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Newell (NWL) Misses Q3 Earnings & Sales, Lowers '17 Outlook

Newell Brands Inc. NWL reported third-quarter 2017 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. Moreover, the company’s top line declined year over year. Consequently, management lowered its outlook for 2017.

Consequently, Newell’s shares declined 10.5% in the pre-market trading session. The stock was down 39.1% in the last three months, wider than the industry’s decline of 9%.



Results were below the company’s expectations and were hurt by soft late-quarter sales with respect to retailer inventory rebalancing, mainly related to the decelerated market growth, in the United States through the Back-to-School period. As a result, markets were weaker across various categories.

Q3 Highlights

Newell’s normalized earnings of 86 cents per share missed the Zacks Consensus Estimate of 92 cents in the third quarter but improved 10.3% year over year from 78 cents in the prior-year quarter. The year-over-year growth was driven by modest core sales improvement, the ongoing cost savings and related synergies, Project Renewal, acquisitions along with a more favorable tax rate. However, these were somewhat mitigated by the lost earnings from divested businesses, adverse product mix, commodity cost inflation, higher advertising, promotion and e-commerce investment coupled with a greater share count.

On a reported basis, including one-time items, the company recorded earnings of 48 cents per share compared with 38 cents a year ago.

Newell Brands Inc. Price, Consensus and EPS Surprise

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

Net sales dropped 7% to $3,678.2 million in the quarter, also missing the Zacks Consensus Estimate of $3,702 million. This represents a net adverse impact of 770 basis points (bps) from acquisitions and divestitures.

Core sales increased 0.4%, driven by solid performance by Baby and Food businesses within the Live segment, Waddington as well as Consumer and Commercial business within the Work segment, Team Sports and Fishing in the Play segment.

Segmental Performance
 
Live net sales increased 2.3% year over year to $1483.3 million while core sales improved 0.6%. The uptick was backed by solid results in the Baby and Food businesses, substantially offset by soft results from Appliances and Cookware.

Net sales in the Learn segment edged up 0.7% to $642 million while core sales were up 0.5%, on the back of modest improvement in all its divisions.

Work net sales rose 1.6% to $738 million while core sales improved 1.9%, owing to persistent growth on Waddington as well as robust results from the Consumer and Commercial business.

Sales at the Play segment increased 2.4% to $611 million while core sales advanced 2.3%, driven by growth across all the divisions along with solid growth in Team Sports and Fishing.

Net sales at the Other segment plunged 62.4% to $204 million, primarily due to the divestitures of the Tools, Winter Sports, Fire Starter as well as Fire Log and Cordage businesses. Further, core sales decreased 10.6% owing to soft Process Solutions business.

Margins

Newell’s normalized gross margin contracted 100 bps to 35% as cost synergies and savings gains were more than negated by adverse mix as well as higher commodity cost inflation.

Normalized operating income fell roughly 9.5% to $551 million. Normalized operating income margin also declined 40 bps to 15%. Gains from synergies and Project Renewal savings were higher than compensated with the absence of earnings related to divested businesses, commodity cost inflation, adverse product mix and increased advertising, promotion and e-commerce investment.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $792.3, long-term debt of $10,184.4 million and total shareholders’ equity of $12,770 million. In the nine months of 2017, the company used $58 million cash in operating activities.

Further, operating cash flow was $183 million in the quarter versus $513 million in the last year.

Additionally, the company’s board of directors has approved a share buyback plan in addition to the existing share repurchase program. Under the revised plan, Newell is authorized to buyback up to $1 billion of its outstanding shares through 2020-end. Still the company had $256 million left under its current $500 million share buyback plan. Earlier, the existing plan was expected to expire at the end of 2017 but now it is extended through the end of 2020.

Outlook

Newell is on track to attain its transformation initiatives. In fact, market share gains, point of sale growth, innovation, e-commerce improvement, along with cost-savings plans are expected to drive growth. Further, it continued to obtain cost synergies as anticipated, with an additional $86 million in the quarter.

However, management trimmed its guidance for 2017. Newell now expects normalized earnings per share in the range of $2.80-$2.85, down from $2.95-$3.05, projected earlier. In September, the company had trimmed its earnings guidance for 2017 on increased inflationary pressure due to low resins’ supply owing to impacts from the Hurricane Harvey.

Further, the company expects net sales for 2017 in the band of $14.7-$14.8 billion, reflecting 11.3-11.8% improvement from prior-year quarter. Moreover, core sales growth is anticipated in a range of 1.5-2%. However, the company had earlier maintained its net sales and core sales guidance. Newell Brands anticipated net sales for 2017 in the range of $14.8-$15 billion, reflecting 11.5-13% growth. Also, it forecasted core sales growth in a range of 2.5-4%.

Zacks Rank & Key Picks

Newell Brands has a Zacks Rank #4 (Sell). Better-ranked stocks in the broader Consumer Staples sector include Energizer Holdings, Inc. ENR, The Estee Lauder Companies Inc. EL and Constellation Brands, Inc. STZ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Energizer, with a long-term earnings growth rate of 9.9%, has delivered an average positive earnings surprise of 23% in the past four quarters.

Estee Lauder, with a long-term earnings growth rate of 12.1%, has pulled off an average positive earnings surprise of 13.7% in the trailing four quarters.

Constellation Brands, with a long-term earnings growth rate of 14.8%, has come up with an average positive earnings surprise of 13.6% in the last four quarters.

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