Newell Brands' Q1 2025: Unpacking Key Contradictions in Tariffs, Margins, and Market Growth

Tariff impact on baby gear, market growth assumptions, gross margin projections, pricing strategy and elasticity, retailer inventory levels and market growth assumptions are the key contradictions discussed in Newell Brands' latest 2025Q1 earnings call.



Strong Start to the Year:
- Newell Brands reported first quarter 2025 core sales at a minus 2.1% decline, which was at the high end of their guidance range.
- The company delivered core sales growth for both the Learning and Development segment and the International business, with positive core sales growth for the last five consecutive quarters.
- This growth was driven by their new strategy, including product innovation and operational efficiencies.

Tariff Management and Strategic Positioning:
- Newell Brands emphasized their strategic positioning to benefit from global trade realignments, having proactively shifted sourcing from China and invested in domestic manufacturing.
- They have reduced their dependence on Chinese sourcing, with China representing only 15% of their total cost of goods sold as of 2024, down from 35% in previous years.
- The company plans to leverage their extensive domestic manufacturing base to provide high-quality products not subject to tariffs, gaining a competitive advantage in the current environment.

Operational and Financial Performance:
- Normalized gross margin increased by 150 basis points to 32.5%, marking the seventh consecutive quarter of improvement.
- The operating margin exceeded expectations despite a high-single-digit increase in A&P investment, driven by strong core sales and gross productivity savings.
- Operating cash flow was impacted by inventory purchases pulled forward to avoid impending tariff increases and higher cash bonus payouts.

Outlook and Strategic Initiatives:
- Newell Brands maintained their net sales guidance for the year, despite a moderation in category growth expectations from flat to a 1% to 2% decline.
- They plan to offset higher tariff costs through favorable foreign exchange rates, stronger productivity results, price actions, and continued investment in manufacturing capabilities.
- The company is actively pursuing opportunities to expand distribution and offer high-quality U.S.-made products to retailers, expecting more business from retailers after the tariff-related supply disruptions.