Newell Brands Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed April 26, 2024. Newell Brands sells consumer products globally through three reportable segments: Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation. First-quarter sales, operating income, and cash flow are typically seasonally lower, so this quarter may not indicate full-year results.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $1.653 billion | $1.805 billion |
| Gross profit / margin | $504 million / 30.5% | $482 million / 26.7% |
| Operating income (loss) / margin | $16 million / 1.0% | $(36) million / (2.0)% |
| Net loss | $(9) million | $(102) million |
| Diluted loss per share | $(0.02) | $(0.25) |
| Interest expense, net | $70 million | $68 million |
| Operating cash flow | $32 million | $(77) million |
| Capital expenditures | $59 million | $83 million |
Sales declined 8.4%, including a $56 million adverse foreign-currency impact. Management cited soft demand, distribution losses and category exits; pricing partly offset these factors. Gross margin rose 3.8 percentage points, mainly from productivity, mix and favorable pricing, partly offset by lower volume and inflation. Operating results improved with productivity, restructuring savings and lower restructuring charges.
Segments
- Home and Commercial Solutions: Sales $893 million, down 8%; operating income $16 million versus a $37 million loss. Results reflected soft demand, category exits and distribution losses, partly offset by productivity and mix.
- Learning and Development: Sales $559 million, down 1%; operating income $94 million, up from $72 million. Productivity and restructuring savings supported the improvement.
- Outdoor and Recreation: Sales $201 million, down 26%; operating loss $18 million versus $1 million. Lower demand, distribution losses and category exits weighed on results.
Liquidity, debt and capital
- At March 31, cash and cash equivalents were $372 million; total debt was $4.987 billion, including $429 million of short-term debt and current maturities. Cash, cash equivalents and restricted cash totaled $400 million.
- Current assets were $3.401 billion and current liabilities were $2.956 billion. Inventory increased to $1.695 billion from $1.531 billion at year-end 2023.
- The $1.0 billion revolving credit facility had $231 million drawn, about $20 million of letters of credit and approximately $749 million of net availability. The company reported compliance with debt covenants at quarter-end.
- Operating cash flow improved by $109 million year over year, reflecting working-capital reduction and better operating results, partly offset by higher incentive compensation and restructuring payments. The company noted that operating cash flow is generally concentrated in the third and fourth quarters.
- Quarterly dividends declared were $0.07 per share, versus $0.23 in Q1 2023. The company reported $31 million of cash dividends paid.
Material developments, outlook and risks
- Credit and ratings: The February credit agreement amendment reduced revolver commitments from $1.5 billion to $1.0 billion, replaced financial covenants, added guarantees and pledged interests in certain eligible assets. Moody’s and S&P downgrades increased coupon rates on certain notes; management estimates about $16 million of additional annual interest expense, approximately $12 million in 2024.
- Restructuring: The new 2024 Realignment Plan is expected to be substantially implemented by year-end, with estimated charges of $75–$90 million. The Network Optimization Project is expected to be substantially complete by year-end, with estimated charges of $37–$49 million and $30–$40 million of related capital expenditures. Project Phoenix was mostly completed by year-end 2023; estimated total charges are $100–$130 million.
- Intangible assets: $322 million of tradenames were reclassified from indefinite-lived to definite-lived beginning January 1, 2024. This is expected to add $25 million of annual amortization expense, about $6 million per quarter.
- Macroeconomic outlook: Management expects soft global demand, retailer inventory discipline, inflation, elevated interest rates and geopolitical effects to continue to negatively affect results, cash flows and financial condition during 2024. The filing provides no clear quantitative full-year sales or earnings guidance.
- Tax: The $51 million income tax benefit and 85.0% effective tax benefit rate reflect a higher forecasted annual rate, primarily due to lower forecasted pretax income; discrete items added $4 million of tax expense.
- Controls: Disclosure controls were deemed ineffective because material weaknesses remain in controls over reviews of assumptions used in goodwill, tradename and long-lived asset impairment assessments. Management reported that financial statements were fairly stated and described remediation actions.
- Contingencies: Environmental remediation reserves were $38 million. The company says its allocation in the Lower Passaic River settlement is not expected to be material, but adverse outcomes in related litigation or natural-resource claims could be material; possible losses cannot currently be estimated. The SEC sales-practices investigation was settled in September 2023 for an approximately $13 million civil penalty, which the company said was not material.
- The company terminated its supplier finance program with its current financial institution in April 2024 and expects no material effect on operating results, financial condition or liquidity.
Important facts for investors to verify
- Whether sales and volume stabilize, particularly in Outdoor and Recreation, and whether gross-margin gains persist despite currency and inflation pressures.
- Whether restructuring plans deliver savings on schedule and within estimated charges, and how much cash they require.
- Debt maturities, covenant headroom, refinancing needs and the effect of higher borrowing costs and downgraded ratings.
- Progress remediating material weaknesses in impairment-related controls and any future impairment charges.
- Working-capital trends, including inventory levels and reliance on receivables-sale facilities, alongside the seasonal timing of cash generation.
- Developments in Lower Passaic River and other legal or environmental matters, including any changes to estimated exposure.