Newell Brands said sales at its Outdoor & Recreation segment, which includes Coleman and Marmot, fell 20.3 percent to $353 million from $443 million a year ago. The decline reflected a core sales decline of 21.5 percent and the impact of unfavorable foreign exchange.
The segment also includes Chesapeake Bay Candle, Contigo, ExOfficio, First Alert, WoodWick, and Yankee Candle.
Reported operating income in the segment was $25 million, or 7.1 percent of sales, compared with $40 million, or 9.0 percent of sales, in the prior-year period. Normalized operating income was $33 million compared with $53 million in the prior-year period. Normalized operating margin was 9.3 percent compared with 12.0 percent in the prior-year period.
Companywide, Newell reported net sales were $2.1 billion, a 14.9 percent decline compared to the prior-year period, reflecting a 12.6 percent decrease in core sales largely related to the business disruption caused by the global COVID-19 pandemic as well as the unfavorable impact of foreign exchange.
Reported operating income was $163 million compared with operating income of $231 million in the prior-year period. The reported operating margin was 7.7 percent compared with 9.3 percent in the prior-year period. Normalized operating income was $215 million, or 10.2 percent of sales, compared with $303 million, or 12.2 percent of sales, in the prior-year period.
“We are encouraged by the current trends of our business, including top-line improvement throughout the quarter, very strong consumption patterns in a number of our categories, and the progress we are making against key tenets of our turnaround plan, despite the challenging operating and economic environment caused by the global coronavirus pandemic,” said Ravi Saligram, Newell Brands President and CEO. “Three of eight business units delivered core growth in the second quarter, eCommerce sales continued to accelerate and the company as a whole delivered modest core sales growth in the month of June. While the macros remain uncertain and difficult, we continue to expect results in the back half of the year to improve relative to the second quarter. We remain confident in our liquidity position and our ability to successfully navigate during these unprecedented times.”
Chris Peterson, Chief Financial Officer and President, Business Operations, said, “Newell’s second-quarter financial results, although negatively impacted by the global pandemic, were ahead of our internal expectations as we saw significant improvement in trends from month to month during the quarter. Supply chain conditions have improved significantly, with all manufacturing and distribution centers currently open. We delivered operational improvements across the enterprise in line with our turnaround plan, including accelerated progress on SKU reduction, Project FUEL productivity savings and overhead cost actions. Cash flow has remained quite strong, with year to date operating cash flow improving $141 million versus our year ago results, reflecting strong progress on working capital initiatives.”
COVID-19 Update
During the second quarter of 2020, Newell Brands continued to experience COVID-19 related disruption to its business. The headwinds were most prominent in April, with certain key business trends improving sequentially since then during each consecutive month. The three primary areas that were impacted by COVID-19 were:
- Supply chain – In the first half of the second quarter, the company experienced significant supply chain disruption. Of its 135 manufacturing and distribution facilities, nearly 20 were temporarily closed, the most significant of which were its South Deerfield, MA, Home Fragrance plant, its Mexicali, Mexico, Writing facility, and its Juarez, Mexico, Connected Home & Security facility, which were temporarily shut down in line with government guidelines. Since that time, virtually all manufacturing and distribution facilities have re-opened, although the company continues to work to build inventory to replace lost production during the period of downtime.
- Retail – While Newell Brands’ largest retail customers remained open and in fact experienced a surge in sales, a number of secondary customers, primarily in the specialty and department store channels, temporarily closed their brick and mortar stores toward the end of the first quarter. These dynamics, in combination with some retailers’ prioritization of essential items in the early days of the pandemic, had a meaningful negative impact on retailer order patterns. In addition, Newell Brands temporarily closed its Yankee Candle retail stores in North America in mid-March. As the national and global economy began to re-open in the latter part of the second quarter, customer order patterns began to return to a more normal cadence, with the impacted retailers slowly reopening doors.
- Consumer demand patterns – Over the course of the second quarter consumer demand patterns accelerated for the organization as a whole, with higher sell-through at U.S. retail customers on a year over year basis, driven by strong consumer demand in the Food, Commercial and Appliances & Cookware businesses, and more recently the Outdoor & Recreation business. These trends have continued into July.
The ultimate impact of COVID-19 on the third quarter and full-year 2020 is unknown at this time, as it is difficult to predict the trajectory and pace of the virus, the duration of social distancing and shelter-in-place mandates, the timing of school and office re-openings, and the timing and extent of economic recovery. The company continues to expect that it will deliver sequentially improved financial results in the back half of the year. Due to the uncertain and highly dynamic outlook for the global economy, however, the company is not issuing guidance for the third quarter or full year 2020.
In the early days of the pandemic, Newell Brands focused on three key priorities: safeguarding the health and well-being of its employees, protecting profitability and operating cash flow, and maintaining business continuity despite supply chain disruption. While continuing to address these three issues, management’s focus has also pivoted to accelerating the turnaround plan, including SKU count reduction, driving gross margin productivity through the company’s Project FUEL, taking swift and decisive actions to reduce overhead costs, and applying even more rigorous discipline to optimize working capital.
During the second quarter, the company launched a restructuring program to streamline business operations and reduce overhead costs. The company recorded $8 million in charges associated with the program in the second quarter and expects to record aggregate charges of approximately $10 million in 2020.
Newell Brands said it is confident in its strong financial position and believes it has sufficient flexibility to navigate through this volatile period.
Newell Brands include Paper Mate, Sharpie, Dymo, EXPO, Parker, Elmer’s, Coleman, Marmot, Oster, Sunbeam, FoodSaver, Mr. Coffee, Rubbermaid Commercial Products, Graco, Baby Jogger, NUK, Calphalon, Rubbermaid, Contigo, First Alert, Mapa, Spontex and Yankee Candle.
