Good morning, and welcome to the Newell Brands Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up 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 session. As a reminder, today's conference is being recorded. A live webcast for this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Ms. Tsinis, you may begin.
Thank you. Good morning, everyone. Welcome to Newell Brands Fourth Quarter and Full Year Earnings Call. On the call with me today are Ravi Saligram, our CEO, Chris Peterson, our President, and the newest member of the executive team, Mark Erceg, our CFO. 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. We undertake no obligation to update forward-looking statements. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Form 10-Q, and other SEC filings available on our investor relations website for a further discussion of the 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 are available, and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables, as well as in other materials on Newell's Investor Relations website. Thank you. Now I'll turn the call over to Ravi.
Thank you, Sofya. Good morning, everyone, and thank you for joining us on our year-end call. Fourth quarter results were in line with our expectations and brought to a close a difficult second half. The business continued to be impacted by a tough operating environment, including slowing consumer demand for general merchandise categories, as well as inventory reductions at retail. Our team remained focused on executing our strategic priorities with excellence while navigating these challenges. They did a great job in reducing inventories in the fourth quarter and drove sequentially stronger cash flow performance. For the year, core sales declined 3.4% against a very demanding year ago comparison of 12.5% growth. The soft volumes more than offset favorable pricing. Two-year stacked growth exceeded 9%.
The writing and commercial businesses delivered core sales growth in 2022, while core sales for the other businesses declined. The company's core sales and domestic consumption exceeded 2019 levels, even as home and outdoor categories are continuing to normalize from peak pandemic levels. Many of our major brands, such as Rubbermaid, Sharpie, Paper Mate, Rubbermaid Commercial Products, Ball, EXPO, Elmer's, and Campingaz showed strength. Despite a much tougher than anticipated operating and macro environment in 2022, which weighed heavily on the company's results, we made tangible progress across a number of focus areas. First, many of our iconic brands were recognized for their innovations. For example, Ball Stack & Store innovation earned Good Housekeeping's Cleaning & Organizing Award. Graco won the JPMA Innovation Award for child restraint systems with the Graco Turn2Me car seat.
Coleman RoadTrip 285 Stand- Up Propane Grill was recently ranked by Outdoor Gear Lab as the best portable grill in 2022. In the U.S., new innovation under Mr. Coffee, Latte 4-in-1 received the Good Housekeeping Best Gear and Best Coffee award. Our latest innovation in writing, Elmer's Squishies, launched exclusively in Q4 at a major retailer with very strong results. In three months, it became Newell's top activity item, outpacing slime sales over 3 to 1. National launch of Squishies across U.S. retail will begin in late March 2023. In April of 2022, we launched Newell Creative Kitchen, a unique, efficient social media vehicle that allows us to take a panoramic approach to connect our brands across consumer life moments and occasions and bring curated content to target consumers, allowing them to repost to their own followers.
We've seen a four-fold increase in engagement through our live presentations and a 90% higher click-through rate to our branded websites since creating Newell Creative Kitchen. Second, we continue to build operational excellence across the organization by transforming our supply chain for Project Orbit and automation. Earlier this year, we announced the next major step in this journey as we are unifying our global supply chain and centralizing manufacturing, which we expect to drive meaningful margin improvement in the long term. Third, we made significant progress on complexity reduction, ending 2022 with about 28,000 SKUs as compared to approximately 36,000 in 2021 and over 100,000 in 2018. Our revenue per SKU has more than tripled versus 2018.
We will continue reducing SKUs and accelerate SKU productivity. Fourth, we drove another year of strong productivity savings at around 3% of costs, which in combination with pricing actions, helped to mitigate the high single-digit headwind from inflation. We will further accelerate our productivity efforts in 2023. Last, but certainly not least, we advanced our corporate citizenship agenda as we continue to galvanize our employees to be a force for good. We strengthened our people-first One Newell culture, maintained strong employee engagement at world-class norms, and committed to carbon neutrality by 2040 for all Scope 1 and 2 emissions across our global portfolio. I'm also pleased to share that for the second consecutive year, Newell Brands has been named one of Fortune's 2023 World's Most Admired Companies.
While we are proud of the operational achievements and believe we are a much more agile company today, we also recognize that the macros have put considerable pressure on our business. We've been taking proactive and decisive actions to effectively navigate the current environment while positioning the organization for long-term success. In late January, we announced Project Phoenix, a major evolution in our operating model and a restructuring program that is expected to drive significant savings. Phoenix will further simplify and strengthen our company by leveraging the scale and power of One Newell to optimize our cost structure and operate more efficiently. Let me shed more light on Project Phoenix. There are five key tenets. First, we'll combine business units into three operating segments based on consumer dynamics and customer commonalities. Second, we will centralize our sales efforts for our top four customers.
