Newell Brands announced the expansion of the company’s Accelerated Transformation Plan, adding Jostens and Pure Fishing to the list of potential divestitures previously announced.

The company also announced the signing of a definitive agreement to sell The Waddington Group to Novolex Holdings LLC for approximately $2.3 billion. The company expects the transaction to be completed within approximately 60 days and result in after-tax proceeds of approximately $2.2 billion. Proceeds will be applied to deleveraging and share repurchase.

The company expects the expansion of its Accelerated Transformation Plan to accelerate value creation and more rapidly transform the portfolio to one best positioned to leverage the company’s advantaged capabilities in innovation, design and e-commerce. The plan is designed to significantly increase shareholder value through both meaningful returns of capital to shareholders and strengthened operational and financial performance, while simultaneously deleveraging the balance sheet.

Key components of the Accelerated Transformation Plan include:

  • Restructuring Newell Brands to a more than $9 billion global consumer products company with leading brands in seven core consumer divisions (Appliances & Cookware, Writing, Outdoor & Recreation, Baby, Food, Home Fragrance and Safety & Security);
  • Divesting non-core businesses representing approximately 35 percent of the company’s net sales (Jostens, Pure Fishing, Rubbermaid Commercial Products, Mapa/Spontex/Quickie, The Waddington Group, Process Solutions, Rawlings, Goody, Rubbermaid Outdoor/Closet/Refuse & Garage and U.S. Playing Cards) at value creating multiples;
  • Applying approximately $10 billion in after-tax proceeds from divestitures in combination with free cash flow from operations after dividends to debt repayment and significant accretive share repurchase and
    Maintaining the company’s commitment to investment-grade rating and to the annual dividend of 92 cents per share through 2019, growing thereafter within the target 30 to 35 percent payout ratio range.

“Our actions to focus the portfolio and create a global consumer goods company with net sales of greater than $9 billion will create significant value for shareholders through the strengthening of our operating performance and financial flexibility and the return of capital to shareholders from divestiture proceeds,” said Michael Polk, Newell Brands chief executive officer. “We are acting decisively to make Newell Brands a simpler, stronger and faster company, best positioned to leverage our competitively advantaged capabilities in innovation, design and e-commerce. The new portfolio will comprise seven category-based divisions with roughly 20 percent of their U.S. sales e-commerce derived, enabling our company to compete much more effectively in the rapidly changing retail environment. The focused portfolio will have a much simpler operational footprint that maintains the company’s strong route-to-market scale in North America, Europe and Latin America. Simplification will enable speed and agility to take costs out, bring innovations to market and accelerate the identification of future opportunities for growth and margin development.”

“The Board enthusiastically supports the Accelerated Transformation Plan and management’s efforts to drive it into action,” said Patrick Campbell, Newell Brands chairman of the board. “We are pleased at the announced sale of The Waddington Group at an attractive multiple and believe it is an encouraging early proof point of the plan’s potential. We look forward to working with Mike and the entire Newell Brands team to drive value creation for our shareholders.”

The divestiture process is well underway and the company expects to complete all transactions by the end of 2019. In 2020, the company expects net sales of approximately $9.5 billion and normalized operating margin greater than 15 percent. Longer term, the company expects to accelerate growth driven by superior brand building, e-commerce driven market share gains and international deployment and expects normalized operating margins in the high teens and free cash flow productivity of greater than 80 percent. Approximately 50 percent of the company’s new portfolio will be legacy Newell Rubbermaid businesses and approximately 50 percent legacy Jarden businesses.

All after-tax proceeds from divestitures are expected to be allocated to share repurchase and debt repayment. Those proceeds, in combination with free cash flow after dividends, are expected to enable the company to repurchase more than 40 percent of outstanding shares by 2020, assuming the current share price and deleverage the company to maintain an investment grade credit rating. The company reiterated the commitment to continue dividend at current per share levels through 2019, growing thereafter within the target 30 to 35 percent payout ratio range.

Execution of the Accelerated Transformation Plan will result in a dramatic simplification of the company’s operations:

  • 66 percent reduction in the number of manufacturing facilities;
  • 55 percent reduction in distribution centers;
  • 58 percent simplification of the company’s retailer and distributor interfaces;
  • 45 percent reduction in brands;
  • 39 percent reduction in number of employees;
  • effective elimination of its unbranded businesses and
  • reduction of more than 30 ERP systems to two by the end of 2019.

Newell Brands intends to right-size the company’s cost structure for the planned smaller net sales footprint, removing stranded corporate costs and recovering previously committed synergies lost through the divestitures.

