Newell Brands Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods unless noted. Newell sells consumer products across three reportable segments: Home and Commercial Solutions, Learning and Development, and Outdoor and Recreation.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $2.204 billion | $2.534 billion | $4.009 billion | $4.922 billion |
| Gross profit / margin | $629 million / 28.5% | $836 million / 33.0% | $1.111 billion / 27.7% | $1.576 billion / 32.0% |
| Operating income / margin | $120 million / 5.4% | $328 million / 12.9% | $84 million / 2.1% | $545 million / 11.1% |
| Net income (loss) | $18 million | $199 million | $(84) million | $427 million |
| Diluted EPS | $0.04 | $0.48 | $(0.20) | $1.02 |
| Operating cash flow | Not presented for the quarter | $277 million | $(450) million |
- Q2 net sales fell 13%; first-half sales fell 18.5%. Management cited softer demand, retailer inventory reductions and inflation-related pressure on consumer spending. First-half sales also reflected category exits and the prior-year sale of Connected Home & Security.
- Margins contracted amid lower sales leverage, input cost inflation and increased restructuring-related charges; pricing and productivity partly offset these pressures. Q2 operating income also included $11 million of impairment charges and $22 million of restructuring costs.
- First-half operating cash flow improved by $727 million year over year, principally reflecting working-capital reduction and lower incentive compensation payments, partly offset by weaker operating income and higher restructuring payments. Investing cash flow was $(94) million; financing cash flow was $(158) million. Cash, cash equivalents and restricted cash ended the period at $330 million.
- At June 30, cash and cash equivalents were $317 million and total debt was $5.350 billion, including $597 million classified as short-term debt/current maturities. The $1.5 billion revolving facility had $530 million drawn and approximately $950 million net availability; the receivables facility had $66 million outstanding and matures in October 2023. The company reported compliance with debt covenants.
- Weighted-average debt interest rates were 5.3% for Q2 and 5.1% for the first half, up from 4.2% and 4.3%, respectively, in 2022. S&P’s downgrade increased rates on certain notes and eliminated access to commercial paper on terms the company considers acceptable or favorable.
Segment performance
- Home and Commercial Solutions: Q2 sales declined 14.8% to $1.058 billion and the segment recorded a $21 million operating loss, versus $74 million of income a year earlier. First-half sales fell 21.7% to $2.029 billion, with a $58 million operating loss.
- Learning and Development: Q2 sales declined 6.0% to $813 million and operating income fell 23.3% to $188 million. First-half sales declined 9.1% to $1.377 billion and operating income fell 32.1% to $260 million. Baby sales faced soft demand and lower sales to a customer that recently declared bankruptcy; Writing benefited from pricing, innovation and early orders.
- Outdoor and Recreation: Q2 sales declined 22.0% to $333 million and operating income declined to $5 million. First-half sales fell 26.0% to $603 million and operating income was $4 million. Management cited soft demand and distribution losses.
Outlook, initiatives and notable items
- The filing provides no quantified consolidated revenue, earnings or cash-flow guidance. Management expects macroeconomic pressures—including inflation, softer demand, retailer inventory rebalancing, higher interest rates and geopolitical uncertainty—to continue weighing on results, cash flows and financial condition during 2023. Results are seasonal, and the company typically generates most operating cash flow in the third and fourth quarters.
- Project Phoenix: Expected to be substantially implemented by year-end 2023. Estimated restructuring and related charges are $100–$130 million, primarily in 2023; $95–$120 million are expected to be cash expenditures.
- Network Optimization Project: Expected to be substantially implemented by year-end 2024. Estimated restructuring and related charges are $37–$49 million, with $35–$44 million expected in cash; the company also expects $30–$40 million of related capital expenditures.
- A Home Fragrance indefinite-lived tradename impairment resulted in an $8 million non-cash charge. Baby reporting-unit goodwill was not impaired, but a hypothetical 10% reduction in forecast earnings would have resulted in an approximately $10 million charge. Management identifies potential for additional impairment if demand or forecasts deteriorate.
- The company recorded a $5 million pension settlement loss in Q2 related to a U.K. plan buy-out and expects to complete the remaining buy-out in 2023, with a non-cash settlement charge estimated at £50–£70 million.
- Environmental remediation reserves were $37 million. The company said its expected allocation in the Lower Passaic River settlement would not be material if finalized, but adverse outcomes in related litigation or natural-resource assessments could be material; the potential loss range is not presently estimable.
- The company is discussing a possible settlement with the SEC concerning an investigation focused on certain sales practices and accounting matters in 2016–2017; management does not expect resolution to materially affect the financial statements. A separate SEC subpoena concerns disclosure of potential tax-regulation impacts. The proposed settlement of derivative actions remained subject to a court hearing scheduled for August 25, 2023.
Most important facts for investors to verify
- Whether demand, retailer inventory reductions and segment sales stabilize, and whether pricing and productivity can recover gross margins.
- Progress and realized savings from Project Phoenix and the Network Optimization Project, including total charges, cash costs and capital spending.
- Debt maturities, refinancing and facility availability—especially the October 2023 receivables-facility maturity—and the company’s ability to maintain covenant compliance amid higher interest costs.
- Whether cash generation improves in the second half as expected seasonally, and whether working-capital actions are sustainable.
- Developments in impairment assumptions, the Baby business, the SEC matters, environmental proceedings and other contingencies.