Newell Brands Announces Fourth Quarter and Full Year 2020 Results

Newell Brands (NASDAQ: NWL) today announced its fourth quarter and full year 2020 financial results.

"We gained considerable momentum on our turnaround in 2020 and laid a solid foundation to deliver sustainable, profitable growth in the future,” said Ravi Saligram, Newell Brands President and CEO. “We are proud of our accomplishments in 2020, returning to meaningful core sales growth and operating margin improvement in the back half of the year, delivering stellar cash flow, significantly reducing complexity, improving productivity, accelerating eCommerce growth, and improving customer relationships. The strength and resilience of our portfolio shone through as growth in Food, Commercial and Appliances & Cookware business units offset Writing softness caused by the stay at home pandemic related phenomenon. I am excited about Newell's prospects and feel our best days are ahead as we focus on sustaining top line growth, strengthening our brands through insights and innovation, focus on omni-channel initiatives, expand distribution and begin to unlock international opportunities.”

Chris Peterson, Chief Financial Officer and President, Business Operations, said, “We ended the fourth quarter on a very strong note, delivering mid-single-digit core sales growth, operating margin expansion, excellent cash flow, and double-digit normalized earnings per share growth, all ahead of our expectations. Full year results showed sequential improvement across key metrics, with operating cash flow exceeding $1.4 billion and free cash flow productivity above 150%, enabled by progress on working capital. We strengthened the balance sheet, exiting the year with a leverage ratio of 3.5x. As we look out to 2021, we are projecting low single digit core sales growth, normalized operating margin improvement of 30 to 60 basis points, normalized diluted EPS of $1.55 to $1.65, and operating cash flow of approximately $1.0 billion.”

Fourth Quarter 2020 Executive Summary

• Net sales were $2.7 billion, an increase of 2.5 percent compared with the prior year period.
• Core sales grew 4.9 percent compared with the prior year period. Six of eight business units and every major region increased core sales compared with the prior year period.
• Reported operating margin was 9.2 percent compared with 5.0 percent in the prior year period. Normalized operating margin was 11.4 percent compared with 11.3 percent in the prior year period.
• Reported diluted earnings per share were $0.30 compared with $1.87 per share in the prior year period.
• Normalized diluted earnings per share were $0.56 compared with $0.42 per share in the prior year period.
• Full year 2020 operating cash flow was $1.4 billion compared with $1.0 billion in the prior year period, reflecting strong progress on working capital initiatives.
• The company's leverage ratio came down to 3.5x at the end of the fourth quarter from 4.0x at the end of the prior year period.
• The company completed a tender offer for $300 million of its 3.85 percent senior notes due 2023 in the fourth quarter.
• The company initiated its full year 2021 outlook, with expected normalized earnings per share of $1.55 to $1.65 and operating cash flow of approximately $1.0 billion.

Fourth Quarter 2020 Operating Results

Net sales were $2.7 billion, a 2.5 percent increase compared to the prior year period, as core sales growth of 4.9 percent was partially offset by the impact of unfavorable foreign exchange, as well as business and retail store exits.

Reported gross margin was 32.9 percent compared with 32.5 percent in the prior year period, reflecting the benefit from FUEL productivity savings, as well as the headwind from business unit mix, COVID-related expenses and inflation. Normalized gross margin was 32.9 percent compared with 33.5 percent in the prior year period.

Reported operating income was $248 million compared with $132 million in the prior year period. Reported operating margin was 9.2 percent compared to 5.0 percent in the prior year period. Normalized operating income was $307 million, or 11.4 percent of sales, compared with $296 million, or 11.3 percent of sales, in the prior year period.

Interest expense was $69 million compared with $70 million in the prior year period, as the company reduced its debt balance.

The company reported a tax benefit of $26 million compared with a tax benefit of $721 million in the prior year period, reflecting a reduction in discrete tax benefits. Normalized tax benefit was $6 million compared with a tax expense of $51 million in the prior year period.

The company reported net income of $127 million, or $0.30 diluted earnings per share, compared with $794 million, or $1.87 diluted earnings per share, in the prior year period.

Normalized net income was $238 million, or $0.56 normalized diluted earnings per share, compared with $180 million, or $0.42 normalized diluted earnings per share, in the prior year period.