First Quarter 2018 Executive Summary

Net sales were $3.0 billion, a 7.6 percent decline versus prior year, primarily reflecting the negative impact from 2017 divestitures net of acquisitions, the business disruption to the Baby business created by the Toys ‘R’ Us (“TRU”) reorganization and subsequent liquidation and significant inventory de-stocking in the Writing category’s office superstore and distributive trade channels. Core sales declined 3.5 percent driven largely by Writing and Baby.

The company reported diluted earnings per share were $0.11 compared with $1.31 in the prior year, with the decrease largely attributable to the absence of last year’s $784 million gain on the divestiture of the Tools business, loss of earnings related to the TRU bankruptcy and the impact of cost of goods and freight inflation, partially offset by the contributions from acquisitions, positive pricing in four of five segments, cost savings and synergies and a lower tax rate.

Newell normalized diluted earnings per share were $0.34, flat to the prior year, as cost savings and synergies, contributions from acquisitions, positive pricing and the benefits of a lower tax rate were offset by lost earnings from divested businesses, lower core sales volume and inflation.

The company reported operating margin was 3.9 percent; normalized operating margin was 8.7 percent.

Newell reaffirmed 2018 full year outlook for normalized diluted earnings per share of $2.65 to $2.85 and operating cash flow of $1.15 billion to $1.45 billion. The company now expects both metrics to be towards the lower end of the full year guidance range.

Full year core sales are expected to be flat to down low-single digit percent, with first half core sales down low to mid-single digits percent as a result of the TRU bankruptcy and significant inventory destocking in the Writing category related to the company’s drive to rapidly achieve revised retailer inventory targets established by new leadership and ownership in the office superstore and distributive trade channels. The company expects both Writing and Baby core sales to be down double digits percent in the second quarter.

First Quarter 2018 Operating Results

Net sales declined 7.6 percent to $3.0 billion, largely attributable to the negative impact from divestitures, net of acquisitions. Core sales declined 3.5 percent.

Reported gross margin was 33.3 percent compared with 34.2 percent in the prior year reflecting the negative mix effect of lower Writing sales and the impact of cost of goods and freight inflation, which more than offset the benefit from synergies and cost savings, lower integration and acquisition-related costs and positive price in four of five segments. Normalized gross margin was 33.3 percent compared with 34.5 percent in the prior year.

Reported operating income was $117 million, or 3.9 percent of sales, compared with $154 million, or 4.7 percent of sales, in the prior year, reflecting lower sales volumes and negative mix associated with Writing, the absence of approximately $12.0 million from 2017 divested businesses and a one-time bad debt charge of $21.6 million related to the TRU bankruptcy, partially offset by contributions from acquisitions, positive pricing, synergies and cost savings of $66 million and a reduction of approximately $100 million in integration and acquisition-related costs versus prior year. Normalized operating income was $262 million compared with $346 million in the prior year. Normalized operating margin was 8.7 percent compared to 10.6 percent in the prior year.

The reported tax expense for the quarter was a benefit of $51.3 million compared with a 19.2 percent tax rate in the prior year, primarily driven by net discrete tax benefits associated with integration of certain legal entities. The normalized tax rate was a benefit of 11.5 percent, compared with a 28.1 percent expense in the prior year.

The company reported net income of $53.3 million compared with $639 million in the prior year, primarily attributable to a $784 million gain on the sale of the Tools business in the prior year, the absence of earnings contribution from divested businesses and the impact of reduced sales volume, partially offset by synergies and a lower tax rate. Reported diluted earnings per share were $0.11 compared with $1.31 in the prior year. Normalized net income was $164 million, or $0.34 per share, flat as compared with $164 million, or $0.34 per share, in the prior year.

Operating cash flow was a use of $402 million, compared with a use of $264 million in the prior year, reflecting a $135 million cash tax payment in the current year on the 2017 gain on sale of the Tools business and the timing of working capital movements.

A reconciliation of reported results to normalized results is included in the tables attached to this release.

First Quarter 2018 Operating Segment Results

The Live segment generated net sales of $1.1 billion, a 0.4 percent increase compared with $1.1 billion in the prior year. Core sales declined 3.1 percent, as growth in Appliances & Cookware was more than offset by a high single digit decline in Baby largely attributable to the bankruptcy filing and subsequent liquidation of the Baby division’s top global customer, TRU. Reported operating income was $8.6 million compared with $58.3 million in the prior year. Reported operating margin was 0.8 percent of sales compared with 5.5 percent of sales in the prior year. The contraction is largely related to sourced finished goods and freight cost inflation, the absence of planned income related to lost Baby sales associated with the TRU liquidation and a bad debt charge of $21.6 million related to TRU receivables. Normalized operating income was $54.1 million versus $81.7 million last year. Normalized operating margin was 5.0 percent of sales compared with 7.7 percent in the prior year.

