Why Newell's (NWL) Q2 Earnings Are Likely to Decline Y/Y

Newell Brands Inc. NWL is slated to report second-quarter 2019 results on Aug 2, before the opening bell.

A glimpse of the company’s earnings performance shows that it has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 65.2%.

Let’s see how things are shaping up for this announcement.

Which Way Are Q2 Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 36 cents, indicating a plunge of about 56% from 82 cents registered in the prior-year quarter. Notably, the consensus mark has remained stable over the past 30 days. For quarterly revenues, the consensus estimate stands at $2.12 billion, implying a decrease of roughly 3.8% from the prior-year quarter’s reported figure.

Newell Brands Inc. Price and EPS Surprise

Newell Brands Inc. Price and EPS Surprise

Newell Brands Inc. price-eps-surprise | Newell Brands Inc. Quote

Moreover, the revenue estimate for Learning & Development, Food & Appliances, and Home & Outdoor Living segments stands at $805 million, $604 million and $713 million, respectively. These figures indicate a respective decline of about 4%, 2.8% and 3.9% on a year-over-year basis.

Factors Likely to Impact 2Q19

Newell’s weak top-line trend remains a concern in the second quarter. Lower core sales and foreign currency headwinds have been hurting the company’s sales, which lagged the consensus estimate in four of the trailing five quarters. Core sales decline across all segments, along with the exit of 60 Yankee Candle retail outlets, caused the overall top line to decrease year over year in the last reported quarter. We expect the soft core sales trend to persist in the to-be-reported quarter.

Management had earlier projected core sales to remain flat to down 2% in the second quarter, while net sales are projected to be $2.1-$2.15 billion. Newell anticipates normalized operating margin in the range of flat to down 60 bps. Normalized earnings per share are forecasted to be 34-38 cents for the quarter. Foreign currency translations are likely to hurt sales by roughly 150 basis points in 2019, which is also likely to have an impact in the to-be-reported quarter.

Despite gains from pricing actions and productivity, Newell has been witnessing contraction in normalized gross margin over the last few quarters. Foreign exchange headwinds as well as adverse impacts of tariffs and inflation are to be blamed for decline. Absence of earnings related to divested businesses, adverse product mix as well as increased cost of investment toward advertising, promotion and e-commerce remains a concern.

However, Newell has been smoothly progressing with the execution of the Accelerated Transformation Plan, which is expected to create value and leverage capabilities with respect to innovation, design, cost-savings and e-commerce. Also, the company remains on track with divestment of its underperforming and non-core brands to enhance its portfolio and improve operational efficiency. Proceeds from sale of these assets are utilized to lower debt and make share repurchases, which are likely to boost shareholder value. Smooth progress on these endeavors should slightly cushion the impacts from the aforementioned headwinds in the to-be-reported quarter.

What the Zacks Model Unveils

Our proven model does not show that Newell is likely to beat earnings estimates in second-quarter 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Newell’s Zacks Rank #3 increases the predictive power of earnings beat, its Earnings ESP of -1.78% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

The Estee Lauder Companies Inc. EL has an Earnings ESP of +7.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Energizer Holdings, Inc. ENR has an Earnings ESP of +1.79% and a Zacks Rank #3.

Edgewell Personal Care Company EPC has an Earnings ESP of +0.35% and a Zacks Rank #3.

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Newell Brands Inc. (NWL) : Free Stock Analysis Report
 
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