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

Balance Sheet and Cash Flow

During full year 2020, the company generated operating cash flow of $1.4 billion compared with $1.0 billion in the prior year, reflecting strong progress on working capital initiatives.

During the fourth quarter, the company completed a tender offer for $300 million of its 3.85 percent senior notes due 2023. At the end of the year, Newell Brands had cash and cash equivalents of $981 million and net debt outstanding of $4.6 billion, as compared to $5.4 billion at the end of the prior year. The company finished the year in a very strong liquidity position, with over $2.5 billion in available short-term liquidity, including cash on hand. Newell Brands exited the year with a leverage ratio of 3.5x compared to 4.0x at the end of the prior year.

Leverage ratio is defined as the ratio of net debt to normalized EBITDA from continuing operations. An explanation of how the leverage ratio is calculated and a related reconciliation, as well as a reconciliation of reported results to normalized results, are included in the tables attached to this release.

Fourth Quarter 2020 Operating Segment Results

The Appliances & Cookware segment generated net sales of $577 million compared with $570 million in the prior year period, driven by core sales growth of 4.2 percent, partially offset by the impact of unfavorable foreign exchange. Reported operating income was $49 million, or 8.5 percent of sales, compared with $58 million, or 10.2 percent of sales, in the prior year period. Normalized operating income was $51 million, or 8.8 percent of sales, versus $54 million, or 9.5 percent of sales, in the prior year period.

The Commercial Solutions segment generated net sales of $498 million compared with $436 million in the prior year period, driven by core sales growth of 13.8 percent and the impact of favorable foreign exchange. Core sales increased in both the Commercial and the Connected Home & Security business units. Reported operating income was $63 million, or 12.7 percent of sales, compared with $35 million, or 8.0 percent of sales, in the prior year period. Normalized operating income was $66 million, or 13.3 percent of sales, versus $51 million, or 11.7 percent of sales, in the prior year period.

The Home Solutions segment generated net sales of $695 million compared with $648 million in the prior year period, reflecting core sales growth of 12.4 percent and the impact of favorable foreign exchange, partially offset by the exit from the Home Fragrance fundraising business and closure of 77 underperforming Yankee Candle retail locations during the year. Both business units, Food and Home Fragrance, delivered core sales growth. Reported operating income was $138 million, or 19.9 percent of sales, compared with $96 million, or 14.8 percent of sales, in the prior year period. Normalized operating income was $152 million, or 21.9 percent of sales, versus $112 million, or 17.3 percent of sales, in the prior year period.

The Learning & Development segment generated net sales of $670 million compared with $702 million in the prior year period, reflecting core sales decline of 2.2 percent and the impact of business exits, partially offset by the effect of favorable foreign exchange. Core sales growth in Baby was more than offset by a core sales reduction in the Writing business unit. Reported operating income was $72 million, or 10.7 percent of sales, compared with $100 million, or 14.2 percent of sales, in the prior year period. Normalized operating income was $94 million, or 14.0 percent of sales, compared with $128 million, or 18.2 percent of sales, in the prior year period.

The Outdoor & Recreation segment generated net sales of $249 million compared with $268 million in the prior year period, largely reflecting a core sales decline of 7.4 percent. Reported operating loss was $9 million, or negative 3.6 percent of sales, compared with $75 million, or negative 28.0 percent of sales, in the prior year period. Normalized operating loss was $5 million, or negative 2.0 percent of sales, compared with $2 million, or negative 0.7 percent of sales, in the prior year period.

Full Year 2020 Operating Results

Net sales for the full year ended December 31, 2020 were $9.4 billion, a decline of 3.4 percent compared with $9.7 billion in the prior year, reflecting core sales decline of 1.1 percent, as well as the impact of unfavorable foreign exchange and business and retail store exits.

Reported gross margin was 32.8 percent compared with 33.1 percent in the prior year, as pressure from unfavorable business unit mix, COVID-related expenses, higher absorption costs, and inflation more than offset the benefit from FUEL productivity savings. Reported gross margin for the prior year period includes cumulative depreciation expense recorded as a result of the decision to retain the Commercial business. Normalized gross margin was 32.9 percent compared with 33.8 percent in the prior year.

