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Bear of the Day: Newell Brands (NWL)

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For manufacturers of many traditional consumer staples, the past several years have been a transitionary period. Consumer habits are shifting, product preferences are changing, and companies are responding. But for investors, now might be a good time to avoid these types of companies, including home goods giant Newell Brands (NWL - Free Report) .

Newell Brands is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate, Sharpie, Dymo, EXPO, Parker, Elmer’s, Coleman, Jostens, Marmot, Rawlings, Oster, Sunbeam, FoodSaver, Mr. Coffee, Rubbermaid Commercial Products, Graco, Baby Jogger, NUK, Calphalon, Rubbermaid, Contigo, First Alert, Waddington and Yankee Candle.

The company recently accelerated its transformation plan, but investors have not responded well to its results so far. The stock has dipped more than 15% over the past month, including a plunge this week on the back of soft preliminary results for the remainder of fiscal 2017. Newell Brands is currently sporting a Zacks Rank #5 (Strong Sell).

Latest Outlook

Earlier this week, Newell lowered its projections for fiscal 2017. The company now expects core sales growth of nearly 0.8%, down from the 1.5% to 2% growth predicted earlier. Adjusted earnings are expected to fall in the range of $2.72 per share to $2.76 per share, down from the previous forecast of $2.80 to $2.85.

As one would expect, Newell’s lowered guidance has led to a plethora of negative earnings estimate revisions. We have now seen six negative revisions to its full-year estimates within the past week.

But this trend has actually extended beyond this timeframe. The Zacks Consensus Estimate for its current fiscal year has slowly slumped from the $2.83 per share it was at about 90 days ago. Meanwhile, its soft results are having an effect on analyst expectations for the upcoming fiscal year.

Our consensus estimate for the company’s next-year earnings has lost 29 cents over the past 90 days, and we are now expecting profits to remain flat year-over-year. Newell is slated to release its latest quarterly results on Feb. 16.

Newell’s shaky results have forced management to accelerate its transformation plan and consider new strategic options. The company is aiming to trim its portfolio to nine core consumer segments that can garner nearly $11 billion of sales and $2 billion of EBITDA.

Brands to be evaluated in the industrial and commercial product business include Waddington, Process Solutions, Rubbermaid Commercial Products and Mapa. Meanwhile, Newell’s Rawlings, Goody, Rubbermaid Outdoor, Closet, Refuse and Garage, and U.S. Playing Cards could be trimmed.

These changes will likely lead to better shareholder value down the line. But investors know that transformation plans can be volatile and unpredictable. In the case of Newell, it might be better to sit this one out for now.

Better Options

As mentioned, the entire consumer staples sector is in a state of flux. Nevertheless, there are a few better options right now. Investors looking for a strong stock in the same industry might consider Ollie’s Bargain Outlet (OLLI) or Kimberly-Clark (KMB), which both hold a Zacks Rank #2 (Buy).

Want more analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!

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