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High Demand & Online Strength Aid Newell (NWL) Amid Inflation

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Newell Brands Inc. NWL has been gaining from solid demand, product innovation and robust core sales growth. Also, a robust e-commerce business and continued momentum in the Writing unit bode well. This led to the impressive first-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate, marking the 11th straight quarter of an earnings beat.

Net sales grew 4.4% year over year, driven by core sales growth of 6.9%. Notably, five of the seven business units witnessed higher core sales. This marked the seventh successive quarter of core sales growth. Normalized earnings per share of 36 cents grew 20% from 30 cents earned a year ago.

The company remains on track to leverage its robust e-commerce capabilities, which have been performing well for some time now as consumers have been increasingly shifting to the online platform. Capitalizing on the shift to digital consumption, it continues to strengthen its e-commerce business via increased investments and better customer engagement.

Some other notable efforts are buy online and pick up in stores, and ship-from-store services in its Yankee Candle retail stores. Going forward, the company expects further digital penetration, driven by expanded omnichannel capabilities.

Newell Brands witnessed a continued momentum across its Writing Business in first-quarter 2022, driven by some accelerated back-to-school orders. Strength in the Sharpie and Paper Mate brands remained upsides. Consequently, the Writing business looks well-positioned for growth in 2022. Management remains optimistic about the next back-to-school season on the back of robust merchandising plans to meet demand.

Driven by these factors, management issued an upbeat view for the second quarter and 2022. The company anticipates net sales of $9.93-$10.13 billion for 2022, with core sales expected to remain flat to grow 2%. The normalized operating margin is expected to be 11.5-11.8%. Normalized earnings per share are forecast to be $1.85-$1.93 for 2022.

For second-quarter 2022, net sales are envisioned to be $2.52-$2.57 billion, with core sales growth in the low-single digits. For the quarter, the company expects a normalized operating margin of 11.7-12.1% and normalized earnings of 45-48 cents per share.

Consequently, shares of this Zacks Rank #3 (Hold) company have gained 0.2% year to date against the industry’s decline of 19.1%.

 

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Zacks Investment Research


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However, Newell Brands has been witnessing significant inflation in resin, ocean freight, source finished goods and labor costs. The company also remains exposed to industry-wide supply-chain disruptions, including port congestion, limited container availability, and shortage of labor and truck drivers. Such downsides are likely to persist in 2022. Also, elevated advertising and promotional expenses, related to product launches and omnichannel investments, remain concerning.

Bottom Line

Although inflation and supply-chain headwinds are likely to persist in 2022, Newell Brands appears to be a solid bet, backed by tailwinds, including product innovation, robust demand and a solid online show. Earnings estimates for the current financial year have increased 1.1% to $1.92 over the past 30 days. All said, NWL has a VGM Score of B, which raises investors’ optimism.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Archer Daniels ADM, Medifast MED and Sysco Corporation SYY.

Archer Daniels, one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products, currently sports a Zacks Rank #1 (Strong Buy). It has an expected long-term earnings growth rate of 6.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Archer Daniels’ current financial-year sales and earnings per share suggests growth of 10.1% and 15.4%, respectively, from the year-ago reported numbers. The consensus mark for ADM’s earnings per share has been unchanged in the past 30 days.

Medifast is one of the leading manufacturers and distributors of clinically-proven healthy living products and programs. It currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of 19% and 11.5%, respectively, from the year-ago period’s reported figures. MED has a trailing four-quarter earnings surprise of 13%, on average.

Sysco, the marketer and distributor of food and related products, currently has a Zacks Rank #2. SYY has a trailing two-quarter earnings surprise of 93.75%, on average. It has an expected long-term earnings growth rate of 11%.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share suggests growth of 35.9% and 145.5%, respectively, from the year-ago reported numbers. The company has a trailing four-quarter earnings surprise of 3.7%, on average.


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Newell Brands Inc. (NWL) : Free Stock Analysis Report
 
Archer Daniels Midland Company (ADM) : Free Stock Analysis Report
 
Sysco Corporation (SYY) : Free Stock Analysis Report
 
MEDIFAST INC (MED) : Free Stock Analysis Report
 
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