諾威品牌 (NWL) 2015 Q2 法說會逐字稿

Good morning, and welcome to the Newell Rubbermaid's second quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. A live webcast of this call is available at NewellRubbermaid.com on the Investor Relations homepage under events and presentations. A slide presentation is also available for download. I will now turn the call over to Nancy O'Donnell, as Vice President of Investor Relations. Ms. O'Donnell, you may begin

Thank you. Good morning, everyone. I want to welcome you to Newell Rubbermaid's second quarter earnings call. Before we begin, our comments today include forward-looking statements. Such statements are based on assumptions and estimates which could be materially different from actual results. These take note of Newell's cautionary statements regarding forward-looking statements in the 8-K that we file with our press release and in our most recent SEC filings. Newell undertakes no obligation to update any forward-looking statement.

Also, please note that we will discuss certain non-GAAP financial measures. We have provided in our press release and 8-K filing reconciliations of non-GAAP numbers to comparable GAAP financial measures. Our call today will be led by our President and Chief Executive Officer, Mike Polk, and John Stipancich, our Chief Financial Officer. Now, I'd like to turn the call over to Mike.

Thank you, Nancy. Good morning, everyone, and thanks for joining our call. Building on a very good first quarter set of results, we've reported another strong performance in the second quarter against our toughest competitor from last year. As a result, this morning we announced that we've increased our core sales and normalized EPS guidance for the full year.

Let's get into our second quarter performance. In Q2, core sales grew 5.1%, and net sales grew 3.9%. Acquisitions and planned divestitures contributed 480 basis points to net sales growth, which was more than offset by a 600 basis point negative impact due to foreign currency. Normalized gross margin increased 10 basis points to 40% driven by productivity and pricing, partially offset the negative impact of foreign currency, and the mix effect from acquisitions which carry amortization charges. This improvement when coupled with 140 basis point reduction in overheads, funded, and 150 basis point increase in advertising and promotion, with advertising spending up over 70% versus prior year. Normalized EPS was $0.64, $0.02 ahead of consensus and 8.5% ahead of prior year. We achieved this EPS growth despite investing $0.07 in incremental advertising and promotion and having to overcome an $0.11 negative impact from foreign currency.

Our second quarter core sales growth was broad-based with growth in all five segments and in all four regions. Combined, our Win Bigger businesses grew core sales 6.5%. Writing core sales grew 10.8% driven by strengthen innovation, increased marketing support, and pricing. These results were achieved despite having to comp a year-ago period when the US back-to-school sell-in skewed earlier than it did this year. Commercial products grew core sales 1.6%, successfully lapping nearly 10% growth in the prior-year period with good underlying sellout trends in the US and Europe, as a result of strong innovation and excellent sales execution. Tools grew core sales 1.3%, successfully lapping nearly 13% growth in the prior-year period associated with last year's expansion of our Brazilian business. We delivered strong results in Europe and Asia-Pacific and solid performance in the US. US tools sellout in Q2 was very strong and we are pleased with the momentum we have building in the business into the second half of the year. Importantly, baby core sales grew 6% in Q2 with very strong Japan and UK results complementing solid US performance to more than offset Western Europe and Russia weakness. Home solutions grew core sales 1.2% with continued double-digit Rubbermaid food storage growth offsetting planned declines on our lower margin Rubbermaid consumer storage business.

In Q2, our recently acquired Contigo and Bubba and Baby Jogger brands delivered outstanding results, growing double digits compared to last year which was prior to our ownership. As you know, we do not include acquisition growth in core sales until their first anniversary with the Company. Had we included this growth, our new brands would have contributed an incremental 30 basis points to our core sales growth in Q2. Our first half results are strong as well. Core sales grew 4.9% with all five segments in all four regions contributing. Our Win Bigger businesses lacked tough compares to grow core sales 6.9% with standout growth in writing of over 10%. We have returned our baby business to growth, delivering 3.4% growth in the first half. We have had very good contribution from acquisitions, which when combined with our strong core growth, has offset the negative impact of currency to yield 4% net sales growth.

Despite unprecedented currency pressure on our costs due to strong US dollar, we've expanded normalized gross margins 30 basis points, and we've increased advertising and promotion investment by 100 basis points while simultaneously increasing normalized operating margin 40 basis points as a result of making Newell leaner and more efficient through Project Renewal. All of this yielding 7.5% normalized EPS growth and very strong double-digit normalized EPS growth in a currency neutral basis. We are obviously very pleased with the first six months of the year. We've built momentum in our business, and view our results as further evidence of the progress we're making transforming Newell into a differentiated, highly competitive performer in our industry. Let me hand the call over to John to go through our results in more detail, and then I will return to provide perspective on the balance of 2015.

Thanks, Mike, and good morning. Second quarter reported net sales were $1.56 billion, a 3.9% increase versus last year. Core sales, which exclude acquisitions, plan disposals, and foreign currency, increased 5.1%. The net impact of acquisitions and disposals contributed 480 basis points to reported net sales. Foreign currency had a negative impact of 600 basis points. As Mike mentioned, all five of our segments delivered core sales growth in the quarter with writing and baby leading the pack. You may recall we are comping against last year's second quarter that benefited from the pull-forward of about $15 million of sell-in orders for last year's back-to-school season, which results in about 100 basis points drag on core sales growth this quarter. On the other hand, Venezuela's contribution to core growth this quarter is seasonally the highest of the year, so netting these two offsetting factors and adjusting for the pull-forward and excluding Venezuela, our underlying core sales growth in the quarter was about 4.2%.