Third, we'll go to a One Newell go-to-market approach in key international geographies. Fourth, we will centralize and unify manufacturing globally. Fifth, we'll strengthen key capabilities, reduce duplication, enhance role clarity, and drive standardization of processes, tools, and measurements. We're bringing the food, home, pregnancy, home appliances, and commercial businesses under one umbrella, Home and Commercial Solutions, led by Mike McDermott, the Segment CEO. Lisa McCarthy has assumed a new role as Chief Operating Officer of the home business reporting to Mike. Learning & Development, which includes Writing and Baby, is led by Kris Malkoski. Jim Pisani will continue to lead our Outdoor & Recreation business. Through this evolution, we will honor the differences and nuances among our businesses and unify around commonalities related to the consumer and customer while leveraging our scale and enabling better opportunities for internal mobility.
Our iconic brands play a key role in the lives of nearly every U.S. household. We expect the new operating model to unlock additional growth opportunities for the business over time. We will leverage the power of our brands to meet consumers' daily needs in and out of their homes through their major life moments and occasions. Our international business remains an important priority for Newell. In 2023, core sales for international increased 0.4%, significantly outpacing North America, despite macro and geopolitical pressures. As part of Project Phoenix, we are continuing to reduce international fragmentation by moving to a One Newell go-to-market approach in key geographies such as Australia and New Zealand, LATAM, Japan, and as announced last fall, Canada. We're also evaluating the structure in consultation with employee works councils in Europe.
This should dramatically reduce fragmentation, accelerate growth and profit trajectory for our international businesses over time, and increase depth and breadth of franchise outside of the U.S. As part of Project Phoenix in the U.S., we're also moving to a One Newell sales model for several of our top customers. Centralizing these teams will simplify our customer interaction, significantly improve the customer experience, and strengthen our position as a best-in-class partner. I am proud that we've built high, wide, deep and enduring relationships with key customers and are increasingly perceived as a valuable strategic partner. Based on the success of Project Orbit and in the spirit of One Newell, we are moving to a unified global supply chain organization, which Chris will elaborate on later. As we focus on optimizing our cost structure, we are taking decisive action on our real estate.
In a hybrid work environment, we have the opportunity to close or consolidate offices and adopt new ways of working. We just announced closure of our corporate offices in Boca Raton and South Deerfield earlier this year, the consolidation of our Huntersville campus. We're in the process of assessing other actions. In total, Project Phoenix is expected to result in elimination of approximately 13% of office positions. While this was a very difficult decision and one we as a leadership team did not take lightly, we made every effort to treat our departing colleagues with respect and dignity, and we are doing all we can to help with their transitions. The actions we are undertaking are a continuation of the simplification agenda that we've driven over the last four years and in response to the difficult macro environment.
We expect Phoenix to yield annualized pre-tax savings in the $222 million-$250 million range when fully implemented. At its core, Phoenix is not just about restructuring. It is about leveraging our scale. It is about significantly evolving our operating model to strengthen the company and prepare for the future. As macro conditions remain unfavorable to top-line growth, our prime focus in the near term is cash flow and gross margin improvement. I know Chris is working hard to get his nickname back as the billion-dollar man. Speaking about the future, this morning we also shared that I'll be retiring on May 16th. This is a very bittersweet moment for me.
While I look forward to pursuing new interests and spending more time with my family, including my first granddaughter, Lux, who was born just a few weeks ago, I'll certainly miss everyone at Newell Brands. It's been a distinct honor and privilege to lead the company over the last several years, and I've loved every day at work. I remain inspired by our talented employees, so passionate, resilient, and courageous. I'm very proud of our strong world-class executive leadership team, who've made significant progress in strengthening the company by reducing complexity, are on the journey to rejuvenate our iconic brands to be more modern and relevant, launching successful innovations that leverage pandemic trends, building e-commerce and omni-channel as a competitive advantage, and transforming our supply chain. The team is working diligently to implement Project Phoenix and make our new segment-based operating model a major success.
I want to congratulate Chris on his well-deserved elevation to the new CEO of Newell. I believe he is the right person with the right skill set and right temperament to take Newell to the next level. I know our leadership team respects Chris and will strongly support him to deliver our key priorities. I'll be partnering closely with Chris to ensure a smooth and seamless transition and will focus my efforts on ensuring the successful execution of Project Phoenix, accelerate momentum on international, and rallying the organization to overcome macro challenges with speed and dexterity. I'm also pleased to welcome Mark to Newell's leadership team and his first earnings call with us.
I believe his multiple experiences as CFO will add significant value to Newell Brands, and I'm confident that he and Chris will be a powerful combination to move Newell forward. Despite the macro headwinds the company faces, I am optimistic about the future of Newell. We have great brands that consumers love. We have built e-com and omni-channel prowess. We have excellent customer relationships and are reigniting the processes and passion to drive meaningful innovation. We believe we will return to driving sustainable, profitable growth once the economy turns in our favor. Our best days are ahead of us. Onwards and upwards, now I turn over to Mark for brief remarks.
