Moody’s Investors Service affirmed Newell Brands, Inc.’s debt ratings. The affirmation reflects Newell’s large-scale and good operating performance from sustained organic growth and operating profit margins despite the current inflationary period.
Moody’s said that although the company continues to execute well on its commitment to return to organic growth, reduce financial leverage and maintain a more conservative financial policy, risks remain elevated over the next 6-12 months that its performance will be negatively impacted by inflationary pressure on consumers.
Moody’s expects that inflationary pressures will remain for the remainder of this year and into next year, and this will dampen consumer spending in discretionary segments such as home fragrance, small home appliances, and outdoor & recreational. The company’s ability to take pricing actions to offset volume declines may also be limited during this period as consumers continue to reduce discretionary spending due to rising food and fuel costs. Uncertainty and downside risks remain high during this period; however, Moody’s believes Newell’s focus will be to maintain a moderate financial policy.
Moody’s expects financial leverage to be maintained at just below 3.75x debt-to-EBITDA over the next 12-to-18 months compared to 4.0x as of June 30, 2022. Newell has a stated target net debt-to-EBITDA leverage ratio of 2.5x (based on the company’s calculation) compared to 3.4x as of June 30, 2022, which indicates the company will remain focused on reducing and sustaining leverage at lower levels. Moody’s also expects the company to generate a free cash flow of around $250 million to $275 million over the next 12-18 months, which it could use towards debt repayment, if needed, to offset any profit erosion caused by the current environment. Moody’s believes management’s track record is improving as the company’s strategic direction over the past three years has been consistent, and management remains focused on improving margins through initiatives focused on cost reduction and integration of businesses acquired years ago. The company is also focused on international expansion, which should help offset some inflationary headwinds. The SGL-1 reflects Newell’s excellent liquidity with cash on hand of $323 million and $1.25 billion available under the unsecured revolving credit facility expiring in December 2023. The company has $1.1 billion in bonds that mature in April 2023. Moody’s expects the company will seek to proactively refinance the maturity though there is sufficient revolver availability to fund the maturity in the event market access is restricted.
The positive outlook reflects Moody’s expectation that Newell will continue to prioritize reducing leverage to their stated target goal and that operating performance will remain stable despite inflationary headwinds. Moody’s expects free cash flow to improve meaningfully in 2023 from a weak near break-even level in 2022 due to a reduction in inventory and working capital from elevated levels that is consuming meaningful cash in 2022
The debt ratings affirmed include Newell’s Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating, Ba1 unsecured debt instrument ratings, and Not Prime commercial paper rating. The outlook remains positive, and the Speculative Grade Liquidity Rating remains unchanged at SGL-1.
Newell’s Outdoor & Recreation segment includes Aerobed, Bubba, Campingaz, Coleman, Contigo, ExOfficio, Marmot, and Stearns. Its portfolio of brands also includes Rubbermaid, FoodSaver, Calphalon, Sistema, Sharpie, Paper Mate, Dymo, EXPO, Elmer’s, Yankee Candle, Graco, NUK, Rubbermaid Commercial Products, Spontex, Oster, Sunbeam, and Mr. Coffee. The Outdoor & Recreation segment makes up about 14 percent of sales.