Newell (NWL) Earnings Surpass Estimates in Q3, Sales Dip Y/Y
Newell Brands Inc. NWL has reported third-quarter 2023 results, wherein earnings beat the Zacks Consensus Estimate, while sales missed the same. Also, both metrics declined year over year. Results have been hurt by the challenging macroeconomic environment and elevated levels of inflation. That said, the company is on track with its One Newell approach.
In the past three months, shares of the Zacks Rank #3 (Hold) company have lost 33.1% compared with the industry’s 20.9% decline.
Q3 Details
The company’s earnings were 39 cents per share in the third quarter, down 22% from the prior-year quarter’s earnings of 50 cents per share. However, the metric beat the Zacks Consensus Estimate of earnings of 23 cents per share.
Net sales declined 9.1% year over year to $2,048 million and missed the consensus estimate of $2,127 million on lower core sales and a slight impact of category exits. This was somewhat offset by positive currency impacts. Also, core sales fell 9.2% year over year.
Newell Brands Inc. Price, Consensus and EPS Surprise
Newell Brands Inc. price-consensus-eps-surprise-chart | Newell Brands Inc. Quote
The normalized gross margin expanded 170 bps year over year to 31.3%. The normalized operating margin contracted 220 bps year over year to 8.2% in the reported quarter.
Segmental Details
Net sales in the Home & Commercial Solutions segment were $1,123 billion in the third quarter, down 7.3% from the prior-year period. The metric missed the consensus mark of $1,146 million. Core sales declined 7.1% year over year, with sluggishness in all three businesses, Kitchen, Home Fragrance and Commercial. Also, the impacts of certain category exits acted as deterrents.
The Learning and Development segment recorded net sales of $694 million, which declined 7.6% from the prior-year quarter. The metric beat the consensus mark of $680.9 million. The downtrend was led by an 8.1% decrease in core sales with a decline in the Writing and Baby businesses.
The Outdoor and Recreation segment’s net sales of $231 million declined 20.1% from the prior-year quarter. Also, the metric lagged the consensus mark of $283.4 million. Also, core sales declined 20.9% in the quarter.
Other Financial Details
Newell Brands ended the quarter with cash and cash equivalents of $396 million, long-term debt of $4,737 million, net debt outstanding of $4.7 billion and shareholders’ equity of $3,126 million.
NWL also provided $679 million in cash for operating activities in the nine months ending Sep 30.
Outlook
Management has revised its guidance for 2023 and issued the view for the fourth quarter. The company anticipates 2023 sales to be $8.02-$8.09 billion, down from the earlier mentioned $8.2-$8.34 billion. Core sales are expected to decline 13%, down from the prior stated 12-10%. The normalized operating margin is expected to be 7-7.3%, down from the previously communicated 7.8-8.2%. Normalized earnings per share (EPS) are forecast to be 72-77 cents, down from 80-90 cents mentioned earlier.
For 2023, the company envisions an operating cash flow of $800-$900 million. This includes $95-$120 million in cash related to Project Phoenix.
For fourth-quarter 2023, net sales are envisioned to be $1.96-$2.03 billion, with a core sales decline of 14-11%. For the quarter, the company expects a normalized operating margin of 7.8-8.8% and a bottom line of 15-20 cents per share.
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 will likely 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 American distribution network. 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 the implementation. Restructuring costs 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. Year to date through the reported quarter, the company incurred restructuring and related charges of $17 million from the Network Optimization Project.
Stocks to Consider
Lamb Weston LW, which offers frozen potato products, currently sports a Zacks Rank #1 (Strong Buy). LW delivered an earnings surprise of 49.5% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and EPS suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.
The Kraft Heinz Company KHC, a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 1.9% from the year-ago reported figure.
The J. M. Smucker Company SJM, a branded food and beverage products company, currently carries a Zacks Rank of 2. SJM has a trailing four-quarter earnings surprise of 7.3%, on average.
The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year EPS suggests growth of 8.9% from the year-ago reported figure.
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Newell Brands Inc. (NWL) : Free Stock Analysis Report
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Lamb Weston (LW) : Free Stock Analysis Report
