Business Overview and History

Newell Brands boasts a diverse portfolio of well-known brands, including Rubbermaid, Sharpie, Graco, Coleman, and Yankee Candle, among others. The company's roots can be traced back to 1903 when it was founded as the Northwestern Clay Company, producing clay pipettes and kitchen utensils. Over the decades, Newell expanded its product offerings through strategic acquisitions, entering categories such as paintbrushes, writing instruments, and plastic storage containers.

The 1980s and 1990s marked a significant period of transformation for Newell, as it evolved into a large consumer products conglomerate. This growth was fueled by the acquisition of several well-known brands, allowing Newell to establish leadership positions in categories like home organization, writing instruments, and baby gear.

However, the early 2000s brought challenges for Newell as it grappled with integrating its diverse brand portfolio. The company faced operational inefficiencies, brand management issues, and softening consumer demand. In response, Newell initiated a major restructuring effort, divesting underperforming brands and streamlining its operations.

The late 2010s presented additional headwinds for Newell, including increased competition, retailer consolidation, and macroeconomic uncertainties. The company had to contend with impairment charges related to goodwill and intangible assets, as well as ongoing restructuring costs. These challenges necessitated further portfolio refinement and the implementation of additional cost-saving initiatives to improve financial performance.

Despite these obstacles, Newell Brands has maintained a strong market position in various consumer categories, leveraging its long history of growth through acquisitions and its ability to navigate periods of transformation and restructuring.

In 2023, the company unveiled a new corporate strategy focused on disproportionately investing in its largest and most profitable brands, fastest-growing channels, and key geographies. This shift in approach is designed to leverage Newell's scale and capitalize on emerging consumer trends. The strategy also emphasizes building front-end capabilities in areas such as consumer understanding, innovation, and brand building.

Financials and Performance

Newell Brands' financial performance has shown promising signs of improvement in recent quarters, despite ongoing macroeconomic challenges. For the first nine months of 2024, the company reported core sales that were down 4.5% year-over-year, a significant improvement from the 14.7% decline in the first half of 2023. This sequential improvement in top-line performance is a testament to the effectiveness of the company's strategic initiatives.

The company's focus on productivity and cost optimization has also yielded positive results. Newell's normalized gross margin expanded by nearly 500 basis points year-over-year in the third quarter of 2024, reaching 35.4% - the highest level since at least 2020. This margin expansion was driven by strong fuel productivity savings and the company's shift towards more premium-priced products.

Newell's normalized operating margin also improved, increasing by 210 basis points to 9.5% in the third quarter. This was achieved through a combination of productivity gains, positive pricing, and ongoing organizational restructuring initiatives. The company's bottom-line performance has also shown signs of improvement, with normalized earnings per share coming in at the high end of management's guidance range.

For the most recent fiscal year (2023), Newell Brands reported revenue of $8.13 billion, with a net loss of $388 million. Operating cash flow for the year was $930 million, while free cash flow stood at $646 million. In the most recent quarter (Q3 2024), the company reported revenue of $1.95 billion, representing a year-over-year decline of 4.9%. The net loss for the quarter was $198 million, with operating cash flow of $282 million and free cash flow of $231 million.

The company's international business, which includes markets outside of North America, represented 32.2% of total revenue in 2023. Newell operates in over 150 countries globally, with direct operations in more than 40 countries.

Liquidity

Cash flow generation has been another area of strength for Newell Brands. The company reported $346 million in operating cash flow during the first nine months of 2024, and its leverage ratio improved sequentially, declining from 6.5x in the second quarter of 2023 to 4.9x in the third quarter. This reduced debt burden and improved liquidity position provide the company with greater financial flexibility to execute on its strategic priorities.

As of the end of Q3 2024, Newell Brands had $494 million in cash and cash equivalents. The company's debt-to-equity ratio stood at 1.73, with a current ratio of 0.99 and a quick ratio of 0.50. Newell maintains a $1 billion senior unsecured revolving credit facility maturing in 2027. At the end of Q3 2024, the company had $170 million of outstanding borrowings under the credit facility and $29 million of outstanding letters of credit, with $801 million of net availability.

