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Newell Brands Inc.  (NYSE:NWL)
Q3 2018 Earnings Conference Call
Nov. 02, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good morning and welcome to Newell Brands Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open the call for questions. In order to stay within the time schedule for the call, please limit yourself to one question during the Q&A section.

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

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

Thank you. Hello everybody, and thanks for joining us. With me on the call today are Michael Polk, Newell Brands President and Chief Executive Officer and Ralph Nicoletti, our Chief Financial Officer.

During our call, we will be making statements that are forward-looking in nature. These statements are only predictions. Actual results may differ materially due to risks and uncertainties. And I'd point you to our press release and SEC filings which discuss these risks. We undertake no obligation to disseminate any updates to these statements.

I'd also like to remind you that during the call, we will discuss certain non-GAAP financial measures. These non-GAAP measures should not be considered a replacement for and should be read together with GAAP results. Please refer to the Investor Relations section of our website and our earnings release for GAAP to non-GAAP reconciliations.

Thank you. And now I'll turn it over to Mike.

Michael B. Polk -- President & Chief Executive Officer

Thanks, Nancy. Good morning everyone and thanks for joining the call. Today, I'll address our third quarter results as well as the progress we're making on our accelerated transformation plan. Ralph will then provide a detailed review of our financial performance and I will address our fourth quarter outlook before opening it up for your questions.

Over the last few quarters, we've had to confront several significant external factors, including the Toys "R" Us bankruptcy, changes in the writing retailer landscape, the US trade conflict in emergence of tariffs as well as FX headwinds. Our team has been working hard to address these challenges head on and in the third quarter we've made good progress.

As a reminder, we're focused on five core areas. First returning the business to a consistent pattern of delivery. This means setting appropriate milestones and delivering against them, making our numbers quarter-by-quarter. Second, we're working hard to optimize our cost structure by delivering on our ongoing savings programs and extracting the retained costs related to the divestitures we will and have made as we transform our portfolio. Third, we're focused on increasing cash flow by driving profitable growth, making meaningful progress on working capital and reducing the complexity across our business. Fourth, we are reshaping and focusing the portfolio on our most attractive consumer businesses, executing the divestitures and using the proceeds to delever and repurchase shares. And fifth, we are repositioning the organization for more consistent and sustained operating performance restructuring division and function designs while simultaneously strengthening and upgrading talent.

In the third quarter, we made progress in all five of these areas. Specifically we delivered sequential improvement in core sales growth in all segments and all regions with the writing returning to growth in e-commerce excluding the absence of Toys "R" Us US Baby registry growing double-digits.

We delivered 13% normalized operating margins, exceeding our expectations and year ago performance, despite increased inflation, the July round of tariffs and the negative impact of foreign exchange.

Pricing and productivity were positive contributors in the quarter and we made substantial progress on overheads through efforts to rightsize the organization. We delivered over $570 million of operating cash flow, an increase of $389 million versus prior year as a result of good progress on inventories and on payables as efforts to renegotiate payment terms on sourced finished goods have begun to take effect. And we completed the divestiture of Rawlings and Waddington late in the second quarter and including (ph) this quarter, generating $2.6 billion in after-tax proceeds. In that context, we paid down nearly $900 million in debt exiting the quarter with net down -- net debt down $2.5 billion versus prior year. We completed a tender offer for another $1 billion debt in October and we passed back over $600 million to shareholders in the form of dividends and share repurchases. Our share count in the third quarter was about 4% lower than year ago.

As for the remaining non-core businesses, we're well on -- along on the sales process for several with others beginning to take shape. We're on track to deliver about $10 billion in after-tax proceeds through these divestitures and we'll use the proceeds coupled with our operating cash flow after investment in the business to continue to delever and also buy back shares at very attractive prices.

On our fifth priority, over the last two quarters we've taken steps to right size our organization actioning change in several functions including IT, marketing, R&D, design and e-commerce. We've made the difficult but necessary decision to restructure and those actions have contributed to our professional headcount on the continuing businesses being down by about 10% compared to where we stood at the beginning of the year.

We are laser focused on strengthening the operational performance and financial flexibility of the Company. While we know we have much more work to do, third quarter was one of sequential progress. We will continue to execute with a sense of urgency and repositioning Newell Brands for sustainable growth. And in the quarters to come, we will turn the page on this challenging chapter in our history.

Let me pass the call to Ralph to walk through a more in-depth review of our financial results and then I'll return to provide perspective on the balance of the year. Ralph?

Ralph J. Nicoletti -- Chief Financial Officer

Thanks, Mike, and good morning everyone. As I go through the financial results, please note that the discussion of the income statement metrics reflects our continuing operations. I'll remind you that under GAAP all overhead costs and interest expense not directly related to discontinued operations are allocated to continuing operations which burdens margins and profitability in both 2018 and restated 2017 results. The Company is implementing action plans to fully offset retained costs over time.

Reported net sales from continuing operations of $2.3 billion declined 7.7% versus last year due to lower core sales of roughly 140 basis point headwind from foreign exchange as well as the impact from the adoption of the 2018 revenue recognition standard. Core sales from continuing operations contracted 4% year-over-year in Q3 which represents good sequential improvement from Q2's minus 10% but were slightly below our expectations. The areas that came in short of our expectations were in the appliances business and home fragrance in EMEA while writing came in better than planned.

Reported gross margin increased 80 basis points versus last year to 35.9% as the benefit from productivity, pricing and the positive impact of the new revenue recognition standard more than offset inflationary pressures and other manufacturing costs related to inventory reduction. Normalized gross margin declined 10 basis points year-over-year to 35.7%. Reported SG&A expense of $576 million represented 25.3% of sales versus 27.9% in the year-ago period with restructuring and integration costs moving down significantly year-over-year.

