Newell Brands Announces First Quarter 2019 Results

Newell Brands (NASDAQ: NWL) today announced its first quarter 2019 financial results.

“We have had a good start to the year and are encouraged by the improvement in results in the first quarter,” said Michael Polk, Newell Brands President and Chief Executive Officer. “Sales were at the higher-end of our expectations, operating margins increased as a result of disciplined cost management, normalized EPS was well ahead of our expectations, and operating cash flow was significantly improved versus last year. We have taken decisive action to strengthen performance and those actions are beginning to yield results. As expected, U.S. retailer headwinds associated with the Toys ‘R’ Us bankruptcy and the Writing industry retailer landscape have begun to moderate as we exit the first quarter, setting up what we believe will be a more constructive environment for the balance of 2019.”

First Quarter 2019 Executive Summary

• Net sales from continuing operations were $1.7 billion, a decline of 5.5 percent compared with $1.8 billion in the prior year period, primarily reflecting the impact of unfavorable foreign exchange and a decline in core sales.
• Core sales from continuing operations declined 2.4 percent from the prior year period.
• Reported operating margin was 0.9 percent compared with negative 1.5 percent in the prior year period. Normalized operating margin was 4.3 percent compared to 2.5 percent in the prior year period.
• Reported diluted loss per share for the total company was $0.36 compared with reported diluted earnings per share of $0.11 in the prior year period.
• Normalized diluted earnings per share for the total company were $0.14, compared with $0.28 in the prior year period.
• Operating cash flow was a use of $200 million, an improvement of $202 million versus a year ago.
• The company announced divestitures of two businesses, Process Solutions and Rexair, for combined after-tax proceeds of approximately $735 million, both of which were completed on May 1, 2019.

First Quarter 2019 Operating Results

Net sales were $1.7 billion, compared to $1.8 billion in the prior year period, a 5.5 percent decline primarily attributable to the impact of foreign exchange and a decline in core sales.

Reported gross margin was 31.8 percent compared with 33.4 percent in the prior year period, as pricing, productivity, and lower restructuring costs were more than offset by the headwinds from foreign exchange, tariffs and inflation. Normalized gross margin was 31.9 percent compared with 33.3 percent in the prior year period.

Reported operating income was $15.0 million, or 0.9 percent of net sales, compared with a reported operating loss of $26.4 million, or negative 1.5 percent of net sales, in the prior year period, as the benefit from a reduction in overhead costs more than offset the negative impact of foreign exchange, tariffs and inflation. Normalized operating income was $73.0 million compared with $44.8 million in the prior year period. Normalized operating margin was 4.3 percent compared to 2.5 percent in the prior year period.

The company reported a tax benefit of $16.7 million, compared with a benefit of $86.4 million in the prior year period. The normalized tax benefit was $6.8 million compared with a benefit of $69.9 million in the prior year period.

The company recorded a $175 million pre-tax non-cash impairment charge in discontinued operations primarily related to the write-down of the carrying value of the net assets of certain held for sale businesses based on their estimated fair value.

The company reported a net loss of $151 million compared with net earnings of $53.3 million in the prior year period. Reported diluted loss per share for the total company was $0.36 compared with diluted earnings per share of $0.11 in the prior year period.

Normalized net income for the total company was $60.9 million, or $0.14 diluted earnings per share, compared with $138 million, or $0.28 diluted earnings per share, in the prior year period.

Operating cash flow was a use of $200 million compared with a use of $402 million in the prior year period.

An explanation of non-GAAP measures and a reconciliation of these non-GAAP results to GAAP measures is included in the tables attached to this release.

