Thank you. Good morning, everyone. Welcome to Newell Brands third quarter earnings call. On the line with me today are Ravi Saligram, our President and CEO; and Chris Peterson, our CFO and President, Business Operations.

Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainties, actual results and outcomes may differ materially. I refer you to the cautionary language and risk factors available in our press release and our Form 10-K and 10-Q for a further discussion of factors affecting forward-looking statements.

Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures and reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as on Newell's Investor Relations website.

Thank you. And now I'll turn the call over to Ravi.

Ravi Saligram - President and Chief Executive Officer

Thank you, Nancy. Good morning, everyone, and welcome to today's call, I want to start by expressing my sincere hope that you and your families are remaining safe and well. I also want to mention with mixed emotions that Nancy after trials stellar years has decided to retire at the end of the year. The board, Chris and I and all her teammates thank for doing an excellent job. This is her last call, and what a way to retire in a blue lighter [Phonetic] quarter. Thank you, Nancy. Sofya Tsinis, whom you all know very well, will be taking over from Nancy as the Head of IR for Newell.

I have the pleasure this morning of discussing an extraordinary quarter for Newell Brands, a quarter in which we were ahead of expectations on all fronts. We delivered very strong financial results, including broad-based core sales growth of 7.2%, driven by strong consumer consumption across most of our categories. We also generated significant improvement in operating margin and in cash flow generation as the organization took decisive actions behind a clear set of objectives.

I'm extremely proud of the team's resilience and perseverance as everyone rallied around delivering against our strategic priorities, while simultaneously ensuring that we successfully navigated the constantly evolving macro environment we find ourselves in during the third quarter. We pivoted to accelerate the turnaround plan, strengthening execution and accelerating e-commerce growth, which enabled much better than anticipated results. Through a rigorous operation, rhythm and decisive actions, we are making significant progress in building an organization that delivers on our long-term goals, including consistent sales growth, core sales growth, margin expansion and cash conversion cycle improvement.

Our business units are 100% committed to reducing complexity and are laser-focused on significant SKU reduction and delivering savings through both productivity and efficiency initiatives. I'm proud of the Q3 results generated by this team. I'm proud not just because the growth was so strong, but also because this is the first quarter since 2017 that Newell Brands has delivered positive core sales growth. So it represents an important milestone for our company.

We believe we are starting to turn the corner and reigniting consistent top-line growth. Many of our categories are well positioned to capitalize on the stay at home lifestyle with consumer spending more time in their kitchens and with their families. We are leveraging insights from evolving consumer purchase patterns to fortify our innovation funnel and continuously rejuvenate our brands for today's consumers. In fact, we are developing a new and unique framework to drive breakthrough innovation and design thinking and breaking down organizational barriers to become more nimble and agile. This should result in a stream of innovations over the next several years. At the same time, we are making headway on closing distribution gap in food, dollar and drug channels and migrating our business towards winning channels and customers.

We saw very strong consumption growth in the U.S. across the majority of our portfolio throughout the third quarter, and thus far, in October. Our third quarter momentum was broad-based with seven out of eight business units posting core sales growth and six posting consumption growth. All eight business units saw sequential improvement in top-line trends versus Q2.

Core sales grew in all geographies with our international businesses accelerating more sharply in the U.S., especially in Latin America. The standout in the third quarter were our Food, Appliances & Cookware and Commercial business units. All of it generated impressive double-digit core sales growth, and it's not just sales growth. During the quarter, we drove market share gains in Food, in outdoor camping gear, in bathing and in Home Fragrance. As expected, Writing was challenged in the quarter, although we did see sequential improvement in consumption in the U.S. during the quarter due to the timing of school openings varying across different regions.

Third quarter served as a good reminder as to why the breadth of our portfolio is an advantage. Even though one of our strongest business is Writing took an outsize hit from the COVID pandemic, broad-based trend in other business units was more than enough to not only offset that headwind, but deliver extremely strong growth for the company as a whole.

To capitalize on the accelerating shift of consumers to online purchasing, we continue to proactively leverage our e-commerce capabilities and marketing investments, while bringing a deliberate focus to omnichannel execution. Online sales maintained that very strong double-digit growth trajectory. During the third quarter, online penetration as a percent of net sales was 21% versus 16% last year. Year-to-date, e-commerce penetration sales was also 21%, almost double year-to-date 2018 levels. Penetration improved meaningfully across our portfolio with the most noticable acceleration in Home Fragrance where it nearly doubled year-to-date.

Our progress in e-commerce is further evidenced by the fact that our online sales have grown about 40%, 40% folks, in third quarter and year-to-date. We also continued to gain market share in the third quarter in many fast segments across Amazon. More recently, in October, we achieved excellent double-digit growth on Prime Day. Our key e-commerce team is doing an outstanding job in capitalizing on and leveraging evolving consumer behavior. At the same time, we are building the digital IQ and digital marketing capabilities of our business units and proactively evolving from a brick and mortar focus to a true omnichannel focus so that we can create consistent and amazing brand experiences for our consumer, no matter which channel they shop, how they shop, when they shop and where they shop.

Omnichannel will become a competitive advantage for Newell in an age of click and collect, pick-up at curbside, browsing online purchase in-store and whatnot. We are also successfully migrating our business to faster growing channels, which puts the company in a much stronger position long-term. During Q3, our two largest channels, digital and mass, each grew double-digits, more than offsetting declines in the specialty and office channels, which are becoming an increasingly smaller part of our overall business.

Our Food business continue to be a powerhouse this quarter with core sales and consumption increasing at very strong double-digit rates with core sales growth and market share gains across all major food brands, including Rubbermaid, FoodSaver, Elmer and Sistema. During Q3, FoodSaver was one of the largest contributors to the company's growth. And the June launch of the latest vacuum device VS3000 has been off to a strong start. The Ball business is also on fire. Year-to-date sales are up 60% with a significant increase in millennial purchases. We're not just finding the way with current category tailwinds, we're also leveraging consumer insights on our new product line-up. A prime example is the launch of Rubbermaid Brilliance Glass, which launched in August.