Normalized SG&A expense of $517 million or 22.7% of sales was slightly favorable to the 22.9% in the year-ago period. In the third quarter, the Company recorded an $8.1 billion non-cash impairment charge from continuing operations, largely attributable to the significant decline in the Company's market cap during the third quarter. The impairment test which we formally conduct annually in the third quarter is based on a sum of the parts valuation but is capped at the fair value of the Company defined as the enterprise value at a reasonable control premium.

Given the significant pressure on Newell Brands shares in the recent months, the majority of the impairment was driven by the reduction in the market cap, with the remainder attributable to a change in cash flow projections from what was assumed in the impairment test that we performed last year. Largely due to this non-cash charge, the Company reported an operating loss of $7.9 billion. Normalized operating income was $296 million compared with $319 million in the prior year. Normalized operating margin came in at 13%, up 10 basis points versus last year. We remain on track to deliver normalized operating margins in the 12% to 12.4% range for the back half of this year with a sequential step-down in Q4 margins as we plan to increase A&P spending to drive consumption. Net interest expense was $106 million, down from $116 million in the year-ago period, as we have reduced our net debt balance by $2.5 billion year-over-year.

Based on the deleveraging actions we have taken thus far, including the recent tender, we now expect full year 2018 interest expense of approximately $445 million. This quarter's tax benefit of $1.2 billion exceeded the year-ago benefit of $131 million primarily due to the tax benefits associated with the impairment charge and the integration of certain legal entities. The normalized tax benefit of $69 million compares to last year's benefit of $61 million. We now expect the full year normalized tax rate for continuing operations to be a benefit in the mid 30%s range. Reported net loss from discontinued operations of $317 million included $517 million in impairment charges related to assets held for sale compared to -- and compared to net income of $123 million last year. Normalized net income from discontinued operations was $129 million as compared to $156 million in the year-ago period with the year-over-year comparison, reflecting the loss of income from the businesses that have been divested in 2018, which include Waddington, Team Sports and Goody.

We ended the quarter with 471 million diluted weighted average shares outstanding as we repurchased approximately 19 million shares during the quarter. For 2018, we expect a weighted average diluted share count of approximately 480 million shares and a fourth quarter weighted average share count of approximately $470 million (ph). Reported diluted loss per share for the Company was $15.10 as compared to reported diluted earnings per share of $0.48 in the year-ago quarter. Reported diluted loss per share from continuing and discontinued operations was $14.43 and $0.67 respectively.

Normalized diluted earnings per share were $0.81 as compared to $0.86 in the prior year. Normalized diluted earnings per share from continuing operations were $0.54, same as last year as the decline in sales was offset by overhead reductions, interest savings and taxes. Normalized diluted earnings per share from the discontinued operations were $0.27 compared with $0.32 in the previous year.

Now turning to our segment results. Net sales for Food & Appliances were $722 million, a decline of 11.4% versus the prior year. Core sales were down 5.9%, reflecting weakness in appliances due to continued competitive challenges in the US.

The Home & Outdoor Living segment delivered net sales of $727 million, down 6.8% year-over-year with core sales down 5.9% largely driven by distribution losses on Coleman in the US and weaknesses in home fragrance in EMEA and Yankee retail stores. Our Connected Home & Security business grew double-digits. The Learning & Development segment posted net sales of $829 million, which represents a 3.9% decline year-over-year. Core sales were down 0.5 point (ph). Our writing business grew year-over-year and a signal in a significant sequential improvement.

Baby also improved sequentially but was down year-over-year, reflecting the hangover impact from consumer purchases that were accelerated into Q2 to take advantage of the liquidation sales at Babies R Us. Operating cash flow for the quarter came in at $572 million versus $183 million last year with the year-over-year improvement reflecting favorable working capital movements as well as reduction in restructuring and integration costs and cash taxes.

We are on track with our deleveraging plans and repaid almost $900 million of debt during the quarter comprising the term loan, commercial paper and the October maturity. In October, we launched a tender offer for $1 billion of additional debt, which is substantially complete as of today . During the third quarter we returned approximately $620 million to shareholders through share repurchases and dividends. We continue to make progress on the divestiture front as we closed on the sale of Goody in the quarter. The other divestiture processes are advancing and will provide us with additional capital deployment opportunities in the coming months .

I'll now turn the call back to Mike.

Michael B. Polk -- President & Chief Executive Officer

Thanks, Ralph. Looking to the balance of 2018 we expect consumer macros to remain generally healthy and our retail landscape to continue to stabilize. On Baby, we've now come through the two most difficult quarters relating to the Toys "R" Us bankruptcy. Year-to-date, our sales to TRU are roughly $120 million lower than year ago with about $55 million of that amount impacting the third quarter.

While we have two more quarters to go until our baby business fully lapse TRU's bankruptcy, we've made good progress shifting share to other retailers, particularly in the large baby gear categories of toddler car seats and strollers. Baby has been one of our strongest performing businesses over the last five years and we expect once we lap the transitory issue associated with TRU, the baby business will return to its brand and innovation led value creation track record.

On writing, our choice to accelerate the retailer trade inventory reset into the first half of 2018 has put a significant portion of the associated headwinds behind us. This is particularly true in the traditional distributor trade. We experienced a solid back-to-school despite spending less than we did a year ago with writing returning to growth in the quarter. We expect that trend to continue. While retailer driven changes will likely continue to emerge, we do not envision any near-term challenges of the magnitude we've had to deal with. Recent news regarding Sears and Kmart does not pose an issue for Newell Brands.