Reported gross margin was 39.8%, an increase of 20 basis points from prior year. Normalized gross margin was 40%, up 10 basis points over last year. Our improvement was driven by productivity, resin deflation, pricing, and favorable mix, which more than offset unfavorable currency, source labor inflation, and the negative mix impacts on the gross margin structure of our recent acquisitions. Normalized SG&A expense was $374.9 million or 24% of sales, which as a percentage of sales was flat to last year. A 140-basis point reduction of overheads fueled a 150-basis point increase in advertising and promotion investments, with all five segments benefiting from year-over-year increases in A&P spend. Notable investments included advertising support for Paper Mate InkJoy pens, Irwin Vise-Grip hand tools, and the Graco Nautilus 3-in-1 car seat. We ran numerous campaigns of Rubbermaid commercial to support our core business and new product launches. Normalized operating margin was 16%, flat to last year, reflecting the benefit of Project Renewal and other cost savings initiatives, offset by increased investment in A&P and significant FX headwinds. Reported operating margin was 13.8% compared with 14.2% in the prior year. Interest expense of $18.1 million increased $3.1 million year-over-year reflecting the impact of our late 2014 debt refinancing and higher overall borrowings related to our acquisitions in the back half of the last year.

Our normalized tax rate was 24.5% compared with 27.2% a year ago due to the geographic mix of earnings. We still expect our full year normalized 2015 tax rate to be around 24%. Normalized EPS, which excludes restructuring and other project costs, was $0.64, an 8.5% increase to last year despite about $0.07 of incremental A& P investment and $0.11 of FX headwinds. On a reported basis, second quarter EPS was $0.55, compared with $0.54 last year.

I will now move on to our segment results, and starting with writing reported second quarter net sales increased 1.3% to $496 million. Core sales increased 10.8% led by strong volume growth in EMEA and Latin America as well as pricing. In North America, back-to-school sell-in drove solid growth as we comp against the timing related benefit in last year's second quarter. Writing's core sales growth for the first half was 10.1%. Q2 normalized operating margin in the writing segment was 26.8%, a 40 basis point decrease over the prior year as the benefit of increased sales productivity was more than offset by negative foreign currency impacts and increased advertising and promotion spend. Net sales in our home solutions segment grew 14.4% to $438.5 million with acquisitions contributing $55.4 million. Core sales increased 1.2% due to the continued positive momentum in Rubbermaid food and beverage. This more than offset our continued exit of portions of the lower margin consumer storage business and a comparison against last year's Calphalon pipeline fill and major new customer. To the first year for the year the segment grew core sales by 1.1%. Home solutions normalized operating margin was 15.9%, up 320 basis points, reflecting the accretive impacts of acquisitions, resin deflation, and productivity. Our tools segments delivered net sales of $205.2 million, a 7.7% decrease driven by FX. Core sales grew 1.3% as we comped against double-digit core growth in the prior year. Core growth in North America, EMEA, and APAC was partially offset by a modest decline in Latin America, where we had significant pipeline fill last year related to our expanded product offerings in Brazil. Core growth for the first half of 2015 was 2.2%. Normalized operating margin in the tools segment was 11.4%, a 210 basis point decline driven by increased advertising and promotion and negative FX.

Reported net sales in our commercial products segment decreased 5.8% to $210.6 million. Core sales, which excludes the Rubbermaid medical business, increased 1.6% driven by pricing and volume growth despite about a 10% core sales growth comp in the prior-year. The core growth for the first half the year was 5%. Commercial products normalized operating margin was 13.8%, a 240 basis point decline due to higher advertising and promotion spend and negative FX. Our baby segment reported $210.7 million in net sales, a 14.7% increase compared to last year. The Baby Jogger acquisition contributed $26.7 million in sales during the quarter. Core sales grew 6% in the quarter reflecting good growth in North America and double-digit growth in APAC, fueled by new product launches and increased advertising and promotion. Core growth for the first half was 3.4%. Baby's normalized operating margin was 8%, an increase of 110 basis points to last year despite a significant increased investment in advertising and promotion, thanks in part of the Baby Jogger acquisition.

Looking now Q2 core sales by geography, North America core sales grew 1.4% led by baby and writing, despite the 150 basis point impact from the back-to-school early sell-in last year. In EMEA core sales grew 6.5% due to strong growth in writing, tools, and commercial products partially offset by continued weakness in baby. In Latin America core sales grew 40.2%, reflecting good underlying core growth in writing and commercial products and pricing, partially offset by slowing economy in Brazil as well as comping our large new product launch in Brazil last year. Note our core sales growth in the first half of the region was 33.5%, but that rate will taper off in the back half of this year as volume growth in Venezuela will temper and as we see increasing softness in Brazil. This will be more pronounced in the third quarter as we lap the SAP pull-forward from Q4 to Q3 from last year. Finally, Asia-Pacific core sales increased 5.9% fueled by the strong double-digit growth in baby Japan as that business is now return to growth.

Moving on to cash and our balance sheet, in Q2 we generated $102.5 million in operating cash compared with $96.2 million in the prior year. The increase reflects improved payables partially offset by higher inventories. We returned $101.6 million to shareholders in Q2 including $51.2 million in dividends and $50.4 million to repurchase $1.3 million of our shares. As of the end of Q2 we have $312 million available under our authorized open market repurchase plan. Finally, our balance sheets metrics continue to be strong, giving us flexibility to support Project Renewal and for further acquisitions should we pursue to them. With that, I will turn the call back over to Mike

Thanks, John. Let's now turn to the balance of 2015. This morning we increased our 2015 full year guidance to 4% to 5% core sales growth and $2.14 to $2.20 normalized EPS which represents 7% to 10% growth compared to prior year. Our best estimate for delivery is at the midpoints of each component of this new full year guidance. We are increasing guidance despite our expectation that for the full year negative foreign currency impact will now be $0.36 to $0.39, slightly worse than previously communicated as a result of the further weakening of currencies, particularly in Brazil and Canada. We've taken broad-based actions to deal with the currency impact and are making good progress covering the exposure. The expansion of Project Renewal has helped and we will need to take for the pricing to cover the full impact. Despite the unprecedented ForEx challenge, our conviction to steadily increase brand support remains strong, given the core growth acceleration and market share increases we are experiencing. In 2015, our guidance assumes we increase A&P investment by nearly 20%, and end the year with A&P as a percentage of sales around 5%. Our strategic objective is to increase A&P investment to about 7 percentage points of sales over the next few years. We are unwavering in this ambition because we believe it is key to enabling both the deployment of our portfolio to whitespace geographies while also investing per share growth in our home markets. We expect to achieve both growth goals while simultaneously delivering highly competitive earnings results and margin development.

