Newell Brands announced its first quarter 2020 financial results.

"The turnaround plan that we have been executing against puts Newell Brands on a stronger footing to confront the significant and unprecedented challenges inherent in the global COVID-19 pandemic,” said Ravi Saligram, Newell Brands President and CEO. “We have established three key priorities in this rapidly changing operating and economic environment. First and foremost is the safety and well-being of our employees. Second, we are taking decisive actions to sustain the company’s financial vitality with a laser focus on maximizing cash flow and ensuring strong liquidity. And finally, we are working diligently to keep our manufacturing facilities and distribution centers operating where possible, so that we can continue to provide critical products to our consumers and customers. Although we delivered performance in line with or ahead of expectations in Q1, we expect Q2 to be a very challenging quarter. We are encouraged, however, by the pockets of strength we are seeing in the Food and Commercial businesses as well as recent point of sale trends in the Appliances & Cookware business in the U.S. We remain confident in our liquidity position and our ability to successfully navigate the enterprise during these difficult times."

Chris Peterson, Chief Financial Officer and President, Business Operations, said, “Despite the disruption from COVID-19, the company’s first quarter results were in line with or ahead of guidance across all key metrics, as better than expected performance during the first two months offset a significant slowdown in March. Disciplined focus on productivity, overhead cost savings and complexity reduction drove a better than expected operating margin. We generated positive operating cash flow in the seasonally slow first quarter, a $223 million improvement versus year ago results, attributable to the strong progress on working capital initiatives implemented as part of our turnaround plan.”

First Quarter 2020 Executive Summary

– Net sales were $1.9 billion, a decline of 7.6 percent compared with the prior year period.

– Core sales declined 5.1 percent compared with the prior year period. Three of eight business units delivered core sales growth.

– Reported operating margin was negative 74.7 percent compared with positive 0.6 percent in the prior year period, reflecting a $1.5 billion noncash impairment charge recorded in the current quarter. Normalized operating margin was 6.0 percent, compared with 6.1 percent in the prior year period.

– Reported diluted loss per share for the total company was $3.02 compared with a loss of $0.36 per share in the prior year period.

– Normalized diluted earnings per share for the total company were $0.09 compared with $0.12 in the prior year period, with an increase in normalized earnings from continuing operations more than offset by the foregone contribution from divested businesses.

– Operating cash flow was $23 million, compared with an operating cash outflow of $200 million in the prior year period, reflecting strong working capital progress.

– The company withdrew previously announced full year 2020 guidance due to the highly dynamic outlook for the global economy and ongoing supply chain and demand disruptions.

First Quarter 2020 Operating Results

Net sales were $1.9 billion, a 7.6 percent decline compared to the prior year period, reflecting a 5.1 percent decline in core sales and the unfavorable impact of foreign exchange.

Reported gross margin was 32.7 percent compared with 32.1 percent in the prior year period, as productivity initiatives and pricing more than offset headwinds from tariffs, inflation and mix. Normalized gross margin was 32.8 percent compared with 31.7 percent in the prior year period.

Reported operating loss was $1.4 billion compared with operating income of $12 million in the prior year period. Impairment charges of $1.5 billion and $63 million were incurred in the current and prior year periods, respectively, primarily related to goodwill and intangible assets. Reported operating margin was negative 74.7 percent compared with positive 0.6 percent in the prior year. Normalized operating income was $113 million compared with $124 million in the prior year period. Normalized operating margin was 6.0 percent, compared with 6.1 percent in the prior year period.

Interest expense was $63 million compared with $80 million in the prior year period, attributable to a reduction in outstanding debt.

The company reported a tax benefit of $204 million compared with a benefit of $20 million in the prior year period due to discrete tax benefits in both periods. Normalized tax expense was $3 million, compared with $4 million in the prior year period.

The company reported a net loss of $1.3 billion, or $3.02 diluted loss per share, compared with a net loss of $151 million, or $0.36 diluted loss per share, in the prior year period.

Normalized net income was $39 million, or $0.09 diluted earnings per share, compared with $53 million, or $0.12 diluted earnings per share, in the prior year period, with an increase in normalized earnings from continuing operations more than offset by the foregone contribution from divested businesses.

An explanation of non-GAAP measures and a reconciliation of these non-GAAP results to comparable GAAP measures is included in the tables attached to this release. Normalized results in the year ago period have been recast to include Rubbermaid Commercial Products, Mapa/Spontex and Quickie in continuing operations, as well as the depreciation and amortization expense that would have been recorded had these businesses been continuously classified as held and used.

Balance Sheet and Cash Flow

Operating cash flow in the first quarter was $23 million, compared with an operating cash outflow of $200 million in the prior year period, reflecting strong working capital progress.

At the end of the first quarter, Newell Brands had cash and cash equivalents of $476 million and total debt outstanding of $6.0 billion, including $290 million borrowed under its accounts receivable securitization facility. The company ended the quarter with a strong liquidity position, with $1.2 billion of available borrowing capacity on its credit revolver as of March 31, 2020.

First Quarter 2020 Operating Segment Results

The Food & Commercial segment generated net sales of $520 million compared with $504 million in the year ago period, reflecting core sales growth of 5.2 percent offset by the headwind from foreign exchange. Both the Food and Commercial business units delivered positive core sales growth. Reported operating income was $84 million compared with $1 million in the prior year period. Reported operating margin was 16.2 percent compared with 0.2 percent in the prior year period. Normalized operating income was $91 million, or 17.5 percent of sales, versus $64 million, or 12.7 percent of sales, in the prior year period.

