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Newell (NWL) Earnings & Sales Outperform Estimates in Q1

Zacks Equity Research

Newell Brands Inc. NWL delivered better-than-expected results in first-quarter 2019. However, both the metrics declined year over year.

Q1 Highlights

Newell came up with normalized earnings per share of 14 cents, which significantly outpaced the Zacks Consensus Estimate of 6 cents. However, it plunged 50% from 28 cents earned in the year-ago period.

Net sales declined 5.5% to $1,712.1 million from the year-earlier figure but outshined the Zacks Consensus Estimate of $1,692 million. The year-over-year fall can mainly be attributed to foreign currency headwinds and soft core sales, which dipped 2.4%.

Newell Brands Inc. Price, Consensus and EPS Surprise

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

Normalized gross margin contracted 140 basis points (bps) to 31.9%. However, normalized operating margin improved 180 bps to 4.3% in the quarter under review, driven by this Zacks Rank #3 (Hold) company’s cost-containment efforts.

Segmental Performance

The Learning & Development segment (inclusive of Writing and Baby) recorded net sales of $581 million, which decreased 4.3% from the prior-year number. Unfavorable currency and core sales slipped 1.5%, due to a decline in Baby division induced by the bankruptcy of Toys “R” Us. However, this downside was largely mitigatedby the segment’s Writing division core sales growth.

The Food & Appliances segment’s (Appliances & Cookware Food) net sales slid 5.6% to $504 million. This downtrend can be attributed to negative currency translations and a deterioration of 2.7% in core sales, mainly due to lower promotional activity.

Net sales at the Home & Outdoor Living segment (Outdoor & Recreation, Home Fragrance and Connected Home & Security) totaled $627 million, down 6.4% from the prior-year period. The segment’s top line was hurt by unfavorable currency, core sales decline of 2.9% and the exit of about 60 underperforming Yankee Candle retail outlets.

Other Developments

Newell has made a substantial progress in its Accelerated Transformation Plan announced last January. Also, it has been improving its operational performance through the divestiture of non-core businesses, deleveraging balance sheet and returning cash to its shareholders.

As part of this advancement, the company has concluded divestments of Process Solutions and Rexair businesses for total after-tax sales proceeds of about $735 billion. Further, Newell deployed $97.7 million to pay off dividends in the first quarter.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $364.1 million, long-term debt of $6,694.6 million and shareholders’ equity of $4,948.4 million excluding non-controlling interests of $34.7 million.

During first-quarter 2019, the company used operating cash flow of $200 million compared with $402 million in the comparable quarter last year.

Management issued guidance for the second quarter and reaffirmed its view for 2019. For 2019, net sales are retained at $8.2-$8.4 billion along with a core sales decline in low single digits. Further, the company anticipates normalized operating margin to expand 20-60 bps. Operating cash flows are projected to be $300-$500 million during the same time frame. Normalized earnings per share are envisioned in the band of $1.50-$1.65 for the year.

For second-quarter 2019, Newell estimates net sales of $2.1-$2.15 billion along with core sales of flat to down 2%. It also anticipates normalized operating margin in the range of flat to down 60 bps. Normalized earnings per share are forecast within 34-38 cents for the quarter.

Price Performance

Shares of the company dropped 32.6% in the past three months against the industry’s 6.5% growth.

Three Better-Ranked Consumer Staples Stocks

General Mills, Inc. GIS pulled off a positive surprise in each of the trailing four quarters, the average being 11.1%. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Simply Good Foods Company SMPL delivered average beat of 4.3% in the last four quarters and has a Zacks Rank of 2.

Lamb Weston Holdings, Inc. LW, also a Zacks #2 Ranked player, has an expected long-term earnings growth rate of 12.4%.

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