The Learn segment generated net sales of $495 million, a 13.0 percent decline compared with $569 million in the prior year. Core sales declined 14.3 percent, primarily attributable to a decline in Writing related to significant contraction of the U.S. office superstore and distributive trade channels reflecting the company’s choice to accelerate achievement of customers’ new inventory targets and restructure its Writing go-to-market programming in the U.S. Reported operating income was $50.0 million compared with $88.6 million in the prior year. Reported operating margin was 10.1 percent of sales compared with 15.6 percent in the prior year, with the decline largely driven by the impact of lower sales volume and negative mix. Normalized operating income was $70.3 million compared with $110 million in the prior year. Normalized operating margin was 14.2 percent of sales compared with 19.3 percent last year.

The Work segment generated net sales of $641 million, a 4.4 percent increase compared with $614 million in the prior year. Core sales grew 5.5 percent, attributable to continued strong growth from Waddington and Safety & Security. Reported operating income was $63.3 million compared with $62.6 million in the prior year. Reported operating margin was 9.9 percent of sales, compared with 10.2 percent in the prior year, driven by the negative impact of commodity inflation partially offset by positive price and the impact of cost savings and synergies. Normalized operating income was $74.7 million versus $74.1 million last year. Normalized operating margin was 11.7 percent of sales compared with 12.1 percent last year.

The Play segment generated net sales of $617 million, a 1.8 percent decline compared with $628 million in the prior year. Core sales declined 2.6 percent, as strong growth from Team Sports was offset by a decline at Outdoor & Recreation driven by lost Aerobed distribution in the U.S. Reported operating income was $54.4 million compared with $56.1 million in the prior year. Reported operating margin was 8.8 percent of sales versus 8.9 percent in the prior year. Normalized operating income was $64.5 million versus $66.6 million in the prior year. Normalized operating margin was 10.5 percent of sales compared with 10.6 percent last year.

The Other segment generated net sales of $193 million, a decline of 50.2 percent compared with $388 million in the prior year largely due to the divestitures of the Tools, Winter Sports, Fire Starter and Fire Log, and Cordage businesses. Core sales declined 4.1 percent, primarily attributable to coinage timing- related weakness in Process Solutions, partially offset by growth in U.S. Playing Cards. Reported operating income of $12.5 million compared with $4.0 million in the prior year. Reported operating margin was 6.5 percent of sales, compared with 1.0 percent in the prior year. Normalized operating income was $25.7 million versus $37.4 million last year. Normalized operating margin was 13.3 percent of sales compared with 9.6 percent last year. The decrease in normalized income relates largely to the lost earnings associated with 2017 divested businesses and the increase in normalized margin reflects improved product mix and the positive impact of pricing and cost synergies and savings.

Outlook for the Twelve Months Ending December 31, 2018

Newell Brands’ 2018 guidance assumes continued ownership of all businesses for the entire calendar year and, in that context, the company reaffirmed net sales guidance and normalized EPS and operating cash flow guidance as follows:

2018 Full Year Outlook

  • Net Sales – $14.4 billion to $14.8 billion
  • Normalized Earnings per Share – $2.65 to $2.85
  • Operating Cash Flow – $1.15 billion to $1.45 billion

The company expects to absorb a 7 to 10 cent negative impact to normalized EPS within full year normalized EPS guidance range related to the TRU liquidation, with the most significant negative impact in the second quarter.

The company now expects first half core sales growth to decline low to mid-single digits percent relating to the negative impact of the TRU liquidation, the comparison against the prior year Elmer’s Slime pipeline build and the company’s drive to rapidly achieve revised retailer inventory targets established by new leadership and ownership in the office superstore and distributive trade channels. As a result, full year core sales are expected to be flat to down low-single digit percent.

Core sales in 2018 are calculated on a constant currency basis in line with industry practice. Core sales guidance excludes the impact of foreign currency, acquisitions until the first anniversary and completed divestitures.

Full year 2018 weighted average share count is projected at approximately 489 million shares, assuming no share repurchase. The full year 2018 tax rate is projected at 20 to 21 percent. Net sales guidance reflects new revenue recognition standards implemented January 1, 2018, resulting in a reduction in net sales of approximately $300 million with no earnings impact.