Newell Brands (NWL) Down 33.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Newell Brands (NWL). Shares have lost about 33.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Newell Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Newell Earnings and Sales Surpass Estimates in Q4

Newell delivered better-than-expected earnings and sales results in fourth-quarter 2019. However, its top and bottom lines declined year over year on lost contributions from divested businesses, adverse foreign currency translations and a decline in overall core sales.

Nevertheless, management remains optimistic on the progress of its turnaround efforts along with operating cash flow remaining ahead of its plan. This is backed by the company’s commitment toward productivity, overhead cost savings, complexity reduction and working capital initiatives. As a result, it outlined its view for the first quarter and 2020.

Q4 Highlights

Newell’s fourth-quarter normalized earnings per share were 42 cents, which outpaced the Zacks Consensus Estimate of 39 cents. However, the metric fell 36.4% from 66 cents earned in the year-ago period. The year-over-year decline was mainly attributed to the lack of contributions from its divested operations.

Net sales declined 3.1% year over year to $2,623.9 million but surpassed the Zacks Consensus Estimate of $2,577 million. The year-over-year fall resulted from foreign-currency headwinds and soft core sales, which dipped 1.5%. Notably, core sales grew at four of the company’s eight business units.

Normalized gross margin declined 70 bps to 33.5%. However, normalized operating margin remained flat at 11.3% in the quarter under review, driven by a decline in SG&A expenses.

Segmental Performance

The Learning & Development segment (including Writing and Baby) recorded net sales of $702 million in the fourth quarter, up 0.7% from the prior-year number. The segment’s core sales increased 0.9%, offset by unfavorable foreign currency. Core sales growth was backed by improvement at the Baby and Writing divisions.

Net sales at the Home & Outdoor Living segment (including Outdoor & Recreation, Home Fragrance, and Connected Home & Security) totaled $768 million, declining 5.1% from the prior-year period. The segment’s top line was hurt by unfavorable currency, the exit of about 75 underperforming Yankee Candle retail outlets in 2019 and a 2.8% decline in core sales. Core sales benefited from growth in the Home Fragrance business unit, offset by declines in Outdoor & Recreation, and Connected Home & Security.

The Appliances & Cookware segment recorded net sales of $570 million, which fell 5.6% from the prior-year number. This resulted from a 4.6% decline in core sales and currency headwinds.

Net sales at the Food & Commercial segment were $584 million, which dipped 0.3% on adverse currency, offset by core sales growth of 0.9%. Further, it witnessed positive core sales trends at the Food business unit, partially offset by a decline in the Commercial unit.

Other Financial Details

Newell ended 2019 with cash and cash equivalents of $348.6 million, long-term debt of $5,391.3 million, and shareholders’ equity of $4,963.3 million, excluding non-controlling interests of $32.7 million.

During 2019, the company generated operating cash flow of $1,044 million compared with $680 million in 2018. Moreover, its free cash flow more than doubled to $779.1 million in the year.

Furthermore, the company strengthened its balance sheet by paying down nearly $600 million of debt in the fourth quarter.

Outlook

Management provided initial guidance for the first quarter and 2020.

For 2020, the company expects net sales of $9.4-$9.55 billion and core sales of flat to down 2%. Normalized operating margin is projected to increase 10-40 bps to 10.9-11.2%. Normalized earnings per share are envisioned to be $1.46-$1.56. Further, operating cash flow is projected to be $1.0-$1.15 billion, with free cash flow productivity in excess of 100%.

For first-quarter 2020, Newell estimates net sales of $1.9-$1.95 billion and a core sales decline of 3-5%. It anticipates normalized operating margin contraction of 50-90 bps to 5.2-5.6%. Normalized earnings per share are expected to be 5-8 cents for the quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -46.56% due to these changes.

VGM Scores

At this time, Newell Brands has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Newell Brands has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.