Newell Brands(NWL) - 2024 Q3 - Quarterly Report

markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The company reported a reduced net loss for Q3 and nine months 2024, with **$11.77 billion** in assets and decreased operating cash flow Condensed Consolidated Statements of Operations (Unaudited, in millions, except per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $1,947 | $2,048 | $5,633 | $6,057 | | **Gross profit** | $679 | $621 | $1,882 | $1,732 | | **Operating income (loss)** | $(121) | $(159) | $58 | $(75) | | **Net loss** | $(198) | $(218) | $(162) | $(302) | | **Diluted loss per share** | $(0.48) | $(0.53) | $(0.39) | $(0.73) | Condensed Consolidated Balance Sheets (Unaudited, in millions) | Metric | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | $3,362 | $3,354 | | **Goodwill** | $3,074 | $3,071 | | **Total assets** | $11,773 | $12,163 | | **Total current liabilities** | $3,402 | $2,897 | | **Long-term debt** | $4,092 | $4,575 | | **Total liabilities** | $8,913 | $9,051 | | **Total stockholders' equity** | $2,860 | $3,112 | Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $346 | $679 | | **Net cash used in investing activities** | $(107) | $(147) | | **Net cash used in financing activities** | $(64) | $(405) | | **Increase in cash, cash equivalents and restricted cash** | $160 | $119 | [Footnote 1 — Basis of Presentation and Significant Accounting Policies](index=7&type=section&id=Footnote%201%20%E2%80%94%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) The financial statements, prepared under U.S. GAAP, reflect macroeconomic pressures and a **$260 million** impairment charge on tradenames in Q3 2024 - The company continues to be negatively impacted by **inflationary pressures**, **soft global demand**, **tight inventory control** by major retailers, and **elevated interest rates**, which has resulted in estimates and assumptions with higher variability and subjectivity[14](index=14&type=chunk) - In **Q3 2024**, **downward revisions** of forecasted cash flows due to lower volume and profitability expectations triggered quantitative **impairment tests** for **indefinite-lived tradenames** in the Home and Commercial Solutions (H&CS) and Learning and Development (L&D) segments[15](index=15&type=chunk) - A **non-cash impairment charge of $260 million** was recorded in **Q3 2024** for **indefinite-lived tradenames** in the H&CS and L&D segments, as their carrying values exceeded their fair values[15](index=15&type=chunk) [Footnote 3 — Restructuring](index=10&type=section&id=Footnote%203%20%E2%80%94%20Restructuring) The company is implementing multiple restructuring plans, including the 'Realignment Plan' and 'Project Phoenix', incurring **$187 million** in total costs since inception - In **January 2024**, the company announced an 'Organizational Realignment Plan' to strengthen commercial capabilities, with expected restructuring charges of **$75 million to $90 million**, to be substantially incurred by the end of **2024**[33](index=33&type=chunk)[34](index=34&type=chunk) - The 'Network Optimization Project,' announced in **May 2023**, aims to simplify the North American distribution network, with estimated charges of **$37 million to $49 million**[37](index=37&type=chunk) - 'Project Phoenix,' announced in **January 2023**, was substantially implemented by **year-end 2023** to streamline the operating model, with estimated charges of **$100 million to $130 million**[40](index=40&type=chunk) Restructuring Costs Incurred Since Inception (in millions) | Plan | Severance & Termination Costs | Contract Termination & Other | Total Restructuring Costs | Restructuring-Related Costs | Total Costs | | :--- | :--- | :--- | :--- | :--- | :--- | | Realignment Plan | $115 | $7 | $122 | $65 | $187 | | Network Optimization Project | $6 | $4 | $10 | $29 | $39 | | Project Phoenix | $78 | $2 | $80 | $26 | $106 | [Footnote 6 — Goodwill and Other Intangible Assets, Net](index=14&type=section&id=Footnote%206%20%E2%80%94%20Goodwill%20and%20Other%20Intangible%20Assets%2C%20Net) Significant non-cash impairment charges of **$260 million** were recorded in Q3 2024 for indefinite-lived tradenames, with some reclassified to finite-lived assets - In **Q3 2024**, the company recorded **non-cash impairment charges of $190 million** for indefinite-lived tradenames in the H&CS segment and **$70 million** in the L&D segment due to lower volume and profitability expectations[55](index=55&type=chunk) - In **Q3 2023**, the company recorded a **non-cash goodwill impairment charge of $241 million** for the Baby reporting unit in the L&D segment[52](index=52&type=chunk) - Effective **January 1, 2024**, certain tradenames with a carrying value of **$322 million** were reclassified from indefinite-lived to finite-lived (**10-15 years**), which will increase annual amortization expense by approximately **$25 