HOBOKEN, N.J.--(BUSINESS WIRE)--Newell Brands (NYSE:NWL) today announced its second quarter 2018 financial results.
Second Quarter 2018 Executive Summary
- Completed divestitures of The Waddington Group and Rawlings Sporting Goods Company, Inc. and divestiture processes initiated on all other assets held for sale as part of the company’s Accelerated Transformation Plan.
- The company has reported discontinued operations for businesses divested in 2018 or currently held for sale and has reorganized businesses in continuing operations into new operating segments.
- Net sales from continuing operations were $2.2 billion, compared with $2.5 billion in the prior year, reflecting the lost sales from divestitures completed in 2017, the negative impact of the adoption of the 2018 revenue recognition standard, and a decline in core sales primarily attributable to the retailer disruption to the Baby business created by the liquidation of Toys ‘R’ Us stores in the U.S., significant inventory destocking in the Writing office superstore and distributive trade channels and the absence of the prior year Slime pipeline build on Elmer’s.
- Reported operating margin for continuing operations was 3.8 percent compared to 3.7 percent in the prior year; normalized operating margin for continuing operations was 10.9 percent compared to 12.4 percent in the prior year.
- Core sales declined 6.2 percent for the total company, driven largely by a 14.5 percent decline in the Learning & Development Segment (Writing and Baby), and softness in the coolers, tents and fresh preserving businesses related to the late start to Spring in most of the U.S.
- Reported diluted earnings per share for the total company were $0.27 compared with $0.46 in the prior year, with the decrease largely attributable to the loss on the sale of Rawlings, impairment charges, principally on assets held in discontinued operations, and the impact of lower sales volume, which more than offset the benefit from cost savings and the gain on the sale of Waddington.
- Normalized diluted earnings per share for the total company were $0.82, compared with $0.87 in the prior year, as cost savings and synergies were offset by core sales volume declines, unfavorable mix related to lower Writing sales volume and inflation.
- Operating cash flow was $11.2 million, compared with $56.8 million in the prior year, as prior year results included a significant one-time working capital benefit related to a business divested in 2017.
- Gross debt was $10.5 billion, $900 million lower than prior year; net debt was $8.2 billion, $2.4 billion lower than prior year.
- The 2018 full year outlook adjusted for discontinued operations reporting and completed divestitures is net sales of $8.7 billion to $9.0 billion (which includes sales from continuing operations only), normalized EPS of $2.45 to $2.65 and operating cash flow of $900 million to $1.2 billion.
- The company expects second half normalized operating margins of 12.0 percent to 12.4 percent and core sales growth to sequentially improve from down low single digits percent in Q3 2018 to up low single digits percent in Q4 2018. Both metrics include only results from continuing operations.
“Newell Brands drove the Accelerated Transformation Plan into action in the second quarter, beginning a period of significant change to both our portfolio and organization,” commented Michael Polk, President and Chief Executive Officer of Newell Brands. “We announced and completed the divestitures of Waddington and Rawlings and are well into the sale processes on all other businesses held for sale. We also took significant steps to right-size our organization for the scale of our new portfolio, with changes announced and actioned between May and August. We continue to prioritize deleveraging, with gross debt in Q2 2018 $900 million below prior year and plans in motion to de-lever by nearly an incremental $900 million by the end of Q3 2018. In the context of these significant changes and a very challenging U.S. retail environment, we delivered second quarter results generally in line with expectations. While there is much more to do, we are acting decisively to make Newell Brands a simpler, faster and stronger company.”
“Reigniting performance on our continuing businesses is a critical priority and we expect sequential improvement in our operating results in the back half of 2018 despite increased inflation, worsening foreign exchange and the negative impact of tariffs,” continued Polk. “While the retail landscape remains difficult, consumer macros are generally good and we expect core sales on our continuing businesses to recover to growth by the fourth quarter, with margins improving as a result of strong savings programs and broad-based price increases. Adjusted for the estimated negative 20 cents per share impact in the second half of 2018 related to the divestiture of Waddington and Rawlings, we expect to deliver between $2.45 and $2.65 of normalized EPS in 2018.”
