NEWELL BRANDS INC. (NWL) Quarterly Report (10-Q)

Press release · 10/25 22:41
NEWELL BRANDS INC. (NWL) Quarterly Report (10-Q)

NEWELL BRANDS INC. (NWL) Quarterly Report (10-Q)

Newell Brands Inc. (NWL) reported its quarterly financial results for the period ended September 30, 2024. The company’s net sales decreased by 4.1% to $2.4 billion, primarily due to a decline in sales in the company’s Writing and Creative Expression segment. Net income was $143 million, or $0.34 per diluted share, compared to $173 million, or $0.41 per diluted share, in the same period last year. The company’s gross margin decreased by 130 basis points to 34.4%, primarily due to higher raw material costs and unfavorable product mix. Newell Brands’ operating income was $243 million, or 10.1% of net sales, compared to $283 million, or 11.4% of net sales, in the same period last year. The company’s cash and cash equivalents decreased by $143 million to $1.4 billion, primarily due to the repayment of debt and investments in working capital.

Newell Brands Navigates Challenging Macroeconomic Conditions

Newell Brands, a leading global consumer goods company, has faced a complex operating environment in recent quarters marked by soft global demand, retailer inventory rebalancing, and significant inflationary pressures. Despite these headwinds, the company is taking strategic actions to strengthen its financial position and position itself for long-term sustainable growth.

Financial Performance Overview

For the three months ended September 30, 2024, Newell Brands reported net sales of $1.947 billion, a 4.9% decrease compared to the prior year period. This decline was driven by soft global demand, net distribution losses, and product line exits, primarily in the Home and Commercial Solutions (H&CS) segment, partially offset by pricing actions, especially in international markets.

Gross profit increased 9.3% to $679 million, with gross margin improving to 34.9% from 30.3% in the prior year. This improvement was driven by productivity gains and lower restructuring-related charges, partially offset by the impact of lower sales and inflation.

The company reported an operating loss of $121 million, an improvement from the $159 million operating loss in the prior year period. This was due to the higher gross profit, savings from restructuring actions, and lower restructuring and restructuring-related charges, partially offset by higher incentive compensation, advertising and promotion costs, and amortization of certain tradenames.

For the nine months ended September 30, 2024, net sales declined 7.0% to $5.633 billion, with similar drivers as the quarterly results. Gross profit increased 8.7% to $1.882 billion, and the company reported operating income of $58 million compared to an operating loss of $75 million in the prior year period.

Segment Performance

Newell Brands operates in three reportable segments: Home and Commercial Solutions (H&CS), Learning and Development (L&D), and Outdoor and Recreation.

The H&CS segment, which includes brands like Rubbermaid, Calphalon, and Yankee Candle, saw net sales decline 6.8% in the third quarter and 7.9% for the nine-month period. Operating results were negatively impacted by a $190 million non-cash impairment charge related to an indefinite-lived tradename, higher advertising and promotion costs, and additional amortization of certain tradenames, partially offset by productivity gains and restructuring savings.

The L&D segment, home to brands such as Sharpie, Graco, and NUK, reported a 3.3% increase in third-quarter net sales and a 0.9% increase for the nine-month period. Operating income improved significantly, from a loss of $127 million in the prior-year quarter to income of $75 million, driven by gross productivity, restructuring savings, and lower non-cash impairment charges.

The Outdoor and Recreation segment, which includes Coleman, Campingaz, and Marmot, saw net sales decline 20.8% in the third quarter and 23.0% for the nine-month period due to soft global demand and distribution losses. Operating loss increased from $38 million to $52 million, primarily due to the lower sales, partially offset by savings from restructuring actions.

Strategic Initiatives

To address the challenging operating environment, Newell Brands is implementing several strategic initiatives:

Project Ovid: A multi-year, customer-centric supply chain transformation to optimize the company’s distribution network and improve customer service levels.

Network Optimization Project: A restructuring and cost savings initiative to simplify and streamline the North American distribution network, improve the cost structure, and maintain focus on customer and consumer fulfillment.

Project Phoenix: A restructuring and savings initiative launched in 2023 to reduce complexity, streamline the operating model, and drive operational efficiencies.

Realignment Plan: An organizational realignment announced in 2024 to strengthen the company’s front-end commercial capabilities, such as consumer understanding and brand communication, while also unlocking operational efficiencies and cost savings.

These initiatives are designed to improve the company’s operational foundation, drive cost savings, and provide fuel for reinvestment in key growth areas. Newell Brands estimates it will incur between $187 million and $269 million in restructuring and restructuring-related charges associated with these programs.

Liquidity and Capital Resources

Newell Brands maintains a strong liquidity position, with $494 million in cash and cash equivalents as of September 30, 2024. The company has a $1.0 billion revolving credit facility that matures in 2027, with $170 million in outstanding borrowings and $801 million in net availability at the end of the third quarter.

Cash provided by operating activities was $346 million for the nine-month period, a decrease from $679 million in the prior year, primarily due to changes in working capital. The company used $107 million in investing activities, a decrease from $147 million in the prior year, as significant capital expenditures related to Project Ovid were mostly executed in the prior period.

Outlook and Risks

Newell Brands continues to face a challenging macroeconomic environment, with soft global demand, retailer inventory rebalancing, and significant inflationary pressures. The company has taken actions to mitigate the impact of these conditions, including securing selective pricing increases, accelerating productivity initiatives, optimizing advertising and promotion expenses, and deploying overhead cost containment efforts.

However, the duration and severity of these macroeconomic trends remain highly uncertain and could continue to negatively impact the company’s operating results, cash flows, and financial condition. Newell Brands also faces risks related to its substantial indebtedness, supply chain and operational disruptions, competition, and the potential inability to attract and retain key employees.

To address these challenges, Newell Brands is focused on improving its front-end capabilities, disproportionately investing in its largest and most profitable brands, leveraging its scale to drive cost savings, and transitioning to a high-performance organization. The successful execution of these strategic initiatives, combined with the company’s liquidity and capital resources, will be critical in navigating the current environment and positioning Newell Brands for long-term sustainable growth.