First Quarter 2019 Operating Segment Results

The Learning & Development segment generated net sales of $581 million compared with $607 million in the prior year period, as strong core sales growth in the Writing division was more than offset by the impact of unfavorable foreign exchange and a core sales decline for the Baby division related to the continued impact of the Toys ‘R’ Us liquidation, which was announced in March 2018. Core sales declined 1.5 percent as compared with the prior year period. The company generated approximately $40 million in sales at Toys ‘R’ Us in the first quarter of 2018. Reported operating income was $88.5 million compared with $66.2 million in the prior year period. Reported operating margin was 15.2 percent compared with 10.9 percent in the prior year period. Normalized operating income was $94.0 million versus $90.2 million in the year-ago period. Normalized operating margin was 16.2 percent compared with 14.9 percent in the prior year period.

The Food & Appliances segment generated net sales of $504 million compared with $534 million in the prior year period, primarily due to the impact of unfavorable foreign exchange and a core sales decline of 2.7 percent, largely attributable to reduced promotional activity and a comparison with the prior year’s sell-in associated with an SAP implementation in Latin America. Reported operating income was $9.3 million compared with $13.4 million in the prior year period. Reported operating margin was 1.8 percent compared with 2.5 percent in the prior year period. Normalized operating income was $21.0 million versus $21.7 million in the prior year period. Normalized operating margin was 4.2 percent compared with 4.1 percent in the prior year period.

The Home & Outdoor Living segment generated net sales of $627 million compared with $670 million in the prior year period, with the change primarily attributable to the impact of unfavorable foreign exchange, the exit of approximately 60 underperforming Yankee Candle retail stores and a core sales decline of 2.9 percent, largely driven by lost distribution for Coleman at a key U.S. retailer and declines in the remaining home fragrance retail stores. The segment reported an operating loss of $1.5 million compared with operating income of $7.8 million in the prior year period. Reported operating margin was a negative 0.2 percent compared with 1.2 percent in the prior year period. Normalized operating income was $12.3 million compared with $20.9 million in the prior year period. Normalized operating margin was 2.0 percent compared with 3.1 percent in the prior year.

Outlook for Full Year and Second Quarter 2019

The company reaffirmed its full year outlook and initiated its second quarter outlook as follows:

The company’s net sales, core sales and normalized operating margin outlook reflects expected results from continuing operations only. Normalized earnings per share and operating cash flow guidance reflects the total company outlook. Full year operating cash flow guidance continues to assume approximately $200 million in cash taxes and transaction costs related to divestitures and more than $200 million of restructuring and related cash costs.

The company has presented forward-looking statements regarding core sales, normalized earnings per share for the total company and normalized operating margin on continuing operations. These non–GAAP financial measures are derived by excluding certain amounts, expenses or income from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of forward-looking full year core sales, normalized earnings per share for the total company or normalized operating margin on continuing operations to their most directly comparable forward-looking GAAP financial measures because such information is not available and management cannot reliably predict all of the necessary components of such GAAP measures without unreasonable effort or expense. In addition, we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the company's full-year 2019 financial results. These non-GAAP financial measures are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end and year-end adjustments. Any variation between the company’s actual results and preliminary financial data set forth above may be material.

Conference Call

The company’s first quarter 2019 earnings conference call will be held today, May 3, 2019, at 8:30 a.m. ET. A link to the webcast is provided under Events & Presentations in the Investors section of Newell Brands’ website at www.newellbrands.com. A webcast replay will be made available in the Quarterly Earnings section of the company’s website.

Non-GAAP Financial Measures

This release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the U.S. Securities and Exchange Commission and includes a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

The company uses certain non-GAAP financial measures that are included in this press release and the additional financial information both to explain its results to stockholders and the investment community and in the internal evaluation and management of its businesses. The company’s management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures (a) permit investors to view the company’s performance using the same tools that management uses to evaluate the company’s past performance, reportable business segments and prospects for future performance and (b) determine certain elements of management’s incentive compensation.