In 2015 on a currency neutral basis, the $2.17 midpoint of the new normalized EPS guidance range represents very strong double-digit EPS growth of over 25% versus prior year, given our current assumptions on currency. If circumstances develop that give us flexibility to deliver beyond the midpoint to the full year normalized EPS guidance range we would likely prioritize investing back into the business to accelerate early 2016 results, if we could do so productively rather than further strengthen our already high competitive earnings growth in 2015. Our 2015 full-year guidance assumes that we sustain mid-single digit core growth on our Win Bigger businesses, with tools acceleration in the second half and writing deceleration in Q4 as we rebalance retailer inventories in advance of the potential consolidation in the US office superstore channel. Our guidance also assumes that baby sustains mid-single digit growth for the balance of the year, and that strong growth in Rubbermaid food storage offsets planned declines on the lower margin Rubbermaid consumer storage business resulting in low-single digit home solutions growth for the full year. We expect to offset the negative impact of transaction ForEx with positive pricing and productivity and that we continue to reduce overheads which when coupled with growth enables us to increase advertising and promotion support.

There are two factors that could influence where we fall in our full year guidance ranges. The first factor is the planned positive momentum shift on our baby business. We expect baby to deliver solid single-digit core growth for the full year. We are well staged to achieve this outcome in North America and Japan behind strong innovation, great customer partnering, and the increased marketing support. We will continue to invest significant marketing support behind baby innovation in 2015 in order to reignite growth while accepting the related operating margin contraction.

The second factor that could influence the full year outcome is foreign exchange, and in particular the impact of Venezuela on our overall results. Our guidance assumes we overcome the $0.36 to $0.39 of negative foreign currency impact to deliver EPS growth in the range of 7% to 10%. We are on track to achieve this outcome despite the slight worsening of the ForEx outlook since our last earnings call. We assumed the major currencies hold at current market rates, and in Venezuela we continue to transact and translate at the SICAD rate, given that our last auction was at the SICAD rate, given that we expect to access another SICAD auction in the next few months, and given that we expect to really remit dividends at the SICAD rate. Last month's SICAD auction for the transportation industry set the SICAD rate at 12.8 bolivars per US dollar. We have a reflected this devaluation from 12 bolivars per dollars, to 12.8 bolivars per dollar in our revised guidance. Importantly, we are executing well in Venezuela, and in a seasonally high Q2 back-to-school period, our growth was about evenly split between volume and price. We expect Venezuela to contribute roughly 90 basis points to the total Company full year core growth rate in 2015, 20 basis points above the 2014 rate of contribution. As previously shared, we are on track towards the midpoint for our revised full core growth guidance range of 4.5%. Our expected full year core sales growth contribution from Venezuela of 90 basis points implies that we are tracking towards 3.6% core sales growth, excluding Venezuela. We believe either midpoint is highly competitive given we have absorbed the negative impact of our European exits in the planned contraction of the Rubbermaid consumer storage business in core sales.

Let me close by saying we've had a very good first half of the year, delivering strong competitive results. Growth continues to accelerate, and despite unprecedented foreign currency pressure, we are delivering very strong normalized EPS growth. We've increased our 2015 full year guidance to reflect the building momentum in the business and are tracking towards our long-term guidance of consistent 4% core sales growth and 10% normalized EPS growth, as we enter the acceleration stage of the growth game plan in 2016. Our building momentum is a function of the sharp choices we have made. We are investing to create advantaged brand development and innovation capabilities and are backing them up with category leading marketing investment. We have tested nearly 750 new product concepts over the last five quarters, and our concept test results are consistently well ahead of our research suppliers industry benchmarks. As a result, our innovation funnel value has nearly doubled since 2013 with value per project up over 150%. The projects in the funnel have been steadily moving from concept to product, leveraging strengthened execution within R&D, and the new product design capability we have invested to create in our purpose built design center in Kalamazoo, Michigan. These new ideas for growth and the near doubling of our advertising and promotion investment had been enabled by our determination to make Newell leaner and more efficient and to unlock the trapped capacity for growth through Project Renewal. Coupled with the actions we've taken to strengthen our portfolio, these choices are yielding accelerated growth and margin expansion while also beginning to scale the Company.

We are on a path to completely transform Newell, delivering a highly competitive differentiated story of both category leading growth and margin development. That's the growth game plan into action, and that's the new Newell Rubbermaid. Let me now pass the line to the operator for questions

Thank you.

(Operator Instructions)

Chris Ferrara, Wells Fargo.

I hate to lead with the Venezuela question, but it was such a contributor this quarter, so let me get it out of the way. I guess first off, what would trigger a move to Simadi for you guys? If you did have to move to Simadi for 2016, how does that affect your view of getting to that acceleration phase, in other words, delivering 4%-plus core sales growth even without the contribution from Venezuela that you have been seeing?

