Newell Brands Announces Fourth Quarter and Full Year 2018 Results
- Delivered Sequential Core Sales Improvement in All Segments
- Completed Divestitures of Jostens and Pure Fishing
- Repaid $2.6 Billion of Debt; Repurchased $1.0 Billion of Shares
HOBOKEN, NJ – February 15, 2019 – Newell Brands (NASDAQ: NWL) today announced its fourth quarter and full year 2018 financial results.
“Newell Brands’ fourth quarter results reflect solid progress as we continue to execute the Accelerated Transformation Plan (ATP) announced one year ago,” said Michael Polk, President and Chief Executive Officer of Newell Brands. “We were encouraged by the sequential improvement in core sales growth across all segments, the return to growth of our Learning & Development segment driven by building momentum on Writing, and solid margin expansion as a result of continued diligent cost management and pricing. We returned $1.1 billion to our shareholders through dividends and share repurchases and paid down $2.6 billion in debt during the quarter, exiting the year at our targeted leverage ratio. We’ve planned 2019 to be another year of significant portfolio and organization transformation. We intend to drive the ATP to completion in 2019, and despite the ongoing negative impact of retailer bankruptcies, foreign exchange, inflation and tariffs, we expect to stabilize and then reignite core sales growth, increase margins, and strengthen the operational and financial performance of the company.”
Fourth Quarter 2018 Executive Summary
| • | Net sales from continuing operations were $2.3 billion, a decline of 6.0 percent compared with $2.5 billion in the prior year period, reflecting headwinds from the adoption of the new 2018 revenue recognition standard, unfavorable foreign exchange and a decline in core sales. |
| • | Core sales from continuing operations declined 1.2 percent from the prior year period. All segments posted improved core sales trends on a sequential basis, with the Learning & Development segment returning to growth. Three of four regions posted improved core sales growth trends on a sequential basis. |
| • | Reported operating margin was 0.8 percent compared with 5.7 percent in the prior year period. Normalized operating margin was 11.4 percent compared to 10.7 percent in the prior year period. |
| • | Reported diluted earnings per share for the total company were $0.46 compared with $3.38 in the prior year period. Reported diluted earnings per share from continuing operations were $0.36 versus $3.07 in the prior year period. |
| • | Normalized diluted earnings per share for the total company were $0.71, compared with $0.68 in the prior year period. Normalized diluted earnings per share from continuing operations were $0.47, compared with $0.28 in the prior year period. |
| • | Operating cash flow was $498 million compared with $990 million in the prior year period, with the difference attributable to the absence of the operating cash flow contribution from divested businesses, increased cash taxes and transaction-related costs, and a change in the timing of vendor payments relative to the prior year. |
| • | Announced and completed divestitures of two businesses, Pure Fishing and Jostens, for combined after-tax proceeds of $2.5 billion. |
| • | Deployed $2.6 billion to debt repayment, $102 million to dividends and $996 million to share repurchases. |
Fourth Quarter 2018 Operating Results
Net sales were $2.3 billion, compared to $2.5 billion in the prior year period, a 6.0 percent decline attributable to headwinds from the adoption of the new 2018 revenue recognition standard, unfavorable foreign exchange and a decline in core sales.
Reported gross margin was 34.7 percent compared with 32.7 percent in the prior year period, resulting from pricing, productivity, lower integration and restructuring costs and the impact of the new revenue recognition standard, which more than offset the headwinds from foreign exchange and inflation related to higher input costs, tariffs and transport costs. Normalized gross margin was 34.7 percent compared with 33.0 percent in the prior year period.
The company recorded a $157 million non-cash impairment charge from continuing operations primarily associated with intangible assets in certain acquired businesses. The impairment charge is attributable to the latest cash flow projections associated with these businesses.
Reported operating income was $17.8 million, or 0.8 percent of sales, compared with $142 million, or 5.7 percent of sales, in the prior year period, as improved gross margin and a reduction in overhead, integration and restructuring costs, were more than offset by the impact of the non-cash impairment charge and an increase in accrued incentive compensation. Normalized operating income was $268 million compared with $267 million in the prior year period. Normalized operating margin was 11.4 percent compared to 10.7 percent in the prior year period.
