It looks like Newell Brands Inc. (NWL - Analyst Report) can’t quit playing growth game plans. As part of a strategic business review performed after its acquisition of Jarden Corp., the company announced a host of amendments to its business structure. These changes not only reflect Newell’s focus on simplifying its operating structure, but also highlight its commitment toward making prudent investments in areas with higher growth potential.
Let’s take a deeper look into the alterations announced by this Sharpie producer, as it declared plans to transform into an operating company, from a holding company – with fresh investment plans and new ideas for its combined portfolio with Jarden.
Firstly, Newell revealed intentions to make its operating structure simpler, by reducing its existing 32 business units by exactly half – thereby creating 16 operating divisions. This will also include the establishment of an all-new e-commerce unit that operates internationally. This underscores Newell’s efforts toward keeping pace with the evolving consumer environment, where digital and physical stores go hand in hand.
Further, the company testified to its practice of sharpening its focus on creating a faster growing, higher margin and more profitable company yet again as it unveiled plans to hold some of its businesses for sale. In this regard, Newell stated that it intends to sell nearly 10% of its current portfolio, including a large chunk of its Tools segment; the Outdoor Solutions Segment’s Winter Sports businesses; the Heaters, Humidifiers, and Fans operations within the Consumer Solutions Segment; and the Home Solutions Segment’s Consumer Storage Container unit.
Notably, the aforementioned held-for-sale businesses generated sales worth roughly $1.5 billion in 2015. Also, it constitutes nearly $100 million of the company’s previously announced plan of exiting product lines with annual sales of $200−$300 million across its combined business with Jarden, over the next two to three years. In fact, most of the planned sales comprise units from Jarden’s portfolio.
How Will it Impact Newell’s Business?
Despite selling these businesses, the combined Newell and Jarden entity will still have plenty of brands left in its kitty. Following the sale, the company will align its resources to more profitable areas like Writing, Home Fragrance, Baby, Food Storage & Preparation, Appliances & Cookware, and Outdoor & Recreation. This in turn is likely to shape this Zacks Rank #2 (Buy) company for a better future with stronger prospects.
These divestitures, which are anticipated to complete by the first half of 2017, have more to it. Incidentally, Newell intends to use the sale proceeds mainly to speed up its debt payment process, which in turn will take it closer to its leverage ratio target of 3−3.5 times EBITDA.
Also, it was in anticipation of this plan of simplifying its operating structure that Newell recently announced plans to deliver cost synergies of $500 million by 2018 end, against its prior projection of achieving this goal over a 3−4 year period from Jarden’s buyout. The buyout was closed on Apr 15, 2016, with the combined firm anticipated to generate annual revenue of about $16 billion.
Coming back to the changes announced today, as part of the comprehensive review, these will not have any effect on Newell’s core sales or normalized earnings per share (EPS) outlook for 2016. So, the company still expects core sales growth of 3–4% for 2016, while normalized EPS for the same time period is expected in the range of $2.75–$2.90.
Other Stocks to Consider
Investors can also count on other well-ranked stocks like Blue Buffalo Pet Products, Inc. (BUFF - Snapshot Report) , Ollie's Bargain Outlet Holdings, Inc. (OLLI - Snapshot Report) and Spectrum Brands Holdings, Inc. (SPB - Snapshot Report) , each with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Blue Buffalo, with a long-term EPS growth rate of 19%, has seen positive estimate revisions for 2016, over the past 60 days. The company also flaunts a solid earnings surprise history.
Ollie's Bargain has to its credit a spectacular earnings trend as the company has delivered a positive earnings surprise over the past four quarters. Moreover, its long-term EPS growth rate of 20.2% and positive estimate revisions over the past 60 days help it stand strong against the industry.
Spectrum Brands, with a long-term EPS growth rate of 13.4%, has delivered back-to-back positive earnings surprises in the last two quarters.
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