Newell Brands Loses 19% in 3 Months: More Downside Ahead?

Consumer goods behemoth Newell Brands Inc. NWL appears to be in bad shape. Despite having an impressive earnings surprise history and known for solid strategic initiatives, Newell has seen its shares slump 19.4% in the past three months. In fact, this Zacks Rank #5 (Strong Sell) company performed worse than the  industry that fell 9.8% in the said time frame.

So, let’s take a look at what went wrong with Newell and where the company is headed.

Hurricane Harvey Poses Threats

Newell Brands recently revealed that the company’s third quarter was adversely impacted by the deadly Hurricane Harvey. Incidentally, the effects of Harvey significantly disrupted huge parts of the United States’ resin manufacturing supply chain, significantly raising operating costs. Further, management stated that most of the resin suppliers along with facilities in Texas and Louisiana have declared force majeure, since Harvey’s landfall on Aug 25. In fact, many of these facilities remained closed for more than a week. This caused increased inflationary pressure stemming from lower resin supply. Also, these resin supply issues and higher inflation are likely to persist through the rest of 2017 and in to 2018, which remains a concern.

Trimmed Outlook Weighs Upon the Stock, Estimates Roll Down

Owing to these factors and likelihood of the hurdles to persist, Newell Brands lowered its earnings per share outlook for 2017. Now, the normalized earnings are envisioned in the band of $2.95-$3.05 per share versus $3.00-$3.20, anticipated during first-quarter 2017 conference call. While Newell Brands is working with its global suppliers to discover other sources of resin, this action exceeds the pre-determined costs targets substantially. Also, though the company plans to continue investing in strategic capacities and brands to aid market share growth, it is likely to witness temporary margin contractions in comparison with 2017 plan.

Newell Brands Inc. Price and Consensus
 

Newell Brands Inc. Price and Consensus | Newell Brands Inc. Quote

As expected, this was followed by a downtrend in Newell Brands’ estimates. Evidently, the Zacks Consensus Estimate for the third quarter and 2017 have dropped from 97 cents to 91 cents and from $3.12 to $3.00, respectively in the past 30 days.

Changing Consumer Demands & Competition Remain Concerns

Operating in a consumer-driven space, Newell Brands remains vulnerable to consumers’ evolving preferences. Further, the company faces intense competition from other major players on grounds of pricing and product innovation, which remains a threat to its market share. Apart from this, Newell Brands remains prone to industry headwinds like consumers’ shift to e-commerce and major competition stemming from Amazon.com Inc.’s AMZN growing dominance.

While Newell Brands remains strongly committed toward its long-term strategies like its Project Renewal Program and efficient portfolio management, the aforementioned hurdles keep us skeptical — at least for the near term.

Nervous About Newell? Check these 2 Consumer Staples Picks

Ollie's Bargain Outlet Holdings, Inc. OLLI with a long-term earnings per share growth rate of 19.5% carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tupperware Brands Corporation TUP carrying the same Zacks Rank as Ollie’s Bargain has a long-term growth rate of 12%.

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Newell Brands Inc. (NWL) : Free Stock Analysis Report
 
Tupperware Brands Corporation (TUP) : Free Stock Analysis Report
 
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
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