Newell Brands (NWL) Stock Up on Q3 Earnings & Sales Beat
Shares of Newell Brands Inc. NWL grew more than 7% in the premarket trading session on Oct 30, following better-than-expected third-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 strong cash flow.
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 efforts to lower organizational expenses.
Consequently, shares of this Zacks Rank #3 (Hold) company have gained 2.5% in the past three months against the industry’s 3.3% decline.
Q3 Highlights
Newell’s third-quarter normalized earnings per share were 84 cents, which outpaced the Zacks Consensus Estimate of 44 cents. However, the metric advanced 15.1% from 73 cents earned in the year-ago period.
Net sales grew 5.1% year over year to $2,699 million and surpassed the Zacks Consensus Estimate of $2,490 million. The uptick can be attributable to solid core sales to the tune of 7.2% as majority of business units and all regions witnessed core sales growth. On the flip side, unfavorable currency and divestitures remained headwinds.
Normalized gross margin contracted 90 basis points (bps) to 33.9% due to the adverse impacts of business unit mix. Meanwhile, normalized operating margin expanded 220 bps to 14.9%, driven by strong top-line growth, stringent cost measures, cost savings from restructuring actions, FUEL productivity savings and lower organizational expenses.
Segment Details
The Appliances & Cookware segment (including Writing and Baby) recorded net sales of $479 million in the third quarter, up 11.4% from the prior-year quarter. This is mainly due to the segment’s core sales growth of 17%, 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 $574 million, up 18.6% from the prior-year period. The segment’s top line was aided by favorable currency impacts and core sales growth of 19.5%. This was somewhat offset by the exit of 76 underperforming Yankee Candle retail stores in the first nine months of 2020. Also, both Food and Home Fragrance businesses witnessed core sales growth.
The Learnings and Development segment recorded net sales of $728 million, which fell 11.7% from the prior-year quarter. This resulted from a 9.5% decline in core sales stemming from delays in the reopening of schools and offices that hurt the Writing business unit.
Net sales in the Commercial Solution segment were $535 million, up 12.6% from the prior-year period. Core sales growth of 13.3%, 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 $383 million, which increased 7.6% from the prior-year quarter. This resulted from 8.1% core sales growth, which more than offset currency headwinds.
Other Financial Details
Newell ended the quarter with cash and cash equivalents of $858 million, long-term debt of $5,794 million and shareholders’ equity of $3,726 million, excluding non-controlling interests of $24 million.
In the nine months ending Sep 30, 2020, the company generated operating cash flow of $820 million. That said, it has liquidity of more than $2 billion, which is likely to help it stay afloat amid this crisis.
Newell Brands Inc. Price, Consensus and EPS Surprise
Newell Brands Inc. price-consensus-eps-surprise-chart | Newell Brands Inc. Quote
Looking Ahead
As a result of clearer visibility of the COVID-19 situation, management has issued guidance for 2020 and the fourth quarter. For fourth-quarter 2020, the company expects normalized earnings of 40-46 cents, with operating margin contraction of 80-140 bps to 9.9-10.5%. Further, net sales are envisioned to be $2.5-$2.6 billion, with core sales in the range of flat to low-single-digit growth.
The company anticipates 2020 sales to be $9.2-$9.3 billion, with core sales likely to decline in low-single digit. Normalized earnings are forecasted to be $1.63-$1.69 per share, with normalized operating margin likely to be in the range of flat to 20-bp contraction to 10.6-10.8%. Also, cash flow is estimated to be $1.1-$1.2 billion.
Stocks to Consider
Lamb Weston Holdings LW has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Procter Gamble Company PG has a long-term earnings growth rate of 7.6%. The stock presently carries a Zacks Rank #2.
General Mills, Inc. GIS, with a long-term earnings growth rate of 7.5%, currently carries a Zacks Rank #2.
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