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Soft Sales & Margin Trends to Hurt Newell's (NWL) Q2 Earnings

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Newell Brands Inc. (NWL - Free Report) is slated to report second-quarter 2018 results on Aug 6, before the opening bell. It delivered a positive earnings surprise of 30.8% in the last reported quarter.

A glimpse of the company’s earnings performance shows that it has outpaced estimates in three of the trailing four quarters by an average positive surprise of 6.7%. Additionally, the company’s surprise history reveals that it has delivered an earnings beat in four of the last five quarters while sales lagged estimates in two of the last three quarters.  The Zacks Consensus Estimate of 78 cents per share for second-quarter has been stable in the last 30 days. However, the estimate reflects year-over-year decline of 10.3%.

Newell Brands Inc. Price and EPS Surprise

 

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

Let’s find out what’s in store for Newell in the upcoming second-quarter earnings release.

Factors at Play

Newell has been struggling lately on accounts of lower core sales, adverse pricing and commodity cost inflation, which has weighed on its top-line performance in the last few quarters. Also, it is witnessing weak margins for a few quarters now. In first-quarter 2018, the company’s top line missed the Zacks Consensus Estimate and declined year over year on accounts of the adverse impact of last year’s divestitures, net of buyouts. Moreover, the top line was hurt by the disrupted business of Baby division along with a considerable inventory destocking in the Writing division’s office superstore and distributive trade channels.

Additionally, core sales fell 3.5% due to a decline across all segments, except for the Work division. Further, soft sales at Writing and Baby segments, along with adverse pricing and commodity cost inflation, are other factors that are adversely impacting core sales growth. The company projects core sales to be flat to down in a low-single-digit rate in 2018. The Zacks Consensus revenue estimate for the second quarter is $3.84 billion, down 5.3% from the year-ago period.

However, the consensus estimate for revenues of $1,196 million, $853 million, $749 million and $647 million, respectively, for Live, Learn, Play and Work segments reflect sequential growth of 11.6%, 72.3%, 21.4% and 1%.

Nonetheless, Newell has been witnessing weak gross and operating margins for the last few quarters. Despite gains from cost synergies and savings, the absence of earnings related to divested businesses, commodity cost inflation, adverse product mix, as well as increased advertising, promotion and e-commerce investment, have been weighing upon margins. These factors might hurt the overall profitability in the second quarter, apprehending which investors’ sentiments have taken a hit.

Consequently, shares of the company have plunged 32% year to date, wider than the industry’s decline of 6.6%.



Despite the odds, 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-saving 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 the 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.

Moreover, 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 to accelerate growth by investing it 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.

We remain cautious about Newell’s performance in the upcoming quarter, albeit, 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 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 -1.77% and a Zacks Rank #4 (Sell), which significantly lowers the chances of an earnings beat.

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

Turning Point Brands, Inc. (TPB - Free Report) has an Earnings ESP of +6.12% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) has an Earnings ESP of +1.57% and a Zacks Rank #2.

Monster Beverage Corporation (MNST - Free Report) has an Earnings ESP of +0.31% and a Zacks Rank #3.

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