The company reported a tax benefit of $254 million compared with a benefit of $1.5 billion in the prior year period, with the difference primarily attributable to the absence of the $1.4 billion benefit from tax reform in 2017. The normalized tax rate was negative 30.0 percent, for a benefit of $49.5 million, compared with 3.7 percent, or a provision of $5.4 million, in the prior year period.
The company reported net income of $208 million compared with $1.7 billion in the prior year period, with the decline primarily attributable to the absence of the tax benefit recorded in 2017. Continuing operations posted net income of $164 million compared with $1.5 billion in the fourth quarter of last year. Discontinued operations generated net income of $44.3 million versus $154 million in the year-ago period. Reported diluted earnings per share for the total company were $0.46 compared with $3.38 in the prior year period. Reported diluted earnings per share from continuing operations were $0.36 versus $3.07 in the prior year period. Reported diluted earnings per share from discontinued operations were $0.10 compared with $0.31 in the prior year period.
Normalized net income for the total company was $321 million, or $0.71 per share, compared with $335 million, or $0.68 per share, in the prior year period. Normalized diluted earnings per share from continuing operations were $0.47, compared with $0.28 in the prior year period. Normalized diluted earnings per share from discontinued operations were $0.24 compared with $0.40 in the prior year period.
Operating cash flow was $498 million compared with $990 million in the prior year period, with the difference attributable to the absence of the operating cash flow contribution from divested businesses, increased cash taxes and transaction-related costs, and a change in the timing of vendor payments relative to the prior year.
A reconciliation of reported results to normalized results is included in the tables attached to this release.
Fourth Quarter 2018 Operating Segment Results
The Learning & Development segment generated net sales of $707 million compared with $730 million in the prior year period, as strong core sales growth in Writing was more than offset by the negative impacts of unfavorable foreign exchange, the adoption of the new 2018 revenue recognition standard and a core sales decline for Baby related to the continued negative impact of the Toys ‘R’ Us bankruptcy. Core sales grew 1.7 percent as compared with the prior year period, a sequential improvement versus third quarter results. Reported operating income was $135 million compared with $97.8 million in the prior year period. Reported operating margin was 19.2 percent as compared with 13.4 percent in the prior year period. Normalized operating income was $139 million versus $103 million in the fourth quarter of last year. Normalized operating margin was 19.7 percent of sales compared with 14.0 percent in the prior year period.
The Food & Appliances segment generated net sales of $824 million compared with $888 million in the prior year period, primarily due to the adoption of the new 2018 revenue recognition standard, unfavorable foreign exchange, and a core sales decline of 1.7 percent as compared with the prior year period, largely attributable to reduced promotional activity in Food. The core sales trend represents a sequential improvement versus third quarter results. Reported operating loss was $19.3 million compared with operating income of $105 million in the prior year period, largely due to the negative impact of the non-cash impairment charge. Reported operating margin was negative 2.3 percent as compared with 11.8 percent in the prior year period. Normalized operating income was $96.5 million versus $116 million in the fourth quarter of last year. Normalized operating margin was 11.7 percent of sales compared with 13.0 percent in the prior year period.
The Home & Outdoor Living segment generated net sales of $809 million compared with $872 million in the prior year period, with the change primarily attributable to the adoption of the new 2018 revenue recognition standard, unfavorable foreign exchange and a core sales decline of 3.0 percent, largely driven by lost distribution for Coleman at a key U.S. retailer. These negative impacts were partially offset by strong growth from Connected Home & Security and a return to growth of Home Fragrance in Europe. The core sales trend represented a sequential improvement compared with third quarter results. Reported operating income was $45.5 million compared with $108 million in the prior year period, largely due to the negative impact of the non-cash impairment charge. Reported operating margin was 5.6 percent as compared with 12.4 percent in the prior year period. Normalized operating income was $110 million compared with $131 million in the prior year period. Normalized operating margin was 13.5 percent of sales compared with 15.0 percent in the fourth quarter of last year.
Full Year 2018 Results
Net sales for the full year ended December 31, 2018 were $8.6 billion, a decline of 9.6 percent compared with $9.6 billion in the prior year. Core sales declined 5.2 percent.
Reported gross margin was 34.9 percent, compared with 34.2 percent in the prior year. Normalized gross margin was 34.8 percent, in line with the prior year.
