Newell Brands Inc. — 2020 Form 10-K Summary
Business context and reporting period
Newell Brands is a global consumer-products company selling across nearly 200 countries, with brands including Rubbermaid, Sharpie, Coleman, Graco, FoodSaver and Yankee Candle. Its fiscal year ended December 31, 2020. The filing is an annual report, not a standalone fourth-quarter report. The Company reported five segments: Appliances and Cookware, Commercial Solutions, Home Solutions, Learning and Development, and Outdoor and Recreation.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $9.385 billion | $9.715 billion |
| Gross profit / margin | $3.079 billion / 32.8% | $3.219 billion / 33.1% |
| Operating loss / margin | $634 million / (6.8)% | $482 million / (5.0)% |
| Net income (loss) | $(770) million | $107 million |
| Diluted EPS | $(1.82) | $0.25 |
| Cash provided by operating activities | $1.432 billion | $1.044 billion |
| Capital expenditures | $259 million | $265 million |
| Cash and cash equivalents at year-end | $981 million | $349 million |
| Total debt at year-end | $5.607 billion | $5.723 billion |
The Company recorded $1.503 billion of impairment charges for goodwill, intangible and other assets in 2020, compared with $1.223 billion in 2019. Interest expense, net, was $274 million, down from $303 million; the weighted-average interest rate was approximately 4.6%, versus 4.4%. The 2020 income-tax benefit was $236 million, versus $1.038 billion in 2019; the effective tax rate was 23.5%, versus 121.9%.
At December 31, 2020, the Company had no borrowings under its $1.25 billion revolving credit facility or $600 million receivables securitization facility; net revolver availability was approximately $1.2 billion. The Company declared dividends of $0.92 per share during 2020 and paid $392 million in cash dividends.
Material changes versus the prior comparable period
- Sales fell 3.4%, with declines in Learning and Development and Outdoor and Recreation partly offset by growth in Appliances and Cookware, Commercial Solutions and Home Solutions. Foreign currency reduced reported sales by $108 million.
- Gross margin declined 0.3 percentage points, reflecting lower volume, temporary manufacturing closures, product mix, input-cost inflation and pandemic-related costs, partly offset by productivity and lower recall costs.
- Net loss replaced 2019 net income, principally amid higher impairment charges. The operating loss widened despite lower SG&A, restructuring and some other costs.
- Operating cash flow increased, supported by working-capital actions, including extended supplier payment terms, improved collections and inventory management. Management noted that a payables benefit from inventory build was expected to partially reverse in 2021.
- Debt declined by approximately $116 million. The Company issued $500 million of 4.875% notes due 2025 and repurchased $300 million principal amount of 3.85% notes due 2023, recording a $20 million extinguishment loss.
Segments, outlook, risks and unusual items
- Segment sales: Appliances and Cookware $1.706 billion (+0.8%); Commercial Solutions $1.859 billion (+4.5%); Home Solutions $1.971 billion (+5.1%); Learning and Development $2.557 billion (−13.5%); Outdoor and Recreation $1.292 billion (−8.6%).
- COVID-19: Management said first-half impacts to operating results were material, while sales grew in the second half. Most temporarily closed manufacturing and distribution facilities had reopened by the end of the third quarter and were operating at or near capacity. Intermittent supply and labor shortages, capacity constraints, and transportation and logistics challenges remained.
- Outlook: The filing gives no quantitative 2021 revenue, earnings or cash-flow guidance. Management said pandemic effects remained difficult to predict and depended on its severity and duration, new variants, economic conditions and vaccine rollout. It expected supply-chain pressures to persist until global conditions improved.
- Turnaround and restructuring: The Company continued initiatives focused on growth, margin improvement, working-capital efficiency and portfolio priorities. Its 2020 restructuring program recorded $19 million of charges during the year; estimated aggregate charges for launched projects were approximately $30–$35 million, with cash payments expected within one year of charges incurred.
- Impairments: The Company recorded $212 million of goodwill impairment and approximately $1.3 billion of indefinite-lived intangible impairment in the first quarter, following COVID-19-related triggering events. It recorded additional intangible impairments of $2 million in the third quarter and $20 million in the fourth quarter.
- Debt and ratings: S&P, Moody’s and Fitch downgraded the Company’s ratings in 2019–2020. S&P and Moody’s downgrades eliminated commercial-paper borrowing on terms the Company considered acceptable or favorable and triggered a 50-basis-point aggregate rate increase on certain notes, adding approximately $17 million to 2020 interest expense and an estimated $21 million annually thereafter. The Company reported covenant compliance at year-end.
- Tax exposure and controls: The Company disputes the validity of certain U.S. Treasury regulations; an adverse outcome could require $180–$220 million of tax expense, plus possible interest and penalties. Management and the auditor reported a material weakness in income-tax controls, including controls over state taxes, uncertain tax positions and non-recurring tax-planning transactions. Disclosure controls were deemed ineffective as of year-end; remediation was not yet complete.
- Other contingencies: The Company disclosed an ongoing SEC investigation relating primarily to sales practices and accounting matters, without predicting its outcome. Environmental remediation reserves were $42 million. The Lower Passaic River matter remains uncertain; the Company said an adverse determination could be material, although it did not believe a material impact was reasonably likely based on currently known facts.
Important facts for investors to verify
- Whether sales growth and segment trends continued after 2020, especially in Writing, Outdoor and Recreation, and Home Fragrance.
- Whether operating cash flow remains strong after the anticipated partial reversal of working-capital timing benefits.
- Debt reduction, upcoming maturities, borrowing costs, ratings, and continuing compliance with debt covenants.
- Progress and independent testing of remediation for the material weakness in income-tax controls.
- Resolution of the challenged tax regulations and the potential $180–$220 million exposure, along with other uncertain tax positions.
- Whether updated forecasts or market conditions lead to further goodwill or intangible-asset impairment charges.
- Developments in the SEC investigation and material litigation or environmental contingencies.