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Newell Brands 4Q18 results: Sales miss and downbeat outlook

Multinational consumer goods retailer, Newell Brands posted mixed 4Q18 results on Friday (15 February), with EPS coming in at $0.71 (+4.4% YoY) and revenue of $2.34bn (-6.0% YoY). Earnings were well-above the Refinitiv consensus estimate of $0.41, but revenue came in below the Refinitiv consensus expectation of $2.43bn. This as headwinds from a strong dollar, the adoption of the 2018 revenue recognition standard, and a decline in core sales impacted the business.

In terms of business segments:

The Learning & Development segment recorded a net sales decrease of 3.2% YoY to $707mn. However, core sales grew 1.7% YoY on the back of “healthy growth” in Writing, which cycled against significant retailer inventory de-stocking in the office superstore and distributive trade channels in the year-ago period. The Baby business remained under pressure, reflecting the negative impact of the Toys ‘R’ Us bankruptcy. Operating income was $135mn vs $97.8mn in 4Q17, with the operating margin at 19.2% (vs 13.4% in 4Q17)

Net sales for Food & Appliances declined 7.2% YoY to $824mn as core sales contracted 1.7% YoY. This largely reflected reduced promotional activity in Food and was partially offset by Appliances growth in Latin America, and the early impact from new appliance innovation in the US. It reported an operating loss of $19.3mn vs operating income of $105mn in 4Q17. The operating margin was a negative 2.3% as compared with 11.8% in 4Q17.

Home & Outdoor Living’s revenues were down 7.2% YoY to $809mn, with core sales declining by 3% YoY. Unfortunately, strength in the Connected Home & Security business and a return to growth in Home Fragrance in Europe were more than offset by ongoing headwinds from its Yankee retail stores and distribution losses on coolers and air beds in the US. Operating income was $45.5mn vs $108mn in 4Q17, largely due to the negative impact of the non-cash impairment charge. The operating margin was 5.6% vs 12.4% in 4Q17.

We note that, on the conference call, Newell Brands’ President and CEO, Michael Polk highlighted that sequentially (QoQ) progress was made in each of the above three segments:

In the quarter, the business generated operating cash flow of $498mn vs $990mn in 4Q17, largely due to what the company described as loss of cash flow from those businesses “that have already been divested, higher cash taxes in transaction-related costs, as well as the lower accounts payable balance.”

During 4Q18, Newell returned $1.1bn to shareholders through share repurchases and dividends, with the full-year figure at $1.9bn-plus.

Looking ahead to 1Q19, Newell said it expects EPS to be between $0.04 and $0.08 and revenue to be in the range of $1.66bn-$1.70bn. The company also forecast lower-than-expected FY18 sales and profit, because of the negative impact from a strong dollar, higher costs and sluggish sales of its Graco baby products following the Toys ‘R’ Us liquidation. Reuters writes that the cost escalation related to retaliatory tariffs imposed by Europe and Canada as well as the US on certain imports from China.

The company’s share price plummeted following the results, with its shares down c. 22% to Tuesday’s (19 February’s) close of $17.01/share.



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