Thank you, Ravi. Good morning, everyone. Over the last four weeks, I've immersed myself in the business and the organization. During that time, in many ways, it felt like I was getting reacquainted with an old friend. I say that because after spending the first 18 years of my career at Procter & Gamble, I spent the next 13 years learning the ins and outs of building products, transportation, luxury goods, and healthcare information technology. Those unique experiences, I believe, prepared me well as I now come full circle and return to my first true business love, which is consumer products, where deep consumer insights, differentiated innovation, creative 360-degree marketing, operational excellence, and the First Moment of Truth all reign supreme.
I undoubtedly still have a great deal more to learn. In my brief time at Newell Brands, I've already made some high-level observations, which I'd like to share with you. First, it is clear to me that over the last couple of years, Newell Brands, under Ravi and Chris's leadership, has built a great team within a strong mission-driven culture that guides the behavior of 28,000 dedicated professionals who strive each day to bring value to the business and the organization. Second, dramatic steps have been taken to simplify and streamline the business, which were necessary prerequisites for us to improve our speed, agility, and financial performance going forward.
Third, the bold actions recently announced as part of Project Phoenix to reduce overhead costs and create scale across manufacturing, distribution and transportation, and customer service are all key business and organizational enablers, which I believe will serve us very well in the years ahead. Finally, and perhaps most importantly, there is broad recognition across the entire company that while these past and current actions are all steps in the right direction, there is much more work that needs to be done.
My interactions have led me to the conclusion that the organization is eager and excited about the future because Newell has a robust portfolio of leading brands with strong market share positions, which when coupled with the right capabilities, should allow us to continue on our journey-Towards becoming a world-class, innovation-led, consumer-driven company that can consistently grow sales and expand margins year after year, and in doing so, generate meaningful levels of total shareholder return. Personally, I'm excited, honored, and humbled to be part of that journey, and I'll now turn the call over to Chris.
Thank you, Mark, and good morning, everyone. I'd like to echo Ravi's sentiment by welcoming Mark to the team. Mark and I have known each other for a long time, having worked together at P&G. Although Mark has only been here for a short time, I can already see what a great fit he is for the organization and look forward to partnering with him and the rest of the leadership team to unlock the full potential of the business. I would also like to thank Ravi for his leadership and partnership over the past several years. I've admired his passion, commitment, and people-first mindset, which are infectious and have reinvigorated the company's culture. I'm honored and excited to become the next CEO of Newell Brands.
In my new capacity, I look forward to working with our leadership team, the board, and all of Newell's dedicated and talented professionals around the world to drive shareholder value creation through diligent and thoughtful execution of our strategic agenda. Before jumping into results, I'd like to take a few minutes to talk about some of the key business and organizational initiatives we have recently taken to strengthen the company's operational foundation. As we've mentioned before, a key component of our aspiration to become a TSR leader in our industry is predicated on creating a scaled world-class supply chain that positions Newell as the retailer partner of choice from a service, reliability, and capability standpoint, and leads to breakthrough value creation in terms of margins, cash, and reduced complexity.
Consistent with that, on February 1st, we seamlessly implemented the second go live wave of Project Ovid across the remaining food categories as well as the writing, Outdoor & Recreation, and commercial businesses. Having reached this major milestone in Newell's supply chain transformation journey, we are now at a point where we can begin to fully leverage the new go-to-market model to operationalize distribution and transportation benefits, improve customer service, better enable omni-channel solutions, and drive broad-based operational excellence across the organization. Project Ovid was an integral step in demonstrating the organization's readiness and willingness to undertake a significant change agenda and commit to a One Newell culture. We are building on this momentum as part of Project Phoenix to further optimize the company's operations by centralizing manufacturing into a supply chain center of excellence.
This will, for the first time, allow us to create and leverage manufacturing scale and turn it into a competitive advantage. While this will not materialize overnight, we do believe that a unified global supply chain organization will drive significant efficiencies, improve our supply chain resiliency, further enhance the company's technical capabilities, strengthen our culture of customer connection and collaboration, and position us to become a best-in-class scaled general merchandise supplier to our retail partners. Let's move on to fourth quarter results, which were largely consistent with the outlook we provided in October, and our focus on optimizing cash flow yielded strong results.
Net sales for the fourth quarter declined 18.5% year-over-year to $2.3 billion due to a 9.4% decrease in core sales, as well as the impact of the divestiture of the CH&S business at the end of Q1, unfavorable foreign exchange, and certain category and retail store exits. Top-line trends remain challenged due to inventory reductions at retail, as well as softer consumer demand for general merchandise categories. We expect these dynamics to persist in the near term. Normalized gross margin contracted 360 basis points versus last year to 26.6% as the impact of reduced fixed cost absorption, unfavorable foreign exchange, and inflation more than offset the tailwind from pricing and fuel productivity savings.
