Newell Brands (NYSE: NWL) reported Q2 EPS of $0.82, $0.05 better than the analyst estimate of $0.77. Revenue for the quarter came in at $2.2 billion versus the consensus estimate of $3.83 billion.

Second Quarter 2018 Executive Summary

• Completed divestitures of The Waddington Group and Rawlings Sporting Goods Company, Inc. and divestiture processes initiated on all other assets held for sale as part of the company’s Accelerated Transformation Plan.
• The company has reported discontinued operations for businesses divested in 2018 or currently held for sale and has reorganized businesses in continuing operations into new operating segments.
• Net sales from continuing operations were $2.2 billion, compared with $2.5 billion in the prior year, reflecting the lost sales from divestitures completed in 2017, the negative impact of the adoption of the 2018 revenue recognition standard, and a decline in core sales primarily attributable to the retailer disruption to the Baby business created by the liquidation of Toys ‘R’ Us stores in the U.S., significant inventory destocking in the Writing office superstore and distributive trade channels and the absence of the prior year Slime pipeline build on Elmer’s.
• Reported operating margin for continuing operations was 3.8 percent compared to 3.7 percent in the prior year; normalized operating margin for continuing operations was 10.9 percent compared to 12.4 percent in the prior year.
• Core sales declined 6.2 percent for the total company, driven largely by a 14.5 percent decline in the Learning & Development Segment (Writing and Baby), and softness in the coolers, tents and fresh preserving businesses related to the late start to Spring in most of the U.S.
• Reported diluted earnings per share for the total company were $0.27 compared with $0.46 in the prior year, with the decrease largely attributable to the loss on the sale of Rawlings, impairment charges, principally on assets held in discontinued operations, and the impact of lower sales volume, which more than offset the benefit from cost savings and the gain on the sale of Waddington.
• Normalized diluted earnings per share for the total company were $0.82, compared with $0.87 in the prior year, as cost savings and synergies were offset by core sales volume declines, unfavorable mix related to lower Writing sales volume and inflation.
• Operating cash flow was $11.2 million, compared with $56.8 million in the prior year, as prior year results included a significant one-time working capital benefit related to a business divested in 2017.
• Gross debt was $10.5 billion, $900 million lower than prior year; net debt was $8.2 billion, $2.4 billion lower than prior year.
• The 2018 full year outlook adjusted for discontinued operations reporting and completed divestitures is net sales of $8.7 billion to $9.0 billion (which includes sales from continuing operations only), normalized EPS of $2.45 to $2.65 and operating cash flow of $900 million to $1.2 billion.
• The company expects second half normalized operating margins of 12.0 percent to 12.4 percent and core sales growth to sequentially improve from down low single digits percent in Q3 2018 to up low single digits percent in Q4 2018. Both metrics include only results from continuing operations.

“Newell Brands drove the Accelerated Transformation Plan into action in the second quarter, beginning a period of significant change to both our portfolio and organization,” commented Michael Polk, President and Chief Executive Officer of Newell Brands. “We announced and completed the divestitures of Waddington and Rawlings and are well into the sale processes on all other businesses held for sale. We also took significant steps to right-size our organization for the scale of our new portfolio, with changes announced and actioned between May and August. We continue to prioritize deleveraging, with gross debt in Q2 2018 $900 million below prior year and plans in motion to de-lever by nearly an incremental $900 million by the end of Q3 2018. In the context of these significant changes and a very challenging U.S. retail environment, we delivered second quarter results generally in line with expectations. While there is much more to do, we are acting decisively to make Newell Brands a simpler, faster and stronger company.”

“Reigniting performance on our continuing businesses is a critical priority and we expect sequential improvement in our operating results in the back half of 2018 despite increased inflation, worsening foreign exchange and the negative impact of tariffs,” continued Polk. “While the retail landscape remains difficult, consumer macros are generally good and we expect core sales on our continuing businesses to recover to growth by the fourth quarter, with margins improving as a result of strong savings programs and broad-based price increases. Adjusted for the estimated negative 20 cents per share impact in the second half of 2018 related to the divestiture of Waddington and Rawlings, we expect to deliver between $2.45 and $2.65 of normalized EPS in 2018.”

GUIDANCE:

Newell Brands sees Q3 2018 EPS of $2.45-$2.85, versus the consensus of $2.62. Newell Brands sees Q3 2018 revenue of $8.7-9 billion, versus the consensus of $14.24 billion.

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