Newell Brands’ improved margins, raised FY24 outlook overshadows soft sales (NWL)

Shares of Newell Brands (NASDAQ:NWL) are poised to open sharply higher on Friday after the consumer products company raised their outlook for FY24 on improved profit margins in Q2.

“We are making significant progress in driving Newell’s turnaround,” said CEO Chris Peterson, adding that, during the second quarter, “we continued to deliver on our operational and financial priorities for the year, as results came in at the high-end or ahead of our plan across key metrics.”

Although Q2 sales were down 7.8% from the same quarter last year, Newell’s (NWL) ability to optimize costs and cash flow and mitigate the impact of soft global demand and retailer inventory drove Q2 normalized gross margin up 490 basis points to 34.8% and normalized operating margin up 170 basis points to 10.8%. Additionally, net income swelled by 49% to $45M. On a per-share basis, the company’s profit increased to $0.36 from $0.24 a year ago, beating the Street’s consensus estimate by $0.15.

By segment, sales were down in Outdoor & Recreation (-22%), and Home & Commercial Solutions (-12.5%), and were unchanged for Learning & Development. This resulted in an overall decline in total revenue to $2B, $50M shy of Wall Street’s expectations.

Looking ahead to Q3, the company expects net sales to decline by 4% to 6% and core sales to be flat to down 2%. Normalized operating margin is expected to decline to be between 8.3% to 8.8% from 10.8% in Q2. Adjusted EPS is targeted for $0.14 to $0.17 per share, below the consensus estimate of $0.20.

But for FY24, the company raised expectations for adjusted EPS to be between $0.60 and $0.65 per share from initial guidance of $0.52 to $0.62 per share, putting the top-line guidance above Street estimate of $0.60.

The remaining metrics for FY24 include net sales to decline 6% to 7% from previous guidance for a decline of 5% to 8%, while core sales are now expected to be down 3%-4% from 3%-6%, initially. The expected range for normalized operating margin was narrowed to 8.0% to 8.2%, from 7.8% to 8.2%.

Shares were up more than 10% in premarket trading.