Newell (NWL) Earnings and Sales Surpass Estimates in Q2
Newell Brands Inc. NWL has reported second-quarter 2023 results, wherein earnings and sales beat the Zacks Consensus Estimate. However, both metrics declined year over year. Results have been hurt by the challenging macroeconomic environment and elevated levels of core inflation. That said, the company is on track with its One Newell approach.
In the past three months, shares of the Zacks Rank #5 (Strong Sell) have lost 5.2% compared with the industry’s 8.2% decline.
Q2 Details
The company’s earnings were 24 cents per share in the second quarter, down 57% from the prior-year quarter’s earnings of 56 cents. However, the metric beat the Zacks Consensus Estimate of 13 cents.
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Net sales declined 13% year over year to $2,204 million but beat the Zacks Consensus Estimate of $2,149 million. This includes the adverse impacts of the sale of the Connected Home & Security (CH&S) business. Also, core sales fell 12% year over year.
The normalized gross margin contracted 320 bps year over year to 29.9%. The normalized operating margin contracted 490 bps year over year to 9.1% in the reported quarter.
Segmental Details
Net sales in the Home & Commercial Solutions segment were $1,058 billion in the second quarter, down 8.3% from the prior-year period. The metric missed the consensus mark of $1,084 million. Core sales declined 13.1% year over year, with sluggishness in all three businesses — Kitchen, Home Fragrance and Commercial. On the flip side, unfavorable foreign currency and certain category exits acted as deterrents.
The Learning and Development segment recorded net sales of $813 million, which declined 6% from the prior-year quarter. The metric beat the consensus mark of $699.5 million. The downtrend was led by a 5.7% decrease in core sales, with a decline in the Baby business, which more than offset growth in the Writing business. Adverse currency rates also affected the segment’s sales in the quarter.
The Outdoor and Recreation segment’s net sales of $333 million declined 22% from the prior-year quarter. Also, the metric lagged the consensus mark of $359.9 million. This along with a core sales decline of 21% and foreign-exchange headwinds acted as deterrents.
Other Financial Details
Newell Brands ended the quarter with cash and cash equivalents of $317 million, long-term debt of $4,753 million, net debt outstanding of $5 billion, and shareholders’ equity of $3,315 million. NWL also provided $277 million in cash for operating activities in the six months ending Jun 30.
Outlook
Management has revised its guidance for 2023 and issued one for the third quarter. The company anticipates 2023 sales of $8.2-$8.34, down from the earlier mentioned $8.4-$8.6 billion. Core sales are expected to decline 12-10%, down from the prior stated 8-6%. The normalized operating margin is expected to be 7.8-8.2%, down from the previously communicated 9.6-10.1%. Normalized earnings per share are forecast to be 80-90 cents, down from 95 cents to $1.08 mentioned earlier.
For 2023, the company envisions an operating cash flow of $700-$900 million. This includes $95-$120 million in cash related to Project Phoenix.
For third-quarter 2023, net sales are envisioned to be $2.11-$2.16 billion, with a core sales decline of 7-5%. For the quarter, the company expects a normalized operating margin of 8.5-9.4% and a bottom line of 20-24 cents per share.
Newell Brands Inc. Price, Consensus and EPS Surprise
Newell Brands Inc. price-consensus-eps-surprise-chart | Newell Brands Inc. Quote
Business Development
NWL announced a restructuring and savings initiative, namely Project Phoenix, in January 2023 to strengthen the company by streamlining its operating model and driving operational efficiencies.
Following the implementation of Project Phoenix by the end of 2023, the company expects to realize annualized pre-tax savings of $220-$250 million, with $140-$160 million expected to be realized in 2023. Restructuring charges related to this plan are estimated to be $100-$130 million and are expected to be incurred by the end of 2023.
This restructuring plan is expected to result in the elimination of 13% of office positions. The company has begun reducing headcount from the first quarter of 2023, and is expected to complete it by the end of 2023.
Post the successful completion of the first phase of Project Ovid, the company announced the Network Optimization Project, which aims to simplify and streamline its North America distribution network, in second-quarter 2023. The initiative is expected to be implemented by the end of 2024.
The company expects to realize annual pre-tax savings of $25-$35 million post implementation. Restructuring related to the Network Optimization Project are estimated to be $37-$49 million and are likely to be incurred by the end of 2024. The company also expects to incur $30-$40 million in capital expenditure from this project. In second-quarter 2023, the company incurred restructuring and related charges of $9 million from the Network Optimization Project.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely TreeHouse Foods THS, Celsius Holdings CELH and Associated British Foods ASBFY.
TreeHouse Foods, a manufacturer of packaged foods and beverages, currently sports a Zacks Rank #1 (Strong Buy). THS has a trailing four-quarter earnings surprise of 49.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TreeHouse Foods’ current financial-year sales suggests a decline of 12.4% from the year-ago reported numbers.
Associated British Foods is a diversified international food, ingredients and retail group, which currently flaunts a Zacks Rank #1. ASBFY’s expected EPS growth rate for three to five years is 7%.
The Zacks Consensus Estimate for Associated British Foods’ current financial-year sales and earnings suggests growth of 30.4% and 4.2%, respectively, from the year-ago reported figures.
Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.
The Zacks Consensus Estimate for CELH’s current financial-year sales indicates 67.9% growth from the year-ago reported figure, and the same for EPS implies a 154% rise. The company saw an earnings surprise of 81.8% in the last reported quarter.
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Newell Brands Inc. (NWL) : Free Stock Analysis Report
TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
Associated British Foods PLC (ASBFY) : Free Stock Analysis Report
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
