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Newell: Game Plan in Action, Inks Deal to Sell Tools Brands

Zacks

The Sharpie producer, Newell Brands Inc. NWL made a series of announcements last week with regard to a strategic business review performed after its acquisition of Jarden Corp. As part of the review, the company had revealed intentions to sell nearly 10% of its current portfolio, including a major chunk of its Tools segment.

Progressing along those lines, Newell inked a definite deal to sell its Irwin, Lenox and Hilmor brands of the Tools segment, to Stanley Black & Decker Inc. SWK. This deal, anticipated to conclude in the first half of 2017, is expected to generate gross proceeds of about $1.95 billion that will be utilized to repay the company’s debt. This, in turn, will take Newell closer to its leverage ratio target of 3−3.5 times EBITDA, by the end of 2018.

The units that are put up for sale generated net sales of roughly $760 million over the last 12 months, thus contributing decently to the company’s overall results. However, management at Newell believes that its Tools business is likely to benefit more by being part of Stanley Black, which is one of the international leaders in that space. Nonetheless, the company decided to retain its Dymo Industrial labeling business (of the Tools segment) within its portfolio.

Apart from Irwin, Lenox and Hilmor, Newell had unveiled plans to divest many other businesses, including the Outdoor Solutions Segment’s Winter Sports businesses; the Heaters, Humidifiers, and Fans operations within the Consumer Solutions Segment; and the Home Solutions Segment’s Consumer Storage Container unit. These divisions generated sales worth approximately $700 million in 2015.

Notably, all these divestitures constitute nearly $100 million of the company’s previously announced plan of exiting product lines with annual sales of $200−$300 million across its combined business with Jarden, over the next two to three years.

Further, the divestiture forms part of Newell’s new growth game plan of transforming into an operating company, from a holding company – with fresh investment plans and new ideas for its combined portfolio with Jarden. Accordingly, Newell had announced plans to make its operating structure simpler, by reducing its existing 32 business units by exactly half – thereby creating 16 operating divisions. This will also include the establishment of an all-new e-commerce unit that operates internationally.

This underscores Newell’s efforts toward keeping pace with the evolving consumer environment, where digital and physical stores go hand in hand. Also, these changes reflect the company’s focus on simplifying its operating structure, alongside highlighting its commitment toward making prudent investments in areas with higher growth potential.

Incidentally, following these divestitures, this Zacks Rank #2 (Buy) company will align its resources to more profitable areas like Writing, Home Fragrance, Baby, Food Storage & Preparation, Appliances & Cookware, and Outdoor & Recreation. This in turn is likely to position the company for a better future with stronger prospects.

Management had earlier stated that these changes will not have any material impact on Newell’s core sales or normalized earnings per share (EPS) outlook for 2016. However, the company now expects normalized EPS dilution of roughly 15 cents on an annualized basis, if the aforementioned Tools segment brands are divested by Dec 31, 2016. Otherwise, the company maintained its core sales growth outlook of 3–4% for 2016, while normalized EPS for the same time period is expected in the range of $2.75–$2.90.

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Other Stocks to Consider

Investors can also count on other well-ranked consumer stocks like Tupperware Brands Corporation TUP and Ollie's Bargain Outlet Holdings, Inc. OLLI, each with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ollie's Bargain has to its credit a spectacular earnings trend as the company has delivered a positive earnings surprise over the past four quarters. Moreover, its long-term EPS growth rate of 20.2% and positive estimate revisions over the past 60 days help it stand strong against the industry.

Tupperware, with a long-term EPS growth rate of 11%, has delivered back-to-back positive earnings surprises in the last two quarters.

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