Newell Brands Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter financial statements; the filing identifies certain fourth-quarter items separately. Amounts below are in U.S. dollars.
Business context
Newell is a global consumer-products company with brands including Rubbermaid, Sharpie, Graco, Coleman, Oster and Yankee Candle. It reports five segments: Commercial Solutions, Home Appliances, Home Solutions, Learning and Development, and Outdoor and Recreation. It sells in nearly 200 countries. Walmart represented approximately 15% of 2021 sales and Amazon 13%, making customer concentration and retailer bargaining power relevant considerations.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $10.589 billion | $9.385 billion |
| Gross profit / gross margin | $3.296 billion / 31.1% | $3.079 billion / 32.8% |
| Operating income (loss) / margin | $946 million / 8.9% | $(634) million / (6.8)% |
| Net income (loss) | $572 million | $(770) million |
| Diluted earnings (loss) per share | $1.34 | $(1.82) |
| Cash provided by operating activities | $884 million | $1.432 billion |
| Capital expenditures | $289 million | $259 million |
Sales increased 12.8%; all segments and major geographic regions grew. Growth reflected pricing and demand, with foreign exchange adding $101 million. Gross profit increased, but gross margin fell 1.7 percentage points as input-cost inflation—especially resin, sourced goods, transportation and labor—outpaced the full benefit of pricing actions. Management said inflation had a negative high-single-digit-percentage impact on cost of products sold.
Operating results improved substantially from 2020, principally because that year included $1.5 billion of non-cash goodwill and intangible-asset impairments, versus $60 million in 2021. The 2021 charge comprised $29 million in Commercial Solutions and $31 million in Learning and Development, recorded in the fourth quarter. Thus, the year-over-year earnings comparison was materially affected by impairment charges, as well as by the recovery from pandemic-related disruption.
Operating cash flow declined $548 million, to $884 million, reflecting inventory investment amid inflation and supply constraints, higher incentive payments and comparison with favorable 2020 working-capital movements. Inventory rose to $1.997 billion from $1.638 billion. Cash and cash equivalents were $440 million at year-end; total debt was approximately $4.9 billion, down about $721 million year over year. The company had no borrowings under its $1.25 billion revolving credit facility or $600 million receivables securitization facility at year-end and reported compliance with debt covenants. The current portion of debt was $3 million, compared with $466 million a year earlier, following debt repayments and redemptions.
Reported sales by segment were: Commercial Solutions $1.953 billion (+5.1%); Home Appliances $1.738 billion (+12.9%); Home Solutions $2.386 billion (+11.6%); Learning and Development $3.028 billion (+18.4%); and Outdoor and Recreation $1.484 billion (+14.9%). Learning and Development generated the highest segment operating margin, at 19.6%; segment margins elsewhere ranged from 4.0% to 13.1%.
Material changes, outlook and risks
- Management continued its turnaround program focused on growth, margins, cash conversion, portfolio priorities and organizational capabilities. Project Ovid, announced in 2021, is a multi-year U.S. supply-chain transformation intended to consolidate 23 business-unit supply chains, improve service and efficiency, and simplify customer processes.
- The company said product, labor and supply shortages, capacity constraints, port congestion and shipping delays impaired its ability to meet demand and were expected to continue into 2022. It responded with selective price increases, productivity measures and overhead cost containment. No specific 2022 revenue or earnings guidance is provided in the supplied filing text.
- On February 6, 2022, after the fiscal year-end, Newell agreed to sell its Connected Home & Security business to Resideo for $593 million, subject to customary adjustments and closing conditions. The company expected closing by the end of the first quarter of 2022 and anticipated using after-tax proceeds for debt reduction and share repurchases. The same day, the board authorized a share-repurchase program of up to $375 million through year-end 2022.
- On February 11, 2022, S&P upgraded the company’s debt rating to BBB- from BB+, restoring potential access to commercial paper and reducing interest rates on certain notes. Moody’s Ba1 rating remained a consideration; the filing says the prior downgrades had increased annualized interest expense by approximately $21 million.
- Key risks include inflation and inability to recover costs through pricing, continuing supply-chain disruption, uncertain post-pandemic demand, dependence on large retailers, substantial debt, foreign-exchange exposure, impairment risk, and execution risk for the turnaround and Project Ovid. The company also disclosed ongoing SEC subpoenas, including an investigation concerning sales practices and accounting matters since 2016 and a separate subpoena concerning tax-regulation disclosures.
- Tax uncertainty is significant: Newell has not recognized the effects of challenged U.S. Treasury regulations and estimates that an adverse outcome could require $180 million to $220 million of income-tax expense, plus possible interest and penalties. Environmental remediation reserves were $36 million. The Lower Passaic River matter remained uncertain; the company said it did not expect its anticipated allocation for specified response actions to be material, but could not estimate losses for the remainder of the matter.
The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2021.
Important facts for investors to verify
- Whether pricing and productivity measures can offset continued inflation without material volume or market-share losses, and whether supply constraints ease as expected.
- Whether operating cash flow recovers after the 2021 inventory build, and how inventory levels and receivables factoring affect cash conversion.
- Completion and net proceeds of the Connected Home & Security sale, and the actual allocation of proceeds between debt repayment and repurchases.
- Debt reduction progress, refinancing needs, covenant headroom and the effect of the remaining Moody’s rating on borrowing costs.
- Whether the $60 million of fourth-quarter tradename impairments signal further pressure on brand cash-flow estimates; goodwill and indefinite-lived intangibles remain substantial.
- Developments in the SEC matters, the challenged tax regulations and significant litigation or environmental contingencies, including any changes to reserves or estimated exposure.