Newell Brands Inc. raised its guidance after reporting operating earnings in the first quarter grew 27.9 percent.

First Quarter 2017 Executive Summary

  • Net sales growth of 148.4 percent to $3.3 billion; core sales growth of 2.5 percent.
  • Reported diluted earnings per share of $1.31 compared with 15 cents in the prior year, benefiting from a $784 million gain on the sale of the Tools business, core sales growth, cost synergies related to the Jarden acquisition, Project Renewal savings and contributions from acquisitions. These benefits more than offset increased investment in brand development, insights and e-commerce, negative foreign currency impacts, an increase in amortization of intangibles, higher interest expense and higher share count associated with the Jarden transaction.
  • Normalized diluted earnings per share of 34 cents compared with 40 cents in the prior year, as the benefits of increased sales and operating profitability were more than offset by higher interest expense and higher share count associated with the Jarden transaction. Normalized earnings per share exclude certain items described later in this release.
  • Reported operating margin of 4.8 percent, compared with 9.5 percent in the prior year, driven by the mix impact of the acquired Jarden business, including an increase in amortization of intangibles, and costs associated with the delivery of savings, partially offset by Project Renewal savings and cost synergies associated with the Jarden transaction. Normalized operating margin of 10.6 percent, a 250 basis point decline versus the prior year due to the mix impact of the acquired Jarden business and investment in brand development, insights and e-commerce, partially offset by cost synergies and Project Renewal savings.
  • Operating cash use of $289 million compared with a use of $261 million in the prior year; gross debt of $11.2 billion reflecting repayment of $726 million during the quarter and $2.8 billion since the creation of Newell Brands on April 15, 2016.
  • Completed acquisition of WoodWick fragranced candle business and divestitures of the Tools and Rubbermaid consumer totes businesses; subsequent to quarter end, completed acquisition of New Zealand based Sistema Plastics food storage and the divestitures of the fire starter and fire log and the Lehigh cordage businesses.
  • Announced new reporting framework aligned to Growth Game Plan with 5 segments (Live; Learn; Work; Play; Other) and 4 regions (North America; Latin America; Europe, Middle East, Africa; Asia Pacific).
  • Raised guidance for full year 2017 normalized diluted earnings per share to $3.00 to $3.20 compared with previous guidance of $2.95 to $3.15. Reaffirmed full year 2017 net sales guidance of $14.52 to $14.72 billion, representing 9.5 to 11 percent growth, and core sales growth guidance of 2.5 to 4 percent.
  • Announced a 4 cents per share increase in the quarterly dividend to 23 cents per share, an increase of 21 percent.

“Our first quarter results provide strong evidence of our team’s capacity to perform while we transform,” said Newell Brands Chief Executive Officer Michael Polk. “We delivered competitive core sales growth of 2.5 percent despite significant organization and portfolio change. Our core sales results were broad based with growth in all four regions and across four of five segments. Our international growth coupled with very strong e-commerce results more than offset the continuing impact of inventory de-stocking in U.S. mass channels. Our operating margin was well ahead of plan driven by strong cost synergies and stringent discretionary cost management. And we further deleveraged, paying down over $725 million of debt in the quarter, bringing our cumulative debt repayment since the Jarden transaction on April 15, 2016 to $2.8 billion.

“We have had a good start to 2017 and are on our way to unlock the transformative value creation associated with our long term guidance. We are confident that simultaneous growth and margin development fueled by savings and synergies will generate strong cash flow, leading to rapid deleveraging and then more aggressive value-creating uses of capital. We believe this transformative value creation story is unique to Newell Brands given our leading brand positions in large global categories, the inherent opportunities presented through the new scale of the company, the investments we are making in new capabilities and the strong cash generative nature of our businesses. This confidence is shared by our Board of Directors which has approved a 21 percent increase of the quarterly dividend to 23 cents per share.”