Before moving off of gross margin, I should mention that during the fourth quarter, we elected to change Newell's method of accounting for certain inventory in the U.S. from LIFO to FIFO to conform the company's entire inventory to a single method and simplify the company's inventory accounting. The financial statements in today's release and the numbers we are referencing reflect the impact of this accounting change to FIFO, both in the current and prior year periods, which have been retroactively adjusted. For Q4 specifically, there was a $4 million increase to cost of goods sold relative to what it would have been under the prior method. Normalized operating margin declined 510 basis points versus last year to 4.9%, reflecting gross margin pressure and the impact of top-line deleveraging on SG&A costs.
Net interest expense increased to $64 million from $59 million in the year ago period. The normalized tax benefit was $5 million as compared to a $38 million expense last year, with the difference largely driven by an increase in discrete tax benefits. For the quarter, normalized diluted earnings per share were $0.16 as compared to $0.42 last year. During the fourth quarter, Newell's cash flow performance improved considerably, and it began to reflect the actions we took in 2022 to rightsize our supply and demand plans. The business generated operating cash flow of $295 million in Q4 as inventory declined by more than $400 million relative to Q3.
Working capital was a source of cash in Q4, despite a meaningful drag from payables, which have been negatively impacted by the timing of our pullback on the supply plan. The company ended 2022 with an elevated level of working capital and operating cash outflow of $272 million. Q4 cash results in combination with our proactive pullback in the supply plan give us confidence that operating cash flow will bounce back significantly in 2023. Despite the strong snapback in cash flow, we ended 2022 with a leverage ratio of 4.5x as we took on short-term debt to navigate through this tough environment. While we expect the leverage ratio to be pressured in the near term, we remain laser-focused on strengthening the company's balance sheet in the years ahead.
Note that effective Q1, we are implementing a new operating model and consolidating our previous five operating segments into three. Therefore, in the interest of time, I'm going to dispense with the usual high-level segment sales commentary for two reasons. First, you can easily find these numbers in the tables attached to our press release. Second, I'm sure everyone's interested to hear our comments about fiscal 2023. Taking a step back, 2022 was clearly a challenging year for Newell, we acted quickly and decisively to mitigate the impact of the external headwinds and ensure we are strategically investing in core capabilities that position Newell for success over the long term. In 2023, we've identified five major priorities to stabilize Newell's financial performance while driving foundational improvement, we can return the company to sustainable and profitable growth as macros improve.
First, strengthen cash flow and balance sheet by continuing to right-size inventories, carefully managing the forecasting process, and staying close to the evolving consumer and customer trends so we can remain agile in planning. Second, drive gross margin improvement by accelerating Project Fuel productivity savings, further advancing our automation initiatives, operationalizing Project Ovid distribution and transportation benefits, pricing internationally for currency, and instilling greater financial discipline surrounding new product innovation. Third, drive overhead savings through Project Phoenix and tight spending controls to offset the impact of incentive compensation reset to normal levels and wage inflation. Fourth, continue SKU count reduction progress and initiate a bottom-up white sheet SKU approach to enable the next phase of reduction. Fifth, operationalize the new company structure to enable faster transformation progress.
Despite taking these proactive and decisive actions to strengthening the company's performance, we expect the external landscape to remain challenging in 2023. The high level of uncertainty on the macro front has influenced our modeling assumptions as follows: We are assuming consumers' disposable spending power will be under pressure due to inflation in food, housing, and energy, with consumers in Europe feeling greater stress than in the U.S. We also expect consumer demand for general merchandise categories to remain soft due both to macroeconomic environment and normalization of home and outdoor categories from peak pandemic demand levels. Retailers are likely to continue reducing open-to-buy dollars in general merchandise categories. Foreign exchange is expected to remain a headwind for the year.
We expect the supply chain pressures to continue to ease and for inflationary pressure to moderate to low single digits of COGS down from high single digits in 2022 as commodity and transportation prices continue to move off their peak levels. We expect many of the headwinds the company experienced in the second half of 2022 to persist in 2023, we are maintaining a prudent bias when setting our demand and supply plans to ensure a heightened focus on cash flow generation, working capital improvement, and optimization of Newell's cost structure. Within this context, our 2023 financial on-outlook contemplates net sales of $8.4 billion-$8.6 billion, with core sales declining 6%-8%.
We're assuming nearly a 3% headwind from foreign exchange, certain category and Yankee Candle store exits, and the sale of the CH&S business, which closed at the end of Q1 last year. Normalized operating margin is expected to be flat to down 50 basis points versus last year to 9.6%-10.1% as stronger gross margins are offset by overheads. We expect to drive above-average productivity savings, which in combination with carryover pricing and new pricing outside the U.S., should more than offset the impact from inflation. We're planning to maintain tight spending controls and are assuming that Project Phoenix unlocks about $140 million-$160 million of pre-tax savings this year. We expect these benefits to be fully offset in dollar terms by incentive compensation reset, wage inflation, and select capability investments.
