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Why Is Newell Brands (NWL) Down 8.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Newell Brands (NWL - Free Report) . Shares have lost about 8.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Newell Brands 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 drivers.

Newell’s Earnings and Sales Surpass Estimates in Q1

Newell delivered better-than-expected results in first-quarter 2019. However, both the metrics declined year over year.

Q1 Highlights

Newell came up with normalized earnings per share of 14 cents, which significantly outpaced the Zacks Consensus Estimate of 6 cents. However, it plunged 50% from 28 cents earned in the year-ago period.

Net sales declined 5.5% to $1,712.1 million from the year-earlier figure but outshined the Zacks Consensus Estimate of $1,692 million. The year-over-year decrease can mainly be attributed to foreign currency headwinds and soft core sales, which dipped 2.4%.

Normalized gross margin contracted 140 basis points (bps) to 31.9%. However, normalized operating margin improved 180 bps to 4.3% in the quarter under review, driven by the company’s cost-containment efforts.

Segmental Performance

The Learning & Development segment (inclusive of Writing and Baby) recorded net sales of $581 million, which decreased 4.3% from the prior-year number. Unfavorable currency and core sales slipped 1.5%, due to a decline in Baby division induced by the bankruptcy of Toys “R” Us. However, this downside was largely mitigatedby the segment’s Writing division core sales growth.

The Food & Appliances segment’s (Appliances & Cookware Food) net sales slid 5.6% to $504 million. This downtrend can be attributed to negative currency translations and a deterioration of 2.7% in core sales, mainly due to lower promotional activity.

Net sales at the Home & Outdoor Living segment (Outdoor & Recreation, Home Fragrance and Connected Home & Security) totaled $627 million, down 6.4% from the prior-year period. The segment’s top line was hurt by unfavorable currency, core sales decline of 2.9% and the exit of about 60 underperforming Yankee Candle retail outlets.

Other Developments

Newell has made a substantial progress in its Accelerated Transformation Plan announced last January. Also, it has been improving its operational performance through the divestiture of non-core businesses, deleveraging balance sheet and returning cash to its shareholders.

As part of this advancement, the company has concluded divestments of Process Solutions and Rexair businesses for total after-tax sales proceeds of about $735 billion. Further, Newell deployed $97.7 million to pay off dividends in the first quarter.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $364.1 million, long-term debt of $6,694.6 million and shareholders’ equity of $4,948.4 million excluding non-controlling interests of $34.7 million.

During first-quarter 2019, the company used operating cash flow of $200 million compared with $402 million in the comparable quarter last year.
 
Outlook

Management issued guidance for the second quarter and reaffirmed its view for 2019. For 2019, net sales are retained at $8.2-$8.4 billion along with a core sales decline in low single digits. Further, the company anticipates normalized operating margin to expand 20-60 bps. Operating cash flows are projected to be $300-$500 million during the same time frame. Normalized earnings per share are envisioned in the band of $1.50-$1.65 for the year.

For second-quarter 2019, Newell estimates net sales of $2.1-$2.15 billion along with core sales of flat to down 2%. It also anticipates normalized operating margin in the range of flat to down 60 bps. Normalized earnings per share are forecast within 34-38 cents for the quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.89% due to these changes.

VGM Scores

At this time, Newell Brands has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Newell Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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