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Will Lower Core Sales Weigh on Newell's (NWL) Q1 Earnings?

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Newell Brands Inc. (NWL - Free Report) is slated to report first-quarter 2018 results on May 4, before the opening bell. The company has pulled off a positive earnings surprise in three of the trailing four quarters, with an average beat of 3.3%.

So, let’s delve deep into the factors to see how Newell is doing before its first-quarter earnings release.

Factors at Play

Newell has been struggling with strained margins for the last few quarters. Lower core sales, absence of earnings related to divested businesses, commodity cost inflation, adverse product mix and, higher advertising, promotion and e-commerce investment have been denting the company’s margins. These factors might hurt overall profitability in the first quarter, apprehending which investors’ sentiments have taken a hit. Consequently, shares of the company have plunged 32% in the past six months compared with the industry’s decline of 14.6%.

Newell Brands Inc. Price, Consensus and EPS Surprise

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

Though the Zacks Consensus Estimate of 27 cents for the first quarter of 2018 remained stable in the last 30 days, it portrays a year-over-year decline of 20.6%. Also, analysts surveyed by Zacks expect revenues of $3.04 billion for the quarter, down 6.8% from the year-ago period.

Furthermore, the consensus estimates of $1,051 million, $523 million and $551 million for Live, Learn and Work segments, respectively, reflect a decline of 39%, 5.1% and 21.8% sequentially. However, the consensus mark of $633 million for the Play segment shows an increase of 12.4% from fourth-quarter 2017.

While the company has been witnessing margin issues, Newell remains on track with the execution of its transformation plan through market share gains, point of sale growth, innovation, e-commerce improvement and cost-savings plans. Further, it is looking for strategic alternatives for assets in the industrial and commercial products as well as smaller consumer businesses. The strategic alternatives for these brands will significantly lower the company’s operational complexity by reducing 50% of its global factory and warehouse presence. On completion of these plans, Newell is expected to become a nearly $11 billion focused portfolio company with leading consumer-facing brands, impressive margins and significant growth potential in global categories.

Furthermore, Newell’s Project Renewal Program continues to focus on saving costs in the areas of procurement by reducing the complexity of its business and simplifying the manufacturing and distribution processes, through further overhead reduction. In addition, it intends to use a major portion of the savings in accelerating growth by investing the same in business, while the remaining cost savings are expected to reflect in earnings. These savings are also expected to boost margins, cash flow and further investments.

All said, we remain cautious about Newell’s performance in the upcoming quarter, however, the company is poised well for growth in the long term.

Zacks Model

Our proven model does not show that Newell 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 has an Earnings ESP of -4.67% and a Zacks Rank #4 (Sell), which make surprise prediction difficult.

As it is we caution against stocks with Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

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:

Hostess Brands, Inc. has an Earnings ESP of +10.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Church & Dwight Co., Inc. (CHD - Free Report) has an Earnings ESP of +0.52% and a Zacks Rank of 3.

Sysco Corporation (SYY - Free Report) has an Earnings ESP of +2.08% and a Zacks Rank #3.

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