For the balance of the year, we expect core sales growth in our continuing businesses to improve sequentially in all segments. The improvement in core sales growth should be driven by the highest level of advertising and promotion spending this year in support of e-commerce activation, holiday merchandising and new innovations like our premium line of Calphalon appliances featuring all of the durable construction and craftsmanship that Calphalon cookware is known for along with a sleek modern finish and premium functionality and our Oster hand mixer with HeatSoft technology that gently softens cold butter to room temperature 12 times faster resulting in lighter and creamier batters and Graco's new Sense2Soothe Swing with cry detection technology that has eight different motions that mimic how mom and dad naturally move and an audio system that detects cries automatically adjusting the swing settings to the combination that best soothes baby and Yankee Candle Elevations with a Platform Lid which boasts a newly designed tapered glass silhouette and dual purpose lid that acts as a platform for the candle while it burns and new Onelink Safe & Sound from First Alert, a transformative innovation that combines intelligent protection from smoke and carbon monoxide with superior audio capability that serves as your home speaker system and intercom compatibility with the main -- your main connected home platforms and built-in virtual assistance. This new innovation turns your smoke detector into a two-way communication device that keeps you connected through the entire home. These are just a few of the new innovations that are flowing to market as a result the brand development and design work completed over the last 18 to 24 months.

With the expected sequential improvement of core sales in the fourth quarter, we've reaffirmed our full year net sales guidance between $8.7 billion and $9 billion. With respect to margins, we're making steady progress dealing with increased inflation, tariffs and FX through our ongoing cost and productivity programs and our tariff mitigation efforts. There have been two rounds of tariffs implemented in the third quarter with another step-up in certain categories expected in January 2019.

Through the summer, we've enacted several mitigation efforts such as repatriating production into our US manufacturing locations where it makes sense, renegotiating our sourcing contracts when possible, offshoring production outside of China where possible and negotiating with the USTR office for tariff exceptions. Where we cannot mitigate the tariff, we are working with our retail partners to offset the tariffs through pricing.

These customer conversations have been pretty constructive as our own retail partners deal with the same challenges on their own brands that we have with tariffs. Importantly, we've been successful in negotiating an exception where most of the US tariffs planned on baby gear, which represented a substantial portion of the original $100 million annualized tariff exposure communicated with Q2 earnings.

However, the US government has subsequently announced its intention to increase the recently implemented 10% tariffs to 25% at the start of 2019. If those tariffs do take effect in early January, our annualized tariff cost exposure would return to the original $100 million communicated in August. We have already announced pricing tied to the early January new tariff levels.

In this context and given the solid margin delivery in the third quarter we've left our continuing operations normalized operating margin outlook unchanged at 12% to 12.4% for the second half of 2018. We are reaffirming our full-year total operating cash flow outlook of $900 million to $1.2 billion. And we have increased our outlook for total Company normalized earnings per share by $0.10 to a range of $2.55 to $2.75, reflecting our third quarter performance and new tax planning benefits.

There are three growth opportunities we will continue to work on reigniting growth in our US appliance business through stronger innovation and e-commerce penetration, broadening our distribution footprint on the US Coleman business as we come into camping in the outdoor season this coming spring and driving profitable growth on home fragrance in Europe through more constructive merchandising programs and the deployment of WoodWick to Europe. Work is under way on all three of these opportunities and we expect to make progress over the next few quarters in each of these areas.

Before we close, I want to spend a moment on the impairment charge we took this quarter. As Ralph explained, the majority of the charge is dictated by the third and fourth quarter pullback in the stock price. Clearly, our performance on certain businesses from both legacy companies contributed as well. While the volatility in our environment over the last year has been unprecedented, we acknowledged the need to change our approach to reflect the new set of circumstances through the accelerated transformation plan launched in January.

The ATP is a plan that maximizes value and sets the stage for the future. We are convinced that this new path is the right one and are on our way to delivering the expected outcomes. Our momentum is beginning to build. We see green shoots in many places and success stories are beginning to emerge. The team has shown incredible determination, perseverance and the drive for results through this period. We are all working to reignite our core performance and create value for shareholders.

Again, we're focused on five key areas, strengthening our operational performance, optimizing our cost structure, increasing the cash efficiency of the Company, executing the divestitures and reallocating capital to delever and repurchase shares and rightsizing and strengthening the organization. We're making good progress in each of these areas. Thank you for your continued interest in Newell Brands as we go through this transformation period.

With that let's take your questions. Operator, over to you.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question will come from Rupesh Parikh with Oppenheimer.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Good morning and thanks for --

Michael B. Polk -- President & Chief Executive Officer

Hi, Rupesh.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Good morning. Thanks for taking my questions. So maybe to start off, so you mentioned that you expect an improvement in core sales growth in Q4. Do you still expect to be back in positive territory?

Michael B. Polk -- President & Chief Executive Officer

We'll see how that plays out. I think it's possible that we end up in positive territory, depends on the recovery in writing and how significant that is, the movement on Baby. We should see improved performance on appliances with the launch of the innovations that I was speaking to. It's possible and I think that would be a great outcome if that occurred. I think the thing we're trying to do is to stay focused on sequential improvement and taking this one quarter at a time. There's lots of uncertainty at the end of the quarter related to how things will unfold with respect to tariff pre-buys and that could be a variable that drives performance up or down. So this will be a month-by-month thing and I think we've got -- certainly -- we're certainly in better position than we've been at any point in the year.

Our spending levels are up in the fourth quarter, our innovation is stronger in the fourth quarter. The retail landscape is stabilizing with a large part of the writing headwinds behind us. And we are making progress on the share shift we intend to deliver related to TRU. So I'm more optimistic than I've been at any point through the year and I think the team is doing a good job of executing and things will play out in the fourth quarter as they do. Our primary focus is on making sure we get the -- create the most value out of ideas we're bringing to market and continue to make progress on the cost and cash agenda we have as a company while executing the divestiture program completely and fully reallocating capital to delevering and repurchase. So lots to do, that agenda is broad. Third quarter is a good indicator that we're headed in the right direction. And I think the way to think about the fourth quarter is another quarter of sequential progress as we turn the page on 2018 and move into 2019.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Great. And I'm going to slip in a second quick question. So with the divestitures, it sounds like you guys are still comfortable on achieving that $10 billion in after-tax proceeds. So just curious what's driving that comfort level and from your I guess perspectives earlier this year are there any changes in the timeline of achieving that $10 billion target?