The biggest challenge in Food recently has been keeping up with demand from a supply chain perspective, and we expect to change demand for the rest of the year. We are working hard to increase capacity across all four of our growth brands. Home Fragrance rebounded during the quarter and grew sales in both North America and EMEA with the reopening of many specialty retailers as well as our own retail stores contributing to this outcome. Consumption has remained quite strong in the U.S., driving share gains in the track channels.

We were particularly pleased to see double-digit comps at our Yankee Candle retail stores once they reopened, demonstrating pent-up demand for our Home Fragrance parks. In fact, the retail comps we saw in our stores, did the highest since 2,000. We also saw a significant increase in new consumers accessing our yankeecandle.com platform for the first time, driving robust growth.

Our Home Fragrance business has gone through an interesting journey this year. Our Massachusetts production facilities and DCs for closed down in the second quarter due to COVID lockdowns, which prevented us from pre-building inventories for Q3 and Q4. We opened up our plant in Q3 and started ramping up supply, while we encountered a significant increase in demand and surge in consumption mall channels, which is continuing in Q4. So we are continuing to chase demand and are going all out trying to increase capacity.

Our Appliances business grew core sales a whopping 17%. Yes, 17% in the quarter, with positive sales trends in all geographies, most notably in Latin America. We saw heightened consumption across most key categories as consumers continue to enjoy increased cooking at home, benefiting our stay at home usage products. This team, under the leadership of New Business Unit Head, Chris Robins, is working hard to build a consumer-relevant innovation pipeline to position our Appliance brand for a sustained growth longer term.

We are seeing some green shoots. We're quite pleased with the initial success of Mr. Coffee Iced Coffee Maker, which we launched at a major mass retailer in September, and it's been flying off the shelves with the sell-out significantly ahead of expectations. We are encouraged by these strong results and excited for the opportunity ahead.

Throughout the pandemic, we have experienced strong consumption in blenders, and recently launched a new series, Oster Texture Select Blenders, which takes the guesswork out of getting a just right smoothie or salsa. I'm not suggesting that our Appliance business has magically resolved all its issues, but it's certainly helpful to our category tailwinds that enable investment behind the innovation and brand support in order to drive share gains over the long-term.

Outdoor & Recreation also returned to core sales growth of 8% in Q3. The rebound in outdoor activity we started to see at the end of Q2 has continued, especially in camping gear including tents, stoves, grills and shelters both in America and International. We are pleased to see that Coleman in its 120 year is beginning to return to its rightful place as a brand leader in the Outdoor segment as we rejuvenate the offerings..

In turn, we have driven great success in Marmot's Superalloy Tent, an award winning, premium, lightweight backpacking tent, which was launched in summer training and has been a top performer. Under New Business Unit's CEO, Jim Pisani's leadership, the team is focused on capitalizing on these consumption trends and building our plans for '21 and beyond.

Our Commercial business, the real gem turned in its third consecutive quarter of core sales growth, benefiting from heightened focus on cleaning and sanitation and increased consumer traffic at home centers. Q3 results accelerated significantly, driven by strength in washroom solution, refuse, material handling, hand protection in outdoor and garage organization. This business is showing good momentum in product innovation, distribution gains and strengthening customer relationship.

Recently, we launched PPE Disposable Solutions, which are utility and decorative, refuse containers with a dedicated PPE waste stream that have patrons and employees effectively dispose off of masks and gloves. We're also first to market with the Rubbermaid 7×7 Storage Shed that can be assembled by one person. They say even Saligram can do it. We are confident that Commercial will remain a growth driver for the company going forward.

Connected Home & Security rebounded to core sales growth in the quarter as well after the temporary supply chain disruption experienced last quarter, given the lockdowns implies where our main plant is located. The team has worked hard to replenish inventories, unfulfilled customer and consumer demands for our security products.

Baby bounced back to core sales growth in third quarter after experiencing temporary pressure in the second quarter, largely as a result of lockdowns. We saw strong consumption in the U.S. and our Graco brand drove market share gains in Baby Gear, particularly in housing category. New Baby innovations included the Graco Cradle Me 4-in-1 Carrier, Graco's first entry in the soft carrier category and NUK's Temperature Control Bottle. This bottle innovation has captured the leading market share spot in Germany.

Writing as expected was the challenged business this quarter. The back-to-school season was negatively impacted by uncertainty surrounding timing of school and college reopenings, which has weighed on replenishment orders. On a positive note, POS trends in the U.S. improved as we progressed through the quarter, rebounding to growth in September. Newell gained share in pens during the quarter, driven in large part by over 900 basis point share gain in gel pens due to the success of our new Sharpie S-Gel pen.

We have new innovations that will be available in the fourth quarter, including the Sharpie S-Gel metal barrel pen, a new range of S-Gel designs and colors and a new lineup Paper Mate Scented Felt Tip pens. Although consumption in the core Writing categories has remained positive thus far in October, due to an elongated back-to-school season, we expect the business to remain under pressure for the remainder of this year. We continue to feel good about Writing long-term and have kicked off a major innovation initiative that takes into account the new norm of hybrid models of schooling and working. We expect to come out of the pandemic with an even stronger market position for this important business.

It's been exactly one year since I joined Newell Brands, and what an interesting year it's been. Despite all the challenges, I'm really proud of the progress the organization has made in restoring the growth momentum of the business in the third quarter and in aggressively going after costs and working capital opportunities. I'm equally proud of the excellent improvement in employee engagement and culture and focus on diversity inclusion and belonging.

The pandemic is not yet behind us and much uncertainty remains regarding its magnitude and duration. As such, we remain vigilant in our focus on ensuring the safety and well being of our employees, keeping our manufacturing and distribution facilities operating safely, while we ramp up capacity and sustaining business continuity and the company's financial vitality. We remain equally focused on accelerating the progress of the turnaround journey.