We are forecasting normalized earnings per share of $0.95-$1.08 as we expect a significant year-over-year increase in the interest expense and tax rate. We are assuming a return to a more normalized tax rate in the high teens range as compared to 2.5% in 2022. At the midpoint of the range, we are assuming that normalized earnings per share decline low double digits on a constant tax and currency basis. We expect a significant bounce back on cash flow in 2023 from timing of inventory purchases and payables, with free cash flow productivity well ahead of 100% at the midpoint of our guidance range.
We're forecasting operating cash flow in the $700 million-$900 million range, including about $95 million-$120 million in cash expenditures from Project Phoenix. Our first quarter outlook assumes the following: net sales of $1.79 billion-$1.84 billion, including a core sales decline of 16%-18% and a 7% headwind from the sale of the CH&S business on March 31st, 2022, foreign exchange and certain category Yankee Candle store exits. We are forecasting normalized operating margin of 3.0%-3.5%, significantly below 10.6% last year due to fixed cost deleveraging, inflation, and foreign exchange pressure. We expect a normalized loss per share of $0.03-$0.06.
The depressed earnings per share in the company's smallest quarter of the year from a seasonality perspective reflects significant margin pressure, a step-up in interest expense, and a modest tax benefit. We clearly expect a much tougher first half of the year relative to the back half as the business cycles more challenging top line comparisons with headwinds from currency and inflation carryover being more front-half weighted, whereas benefits from Project Phoenix are expected to be more back-half loaded. We're also assuming that retailer inventory reductions and constrained spending on discretionary products will persist through the first half of the year. As such, we expect core sales growth to be stronger in the second half of the year versus the first half.
We are taking decisive actions across all areas that are within our control to successfully navigate through this difficult macro backdrop while building and investing in core capabilities, which we believe will position the company for a return to sustainable and profitable growth. Operator, let's now open up for Q&A.
Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, press star one one again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bill Chappell with Truist. Your line is open.
Thanks. Good morning.
Morning, Bill.
Morning, Bill.
Congratulations to everyone. First got a question on Project Phoenix. Obviously, over the years, even before your two tenures, there have been a lot of projects, a lot of consolidation of divisions from five to three and three to five and what have you. You know, how is this different? I mean, what do you see in the cost savings that you haven't already gotten from the prior projects that really gets you confident about, you know, how this makes a big change? Like I said, since it's been done, it seems attempted multiple times before in the past decade.
Bill, I think, let me kick that off. Look, first it was really the idea germinated when we were looking at the food business and appliance business, and the customers and the merchants are the same, and we were not approaching it on a integrated basis. The consumer is the same because they reside in the kitchen. As we started thinking about it and this whole notion of consumer life moments and occasions, and really was driven from a consumer and customer standpoint, saying, "Hey, where do these reside, and how do you group the businesses?" As you know, Newell sort of veered a bit from centralization to decentralization over times. For us, we've taken in the last three years a more holistic approach of, hey, the businesses were front-facing, and we were unifying in the back to leverage scale.
This is just the next evolution of that. We said, "Hey, it really makes sense. Candles are in the home." COVID also taught us that home is the hub. That made sense then to bring those businesses. The commercial piece was really, it shares the Rubbermaid brand, we said, "Let's bring that together." The key was this has helped us because we had different CFOs and HR for each of the businesses. This has helped us reduce it, create bigger jobs for people, improve the span of control, et cetera. Second, I think this is very historic about doing international as integrated One Newell as a whole because there's been a lot of fragmentation. This One Newell market approach, go-to-market approach, I think is gonna be quite amazing.
I don't think we've ever unified supply chain globally, and I think that we just feel that will allow for better decisions on nearshoring of, hey, do you source, do you manufacture, taking real leverage of our total footprint globally, which we think long-term will help the growth margins. When you look at those fronts, then there's a lot of. I think as a company, because these were all separate companies in the past, one of the keys is standardizing processes, which we did in OVID, and we've learnt a lot from that, and then getting to common measurement systems. I just think it'll create a more efficient company. This was, this was not just a, "Hey, let's take cost out for the sake of cost out." It was very strategic in how we went about it.
Okay. I'll follow up on that. The second question is just in terms of consumer demand, trying to understand if there are areas where you're seeing meaningful pullbacks from consumers due to recessionary environment or if you're just expecting that to happen as we move through the year. If the former, then, you know, where are you seeing the biggest pressure points?
I think, Bill, two points. One, I'll just reiterate. One, we are above 2019 from the pandemic levels overall, so that's encouraging. The stack growth two years is 9%. Having said that, clearly there are a couple of phenomenon. One is due to the stimulus that occurred as well as the pandemic, on certain businesses and categories, there was forward acceleration from a consumer standpoint. For instance, appliances is probably the prime candidate. You had the phenomenon of, like, candles during COVID, where people were burning a lot. We brought in a lot of low-income consumers that now without the stimulus have left the fold. You are seeing even before the recession, there are a couple of impacts, which are the retailers destocking, consumer forward acceleration that occurred in different categories.
