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Newell Brands (NWL) Q1 Earnings Beat Estimates, Sales Lag

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Newell Brands Inc. (NWL - Free Report) reported first-quarter 2020 results, wherein the bottom line beat the Zacks Consensus Estimate while sales missed the same. Further, both top and bottom lines declined year over year. Results gained from solid performance in the first two months of the first quarter along with operating margin growth stemming from an increased focus on productivity and enhanced cost savings. Also, initiatives related to working capital and robust operating cash flow contributed to quarterly results. However, with the onset of the COVID-19 pandemic, it witnessed a significant slowdown in March.

Despite a strong first quarter, the company anticipates the second quarter to remain challenging. That said, continued strength in the Food and Commercial business and a positive sales trend in the Appliances & Cookware business in the United States are likely to aid second-quarter results. However, Newell Brands withdrew its 2020 outlook due to uncertain COVID-19 impacts such as supply-chain disruptions, soft demand and macroeconomic headwinds.

This might have hurt investors’ sentiments. We note that shares of this Zacks Rank #4 (Sell) company have declined 29.6% in the past three months against the industry’s 0.3% growth.



Q1 Highlights

Newell’s first-quarter normalized earnings per share were 9 cents, which outpaced the Zacks Consensus Estimate of 6 cents. However, the metric fell 25% from 12 cents earned in the year-ago period.

Net sales declined 7.6% year over year to $1,886 million but missed the Zacks Consensus Estimate of $1,910 million. The year-over-year fall resulted from foreign-currency headwinds and soft core sales, which dropped 5.1%.

Normalized gross margin expanded 60 basis points (bps) to 32.7%, driven by improvements in productivity and favorable pricing, which more than offset headwinds related to tariffs, inflation and mix. However, normalized operating margin contracted 10 bps at 6% in the quarter under review.

Segmental Performance

The Learning & Development segment (including Writing and Baby) recorded net sales of $528 million in the first quarter, down 9.1% from the prior-year number. The downside can be attributable to the segment’s core sales decline of 5.5% and unfavorable foreign currency. Sluggishness in Writing, which more than offset the improvement at the Baby business, led to the decline in core sales.

Net sales at the Home & Outdoor Living segment (including Outdoor & Recreation, Home Fragrance, and Connected Home & Security) totaled $547 million, declining 12.8% from the prior-year period. The segment’s top line was hurt by unfavorable currency, the exit of about 44 underperforming Yankee Candle retail outlets in the quarter under review and an 11.3% decline in core sales. Core sales were hurt by temporary store closures in North America since mid-March, stemming from the COVID-19 situation and weakness in the Home Fragrance, Outdoor & Recreation and Connected Home & Security businesses.

The Appliances & Cookware segment recorded net sales of $291 million, which fell 11.8% from the prior-year number. This resulted from an 8.5% decline in core sales and currency headwinds.

Net sales at the Food & Commercial segment were $520 million, which grew 3.2% on core sales growth of 5.2%, somewhat offset by adverse currency. Further, it witnessed a positive core sales trend at the Food and Commercial business unit.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $476 million, long-term debt of $5,375 million and shareholders’ equity of $3,479 million, excluding non-controlling interests of $25 million.

During the quarter, the company generated operating cash flow of $23 million.

Updates on COVID-19

Although the first quarter started on a solid note, the company has been witnessing significant supply-chain disruptions related to COVID-19 starting March. To this end, roughly 20 manufacturing and distribution centers remain closed, with those at South Deerfield, MA, and Mexicali, Mexico, closing by late March and mid-April, respectively, following government restrictions. Out of this, the Mexicali facility has resumed operations with limited hours.

Further, the company is seeing sales growth in a few categories, stemming from the ongoing crisis. Meanwhile, stores in the specialty and department channel remain closed. Also, it shuttered Yankee Candle retail stores in North America since mid-March. This reflects that consumer preference has shifted to certain products, owing to which the company’s Food and Commercial segment is benefiting.

This change in dynamics has hurt sales in April and May, to some extent. The company envisions the negative trend to continue in the second quarter. To this end, sales in the aforementioned quarter are anticipated to decline nearly 25%. However, management expects to recover in the second half of 2020.

Keeping in these lines, management remains poised on strengthening its cash balance and also working toward operating some of its manufacturing facilities and distribution centers in order to provide essential products to customers. Apart from this, it furloughed 5,000 employees, reduced spending related to advertising and promotions, and suspended recruitments for non-essential roles.

Newell Brands Inc. Price, Consensus and EPS Surprise

Some Better-Ranked Consumer Staples Stocks

Kimberly-Clark Corporation (KMB - Free Report) has a long-term earnings growth rate of 5% and a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands (CAG - Free Report) has a long-term earnings growth rate of 7% and a Zacks Rank #2.

Campbell Soup Company (CPB - Free Report) has a long-term earnings growth rate of 7.2% and a Zacks Rank #2.

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