Michael B. Polk -- President & Chief Executive Officer

No, our timeline is the same and our comfort level is the same. The processes -- we have a number of processes under way and there are coming down the homestretch. And there is nothing that we can envision that will get in the way of our delivery.

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Okay, great. Best of luck for the balance of the year.

Michael B. Polk -- President & Chief Executive Officer

Thank you, Rupesh.

Operator

Thank you. Our next question comes from Joe Altobello with Raymond James.

Joe Altobello -- Raymond James & Associates -- Analyst

Thanks. Hey guys, good morning.

Michael B. Polk -- President & Chief Executive Officer

Hey, Joe.

Ralph J. Nicoletti -- Chief Financial Officer

Good morning.

Joe Altobello -- Raymond James & Associates -- Analyst

Just wanted to go back on something (ph) you said, Mike, I think in May looking ahead to 2020 and I know a lot have changed in there, but I think you kind of laid out the big picture, $9.5 billion company on the top line and normalized operating margins of about 15%. First, is that still a reasonable target given what you know today. And then second, if it is maybe if you could help us bridge the 10% operating margin you're looking at for this year to get to 15% by 2020. I know a lot of that's stranded overhead and maybe helpful to get you that. But if you could sort of tell us what this Company looks like in two years and sort of how you get to that margin number? Thanks.

Michael B. Polk -- President & Chief Executive Officer

Sure. Well, look I think you're right to kind of point out the need to deliver against the cost agenda. We have to get the retained costs that are associated with the divestitures. Out of the system, we made good progress this year, that's a critical variable. Delivering the growth -- the core growth acceleration is another critical variable. I feel good about the progress we're making there and the -- the work that we've done over the last two years on the innovation is beginning to come to market as evidenced by the list of ideas and product launches that I shared with you. That has to all bear fruit.

Obviously, the environment has changed and will continue to change and so we need to overcome those changes to include the emergence of tariffs to include a higher inflationary rate, to include FX. I mean these are the things that you -- with the exception perhaps of tariffs, these are the things that businesses need to overcome and there will be ebbs and flows in those challenges I'm sure over the next 18 months. So we've got work to do as everybody does in terms of confronting the -- sort of the new realities of our -- of those variables. But I wouldn't draw any conclusion about the future, about 2020 at this point. We'll work through the puts and the takes and we will continue to look at this every quarter. I think the margin progression in Q3 is an important indicator of our ability to make progress and make progress fast.

So we've got to work the plan, we've got to deliver, to offset the headwinds through pricing productivity and the cost initiatives. And we've got to be nimble and smart and adaptive to what will undoubtedly be sort of a changing landscape through the next 18 months or so. But at this point, I wouldn't want to get into the specifics of the bridge, because I think there will be a lot of moving parts, but our ambition is firm and our point of view is consistent with what we've expressed in the past.

Joe Altobello -- Raymond James & Associates -- Analyst

Okay, that's helpful and I totally understand. If I could ask a second question on writing. It sounds like you do expect the growth you saw this quarter to continue. Is there a risk that we see another leg down in terms of inventories in the office superstore channel? I think that if you look at Staples and their merger with Essendant, they're talking about years of inventory reduction. Thanks.

Michael B. Polk -- President & Chief Executive Officer

Yeah, we've come through a really intense period of inventory reduction in the traditional writing channels, particularly in the distributed trade or the wholesale portion of that writing landscape. And we are building our point of view on growth going forward in the context of our delivering to the new inventory targets that our retail partners have established for themselves. And so that work is under way and ongoing. Don't envision major steps down. We've just come through that period where we accelerated the major step-down into the first half of the year. However, we will continue to have headwinds in inventory that will come out of the channel, but that's built into our guidance and we're being very planful about it.

The Staples and Essendant combination is one we will keep our eyes on. However, as I said in the first half of the year, and quite frankly back into 2017, inventories have come down substantially in the traditional distributor trade and I would characterize Essendant as one of those distributors. So we've made a lot of progress in an 18 month window with them getting to their articulated targets and of course we will be vigilant on making sure that our sell-in and our sell-out matches through them so that we don't have any further issues to confront in the future. But I'm very pleased with the progress, team has done a good job. It was a very painful nine months to go through and while we have some more work to do, the vast majority of the work is behind us.

Joe Altobello -- Raymond James & Associates -- Analyst

Got it, OK, thank you guys.

Operator

Thank you. Our next question comes from Andrea Teixeira with J.P. Morgan.

Michael B. Polk -- President & Chief Executive Officer

Hi, Andrea.

Andrea Teixeira -- J.P. Morgan -- Analyst

Hi. Thank you. Hi. How are you? Thank you. Good morning. So, Mike, I was hoping to, if you can comment on the pricing, you were able to realize so far in the third quarter and what is included in your guidance for fourth quarter and also would appreciate what half, yeah, -- so I'll have a follow-up later. Thank you.

Michael B. Polk -- President & Chief Executive Officer

Okay. So on pricing, we experienced positive price. When we talk about price to you, we talk about net realized price, which is the combination of programming, which is our gross to net activities and invoice pricing. We had positive price in the quarter and we expect positive price in the quarter -- in the fourth quarter as well. We've had inflation through the year at levels higher than we originally anticipated in resins and energy and so we priced for both those on costs and for the portion of the tariffs that we've been unable to mitigate through the mitigation actions I described in the script. And we priced in July for those early July tariffs, which were the first round. We priced again at the end of September for the second round of tariffs, that's the 10% tariffs on what are called the 301 categories. And we've announced pricing for the fourth -- for the last round which is currently slated for the beginning of January on the 301 categories.

