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Here's Why Newell (NWL) is Marching Ahead of Its Industry

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Newell Brands Inc. (NWL - Free Report) has been gaining from solid demand, product innovation and robust core sales growth. Solid online show and healthy consumption trends in the United States remain upsides. Continued improvement in the Writing business, driven by strong back-to-school season, also bodes well.

This led NWL to retain its robust earnings surprise trend in third-quarter 2021. This marked the ninth straight quarter of an earnings beat. Newell’s top line also surpassed the Zacks Consensus Estimate and grew year over year.

NWL’s robust e-commerce capabilities led to mid-single-digit sales growth in its e-commerce business in third-quarter 2021. Going forward, Newell expects further digital penetration, driven by expanded omnichannel capabilities.

The company has also been witnessing continued improvement in the Writing business, with core sales growth of double-digits in this unit. It reported strong back-to-school performance on the back of innovative products, including Sharpie S-Gel and Sharpie S-Note, as well as robust merchandising plans and distribution gains.

Strong demand for pens, pencils, glue, permanent markers, dry erase markers and highlighters also contributed to the strong back-to-school season. On a two-year basis, the unit delivered significant growth. The Writing business already witnessed improved consumption in the United States throughout 2021, which accelerated sequentially in the third quarter.

Healthy consumption trends in the United States bode well for Newell. This marked the sixth straight quarter of consumption growth, with robust consumption across all business units on a two-year basis. Trends in the food and commercial businesses, which witnessed a significant rise in demand last year, have moderated.

Meanwhile, the Baby business performed well, driven by solid domestic consumption growth on a year-over-year and a two-year basis. Home Fragrance and Connected Home & Security businesses also witnessed strong consumption in the United States. Healthy consumption trend led management to lift the 2021 top-line view.

The company now anticipates 2021 sales of $10.38-$10.46 billion compared with the earlier mentioned $10.1-$10.35 billion. Core sales growth is likely to be 10-11%, up from the prior stated 7-10%. Normalized earnings per share are forecast to be $1.69-$1.73 for the year compared with the earlier mentioned $1.63-$1.73.

For fourth-quarter 2021, net sales are envisioned to be $2.6-$2.68 billion, with core sales likely to be down 2% to up 1% year over year. For the quarter, the company expects a normalized operating margin of 8.7-9.2% and normalized earnings of 29-33 cents a share.

Consequently, shares of this Zacks Rank #3 (Hold) company have gained 15.9% year to date compared with the industry’s growth of 1.6%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Hurdles on the Path

Newell continues to have its fair share of struggles. It has been witnessing elevated advertising and promotional expenses related to product launches and omnichannel investments. As a result, adjusted SG&A expenses rose 2.9% year over year in the third quarter of 2021.

Higher costs weighed on quarterly margins, which, in turn, affected the bottom line. Management anticipates inflationary cost pressures to escalate further in the fourth quarter, which is expected to hurt margins. The 2021 normalized operating margin is expected to be slightly down from the previously communicated 11.1%.

The company also remains exposed to port congestion, limited container availability, and shortage of labor and truck drivers. Significant inflation in freight costs and supply-chain disruptions remain concerning.

Bottom Line

Despite cost inflation and supply-chain issues, we believe that Newell remains well-positioned for long-term growth on the back of robust demand, online strength, and healthy consumption patterns. NWL boasts a VGM Score of B, which raises investors’ optimism.

Stocks to Consider

We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely Albertsons Companies (ACI - Free Report) , Helen of Troy (HELE - Free Report) and Procter & Gamble (PG - Free Report) .

Albertsons Companies sports a Zacks Rank #1 (Strong Buy) at present. ACI has a trailing four-quarter earnings surprise of 37.6%, on average. Shares of the company have surged 101.9% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ACI’s current financial year sales suggests growth of 3.6%, while the same for earnings per share indicates a decline of 16.7% from the year-ago period. ACI has an expected long-term earnings growth rate of 12%.

Helen of Troy currently carries a Zacks Rank #2 (Buy). HELE has a trailing four-quarter earnings surprise of 19.8%, on average. Shares of the company have gained 10.6% year to date.

The Zacks Consensus Estimate for HELE’s current financial year sales and earnings per share suggests declines of 15.9% and 16.2%, respectively, from the year-ago period. HELE has an expected long-term earnings growth rate of 8%.

Procter & Gamble, a Zacks Rank #3 stock at present, has a trailing four-quarter earnings surprise of 5.3%, on average. Shares of the company have gained 8.6% year to date.

The Zacks Consensus Estimate for Procter & Gamble’s current financial year sales and earnings per share suggests growth of 3.2% and 1.2%, respectively, from the year-ago period. PG has an expected long-term earnings growth rate of 6.7%.