Looking into the fourth quarter and beyond, we are executing on five key strategic priorities. First, driving consistent top-line growth. I suspect we may see choppiness from quarter-to-quarter in the near-term as each business in a different stage of the journey. We chase demand surges in select growth categories. And the effect of the pandemic are very based on categories. I truly believe we are beginning to turn the corner as a company.

Secondly, we continue to drive and invest behind consumer-relevant, customer-supported innovation with an eye towards market share gains across our key brands. Third, our e-commerce will continue to be our big bet. And I'm confident Newell will build a strong reputation with consumers and customers for omnichannel prowess. Fourth, we will accelerate our efforts to drive our complexity, while maintaining tight control of our costs, chilling productivity and reducing SKUs. We are proactively working on optimizing our supply chain network to deliver excellent service for our customers and improve.

And last but not least, we will continue to make cash flow the hallmark of our company. In 2019 we generated over $1 billion in operating cash flow. In 2020, we hope to give an encore performance. In fact, even do better and exceed $1 billion. Christ, whom I informally call the billion dollar man will fill you in shortly on the details.

The credit for our strong Q3 results goes to our leaders, our brand and marketing and sales teams, our supply chain professionals. Most importantly, a real thank you and shout out to our frontline employees in the factories, DCs, retail stores and R&D labs for their dedication. You keep us going, you are our heroes. And to all our receivable collectors, thank you for bringing in the cash. I'm so thrilled to see the team work, dedication and engagement of our people. With all the foundational work done today, not only enabling us to overcome the challenges posed by COVID-19, but also positioning Newell Brands for sustainable long-term success. I truly believe the best days for Newell are ahead of us, onwards and upwards.

And at this point, over to you Chris.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Thanks, Ravi, and good morning, everyone. Before going through the details of the quarter, I want to provide some operational highlights. When we put our turnaround plan together a year and a half ago, we created an integrated set of strategies and initiatives designed to strengthen the company and accelerate financial performance. We have made very strong progress on each area of the plan. And taken together, the strategies are playing out in a very powerful way. In fact, the momentum is accelerating.

Ravi shared a number of the improvements we have made to strengthen the organization and return the company to core sales growth. In addition, we have made significant improvements on operating margins, cash generation and reducing complexity. On complexity reduction, for example, we eliminated another approximately 10,000 SKUs during this quarter, which is a year-to-date reduction of 23% or more than 40% reduction since we began the program about two years ago. We've now put in place a systemic monthly process to drive SKU reduction and efficiency on an ongoing basis. We are quite encouraged by both the progress we have made and the opportunity still ahead of us, including the efficiencies it unlocks across the organization. Every business unit have plans in place to take more aggressive actions on SKU rationalization as we move into 2021.

We also made a significant dent in reducing excess and obsolete inventory during the third quarter, taking advantage of strong consumer demand dynamics. As a result, the quality of our inventory is in the best shape the company has been in recent history. Operating margin expansion was another highlight of the quarter. We are laser-focused on optimizing our cost structure and unlocking the full margin potential of the business.

Fuel productivity momentum continued to build on the success from the first half of the year. We drove savings from productivity that were more than 50% ahead of the year ago level, which in combination with overhead savings, helped to mitigate the impact of unfavorable mix due to the Writing business decline. For the full year, similarly to Q3, we expect gross fuel savings to contribute roughly a 4% reduction to our cost of goods sold base, which is the best annual result the company has delivered since we started tracking the measure. We have significantly strengthened our productivity performance over the past few years with visibility to our very robust funnel of projects for next year. We have come a long way in establishing and embracing our culture of productivity throughout the organization as everyone aligns around our common goal of driving efficiencies and simplification.

We also made very strong progress on overhead cost reduction. We successfully converted the Coleman North America business to SAP on October 1, continuing our rationalization of ERP systems. We further simplified our IT footprint and have now reduced the number of IT applications from about 6,000 a few years ago to less than 800 today. We largely completed the headcount portion of the restructuring program that we implemented during the second quarter, which impacted about 4% of the company's professional employees. And we implemented a new technology to consolidate and better control the company's indirect overhead spending, which we expect to drive significant savings going forward. We reported outstanding quarterly and year-to-date results and cash flow generation, driven by strong working capital progress. In Q3, we actually generated slightly more operating cash flow than we did during all of 2018.

I will now recap some of the financial result details. Third quarter net sales increased 5.1% year-over-year to $2.7 billion as core sales grew 7.2% and currency was unfavorable by about a point. Growth was broad-based as seven of eight business units grew core sales, as did all four geographic regions. Normalized gross margin was 33.9%, a 90 basis point contraction versus prior year. Our strong productivity savings were more than offset by business unit mix, COVID-related cost and inflation.

Normalized operating margin of 14.9% was an improvement of more than 200 basis points versus last year, driven largely by overhead cost savings. Net interest expense declined by $4 million versus last year, reflecting progress on debt reduction. We recorded a normalized tax benefit of 7% as compared to a benefit of 22% a year ago as we realized discrete tax benefits in both periods. Normalized diluted earnings per share were $0.84.

Core sales for the Appliances & Cookware segment grew 17%, reflecting strong consumption across all regions, particularly in Latin America. Core sales for the Commercial Solutions segment grew 13.3%, driven by strong demand for sanitizing, washroom, hand protection and organization products. Core sales for the Home Solutions segment grew 19.5%. The Food business continued its impressive momentum as the increase in at-home consumption of meals translated into heightened demand for food storage, vacuum sealing and fresh preserving products.

Home Fragrance core sales returned to strong growth this quarter as well with our factory closure behind us and the reopen being of most specialty retailers, including our own Yankee Candle retail stores. The Outdoor & Rec segment generated core sales growth of 8.1% as the outdoor category is benefited from consumers' preference for vacation and close to home and spending time outdoors. The strong Q3 results also benefited from an acceleration of sales related to the implementation of SAP at Coleman North America on October 1. This impact will reverse and become a drag on top-line growth for the Outdoor & Recreation segment in Q4.

