aggressive pricing actions. - Christopher Peterson(CEO)

Can you comment on back-to-school sales and exit rates across all categories, including outdoors, considering your stated innovations? - Andrea Faria Teixeira (JPMorgan Chase & Co)

2025Q2: Feel very good about sell-in and setup for back-to-school, with record high fill rates and shipped out quality. - Christopher H. Peterson(CEO)

Contradiction Point 2

Innovation and Its Impact on Sales

It highlights diverging views on the effectiveness and timeline of innovation in driving sales growth, which is a critical aspect of the company's strategy.

How are you planning innovation given current market conditions and retailer conversations? - Olivia Tong Cheang (Raymond James & Associates, Inc., Research Division)

2025Q3: There is consumer responsiveness to compelling innovation, especially in Baby and Writing. We're launching over 20 Tier 1 and Tier 2 innovations next year across all segments. - Christopher Peterson(CEO)

What is driving the decline in core sales? Which aspects of innovation are not effective? Why should investors be confident in the strategy's effectiveness? - Brian McNamara (Canaccord Genuity Corp., Research Division)

2025Q2: Writing and Baby returned to growth... Improvement in core sales trends, with Writing and Baby returning to growth. Outdoor & Rec is a laggard. - Christopher H. Peterson(CEO)

Contradiction Point 3

Inventory and Market Conditions

It involves differing perspectives on inventory levels and market conditions, both of which are crucial for understanding the company's operational and financial health.

Have you taken pricing actions ahead of tariffs in Brazil and Argentina, and what is your view on inventory destocking? - Andrea Teixeira (JPMorgan Chase & Co, Research Division)

2025Q3: Retailer inventory levels are at historical norms, and we've handled the shift from direct import to domestic delivery. - Christopher Peterson(CEO)

Can you discuss the retail destocking and tariff impact on guidance? Are you expecting increased destocking in Q2? - Andrea Teixeira (JPMorgan)

2025Q1: Retailer inventory levels didn't change significantly in Q1. - Chris Peterson(CEO)

Contradiction Point 4

Small Kitchen Appliances Category Performance

It highlights differing views on the performance of the small kitchen appliances category, which is a significant revenue contributor for the company.

How did the small kitchen appliances category perform in Q3, considering weak September sales? - Brian McNamara (Canaccord Genuity Corp., Research Division)

2025Q3: The tariff disruption impacted import businesses more than domestic manufacturing. - Christopher Peterson(CEO)

Is the China sensitivity primarily affecting the baby category, or are other categories also impacted? - Brian McNamara (Canaccord Genuity)

2025Q1: We did see some tightening on the China side of cost and tariffs, but it's mostly in the baby gear and we're taking actions there. - Chris Peterson(CEO)

Contradiction Point 5

Pricing Strategy and Tariff Impact

It reflects differing strategies and expectations regarding pricing and the impact of tariffs, which are critical factors affecting the company's financial performance.

When did you first recognize the organic sales trend, and why was there a sales miss? Given your retailer connections, why was visibility limited? - Lauren Lieberman (Barclays Bank PLC, Research Division)

2025Q3: Aggressive pricing was taken to recover tariff costs, but competitors did not follow, leading to price disadvantages. - Christopher Peterson(CEO)

What is your pricing elasticity and competitive positioning, and will you see an exemption for baby gear? - Filippo Falorni (Citi)

2025Q1: We're actively lobbying for an exemption for baby gear from China tariffs, similar to the past. - Chris Peterson(CEO)