I think when you take a look into that, those are the things that we're seeing those trends persisting in the first half.
Great. Thanks. I'll turn it over.
Thank you. One moment for our next question. Our next question comes from Olivia Tong with Raymond James. Your line is now open.
Great. Thank you. I wanted to talk about your sales expectations and what's embedded in your core revenue outlook for this fiscal year, because we assume that Q2 is going to see similar pressure as Q1. It would imply sort of a low single-digit core sales growth in second half at the midpoint. Can you provide some color on your views on trends as you begin to lap the destocking in the second half of the year? What your full year outlook reflects in terms of your view on shelf space or retailer losses and what you think the underlying line category growth is as you exit this period of destocking?
Thanks, Olivia. I'll take that. I think as I mentioned in the prepared remarks on our revenue outlook, there's really three or four trends that are going on that inform our outlook. One is normalization of categories from peak COVID levels, that's particularly impacting the home and the outdoor businesses, where we're continuing to see sort of a return to pre-pandemic category levels. Second is consumer pressure on discretionary categories because of inflation in food and housing, which is taking a greater share of consumer wallets. Third is the retailer destocking impact.
Finally, you know, we've seen over the last two years almost 20% input cost inflation, and we've largely priced for that as we've talked, but that also is putting pressure on categories from a volume standpoint. If you look at the trend during the year, we're guiding for core sales growth of -16% to -18% in Q1. We're not gonna give quarterly guidance, but I don't think it's a fair assumption to say that we expect that to continue in Q2. I do think that Q1 is uniquely negative because of the comparison. If you look at the two-year stacked on Q1, it's almost 27% or 28% that we're comping. It is the toughest comp.
As we mentioned in the remarks, we do expect the back half to be better than the front half, but I don't think it's the right assumption to think that Q2 is going to be down as much as Q1.
Got it. Then, Chris, congrats first. You know, I wanted to get your view in terms of potential for a strategic review, you know, as you move into the CEO position, whether you think there's another look at the categories you're in, the brands you have, how you think about that, you know, for the longer term?
Sure. Yeah. I think the way I'm thinking about that is I think that, you know, we put the turnaround plan in place about three or four years ago, and I think as we've talked, we've made significant progress on that. The macro environment is different today than it was then. Because of the progress that we've made, I think that now is an opportune time to relook at the company's strategy going forward. I intend to do that with the leadership team. I don't expect that we're gonna have a revolution in the strategy, but I think it's likely that we will evolve the strategy. But I wanna take the time to confer with the leadership team and also understand sort of the current environment.
I expect that'll take us several months to get through, and we'll be ready to share something as soon as we get through that process.
Understood. Thank you.
Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.
Hey, good morning, everyone. Ravi, Chris, Mark, congrats to you all. Maybe just one quick housekeeping item. Well, does the top line outlook embed any potential impact from what's going on at one of your largest retail partners that's, you know, been in the news quite a bit recently? I guess just, you know, maybe a bigger picture, you know, taking a step back. You know, the business has changed, you know, a bit over the past few years, but kind of taking the guidance into consideration, you know, sales are really, you know, retrenching here. Chris, you mentioned normalization and.
Kind of consumer pressures. Just kind of bringing it back to the long-term, you know, core sales target of low single digits. I mean, is there something you've learned over the past year, 18 months or so that kind of changes your confidence in your ability to deliver on that target kind of longer term as we kind of get through this period of disruption? Thanks.
I'll just do the first one very quickly. The answer is no. In terms of any particular retailer's issues affecting us, Chris.
Maybe just to build on Ravi's answer on the first one. I think the retailer you're talking about is likely Bed Bath & Beyond. They represent less than 2% of the company's revenue. We are working very collaboratively with them in terms of kind of a win-win go forward partnership. I'll leave it at there, but it is not a significant part of the company's business. On the long-term algorithm, I don't think there's anything that causes us to change the goal in the evergreen model of getting to low single digit, consistent, sustainable core sales growth. We are still committed to that as our evergreen top line target.
Obviously, we've been impacted by a lot of the trends that we've talked about, which has us off of that, for this year. We very much are working hard to get back there as quickly as we possibly can.
I think the one thing I'd add, just so when you look back, look, these last three and a half years, we've had so many things, right? We've had the pandemic, then supply constraints, inflation, foreign exchange, war with Ukraine, et cetera. To me, the holy grail is 2019 as the base year. The fact that in 2022, we were still up versus 2019 and the stack growth was 9% should really. Our brands remain strong. I know Chris and the team are really gonna take it to the next level. I think once the economy turns, I do feel that the evergreen model that Chris and I espoused is still intact.