Chris, let me answer the second part of your question, and then I will pass the Simadi question over to John. The reason we are unpacking the growth so that you have more visibility into Venezuela's contribution is to set up some visibility to the underlying performance in the Company. John talked about Q2. If you adjusted for the Writing, timing, and excluded Venezuela from our core sales growth numbers, you would've had 4.2% core sales growth in the quarter, which is a good indication of the underlying performance in the Company.

I gave you another data point, which is we expect, on the full year, Venezuela to contribute 90 basis points, which, against the midpoint of the revised guidance range, is equivalent to 3.6% of core growth in the full year, and 20 basis points ahead a year ago. If you adjusted last year's numbers, you can see the sequential improvement in our growth rates underlying, ex Venezuela.

I think we are right on track to getting to 4%-plus core growth next year underlying, so excluding Venezuela. I think that is within arm's reach now, especially with the strengthening innovation funnel that I referenced, and our continuing work on cost, which is enabling us to invest at higher A&P rates back into the Business. I think we are right on track for the acceleration phase with or without Venezuela in the numbers for 2016.

Chris, with respect to Simadi, we are still very comfortable based upon our ability to access the SICAD auctions and the information that we have coming up for the next round of auctions. As you know, there was an auction last month in the transportation industry that went out at SICAD at the 12.8 bolivars, which caused us to reval and move from 12 bolivars to 12.8 bolivars. We are still comfortable that SICAD is the right number for us, but we are obviously watching closely.

If we did have to move to Simadi in Q3, the impact to us would probably be about $0.02 before any mitigating action on 2015. So, we would scramble to try to cover it obviously, if that were the case. Best guess for us right now is certainly SICAD for the near-term future.

There is a key event in Venezuela later this year with the Parliamentary elections, and I think things stay in the current space that we are in, certainly through that moment in time. Then we will see what happens after that, but the facts and circumstances for every company are different. We accessed SICAD in 2014. We have not needed to because we went long and were able to access enough dollars to go long on raw materials. We've been able to price within the law to manage the margin impact of all of that.

We expect to access another SICAD auction shortly. We will see how many dollars we can access and how long a position we can take, but right now the circumstances for us are such that we feel very comfortable. All the advice we are being given would suggest that we continue to translate and transact at SICAD.

Got it. I guess a couple quick follow-ups: One, John, when you said $0.02, that would be for the back half of the year, if you had to move there for Q3?

Correct.

Okay, and then just on different notes, what is the outlook for commodities? I think as of last quarter you guys had thought that commodities were going to be I guess flat for the year.

Then, Mike, just on the China Writing launch that's supposed to come up in the middle of 2016, is there any data or analysis or color you can give us on what you are thinking in terms of share or potential incremental sales contribution from that early on? Thanks.

Yes. On commodities, as you know, we've seen the benefits certainly in resin pricing. John referenced that in his comments.

If I looked at inflation in total across all elements that influence our cost of goods, inflation this year is going to be pretty much flat year over year, which is the first time we've seen that in a long time. We're benefiting from resin deflation, but we continue to see labor rate increases and some other raw material increases. They net against each other to effectively hold inflation flat. And that certainly is contributing to our ability to move gross margin up, given the pricing and productivity activities we've been executing.

We did see resin, from the middle of Q2 through the most recent period, we have seen a little bit of a bump in resin prices. We don't know how that will play out through the balance of the year. Pretty much every industry outlook says those prices hold at that level -- at that higher level for the balance of the year. But it's really going to be dependent on the supply and input cost relationship, with oil now drifting back down.

You would think that would put downward pressure on resin prices. However, there are supply constraints in some of the components that go into resin manufacturing, and there are supply constraints on the facilities themselves that is causing pricing to hold up a little bit more strongly than we would normally expect.

It's unclear how that's going to break down for the balance of the year. Our assumptions are that the current rates hold for the balance of the year, and we actually see some inflation in resin going into 2016.

China launch -- Bill and Mark and Christy were in Shanghai this week with the team, working through route-to-market assumptions. Chris, we haven't put any data out there yet. I need to speak with them when they get back, over the next couple of weeks, to talk about how broadly we think we can go, and what timing we think we can launch. Is it first half, or is it early second half? Some of the route-to-market assumptions and our ability to scale those will really drive whether it is first half or second half. We have not decided yet.

We've got the brand. We've got the product. We've got the packaging. We know where we would source the product from, which is within our own network. We're lined out on the hard stuff. We need to make sure we like the route-to-market assumptions we've built in, and I need to understand the breadth of cities that the team is going to recommend to go with. Until we resolve just exactly how broadly we will go, I can't really quote what type of share and revenue impact we would expect. Over the next couple of months, maybe by the end of Q3, we will start to talk about that a little bit more openly.

Got it. Thank you.

Joe Altobello, Raymond James.

First, on Baby, obviously this is a nice bounce-back quarter after the first quarter. Margins also were up nicely this quarter. When do you guys expect to get that Baby operating margin back to double digits? Is that something that is 2017, 2018?

Hey, Joe. It's John. With respect to Baby right now, obviously we are pleased to turn that business back to growth after the difficult year last year. As you heard, there is two things that are going to challenge the margin on it a little bit. One is we are going to continue to advertise and promote the business right now, so we are seeing a nice return on that in terms of the top line.

The second piece we are going to get some compression on as well is some pricing actions that we have to do to continue to defend the core in the North American market right now. We are going to do that. It's going to be the first priority for us overall over the next year or so. Eventually we will return to focusing more on the margin. But for the short term, it's more about making sure the business is continuing to grow, and we protect obviously the price-point levels that we are taking the pricing actions on.

