Moody’s Investors Service lowered Newell Brands, Inc.’s debt rating outlook to negative from stable to reflect elevated risks over the next 12 to 18 months that inflation will persist and consumers will remain pressured for the remainder of this year.
Moody’s also said Newell’s financial performance could remain weak for a prolonged period, resulting in weak cash flow and persistent elevated financial leverage.
Newell Brands, Inc.’s Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating (“PDR”), Ba1 senior unsecured debt instrument ratings, and NP (not prime) commercial paper ratings were affirmed. The outlook for the speculative grade liquidity rating (SGL) was downgraded to SGL-3 from SGL-2.
The affirmation reflects Newell’s large-scale brands, geographic diversification and adequate cash flow; however, the company’s operating performance continues to be negatively impacted by high inflationary pressures on consumers and the curtailment of purchasing by retailers, all of which have resulted in double-digit sales and earnings declines across Newell’s operating segments. The company’s ability to take pricing actions to offset low-volume demand also is limited in Moody’s view. The persistent inflationary environment continues to burden consumers and curtail purchases of discretionary products, including fragrance, food storage, small appliances, cookware, and recreational goods. Moody’s expects Newell’s segments to have some recovery starting in the fourth quarter of 2023; however, downside risks remain that a prolonged inflationary environment could put additional pressure on consumers and derail this recovery.
Newell’s aggressive shareholder distribution policy, with a high dividend payout, further detracts from free cash flows and the company’s ability to quickly curtail its high debt-to-EBITDA leverage at 6.25x as of March 31, 2023.
Moody’s said in its analysis, “On a base case scenario, Moody’s expects some recovery in discretionary consumer purchases starting in 2024 as inflation moderates and consumer purchasing recovers. Newell’s performance may start to improve by Q4 2023 despite weak demand, given that Q4 2022 orders were depressed due to retail inventory destocking. Moody’s also expects Newell to generate about $100 million of annual free cash flows after dividends largely due to a reduction in working capital, and financial leverage to moderate to around 4.5x to 4.75x Moody’s debt-to-EBITDA over the next 12-18 months. However, a prolonged recession and the company’s continued high dividend payment could curtail the rapid deleveraging needed to maintain the current ratings.
“The downgrade to SGL-3 reflects that the company’s cash flow generation ability has weakened in this inflationary environment while it continues to pay a high dividend. This is resulting 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 at above 3.0x over the next four quarters. Newell’s adequate liquidity reflects cash on hand of $271 million as of March 31, 2023 and unused capacity of $720 million 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 $90 million as of March 31, 2023. However this facility is set to expire in October 2023. The company’s next maturity is in December 2024 when $200 million of notes come due.”
Newell’s brands include Rubbermaid, Sharpie, Graco, Coleman, Rubbermaid Commercial Products, Yankee Candle, Paper Mate, FoodSaver, Dymo, EXPO, Elmer’s, Oster, NUK, Spontex, and Campingaz.
Photo courtesy Newell Brands