The company reported a full year 2018 operating loss of $7.8 billion compared with operating income of $386 million in the prior year. Reported operating margin was negative 90.7 percent compared with 4.0 percent in the prior year. Normalized operating income was $878 million compared with $1.1 billion in the prior year. Normalized operating margin was 10.2 percent compared with 11.1 percent in the prior year.
Reported net loss was $6.9 billion compared with net income of $2.7 billion in the prior year. Reported diluted loss per share was $14.60 compared with reported diluted earnings per share of $5.63 in the prior year. Normalized net income was $1.3 billion, approximately in line with the prior year. Normalized diluted earnings per share were $2.68 compared with $2.75 in the prior year.
Operating cash flow was $680 million compared to $966 million in the prior year, reflecting taxes paid in 2018 related to gains from divested businesses, the absence of cash flow contributions from divested businesses and unfavorable working capital movements.
The company exited the year with a gross debt leverage ratio of 3.5x.
An explanation of how the gross debt leverage ratio is calculated and a related reconciliation as well as a reconciliation of reported results to normalized results is included in the tables attached to this release.
2019 Change to Normalization Practice
In 2019, the company will change its normalization practice. In addition to its GAAP results, the company has provided and will continue to provide certain non-GAAP financial measures, referred to as “normalized” measures, which provide investors supplementary information helpful in understanding the company’s underlying operating performance. To date, including the fourth quarter and full year results discussed in this earnings release, the company has excluded from these normalized results the cost of its Transformation Office, consisting of employees fully dedicated to executing the integration of the merger of Newell Rubbermaid and Jarden Corporation, and other internal and external costs associated with the integration and start-up of the combined organization such as advisory costs for process transformation and optimization initiatives. Beginning in 2019, the company will no longer exclude these costs from its normalized results, in recognition of the progress toward completion of the integration. It will continue to provide supplementary normalized measures which will exclude acquisition- and divestiture-related costs, debt repayment costs, restructuring and restructuring-related costs and certain other unusual or one-time costs.
The company’s outlook for the twelve months ending December 31, 2019 reflects this change, and in the interest of comparability, the company has provided an adjusted view of its 2018 normalized quarterly and annual results as they would have appeared had the change in normalization practice been in place in 2018. This adjusted information can be found in the appendix to this press release and in the Investors section of the company’s website, www.newellbrands.com.
Outlook for Full Year and First Quarter 2019
| Full Year 2019 Outlook | |
| Net Sales | $8.2 to $8.4 billion |
| Core Sales | Low single digit decline |
| Normalized Operating Margin | 20 to 60 bps improvement |
| Total Company Normalized EPS | $1.50 to $1.65 |
| Total Company Operating Cash Flow | $300 to $500 million |
| Q1 2019 Outlook | |
| Net Sales | $1.66 to $1.70 billion |
| Core Sales | 2% to 4% decline |
| Normalized Operating Margin | 10 to 50 bps improvement |
| Total Company Normalized EPS | $0.04 to $0.08 |
The company’s net sales, core sales and normalized operating margin outlook reflects continuing operations only. Normalized earnings per share and operating cash flow guidance reflects the total company outlook. Core sales are calculated on a constant currency basis in line with industry practice and exclude the impacts of foreign exchange, acquisitions until their first anniversary, planned and completed divestitures and certain other items. Full year operating cash flow guidance assumes 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-GAAPfinancial 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 the aforementioned forward-looking non-GAAPfinancial measures 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 fourth quarter 2018 earnings conference call will be held today, February 15, 2019, at 9:00 a.m. ET. A link to the webcast is provided under News & Events 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, changes in foreign exchange and the impact of the adoption of revenue recognition standard ASC 606 as of January 1, 2018, from year-over-year comparisons. The effect of changes in foreign exchange on 2018 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 2018 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 other expenses and one-timeand other events such as costs related to certain product recalls, 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, advisory costs for process transformation and optimization initiatives, costs of personnel dedicated to integration activities and transformation initiatives 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.
| Investor Contact: | Media Contact: |
| Nancy O’Donnell | Claire-Aude Staraci |
| SVP, Investor Relations andCorporate Communications | Director, External Communications |
| +1 (201) 610-6857 | +1 (201) 610-6717 |
| [email protected] | [email protected] |
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 such as “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “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 impacts of tariffs 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.
| NASDAQ: NWL www.newellbrands.com 221 River StreetHoboken, NJ 07030 +1 (201) 610-6600 |