million**[54](index=54&type=chunk) [Footnote 8 — Debt](index=16&type=section&id=Footnote%208%20%E2%80%94%20Debt) Total debt was **$4.96 billion** as of September 30, 2024, with recent credit rating downgrades increasing annual interest expense by **$16 million** - In **February 2024**, credit rating downgrades by Moody's and S&P resulted in an aggregate **50 basis point interest rate increase** on certain senior notes, increasing annualized interest expense by approximately **$16 million**[62](index=62&type=chunk)[63](index=63&type=chunk) - On **February 7, 2024**, the company amended its credit revolver, reducing commitments from **$1.5 billion to $1.0 billion**, replacing financial covenants, and requiring guarantees and liens on certain assets[65](index=65&type=chunk) - As of **September 30, 2024**, the company had **$170 million** of outstanding borrowings and **$801 million** of net availability under its **$1.0 billion** credit revolver[66](index=66&type=chunk)[171](index=171&type=chunk) [Footnote 11 — Income Taxes](index=21&type=section&id=Footnote%2011%20%E2%80%94%20Income%20Taxes) The company reported an effective income tax benefit of **10.5%** for the nine months ended September 30, 2024, and is disputing a **$80 million** IRS assessment - The effective tax rate for the nine months ended **Sep 30, 2024** was a **10.5% benefit**, compared to a **20.3% benefit** in the prior year period[84](index=84&type=chunk) - The company received a Statutory Notice of Deficiency from the IRS for tax years **2011-2015** and has agreed to certain adjustments, resulting in a payment of approximately **$22 million** for taxes and interest[86](index=86&type=chunk) - The company is disputing an IRS proposed assessment of **$80 million** in additional taxes and **$34 million** in penalties related to transfer pricing for tax years **2011-2015** by filing a petition in U.S. Tax Court[87](index=87&type=chunk) [Footnote 15 — Segment Information](index=24&type=section&id=Footnote%2015%20%E2%80%94%20Segment%20Information) Q3 2024 saw H&CS net sales fall to **$1.05 billion** with an operating loss, while L&D sales rose to **$717 million** with a **$75 million** operating profit Net Sales by Segment (in millions) | Segment | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Home and Commercial Solutions | $1,047 | $1,123 | $2,902 | $3,152 | | Learning and Development | $717 | $694 | $2,089 | $2,071 | | Outdoor and Recreation | $183 | $231 | $642 | $834 | | **Total** | **$1,947** | **$2,048** | **$5,633** | **$6,057** | Operating Income (Loss) by Segment (in millions) | Segment | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Home and Commercial Solutions | $(94) | $64 | $(30) | $6 | | Learning and Development | $75 | $(127) | $374 | $133 | | Outdoor and Recreation | $(23) | $(42) | $(52) | $(38) | | Corporate | $(79) | $(54) | $(234) | $(176) | | **Total** | **$(121)** | **$(159)** | **$58** | **$(75)** | [Footnote 16 — Litigation and Contingencies](index=25&type=section&id=Footnote%2016%20%E2%80%94%20Litigation%20and%20Contingencies) The company faces various legal and environmental matters, including Superfund site liabilities and a **$13 million** SEC settlement - The company is a Potentially Responsible Party (PRP) for the Diamond Alkali Superfund Site (Lower Passaic River), with estimated cleanup costs of **$1.4 billion** for Unit 2 and **$441 million** for an interim remedy for Unit 4. The company's allocation is not expected to be material[108](index=108&type=chunk) - On **September 29, 2023**, the company settled with the SEC regarding an investigation into its sales practices and certain accounting matters from **2016-2017**, agreeing to pay a civil penalty of approximately **$13 million** without admitting or denying the findings[104](index=104&type=chunk) - The company's estimated environmental remediation costs for various matters was **$37 million** as of **September 30, 2024**[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses ongoing macroeconomic headwinds, a **$260 million** intangible asset impairment, and the company's strategy to strengthen capabilities and drive efficiencies [Business Strategy](index=29&type=section&id=Business%20Strategy) The company's strategy focuses on improving front-end capabilities, investing in core brands, leveraging scale for cost savings, and transforming its culture - The company's strategy focuses on: - Improving **front-end capabilities** (consumer understanding, brand management, innovation) - Investing in the **largest and most profitable brands**, fastest-growing channels, and key geographies - Using scale to generate **cost savings** for reinvestment - Transitioning to a **high-performance organization and culture**[122](index=122&type=chunk) - The company is executing several major restructuring and cost-saving initiatives, including **Project Ovid**, the **Network Optimization Project**, **Project