The Learning & Development segment was the only one that experienced top-line softness in Q3 as core sales declined 9.5%, reflecting the expected challenges in the Writing business as a result of delayed reopening of schools and offices. Baby rebounded back to core sales growth driven by healthy consumption.

We continue to drive a very strong momentum in operating cash flow during Q3. Year-to-date cash flow from operations of $820 million, almost doubled versus last year as the cash conversion cycle improved by about 30 days as the organization rally behind initiatives to reduce complexity and free up cash from working capital. While we are making progress across every facet of working capital, the biggest driver of year-to-date improvement was accounts payable, driven by more favorable payment terms following our negotiations with suppliers.

We ended Q3 in a lower than anticipated inventory position, SKU rationalization, stronger than anticipated sales in Q3 and a more efficient demand planning process drove our inventories down. And we continue to make progress on receivable collections through operational improvements. We remain in a very strong liquidity position. As a result of very strong operating cash flow generation, we ended Q3 with cash and cash equivalents of $858 million. We repaid a $305 million bond maturity in August, bringing the company's net debt balance down to $5.0 billion, a $500 million reduction compared with the end of the second quarter.

Our credit revolver and AR securitization facilities are currently undrawn and fully available. We delivered a significant improvement in the company's net debt to normalized EBITDA leverage ratio in Q3, driven by both net debt reduction and EBITDA growth. Specifically, Newell ended Q3 with a ratio of 3.9 times as compared with 4.6 times at the end of the second quarter.

Now let me turn to guidance. To help improve financial transparency, we are reinstituting the practice of providing guidance as forecast visibility has improved in recent months. Our guidance ranges will be wider than what we have historically provided given the dynamic environment and uncertainty around the pandemic. We expect to deliver flat to low-single-digit core sales growth in Q4. Thus far in October, consumption has remained strong.

We expect sustained progress on productivity and overhead savings to be more than offset by unfavorable business unit mix and higher A&P investment, so that normalized operating margin will contract 80 basis points to 140 basis points year-over-year to a range of 9.9% to 10.5%. Our guidance implies that the second half of the year will be much stronger than the first half, both in terms of top-line growth and margin delivery.

The tax rate is projected to be about zero in Q4 due to the expected tax benefits, the free tax benefits. And we are guiding the normalized EPS in Q4 in the range of $0.40 to $0.46. This brings our guidance for normalized EPS for the full year to a range of $1.63 to $1.69. We expect to generate full year operating cash flow of $1.1 billion to $1.2 billion, which will mark 2020 as the second year when the company's free cash flow productivity will exceed 100%. This compares favorably to the initial cash flow outlook we shared with our Q4 2019 results despite the fact that the world has changed dramatically. It is a testament to the meaningful progress we are making on our turnaround agenda and the resilience of our people who have come together to overcome the challenges presented by the pandemic.

Turning to 2021. While we are just starting the planning process, I want to share some preliminary perspective of how we are viewing next year. We expect to continue to make strong progress against each of our strategic priorities. We expect sustained efforts behind productivity and cost optimization to drive margin improvement, a portion of which is expected to be reinvested behind brand support. And we expect to continue to reduce the cash conversion cycle next year.

While we are not providing quantitative guidance for 2021 at this time, our long-term model calls for low-single-digit core sales growth, 50 basis points of annual operating margin expansion and free cash flow productivity in excess of 100%. We will share more perspective surrounding 2021 during our normal schedule of the Q4 earnings call in February.

In closing, we are very encouraged by the progress we are driving through the turnaround plan. We will remain agile and nimble so that we can quickly adapt to the dynamic environment we're operating in, while simultaneously propelling the organization forward on its turnaround journey.

Operator, let's open up the Q&A session.

Question & Answers

Operator

Thank you. [Operator Instructions] It looks like our first question is from Steve Powers from Deutsche Bank.

Steve Powers - Deutsche Bank - Analyst

Hey, thanks so much guys. And Ravi, I feel like you're so in it, I feel like I wanted to jump out of the phone and give you a high-five. So congratulations on the quarter.

Ravi Saligram - President and Chief Executive Officer

I'll give you a bunch of hugs, Steve.

Steve Powers - Deutsche Bank - Analyst

Perfect, perfect. Hey, I guess, as I think about the pivot to the fourth quarter, and the outlook, Chris, that you just talked through, I guess how are you thinking about holiday consumption and the potential that some of your categories and some of your at-home demand might have been pulled forward? Earlier, at-home demand that you might see as the holidays gets pulled forward earlier just because people are spending so much time at home. You mentioned strong October consumption, but I'm wondering if you've built an allowances for some of that consumption waning as the quarter progresses. And if you could make some commentary on what you expect out of Yankee, specifically this holiday season because that's just such an important category in the fourth quarter for you guys? I'm just curious given the channel dynamics, how you expect that to play out? Thanks so much.

Ravi Saligram - President and Chief Executive Officer

So let kick it off and then I think Chris can also add some perspectives. So I think all of the pundits have been saying that this year holiday will start a little earlier. And so - perhaps, when we look at Q3, right, because to look at Q4 you've got to look at Q3, a lot of our production was closed in Q2. So we opened it up, and we've been chasing demand. The good news is consumption has been leading sales, which is a very positive thing. And so I think that - and as I mentioned for Yankee Candle in particular, we didn't even get a chance to do much pre-building because we're closed, and our factory, and that's been chasing.

So far in October, consumption looks pretty positive. And we just got this week's too just today, and it looks positive. So our - what we guided for Q4, we saw a holistic view when we look at everything. Look, we've got some increased A&P spend in Q4, e-commerce is continuing to do great, Amazon, we had a great Prime Day in October and Yankee Candle, I think the big issue there is just chasing demand. So overall I think we have given our best view of where Q4 is on a holistic basis.