Second Quarter 2018 Operating Results
As of June 30, 2018, Newell Brands reported discontinued operations for the business divestitures completed in 2018 (Waddington and Rawlings) and planned (Jostens, Pure Fishing, Consumer & Commercial Solutions, Process Solutions, Goody and U.S. Playing Cards). Under generally accepted accounting principles (GAAP), all overhead costs and interest expense not directly related to discontinued operations may not be allocated to discontinued operations and thus are allocated to continuing operations, which has a negative effect on margins and profitability. The company has initiated cost actions to fully offset the stranded overhead and plans to deleverage quickly to reduce the interest expense burden.
Net sales were $2.2 billion, compared to $2.5 billion in the prior year, largely attributable to the new revenue recognition standard, lost sales from divestitures completed in 2017, and the transitory but significant volume declines in Baby related to the Toys ‘R’ Us liquidation of U.S. stores and in Writing related to significant inventory destocking in the office superstore and distributive trade channels. Total company core sales declined 6.2 percent, driven largely by a 14.5 percent decline in the Learning & Development Segment (Writing and Baby) and softness in the coolers, tents and fresh preserving businesses related to the late start to Spring in most of the U.S. For the second quarter 2018, total company core sales include the Waddington and Rawlings businesses prior to divestiture.
Reported gross margin was 35.2 percent compared with 34.7 percent in the prior year, as the benefit from cost savings, synergies and lower integration and acquisition-related costs more than offset the impact of input cost inflation and the negative mix effect of lower Writing sales. Normalized gross margin was 35.1 percent compared with 35.6 percent in the prior year.
Reported operating income was $84.2 million, or 3.8 percent of sales, compared with $92.3 million, or 3.7 percent of sales, in the prior year, reflecting the impact of synergies, cost savings and lower integration and acquisition-related costs, offset by input cost inflation and negative mix associated with lower Writing sales. Normalized operating income was $239 million compared with $313 million in the prior year. Normalized operating margin was 10.9 percent compared to 12.4 percent in the prior year.
The reported tax expense for the quarter was $53.0 million compared with a benefit of $71.5 million in the prior year, primarily driven by prior year tax benefits associated with integration of certain legal entities. The normalized tax rate was 4.6 percent, compared with 5.5 percent in the prior year.
The company reported total net income of $132 million compared with $223 million in the prior year. Continuing operations posted a net loss of $76.1 million compared with net income of $16.6 million last year, with the decline primarily attributable to the transitory but significant sales volume decline on Baby and Writing, and $53.0 million in tax expense as compared with a benefit of $71.5 million in the prior year, partially offset by significant costs savings and a reduction in integration and restructuring charges. Discontinued operations contributed net income of $208 million, including a $598 million gain related to the sale of the Waddington business, an impairment charge of $454 million related to the Process Solutions business and a loss of $136 million related to the sale of the Rawlings business, compared with $206 million in the year-ago period. Reported diluted earnings per share for the total company were $0.27 compared with $0.46 in the prior year. Normalized net income for the total company was $401 million, or $0.82 per share, compared with $422 million, or $0.87 per share, in the prior year.
Operating cash flow was $11.2 million, compared with $56.8 million in the prior year as prior year results included a significant one-time working capital benefit related to a business divested in 2017. Current year results were driven by positive working capital movements, lower cash restructuring costs and lower cash taxes.
A reconciliation of reported results to normalized results is included in the tables attached to this release.
