Weak back-to-school hits Newell results

A much softer-than-anticipated back-to-school (BTS) season in the US caused Newell Brands’ Writing division to post lower-than-expected Q3 results.

Newell’s Learn segment reported Q3 sales of $642 million, organic year-on-year growth of 0.5%. While there was “modest growth” in all three units in Learn (Writing, Fine Writing and Jostens), Writing was “well below expectations” despite some market-share gains in the underlying business and in the glue category.

However, the company reported that for the first time in many years, market growth in BTS was weak, resulting in “minimal replenishment orders in September and significant inventory de-stocking in all channels”. This meant that, while point-of-sale growth was 3.5%, inventory reductions – which were highest amongst bricks-and-mortar retailers – resulted in Newell’s Writing sell-in growth of just 0.7%.

On the Q3 earnings conference call, CEO Mike Polk said the shift in the US retail landscape to online was “as profound [as anything] I’ve experienced in 35 years” and that companies like Newell would have to accept the retail environment for what it is and adapt accordingly.

From a Newell perspective, it responded by setting up a company-wide e-commerce division earlier this year and is still figuring out things such as the allocation of resources to different sales channels and how to operate e-commerce fulfilment more profitably.

Newell’s own Q3 e-commerce sales – which include sales to pure online players, the dot.com operations of traditional retailers and its own direct-to-consumer sales – were up in the high double-digits, and Polk said there was “still a ton” of potential in this channel in the US, while Newell will also focus on growing e-commerce sales in its international markets.

Q3 adjusted operating profit at Learn was $100 million compared with $142 million in 2016, while adjusted operating margin fell to 15.6% of sales from 22.2% last year. The decline in margin was mainly due to product mix associated with weak sales on the high-margin Writing products, partially offset by the benefit of cost synergies and Project Renewal savings.

In Newell’s Work segment, third-quarter sales of $738 million represented an organic increase of 1.9%, mainly driven by growth at the Waddington food-service packaging unit along with “solid” results from the Consumer and Commercial divisions.

Overall, the group’s sales for the quarter were $3.7 billion, a 7% decline as reported, but organic growth of 0.4%. Adjusted earnings of $0.86 per share were below market expectations which, along with a downward revision of its full-year results, sent the company’s share price tumbling by around 25% in early trading on Wall Street.

source: OPI.net