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Newell to Sell USPC Business, Transformation Plan on Track

Zacks Equity Research

Newell Brands Inc. NWL is smoothly progressing with the Accelerated Transformation Plan as is evident from some of its recent divestitures. This particular plan aims at offloading non-core businesses, which account for nearly 35% of total sales.

Recently, management agreed to divest the United States Playing Card Company (USPC) to Cartamundi Group — a leading playing cards and board games maker. Subject to customary closing conditions and regulatory approvals, the deal is expected to close during the second half of 2019. The USPC business, which generated sales of roughly $112 million in 2018, deals in manufacturing and distributing brands of playing cards. These brands include Bicycle, Aviator, Bee, Hoyle and Fournier.

This apart, the company has concluded divestitures of Process Solutions and Rexair businesses for total after-tax sales proceeds of about $735 billion. Earlier, it divested the Pure Fishing and Jostens businesses for gross proceeds of nearly $2.6 billion. In 2018, Newell generated more than $5 billion of after-tax proceeds from divestitures. It also remains on track to improve leverage by allocating divestiture proceeds to pay down debt besides making share repurchases. The company targets a leverage ratio of about 3.5x by the end of 2019.

Coming to Newell’s Transformation Plan, the key aspect of the plan is restructuring the company into a global consumer product entity, valued at more than $9 billion. The plan is expected to create value and transform the company into a simpler, faster and stronger consumer-focused portfolio of leading brands. In doing so, the company plans to utilize $10 billion after-tax proceeds from divestitures and free cash flow to lower debt and make share repurchase as well as retain its investment grade rating and an annual dividend of 92 cents per share through 2019, targeting 30-35% payout ratio.

The execution of the Transformation Plan will lead to simplification of the company’s operations, which is likely to cut its number of manufacturing facilities by 66%, distribution centers by 55%, brands by 45%, number of employees by 39% as well as reduce above 30 ERP systems to two by the end of 2019. Management will also focus on right-sizing the cost structure for anticipated smaller net sales, remove stranded corporate expenses and recover the synergies lost through the divestitures. Divestitures of underperforming and non-core assets are expected to reshape this Zacks Rank #3 (Hold) company’s portfolio and improve operational efficiency.

Price Performance

In the past three months, shares of Newell have lost 4.4% against the industry’s 6% growth.

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