It has been about a month since the last earnings report for Newell Brands Inc. (NWL - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Newell Tops Q2 Earnings & Sales, Raises Top-Line View
Newell Brands reported second-quarter 2017 results, wherein both the top and bottom lines surpassed estimates and improved year over year. Further, the company raised sales guidance for 2017, while retaining other forecasts for the year.
Newell’s normalized earnings of 87 cents per share in the second quarter came ahead of the Zacks Consensus Estimate of 86 cents, and grew 11.5% year over year from 78 cents in the prior-year quarter. Growth was driven by improved sales and operating profitability, partly negated by higher shares outstanding. Further, results gained from the company’s ongoing cost savings and related synergies.
On a reported basis, including one-time items, the company recorded earnings of 46 cents per share, compared with prior-year earnings of 30 cents. Earnings benefited from core sales growth, Project Renewal savings, cost synergies, the lack of negative inventory acceleration impact associated with the Jarden acquisition (acquired in April 2016) and contributions from acquisitions.
Net sales advanced 5.1% to $4,054.6 million in the quarter, also surpassing the Zacks Consensus Estimate of $3,959 million. The uptick can mainly be attributed to solid core sales growth, full-quarter contributions from Jarden, and the Sistema and WoodWick buys. However, this was partly offset by the sale of the company’s Tools, Decor, Fire Starter and Fire Log, Teutonia and Cordage businesses.
Core sales jumped 2.5%, driven by solid performance by Baby within the Live segment; Writing within the Learn segment; Work segment’s Waddington; Team Sports in the Play segment. Further, the company witnessed core sales growth in all four regions.
Live net sales increased 13.8% year over year to $1,277.6 million, while pro forma core sales increased 0.2%. The increase was backed by solid results in the Baby, Appliances and Home Fragrance businesses, offset by softness in Cookware and Fresh Preserving.
Net sales in the Learn segment advanced 10.9% to $1,011.4 million, while pro forma core sales were up 6.6% driven by strength in Writing category.
Work net sales surged 14.1% to $737.7 million, while pro forma core sales improved 6.3% mainly owing to broad-based growth across all divisions, led by Waddington.
Sales for the Play segment increased 14.2% to $782 million while pro forma core sales dipped 1.2%. The decline is accountable to fall in Fishing related to broad retail inventory destocking across specialty and mass retailers, alongside the negative impact of a key retail customer bankruptcy. This was partly mitigated by strength in Beverages, Coolers and Team Sports.
Net sales for the Other segment declined 50% to $245.9 million due to the sale of Tools, Decor, Fire Starter and Fire Log, and Cordage businesses. Pro forma core sales also dipped 2.1% as weak Home & Family results overshadowed the modest improvement in Process Solutions.
Newell’s normalized gross margin contracted 20 basis points (bps) to 37% as cost synergies and savings gains were more than negated by adverse mix effects of the Jarden acquisition and the sale of Tools business.
Normalized operating income soared roughly 13.8% to $692 million. Normalized operating income margin expanded 130 bps to 17.1%. Apart from the aforementioned gross margin factors, cost synergies and Project Renewal savings to overheads benefited operating margins. However, this was offset by higher investments related to eCommerce, brand development and insights.
Other Financial Details
Newell ended the quarter with cash and cash equivalents of $780.2, long-term debt of $10,172.8 million, and shareholders’ equity of $12,244.4 million. In the first half of 2017, the company used $241 million cash in operating activities.
As part of its strategy to accelerate growth by simplifying and strengthening its portfolio, Newell Brands concluded the sale of its Winter Sports business to ohlberg & Company, L.L.C, in July 2017. As part of the sale, it divested brands including Völkl, K2, Marker, Dalbello, Madshus, Line, Full Tilt, Atlas, Tubbs, Ride and BCA. The company had agreed to gross proceeds of $240 million from the sale.
Going forward, management expects core sales to expand in the second half backed by new distribution gains, a strong pipeline of innovations in the second-half and sustained double digit growth in eCommerce. Further, Newell remains confident of opportunities to create long-term value to deliver solid growth and margin expansion. Moreover, the company anticipates strong operating cash flows that will aid in delivering its leverage ratio targets ahead of time.
That said, the company raised its sales guidance for 2017, while keeping the other forecasts intact.
Newell now expects net sales for 2017 in the range of $14.8–$15 billion, reflecting 11.5–13% growth compared with $13.26 billion reported in 2016. Earlier, the company had forecasted sales of $14.52–$14.72 billion, reflecting 9.5–11% year-over-year growth. The revised net sales forecast is based on the timing of divestitures and foreign currency effects.
However, the company continues to anticipate core sales growth in a range of 2.5–4%. Normalized earnings per share are expected in the range of $3.00– $3.20. The company expects full-year tax rate in the range of 22–23%, due to a one-time very low tax rate anticipated in third-quarter 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to four lower.
At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. Meanwhile, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.