Company Overview: Newell Brands Inc. is a marketer of consumer and commercial products. The Company's segments include Writing, Home Solutions, Commercial Products, Baby & Parenting, Branded Consumables, Consumer Solutions, Outdoor Solutions and Process Solutions. Its products are marketed under a portfolio of brands, including Paper Mate, Sharpie, Dymo, Expo, Parker, Elmer's, Coleman, Jostens, Marmot, Rawlings, Mr. Coffee, Rubbermaid Commercial Products, Graco, Baby Jogger, NUK, Calphalon, Rubbermaid, Contigo, First Alert, Waddington and Yankee Candle. Writing segment consists of the Writing and Creative Expression business. Home Solutions segment designs, manufactures or sources and distributes a range of consumer products under various brand names. Commercial Products segment designs, manufactures or sources and distributes cleaning and refuse products. Its Baby & Parenting segment designs and distributes infant and juvenile products.


NWL Details

Acquisition of Chesapeake Bay Candle:In September 2017, Newell Brands Inc (NYSE: NWL) announced about acquiring Chesapeake Bay Candle, for $75 million, who is a leading developer, manufacturer and marketer of premium candles and other home fragrance products, focused on consumer wellness and natural fragrance. Chesapeake Bay is a fast-growing business and has annual net sales of over $55 million. The group has been expanding the business via acquisitions and has also acquired Smith Mountain, a leading provider of premium home fragrance products, sold mainly under the WoodWick Candle brand, for over $100 million. In April 2017, the company acquired New Zealand based Sistema Plastics, a leading provider of food storage and beverage containers in Australia, New Zealand, U.K, and parts of Europe for a cash purchase price of approximately $472 million. On the other hand, the group finished the sale of the Tools business, including the Irwin, Lenox and Hilmor brands, its Rubbermaid consumer storage totes business, as well as the stroller business under the Teutonia brand. The group also sold Lehigh business, Winter Sports business, fire building business and its triathlon apparel business under the Zoot and Squadra brands.
 


Rise in projects (Source: Company reports)
 
Competitive edge: Newell Brands is delivering Core Sales Growth better than its peers so far in 2017. On the other side, Kalamazoo is competing to be the location where NWL expands. Accordingly, the local and state officials are putting together the incentives to attract NWL. If approved there will be an investment of $8 million and 60 new jobs.
 
Second Quarter Financial Performance:The group has reported a 5.1% growth in the net sales to 4.1 billion in the second quarter of FY 17, as compared to $3.9 billion in the prior corresponding period, given the rising core sales coupled with the inclusion of the Jarden business for the full quarter against only eleven weeks in the prior year period. Sistema and WoodWick contribution, partially offset the divestitures of the Tools, Décor, Fire Starter and Fire Log, Teutonia and Cordage businesses during the period. The Core sales rose 2.5% on a year on year (yoy) basis driven by the solid growth from Baby within the Live Segment, Writing within the Learn segment, Waddington within the Work Segment as well as Team Sports within the Play Segment. NWL’s operating margin surged to 10.4% in the second quarter from 3.6% in prior corresponding period (pcp) driven by better profitability and the absence of the negative impact of inventory step-up related to the acquired Jarden businesses in the prior year. The normalized operating margin performance was even better which reached 17.1% during the second quarter of 2017 improving 130 basis point against pcp, on the back of the cost synergies and Project Renewal savings despite rising investment in e-commerce, brand development and insights.
 
 
Business segments’ performance (Source: Company reports)
 
Resumed Stock Repurchase Program:The group resumed its Stock Repurchase Program and over $256 million of the original $500 million is available for the repurchase of the company’s common shares. NWL started cash tender offers of over $1.06 billion for any and all of its 6.25% senior notes due 2018 and up to a maximum aggregate principal amount of certain of its other senior notes. The group repurchased over $872 million aggregate principal amount of its senior notes in March 2017 while redeemed the rest of over $187 million aggregate principal amount of 6.25% senior notes due on 2018.
 
Revised 2017 Earnings Guidance: The group updated its 2017 normalized earnings per share guidance post including the effects of Hurricane Harvey on its U.S. manufactured resin businesses. Since Hurricane Harvey’s landfall in August 2017, nearly all of NWL’s resin suppliers with facilities in Texas and Louisiana have declared force majeure, and many facilities shut down for more than a week and some are still not operating. The company is working closely with both U.S. as well as international suppliers to find alternative sources of resin with some early success. Accordingly, the group revised the normalized earnings per share guidance, which is now expected to be in the range of $2.95 to $3.05 against the earlier guidance of $3.00 to $3.20. However, the company’s outlook for 2017 net sales and core sales remains unchanged. The core sales growth is expected to be in the range of 2.5% to 4% and the net sales is expected to be in the range of $14.8 billion to $15 billion for FY 17. Therefore, in FY 17, the net sales growth is expected to be in the range of 11.5% to 13%.  Moreover, despite resin availability challenges and expected higher costs, NWL would continue to invest in the strategic capabilities and brands, accepting temporary margin compression as compared to 2017 plans, rather than pull back on investment connected to the company’s transformation and long-term strategy. These investments are enabled by strong Project Renewal savings and cost synergies that continue to be on track with the earlier communicated plans. Therefore, despite the incremental costs related to the hurricane and other unplanned inflationary pressure, the company has taken the decision to sustain the rising investment with respect to the strategic priorities and brand plans in the second half of 2017 in order to build on the improving share momentum, and the rate of share growth in the U.S, increasing from the first quarter to the second quarter, and now into the third quarter (third quarter earnings results due on November 2, 2017).
 


NWL progress till date (Source: Company reports)
 
Stock Recommendation:The shares of NWL have fallen over 23% in the last three months (as of October 18, 2017). On the other hand, the group has announced a new reporting framework aligned with the New Growth Game Plan during the first quarter of 2017 with 5 Segments (Live; Learn; Work; Play; Other) and 4 Regions (North America; Latin America; Europe, Middle East, Africa; Asia Pacific). NWL also started a comprehensive strategic assessment of the business and launched a new corporate strategy after finishing the Jarden Acquisition. NWL sales enhanced 41.5% on a yoy basis for the six months ended on June 30, 2017 driven by the Jarden Acquisition coupled with rise in the underlying businesses (approximately 2%), primarily in the Learn and Play segments. The group made investments in new capabilities to tap the growth potential of the portfolio and would be funded by a commitment to release cost savings from 2016 to 2021 of over $1.3 billion via a combination of the completion of Project Renewal (over $300 million) and delivery of cost synergies related with the Jarden integration (over $1 billion). This new corporate strategy is called the New Growth Game Plan. The recent bankruptcy filed by Toys R Us did impact the stock performance slightly, but NWL portfolio and Graco brand in particular are expected to continue to benefit from increased distribution at Amazon and other channels.
 
The group is now targeting to expand the operating cash flow to greater than $2 billion per annum from 2019 to 2021. NWL has also set a Leverage Ratio Target of 3x to 3.5x by 2018. The group expects a 10%+ CAGR of the normalized EPS through 2021. We believe investors can leverage the recent correction in the stock as a buying opportunity while the stock has a decent dividend yield. We expect the stock to recover from the current levels and accordingly give a “Buy” at the current price of USD 41.21
 
NWL Daily Chart (Source: Thomson Reuters)

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