So we've had generally constructive conversations around these price increases. You have to live through their implementation to be able to declare whether you've been successful at landing those prices and you have to work through those moments. We're in the midst of that on the late September pricing, and so far so good. And we've had not the normal levels and the appropriate conversations you would expect regarding the January next round of tariff increases. There are some views out there that those may not happen. We have assumed they will and we are planning as such. So hence, we've announced those pricing actions, we've triggered the 60 to 90-day lead times that we have by contract and we expect pricing to go into effect in early January and we'll work through the details of that customer by customer.

Andrea Teixeira -- J.P. Morgan -- Analyst

That's very helpful. And the other follow up that I have is on tax. I appreciate that Ralph had said 30% positive effective tax rate, right? So I'm trying to find the $0.10 improvement in your guidance. Is it mostly related to that -- I'm trying to back up, obviously the -- there are a bunch of moving parts in terms of credits and deferred tax that I saw in your disclosures. Is that a -- is it fair to say it's mostly because of this discrete item and also how much would you say is your effective tax rate now for continuing operations so that we can kind of model going forward?

Ralph J. Nicoletti -- Chief Financial Officer

Yes, the tax rate in the quarter was favorable to our expectations and it's really partly related to timing. So it is hard to predict exactly when these discrete items fall. So yeah the benefit is, as you point out, that would move the EPS up, it was largely related to the tax rate on the quarter. I had said that our tax rate for continuing operations for the year would be a benefit in the mid 30%s and that's the result of some of the discrete items and some tax planning initiatives that we've had.

Michael B. Polk -- President & Chief Executive Officer

Yes, the only thing I would add to that is that I think it's noteworthy. Our earnings -- our EBIT came in stronger than our expectations and obviously higher than Street estimates. So there's a blend of underlying sort of organic progression in Q3 and tax clearly. And then -- but I think the headline, we're moving the $0.10 on tax, I think is the right headline to kind of embrace.

Andrea Teixeira -- J.P. Morgan -- Analyst

Yeah, that's helpful. So then from a continued -- kind of like more normalized way of taxes, should we go back to that number that you initially kind of guided or -- because I think that obviously the goodwill impairment was not anticipated? So if we go back to that kind of a normalized tax rate that should be the one we would look kind of like in the outer years, I'm assuming.

Ralph J. Nicoletti -- Chief Financial Officer

You're speaking beyond this year now?

Andrea Teixeira -- J.P. Morgan -- Analyst

Yeah.

Ralph J. Nicoletti -- Chief Financial Officer

Just to be clear. I think we've said in the past on a continuing basis our tax rate, excluding discrete items and things that would come up would be in the low 20% range, between 20% and 25%. That's what we've said. And I would continue to model in that way going forward.

Andrea Teixeira -- J.P. Morgan -- Analyst

Okay, perfect. Thank you very much. Appreciate.

Operator

Thank you. Our next question comes from Bonnie Herzog with Wells Fargo.

Michael B. Polk -- President & Chief Executive Officer

Hi, Bonnie.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Hi. So I had a question on your divestitures. Could you give us a status where you're at in the process of executing on the remaining divestitures and then maybe the pace of announcements that we can expect going forward? And then I'd really like to hear how confident you are in your ability to hit the $10 billion target. And wondering if you can get the price you expect for an asset sale or maybe there aren't any buyers, at what point you make the decision to just hold on to the asset and take it out of discontinued ops? And then just a final one on this topic, would you consider selling more assets to hit your $10 billion target in case you fall a little short or just simply live with falling short of your goal? Thanks.

Ralph J. Nicoletti -- Chief Financial Officer

Sure. So great questions. We're well on our way to deliver the outcomes we committed to, the $10 billion of after-tax proceeds. As you know, we have three processes coming down the homestretch. We've got Jostens under way, we've got Pure Fishing under way, we've got the US playing cards business under way. And we are just gearing up on the next round of divestitures. While I hesitate to give you kind of specific answers to the timing question, you should feel relaxed as we are that those things will play out as they are ready to play out and we're not going to compromise value for the sake of timing.

That said, there's nothing in the way of having those processes that are well down the curve, delivering on the original timetables that we shared with you. So our confidence -- as I said, I've got real conviction around the $10 billion. The processes are working as we would expect. Obviously, there is all kinds of moving parts that happened with every one of these negotiations as you would expect and while the way we get to the outcome may change -- auction and process by process, the outcome is within our reach and we continue to be committed to delivering it.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

So if I could just, sorry, circle back and push a little bit, if you find yourself six months from now you're not getting the price that you think is warranted, I mean would you consider just holding onto that business? I guess I'm trying to think through (multiple speakers)?

Michael B. Polk -- President & Chief Executive Officer

Yes. So look, we're not going to -- we've said right upfront we're not going to -- despite all the kind of commentary that's out there in the media, we're not going to do fire sales. So we're committed to getting the right value for these assets. You can look at precedent deals and have a pretty good view of what multiples you ought to be able to get on these different businesses versus pure multiples. And so far we've done extremely well on those processes as evidenced by Waddington and Rawlings. And I think you should expect some that are really strong and others that are more aligned with historical norms and those will play out as they -- as we finish the work. But, look, I'm not at all distracted by what I'm reading in the headlines, that's not the way these processes are playing out. We've had a lot of competitive interest in these assets and as evidenced by our progress to date and you should expect us to continue to have that kind of success.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Okay. That's really helpful. And then if I could just ask one final question on your share repurchases. Given where your stock price is right now, just wondering maybe why you guys aren't being more aggressive with your share buybacks right now. And then how are you planning to balance the deleveraging and share repo through the end of this year and then maybe going forward? Thanks.