And so, Chris, do you want to add anything to that?

Christopher Peterson - Chief Financial Officer & President, Business Operations

I think you've said it very well, Ravi. The only thing I would add is that the underlying fundamentals that are driving consumer demand we think are likely to continue and sustain for some time because we don't see a slowdown in at-home behavior or increased focus on sanitization and cleaning. And those trends which are driving consumer demand across a broad section of the company's categories, we think are likely to sustain for some period of time.

Steve Powers - Deutsche Bank - Analyst

That's great. I'm sure there are a lot of questions in the queue, so I'll pass it on. But I will say, Nancy, thanks for all your help and congratulations on your next phase. And Sofya, congratulations to you as well. Thanks so much.

Nancy O'Donnell - Senior Vice President, Investor Relations and Corporate Communications

Thanks, Steve.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Thanks, Steve.

Operator

Thank you. Our next question will be from Lauren Lieberman from Barclays.

Lauren Lieberman - Barclays Capital - Analyst

Hi. I wanted to go first - I don't think Steve intended to get at it. But I'm still just a little bit perplexed and why you guys are seem to be expecting or forecasting so much deceleration sequentially, the commentary that October remained strong? At our conference when you spoke to core sales growth performance in the majority of your business, there was no sense that it was up that much, but it was up. So I'm just curious what you're kind of baking in or thinking about in terms of November and December that there is such a significant implied deceleration in sales growth? Thanks.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. Thanks, Lauren. Let me try to provide a little bit of color on that. So first of all, as Ravi mentioned, we're very excited that we've got the company back to core sales growth. And we think we have turned the corner on getting the company to consistent delivery of core sales growth. If you look specifically at Q3, there were three things that benefited the core sales number in Q3 that won't repeat or are unlikely to repeat in Q4.

So one, it was the SAP implementation that we talked about on Coleman North America where we pre-shipped to be prudent in advance of that SAP implementation in Q3, that helped Q3 and will be a drag on Q4. The second was the shift of Prime Day from June of last year to October. And those Prime Day shipments, we shipped out in the third quarter. And then the third was some of the replenishment of retail inventories as our supply chain recovered significantly during Q3 versus where we were at Q2. We estimate the total impact of all of those things as maybe a couple of points that Q3 benefited from, and we don't - that we don't see repeating in Q4. That being said, the consumption trends remained very positive across the majority of our businesses. And so that's why we're guiding to Q4 growth at the level that we're guiding it to in Q4.

Ravi Saligram - President and Chief Executive Officer

I'll just add couple of quick things there, Lauren. Look, if we can sustain at those rates, that's our sort of longer term aspirational model, and people, how soon they forget. This has been a company that's been declining for so long. So we actually think that the fact we can continue to grow is about the same thing.

There are few things, specifics, I just want to mention. Look, we're gaining share. In previous quarters I talked about Food, but now we're gaining in other businesses as well, like Outdoor Camping, etc. Second, recognize that when you go into Q4, you have a better seasonality because Outdoor starts slowing down. And in Q3, Outdoor for the reasons Chris mentioned, there was a real bump up on the camping side. But the tech apparel side is still a laggard and having - continues to have challenges as is our whole beverage business, Contigo, etc. that more because people are not on the go. So whereas the Coleman business was able to offset things in Q3, you don't have as much going in into Q4.

So I think the seasonality is something to take into account on that. And then we are chasing demand. So a lot depends on which is a great thing to have, as I already mentioned on Home Fragrance. So all in all, we still - if you look, if we can continue to every quarter get some growth, this will change the complexion of the company.

Lauren Lieberman - Barclays Capital - Analyst

Got it. Okay. That's really helpful. And I definitely remember that's it's long that it's been since there was this kind of growth. I guess, another question I had though that I'm really being curious about is, in addition to I guess a lot of the work that's going on this year, all the things you went through on the call, right? The complexity, building up e-commerce capabilities, quality of content, the distribution opportunities. I'm curious, what's kind of been going on in the background? This was - originally this was the reset year, which implied more work to get I guess closer to consumers again, not just with innovation and process, but actually getting closer to output in terms of innovation. So what can you share with us on where that stands as you look ahead into '21 and think about the innovation pipeline? Anything that you can share, whether it's qualitative or as broad as it needs to be. But I'm curious about the progress made on that front during this year?

Ravi Saligram - President and Chief Executive Officer

Yeah. I'll quickly hit that, Lauren. A few things, right. This was, yes, a reset year. The most important thing in my opinion that has occurred is we formed the leadership team. My leadership team with the exception of the e-commerce guru that we're in the process of trying to bring in is complete, and we have some terrific leaders. So Chris had articulated a great turnaround plan when he joined. And then when I came, I validated it. But you also need people to execute it. And we now have the right people who are both consumer-focused and efficiency-focused who are beginning to execute.

Specifically on the innovation side, look, some of these things it's going to be a marathon, not a sprint. It's not like next year suddenly you will have breakthroughs coming through, but we are doing little things that are beginning to give the organization confidence like that iced coffee maker. That was a bit of a sleeper, we looked at it, said hey that's exciting. And then, yeah, the consumer trends during COVID has helped because people have loved this thing. There is similar things, like our whole sanitizer project and the washroom thing. But we have sold a million dispensers in the commercial business in third quarter, that's incredible.

So I think you will see that. We're also partnering with two firms outside to build our innovation muscle, two very leading firms to help us with the innovation. But the important thing is, our leaders have a consumer-customer focus and mindset. So they are going and saying, let us understand trends and make it durable. So I feel pretty comfortable that over time you will keep seeing this innovation stream. It will not be like, hey, next year everything will pop because these things take time, you have to hit the line reviews, you've got to develop it and you've got to make sure the margins are okay. But long-term, I feel very good. My vision for this company is to restore it to 1994 when Rubbermaid was number one on Fortune's Most Admired list. Why, because they've put on the innovation every day. That's where I want us to get to.

