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Newell (NWL) Q4 Earnings Beat, Stock Down on Soft 2019 View

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Newell Brands Inc. (NWL - Free Report) reported mixed fourth-quarter 2018 results, wherein the company’s bottom line outpaced the Zacks Consensus Estimate but the top line lagged. We note that sales miss along with soft earnings projection for 2019 are not well perceived by investors. For 2019, management envisions normalized earnings per share of $1.50-$1.65. The mid-point of $1.58 is below the Zacks Consensus Estimate of $1.64.

Consequently, shares of the company are down nearly 14.3% in the pre-market trading session. However, this Zacks Rank #3 (Hold) stock has gained 1.8% against the industry’s 0.9% decline in the past six months.



Q4 Highlights

Newell delivered normalized earnings per share of 71 cents, which significantly outpaced the Zacks Consensus Estimate of 41 cents. Also, it grew 4.4% from 68 cents earned in the year-ago period.

Net sales totaled $2,340.6 million, which missed the Zacks Consensus Estimate of $2,404 million and declined 6% year over year. The downside can be attributed to adverse impact from the new revenue recognition standard, foreign currency headwinds and soft core sales.

Further, core sales dipped 1.2%. However, the company reported improved core sales trends across all segments, on a sequential basis. Also, three of the four regions witnessed core sales growth trends sequentially. Backed by strength in Writing, the Learning & Development division returned to growth during the reported quarter.

Normalized gross margin expanded 170 basis points (bps) to 34.7%, while normalized operating margin improved 70 bps to 11.4% in the quarter under review.

Newell Brands Inc. Price, Consensus and EPS Surprise

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

Segmental Performance

The Learning & Development segment (which includes Writing and Baby) recorded net sales of $707 million, which decreased 3.2% from the prior-year period number. Adoption of new revenue recognition standard, unfavorable currency and decline in core sales for Baby due to the bankruptcy of Toys “R” Us led to the downturn. However, it was largely negated by the segment’s overall core sales growth.

The Food & Appliances segment’s (which includes Appliances & Cookware Food) net sales decreased 7.2% to $824 million. The decline can be attributed to currency headwinds, adoption of new revenue recognition standard and soft core sales, mainly due to lower promotional activity in Food.

Net sales at the Home & Outdoor Living segment (which includes Outdoor & Recreation, Home Fragrance, and Connected Home & Security) totaled $809 million, down 7.2% from the prior-year period. The top line was hurt by the new revenue recognition standard, unfavorable currency and weak core sales, primarily due to lost distribution for Coleman. This was somewhat mitigated with robust growth witnessed in Connected Home & Security as well as return to growth of Home Fragrance business in Europe.

Other Developments

Newell has made a substantial progress in its Accelerated Transformation Plan announced in January last year. Also, it has been improving operational performance through the divestiture of non-core businesses, deleveraging balance sheet and returning cash to its shareholders.

As part of the progress, the company has concluded divestitures of Pure Fishing and Jostens businesses for total sales proceeds of $2.5 billion. Further, Newell deployed $102 million for the payment of dividends and $996 million for share repurchases in the fourth quarter. Also, the company repaid debt of $2.6 billion.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $495.7 million, long-term debt of $6,696.3 million and shareholders’ equity of $5,243 million, excluding non-controlling interests of $34.8 million.

During 2018, the company generated operating cash flow of $680 million compared with $966.2 million in the prior-year period.
 
Outlook

Management issued guidance for first-quarter and 2019. The company notified changes in its normalization practice. As a result, it has issued and will continue to present certain non-GAAP financial metrics, which are referred to as normalized measures. Notably, this guidance includes the aforementioned change.

Net sales are projected to be $8.2-$8.4 billion along with core sales decline in low single digits for 2019. Further, the company anticipates normalized operating margin to expand 20-60 bps. Operating cash flows are projected to be $300-$500 million during the same period.

For first-quarter 2019, Newell estimates net sales of $1.66-$1.70 billion along with core sales decline in the 2-4% range. It also anticipates normalized operating margin to grow 10-50 bps. Normalized earnings per share are envisioned in the band of 4-8 cents for the quarter. The consensus estimate for first-quarter earnings stands at 3 cents, which might witness upward revisions in the coming days.

Three Better-Ranked Consumer Staples Stocks

The Simply Good Foods Company (SMPL - Free Report) has delivered an average positive earnings surprise of 13.3% in the trailing four quarters and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nomad Foods Limited (NOMD - Free Report) has a Zacks Rank #2. Further, the company has an expected long-term earnings growth rate of 11%.

Lamb Weston Holdings, Inc. (LW - Free Report) , also a Zacks Rank #2 stock, has delivered an average positive earnings surprise of 10.1% in the trailing four quarters.

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