Great. Thank you so much. You know, this might be a hard question to answer just given the uncertainty of the current environment. Chris, we've kind of seen, you know, when new CEOs come in, you know, the initial outlook, you know, tends to be, you know, somewhat conservative to, you know, to set the team up for success. How would you know, characterize, you know, your confidence in this guidance today? You know, do you feel like you've embedded enough flex, you know, should things, you know, deteriorate from, you know, further from here, either from a consumer demand perspective or inflation or effects? Just, you know, just kind of the confidence that, you know, this is kind of the worst it can kind of get and things could get better?
There could be upside to the earnings, you know, as we move through the balance of the year.
Yeah, I think, I'll just give you sort of a high level, conceptual answer to that, which is we tried to reflect in the guidance everything we knew about the current environment. We tried to be realistic in what we know, based on the go forward, tailwinds and headwinds for the business this year. We did wanna take a prudent bias on the core sales because our focus this year is to get cash flow back. The best way to get cash flow back is not to overbuild inventory, and we wanted to manage our supply and demand plan in a way that ensured that we had an above average cash flow year.
We are, as we mentioned in the prepared remarks, seeing significant headwinds in terms of the tax rate, which is going from 2.5% to a high teens rate, which is our kind of long-term normalized operating rate. We are seeing interest expense, probably is gonna be up about $45 million this year versus last year. We've got, you know, the headwinds, as we mentioned, of incentive comp reset and foreign exchange, in addition to the core sales deleveraging. On the flip side, we feel very good about Ovid, and the benefits that Ovid's gonna generate. We've built our productivity. Our gross productivity assumptions are well above 4% of cost for this COGS for this year.
It's a step up in gross productivity that's embedded in our guidance because of Ovid, because of the fuel productivity program and automation. We've embedded in, as we talked, the Phoenix overhead savings and international pricing along with carryover pricing. I, I feel good about sort of where we are based on what we know today.
Great. Thanks so much and congrats to all again.
Thank you. Our next question comes from Kevin Grundy with Jefferies. Your line is now open.
Great. Thanks. Good morning, everyone. Just to echo, my congratulations as well. I know in a difficult environment like this, it may not seem that way, but I think a lot of folks on this call that have followed the company for a while, it's certainly in a better place than it, than it was post the Jarden merger. Congrats on that. Question on Project Phoenix to start, if we could. You know, it seems like another step along with Ovid to drive efficiencies and reduce complexities in the organization, which, you know, was inherently more complex in many cases, perhaps too decentralized coming out of the Jarden merger. At the same time, it's a lot of change in what's a very dynamic and challenging environment.
Can you just comment on how the organization is handling all this change and why we should not be worried about a potential risk to results, at least in the near term? Then I have a follow-up. Thanks.
Okay, thank you so much. Look, that's a great question. I would say we absolutely could not have done this three years ago. You may recall, when Chris and I started here, our engagement scores were about 37 to 45. We went up to 75 world-class norms. Much consultants told us it would take us 10 years. We got there in two years, and we've maintained that last year when we did it in November. The organization's culture is a competitive advantage and very strong that they could absorb it. This whole idea of One Newell is imbued in their employees. The way we handled it, there was meticulous planning.
We started the Phoenix idea and process. We started working on it through July and brought in layers of people systematically over time to give them ownership. Our communication has truly been outstanding to make sure people understood why we were doing it. Finally, the people that we had to exit, we treated them with enormous dignity and respect. So much so if you go back to LinkedIn and take a look, even those who exited are cheering for Newell and want Newell to succeed. I think that culture and it's been very strong. People understand why we need to do this, and I think it's a journey. Look, Ovid was the great test to see whether we could centralize distribution, and that was very successful. That gave us the courage to centralize manufacturing, to put sales all under our chief customer officer.
I think so far the reaction of the organization has been actually very positive. We've been as concerned about the people left behind to make sure they're e-embracing this. The other part of it has been because of our previous over history, we've also made sure there's role clarity, reduced duplication. I think people are feeling even more empowered. I'd say the chances of this succeeding are very high.
Excellent. Thank you for that, Ravi. Chris, probably for you just on margins, just to kind of step back and make sure that, you know, we're not missing the forest for the trees here. Currently you're dealing with a lot in terms of volume deleverage, FX, cost, et cetera. Longer term, sort of thinking with margins versus your original benchmarks. Since then, you know, we have Project Fuel, we have OVID, now you have Project Phoenix. I think, you know, the commentary has been that there's no reason this cannot be a 17%-18% EBITDA margin business longer term, as we sort of look past this volume deleverage and so forth as we come out of the cycle. Is that still the view?
Is that where investors should sort of, you know, sort of anchor longer term expectations? Or is it potentially even superior to that now, just given some of the programs that you've announced? Then I'll pass it on. Thank you.
I think that there's no question that we are shooting for a much higher margin profile in this business, and I think we have the opportunity to drive that over time versus where we are today. I think that sort of a mid to high teens EBITDA or EBIT margin is very much in our long-term sights. As we've talked, you know, when we did the original benchmarking, we thought that gross margin, we ought to be targeting to get the company's gross margin up to 37%-38%. We've taken a series of backward steps for a variety of reasons associated with fixed cost deleveraging, inflation, et cetera.