Lauren Lieberman - Barclays Capital - Analyst

Okay, great. Thank you so much. Really helpful.

Operator

Our next question will be from Bill Chappell with Truist Securities.

William Chappell - Truist Securities - Analyst

Thanks. Good morning.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Good morning, Bill.

William Chappell - Truist Securities - Analyst

I guess, first Nancy, congratulations. Sofya, congratulations. Nancy, it's been an extraordinary 10 years. So hopefully you can have little more rest as we finish this chapter.

Nancy O'Donnell - Senior Vice President, Investor Relations and Corporate Communications

Thank you.

William Chappell - Truist Securities - Analyst

Going back to the - looking to the fourth quarter, kind of any reads you've got out of Amazon Prime Day in terms of - or Prime Days in terms of continued demand for home products, continued demand - I know it's typically Amazon Prime Days have been kind of a focus of the company on all the different categories. So does anything that tells you for the upcoming holiday season would be interesting?

Ravi Saligram - President and Chief Executive Officer

I think we got a terrific lift. And it's really across many of the categories that are growing, but also we are continuing to see those trends. So I think a lot of some of the trends that we saw in third quarter were also reflected on Amazon Prime Day. But Chris, was there any other specific you want to add?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. I would just add a couple of other thoughts. So we were up double-digits on Prime Day this year versus Prime Day last year, even though it occurred at a different time during the year. So we grew share during Prime Day and we're broadly growing share on Amazon. And post-Prime Day, we've continued to see strong consumption trends. So the consumption trends we've shared that we're seeing weekly in October had a big bump from Prime Day, but not - they did not - we did not see any slowdown post-Prime Day.

William Chappell - Truist Securities - Analyst

Got it. Yeah, that helps. And then second, as I look at the learning category, certainly impressive with all the kids were going virtually. But kind of what's your outlook as you move to the fourth quarter and early next year in terms of - are you seeing - has that category bottomed out in the third quarter? Will it remain pretty weak for the next few months? Just trying to understand kind of what you're seeing on a sell through basis.

Ravi Saligram - President and Chief Executive Officer

Let me quickly hit some quick things. As we said in the prepared remarks, we expect it to remain challenged in Q4. This has been elongated season. So - but I think, look, trade inventories, the replenishment is not going to be as much. So we want to be careful on that.

I think - the good news is consumption continues to be where we're seeing some growth. But it is not with the hybrid models. And even so - even with the hybrid, most of it is online. It is a bit of a challenge, but we see pockets of strength. The whole Sharpie S-Gel where just in the gel category 900 bps share increase, three percentage point increase was pens as a whole, our DYMO business is doing very well, both internationally and in the U.S. So I think current situation is I think it's going to be the same.

The key thing is really the pandemic has to be over. But what we are preparing for is, look, you saw these trends of hybrids remain. How do we re-imagine some of our products and stuff that we've got great innovation drive on it. I think this is a terrific business. I think we'll continue to be strong once we come out of the pandemic.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Let me just add one other point, which is, we've made a decision to proactively pull back on shipments into the trade on the Writing category during Q4 because we want to end Q4 with our retail inventories in a good position. And so our guidance does reflect a pullback in Writing sell into the trade. And what we're seeing, as Ravi mentioned, from heightened consumption, we expect to get our retail inventories in a good position heading into next year.

William Chappell - Truist Securities - Analyst

No, that's great color. Thanks so much.

Operator

Thank you. Our next question will be from Joe Altobello from Raymond James.

Joe Altobello - Raymond James & Associates - Analyst

Thanks, guys. Good morning. I just want to follow-up on that last point you guys made about replenishment. I think there was a nine delta, if memory serves, between POS and core sales in the first half. There was, as you mentioned, some replenishment that happened in Q3. I would think you didn't completely close that gap. And so why wouldn't there be the potential for more inventory replenishment going forward outside of the Writing category?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. So the way to think about that, Joe, is that during July and August, we saw a very significant reduction in POS trends because the back-to-school season, which in the prior year happened fully, didn't happen fully this year. What happened in September and October so far is we are seeing POS trends that are actually ahead of year ago, but the area under the curve in September and October is not as big as the area lost in July and August. So the retail inventories are still higher than what we would typically see at this time. That's why I made the comment on Bill's question that we've decided we're going to pull back on proactive shipments into the trade in Q4, and that's fully reflected in our guidance, so that we end the year with the retail inventories in a strong position.

Joe Altobello - Raymond James & Associates - Analyst

Got it. Okay. That's very helpful, Chris. And just second question. As we think about our models for '21, your normalized tax rate this year, I think was about zero or is going to be about zero. So what tax rate should we be using for next year?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. So the way I think about our tax rate, and obviously I'm not going to comment on any outcome related to the election that could change that. But in a stable environment, our going tax rate is probably close to 20% at this point excluding discrete tax items. We as a company, still have a significant opportunity ahead of us on discrete tax items because of the number of legal entities, because of the M&A activity that's happened historically. We're not going to provide specific color, but I would say, a 20% rate is sort of a going rate. But I expect that in every year for the foreseeable future, we're going to have discrete items that would take that number down from there, and we'll provide more specificity on that on the next call.

Joe Altobello - Raymond James & Associates - Analyst

Okay, great. Thank you, guys.

Operator

Thank you. Our next question will be from Wendy Nicholson from Citi.

Wendy Nicholson - Citi - Analyst

Hi. Good morning. My question actually has to do with the margins. And specifically, the operating margin improvement in the quarter was so much better than I was expecting. And I guess, there are two components I want to ask about. First, Home Solutions, the margin expansion was fantastic. And I'm wondering, how much of that is structural. Maybe just some of the changes you're making in the Yankee model versus just favorable operating leverage on the food side. So number one, how much of that is kind of here to stay?

