A Conversation with Michael Polk, Chief Executive Officer; Mark Tarchetti, President; and Bill Burke, Chief Operating Officer
When Newell Rubbermaid finalized its combination with Jarden Corporation in 2016, a new company was born: Newell Brands. Since then, we’ve been working through the process of combining two companies into one, melding the strengths of each to seize a unique value creation opportunity. Newell Brands’ leaders weigh in on our progress to date.
MP: First and foremost, this is a portfolio of leading brands that compete in large, growing global categories. In contrast to the fast-moving consumer goods markets, where the top five manufacturers have about 90 percent market share, market consolidation hasn’t occurred in these categories yet. The top five manufacturers in our categories hold less than 50 percent of the market. That creates a huge opportunity for us to consolidate market share and consistently deliver competitive levels of growth.
MP: Our categories provide a unique opportunity for growth in that they are large, growing and unconsolidated. In the U.S. alone, the size of the markets we compete in is over $65 billion. Our experience over the past five years has shown that these markets are highly responsive to innovation and advertising and promotion. Our Writing and Baby businesses are great examples of that. The category dynamics are very similar to those we experienced on the legacy Newell Rubbermaid businesses and our opportunity is to reapply the same playbook for growth and margin expansion that has transformed the performance of the business over the last five years, extending it across a now broader set of categories.
MT: Newell Brands’ portfolio of leading brands in large, growing, unconsolidated categories offers a unique opportunity to consolidate share and accelerate growth via innovation, advertising and promotion investment and brand building activities. As a result of the combination of Newell Rubbermaid and Jarden Corporation, there are significant cost synergies that will allow us to amplify our scale and outgrow, outspend and out-execute our competitors. By investing in new enterprise-wide capabilities in strengthened and extended innovation, design, insight, brand development and e-commerce that sit atop a diverse set of businesses, we’re in a position to dwarf the competition from an investment perspective. Our growth ambition is made possible via our scale and our strategic focus.
BB: We originally targeted $500 million in annualized synergies, and recently doubled that commitment to $1 billion by 2021. In addition to synergies, we’re pursuing $300 million of savings as we finish out Project Renewal. So that’s a total of $1.3 billion in annualized cost savings, from the beginning of 2016 through 2021. Although we will reinvest a portion of these savings behind strengthened capabilities, advertising and promotion, and geographic deployment, the majority will flow through to the bottom line and will drive continued margin development.
BB: Coming out of 2016, we had actioned projects with cumulative cost synergies exceeding $400 million, out of the $500 million we had initially targeted, as we are moving along at a much faster pace than we initially anticipated. Although these savings will not be fully realized until the first half of 2018, the results we are seeing thus far are giving us confidence to go after the next tranche of synergies. There are significant savings to be realized through the optimization of our supply chain and distribution networks, as well as through consolidating and scaling our global business services functions. We have also identified additional areas of savings in procurement and will pilot a new zero-based budgeting approach to bought costs, which represent about half of our total overhead costs, a process which we believe will generate meaningful cost savings.
MT: M&A creates significant value through scaling our priority businesses in the unconsolidated core categories in which we compete. We also believe that M&A can be used to further our geographic reach within our core categories. In the past three years, when we’ve acquired an asset in the core of one of our home markets, like our Contigo, bubba, Baby Jogger and Elmer’s acquisitions, we’ve been able to generate significant synergies in a short period of time. That gives us the fuel to reinvest in those brands to drive accelerated growth and expand margins. Each of these acquisitions has performed ahead of our expectations and has been accretive to our growth and margins. This record of acquisition-driven value creation gives us the confidence to continue to scale our positions with complementary brands. We have high expectations for the WoodWick and Sistema acquisitions that we have completed in 2017.
MP: Our first priority for capital is to invest in the growth and productivity agenda that will set the stage for outstanding underlying performance. Next, we will apply capital to pay down debt with the goal of reaching our target leverage ratio of 3.0 to 3.5 times within two to three years from the April 2016 completion of the Jarden transaction. After debt repayment, we’ll prioritize capital to strategic acquisitions in our core categories, where there is still substantial opportunity for consolidation. We will also continue to build the dividend with earnings, targeting a 30 percent to 35 percent payout ratio range.