I think, you know, our guidance this year is for gross margin to turn and start to move positive. I think that trend, we are very focused on driving that. We continue to believe that, although we may have some deleveraging effect this year, we believe that, you know, getting our overhead down toward that 16%, 15%-16% level, is the right thing as well. I think that can yield, you know, margins that are much stronger than where we are today. I think a lot of that continues to be in our control, although we are, you know, subject, as we've seen in the short term, to the macro trends, which means it's not gonna be a straight line, as I've said many times before.
Thank you. Our next question comes from Andrea Teixeira with JP Morgan. Your line is now open.
Thanks, Operator. Good morning, everyone, and congrats to all. I think I can speak to most of the ones on this call that I think you sounded, you did not sound as negative about the path ahead when you announced the tricky warnings and later with Project Phoenix. Can you help us bridge a little bit of what's gone worse since November and December, perhaps, you know, the consumer or the retailers, that took, you know, a more conservative step of views on the inventory levels? Also on a clarification on the commentary about the higher management compensation in 2023. I guess with results materially lower in the year, how can compensation normalize the rest this year? I think you're probably adjusting out some of the external factors within the compensation matrix.
I just wanna see if we can bridge that to the commentary that you gave. Despite, you know, those savings in the Project Phoenix, you pretty much will offset everything with labor inflation management comp. If you can bridge those components, that would be super helpful. Thank you.
Let me answer your final the last question first very quickly. Essentially, this year, look, our compensation is performance driven and variable to the great part, and there's an LTI component as well. We really, because we didn't make our numbers, obviously the STI component was very low for 2022, and it also affected our LTI. When we look at 2023, we start with the assumption that it'll be normalized, and you assume the target numbers. That is a big, big jump plus the wage inflation. That is why we said the Phoenix was offsetting that.
Okay. Relative to the change, perhaps in, you know, what we're seeing from November, I don't think we've, you know, I think this is the first time we're giving guidance for this year. The reason why we give guidance for the first time on this call is because we want to give guidance, when we have clearer visibility on the macros. It is a difficult macro environment from a forecasting standpoint because there's a lot of uncertainty and a lot of variability in the range.
I think as we've seen the macro trends continuing over the last few months, as we saw where Q4 came in, as we saw how we started off in January, and as we got more visibility to the forecasting, we felt like that helped inform our top line guidance on core sales growth for this year. I think many of the comments that we made are still applicable. We do expect this year to be a significantly above average gross productivity year as a result of benefits from the Project Ovid program, fuel productivity, automation. And as a result, we're expecting gross margin to be up this year. I think the piece that that's offsetting that from a margin rate standpoint is really the overhead rate
That's really because of the top line deleverage more than anything else. Our overhead costs in total are relatively flat in dollar terms, as we mentioned, because of the wage inflation, the incentive comp and select capability investments that we're making, which are offsetting the Phoenix savings. Then obviously the interest expense has moved with as the Fed has raised rates and rates on short-term borrowing has gone up. From a tax rate standpoint, we're planning for sort of a full operational tax rate, as I mentioned before.
Okay, can I just add something? look, we've had a full year of 2022 to look at what happened. Really there, this being a bit repetitive, but the forces of both retailer, destocking, consumer forward acceleration, all that, and then an impending or imminent recession. When you look at all of that, I think it's really a consumer environment which has softened. I think we're just being prudent about that. Our brands inherently are, we're continuing to strengthen our brands. I would just look at that and very important, Chris has really been very clear that the major focus of 2023 is to get that cash flow back.
Thank you. Our last question will come from the line of Lauren Lieberman with Barclays. Your line is now open.
Great, thanks. Good morning, everyone, and Mark, hi again. It's been years. Just wanted to ask one quick question, was when you're just looking at the outlook for this year, how you're thinking about, still like lingering destocking activity versus consumption? If you talked about it earlier in the call, I apologize, I missed it. Clarity on that would be great, if possible.
Yeah, good question, Lauren. I would say that, we do expect some lingering retailer destocking. Largely, we expect that to be complete in the first half of the year. Clearly, if you look at the Q1 guidance where we're guiding core sales down 16%-18%, we are not seeing our underlying POS trends down that much. Part of the difference there is retailer destocking. I would say that, the retailers made significant progress on destocking from our view and what we're hearing in the back half of last year. We don't believe that it's fully over yet. We do expect, from what we're hearing that, the retailer destocking will largely be complete by the first half of the year.
You know, hard to predict entirely, but that's what we're planning for and that's what we're hearing from the major retailers that we interact with today. Which is why we think second half would be slightly better than the first half.
Okay, great. Thanks so much.
Thank you.
All right.
This concludes today's conference call. Thank you for your participation. A replay of today's call will be available later today on the company's website at ir.newellbrands.com. You may now disconnect. Have a great day.