Why Is Newell Brands (NWL) Down 8.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Newell Brands (NWL). Shares have lost about 8.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Newell Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Newell Brands Beats Q2 Earnings & Sales Estimates
Newell Brandsreported better-than-expected second-quarter 2020 results. However, both the bottom and top lines declined year over year. Despite the challenging economic situation surrounding the coronavirus outbreak, the company has witnessed an improving top-line trend and robust consumption patterns.
Moreover, e-commerce performed well with core sales growth in June. Also, it is progressing well with its turnaround plans such as SKU reduction efforts, Project FUEL and other cost-cutting actions.
However, Newell Brands withdrew its 2020 outlook due to uncertain COVID-19 impacts such as supply-chain disruptions, soft demand and macroeconomic headwinds.
Newell’s second-quarter normalized earnings per share were 30 cents, which outpaced the Zacks Consensus Estimate of 18 cents. However, the metric fell 30.2% from 43 cents earned in the year-ago period.
Net sales declined 14.9% year over year to $2,111 million but surpassed the Zacks Consensus Estimate of $2,030 million. The year-over-year fall resulted from foreign-currency headwinds, supply-chain disruptions stemming from COVID-19 and soft core sales, which dropped 12.6%.
Normalized gross margin and operating margin contracted 330 basis points (bps) and 200 bps to 31.6% and 10.2% in the quarter under review, respectively.
The Appliances & Cookware segment (including Writing and Baby) recorded net sales of $359 million in the second quarter, down 0.8% from the prior-year number. The downside can be attributable to unfavorable foreign currency, which more than offset the segment’s core sales growth of 6.1%.
Net sales at the Home & Outdoor Living segment (including Outdoor & Recreation, Home Fragrance, and Connected Home & Security) totaled $355 million, declining 4.6% from the prior-year period. The segment’s top line was hurt by unfavorable currency and a 1.9% decline in core sales. Despite positive core sales growth in the Food business unit, a decline in Home Fragrance as a result of temporary closure of all North American retail stores due to the COVID-19 pandemic hurt segmental growth.
The Learnings and Development segment recorded net sales of $631 million, which fell 25.7% from the prior-year number. This resulted from a 23.5% decline in core sales and currency headwinds.
Net sales at the Commercial Solution segment were $413 million, which fell 9% on core sales decline of 6.8% and adverse currency. Further, sluggishness in Connected Home & Security more than offset the positive core sales trend at the Commercial business unit.
The Outdoor and Recreation segment recorded net sales of $353 million, which decreased 20.3% from the prior-year number. This resulted from a 21.5% decline in core sales and currency headwinds.
Other Financial Details
Newell ended the quarter with cash and cash equivalents of $619 million, long-term debt of $5,781 million and shareholders’ equity of $3,516 million, excluding non-controlling interests of $24 million.
During the quarter, the company generated operating cash flow of $132 million.
Updates on COVID-19
Management witnessed significant supply-chain disruptions during the first half of the second quarter. Majority of the 20 manufacturing and distribution centers, which were closed previously, have resumed operations. Further, the company is seeing sales growth in a few categories, stemming from the ongoing crisis. This reflects that consumer preference has shifted to certain products, owing to which the company’s Food, Commercial, Appliances & Cookware and Outdoor & Recreation categories are benefiting. Such trends continued in July as well.
Apart from these, the company launched a restructuring plan in order to lower overhead costs and streamline the business. Due to this plan, Newell Brands incurred costs of $8 million in the quarter under review. Going ahead, it is anticipated to incur roughly $10 million in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Newell Brands has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Newell Brands has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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