Newell Brands Inc. (NWL) has announced its third-quarter 2023 results, with earnings outperforming the Zacks Consensus Estimate while sales fell short. Both metrics experienced a year-over-year decline. The challenging macroeconomic environment and elevated levels of inflation have impacted the company’s results. However, Newell Brands remains committed to its One Newell approach.
Over the past three months, shares of Newell Brands have experienced a loss of 33.1% compared to the overall decline of 20.9% in the industry it operates in.
Q3 Details
Newell Brands reported earnings of 39 cents per share in the third quarter, a decrease of 22% from the prior-year quarter’s earnings of 50 cents per share. However, the company exceeded the Zacks Consensus Estimate of earnings of 23 cents per share.
Net sales declined by 9.1% year over year to $2,048 million, falling short of the consensus estimate of $2,127 million. The decline in sales can be attributed to lower core sales and the impact of category exits, partially offset by positive currency impacts. Additionally, core sales dropped by 9.2% year over year.
Newell Brands Inc. Price, Consensus, and EPS Surprise
Newell Brands Inc. price-consensus-eps-surprise-chart | Newell Brands Inc. Quote
The normalized gross margin expanded by 170 basis points year over year to 31.3%. However, the normalized operating margin contracted by 220 basis points year over year to 8.2% in the reported quarter.
Segmental Details
Net sales in the Home & Commercial Solutions segment were $1,123 billion in the third quarter, down by 7.3% from the prior-year period. The metric missed the consensus mark of $1,146 million. Core sales within this segment declined by 7.1% year over year, with sluggishness observed in all three businesses, namely Kitchen, Home Fragrance, and Commercial. Additionally, certain category exits negatively impacted sales.
The Learning and Development segment recorded net sales of $694 million, which declined by 7.6% from the prior-year quarter. The metric exceeded the consensus mark of $680.9 million. The decline was primarily driven by an 8.1% decrease in core sales, specifically within the Writing and Baby businesses.
The Outdoor and Recreation segment reported net sales of $231 million, reflecting a decline of 20.1% from the prior-year quarter. This metric also fell short of the consensus mark of $283.4 million. Core sales within this segment decreased by 20.9% in the quarter.
Other Financial Details
Newell Brands ended the quarter with cash and cash equivalents of $396 million, long-term debt of $4,737 million, net debt outstanding of $4.7 billion, and shareholders’ equity of $3,126 million.
In the nine months ending on September 30, Newell Brands provided $679 million in cash for operating activities.
Outlook
Management has revised its guidance for 2023 and issued the view for the fourth quarter. The company anticipates 2023 sales to be in the range of $8.02-$8.09 billion, down from the previously mentioned $8.2-$8.34 billion. Core sales are expected to decline by 13%, compared to the previously stated 12-10%. The normalized operating margin is projected to be 7-7.3%, down from the previously communicated 7.8-8.2%. The forecast for normalized earnings per share (EPS) is in the range of 72-77 cents, down from 80-90 cents as previously mentioned.
For 2023, the company predicts an operating cash flow of $800-$900 million, including $95-$120 million in cash related to Project Phoenix.
In the fourth quarter of 2023, net sales are anticipated to range from $1.96 to $2.03 billion, with a core sales decline of 14-11%. For the same quarter, the company expects a normalized operating margin of 7.8-8.8% and earnings per share of 15-20 cents.
Business Development
Newell Brands announced a restructuring and savings initiative known as Project Phoenix in January 2023. This plan aims to strengthen the company by streamlining its operating model and driving operational efficiencies.
Upon the completion of Project Phoenix by the end of 2023, Newell Brands expects to achieve annualized pre-tax savings of $220-$250 million, with $140-$160 million expected to be realized in 2023. The restructuring charges associated with this plan are estimated to be $100-$130 million and are expected to be incurred by the end of 2023.
This restructuring plan includes the elimination of 13% of office positions, with reductions in headcount initiated in the first quarter of 2023 and expected to be completed by the end of the year.
Following the successful completion of the first phase of Project Ovid, Newell Brands announced the Network Optimization Project, which will simplify and streamline its North American distribution network. The implementation of this initiative is expected to be completed by the end of 2024.
Post-implementation of the Network Optimization Project, the company expects to realize annual pre-tax savings of $25-$35 million. Restructuring costs related to the project are estimated to be $37-$49 million and are anticipated to be incurred by the end of 2024. Newell Brands also anticipates incurring $30-$40 million in capital expenditure for this project. As of the reported quarter, the company had incurred restructuring and related charges of $17 million from the Network Optimization Project.
Stocks to Consider
If you are seeking investment opportunities in the consumer products sector, consider the following stocks:
- Lamb Weston (LW): Currently rated as a Zacks Rank #1 (Strong Buy), Lamb Weston offers frozen potato products. The company delivered an earnings surprise of 49.5% in the last reported quarter. The Zacks Consensus Estimate suggests growth of 28.3% in current financial-year sales and 24.8% in EPS compared to the previous year.
- The Kraft Heinz Company (KHC): Currently rated as a Zacks Rank #2 (Buy), The Kraft Heinz Company is a food and beverage product company. The company has an average trailing four-quarter earnings surprise of 11.3%. The Zacks Consensus Estimate for current fiscal-year sales suggests a growth of 1.9% compared to the year-ago reported figure.
- The J. M. Smucker Company (SJM): Rated as a Zacks Rank #2 (Buy), The J. M. Smucker Company is a branded food and beverage products company. The company has an average trailing four-quarter earnings surprise of 7.3%. The Zacks Consensus Estimate for the current fiscal-year EPS suggests a growth of 8.9% compared to the year-ago reported figure.
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