Business Overview

Newell Brands Inc. (NWL) is a leading global consumer goods company with a diverse portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer's, Oster, NUK, Spontex and Campingaz. The company has a strong presence in over 150 countries around the world and operates in more than 40 countries globally.

Newell Brands is focused on delighting consumers by lighting up everyday moments. The company operates in three reportable segments: Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation. The Home and Commercial Solutions segment offers commercial cleaning and maintenance solutions, closet and garage organization products, hygiene systems, household appliances, food and home storage, fresh preserving, vacuum sealing, and home fragrance products. The Learning and Development segment provides baby gear and infant care products, writing instruments, art products, and labeling solutions. The Outdoor and Recreation segment offers active lifestyle products for outdoor and outdoor-related activities, including technical apparel and on-the-go beverageware.

Financials

In the second quarter of 2024, Newell Brands reported net sales of $2,033 million, a decrease of 7.8% compared to the prior year period. The company's net income for the quarter was $45 million, and its operating cash flow was $64 million. For the first six months of 2024, Newell Brands reported net sales of $3,686 million, a decrease of 8.1% compared to the prior year period. The company's net income for the first half of 2024 was $36 million, and its operating cash flow was $64 million.

Executing on Strategic Initiatives

Over the past year, Newell Brands has been executing on a new corporate strategy focused on disproportionately investing in innovation, brand building, and go-to-market excellence for its largest and most profitable brands and markets, while driving further standardization and scale efficiencies across the supply chain and back-office functions. The company has also transitioned to a new operating model designed to accelerate the implementation of this strategy by enhancing organizational effectiveness and agility, and creating a high-performing, innovative, and inclusive culture.

The results of these strategic initiatives are starting to show. Over the past four quarters, Newell Brands has improved the rate of year-over-year core sales growth from down 15% in the first half of 2023 to down 9% in the back half of 2023, to down 4.5% in the first half of 2024. The company has also returned its most profitable segment, Learning & Development, as well as its combined international business, to core sales growth in the first half of 2024.

Newell Brands has also made significant progress in improving its operational and financial performance. The company has reported four consecutive quarters of year-over-year gross margin expansion, with gross margin increasing by 490 basis points in the second quarter of 2024 to 34.8%. This improvement has been driven by strong productivity gains, positive pricing, and favorable mix. The company has also improved its normalized operating margin by over 100 basis points on a trailing 12-month basis versus the prior year, despite increasing investment in advertising and promotion.

Liquidity

As of June 30, 2024, Newell Brands had cash and cash equivalents of $382 million, of which approximately $309 million was held by the company's non-U.S. subsidiaries. During the second quarter, the company recorded $7 million of additional tax related to withholding taxes associated with certain previously taxed foreign earnings that are no longer indefinitely reinvested, which the company intends to repatriate during the remainder of 2024.

For the six months ended June 30, 2024, the company generated $64 million in operating cash flow, compared to $277 million in the prior year period. The decrease was primarily due to a smaller reduction in inventory levels compared to the prior year period, as well as higher incentive compensation payments. The company also used $84 million in investing activities, primarily for capital expenditures, and generated $78 million in financing activities, primarily from net changes in short-term debt.

Newell Brands has a $1.0 billion senior unsecured revolving credit facility that matures in August 2027. As of June 30, 2024, the company had $285 million of outstanding borrowings under the credit facility and approximately $20 million of outstanding standby letters of credit, with a net availability of approximately $695 million.

Outlook

For the full year 2024, Newell Brands is now forecasting a core sales decline of 3% to 4%, compared to its previous guidance of a 3% to 6% decline. The company expects net sales to decline 6% to 7%, compared to its prior guidance of a 5% to 8% decline. The improved outlook is driven by modest first-half over-performance and the development and deployment of stronger second-half marketing and innovation programs.

Newell Brands is also raising its full-year normalized operating margin guidance to 8% to 8.2%, compared to its prior range of 7.8% to 8.2%. At the midpoint, this represents a 110 basis point year-over-year improvement. The company is also increasing its normalized earnings per share guidance to $0.60 to $0.65, up from its previous range of $0.52 to $0.62.

Additionally, the company is raising its forecast for operating cash flow to $450 million to $550 million, including about $150 million to $200 million in cash restructuring and related charges. Newell Brands expects its leverage ratio to land around 5x by the end of 2024, down from 5.3x at the end of the second quarter.

Risks and Challenges

Newell Brands operates in a highly competitive consumer goods industry, which exposes the company to risks such as changing consumer preferences, intense competition, and the potential for disruption from new market entrants or technological advancements. The company is also subject to macroeconomic and geopolitical risks, including inflationary pressures, soft global demand, and the potential impact of trade policies and tariffs.

Additionally, Newell Brands faces risks related to its substantial indebtedness, including potential increases in interest rates or changes in the company's credit ratings, which could subject it to cross-default and acceleration provisions in its debt documents. The company also faces risks related to its ability to effectively execute its various restructuring and cost-saving initiatives, as well as its ability to develop innovative new products, maintain and strengthen its end-user brands, and realize the benefits of increased advertising and promotion spend.

Conclusion

Over the past year, Newell Brands has made significant progress in executing on its new corporate strategy and operating model, which is starting to yield tangible results. The company has improved its top-line trajectory, enhanced the structural economics of its business, deleveraged its balance sheet, and improved its cash flow performance, all while strengthening its team, front-end commercial capabilities, and fostering a high-performance, high-accountability culture.

While the company continues to face a challenging macroeconomic environment and industry-specific risks, Newell Brands' improved operational and financial performance, as well as its raised guidance for 2024, suggest that the company is on the right path to delivering sustainable and profitable growth over the long term. Investors should closely monitor the company's continued execution of its strategic initiatives and its ability to navigate the evolving consumer and retail landscape.