Newell Brands (NWL) finally showed some signs of life on Friday, rising 13.5% on the back of better than expected first quarter earnings. The beleaguered company has seen a lot of change over the past couple of years, selling off businesses and brands in an attempt to reduce debt and get back on track. Newell has been trying to reverse the effects of its ill-fated 2015 acquisition of Jarden; since June of 2017, shares have fallen from the $50 level all the way to the low teens.
The company reported first quarter earnings per share of 14 cents, 8 cents better than consensus. It also narrowly exceeded top-line estimates by $21 million, with revenue of $1.71 billion. During the quarter, NWL sold off two more businesses, Process Solutions and Rexair, for $735 million (after-tax). Since these divestitures were completed last week, their effect has not yet impacted the balance sheet. The company expects complete the sale of the U.S. Playing Cards business in the second half of this year
Divestitures to date have yielded $6 billion, with a final target of $9 billion (after-tax). Cash raised has gone to reduce debt, and buyback shares. Total debt has dropped from $11.9 billion at year-end 2016, to $7.3 billion this quarter. Shares outstanding have been reduced by about 13% over the past year in what may be viewed as a somewhat controversial move. While no shares were repurchased during the quarter, the company does plan a "modest" reduction in shares outstanding for the year.
Company guidance puts full year 2019 "normalized" earnings in the $1.50-$1.65 range, which implies a price earnings ratio in the 10-11 range, with revenue in the $8.2-$8.4 billion range.
One thing that has not changed is the 23 cent quarterly dividend, which equates to a 5.5% yield; the company has maintained that payout for the past eight consecutive quarters, through thick and thin (and there has been a lot of "thin").
Newell is a great example of a potential turnaround play, with all of the ups and downs investors should expect as the company attempts to right the ship. Determining entry points into these situations (that is if you have the stomach for it) can be difficult, as lower-quality, in-transition businesses can be extremely volatile, and require a great deal of patience. These situations don't always work, and can end badly. Or, they can deliver solid returns.
First quarter results were a bright spot, but the company still has work to do. But despite all of the divestitures, it still holds a host of well-known brand names including Rubbermaid, Mr. Coffee, Sharpie, Coleman, Graco, Calphalon, and First Alert, to name a handful.