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Newell (NWL) Up 24% in 6 Months: Will the Rally Continue?

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Shares of Newell Brands Inc. NWL have returned 23.5% in the past six months, driven by significant gains from its Accelerated Transformation Plan. The plan, initiated in January 2018, recently marked its completion with the divestiture of The United States Playing Card Company ("USPC") to Cartamundi Group.

However, these transformational efforts have enabled the company to deliver growth via improving market share gains, point of sale growth, innovation and e-commerce as well as cost-saving plans. These factors have enabled the company to restructure into a global consumer product entity. We note that the industry declined 14.4% in the same time frame.

What You Should Know

As part of its Accelerated Transformation Plan, Newell had earlier stated to offload non-core businesses that contribute nearly 35% to the company’s sales; utilize $10 billion after-tax proceeds from divestitures and free cash flow to lower debt and make share repurchase; as well as retain its investment grade rating and an annual dividend of 92 cents per share through 2019, targeting payout ratio of 30-35%.

The plan was made to simplify Newell’s operations, which were likely to reduce the company’s number of manufacturing facilities by 66%, distribution centers by 55%, brands by 45%, number of employees by 39% as well as reduce above 30 ERP systems to two by the end of 2019. Management will also focus on right-sizing the cost structure for anticipated smaller net sales, remove stranded corporate expenses and recover the synergies lost through the divestitures.

In addition, Newell makes investments in areas with high-growth potential as well as divests underperforming and non-core assets. It concluded divestitures of Waddington; Rawlings; Goody; Pure Fishing; Jostens; Process Solutions and Rexair businesses. Proceeds from the sale of these assets have been reducing debt as part of its efforts to strengthen balance sheet. The divestiture of underperforming assets will facilitate the company to reshape its portfolio, improve operational efficiency and boost shareholders’ value.

Notably, the company is on track to improve leverage by allocating divestiture proceeds to clear debt and make share repurchases. Management had earlier stated to achieve net-debt-to-EBITDA leverage ratio of about 4 by 2019 end and roughly 3.5 by 2020 end. This shows its focus on deleveraging the balance sheet to boost shareholders’ value.

However, Newell decided to retain its Mapa/Spontex and Quickie businesses on solid prospects, in third-quarter 2019 conference call. These businesses, which are generating robust cash flow and operating margins, form part of the company’s Food and Commercial segment. The businesses are anticipated to be accretive to sales, operating margin, earnings per share as well as operating cash flow in 2020 and beyond.

Wrapping Up

As Newell’s robust Transformation Plan concludes in 2019, it is yet to be seen whether continued gains from these transformational efforts deliver sustainable growth in the year ahead.

Newell currently carries a Zacks Rank #3 (Hold) with VGM Score of A and expected long-term earnings growth rate of 6%. This further instils optimism in the stock’s potential.

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Celsius Holdings, Inc CELH has delivered an average positive earnings surprise of 33.3% in the last four quarters. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

General Mills, Inc GIS delivered an average positive earnings surprise of 10% in the trailing four quarters and has a Zacks Rank #2.

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