Newell Brands Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 20, 2024. Newell Brands is a global consumer-products company selling brands including Rubbermaid, Sharpie, Graco, Coleman and Yankee Candle. The company reports three segments: Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation.
Financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $8.133 billion | $9.459 billion |
| Gross profit / margin | $2.353 billion / 28.9% | $2.834 billion / 30.0% |
| Operating income (loss) / margin | $(85) million / (1.0)% | $312 million / 3.3% |
| Net income (loss) | $(388) million | $197 million |
| Diluted EPS | $(0.94) | $0.47 |
| Cash provided by (used in) operations | $930 million | $(272) million |
| Capital expenditures | $284 million | $312 million |
| Total debt at year-end | $4.904 billion | $5.377 billion |
- Revenue fell 14.0%. Management cited soft demand, retailer inventory rebalancing, distribution losses and category exits; pricing partly offset the declines. Foreign exchange reduced sales by $38 million.
- Gross margin contracted 1.1 percentage points, reflecting lower volume and fixed-cost absorption, promotions to reduce elevated inventory, inflation and restructuring-related costs, partly offset by pricing and productivity.
- Interest expense, net rose 20.4% to $283 million; the weighted-average interest rate increased to 5.2% from 4.3%. Other expense, net was $175 million, including $126 million of pension settlement and non-service costs.
- Operating cash flow improved by $1.202 billion year over year, mainly from reduced working capital and lower incentive compensation payments, partly offset by operating losses and higher restructuring payments. Inventory declined to $1.531 billion from $2.203 billion.
- Year-end cash and cash equivalents were $332 million, including approximately $298 million held outside the U.S. The company reported $930 million of operating cash flow and $664 million of cash used in financing activities in 2023.
- Current assets were $3.354 billion and current liabilities $2.897 billion at year-end. The company reported approximately $1.3 billion of net availability under its $1.5 billion revolving credit facility at December 31, 2023; the facility was amended in February 2024, as described below.
Segment performance
| Segment | FY2023 sales | Change | FY2023 operating result |
|---|---|---|---|
| Home and Commercial Solutions | $4.428 billion | (14.7)% | $37 million income |
| Learning and Development | $2.706 billion | (8.3)% | $213 million income |
| Outdoor and Recreation | $999 million | (24.0)% | $(83) million loss |
Segment comparisons reflect the reporting structure adopted in 2023, with prior-year segment results reclassified. Learning and Development operating income fell substantially, including a $241 million non-cash Baby goodwill impairment; Outdoor and Recreation results were pressured by lower volume, promotions, inflation and a $22 million tradename impairment.
Material changes and unusual items
- Total non-cash impairment charges for goodwill, intangibles and other assets were $342 million in 2023, versus $474 million in 2022. The company recorded $241 million of Baby reporting-unit goodwill impairment and $98 million of indefinite-lived tradename impairment.
- Restructuring costs were $95 million, with restructuring-related costs of $99 million reported in cost of products sold and SG&A. The 2023 operating result also included higher restructuring costs and the $126 million pension-related expense.
- Net loss and diluted loss per share moved from net income of $197 million and diluted EPS of $0.47 in 2022. Revenue and operating results weakened, while interest expense increased.
- The quarterly dividend was reduced during 2023; declared dividends were $0.44 per share for the year, compared with $0.92 in 2022. The board says future dividends depend on financial condition and operating results.
- Walmart accounted for approximately 15% of 2023 sales and Amazon approximately 13%, creating customer-concentration exposure.
Outlook, management actions and risks
- Management said soft global demand, retailer inventory rebalancing, inflation, higher interest rates and indirect geopolitical impacts negatively affected 2023 results and were mostly expected to persist into 2024. The filing does not provide a clear numerical sales or earnings forecast.
- Management cited selective pricing, productivity, advertising and promotion optimization, overhead containment, demand and supply-plan adjustments, and working-capital actions as mitigations.
- Project Phoenix was substantially implemented by year-end 2023; estimated aggregate restructuring and related charges were $100–$130 million. The Network Optimization Project is expected to be substantially implemented by year-end 2024, with estimated charges of $37–$49 million and capital expenditures of $30–$40 million.
- A January 2024 organizational realignment is expected to be substantially implemented by year-end 2024 and is estimated to involve $75–$90 million in restructuring and related charges. Management said ongoing reviews of the operating footprint and non-core brands may lead to further restructuring charges.
- Moody’s and S&P downgraded the company’s ratings again in February 2024. The filing estimates the downgrades will increase annual interest expense by approximately $39 million in total. S&P’s earlier downgrade had eliminated access to commercial paper on terms the company considered acceptable or favorable.
- In February 2024, the revolving credit commitment was reduced from $1.5 billion to $1.0 billion. The amendment replaced financial covenants, added subsidiary guarantees and required liens on specified eligible assets. These changes followed the year-end reporting date.
- A material weakness existed in controls over reviews of assumptions used in impairment assessments of goodwill, indefinite-lived tradenames and long-lived assets. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2023; management described remediation steps, but the weakness was not yet remediated.
- The company recorded a $13 million SEC civil penalty in 2023 to settle an investigation relating primarily to sales practices and accounting matters; it neither admitted nor denied the SEC’s findings. Environmental remediation reserves were $41 million. The company also disclosed potential tax exposure of approximately $180–$220 million, plus possible interest and penalties, if its position challenging certain tax regulations is not sustained.
- Key risks include weaker consumer demand, retailer bargaining power and customer concentration, single-source supply in parts of the Baby business, inflation and sourcing costs, debt and ratings pressure, impairment risk, execution of restructuring, and litigation, regulatory and tax contingencies.
Important facts for investors to verify
- Whether demand, volumes and distribution stabilize, and whether pricing and productivity can offset cost pressure without further sales erosion.
- Whether operating cash flow remains strong after 2023’s working-capital release, and how receivables sales and supplier-finance obligations affect reported cash flows and working capital.
- Debt maturities, interest costs, covenant headroom and borrowing availability under the amended $1.0 billion revolver, including the implications of collateral and guarantees.
- Progress and realized savings versus charges and capital needs for Phoenix, Network Optimization and the 2024 organizational realignment.
- Assumptions supporting Baby goodwill and brand valuations, further impairment exposure, and evidence that the impairment-control material weakness has been remediated.
- Resolution of the tax-regulation position and environmental and other legal contingencies, including the Lower Passaic River matter.