And then just as I think about the negative mix in the business, your highest margin business, the Learning business was so weak in the quarter that has there been a huge margin headwind. So as I look out towards next year, assuming that business normalize, as you've got an incredibly easy comp, it's hard for me not to get really excited about what kind of margin you could put up potentially in the back half of next year. Is that fair in terms of how much I'm thinking about margin expansion being a real part of the story now or am I getting too excited like Ravi?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Let me try to provide some color on both topics. So on Home Solutions, there is no question that Food was a bigger driver of the margin gain versus the Home Fragrance business, although the Home Fragrance business also had margin improvement. I think the way to think about that is, we do believe it's structural. I don't think that given the big jump up in margins in that Home Solutions segment, I don't think we're going to see that type of annual jump up, but I do believe that that higher margin is sustainable in that business going forward. And we're getting effectively the benefit of a lot of different elements that are driving it. Strong top-line growth, which is giving us volume leverage. Strong productivity savings and overhead leverage are all contributing in that.

On the question on margin dynamics, let me provide a little bit more detail this year and then talk next year. So this year, really the story is the productivity fuel savings on gross margin are effectively offsetting the COVID cost and inflation, which is a strong result. And then the reason that gross margins are down is really due to the business unit mix. So you're right that when the Writing business bounces back, we should get a corresponding mix benefit that should allow us to recapture that, and we're optimistic about that. When - as the pandemic starts to ease and offices reopen and schools return when that happens.

The other thing that's happening on margins is the overhead cost savings, and that we believe we're making structural improvements that should continue to carry through to the margin story. So we're optimistic about margin prospects for this business over the long-term. Obviously, we're not in a position today to provide specific guidance for '21, but we're planning to do that on the Q4 call.

Wendy Nicholson - Citi - Analyst

Fair enough. Yeah.

Ravi Saligram - President and Chief Executive Officer

Wendy, just correcting. Yeah, I'd love to be as excited as you, but I think that's why we have provided this sort of evergreen or longer term aspirational model of 50 bps improvement, and it gives us confidence. I think keep in mind, we also took out a big chunk of overhead this year. So that will be lapping some of that. So it's not going to be continuous. And - but the long-term model is the one. And the most important takeaway for me actually is, what Q3 showed is we can withstand the shock of the Writing business because lot of people were very concerned, and I think the portfolio of strength is the one that one should gets excited about.

Wendy Nicholson - Citi - Analyst

Fair enough. And did you quantify COVID costs in the third quarter versus second quarter and what you're expecting for the fourth?

Christopher Peterson - Chief Financial Officer & President, Business Operations

We have not quantified it. But what I would say is that, what we - I'll provide a little bit more color. We quantified that we're expecting our FUEL productivity savings to take out about 4% of cost of goods this year, and that's effectively offsetting COVID cost and inflation. And if you look at the gross margin impact of COVID cost and inflation, they're roughly equal to each other.

Wendy Nicholson - Citi - Analyst

Great. Okay. Thanks so much. Congratulations.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Thanks.

Operator

Thank you. Our next question will be from Andrea Teixeira from J.P. Morgan.

Andrea Teixeira - J.P. Morgan - Analyst

Yeah. Thank you. Good morning. And congrats, Nancy and Sofya. Thank you, Nancy, for all the help, and wish you well. I wanted to ask more on the working capital control, which obviously has been one of the key highlights. And as part of what Chris was commenting about reducing the retail inventory, is there anything - does it has anything to do with the consolidation of retail and the shift to online? I'm assuming you were keeping your receivables tight at this point. So I wanted to ask, is that something you considered in your Q4 guidance?

And also if I can use a clarification on the price mix and the investment comments you made. So I'm assuming the mix has been paused here, I mean granted that obviously the Writing segment has been a drag. But with Prime Day and accretive innovation, are you - what type of investment are you planning to do? Is that more digital advertisement or it has to do also with couponing to support innovation?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Okay. Let me start on the working capital piece. So certainly the consolidation or the shift in the retail dynamics we are seeing, and we believe it's a positive for our portfolio because what's happening is, and Ravi, I think mentioned this in his prepared remarks that the e-commerce channel and the mass channel are growing at double-digit rates for us and the department and specialty channel is declining. And so the proportion of our business that are in the winning retailers is going up, and we believe that sets us up for a stronger growth going forward.

That dynamic doesn't really change our working capital because we're - the working capital doesn't - for us doesn't really - isn't really driven by consolidation of retail. The thing that's driving working capital change for us are the elements of negotiating extensions in our payment terms with suppliers, accounts payable was the biggest contributor to working capital in the year-to-date period, also the SKU count reduction and the demand forecasting process that we've put in place is allowing us to significantly reduce inventory levels. Those were the two primary drivers.

And then with regard to the pricing mix, advertising, we are planning in Q4 to have higher advertising spend versus year ago. Some of that is due to Prime Day being in Q4. Most of that advertising spend that we're planning to be up in Q4 versus year ago is digital in nature and e-commerce focused.

Andrea Teixeira - J.P. Morgan - Analyst

That's helpful. And no couponing you would think, right? No major kind of pricing reinvestment?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. We're not seeing a big change in promotional environment of significance to talk about.

Andrea Teixeira - J.P. Morgan - Analyst

All right, great. Chris, thank you.

Operator

Thank you. Our next question will be from Kevin Grundy with Jefferies.

Kevin Grundy - Jefferies - Analyst

Great, thanks. Good morning, everyone. And just to echo the sentiment; Nancy, Sophia, congrats. And Ravi and Chris, congrats to you and your team on continued progress. Two quick ones, actually the first one is a quick one. Just a housekeeping one for Chris, and I apologize if I missed this. You mentioned POS remains very positive. What was the POS in the quarter? What's it trending in October? I think it will be sort of helpful to compare that to the flat to low-single-digit core sales guidance for 4Q?