New Reporting Segments
As of June 30, 2018, Newell Brands is reporting its financial results in three segments: Food & Appliances, Home & Outdoor Living and Learning & Development. The Other segment includes results for businesses that were divested during 2017. The company has aligned its seven continuing operating divisions for reporting purposes to the three segments as follows:
| Segment | Divisions |
| Food & Appliances | Appliances & Cookware Food |
| Home & Outdoor Living | Outdoor & Recreation Home Fragrance Connected Home & Security (formerly Safety & Security) |
| Learning & Development | Writing Baby |
The Home & Outdoor Living segment generated net sales of $742 million compared with $795 million in the prior year. Net sales versus prior year were negatively impacted by the new 2018 revenue recognition standard, Home Fragrance softness in EMEA and weakness on Outdoor related to the late Spring and some lost distribution in the U.S., partially offset by strong growth on First Alert and Home Fragrance in U.S. mass channel. Reported operating income was $9.4 million compared with $39.6 million in the prior year. The contraction is largely due to higher restructuring costs, other one-time costs, and lower sales volume on the U.S. Outdoor and EMEA Home Fragrance businesses. Reported operating margin was 1.3 percent of sales compared with 5.0 percent in the prior year. Normalized operating income was $50.5 million compared with $60.0 million in the prior year. Normalized operating margin was 6.8 percent of sales compared with 7.5 percent last year.
The Learning & Development segment generated net sales of $839 million compared with $990 million in the prior year. Net sales versus prior year were negatively impacted by the new 2018 revenue recognition standard, core sales declines due to the retailer disruption to the Baby business created by the Toys ‘R’ Us liquidation of its stores in the U.S., significant inventory destocking in the Writing category’s office superstore and distributive trade channels, and the absence of 2017 pipeline build on Slime by Elmer’s. Reported operating income was $196 million compared with $224 million in the prior year. Reported operating margin was 23.3 percent of sales, compared with 22.6 percent in the prior year. The improvement in operating margin was due to significant progress on productivity, reduced customer programming, and strong synergy and savings impact, partially offset by inflation and fixed cost absorption related to Writing finished goods inventory reduction. Normalized operating income was $208 million versus $237 million last year. Normalized operating margin was 24.8 percent of sales compared with 23.9 percent last year.
Outlook for the Twelve Months Ending December 31, 2018
Newell Brands’ adjusted 2018 full year guidance for normalized EPS and operating cash flow assumes full year ownership of all businesses held for sale, with the exception of the Waddington and Rawlings businesses which were divested as of June 29, 2018. The 2018 adjustments to full year guidance for the divestiture of Waddington and Rawlings are approximately $0.20 of normalized EPS and $250 million of operating cash flow, including incremental cash taxes on the transactions.
The 2018 full year guidance adjusted for the divestiture of Waddington and Rawlings and net sales guidance adjusted for discontinued operations treatment is as follows:
| Previous2018 Full Year Outlook | Adjusted2018 Full Year Outlook | |
| Net Sales | $14.4bn to $14.8bn | $8.7bn to $9.0bn |
| Normalized Earnings per Share Operating Cash Flow | $2.65 to $2.85 $1.15bn to $1.45bn | $2.45 to $2.65 $0.9bn to $1.2bn |
Interest expense is now expected to be favorable to prior outlook as a result of accelerated deleveraging related to the allocation of deal proceeds. Tax rate is now expected to be favorable to prior guidance due to new tax planning benefits. Full year 2018 weighted average share count is now projected at approximately 480 million shares with weighted average share count estimated at 475 million in Q3 2018 and 470 million in Q4 2018 as a result of share repurchases related to allocation of deal proceeds in the second half of 2018.
The company expects second half normalized operating margins of 12.0 percent to 12.4 percent and core sales growth to sequentially improve from down low single digits percent in Q3 2018 to up low single digits percent in Q4 2018. Both measures include only results from continuing operations. Core sales in 2018 is calculated on a constant currency basis in line with industry practice. Core sales guidance excludes the impact of foreign currency, acquisitions until their first anniversary and completed divestitures.
The company has presented forward-looking statements regarding normalized earnings per share for the total company and normalized operating margin on continuing operations for second half 2018. These non–GAAP financial measures are derived by excluding certain amounts, expenses or income from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because such information is not available and management cannot reliably predict all of the necessary components of such GAAP measure without unreasonable effort or expense. In addition, we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the company's full-year 2018 financial results.
About Newell Brands
Newell Brands (NYSE: NWL) is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Jostens®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert®, and Yankee Candle®. For hundreds of millions of consumers, Newell Brands makes life better every day, where they live, learn, work and play.
This press release and additional information about Newell Brands are available on the company’s website, www.newellbrands.com.