One of our competitive battles, Joe, is with the Chinese company that has made some inroads at Walmart on Baby, a company called GoodBaby. That Chinese company owns Evenflo. They also own a brand called Cybex. Cybex is in Europe; Evenflo here; and they also have a brand called Urbini, which is at Walmart. I think it may be exclusive to Walmart. I'm not sure about that actually; I think it may now be broader than simply Walmart.

We are fighting that fight. We are going to defend the core, as John says. We are doing that constructively, and we're going to layer in the right innovations to Walmart and to the other retailers that currently are leaning into the relationship with GoodBaby.

We view them as our core competitor in the US, and we believe we can out-innovate them. We are going to play for the market share. We are going to protect and grow our market share in the US.

Point-of-sale growth in the US is strong, despite the competitiveness of the marketplace, and high single-digit type of growth, which is great. The 4Ever car seat will become available to all customers in the third quarter, which will be a really terrific addition to our retailers' portfolios. I think one of the exciting things about the category is the competitiveness of it.

One of the other exciting things about the category for us is the high return on net assets that this category generates. So, if we grow it, we create a lot of value. I'm willing to take the margin squeeze in order to sustain the growth because it does, in the end, create a ton of value, given the very high return on net assets.

Got it. Thank you.

Then in terms of advertising, and obviously you guys have been investing heavily so far this year. Are you happy with the ROI that you are seeing on the incremental investment, and why is 7% the right number in terms of A to S? Thanks.

7% may seem like a random number, but we plan our business by category/country sell. We look out over the horizon -- the strategic plan horizon to do that, and the 7% is really an outcome based on the initiatives we believe we need to fund over the next three to five years. We think we reach the 7% A&P ratio hopefully by 2018 full year, maybe 2019. It will take us that long to get the A&P ratios up, in part because we need to be disciplined in how we deploy the portfolio into whitespace geographies.

What we are not going to do is compromise our investment in our home markets for the sake of deploying the portfolio around the world. There is one big consumer goods company that made that mistake a few years back, and it is still costing them. We are not going to make that mistake. We will govern the rate to which we deploy, based on our ability to preserve our investment in our home markets because we have so much opportunity to consolidate market share at home.

7% is an outcome. It's a function of our country/category sell planning, and we believe that puts us in a very competitive position relative to our peer group of industry peers. That will likely result in A&P ratios that are near double digit on Writing, and A&P ratios on businesses like Tools and Commercial Products that are in the 3% to 5% range. That will all blend down to that 7% number that we talked about externally.

Got it. Okay. Thanks, guys.

Olivia Tong, Bank of America Merrill Lynch.

Just first on the organic revenue growth outlook -- you've had a great first half. As we think about the second half, it doesn't sound like, from your prepared remarks, that you expect any major slowdowns. In Q4 you obviously have the benefit of some of the acquisitions folded into the core. If the first half is already at the high end of your raised fiscal guidance range, perhaps can you provide a bit of flavor for other factors we should be thinking about for the second half that could pull your results away from that current run rate?

Sure. It's a good question. We made the assumption in Q4 that -- and I built it into the script so that people are aware that we will decelerate on Writing in Q4, relative to the run rate we've had up until now. That is a deliberate choice we are making to plan that business for success going into 2016, in the context of what we think will be the office superstore channel consolidation, pending the regulatory approval of that transaction.

You should expect Writing to decelerate in Q4. That will be partially offset by Tools acceleration in the back half of the year.

The other thing you should expect is that Home Solutions sustains at low-single digits, and the net effect of that, I believe, will be something below the 4.5% midpoint range to net to something right about in the middle. It's really tough to be precise. Remember, $6 million of core sales is a tenth of a basis -- it's 10 basis points of core sales results. And we invoice probably around $20 million a day, so 10 basis points of core sales growth on the full year is probably a third of a day of invoicing. You have to understand the sensitivity around that number. I don't want to give you guidance that is falsely precise, but I do think we will end up roughly around the midpoint of that range, given the Writing deceleration we've planned in Q4.

The other thing to understand is that Venezuela will slow down in the second half of the year. We have just come through that back-to-school sell-in window, which was executed really well by the team -- second half in VZ will ramp down quite substantially. We don't know -- in this upcoming auction that we hopefully access over the next few weeks to month, we are not sure how many dollars will be available. It is unclear how much inventory we will be able to bring in, connected to that auction, and how hard we will be able to push our Venezuelan business without that clarity. These are all the variables that contribute to the outcome we've called.

Got it. That's very helpful.

On advertising, can you help give us a sense of order of magnitude of spend across the divisions? The reason I ask is, I look at the margins in Tools and Commercial Products, and you called out higher A&P spending in both of those. I know those have greater FX pressure.

I'm just wondering what the levels of spend there were relative to other divisions. If it's higher than other areas, when do you think that can start to materialize in a sales uplift? I know the comps were difficult, but just trying to understand those dynamics.

Yes. One of the things that is maybe a little bit different about this Company because we are smaller than some of the big folks that you follow is that we manage our resources very dynamically, and the money flows to where the ideas are in the Business. The top team really allocates the A&P around initiatives, and so I don't focus too much on segment margins when it comes to the A&P impact in them.

We focus on gross margins within the segments, and we focus on the direct costs and overheads in those segments. But if we've got a big initiative that we're launching in a segment, or a competitive issue we've got, we will accept the margin contraction for the investment. In the subsequent quarter, we will dynamically move resources around. That is certainly what we've done over the last number of years, and I expect we will continue to do that.

On balance, the economics are working out really quite well. The 150-basis-point increase, given flat normalized operating margins and the growth acceleration tells me the algorithm is working. We're spending, at the moment, behind the Vise-Grip's innovations within Tools, and the continued success of innovations within Commercial Products. We expect Tools to accelerate the top line in the back half of the year. And our first-half growth on Commercial Products is around 5%, which, you know, in any given quarter you will have timing-related issues that you have to lap. I think Commercial Products will probably end the year right about where it is at the midpoint.

