Moody’s downgraded the debt ratings of Newell Brands due to continued pressure on Newell’s business segments and profitability from weaker consumer demand and inventory destocking, which Moody’s anticipates will continue for the remainder of 2023 and into early next year.

Moody’s said Newell Brands’ operating performance continues to be negatively impacted by high-cost inflation, which has pressured Newell’s margins, as well as lower discretionary spending by consumers who have been squeezed by the higher price of most essentials. In addition, reduced purchasing by retailers seeking to lower inventory costs due to the diminished demand and some disruption stemming from bankruptcy closings by Bed, Bath & Beyond have compounded the challenges. 

Together these issues have resulted in double-digit sales and earnings declines across most of Newell’s operating segments. Additionally, the company’s ability to take pricing actions to offset lower volume is limited in Moody’s view, given the discretionary nature of most products. Moody’s added that the persistent inflationary environment continues to burden consumers who have reduced purchases of discretionary products such as home fragrance, food storage, small appliances, cookware, and recreational goods. Downside risks remain that a prolonged inflationary environment or a recession could put additional pressure on consumers and delay recovery well into mid-2024.

 Moody’s said it expects some recovery in discretionary consumer purchases starting in the first half of 2024 as inflation moderates and consumer purchasing recovers absent a deep recession. Furthermore, Newell’s operating performance will stabilize in the second half of 2023 despite persistent weak consumer demand when it cycles through the second half of 2022, which was materially weaker due to retail inventory destocking. 

Moody’s expects sales will end the full year 2023 about 13 percent lower than in 2022, while EBIT margins will be weak at around 6.75 percent. Moody’s expects Newell to generate about $125 million to $225 million of annual free cash flows (after payment of an already 70 percent reduced dividend) over the next year, primarily due to a reduction in working capital. As measured by Moody’s debt-to-EBITDA, financial leverage is expected to peak at around 6.25x by the year-end 2023 and then moderate to approximately 5.0x by the end of 2024. However, prolonged weak demand could curtail the rapid deleveraging needed to maintain the current ratings.

 Newell Brands’ ratings affected its Corporate Family Rating (CFR) to Ba2 from Ba1, its Probability of Default Rating (PDR) to Ba2-PD from Ba1-PD, and its senior unsecured debt instrument ratings to Ba2 from Ba1. The commercial paper rating was affirmed at NP (not prime). The outlook remains negative, and the speculative grade liquidity rating (SGL) remains unchanged at SGL-3.

Moody’s negative outlook reflects elevated risks over the next 12-to-18 months that inflation may persist or a recession could materialize, resulting in consumers remaining cautious with discretionary purchases. Given the discretionary nature of some of Newell’s products, its operating performance could remain weak for a prolonged period resulting in weaker cash flow and persistent elevated financial leverage.

 The SGL-3 reflects the company’s weaker-than-usual cash flow generation ability, which Moody’s expects will remain below historic levels despite significantly reducing its dividend; this will result in greater reliance on its revolving credit facility to support seasonal working capital needs and a narrower cushion in the company’s revolver covenant requirement to maintain an EBITDA to interest expense ratio (bank defined) at above 3.0x over the next three quarters. Newell’s adequate liquidity reflects cash on hand of $317 million as of June 30, 2023, of which approximately 84 percent was held outside the US. 

The company also had approximately $950 million of unused capacity under its $1.5 billion unsecured revolving credit facility, expiring in August 2027 (unrated). The company also has a committed $375 million receivable securitization facility with borrowings of $66 million; however, this facility is set to expire in October 2023. The company’s next maturity is $200 million of notes due in December 2024 and $500 million of notes due in June 2025.

S&P Global Ratings on August 4 similarly lowered its rating on Newell.

Newell’s outdoor lifestyle brands include Coleman, Marmot, Ex Officio, Stearns, Bubba, and Contigo. Its other brands include Rubbermaid, Sharpie, Graco, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex, and Campingaz.

Photo courtesy Marmot