Segment Performance and Outlook

Newell's three reportable segments - Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation - have demonstrated varied performance in recent quarters.

The Home and Commercial Solutions (HCS) segment includes brands such as Ball, Calphalon, Crockpot, FoodSaver, Rubbermaid, and Yankee Candle. For Q3 2024, this segment reported net sales of $1.05 billion, a decrease of 6.8% compared to the prior year period. Operating income for the segment was $94 million, up from $64 million in the prior year period. The decrease in net sales was attributed to soft global demand, product line exits, and distribution losses, partially offset by pricing actions.

The Learning and Development (LD) segment, which includes brands like Dymo, Elmer's, Graco, Paper Mate, and Sharpie, has been a bright spot, delivering three consecutive quarters of positive core sales growth. For Q3 2024, this segment reported net sales of $717 million, an increase of 3.3% compared to the prior year period. Operating income was $75 million, down from $127 million in the prior year period. The increase in net sales was driven by growth in the Baby business, partially offset by a decrease in the Writing business.

The Outdoor and Recreation (OR) segment, which includes brands such as Coleman, Contigo, and Marmot, has faced the most significant challenges. For Q3 2024, this segment reported net sales of $183 million, a decrease of 20.8% compared to the prior year period. The segment reported an operating loss of $23 million, an improvement from the $42 million loss in the prior year period. The decrease in net sales was attributed to soft global demand and distribution losses.

Looking ahead, the company has raised its full-year 2024 guidance, increasing its expectations for normalized operating margin, normalized earnings per share, and operating cash flow. For Q4 2024, Newell expects core sales to be down 2% to 5%, with net sales down 4% to 7%. Normalized operating margin is expected to be 7% to 7.7%, with normalized EPS of $0.11 to $0.14.

For the full year 2024, the company is maintaining its sales guidance at -3% to -4% for core sales and -6% to -7% for net sales. However, Newell has increased its normalized operating margin guidance to 8.1% to 8.3% (up from 8% to 8.2% previously) and raised its normalized EPS guidance to $0.63 to $0.66 (up from $0.60 to $0.65 previously). The company has also increased its operating cash flow forecast by $50 million to a range of $500 million to $600 million.

Risks and Challenges

While Newell Brands has made significant progress in its turnaround efforts, the company still faces a number of risks and challenges. The highly competitive consumer goods landscape, shifting consumer preferences, and ongoing macroeconomic volatility pose ongoing headwinds.

Additionally, the company's reliance on certain key brands and channels, as well as its global supply chain, expose it to potential disruptions. Newell must also navigate a complex regulatory environment and maintain a strong focus on sustainability and environmental, social, and governance (ESG) initiatives.

Conclusion

Newell Brands' transformation is gaining momentum, with the company making meaningful strides in improving its operational efficiency, strengthening its brand portfolio, and driving sustainable growth. The company's focus on innovation, premiumization, and front-end capabilities positions it well to capitalize on evolving consumer trends and capture market share.

Over the past five quarters since introducing its new corporate strategy, Newell has consistently improved its core sales growth rate, delivered positive core sales growth in its most profitable segments, expanded normalized gross margins, reduced net debt, and increased normalized EBITDA. These improvements, coupled with the company's raised guidance for 2024, suggest that Newell's strategic initiatives are beginning to bear fruit.

While challenges remain, particularly in the Outdoor and Recreation segment and amid a broader expected decline in the general merchandise market, Newell's improved financial performance, reduced debt burden, and increased cash flow generation suggest that the company is on the right track to emerge as a stronger, more resilient consumer goods powerhouse. As the company continues to execute on its strategic plan, investors will be watching closely for continued evidence of Newell's successful transformation and its ability to navigate the evolving consumer goods landscape.