2017 New Reporting Segments

Newell Brands makes life better for hundreds of millions of consumers every day, where they Live, Learn, Work and Play. The company achieves this impact through its leading portfolio of brands and its advantaged operating model. In order to align its reporting with the company’s new strategy and organization structure, as of March 31, 2017 Newell Brands is reporting its financial results in five segments: Live, Learn, Work, Play and Other. The company has aligned its fifteen operating divisions for reporting purposes to the five segments as follows:

Segment – Divisions

  • Live Appliances & Cookware, Baby & Parenting, Food, Home Fragrance
  • Learn Writing & Creative Expression, Jostens, Fine Writing
  • Work Consumer & Commercial Solutions, Waddington, Safety & Security
  • Play Outdoor & Recreation, Fishing, Team Sports
  • Other Home & Family, Process Solutions, Held for Sale

First Quarter 2017 Operating Results

Net sales increased 148.4 percent to $3.3 billion, compared with $1.3 billion in the prior year, due to the inclusion of the acquired Jarden business and competitive core sales growth, partially offset by divestitures of Décor and Tools. Core sales grew 2.5 percent driven by strong growth on Baby and Appliances within the Live Segment, Writing and Jostens within the Learn segment, Waddington within the Work Segment, Team Sports and Beverages within the Play Segment and Process Solutions within the Other Segment. All four regions delivered core sales growth.

Reported gross margin was 34.2 percent compared with 38.5 percent in the prior year, as the benefits of synergies and productivity were more than offset by negative mix effects related to the Jarden transaction, input cost inflation and the adverse impact of foreign currency. Normalized gross margin was 34.5 percent compared with 38.6 percent in the prior year.

Reported operating income was $156 million, or 4.8 percent of sales, compared with $125 million, or 9.5 percent of sales, in the prior year. The margin decline reflected the negative mix effects related to the Jarden acquisition, increased investment related to the expansion of brand development, e-commerce, and insights, as well as costs associated with the delivery of synergies, the acquisition-related increase in amortization of intangibles and the negative impact from foreign currency, partially offset by increased net sales and the benefits from cost synergies and other savings. Normalized operating income was $348 million compared with $172 million in the prior year. Normalized operating margin was 10.6 percent of sales, compared with 13.1 percent in the prior year, reflecting the negative mix effects related to the Jarden acquisition, increased investment in brand development, e-commerce and insights, and the negative impact from foreign currency, partially offset by the benefits from cost synergies and other savings.

The reported tax rate for the quarter was 19.2 percent compared with 21.9 percent in the prior year. The normalized tax rate was 28.1 percent, compared with 27.2 percent in the prior year, related to mix from the inclusion of Jarden, the impact of the Tools divestiture and the absence of certain discrete tax benefits compared with the prior year.

The company reported net income of $639 million compared with net income of $40.5 million in the prior year, attributable to increased operating profits and a $784 million gain on the sale of the Tools business, which more than offset the negative impact of increased investment related to the expansion of brand development, e-commerce and insights, as well as costs associated with the delivery of synergies, the acquisition-related increase in amortization of intangibles, the negative impact from foreign currency and increased interest expense. Reported diluted earnings per share were $1.31 compared with diluted earnings per share of 15 cents in the prior year. Normalized net income was $164 million compared with $108 million in the prior year, attributable to increased operating profits, which more than offset increased interest expense. Normalized diluted earnings per share were 34 cents compared with 40 cents in the prior year. Reported and normalized earnings per share were negatively impacted by the higher share count related to the Jarden transaction.

Given the seasonality of the company’s businesses, operating cash flow was a use of $289 million compared with a use of $261 million in the prior year.

First Quarter 2017 Operating Segment Results

The Live segment generated net sales of $1.1 billion, an increase of 231.5 percent compared with $322 million in the prior year. Pro forma core sales growth of 2.7 percent was driven by the Baby, Appliances, Food Storage and Home Fragrance businesses, partially offset by softness in Cookware. Reported operating income was $57.6 million compared with $32 million in the prior year. Reported operating margin was 5.4 percent of sales compared with 9.9 percent of sales in the prior year. The year over year difference in reported results is largely due to the inclusion of the acquired Jarden businesses and unfavorable foreign exchange, partially offset by the benefit of cost synergies and other savings. Normalized operating income was $81 million versus $32 million last year. Normalized operating margin was 7.6 percent of sales, a decline of 230 basis points compared with the prior year.

The Learn segment generated net sales of $569 million, an increase of 47.9 percent compared with $385 million in the prior year. Pro forma core sales grew 7.6 percent driven by strong results from Writing and Jostens. Reported operating income was $88.2 million compared with $84.8 million in the prior year. Reported operating margin was 15.5 percent of sales compared with 22 percent in the prior year. Reported results versus prior year are primarily attributable to the contribution from and mix impact of Jostens as well as the negative margin mix effect of strong Elmer’s sales within Writing, partially offset by the benefit of cost synergies and other savings. Normalized operating income was $110 million versus $87.6 million last year. Normalized operating margin was 19.2 percent of sales, compared with 22.8 percent last year.

