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 Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 manage the demand, supply and operational challenges with the actual or perceived effects of the COVID-19 pandemic, including as a result of any additional variants of the virus or the efficacy and distribution of vaccines; •the Company's dependence on the strength of retail and consumer demand, commercial and industrial sectors of the economy in various countries around the world; •competition with other manufacturers and distributors of consumer products; •major retailers' strong bargaining power and consolidation of the Company's customers; •changes in the prices and availability of labor, transportation, raw materials and sourced products, including significant inflation, and the Company's ability to obtain them in a timely manner and to offset cost increases through pricing and productivity; •the Company's ability to improve productivity, reduce complexity and streamline operations; •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 17 of the Notes to the Unaudited Condensed Consolidated Financial Statements, the potential outcomes of which could exceed policy limits, to the extent insured; •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 Company's ability to consistently maintain effective internal control over financial reporting; •risks related to the Company's substantial indebtedness, potential increases in interest rates or changes in the Company's credit ratings; •future events that could adversely affect the value of the Company's assets and/or stock price and require additional impairment charges; •the Company's ability to complete planned divestitures, and other unexpected costs or expenses associated with dispositions; •our ability to effectively execute our turnaround plan; •the risks inherent to the Company's foreign operations, including currency fluctuations, exchange controls and pricing restrictions; •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 United Statesand foreign regulations on the Company's operations, including the impact of tariffs and environmental remediation costs and legislation and regulatory actions related to 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; •the Company's ability to protect its intellectual property rights; •significant increases in the funding obligations related to the Company's pension plans; and •other factors listed from time to time in our SECfilings, including but not limited to our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. 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. 25
Table of Contents Overview
Newell Brandsis a leading global consumer goods company with a strong portfolio of well-known brands, including Rubbermaid, FoodSaver, Calphalon, Sistema, Sharpie, Paper Mate, Dymo, EXPO, Elmer's, Yankee Candle, Graco, NUK, Rubbermaid Commercial Products, Spontex, Coleman, Campingaz, Contigo, Oster, Sunbeam and Mr. Coffee. Newell Brands'beloved brands enhance and brighten consumers lives at home and outside by creating moments of joy, building confidence and providing peace of mind. The Company sells its products in nearly 200 countries around the world and has operations on the ground in over 40 of these countries, excluding third-party distributors.
The Company is continuing to execute on its turnaround strategy of building a global, next generation consumer products company that can unleash the full potential of its brands in a fast-moving omni-channel environment. The strategy, developed in 2019, is designed to: •Drive sustainable top line growth by focusing on innovation, sharpening brand positioning, strengthening the international businesses, enhancing digital marketing and omni-channel capabilities, and building customer relationships; •Improve operating margins by driving productivity and overhead savings, while reinvesting in the business; •Accelerate cash conversion cycle by focusing on cash efficiency and improving key working capital metrics; •Strengthen the portfolio by investing in attractive categories that are aligned with its capabilities and strategy and optimizing product mix; and •Strengthen organizational capabilities and employee engagement by building a winning team and focusing the best people on the right things. The Company is implementing this strategy while addressing key challenges such as shifting consumer preferences and behaviors; a highly competitive operating environment; a rapidly changing retail landscape; continued macroeconomic and geopolitical volatility; significant inflationary and supply chain pressures, and an evolving regulatory landscape. The coronavirus (COVID-19) pandemic and its impact to the Company's business resulted in the acceleration of the turnaround initiatives in many respects. Continued execution of these strategic imperatives, in combination with new initiatives aimed to build operational excellence, will better position the Company for long-term sustainable growth. One such initiative that was announced in the third quarter of 2021 is Project Ovid, a multi-year, customer centric supply chain initiative to transform the Company's go-to-market capabilities in the
U.S., improve customer service levels and drive operational efficiencies. This initiative is expected to leverage technology to further simplify the organization by harmonizing and automating processes. Project Ovid is designed to optimize the Company's distribution network by creating a single integrated supply chain from 23 business-unit-centric supply chains. The initiative is intended to reduce administrative complexity, improve inventory and invoicing workflow for our customers and enhance product availability for consumers through omni-channel enablement. This new operating model is also expected to drive efficiencies by better utilizing the Company's transportation and distribution network. 26
March 31, 2022, the Company sold its Connected Home & Security ("CH&S") business unit to Resideo Technologies, Inc. The results of operations for CH&S continued to be reported in the Condensed Consolidated Statements of Operations as part of the Commercial Solutions segment through March 31, 2022.
The five main reportable segments of the Company are as follows:
Segment Key Brands Description of Primary Products Commercial Solutions Mapa, Quickie, Rubbermaid Commercial
Commercial cleaning and maintenance solutions; closet and
organization of the garage; hygiene and handling systems
Home Appliances Calphalon, Crockpot,
Household products, including kitchen appliances
Oster and Sunbeam Home Ball(1), Calphalon,
Food and household preservation products; fresh preservation products; Solutions
vacuum sealants; gourmet cookware, bakeware and
Sistema, WoodWick and
Yankee Candlecutlery and home fragrance products Learning and Aprica, Baby Jogger, Dymo, Elmer's,
baby articles and baby care products; writing instruments, Development
EXPO, Graco, Mr. Sketch, NUK, Paper
including markers and highlighters, pens and pencils; art
Mate, Parker, Prismacolor, Sharpie,
some products; activity gluing and cutting products and
Tigex, Waterman and X-Acto labeling solutions
Outdoor and RecreationColeman, Contigo, ExOfficio and
Products for outdoor and outdoor-related activities
(1)[[Image Removed: nwl-20220331_g1.gif]]and Ball® TM from Ball Corporation, used under license.
This structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources. The Company also provides general corporate services to its segments which is reported as a non-operating segment, Corporate. See Footnote 16 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.
The COVID-19 pandemic, which began in late 2019, continued to disrupt the company’s global operations, similar to those of many large multinational companies in three main areas:
Supply chain. The Company continues to face significant product, supply and labor shortages, capacity constraints and logistical challenges across its businesses, including port congestion, constrained shipping container availability and delays in carrier pickup, which have negatively impacted the Company's ability to satisfy demand for its products, creating order backlog in a number of categories. The Company also continues to face significantly higher than expected inflation for commodities, including resin and metals, sourced finished goods, transportation and labor, which had a negative high-single-digit-percentage impact to costs of products sold in the first quarter of 2022. These various disruptions are expected to persist, at least in the near-term. To help mitigate the negative impact of inflation to the operating performance of its businesses, the Company has secured selective pricing increases, accelerated productivity initiatives and deployed overhead cost containment efforts. Retail. While the Company's largest retail customers experienced a surge in sales as their stores remained open, a number of secondary customers, primarily in the specialty and department store channels, temporarily closed their brick-and-mortar doors in
March 2020, and began to reopen in certain regions where conditions improved towards the end of the second quarter of 2020. These dynamics, in combination with some retailers' prioritization of essential items, have had a meaningful impact on the Company's traditional order patterns. In addition, the Company temporarily closed its Yankee Candleretail stores in North Americaas of mid-March of 2020 due to COVID-19. These stores reopened by the end of the third quarter of 2020 and have remained open since. 27
Consumer demand patterns. During the quarantine phase of the pandemic in 2020, consumer purchasing behavior strongly shifted to certain focused categories. At that time, certain of the Company's product categories benefited from this shift, primarily in Food, Commercial and Home Appliances. Some of the Company's other businesses were negatively impacted but experienced a surge in demand post lockdowns, in particular Writing, Baby and Home Fragrance. While the seasonality of the Company's businesses reverted back to historical trends in 2021, uncertainty still remains over the volatility and direction of future consumer demand patterns as certain of its businesses are lapping the prior-year surge in demand. The Company believes the extent of the impact of the COVID-19 pandemic on the Company's future sales, operating results, cash flows, liquidity and financial condition will continue to be driven by numerous evolving factors that the Company cannot accurately predict and which will vary by jurisdiction and market, including severity and duration of the pandemic, the emergence of new strains and variants of the coronavirus, the likelihood of a resurgence of positive cases or hospitalizations, the development and availability of effective treatments and vaccines, especially in areas where conditions have recently worsened and work restrictions, operational or travel bans have been reinstituted, the rate at which vaccines are administered to the general public, the timing and amount of fiscal stimulus and relief programs packages that may become available to the general public in the future, and any changes in consumer demand patterns for the Company's products as the impact of the global pandemic lessens. With the spread of new strains and variants of the coronavirus, the Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level on whether to reinstate and/or extend certain initiatives previously implemented to help contain the spread of COVID-19, and the Company has mandated vaccinations for its
U.S.professional and office-based employees.
Sale of Connected Home & Security
March 31, 2022, the Company sold its CH&S business unit to Resideo Technologies, Inc., for approximately $593 million, subject to customary working capital and other post-closing adjustments. As a result, the Company recorded a pretax gain of $130 million, which was included in other income, net in its Condensed Consolidated Statements of Operations.
Share buyback program
February 6, 2022, the Company's Board of Directors authorized a $375 millionShare Repurchase Program ("SRP"), effective immediately through the end of 2022. The Company's common shares may be purchased by the Company in the open market, in negotiated transactions or in other manners, as permitted by federal securities laws and other legal requirements. On February 25, 2022, the Company repurchased $275 millionof its shares of common stock beneficially owned by Carl C. Icahnand certain of his affiliates (collectively, " Icahn Enterprises"), at a purchase price of $25.86per share, the closing price of the Company's common shares on February 18, 2022. At March 31, 2022, the Company has remaining authority to repurchase approximately $100 millionof shares of common stock under the SRP. Debt Ratings On February 11, 2022, S&P Global Inc. ("S&P") upgraded the Company's debt rating to "BBB-" from "BB+" as S&P believed the Company has been able to achieve S&P's target debt level. As a result of this upgrade, the Company is now in a position to access the commercial paper market, up to a maximum of $800 millionprovided there is a sufficient amount available for borrowing under the Company's $1.25 billionrevolving credit facility maturing in December 2023(the "Credit Revolver"). In addition, the interest rate on the relevant senior notes decreased by 25 basis points due to the upgrade, reducing the Company's interest expense by approximately $10 millionon an annualized basis (approximately $8 millionin 2022). However, certain of the Company's outstanding senior notes aggregating to approximately $4.2 billionare still subject to an interest rate adjustment of 25 basis points in connection with the Moody's Corporation ("Moody's") downgraded debt rating in 2020. 28
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