The Learning & Development segment generated net sales of $528 million compared with $581 million in the prior year period, reflecting a core sales decline of 5.5 percent and headwind from foreign exchange. The Baby business unit generated positive core sales growth offset by a decline in Writing. Reported operating income was $5 million compared with operating income of $89 million in the prior year period. Reported operating margin was 0.9 percent compared with 15.3 percent in the prior year period. Normalized operating income was $86 million, or 16.3 percent of sales, versus $94 million, or 16.2 percent of sales, in the year-ago period.

The Appliances & Cookware segment generated net sales of $291 million compared with $330 million in the prior year period, due to a core sales decline of 8.5 percent and the impact of unfavorable foreign exchange. Reported operating loss was $308 million, or negative 105.8 percent of sales, compared with an operating loss of $4 million, or negative 1.2 percent of sales, in the prior year period. The year over year change was primarily due to a $299 million impairment charge related to goodwill and intangibles. Normalized operating loss was $7 million, or negative 2.4 percent of sales, versus a normalized operating loss of $2 million, or negative 0.6 percent of sales, in the prior year period.

The Home & Outdoor Living segment generated net sales of $547 million compared with $627 million in the prior year period, reflecting a core sales decline of 11.3 percent, the impact of unfavorable foreign exchange and the exit of 44 underperforming Yankee Candle retail stores during the first quarter. The core sales decline includes the impact of the temporary closure of all North American retail stores in mid-March as a result of the COVID-19 pandemic. The Home Fragrance, Outdoor & Recreation and Connected Home & Security business units experienced core sales declines. The reported operating loss was $1.1 billion, or negative 204.9 percent of sales, compared with an operating loss of $2 million, or negative 0.3 percent of sales, in the prior year period. The year over year change was primarily due to a $1.0 billion impairment charge related to goodwill and intangible assets in the three business units. Normalized operating loss was $11 million compared with normalized operating income of $12 million in the prior year period. Normalized operating margin was a negative 2.0 percent compared with a positive 1.9 percent in the prior year period.

COVID-19 Update

Newell Brands began the first quarter with strong momentum. However, beginning in March and extending through April, the company began to experience significant COVID-19 related disruption to its business in three primary areas:

Supply chain. While the majority of the company’s factories are considered essential in their applicable jurisdictions and are operational, the company is experiencing disruption at a number of facilities. Of its 135 manufacturing and distribution facilities, nearly 20 were or are temporarily closed, the most significant of which are its South Deerfield, MA, Home Fragrance plant, and its Mexicali, Mexico, Writing facility, which were closed in line with government guidelines as of late March and mid-April, respectively. The Mexicali plant has since reopened on a limited basis.

Retail. While Newell Brands’ largest retail customers are experiencing a surge in sales as their stores remain open, a number of secondary customers, primarily in the specialty and department store channels, have temporarily closed their brick and mortar stores. These dynamics, in combination with some retailers’ prioritization of essential items, have had a meaningful impact on retailer order patterns. In addition, Newell Brands temporarily closed its Yankee Candle retail stores in North America as of mid-March.

Consumer demand patterns. As the quarantine phase of the pandemic has taken hold, consumer purchasing behavior has strongly shifted to certain focused categories. While certain of the company’s businesses benefited from this shift in the first quarter, including Food and Commercial, others have seen significant slowing.

As a result of these challenges Newell Brands experienced a significant negative impact on sales in March and April and expects this trend to continue through the second quarter. For context, in April, the company estimates it experienced a sales decline of approximately 25 percent.

The ultimate impact on the second quarter and full year 2020 is unknown at this time, as it is difficult to predict the duration of social distancing and shelter-in-place mandates, as well as the trajectory and pace of economic recovery. However, the company anticipates the impact to its second quarter results will be material, with the current expectation for this quarter to be the most impacted by the pandemic. The company remains optimistic that it will deliver sequential improvement in the back half of the year. However, as a result of the uncertain and highly dynamic outlook for the global economy, as well as ongoing demand and supply chain disruptions, the company is withdrawing its previously announced full year guidance for 2020 and is not issuing quarterly guidance for the second quarter.

Newell Brands has taken significant and decisive actions to safeguard the health and well-being of its employees, protect its profitability and operating cash flow, and maintain business continuity despite the impact of the global pandemic. As part of its efforts to contain costs and maximize financial flexibility the company has:

furloughed approximately 5,000 employees, primarily related to supply chain and retail operations,

tightened discretionary spending,

reduced and optimized advertising and promotional expenses,

instituted a hiring freeze for non-essential roles, and

applied even more rigorous discipline to conserve cash by optimizing working capital.

Newell Brands is confident in its strong financial position and believes it has sufficient flexibility to navigate through this volatile period.

Executive Appointment

Mike Hayes joined Newell Brands on April 5, 2020, in the role of Chief Customer Officer. Hayes joins the company from Georgia Pacific, where he served as Senior Vice President, Sales & Sales Strategy. Previously he led the North American sales organization as Chief Sales Officer for the $6 billion in point of sale consumer business comprising brands such as Angel Soft, Quilted Northern, Brawny, Vanity Fair and Sparkle. He has a track record of driving strong sales and market share growth in highly penetrated competitive categories through improved revenue management, commercial innovation, channel expansion and customer collaboration focused on innovation in supply chain and fulfillment.