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Harvey Hurts Newell (NWL) Stock, Long-Term Potential Intact

Zacks

Newell Brands Inc. NWL has been in investors’ good books owing to its solid earnings surprise history, robust top lines, Project Renewal savings, portfolio management initiatives, innovations and sturdy e-Commerce. Further, the stock is supported by a long-term earnings growth rate of 11.9% and a VGM Score of B, which justifies its growth prospects. These factors have aided the company to retain a Zacks Rank #3 (Hold).

Harvey to Erode Profits – Guidance Trimmed

However, the company’s stock performance recently witnessed a setback due to the impact of Hurricane Harvey, which resulted in lower resin supplies. The effects of Harvey significantly disrupted huge parts of the United States’ resin manufacturing supply chain, significantly raising operating costs. Further, management stated that most of the resin suppliers along with facilities in Texas and Louisiana have declared force majeure, since Harvey’s landfall on Aug 25. In fact, many of these facilities remained closed for more than a week.

Evidently, the devastating effects of Harvey have weighed upon the company’s third quarter. Further, these resin supply issues and increased inflation is likely to persist through the rest of 2017 and in 2018. Consequently, the company trimmed earnings guidance for 2017. It now envisions normalized earnings in the band of $2.95-$3.05 per share versus $3.00-$3.20 projected earlier.

Stock Suffers

Notably, shares of this global manufacturer and marketer of consumer and commercial products declined 12.1% in the past month, underperforming the industry’s fall of 4.5%. Looking closer, the company’s stock fell 6.4% since lowering earnings view on Sep 6.



Newell Making Efforts to Revive Supplies

Nonetheless, Newell Brands is working together with its global suppliers to discover other sources of resin, though this action exceeds the pre-determined costs targets, substantially. Going forward, the company is also likely to continue investing in strategic capacities and brands to aid market share growth, albeit witnessing temporary margin contractions in comparison with 2017 plan.

Long-Term Strategies Still Look Promising

Portfolio Management: As part of Growth Game Plan, Newell remains not only focused on simplifying operating structure, but also making prudent investments in areas with higher growth potential. In first-quarter 2017, the company made significant progress strengthening portfolio by completing six transactions in and just after the end of the quarter. The company completed two acquisitions including the Sistema food storage business and the WoodWick fragranced candles business, while divesting four businesses, namely tools, consumer storage totes, fire building and fire starting, and the rope and chain business.

Further, the company has an agreement in place to divest Teutonia, its central European baby gear business. Notably, the company is on track with its 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.
Most recently, the company agreed to acquire Chesapeake Bay Candle in a deal worth $75 million. The transaction is expected to close in fourth-quarter 2017 and will enhance its candles business.

Project Renewal Program: Newell’s Project Renewal Program remains on track, and it expects annual cost savings from this program to achieve $700 million by 2017 end or 2018 beginning. The company intends to use a major portion of the savings to accelerate growth by investing the same in business, while the remaining cost savings are expected to reflect in earnings. Evidently, the company delivered more than $80 million of incremental cost savings in the most recent quarter, which reflects year-to-date savings of $198 million. Notably, it remains on track to generate over $300 million savings for the year.

Bottom Line

Despite the headwinds concerning resin supply, Newell is expected to continue delivering growth on the back of savings and acquisition related initiatives. Management also anticipates boosting performance in the second half backed by new distribution gains, a strong pipeline of innovations and e-Commerce strength.

Looking for More Promising Stocks? Check these

Better-ranked stocks in the Consumer Staples space include The Boston Beer Co. Inc. SAM, Diageo PLC DEO and Sanderson Farms, Inc. SAFM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer has improved 9.4% in the last three months. Further, the company has delivered an average positive earnings surprise of nearly 50% in the trailing four quarters.

Diageo has a Momentum Score of B. Further, the stock has returned 31.5% year to date.

Sanderson Farms has surged a whopping 59.6% year to date. Also, the company has delivered an average positive earnings surprise of 14% in the trailing four quarters.

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