Newell Brands Inc. NWL posted better-than-expected fourth-quarter 2020 results, wherein both bottom and top lines improved year over year. Despite the challenging economic situation surrounding the coronavirus outbreak, results gained from solid sales growth, driven by robust consumption patterns, improved margins and a strong cash flow. Notably, strength in Food, Commercial and Appliances & Cookware businesses offset sluggishness in the Writing unit stemming from the pandemic-led stay-at-home trend.
Going ahead, management foresees healthy demand in a few high-growth categories. Also, it is on track with product innovation in sync with the changing consumer trends, increased investments in omnichannel capabilities and sustaining top-line momentum.
Consequently, this Zacks Rank #3 (Hold) stock gained 32% in the past three months, outperforming the industry’s 10.2% growth. However, shares of Newell Brands fell more than 3% during the close of the trading session on Feb 12.
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Q4 Highlights
Newell Brands’ fourth-quarter normalized earnings per share were 56 cents, which outpaced the Zacks Consensus Estimate of 48 cents. However, the metric advanced 33.3% from 42 cents earned in the year-ago period.
Net sales grew 2.5% year over year to $2,689 million and surpassed the Zacks Consensus Estimate of $2,635 million. The uptick can be attributable to solid core sales to the tune of 4.9% as the majority of business units and all regions witnessed core sales growth. On the flip side, unfavorable currency along with store closures and divestitures remained headwinds.
Normalized gross margin contracted 60 basis points (bps) to 32.9% due to the adverse impacts of business unit mix. Meanwhile, normalized operating margin expanded 10 bps to 11.4% year over year.
Segment Details
The Appliances & Cookware segment (including Writing and Baby) recorded net sales of $577 million in the fourth quarter, up 1.2% from the prior-year quarter. This is mainly due to the segment’s core sales growth of 4.2%, which more than offset unfavorable foreign currency.
Net sales in the Home & Outdoor Living segment (including Outdoor & Recreation, Home Fragrance, and Connected Home & Security) totaled $695 million, up 7.3% from the prior-year period. The segment’s top line was aided by favorable currency impacts and core sales growth of 12.4%. This was somewhat offset by the exit of 77 underperforming Yankee Candle retail stores in 2020. Also, both Food and Home Fragrance businesses witnessed core sales growth.
The Learnings and Development segment recorded net sales of $670 million, which fell 4.6% from the prior-year quarter. This resulted from a 2.2% decline in core sales stemming from divestitures, which more than offset the positive impact from foreign currency.
Net sales in the Commercial Solution segment were $498 million, up 14.2% from the prior-year period. Core sales growth of 13.8%, driven by solid performance in both Commercial and Connected Home & Security business categories, contributed to the segment’s top line.
The Outdoor and Recreation segment recorded net sales of $249 million, which increased 7.6% from the prior-year quarter. This resulted from a core sales decline of 7.1% year over year.
Business Development
Management highlighted that its cookware business, which was usually reported within the Appliances & Cookware segment, will now be aligned with the Food business unit within the Home Solutions segment, effective the first quarter of 2021. Following this change, the Appliances & Cookware segment will be renamed to Home Appliances.
Other Financial Details
Newell Brands ended the quarter with cash and cash equivalents of $981 million, long-term debt of $5,141 million and shareholders’ equity of $3,874 million, excluding non-controlling interests of $26 million.
In the twelve months ending Dec 31, 2020, the company generated operating cash flow of $1,432 million. That said, it has liquidity of more than $2.5 billion, which is likely to help it stay afloat amid this crisis.
Newell Brands Inc. Price, Consensus and EPS Surprise
Looking Ahead
Driven by impressive fourth-quarter 2020 results, management has issued guidance for 2021 and the first quarter. For first-quarter 2020, the company expects normalized earnings of 12-14 cents, with operating margin expansion of 90-130 bps to 6.9-7.3%. Further, net sales are envisioned to be $2.04-$2.08 billion, with core sales witnessing high-single-digit growth.
The company anticipates 2021 sales to be $9.5-$9.7 billion, with core sales growth of low-single digit. Normalized earnings are forecasted to be $1.55-$1.65 per share, with normalized operating margin witnessing 30-60 bps expansion to 11.4-11.7%. Also, cash flow is estimated to be $1 billion.
Stocks to Consider
Sanderson Farms (NASDAQ:SAFM) SAFM, with a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 48.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Albertsons Companies, Inc. ACI, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 12%.
Nu Skin Enterprises, Inc. NUS, with a long-term earnings growth rate of 8.1%, currently carries a Zacks Rank #2.
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