Newell Brands Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing was signed February 15, 2023. Newell Brands is a global consumer-products company with brands including Rubbermaid, Sharpie, Graco, Coleman and Yankee Candle.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Net sales | $9.459 billion | $10.589 billion | Down 10.7% |
| Gross profit / margin | $2.834 billion / 30.0% | $3.363 billion / 31.8% | Profit down 15.7%; margin down 1.8 points |
| Operating income / margin | $312 million / 3.3% | $1.013 billion / 9.6% | Income down 69.2% |
| Net income | $197 million | $622 million | Down 68.3% |
| Diluted EPS | $0.47 | $1.45 | Lower year over year |
| Operating cash flow | $(272) million | $884 million | Declined $1.156 billion |
| Capital expenditures | $312 million | $289 million | Increased $23 million |
Fourth quarter: Net sales were $2.285 billion versus $2.805 billion in Q4 2021. The quarter recorded an operating loss of $273 million, net loss of $249 million and diluted loss per share of $0.60, compared with operating income of $170 million, net income of $98 million and diluted EPS of $0.23 in Q4 2021.
Balance sheet and liquidity: At year-end, cash and cash equivalents were $287 million; total debt was $5.377 billion, up about $490 million from 2021; and current assets and liabilities were $4.052 billion and $3.078 billion, respectively. The company reported approximately $1.25 billion of net availability under its $1.5 billion revolving credit facility and compliance with debt covenants. Total debt less cash was approximately $5.090 billion.
Material changes and drivers
- Sales fell as retailer orders contracted to rebalance inventories amid softer demand and consumer inflation. Pricing actions were more than offset by lower volume, category exits, the CH&S divestiture and a 3% adverse foreign-exchange impact.
- Gross margin weakened due to lower-volume absorption, promotions to reduce elevated inventory, and inflation in commodities, sourced goods, transportation and labor. Pricing and productivity partly offset these pressures.
- Noncash goodwill and intangible impairment charges were $474 million, versus $60 million in 2021. Home Solutions recorded a $308 million operating loss, including $429 million of impairment charges; Home Appliances also moved to an operating loss.
- Operating cash flow turned negative, reflecting lower earnings, inventory-related working-capital pressure and retailer order pullbacks. Inventory ended the year at $2.203 billion, up from $2.087 billion.
- The company sold its Connected Home & Security business on March 31, 2022, for approximately $593 million and recorded a $136 million pretax gain. It also issued $1 billion of notes at 6.375% and 6.625% and used proceeds, with available cash, to redeem approximately $1.09 billion of notes due 2023.
Outlook, risks and unusual items
- Management expects soft demand, retailer inventory rebalancing, inflation, supply-chain constraints and labor/logistics challenges to continue into 2023. The filing provides no clear quantified company-wide revenue or earnings guidance.
- Project Ovid, a multi-year U.S. supply-chain transformation, began its first phase in Q3 2022; the second phase went live in February 2023. Project Phoenix, announced in January 2023, targets operating simplification and cost savings, with substantial completion expected by year-end 2023. It is expected to eliminate approximately 13% of office positions and incur $100–$130 million of restructuring and related charges, mostly in 2023.
- In January 2023, the company announced CEO succession: Christopher Peterson was appointed to become CEO after the May 16, 2023 annual meeting; Ravichandra Saligram was to retire then. Mark Erceg became CFO in January 2023.
- Tax contingency: Newell disputes U.S. Treasury regulations affecting a previously recorded tax benefit. If its position is not sustained, it estimates $180–$220 million of income tax expense, potentially plus interest and penalties.
- Legal matters include SEC discussions that began in late January 2023 regarding a possible settlement of an investigation focused on 2016–2017 sales practices and accounting. The company said it did not expect resolution to materially affect its financial statements. A separate securities class action settlement of approximately $103 million was approved in February 2023 and was predominantly funded by insurance.
- Other exposures include uncertain Lower Passaic River litigation and remediation outcomes; the company could not reasonably estimate the range of possible losses for related litigation and natural-resource claims. Environmental remediation reserves were $34 million.
- The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective. The company retrospectively changed certain U.S. inventory accounting from LIFO to FIFO. It also disclosed immaterial revisions to 2022 interim results for a functional-currency designation error.
Most important facts for investors to verify
- Whether demand, retailer order patterns and inventory levels stabilize, and whether pricing and productivity can offset cost inflation.
- Cash generation and working-capital recovery, including inventory reduction and the continuing use of receivables sales and securitization facilities.
- Debt reduction capacity, refinancing needs, interest costs and credit-rating developments; Fitch downgraded the company to BB in February 2023.
- Actual Project Ovid and Project Phoenix execution, savings, charges, service levels and effects on employees and operations.
- Further impairment risk, particularly in Home Fragrance and other reporting units with limited fair-value headroom.
- Outcomes of the tax dispute and SEC investigation, plus developments in environmental and other legal contingencies.