And then Ravi, just to pick up on the Writing piece. So you commented on obviously the near-term uncertainty related to the pandemic. My question is sort of broader. Since that you feel about it, Chris, you mentioned you expect it to bounce back, I think folks would agree with that given the easy comp, but my question is really beyond '21. Can you address, Ravi, the longer term debate around the ability to grow that business given the wider adoption in school, the Chromebooks and laptops, I see it in my own household, etc. What would you say the skeptics that have been calling for the demise of the pen? Why does it this industry go the way of green cards? Maybe you can frame that in sort of the building blocks here to get people comfortable around household penetration and frequency of use, etc., particularly with the latter likely under pressure even beyond the pandemic? So thanks for that.

Christopher Peterson - Chief Financial Officer & President, Business Operations

So very quickly on consumption. We've not actually given out the numbers, but let's just put it this way. We've been chasing and we are continuing to chase. So that should tell you something. But our consumption has always - so far what we've seen is it's higher than our sales. And so - and October consumption continues to be up.

Ravi Saligram - President and Chief Executive Officer

So let me go to the Writing piece. Look, I think I have two perspective, right? One as a retailer when I was an office fax. And so we looked at all the categories and stuff, and even at that time, this business was strong. People talk about the death of the pen, but look, when you keep innovating that is something so personal about the pen that people continue to use it, and even during these times we are seeing improvements.

I think though we should look at Writing and learning as a bigger thing than just pens or pencils, we've got something like DYMO, which is technologically base, we are looking at a lot of IoT innovations there. And labeling, for instance, I mean DYMO was up because of all the packaging that's going out right now online and small businesses use this product like crazy. So there is tremendous growth there. So that's a great focus for us.

And things like slime, it had a pay day, it's softened during the pandemic, a little bit of bump, but then it sort of flattened out. We are going to continuously look at innovations for children's activities to take - if there is stay at home, how do you leverage that trend. That's why we're putting a lot of innovation efforts rather than burying our heads in the sand and saying everything will come back. We are actually proactively saying if the world changes, let us get ahead of it. We've got very strong brands. And look, the innovation of putting Sharpie in a pen, right, itself is indicative of that.

So we've got tremendous brands. We will just keep looking at digitizing the business and looking at the environment. So I continue to feel that this is going to just be a powerhouse of a business. Temporary right now with the pandemic, but will come out stronger.

Kevin Grundy - Jefferies - Analyst

So Ravi, fair to say you're planning for growth beyond '21. It sounds like your push is going to be on innovation, probably understanding some pressure on pens, but you're talking about DYMO and Sharpie, etc. Internal planning like on a three to five year basis is you think you can grow the business? Just to be clear.

Ravi Saligram - President and Chief Executive Officer

This is going to be a very important part of our business, at least for the next several years, I have full confidence in it. And we have a terrific management team, by the way on this business.

Kevin Grundy - Jefferies - Analyst

Okay, very good. Thanks Ravi. I'll leave it there. Good luck.

Christopher Peterson - Chief Financial Officer & President, Business Operations

Thank you.

Ravi Saligram - President and Chief Executive Officer

I think we have one last question.

Operator

Yes. Our last question will be from Olivia Tong from Bank of America.

Olivia Tong - BofA Global Research - Analyst

Thanks. Good morning. Congrats on the results, and congrats to Nancy and Sofya as well on your respective roles. I wanted to ask a little bit about your expectations in the growth trajectory for your at-home category. So now lo and behold, we have to think about comping some of this growth rate next year. So I'm curious how you think about the future, because obviously household penetration is up dramatically, but presumably, there's more opportunity? And given new management and presumably that your stewardship of these businesses going forward, should we expect growth in your at-home categories to continue because of the initiatives now in development? And how does that step up in household penetration across the at-home categories influence your view on how you - on what you think about these categories and what they can grow longer term? Thanks.

Ravi Saligram - President and Chief Executive Officer

Let me kick it off, give a quick thing and then, Chris, I'm sure will add some perspectives. So let's take each of - let's take Food, for instance. Lot of innovations, we just launched the Rubbermaid Brilliance Glass. So there is so many aspects and so many product categories that we'll keep innovating. Look, it will be a tough comp for sure. So there is no way you can expect that you will have similar stuff next year, especially the first half. But we think this is a growth business.

And just let me give you one thing. Our e-commerce penetration in this business is lower than others. And we've got a very e-commerce savvy CEO, Chris Makowski. And already this year since she's come on in the e-commerce team and she have worked on, the penetrations increased dramatically, but there is still a long way to go. So I think that is a nugget. Home Fragrance, it's not just candles. That team is getting us into all kinds of new areas like the defusers, outdoor candles, car air fresheners, etc. So there is growth there. So I think appliances, Chris Robbins is really looking at the root of the issues and saying, how do you get that going? So yeah, tough comps, don't want to over promise. But the fundamentals are that we are going to attack the fundamentals and keep driving it.

Chris, do you want to add some stuff there?

Christopher Peterson - Chief Financial Officer & President, Business Operations

Yeah. The only other thing I would add is that we have some other businesses that are going to have easy comps next year. And so I think what you're going to see is that the results are going to be a little bit choppy by quarter and by business. But as we mentioned, from an overall company standpoint, that's one of the strengths of the portfolio. And we're excited that we're back to core sales growth. And we think we've got the opportunity to really deliver against our long-term model.

So - and the last thing I would say is, we don't anticipate the underlying consumer demand trends to change radically in the near-term. So we do expect that from everything we're hearing and everything we're seeing that the at-home consumption trends are likely to be with us for some time. As Ravi mentioned, some of those businesses will comp, will face higher comps as we get into the back half of next year. But there are other businesses of ours, notably Writing that will face easier comps, and that's the benefit of the portfolio.

Ravi Saligram - President and Chief Executive Officer

Thank you very much to everybody. Stay safe. Wear your mask. Appreciate your support onwards and upwards. That's a wrap. Thank you.

Operator

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NEWELL BRANDS INC

Q3 2020

Earnings Transcript

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