And so, I think the primary answer I would give you is about how we manage resourcing, which is, small group of people in the center deciding where the A&P ought to be allocated. The segment Presidents are part of that discussion, and it's my leadership team that really are making those decisions. On balance, we're looking to deliver an outcome at the corporate level.

Great. Thank you, Mike.

Jason Gere, KeyBanc.

Two questions -- the first one, if you could talk a little bit about Brazil? We've heard some of the more industrial companies out there talking about the slowdown and the impact there, given that some of your businesses, as consumers, there is a little bit of a twinge of industrial in them. I guess maybe if you can talk a little bit about the macro and how you see that building out versus the micro? How much more distribution opportunities do you still see for your categories in that market? I guess a little bit of context around Brazil there.

Hey, Jason. It's John. In Brazil right now, we're definitely seeing a little bit of softness in Brazil. It's mostly for us a Tools business and Commercial Products business. Overall, a little bit hard because we did have such a big push in the Tools business last year with our product launch as we expanded the offerings in Brazil, and we're getting ready to introduce the second wave of that coming up right now. Brazil still presents a great opportunity for us, but certainly the economics aren't as compelling as they were beforehand.

Okay, great. That provides great color.

Just a second question, I guess really on, within the last week, CamelBak was acquired. It's a competitor to Contigo and Bubba. And I was just wondering if that's an area that you guys see a lot of growth opportunities? I'm just wondering about the role that maybe CamelBak with their buyer out there that provides them I think more opportunity into some of the sports channels. That was an area I think you guys were talking about with Contigo and Bubba as well.

Can you maybe provide a little bit of context about the growth opportunity that you see with a stronger other player out there as well? Does that help the category? Do you anticipate more competitive pressures -- just a little bit of context around that news. Thanks.

Thanks, Jason. We are really aware of that news, and we know the brand very, very well. We admire this brand. It has been built in the sporting goods channel, and it's an excellent competitor.

Vista Outdoor that bought the business obviously has tremendous channel synergies in this space. They are a big sporting goods business. They do ammunition. They do some other things that also gives them synergies in the military channel, which is a big chunk of CamelBak's business. This is a company that we need to watch in this space, and it's a brand that has very good prospects. I think this will be one of the interesting competitive battles to watch over the coming years.

That said, we are a $6-billion Company. We can deploy resources in a way that can flood any individual country, category, or product family sell like this one, so I think we will have way more resourcing to deploy against this opportunity than anybody else in this space. You should expect us to do that.

The durable water bottle category is the fastest growing general merchandise category in the United States across all of the categories that we track. We look at everything from tights to refuse to obviously durable water bottles, and it's the fastest growing category. So, it is an exciting space. There's plenty of room for competition.

We are growing very, very strongly -- strong double-digit growth on a comp basis, and that is extremely encouraging. We believe we have a ton of opportunity still to fill out the distribution. The Ignite team -- there is no better innovation capability in the industry than the team that we've bought, effectively, in Chicago.

We are excited about the prospects. We welcome the competition. We have a lot of admiration for CamelBak as a competitor.

Okay. Great. Thank you, and thanks for taking my questions.

Lauren Lieberman, Barclays.

I was hoping you could talk a little bit about working capital. Inventory was up a bunch, it looks like, and you covered it with payables and receivables. So, things were a little choppy. If you could talk about those dynamics, it would be great. Thanks.

Hey, Lauren. The working capital for us -- inventory right now -- so, you have to be a little bit cautious because we have the inventory coming in from acquisitions. It's a big piece of it. And as Mike mentioned, we had a lot of inventory where we went long in Venezuela that added as well. Then you add the timing shift that we have in Writing. So, those are some of the pieces of the inventory.

That being said, we have some fairly aggressive plans to get inventory out in the back half. As you know, working capital is becoming a much higher area of focus for us right now, as the balance of the Business really starts to come online and perform very well. You should see us, if we are doing our jobs, taking inventory back out in the back half overall, and gradually doing a much better job in terms of managing the inventory piece.

One comment on payables, Lauren: If you benchmark our payables days relative to some of the biggest players in the consumer goods industry and some of our near-in peers, our payables days are really not as long as they should be. I don't view the progress on payables as opportunistic. I view it as strategic, as we look to manage working capital. You should expect us to continue to push those days out over time, to the degree it makes economic sense to do that.

Okay. Great, because my follow-up to that was just going to be if you had any update to cash flow targets? I think we are waiting for updates to five-year target. I was curious if you had any thoughts on that yet?

Actually, we are sitting down to review the financial model this afternoon -- the five-year, forward-looking 2016 through 2020 financial model this afternoon. We're going to look at that. There's a conference coming up in about a month, and maybe we will unveil it there.

No comment right now. We just have to take the Board through this. We have our Board meeting coming up in a couple of weeks, and we're going to walk them through the forward-looking view, given the momentum that is building in the Business. Then we will be prepared to talk about that.

It's a great conference, I've heard, so I look forward to it.

I've heard that, too.

Thank you.

Bill Schmitz, Deutsche Bank.

What was the US growth, excluding the pipeline still in Writing, for the quarter? And then, does that $15 million come back in the third quarter?

Right now, if you looked at North American growth numbers, I believe they were [1.4%]? Is that right -- reported core? I think it's about 150 -- the impact of the Writing timing issue is about 150 basis points on North American results. The underlying North American -- 100?

Yes.

100, okay. If it's around 2.5%, in line with GDP growth in North America.

(multiple speakers) I was talking about Writing specifically.

For Writing -- 150?

Yes.