The company reported an operating loss of $634 million compared with $482 million in the prior year, as both periods were impacted by non-cash impairment charges. Normalized operating income was $1.0 billion, similar to the prior year. Normalized operating margin increased by 30 basis points to 11.1 percent compared with 10.8 percent in the prior year.

Interest expense was $274 million compared with $303 million in the prior year period, reflecting a reduction in outstanding debt.

Reported net loss was $770 million compared with net income of $107 million in the prior year. Reported diluted loss per share was $1.82 compared with a reported diluted income per share of $0.25 in the prior year. Normalized net income was $760 million compared with $722 million in the prior year. Normalized diluted earnings per share were $1.79 compared with $1.70 in the prior year.

Update to Reporting Segments

The company has realigned the management of its Cookware business, with the Business Unit CEO of Food assuming full responsibility for Cookware. As a result of this change, effective first quarter 2021, the company will report the financial and operating information for Cookware as part of its Food business unit within the Home Solutions segment. Previously, Cookware was included in the Appliances & Cookware segment. With this change in the organizational structure, the Appliances & Cookware segment will be renamed Home Appliances. The company will continue to report its five existing reportable segments.

Outlook for Full Year and First Quarter 2021

The company initiated its full year and first quarter outlook for 2021 as follows:

		Full Year 2021 Outlook
Net Sales		$9.5 to $9.7 billion
Core Sales		Low single digit growth
Normalized Operating Margin		30 to 60 bps improvement to 11.4% to 11.7%
Normalized EPS		$1.55 to $1.65
Operating Cash Flow		Approximately $1.0 billion
		Q1 2021 Outlook
Net Sales		$2.04 to $2.08 billion
Core Sales		High single digit growth
Normalized Operating Margin		90 to 130 bps improvement to 6.9% to 7.3%
Normalized EPS		$0.12 to $0.14

The company has presented forward-looking statements regarding core sales, normalized operating margin, and normalized earnings per share. 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 judgement 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 core sales, normalized operating margin, or normalized earnings per share 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 of 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 and first quarter 2021 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

Newell Brands’ fourth quarter and full year 2020 earnings conference call will be held today, February 12, at 8:30 a.m. ET. A link to the webcast is provided under Events & Presentations in the Investors section of the company’s 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 (the "SEC") and includes a reconciliation of 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 and liquidity using the same tools that management uses to evaluate the company’s past performance, reportable business segments, prospects for future performance and liquidity, and (b) determine certain elements of management 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, impact of customer returns related to a product recall in Outdoor and Recreation segment, and changes in foreign exchange from year-over-year comparisons. The effect of changes in foreign exchange on 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 2020 reported sales and 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” operating income, “normalized” operating margin, "normalized EBITDA", "normalized EBITDA from continuing operations", “normalized” net income, “normalized” diluted earnings per share, “normalized” interest and “normalized” tax benefits, 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 acquisition-related intangible assets, inflationary adjustments, expenses related to certain product recalls 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 and liquidity. On a pro forma basis, "normalized" items give effect to the company's decision not to sell the Commercial, Mapa and Quickie businesses. “Normalized EBITDA from continuing operations” is an ongoing liquidity measure (that excludes non-cash items) and is calculated as pro forma normalized earnings from continuing operations before interest, tax depreciation, amortization and stock-based compensation expense. "Leverage ratio" is a liquidity measure calculated as the ratio of net debt (defined as total debt less cash and cash equivalents) to normalized EBITDA from continuing operations. "Free cash flow productivity” is calculated as the ratio of free cash flow (calculated as net cash provided by operating activities less capital expenditures) to normalized net income, and the company believes that free cash flow productivity is an important indicator of liquidity realized from 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 certain situations in which an item excluded from normalized results impacts income tax expense, the company utilizes a “with” and “without” approach to determine normalized income tax benefit or expense. The company will also exclude one-time tax expenses related to a change in tax status of certain entities and the loss of GILTI tax credits as a result of utilizing the 50% IRC Section 163(j) limit resulting from the CARES Act to determine normalized income tax benefit.

While the company believes these non-GAAP financial measures are useful in evaluating the company’s performance and liquidity, 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 Rubbermaid®, Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Contigo®, First Alert®, Mapa®, Spontex® and Yankee Candle®. Newell Brands is committed to enhancing the lives of consumers around the world with planet friendly, innovative and attractive products that create moments of joy and provide peace of mind.

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