Newell Brands Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Newell Brands sells consumer products globally. Effective January 1, 2023, it reorganized reporting into Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation; prior-period segment figures were recast. Q1 sales and cash flow are generally seasonally lower, so results may not indicate full-year performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1.805 billion | $2.388 billion |
| Gross profit / margin | $482 million / 26.7% | $740 million / 31.0% |
| Operating income (loss) / margin | $(36) million / (2.0)% | $217 million / 9.1% |
| Net income (loss) | $(102) million | $228 million |
| Diluted EPS | $(0.25) | $0.54 |
| Interest expense, net | $68 million | $59 million |
| Cash used in operating activities | $77 million | $272 million |
| Capital expenditures | $83 million | $70 million |
Sales declined 24.4% year over year. Management attributed the decline to softer global demand, retailer inventory reductions, category exits, the prior-year Connected Home & Security (CH&S) divestiture, and comparison against elevated demand and shifted customer orders in 2022. Foreign exchange reduced sales by $49 million. Gross margin fell 4.3 percentage points, reflecting lower volume leverage and input inflation, partly offset by pricing and productivity. The operating result also included $51 million of restructuring and restructuring-related costs, compared with $11 million a year earlier.
Segments
- Home and Commercial Solutions: Sales $971 million, down 28.1%; operating loss $37 million versus income of $89 million. The comparison includes CH&S sales in Q1 2022 before its sale.
- Learning and Development: Sales $564 million, down 13.2%; operating income $72 million versus $138 million.
- Outdoor and Recreation: Sales $270 million, down 30.4%; operating loss $1 million versus income of $46 million.
Financial position and liquidity
At March 31, 2023, cash and cash equivalents were $271 million (including $237 million held by non-U.S. subsidiaries), versus $287 million at year-end 2022. Total debt was $5.628 billion, compared with $5.377 billion; $852 million was classified as short-term debt and current maturities, and $4.776 billion as long-term debt. Total liabilities were $9.943 billion and stockholders’ equity was $3.333 billion.
Cash, cash equivalents and restricted cash decreased $18 million during the quarter to $285 million, including $14 million of restricted cash. Financing provided $128 million, including $232 million of net short-term debt proceeds; dividends paid were $97 million. The $1.5 billion revolving credit facility had $760 million drawn and approximately $720 million of net availability. The $375 million receivables securitization facility had $90 million outstanding and matures in October 2023. The company reported compliance with all debt covenants at quarter-end.
Outlook, management commentary, and risks
- Management expects softening global demand, retailer inventory rebalancing, inflation, supply-chain pressures, and macroeconomic uncertainty to continue negatively affecting results, cash flows, and financial condition during 2023. No specific sales or earnings guidance is provided in the supplied filing text.
- Project Phoenix: Announced in January 2023 to simplify operations, reduce overhead, consolidate and centralize functions, and streamline real estate. The company expects substantial implementation by year-end 2023 and estimates $100–$130 million of total restructuring and related charges, mostly by year-end; $95–$120 million is expected to be cash expenditures, paid within one year of the charges. Q1 charges were $36 million.
- Credit ratings: S&P downgraded the company to BB+ in March 2023. Certain notes totaling approximately $3.1 billion incur a 25-basis-point rate increase, estimated to add about $8 million of annual interest expense (about $6 million in 2023). The downgrade also eliminated access to commercial paper on terms the company considers acceptable or favorable. Fitch had downgraded the company to BB in February; that downgrade did not affect note interest rates. The company also remained subject to a Moody’s-related 25-basis-point adjustment.
- The revolving-credit amendment adjusted the EBITDA calculation and lowered the interest-coverage ratio requirement for specified quarters through March 31, 2024. Management stated available cash, borrowing capacity, and cash generation should provide adequate liquidity, while noting uncertainty around demand and operating conditions.
- Contingencies: The company estimated environmental remediation costs of $33 million. For the Lower Passaic River matter, it did not expect its allocation under a proposed settlement to be material, but stated adverse outcomes in related litigation or assessment could be material; it could not estimate a range of possible losses. The SEC investigation into historical sales practices and accounting matters was under settlement discussions; management did not expect resolution to materially affect the financial statements.
- The prior-year comparison included a $130 million pretax gain on the CH&S sale and $620 million of sale proceeds in investing cash flow. The sale was completed March 31, 2022. Q1 2023 had no comparable sale proceeds or gain.
Most important facts for investors to verify
- Whether demand and retailer inventory normalization improve, and how sales trends develop across the three segments.
- Whether gross margin and operating performance recover as pricing, productivity, and cost actions offset inflation and lower volumes.
- Project Phoenix execution, total charges, cash costs, timing, and realized savings; also progress and costs associated with Project Ovid.
- Debt maturities, revolver and securitization-facility availability, covenant headroom, refinancing needs, and the effect of rating downgrades on interest expense and funding access.
- Cash conversion and working-capital trends, particularly given seasonal cash generation and the quarter’s operating cash outflow.
- Developments in the SEC investigation, environmental matters, and other contingencies, including whether estimated exposures change.