Okay. Another 150 bps on Writing for North America.

Okay. That's helpful. And does that $15-million pipeline -- does that come back in the third quarter?

It reverses. We get the benefit of Writing in the first part of Q3. Certainly, we're going to have a stronger back-to-school performance this year than we did last year, so we will get that and then some. You've got to remember that the SAP pull-forward in Venezuela and Mexico from last year at the end of Q3 was a blend of Writing and Tools business. Some of that backs out as a result of having to lap that spike.

Then, in Q4, you get a Writing benefit at the beginning of Q4 related to the flip on SAP. But then we're going to pull back hard on retailer inventories towards the end of the year on Writing in advance of the likely, although pending regulatory approval, superstore consolidation. That's the inside baseball view on Writing phasing.

Okay. That's great.

Do you think you're taking market share in Tools and Commercial? I know it's hard to find the data. That's why I'm asking you, because I can't find it anywhere.

If you look at the market share data, in both categories, you have to be really careful not to use it because the coverage is not like what you would experience in other places. What we do to get a sense for how we are doing is we have point-of-sale sell-out data that we get transactional data that we get from most of our retailers. We can cover probably 60% of the Tools universe in the US. And that gives us an indication of how our Business is progressing, which is the number I quoted to you, high-single digits, nearly double-digit Tools, for example, sell-out in the second quarter.

Then we have to benchmark that against what other people report, because we don't have category transaction data -- from that POS -- from our retailers typically. I will look at what Stanley Black & Decker reports, or what some of the others report, to get a sense as to whether our share is moving in the right direction or not.

We believe that our market share in Latin America is growing in Tools, based on that type of analysis, growing in Tools. We believe our market share in Europe is growing in Tools. We believe our market share in North America is holding at the moment, as we pivot our focus to a strategic partnership with Lowe's.

Okay. Great. How about on the Commercial side? Then I will let you go. Thanks.

In Commercial, it's really sketchy. We end up getting sell-out data from our distributors, and we can benchmark the sell-out data relative to sell-out data in prior-year periods. We also get some home center transaction data through our POS database. We think 5% growth in Commercial Products, which is largely a North American number, is a share-built number in North America.

The headline response would be: Tools holding in North America, growing in the rest of the world; Commercial Products growing in North America. And we really don't have a big business outside of North America. We have those two pilots going on in Brazil and in China, where we are definitely growing share, but they are small.

In Europe, the composition of our European Commercial Products business is really different there. It's more of a washroom solutions business than what you would see everywhere else in the world. So, I don't think it's a good proxy for our overall progress. The numbers are essentially holding in Europe.

(multiple speakers) Great. Perfect. Thanks so much.

Bill Chappell, SunTrust.

Thanks, good morning. Just to follow up, and I might have missed this, on Venezuela, can you break out what Venezuela will be in terms of core growth for the full year, and then maybe what it was last year?

Yes, John will.

Right now, Bill, I think, for us, full year we are looking at about 90 basis points of contribution as a Company for Venezuela overall for the full year. That's about 20 basis points ahead of prior year. That is right now basically our best guess in terms of where Venezuela lands.

Just as I'm looking at your raise of the full-year guidance by 50 basis points, was that largely Venezuela changes, or was it core strength?

No, it's core underlying strength. Baby recovery was sharper than we thought it would be. Our prospects for Baby are stronger going into the back half of the year. But the Rubbermaid food storage is extremely strong right now, perhaps a little bit stronger than we anticipated it being.

Underlying Writing momentum is quite good. Remember that because of the timing-related issues on Writing, we are really under-representing the core sales growth there. Now, part of that is Venezuela, but very, very good underlying momentum.

Sell-out growth -- just as a data point, Bill -- sell-out growth on Writing in the first part of the year, and this would exclude the Commercial Products portion of the Writing market because we can't track that as easily. The sell-out growth is measured through the POS data we get from our retailers was double digit in the second quarter. That is really encouraging, and that is above what we expected it to be.

We're coming into the big consumption window now, and time will tell whether that sustains or not. We anticipate it sustaining because we have got higher display levels at back-to-school than we did a year ago. We've got better innovation, and we were spending a very high level of advertising on Writing as a percentage of sales in the third quarter.

All of those things should conspire to give us a very good sell-out experience. If we continue to sell out at rates above our prior expectations, then I think we could get beyond the midpoint of that core sales guidance range we've set. We expect to be in the middle, but if sell-out works at back-to-school, we may be able to get beyond that.

I don't think Venezuela will contribute more in the back half of the year. Because I think access to dollars will be less than they were a year ago, same time frame. Therefore, we won't access as much raw materials, and we won't have the freedom to push volume into the market at higher pricing in the way we did in the prior-year window. I think Venezuela's contribution -- I don't expect it to get beyond 90 basis points, and it may actually slip a little bit, depending on what happens with the next auction.

Got it. Maybe just to tie into that, if I look at the excitement of back-to-school, is that 70% innovation market share gains, and 30% just it's a better back-to-school season? Is that the best way to look at it?

The biggest driver is news and advertising, but in terms of consumer involvement with the brand. But sell-out is driven by the effectiveness of our sales execution and the number of displays we have, the amount of facings we have at retail, the placement on shelf of that inventory, whether it's right at the end of the aisle, near the -- and it's the first impression a consumer has walking down the aisle. There is a lot of executional things that have to work in that six-, seven-, eight-week back-to-school period.

It is unbelievably enhanced. Our ability to get those displays are enhanced by the fact that we are really, in the industry, the only one that is spending at this level, which is why we are driving disproportionate sell-out performance. The advertising support that we have on there is really significantly ahead of the competitive set, and it's the combination of all those activities that drive the sell-out performance.