Ralph J. Nicoletti -- Chief Financial Officer

Right. So we continue to be committed to allocate the net proceeds after tax to both delevering and repurchasing shares. Obviously at $16, $17, $18 a share we're at deep value right now. So this is the sale of a lifetime which is exciting in some ways, in other ways not so exciting. But we have the good fortune of having a strategy that has us bringing a significant amount of proceeds in the very near term and those proceeds are going to be put to work in the way we suggested they would be put to work. So the good news is when we did our original work and thought about where our share price was going to be, when the proceeds became available, we weren't ever envisioning $16 a share or $17 a share or $18 a share. So those proceeds have even more leverage than they previously had and we're looking forward to applying the capital once we have the opportunity to do so.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

All right, thank you.

Michael B. Polk -- President & Chief Executive Officer

Thanks, Bonnie.

Operator

Thank you. Our next question comes from Lauren Lieberman with Barclays.

Lauren Lieberman -- Barclays Capital -- Analyst

Great, thank you.

Michael B. Polk -- President & Chief Executive Officer

Hello.

Lauren Lieberman -- Barclays Capital -- Analyst

Good morning. Hey. So first thing was just -- when you guys talk through the impairment charge you'd mentioned the market cap of the Company, but also a change in cash flow projections versus where you were a year ago. So I just wanted to confirm kind of what that long term cash flow projection is now which also may well not have changed versus two months ago, I realize it's an annual tax, but I just wanted to double check on that.

Ralph J. Nicoletti -- Chief Financial Officer

Yes, Lauren I'd separate our impairment testing from -- because my comments were really relative to the impairment test that we did a year ago. And so as we looked at the projections on the businesses we did update those internal projections again versus last year and feel frankly we've made reasonable estimates and been prudently conservative in terms of that outcome. And as both Mike and I mentioned, again the majority of the charge is related to the current market cap of the Company on it. So it's really a reference to what was used in the impairment test last year, it was how we updated the projections.

Lauren Lieberman -- Barclays Capital -- Analyst

Okay. So no change in terms of what we all would be expecting vis-a-vis conversations we've had with you publicly over the last couple of months?

Ralph J. Nicoletti -- Chief Financial Officer

No, I think -- Mike talked about just earlier the outlook of the Company and how he sees it over the next couple of years.

Lauren Lieberman -- Barclays Capital -- Analyst

Okay, all right. Can we just talk a little bit I guess about appliances? I wasn't sure from the language in the release if there were incremental distribution losses or if it's just kind of a continuation of what started earlier in the year and just talk a little bit about any visibility you have into shelf space, promotional space and so on and then the online versus offline activity around the appliance business for the fourth quarter? Thanks.

Michael B. Polk -- President & Chief Executive Officer

Yeah, I think the issue we have in appliances is similar to the issue we have in outdoor. In the reset windows from the spring we lost distribution on a couple of products categories in appliances, in coffee and in what we call cooking appliances at a big mass retailer and same thing on coolers within outdoor. Those losses were in the spring reset. And so what we've been experiencing through the entire year is lapping the comparators to a period where those -- that distribution was in place. And as we come through the fourth quarter into the first and second quarters we fully lap on both businesses those issues.

On appliances, I think there's more to sorting out those brands and our opportunities there in the US than simply lapping distribution. That's why the innovation that we're beginning to bring to market is so important to the renovation of those brands. And so these are excellent assets with great equities, but those equities are latent. We need to apply the brand development agenda that we apply to brands like Graco and brands like Papermate over the last number of years to brands like Crock-Pot, to brands like Mr. Coffee, to brands like Oster in the US. And that's the work you're starting to see flowing to the marketplace with the innovations I spoke to. That pipeline is full and we need to continue to develop it and we will.

The other thing that we need to do on appliances in particular is make sure that the consumer can find the broad assortment that we will be launching on these brands in the US and that's where it becomes really important for us to leverage the digital shelf, which is way more broad than the physical shelf in brick and mortar environment. It's important for the consumer to see the offerings we got and we'll bring to market on brands as we premiumize through functionality, form and finish these brands. And so e-commerce is an incredibly important element to the renovation of our appliance brands. And the team is working really hard to both land our innovations in the physical environment of brick and mortar, while leveraging the e-environment and the digital shelf to profile the full assortment that we've got available. And I think it's the combination of those two things on appliances that will be critical to our success going forward. That's why it takes a little bit more time, I believe, to get appliances up to its full potential. But I think you should still see sequential improvement in part through the innovation we're launching today when coupled with a more successful distribution outcome in 2019 across the business.

Of course, we've got a beautiful business in Latin America that's doing extremely well run by a really investable team and leader and we'll continue to invest there and the same in Australia and New Zealand. So we have a broader business. And simply the US the thing we tend to talk about is the US opportunity, but that's the story on appliances and we're glad to be through the start-up window on our brand development agenda in that business. And we're glad to start to see ideas like HeatSoft technology on Oster hand mixers and the line of Calphalon appliances that leverage all the equities of our cookware business now come into the space. And you should expect more from us as we move forward.

Lauren Lieberman -- Barclays Capital -- Analyst

Okay, thank you so much.

Operator

Thank you. Our next question comes from Steve Powers with Deutsche Bank.

Steve Powers -- Deutsche Bank -- Analyst

Great. Hi, guys. Good morning.

Michael B. Polk -- President & Chief Executive Officer

Hey, Steve.

Steve Powers -- Deutsche Bank -- Analyst

Hey. So first just a couple of cleanups on the fourth quarter guidance and then I have a follow-up. But on the cleanups, I think the guidance implies about $700 million to $1 billion in fourth quarter operating cash flow. Just curious given where you stand now, is there a reason to favor the high end, the low end or is the midpoint a good reflection of your current plan? And then also you may have mentioned this, but just do you have an expectation for how much discontinued ops might contribute to fourth quarter net income?

