Newell (NWL) Keen on Restructuring & Cost Savings: Stock to Gain
Newell Brands NWL has been well-placed to improve its performance with actions like restructuring efforts, accelerating productivity and efficiency, stringent cost-cutting plans, and leveraging e-commerce capabilities. These actions have positioned the stock for growth over the long term.
Restructuring Actions
Newell recently announced a restructuring and savings initiative, Project Phoenix, to be implemented by the end of 2023. The plan aims to reduce overhead costs, streamline its operating model, centralize supply-chain functions and increase efficiencies. Project Phoenix aims to simplify and strengthen the company, optimize costs and increase efficiency.
As part of this plan, the company closed three offices in the first quarter of 2023 and expects additional office closures throughout the upcoming years. It is on track to achieve the headcount reduction associated with Project Phoenix, along with the annualized pre-tax savings, of $220-$250 million when fully implemented.
After the implementation of the Project Phoenix plan, Newell is likely to realize annualized pre-tax savings of $220-$250 million, with $140-$160 million to be generated in 2023. Restructuring and related charges are estimated to be $100-$130 million and are likely to be incurred by the end of 2023. The plan will also result in the reduction of office positions by approximately 13%, starting from the first quarter of 2023, and is expected to be completed by the end of 2023.
Management also intends to reduce international dependence by moving to a One Newell go-to-market approach in key regions. It noted that the updated operating model would include three operating segments. Notably, the company will combine its Commercial Solutions, Home Appliances and Home Solutions segments to form one operating segment — Home & Commercial Solutions. Learning & Development, and Outdoor & Recreation will remain the company’s other two operating segments.
The move comes after the success of Project Ovid and is likely to drive significant margin improvement in the long term. The new restructuring initiative will also generate significant savings and help offset the impacts of macro-economic headwinds.
Productivity & Cost-Saving Efforts
Newell is undertaking significant actions to accelerate productivity and efficiency by accelerating fuel productivity plans, driving automation and fully implementing Project Ovid. The company is also evaluating opportunities to optimize the category mix within each business unit. Increased focus on revenue growth management, aggressive efforts to reduce SKU and supply network optimization bodes well.
Also, the company revealed stringent cost-cutting plans, such as right-sizing overhead costs based on the simplification agenda. Its efforts to right-size the manufacturing labor force across selected sites resulted in $50 million in annualized cost savings. The normalized gross margin expanded 170 bps year over year to 31.3% in third-quarter 2023, driven by gains from the fuel productivity program and pricing actions, particularly in the home and commercial space. Management expects record productivity savings in 2023 to drive year-over-year gross margin improvement in the fourth quarter.
Post the successful completion of the first phase of Project Ovid, NWL 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.
Digital Focus
Capitalizing on the shift to digital consumption, Newell continues to strengthen its e-commerce business via increased investments and better customer engagement. The company earlier launched buy online and pick up in stores, and ship from store services in its Yankee Candle retail stores, which have been doing well. Going forward, the company expects further digital penetration, driven by expanded omnichannel capabilities.
Headwinds in the Path
The ongoing challenges from the macroeconomic environment and elevated levels of core inflation, which have led to muted demand for discretionary and durable products, cannot be ignored. Normalization in category trends, tight inventory management and the unfavorable impact of the bankruptcy of Bed Bath & Beyond continue to act as deterrents.
The impacts of these headwinds are well-reflected in Newell’s share price. Shares of this Zacks Rank #3 (Hold) company have lost 31.2% in the past year compared with the industry’s decline of 23.1%. NWL also underperformed the sector’s decline of 6.8% and the S&P 500’s growth of 22.6% in the same period.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NWL’s 2023 sales and earnings suggests declines of 15.1% and 52.2%, respectively, from the year-ago reported numbers.
While these headwinds are likely to hurt the company’s performance in the near term, its restructuring and other plans place it well for long-term growth.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, such as e.l.f. Beauty ELF, Inter Parfums IPAR and Ollie's Bargain Outlet OLLI.
e.l.f. Beauty, operating as a cosmetic company, currently sports a Zacks Rank #1 (Strong Buy). Shares of ELF have rallied 16.4% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s current financial year’s sales and earnings per share suggests growth of 57.8% and 61.5%, respectively, from the year-ago reported figures. ELF has a trailing four-quarter earnings surprise of 90.1%, on average.
Inter Parfums, engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products, has a trailing four-quarter earnings surprise of 45.7%, on average. It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales and earnings suggests growth of 20.9% and 19.7%, respectively, from the prior-year actuals. IPAR shares have gained 1.7% in the past three months.
Ollie's is a value retailer of brand-name merchandise at drastically reduced prices. It currently carries a Zacks Rank #2. Shares of OLLI have declined 7.3% in the past three months.
The Zacks Consensus Estimate for OLLI’s current financial-year sales and earnings suggests growth of 14.8% and 72.8%, respectively, from the year-earlier reported figures. OLLI has a trailing four-quarter earnings surprise of 7.04%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Newell Brands Inc. (NWL) : Free Stock Analysis Report
Inter Parfums, Inc. (IPAR) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
e.l.f. Beauty (ELF) : Free Stock Analysis Report
