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Newell's (NWL) Preliminary Results Indicate Soft Q4 Earnings

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Newell Brands Inc. (NWL - Free Report) is slated to report fourth-quarter 2017 results on Feb 16, before the opening bell. In the previous quarter, the company reported negative earnings surprise of 6.5%. However, the company’s earnings have surpassed the Zacks Consensus Estimate with an average of nearly 3%.

What to Expect?

The big question facing investors is whether this global manufacturer and marketer of consumer and commercial products will be able to deliver a positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 69 cents, reflecting a year-over-year decline of 13.8%.

Newell Brands Inc. Price and EPS Surprise

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

We note that the Zacks Consensus Estimate for the quarter has witnessed downward revisions in the past 30 days. Analysts polled by Zacks expect revenues of $3.72 billion, reflecting a 10.2% decline from the prior-year quarter.

However, we note that the stock has underperformed the industry in the past six months. The company’s shares have declined 45.5%, while the industry has dropped 14.3%.

Factors at Play

Newell’s solid earnings history reflects the splendid performance of its brand as well as Growth Game Plan, ongoing Project Renewal Program and solid acquisitions. The company has also made significant progress on its Growth Game Plan that targets accelerating growth by simplifying and strengthening the portfolio.

Moreover, the company has been keen on the execution of its transformation plan through market share gains, point-of-sale growth, innovation, e-commerce improvement and cost-savings plans. In a move to accelerate the pace of transformation, the company is looking to exit non-strategic assets, reduce complexity and focus on key consumer-focused brands. This will help improve operational performance and enhance shareholder value, amid a rapidly changing retail backdrop.

Under the transformation plan, the company is accelerating the pace by restricting Newell’s portfolio on nine core consumer segments that can garner nearly $11 billion of sales and $2 billion of EBITDA. Further, the company is looking for strategic alternatives for assets in its industrial and commercial product as well as smaller consumer businesses.

These strategic alternatives will significantly lower the company’s operational complexity by reducing 50% of its global factory and warehouse presence. Additionally, it will reduce the company’s customer base by 50% and result in consolidation of 80% of global sales on two ERP platforms by the end of 2019.

Moreover, the company’s recently reported soft-core sales and margins for 2017 indicate that there are more troubles ahead for the stock. Sales were hurt by the continuation of retailer inventory rebalancing in the United States, while margins suffered due to the negative mix of lower Writing sales and lower fixed cost absorption due to shorter cycle runs on self-manufactured products. Based on the preliminary results, the company lowered projections for 2017 and provided an initial view for 2018.

The company now expects core sales growth of nearly 0.8% in 2017, compared with 1.5-2% growth predicted earlier. Normalized earnings per share for 2017 are estimated to be $2.72-$2.76, compared with the previous forecast of $2.80-$2.85.

Given the soft 2017 performance and lowered view, we remain skeptical of the outcome in the to-be-reported quarter.

What Does the Zacks Model Unveil?

Our proven model does not conclusively show that Newell Brands is likely to beat on earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Newell Brands has an Earnings ESP of -2.22% and a Zacks Rank #5 (Strong Sell). This makes any surprise prediction impossible. Note that we caution against Sell-rated stocks Rank #4 or #5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Dillard’s Inc. (DDS - Free Report) has an Earnings ESP of +4.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aaron’s Inc. (AAN - Free Report) has an Earnings ESP of +3.81% and a Zacks Rank #2.

Macy’s Inc. (M - Free Report) has an Earnings ESP of +0.92% and a Zacks Rank #2.

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