I hesitate to put a percentage on any one component. They all work synergistically to drive the outcome. Now, we will see how it plays out.

I am very encouraged. I know the displays are going to be up. I know the quality of the displays are better. Last year, we tried to do displays that were multi-brand displays. This year, we've gone to dedicated brand displays on Sharpie and on Expo and on Paper Mate. I expect we will get more placement as a result of having done that.

We've got a wildly successful new launch on Mr. Sketch, as we launch washable scented markers, which will make moms -- decades' worth of moms will be pleased, and wonder why it's taken us so long. These things are doing really well in the period prior to back-to-school.

We've got washable Mr. Sketch. We've got 2-in-1 Paper Mate InkJoys with a stylus on one end and a pen on the other. We've got new colors on Sharpie. We are launching Sharpie Extreme. We've got new colors on Expo. We've got InkJoy Minis. We have got a chock-full innovation funnel.

But in the end it's the synergistic effect of all of that advertising and great sales execution. We are very well positioned on all of those fronts. We will see. As you remember, we have got to have a good replenishment ordering at the back half of the quarter in order to have all of the numbers hold together. That is the cycle at back-to-school, and we are very pleased with how it is set up at this point.

Perfect. I will debrief my wife on the Mr. Sketch news.

Exactly.

Stephanie Wissink, Piper Jaffray.

Just a question for you, Mike, on the 4% top-line growth: Can you characterize that for us with respect to price versus units, particularly with respect to price? Is some of the gain you are seeing like-for-like, or, to your point, innovation-driven? Or are you seeing the customer actually trading up into a higher price point range within your core brands? Thank you.

Steph, it's a very good question. Our pricing is largely happening where we have transaction ForEx issues. We did, for the first time this year, take price on Writing in North America -- first time in five years -- and that seems to be holding. The real value though that I think over time will play out in price, and it probably won't show up in -- if we were to do price/volume analysis, this would not show up in price. It would show up in volume.

But as we innovate, and I talked about the 750 concepts, the fact that they are moving from concept to product. The fact that our innovation funnel value has doubled, the fact that project size is up by 150 basis points, every one of those projects has a gross margin that is accretive -- almost every one of those projects has a gross margin that's accretive to its core line.

That is one of the filters that we apply in the gate-keeping process. The reason they're gross margin accretive is because the concepts have more value and, therefore, they can carry a higher price. That won't show up in our price/volume metrics. That will show up as volume as we innovate in that space.

Price really only reflects pricing related to either invoice price increases or reductions in gross-to-net spending. That type of premiumization will show up in vol mix and not in price. We expect over time to get more price realization, if you want to call it that, through innovation. That is part of the logic behind the criteria we place on gate moves through the innovation funnel.

We also expect to get more strategic pure pricing on these businesses as we become more disciplined in being able to account for the cost to serve our customers, and charging for that cost to serve. We've started that in 2015 by establishing bracket pricing in the US, establishing three to four different tiers of customers, based on order quantity and size of a customer relationship. That will continue to be refined over time as we get better at understanding the cost to serve, tier by tier.

Our spending and pricing will be proportionate to the size of those customers and the efficiency of dealing with those customers, as it needs to within the rules set by Robinson-Patman. We can capture more value through strategic pricing as a result of having a clearer understanding of our cost to serve, customer by customer, and we plan on doing that.

Thank you. Very helpful, best of luck in the back half.

Thanks.

Your last question comes from Rupesh Parikh, Oppenheimer.

I wanted to touch on Home Solutions segment profitability. Maybe you can talk about some of the dynamics driving the increase in the margins there, and whether you expect these type of margin gains to sustain themselves maybe for the remainder of the year?

Hey, Rupesh. The biggest benefit that we have in Home Solutions right now, and we've talked about it for a couple of quarters, is the continued momentum on the food and beverage business for us, which is, to that segment, margin accretive. We mix up, and that business is doing very well.

We continue to deprioritize the consumer bulk storage business, which has a much lower margin profile. As I think you may have heard Mike talk about before, we're diverting more and more of our production capacity to support that food and bev [big gross] overall. That gives us the -- definitely the benefit overall.

Resin deflation has helped us a little bit this year as well. But as Mike mentioned, we're seeing a little bit of potential uptick in resin pricing going into next year overall.

But if we can continue the continued push on our food and bev business, as well as the acquisitions, which, you know we talk about our acquisitions, Bubba and Contigo, being gross margin-accretive to the Company, but to the segment, they're gross margin-accretive. Bringing those businesses into the segment have helped as well in terms of the overall profitability of the Business. So, I think you will see us continue to make some progress, again subject to resin cost inputs, which will be a major factor in that business.

Okay. Great. On resin prices, if you look at that segment, have you fully seen the benefits of lower resin prices, or should we still expect favorability going forward?

As we see -- we sit here and hope that with the lower input cost, we would see that flow through in resins with the lower energy costs. However, the bigger dynamic and the constraint Mike talked about earlier was the resin capacity right now, as well as the markets for some of the other components that you use to convert the feedstocks into resin.

Right now, we watch this very closely overall. It looks like it's going to be a little bit of pressure going into next year. Hopefully, we will be happily surprised, and it will go down the other way. But right now I would not be counting on resin deflation being a good guy for us next year.

Okay. Thank you for all the color.

This concludes our question-and-answer session. I will now turn the call back over to Mr. Polk for closing remarks.

Thank you very much, Alicia. Thank you to all of you on the call for your interest in the Company. Most importantly, I would like to thank all of the Newell people who have worked tirelessly to make these results happen. Look forward to reconnecting at our next opportunity. Talk to you soon. Bye.

A replay of today's call will be available later today on our website, NewellRubbermaid.com. This concludes our conference for today. You may now disconnect.