The company’s management believes that core sales provides a more complete understanding of underlying sales trends by providing sales on a consistent basis as it excludes the impacts of acquisitions, planned and completed divestitures, retail store openings and closings, certain market exits, and changes in foreign exchange from year-over-year comparisons. The effect of changes in foreign exchange on 2019 reported sales is calculated by applying the prior year average monthly exchange rates to the current year local currency sales amounts (excluding acquisitions and divestitures), with the difference between the 2019 reported sales and the constant currency sales presented as the foreign exchange impact increase or decrease in core sales. The company’s management believes that “normalized” gross margin, “normalized” SG&A expense, “normalized” operating income, “normalized” operating margin, “normalized” net income, “normalized” diluted earnings per share, “normalized” interest and “normalized” tax rates, which exclude restructuring and restructuring-related expenses and one-time and other events such as costs related to the extinguishment of debt, certain tax benefits and charges, impairment charges, pension settlement charges, divestiture costs, costs related to the acquisition, integration and financing of acquired businesses, amortization of intangible assets associated with acquisitions and certain other items, are useful because they provide investors with a meaningful perspective on the current underlying performance of the company’s core ongoing operations.

The company determines the tax effect of the items excluded from normalized diluted earnings per share by applying the estimated effective rate for the applicable jurisdiction in which the pre-tax items were incurred, and for which realization of the resulting tax benefit, if any, is expected. In situations in which an item excluded from normalized results impacts income tax expense, the company uses a “with” and “without” approach to determine normalized income tax expense.

While the company believes these non-GAAP financial measures are useful in evaluating the company’s performance, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these non-GAAP financial measures may differ from similar measures presented by other companies.

About Newell Brands

Newell Brands (NASDAQ: NWL) is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert® and Yankee Candle®. For hundreds of millions of consumers, Newell Brands makes life better every day, where they live, learn, work and play.

This press release and additional information about Newell Brands are available on the company’s website, www.newellbrands.com.

Caution Concerning Forward-Looking Statements

Some of the statements in this press release and its exhibits, particularly those anticipating future financial performance, business prospects, growth, operating strategies and similar matters, are forward- looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words and phrases such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” beginning to,” “will,” “should,” “would” or similar statements. We caution that forward-looking statements are not guarantees because there are inherent difficulties in predicting future results. In addition, there are no assurances that we will complete any or all of the potential transactions or other initiatives referenced above. Actual results may differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to:

• our dependence on the strength of retail, commercial and industrial sectors of the economy in various parts of the world;
• competition with other manufacturers and distributors of consumer products;
• major retailers’ strong bargaining power and consolidation of our customers;
• our ability to improve productivity, reduce complexity and streamline operations;
• future events that could adversely affect the value of our assets and/or stock price and require additional impairment charges;
• our ability to remediate the material weakness in our internal control over financial reporting and maintain effective internal control reporting;
• our ability to develop innovative new products, to develop, maintain and strengthen end-user brands and to realize the benefits of increased advertising and promotion spend;
• risks related to our substantial indebtedness, a potential increase in interest rates or changes in our credit ratings;
• our ability to effectively accelerate our transformation plan and to execute our divestitures of the remaining assets held for sale;
• our ability to complete planned acquisitions and divestitures, to integrate acquisitions and to offset unexpected costs or expenses associated with acquisitions or dispositions;
• changes in the prices of raw materials and sourced products and our ability to obtain raw materials and sourced products in a timely manner;
• the risks inherent to our foreign operations, including foreign exchange fluctuations, exchange controls and pricing restrictions;
• a failure of one of our key information technology systems, networks, processes or related controls or those of our service providers;
• the impact of United States and foreign regulations on our operations, including the escalation of tariffs on imports into the U.S. and exports to Canada, China and the European Union and environmental remediation costs;
• the potential inability to attract, retain and motivate key employees;
• the resolution of tax contingencies resulting in additional tax liabilities;
• product liability, product recalls or related regulatory actions;
• our ability to protect intellectual property rights;
• significant increases in the funding obligations related to our pension plans; and
• other factors listed from time to time in our filings with the Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K.

The information contained in this press release and the tables is as of the date indicated. The company assumes no obligation to update any forward-looking statements as a result of new information, future events or developments.

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