Coca-Cola, Dymo, Elmer’s, Contigo, Rubbermaid, Coleman, Oster, Sharpie, Papermate, Sunbeam are just some of the brands which comprise Newell Brands. Newell products are in almost every consumer’s home, office, factory floor, restaurant, supermarket, school and in numerous other venues. Does this mean that Newell brands stock is a good buy? Read on to find out from Mr. Berko.
New Look at Newell
Dear Mr. Berko:
What happened to Newell? I bought 500 shares at $43 in September of 2017. My broker tells me to sell the stock and take a loss and wants me to put the proceeds in American Funds New Perspective. Your advice would be appreciated.
— JM, Moline, Ill.
New Perspective (ANWPX) is a good fund with a good record and a sweet commission would be paid to your broker.
New Look At Newell Brands
It’s important to know that Newell Brands (NWL-$27) is a $14.7 billion company, and global marketer of consumer and commercial products in more than 200 countries. And most of its brands have high recognition value like Coca-Cola, Microsoft and Kleenex. So, it’s important to know NWL sells Paper Mate, Sharpie, Dymo, Parker, Elmer’s, Coleman, Jostens, Rawlings, Irwin, Lenox, Oster, First Alert, Sunbeam, Mr. Coffee, Rubbermaid Brands, Graco, Baby Jogger, Food Saver, Yankee Candle, Crock-Pot, etc. And, there’s a NWL product in almost every consumer’s home, office, factory floor, restaurant, supermarket, school and innumerous other venues.
Since June of 2017, NWL shares slumped nearly 50 percent from $55 to the current $27 price. NWL’s $15 billion acquisition of Jarden doubled 2016 revenues and earnings grew by 30 percent to $1.25 a share. And in 2017, revenues continued to improve by nearly 12 percent and earnings are expected to come in at an attractive $2.75 a share. These good numbers are the result of an impressive doubling of net profit margins, an improving e-commerce business, brand-enhancing investments, strong distribution networks and employee/management efficiencies.
In 2017, management really hunkered down and NWL benefited handsomely from the Jarden merger (synergies were more positive than management had hoped) and significant cost reductions in raw materials, manufacturing and shipping were reflected in the numbers. However, in the third quarter of 2017, NWL’s revenues slipped nearly 8 percent due to weaker-than-expected back-to-school sales, a difficult consumer market, weather conditions such as a devastating hurricane season and a shift in its hugely diversified portfolio. Resultantly, 2017 earnings of $3.00 a share and revenues of $15 billion were much lower than the Street’s estimate. Numbers for 2017 were dramatically better than all previous years, and still NWL shares plunged from $55 to a low of $25 in late January of 2018.
So, along came the spoilers (like tort lawyers trolling for business). And activist investors in the name of Starboard Value LP are aligning themselves with three former executives of Jarden who are critical of how NWL is running its sprawling menagerie of products. They believe they can do a much better job. Hah! So, now we have a proxy fight as the three former Jarden executives plus Starboard Value (together they own 5 percent of NWL shares) have delivered a letter to NWL’s CEO confirming that they have nominated a full slate of director candidates. And in an immediate response, NWL’s management announced that it was planning to offload brands that failed to meet revenue and profit objectives while closing half its factories to further improve net profit margins. NWL management intends to focus on its core consumer divisions and offloading most everything else won’t add to NWL’s already impressive net profit margins (they may reach 19 percent in three years). And current management believes earnings could come between $4.60 and $4.75 by 2021. Considering those numbers, NWL must be an attractive buy.
I think that the Starboard and Jarden people are wrongheaded and may be defeated. Current management has done a yeoman’s job running NWL, and I don’t see any need for a new board or a change in the executive suite. NWL’s management has produced some excellent numbers and I’d be proud to buy another 500 shares at the current bargain price of $27 to $28. So, considering NWL’s $1 billion share buyback program, a current 88-cent dividend yielding 3.2 percent and a current share price allowing you to own the stock at less than its $30 book value, NWL is a solid buy with a price objective of $65-$70 in the coming three years.