Newell Brands Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Newell sells consumer products across five segments. The Connected Home & Security business was sold on March 31, 2022, affecting year-over-year comparisons.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2.252 billion | $2.787 billion | $7.174 billion | $7.784 billion |
| Gross profit | $653 million | $848 million | $2.218 billion | $2.461 billion |
| Gross margin | 29.0% | 30.4% | 30.9% | 31.6% |
| Operating income | $35 million | $281 million | $569 million | $778 million |
| Net income | $31 million | $190 million | $469 million | $476 million |
| Diluted EPS | $0.07 | $0.44 | $1.12 | $1.11 |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $(567) million | $490 million |
- Q3 sales fell 19.2%; nine-month sales declined 7.8%. Management cited softer demand, retailer inventory reductions, foreign exchange, category exits, order-timing shifts, and the CH&S divestiture. Q3 foreign exchange reduced sales by $100 million; the nine-month impact was $221 million.
- Lower volume and input-cost inflation—including commodities, sourced products, transportation, and labor—reduced gross margin, partly offset by pricing and productivity. Q3 operating income also included $148 million of non-cash impairment charges.
- Nine-month other income included a $136 million pretax gain on the CH&S sale. The nine-month effective tax rate was 7.3%, versus 18.5% a year earlier; Q3 included a $61 million tax benefit, including a $58 million discrete benefit tied to foreign earnings.
Segments
- Q3: Sales declined in all five segments. Home Appliances recorded a $20 million operating loss; Home Solutions recorded an $88 million operating loss. Commercial Solutions operating income rose to $28 million, while Learning and Development and Outdoor and Recreation operating income fell to $120 million and $8 million, respectively.
- Nine months: Commercial Solutions operating income increased to $126 million and Outdoor and Recreation to $99 million. Home Appliances and Home Solutions recorded operating losses of $23 million and $22 million. Learning and Development operating income was $497 million.
Financial position, cash flow, and capital
- At September 30, cash and cash equivalents were $636 million; total debt was $5.840 billion, including $1.078 billion classified as short-term/current. Total liabilities were $10.902 billion and stockholders’ equity was $3.776 billion.
- Nine-month operating cash outflow was $567 million, versus $490 million of inflow in 2021. The filing attributes the deterioration chiefly to inventory build, weaker sales and retailer order pullbacks, timing of collections and vendor payments, and lower receivables factoring. Inventory rose to $2.527 billion from $1.997 billion at year-end 2021.
- Investing activities provided $420 million, including $616 million of proceeds from the CH&S sale; financing activities provided $344 million. The company paid $290 million in cash dividends and repurchased $325 million of shares during the first nine months.
- In September, Newell issued $1.0 billion of senior notes due 2027 and 2029 at coupons of 6.375% and 6.625%, receiving about $990 million net. It redeemed approximately $1.09 billion of 3.85% notes due 2023 on October 19, 2022, using the proceeds and cash. A nominal extinguishment loss was expected in Q4.
- A new $1.5 billion revolving credit facility matures in August 2027. At quarter-end it had no borrowings, with about $1.48 billion net availability; the company reported compliance with debt covenants. The $375 million receivables securitization facility had no outstanding balance.
Outlook, risks, and unusual items
- Management said softening global demand and retailer inventory rebalancing, alongside inflation, supply-chain constraints, labor and logistics pressures, and geopolitical uncertainty, had harmed results and were expected to persist through the remainder of 2022 and into 2023. Home Appliances and Home Solutions were identified as most affected. The filing provides no clear quantified forward guidance.
- Mitigation actions included selective pricing, productivity initiatives, advertising and overhead controls, revised demand and supply plans, and working-capital actions. Project Ovid, a multi-year U.S. supply-chain transformation, began its first phase go-live in Q3; execution and benefits remain uncertain.
- The company recorded $148 million of non-cash impairment charges: $108 million for Home Fragrance goodwill and $40 million for three indefinite-lived tradenames in Home Appliances and Baby. Further impairments are possible if demand or forecasts deteriorate.
- In October, the company agreed to a proposed $103 million settlement of a securities class action, predominantly funded by insurance; court approval remained pending. Environmental remediation reserves were $33 million. For the Lower Passaic River matter, the company said a proposed EPA cash-out allocation was not expected to be material, but it could not estimate possible losses from related litigation and natural-resource claims.
- The company’s tax position regarding certain U.S. Treasury regulations remains uncertain. If its position is not sustained, it estimates a possible tax expense of $180 million to $220 million, plus any applicable interest and penalties. Certain federal, state, and non-U.S. tax returns are under examination.
- Management identified ongoing SEC inquiries, including matters concerning sales practices and accounting, and said it could not predict their timing or outcome. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether demand, retailer inventory reductions, and cost inflation continue to pressure sales, margins, and working capital, and whether management’s mitigation actions are effective.
- Inventory levels and operating cash flow recovery, particularly given the nine-month cash outflow and seasonal cash-flow pattern.
- Debt maturities, refinancing costs, liquidity, and the completed October redemption of the 2023 notes.
- Potential further impairment charges and the assumptions used in valuing goodwill and tradenames.
- Final approval and insurance funding of the securities settlement, developments in the environmental matters, and resolution of the tax-regulation dispute.