Back to top

Image: Bigstock

Newell (NWL) Beats Q1 Earnings, Updates Transformation Plan

Read MoreHide Full Article

Newell Brands Inc. (NWL - Free Report) reported mixed first-quarter 2018 results wherein the company’s bottom line surpassed the Zacks Consensus Estimate while the top line marginally lagged the same. While this marked the company’s second straight earnings beat, sales however, delivered a negative surprise after surpassing expectations in the fourth quarter of 2017. Further, management retained its 2018 view.

This Hoboken, NJ-based company posted normalized earnings of 34 cents per share, which outpaced the Zacks Consensus Estimate of 26 cents but remained flat year over year. The bottom line gained from cost savings, favorable pricing, gains from acquisitions and a lower tax rate, compensated with the lost earnings from divested operations, fall in core sales and commodity cost inflation.

On a reported basis, earnings per share came in at 11 cents compared with $1.31 earned in the year-ago quarter.

Newell Brands Inc. Price, Consensus and EPS Surprise

Newell Brands Inc. Price, Consensus and EPS Surprise | Newell Brands Inc. Quote

 

Net sales of $3,017.4 million fell short of the Zacks Consensus Estimate of $3,039 million as well as declined 7.6% year over year on account of the adverse impact of last year’s divestitures, net of buyouts. Also, the top line was hurt by the disrupted business of the Baby division along with a considerable inventory destocking in the Writing division’s office superstore and distributive trade channels. Further, core sales fell 3.5%, mainly due to Writing and Baby.

Normalized gross margin contracted 120 basis points (bps) to 33.3% while normalized operating margin declined 190 bps to 8.7% in the quarter under review.

Following the quarterly results and divestment news, shares of Newell gained 3.1% in pre-market trading session. However, this Zacks Rank #4 (Sell) stock has lost 13.4% in the past six months, wider than the industry’s decline of 9%.

 


Segment Performance

Live segment net sales inched up 0.4% to $1,071.6 million from the year-ago period. However, core sales decreased 3.1% on account of improvement in Appliances & Cookware, which was more than offset by a high-single digit fall in Baby business.

Net sales at Learn segment came in at $495.4 million, down 13% from the prior-year period. Core sales dropped 14.3%, mainly due to decline in Writing business.

Work segment net sales of $640.7 million grew 4.4% year over year. Also, core sales rose 5.5% on account of continued strength in Waddington and Safety & Security.

Net sales at the Play segment came in at $616.8 million, down 1.8% from the prior-year period. Core sales dipped 2.6% due to fall in Outdoor & Recreation, compensated with sturdy growth registered in Team Sports.

The Other segment net sales of $192.9 million plunged 50.2% from the prior-year quarter on account of the divestitures of the Tools, Winter Sports, Fire Starter and Fire Log plus Cordage businesses. Core sales declined 4.1% due to weakness in Process Solutions, partly offset by improvement in U.S. Playing Cards.

Transformation Plan Update

In line with its Accelerated Transformation Plan, Newell inked a deal to divest its packaging maker, The Waddington Group, to Novolex for roughly $2.3 billion. The transaction, anticipated to close within 60 days, is likely to generate after-tax proceeds of about $2.2 billion, which will be further used in deleveraging and share repurchase. Moreover, Newell adds Jostens and Pure Fishing brands to the list of potential divestitures.

The above positive moves are expected to speed up value creation and transform the portfolio to leverage the company’s abilities with respect to innovation, design and e-commerce. Also, it will help improve operational performance, deleverage the balance sheet as well as enhance the shareholder value.

The key aspects of this Transformation Plan are restructuring the company into a global consumer products’ entity, valued at more than $9 billion along with major brands in seven consumer segments; offloading non-core businesses that account for nearly 35% of the company’s sales, utilizing $10 billion after-tax proceeds from divestitures and a free cash flow to lower debt plus make share repurchase as well as retaining investment grade rating and an annual dividend of 92 cents per share through 2019, targeting 30-35% payout ratio.

The above will likely generate net sales of above $9 billion, boosting shareholder value and financial flexibility. Newell progresses well with its divestiture operations and anticipates the same to be completed by the end of 2019. Thereafter, management projects sales of roughly $9.5 billion with normalized operating margin expansion of more than 15% by 2020.

Other Financial Details

Newell ended the first quarter with cash and cash equivalents of $459 million, long-term debt of $9,623.5 million and shareholders’ equity of $14,130.9 million, excluding non-controlling interests of $36.4 million.

The company reported negative operating cash flow of $401.7 million compared with negative $263.6 million in the prior-year period. During the quarter under review, the company returned $112.6 million to shareholders in the form of dividends.

Outlook

Following the mixed quarterly results, management reiterated its guidance for 2018. Net sales are still projected in the band of $14.4-$14.8 billion with core sales to be flat to down low-single digit rate.

Further, management continues to expect normalized earnings per share in the band of $2.65-$2.85 and envisions operating cash flow in the range of $1.15-$1.45 billion for 2018. However, the company estimates both the metrics’ outlook to come in at the lower end of the guided range. The Zacks Consensus Estimate for the current year is pegged at $2.66.

3 Top-Ranked Consumer Staples Stocks

United Natural Foods, Inc. (UNFI - Free Report) delivered an average positive earnings surprise of 10.7% in the trailing four quarters. It has a long-term earnings growth rate of 8.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Archer Daniels Midland Company (ADM - Free Report) delivered an average positive earnings surprise of 13.3% in the last four quarters. Further, the stock carries a Zacks Rank #2 (Buy).

Nomad Foods Limited (NOMD - Free Report) is a Zacks #2 Ranked stock and pulled off an average positive earnings surprise of 11.7% in the trailing four quarters.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in