The Work segment generated net sales of $614 million, an increase of 128.5 percent compared with $269 million in the prior year. Pro forma core sales declined 2.9 percent, largely attributable to inventory destocking in the commercial distributor channel partially offset by strong growth from Waddington. Reported operating income was $62.9 million compared with $40.5 million in the prior year. Reported operating margin was 10.2 percent of sales compared with 15.1 percent in the prior year. Reported results versus prior year are primarily attributable to the contribution from and mix impact of certain legacy Jarden businesses, which was partially offset by the benefit of cost synergies and other savings. Normalized operating income was $74.4 million versus $40.6 million last year. Normalized operating margin was 12.1 percent of sales, compared with 15.1 percent last year.

The Play segment generated net sales of $628 million, an increase of 927.8 percent compared with $61.1 million in the prior year. Pro forma core sales grew 0.5 percent as solid growth on Beverages, Coolers and Team Sports was largely offset by substantial inventory destocking on Fishing and selected Coleman product categories. Reported operating income was $56.3 million compared with an operating loss of $2.1 million in the prior year. Reported operating margin was 9 percent of sales, versus a negative 3.4 percent in the prior year. Normalized operating income was $66.8 million versus an operating loss of $2.1 million in the prior year. Normalized operating margin was 10.6 percent of sales, compared with a negative 3.4 percent last year. In the year ago period, the Play Segment was comprised of the legacy Newell Rubbermaid Beverages and Cooler businesses and both the reported and normalized gross profit was more than offset by beverage growth investments in the first quarter of 2016.

The Other segment generated net sales of $388 million, an increase of 39.4 percent compared with $278 million in the prior year. Pro forma core sales increased 12 percent, reflecting solid growth from Process Solutions. Commodity driven price benefits on zinc contributed approximately $8 million of core sales growth, or just over 25 basis points to the core growth rate of Newell Brands. The balance of growth was largely driven by volume or distribution wins. Reported operating income was $4 million compared with $28.9 million in the prior year. Reported operating margin was 1 percent of sales, compared with 10.4 percent in the prior year. Reported results versus prior year are negatively impacted by one-time divestiture and other costs related primarily to the held for sale businesses. Prior year results include the full quarter results of Tools, which was divested on March 9, 2017. Normalized operating income was $37.4 million versus $31.2 million last year. Normalized operating margin was 9.6 percent of sales, compared with 11.2 percent last year.

Outlook For Twelve Months Ending December 31, 2017

Newell Brands reaffirmed its guidance for 2017 net sales and core sales growth, and raised its normalized earnings per share outlook.

Updated 2017 Full Year Outlook

  • Net sales – $14.52 bn to $14.72 bn
  • Net sales growth – 9.5 percent to 11 percent
  • Core sales growth 2.5 percent to 4 percent
  • Normalized earnings per share $3.00 to $3.20

The company raised its normalized earnings per share outlook to $3.00 to $3.20, compared with its previous guidance of $2.95 to $3.15. The guidance increase is driven by the solid start to the year and the latest view on timing of acquisitions and divestitures and foreign exchange. The company still expects the previously communicated 2017 tax rate of about 23 percent, driven by a one-time very low rate likely realized in the third quarter of 2017.

As of April 15, 2016, Newell Brands core sales include pro forma core sales associated with the Jarden transaction as if the combination occurred April 15, 2015. Core sales exclude the impact of foreign currency, acquisitions (other than the Jarden acquisition) until their first anniversary, and planned and completed divestitures. Beginning with the second quarter of 2016, the company is excluding the amortization of intangible assets associated with acquisitions from its calculation of normalized earnings per share.

Newell Brands’ brands include Paper Mate, Sharpie, Dymo, EXPO, Parker, Elmer’s, Coleman, Jostens, Marmot, Rawlings, Oster, Sunbeam, FoodSaver, Mr. Coffee, Rubbermaid Commercial Products, Graco, Baby Jogger, NUK, Calphalon, Rubbermaid, Contigo, First Alert, Waddington and Yankee Candle.

Photo courtesy Coleman