Michael B. Polk -- President & Chief Executive Officer

Yeah, so on operating cash flow, we've held our guidance range of $900 million to $1.2 billion. Obviously we had a very strong performance in the third quarter. Part of that's working capital driven and some of that will kind of reverse out into the fourth quarter, but we know we're clear where we're beginning to get -- make real traction here on the working capital front. We have a lot of room to run as you know with working capital optimization. So we expect to continue to reduce inventories into the fourth quarter and the work we're doing on complexity reduction going forward will in 2019 enhance our ability to make further progress.

As I mentioned, on payables the procurement team is doing a nice job of both renegotiating and leveraging our scale to get buying synergies that flow through to the P&L. But as they're doing that, they are also renegotiating payment terms with our sourcing partners and particularly in appliances, we're getting some big wins on extended payables terms through the procurement work. So we're beginning to make progress. I think this is an area of focus and intense -- offer a significant opportunity and you should expect us to make more going forward. But I do think that we've held guidance for the full year. You'll see some timing shifts from Q4 into Q3, but on balance, we feel good about the progress we're making on cash flow and obviously that's really important to the overall capital deployment strategy that we have.

Ralph, I don't know whether you want to handle the other.

Ralph J. Nicoletti -- Chief Financial Officer

Well, we are not really guiding specifically on discontinued operations, but it's clearly reflected in the range that Mike alluded to.

Michael B. Polk -- President & Chief Executive Officer

Yeah, I think the thing to think through is how you -- if you're measuring progress quarter-to-quarter I think you have to think through the timing effect of assets sold and how that -- how their income flows out of our disc ops, P&L. So clearly, Washington and Rawlings were out of the P&L for the entire third quarter but Goody was not. Goody sold later in the quarter. That will have an impact in Q4. And depending on timing on any of our other processes that might have an impact as well.

Our guidance assumes, we're holding -- everything is held through the end of the year. If something gets done faster, there'll be some impact to disc ops. But obviously we would prefer to get the processes done and reallocate the capital given where we are.

Steve Powers -- Deutsche Bank -- Analyst

Okay. Okay. And then you mentioned anticipated step-up in A&P in the fourth quarter and I guess the question is is that hot it's planned or are you spinning (ph) back some of the upside you might be getting from writing, improving a bit faster than expected just to put yourself in a better position entering 2019? And I ask that question just because stepping back from the outside I think there's a perception that just about everything Newell has been doing the last 12 months has been focusing on here and now fighting fires trying to get back to a state of relative normalcy.

Michael B. Polk -- President & Chief Executive Officer

Sure, yeah.

Steve Powers -- Deutsche Bank -- Analyst

And maybe there is some truth to that. But I was hoping you could just also talk about how much time the organization may have had to devote a longer-term planning setting up for future growth because clearly it's important to return to that stability. But then once we're there, I guess I'm trying to get at is how well positioned, you think you are to resume growth and can that pivot happen in 2019 or is it going to take more time?

Ralph J. Nicoletti -- Chief Financial Officer

Yeah, I mean, we've said that our -- we've said and I have communicated this in multiple occasions that we think this business requires A&P spending between 4% and 5% of revenue. And in the third quarter we spent in that range. So the third quarter wasn't unusual relative to our normal range of spending although it was down versus prior year because if you recall, prior year we got hung out without delivering the revenue but you commit your spending well in advance. And so that was a dynamic that was unique to Q4.

But we are not changing the way we think about brands and spending on the business. The marketers are focused on building their businesses and their brands over time. We're spending more in Q4 because money flows to ideas and we've got a number of really interesting innovations that are unique and will benefit from us building awareness and driving trial on them. And we will get the annuity of future purchases, repeat purchases or gifting purchases going forward based on word of mouth and the experience that consumers have with the ideas we're bringing to market.

So our logic around the fourth quarter really isn't -- it's not about trying to spend to develop the category for the next quarter. It's actually tied to the marketing programs we've got on these new product launches and in the seasonal spend associated with things like Yankee Candle in the appliance business in the gifting season. So we've got a lot of good ideas that are flowing to market. We back them up with money which you should expect us to continue to do going forward.

Q2, Q3, Q4, tend to be our higher spending quarters. Q1 -- because that's when the consumer is looking for our categories and Q1 tends to be the lower spending quarter. And that's the way you should expect our A&P to flow over time. You should also expect us to spend between 4% and 5% and depending on how much progress we make on cost and margin, we will have flexibility to spend more toward the high end of that range in any given quarter or if we got ideas coming, we'll spend to the high end of that range. And when we -- and so there's incentive on the part of the marketing organizations, the divisions to find the room in the P&L to invest.

Clearly, our focus has been across those five priorities that I described to you and one of them is cost and one of them is cash. One of them is profitable growth and so those three agendas all intersect to create the brand building work we do.

Steve Powers -- Deutsche Bank -- Analyst

Okay. Thank you so much.

Michael B. Polk -- President & Chief Executive Officer

Yeah.

Operator

Thank you. Our next question comes from Olivia Tong with Bank of America Merrill Lynch.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Great. Good morning.

Michael B. Polk -- President & Chief Executive Officer

Hi, Olivia.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Hi, Mike. I want to get back to core sales because you do see more optimistic than you were last quarter given quite a few initiatives and the pricing and we are also one quarter further removed from the rating reset in the Toys "R" Us liquidation. But you aren't committing to the growth that you felt comfortable with three months ago. So just trying to understand what's changed over the course of the last three months that makes you less comfortable with committing to that low single-digit growth target that you voiced last quarter.

