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Newell (NWL) Tops Q2 Earnings & Sales, Raises Top-Line View

Zacks

Newell Brands Inc. NWL reported second-quarter 2017 results, wherein both the top and bottom lines surpassed estimates and improved year over year. Further, the company raised sales guidance for 2017, while retaining other forecasts for the year.

Newell’s shares did not reflect much impetus related to the robust second-quarter results in the pre-market trading session. Overall, Newell has grown 13.3% in the last three months, against the industry’s decline of 2.8%.



Newell’s normalized earnings of 87 cents a share in the second quarter came ahead of the Zacks Consensus Estimate of 86 cents, and grew 11.5% year over year from 78 cents in the prior-year quarter. Growth was driven by improved sales and operating profitability, partly negated by higher shares outstanding. Further, results gained from the company’s ongoing cost savings and related synergies.

Newell Brands Inc. Price, Consensus and EPS Surprise


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

On a reported basis, including one-time items, the company recorded earnings of 46 cents per share, compared with prior-year earnings of 30 cents. Earnings benefited from core sales growth, Project Renewal savings, cost synergies, the lack of negative inventory acceleration impact associated with the Jarden acquisition (acquired in Apr 2016) and contributions from acquisitions.

Net sales advanced 5.1% to $4,054.6 million in the quarter, also surpassing the Zacks Consensus Estimate of $3,959 million. The increase in sales can mainly be attributed to solid core sales growth, full-quarter contributions from Jarden, and the Sistema and WoodWick buys. However, this was partly offset by the sale of the company’s Tools, Decor, Fire Starter and Fire Log, Teutonia and Cordage businesses.

Core sales jumped 2.5%, driven by solid performance by Baby within the Live segment; Writing within the Learn segment; Work segment’s Waddington; Team Sports in the Play segment. Further, the company witnessed core sales growth in all four regions.

Segmental Performance

Live net sales increased 13.8% year over year to $1277.6 million, while pro forma core sales increased 0.2%. The increase was backed by solid results in the Baby, Appliances and Home Fragrance businesses, offset by softness in Cookware and Fresh Preserving.

Net sales in the Learn segment advanced 10.9% to $1,011.4 million, while pro forma core sales were up 6.6% driven by strength in Writing category.

Work net sales surged 14.1% to $737.7 million, while pro forma core sales improved 6.3% mainly due to broad-based growth across all divisions, led by Waddington.

Sales for the Play segment increased 14.2% to $782 million, with pro forma core sales dipped 1.2%. The decline is accountable to fall in Fishing related to broad retail inventory destocking across specialty and mass retailers, alongside the negative impact of a key retail customer bankruptcy. This was partly mitigated by strength in Beverages, Coolers and Team Sports.

Net sales for the Other segment declined 50% to $245.9 million on the back of the sale of Tools, Decor, Fire Starter and Fire Log, and Cordage businesses. Pro forma core sales dipped 2.1% as weak Home & Family results overshadowed the modest improvement in Process Solutions.

Margins

Newell’s normalized gross margin contracted 20 basis points (bps) to 37% as cost synergies and savings gains were more than negated by adverse mix effects of the Jarden acquisition and the sale of Tools business.

Normalized operating income soared roughly 13.8% to $692 million. Normalized operating income margin expanded 130 bps to 17.1%. Apart from the aforementioned gross margin factors, cost synergies and Project Renewal savings to overheads benefited operating margins. However, this was offset by higher investments related to eCommerce, brand development and insights.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $780.2, long-term debt of $10,172.8 million, and shareholders’ equity of $12,244.4 million. In first-half 2017, the company used $241 million cash in operating activities.

Other Developments

As part of its strategy to accelerate growth by simplifying and strengthening its portfolio, Archer Daniels concluded the sale of its Winter Sports business to ohlberg & Company, L.L.C, in Jul 2017. As part of the sale, it divested brands including Völkl, K2, Marker, Dalbello, Madshus, Line, Full Tilt, Atlas, Tubbs, Ride and BCA. The company had agreed to gross proceeds of$240 million from the sale.

Outlook

Looking ahead, management expects core sales to expand in the second half backed by new distribution gains, a strong pipeline of innovations in the second-half and sustained double digit growth in eCommerce. Further, the company remains confident of opportunities to create long-term value to deliver solid growth and margin expansion. Moreover, the company anticipates strong operating cash flows that will aid in delivering its leverage ratio targets ahead of time.

That said, the company raised its sales guidance for 2017, while keeping the other forecasts intact.

Newell now expects net sales for 2017 in the range of $14.8–$15 billion, reflecting 11.5–13% growth from $13.26 billion reported in 2016. Earlier, the company had forecasted sales of $14.52–$14.72 billion, reflecting 9.5–11% year over year growth. The revised net sales forecast is based on the timing of divestitures and foreign currency effects.

However, the company continues to anticipate core sales growth in a range of 2.5–4%. Normalized earnings per share are expected in the range of $3.00– $3.20. The company expects full year tax rate in the range of 22–23%, due to a one-time very low tax rate anticipated in third-quarter 2017.

Stocks to Consider

Newell Brands currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Ollie's Bargain Outlet Holdings Inc. OLLI, Energizer Holdings Inc. ENR and WD-40 Company WDFC, all three carrying a Zacks Rank #2 (Buy). 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 history with an average positive earnings surprise of 14.6% in the trailing four quarters and long-term EPS growth rate of 19%.

Energizer, with a long-term EPS growth rate of 10.1%, has delivered an average positive earnings surprise of 23% in the past four quarters.

WD-40 Company, with a long-term EPS growth rate of 10%, has delivered an average positive surprise of 5.9% in the trailing four quarters.

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