Michael B. Polk -- President & Chief Executive Officer

Yeah, I think that's a fair question. We've got -- I just want to make sure we give ourselves the room to succeed. And over promising and debating 10s of (ph) basis points of core sales growth and every 10th (ph) represents about $9 million of revenue, which is about four hours of daily sales, is not a situation I want to find ourselves in going forward. That said, I think it's going to take a little bit longer on appliances and on Coleman to kind of deal with some of the challenges we have in those businesses. I don't want to rush to work in Europe on home fragrance Europe where we're trying to unwind a set of tactics that I don't think are sustainable. So if I put pressure into that system for them to solve that problem quickly, we end up actually not getting the margin benefit we hope to get. And I think we got to see those things all the way through before leaning our shoulder into getting the growth.

And so, I mean there are things like that the cause me to be a little bit more cautious, but they are on the edges. And we're taking a lot of price connected to tariffs and look you don't understand -- you can't really fully account for the volume sensitivities and elasticities associated with those pricing actions. So giving ourselves a little bit more breathing room for the price fall mix to kind of play out in the marketplace given the sequential pricing we've taken, I think, is a prudent thing to do.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

That's helpful. Thank you, Mike. And then if I could just switch over to a quick housekeeping on gross margin. Can you guys break down the drivers between pricing productivity, FX, et cetera just so that we can better understand the path going forward?

Michael B. Polk -- President & Chief Executive Officer

Yes, I think the biggest contributors in the quarter, underlying contributors were pricing and programming. And productivity -- gross productivity and the flow through of productivity, gross margin is accelerating, particularly what we call VAVE, which is the work we do on packaging costs, the work we do on our product design costs Those should continue to get traction and accelerate through the fourth quarter into next year. Procurement is another source of savings to gross margin and that's obviously been a big contributor over the last number of years to our synergy delivery. Procurement will continue to play a role as I was mentioning on those sourcing contracts. They're offset by higher inflation in resin and in energy, although it's intriguing to see what's happened in the last couple of days on energy prices.

We'll see how that plays through to the market and clearly tariffs, which has been sort of this dynamic situation. So we were pleased with the outcome on gross margin in Q3. Part of that was driven by the recovery in writing and the over delivery on writing, but some of that writing mix benefit was offset by Home Fragrance not delivering it's numbers and so it sort of washed out. But going forward, I think mix has the potential to play a role in a way it hasn't up until now as writing gets into a more consistent rhythm of growth. And we lapped some of the Home Fragrance headwinds related to getting into a more virtuous rhythm of growing in Europe that is more profitable. And so we'll see -- we'll see how that plays out, but those are really the moving parts within gross margin that we have to keep a close eye on and then we'll manage very actively.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

Thank you. We have time for one more question. Our final question comes from Nik Modi with RBC Capital.

Michael B. Polk -- President & Chief Executive Officer

Hi, Nik.

Nik Modi -- RBC Capital Markets -- Analyst

Thanks, good morning. Hey, Mike, how are you? Just I was hoping you can just give some context on the CFO search and now we're getting to the end of the year here, so just wanted to see if we can get an update on that. And then if I could just squeeze another one in on your writing business in Latin America and maybe you can provide some context on how that's doing at the moment? Thanks.

Michael B. Polk -- President & Chief Executive Officer

Yes, sure. So our writing business, I'll start with the second part of the question and close with the first, Nik, if you don't mind. The writing business in Latin America has not had a good year in 2018 in part because there was a dynamic that was happening out of Latin America that was creating pricing problems in North America in the e-commerce marketplaces. And so we pulled back hard on the throttle this year in Latin America to eliminate and dry up the 3P sales that were finding their way into the US and creating issues for our 1P sales on e-com marketplaces whether they were Retail.com or Amazon. And so our logic for this was we want to get the ASPs, the average shelf prices, up, so that our partners can achieve their -- our strategic partners can achieve their margin expectations and therefore allocate our gross to net programming to programming as opposed to inside margin. T

hat's a lot of detail and I'm sorry for that, but Latin America writing had a down year as we cleaned up a whole bunch of noise that was hurting our ability to drive profitable sales through our e-com marketplaces in the US. That work is largely behind us. So the good news is we come out of the third quarter and can start to more profitably grow and we have to maintain the disciplines in Latin America to avoid the diversion issues that created problems for us in North America. So on writing LatAm that's the commentary I'd provide and I think we're going to find ourselves in a better place going forward.

On the CFO search, we're well on our way. We've had good engagement with a number of candidates, both internal and external. The Board is engaged in the process and we're coming down the homestretch.

Nik Modi -- RBC Capital Markets -- Analyst

Thanks so much.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call back to Mr. Polk for closing remarks.

Michael B. Polk -- President & Chief Executive Officer

Well, what I would like to say actually if they don't see any names in the queue is I'd like to say something to our people, which is thank you. The kind of determination, perseverance and drive for results that you've demonstrated through an incredibly difficult chapter in our history has been remarkable to be part of with you. And I can't tell you how much of an asset that is to our Company going forward. And I'm looking forward to putting another quarter of progress on the board in the fourth quarter and then turning the page to 2019 and getting back into a more normal rhythm of performance that we've all become accustomed to in our recent history. So thank you for that and thank you for all of our investors that have been patient with us through this period of time.

Operator

Ladies and gentlemen, a replay of today's call will be available later today on our website at newellbrands.com. This concludes our conference this morning. You may now disconnect.

Duration: 70 minutes

Call participants:

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

Michael B. Polk -- President & Chief Executive Officer

Ralph J. Nicoletti -- Chief Financial Officer

Rupesh Parikh -- Oppenheimer & Co. Inc. -- Analyst

Joe Altobello -- Raymond James & Associates -- Analyst

Andrea Teixeira -- J.P. Morgan -- Analyst

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Lauren Lieberman -- Barclays Capital -- Analyst

Steve Powers -- Deutsche Bank -- Analyst

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Nik Modi -- RBC Capital Markets -- Analyst

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