Phoenix**, and the **Realignment Plan**, to simplify the organization and improve efficiency[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) Recent developments include the 'Realignment Plan', a **$260 million** impairment charge, debt rating downgrades increasing interest expense by **$16 million**, and an amended **$1.0 billion** credit revolver - In **Q3 2024**, the company recorded a **$260 million non-cash impairment charge** for indefinite-lived tradenames in the H&CS and L&D segments due to downward revisions of forecasted cash flows[137](index=137&type=chunk) - In **February 2024**, debt rating downgrades by Moody's and S&P will increase the company's annualized interest expense by **$16 million**[139](index=139&type=chunk) - The company amended its Credit Revolver in **February 2024**, reducing the facility to **$1.0 billion** and introducing new covenants and collateral requirements[138](index=138&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q3 2024 net sales decreased **4.9%** to **$1.95 billion**, but gross margin improved to **34.9%**, narrowing the operating loss to **$121 million** despite an impairment charge Consolidated Operating Results - Q3 2024 vs Q3 2023 (in millions) | Metric | Q3 2024 | Q3 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,947 | $2,048 | $(101) | (4.9)% | | Gross profit | $679 | $621 | $58 | 9.3% | | Operating loss | $(121) | $(159) | $38 | 23.9% | | Net loss | $(198) | $(218) | $20 | 9.2% | Consolidated Operating Results - Nine Months 2024 vs 2023 (in millions) | Metric | Nine Months 2024 | Nine Months 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $5,633 | $6,057 | $(424) | (7.0)% | | Gross profit | $1,882 | $1,732 | $150 | 8.7% | | Operating income (loss) | $58 | $(75) | $133 | NM | | Net loss | $(162) | $(302) | $140 | 46.4% | - **Q3 2024 gross margin** improved to **34.9%** from **30.3%** in the prior year, driven by **productivity** and lower restructuring-related charges, which offset lower net sales and inflation[141](index=141&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains adequate liquidity with **$494 million** cash and **$801 million** available under its **$1.0 billion** credit facility, despite decreased operating cash flow Change in Cash Flows (in millions) | Cash Flow Activity | Nine Months 2024 | Nine Months 2023 | Change | | :--- | :--- | :--- | :--- | | Operating Activities | $346 | $679 | $(333) | | Investing Activities | $(107) | $(147) | $40 | | Financing Activities | $(64) | $(405) | $341 | - The decrease in cash from operating activities was primarily due to an **increase in inventory** in the current period compared to a significant decrease in **2023**, and higher incentive compensation payments[170](index=170&type=chunk) - As of **September 30, 2024**, the company had **$170 million** of outstanding borrowings under its **$1.0 billion Credit Revolver**, with a net availability of approximately **$801 million**[171](index=171&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in the company's market risk from previously disclosed information in its 2023 Annual Report on Form 10-K - There have been no material changes from the market risk information previously reported in the company's **2023 Annual Report on Form 10-K**[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were not effective due to material weaknesses in impairment assessment, with a remediation plan underway - The Chief Executive Officer and Chief Financial Officer concluded that the company's **disclosure controls and procedures were not effective** as of **September 30, 2024**[181](index=181&type=chunk) - The ineffectiveness is due to **material weaknesses in internal control over financial reporting** related to the review of significant assumptions used in the **impairment assessment of goodwill, indefinite-lived tradenames, and long-lived assets**[184](index=184&type=chunk) - A **remediation plan is in place**, involving hiring experienced personnel, using a third-party valuation firm, and enhancing review documentation. Management believes controls related to intangible and long-lived asset impairment assessments operated effectively in **Q3 2024**, but the material weakness will not be considered fully remediated until after annual impairment testing[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Footnote 16 of the financial statements - Information on legal proceedings is contained in **Part I, Financial Information, Item 1 (specifically Footnote 16)** and is incorporated by reference[189](index=189&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in the 2023 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the company's **Annual Report on Form 10-K for the year ended December 31, 2023**[190](index=190&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company purchased **375,116** shares at an average price of **$6.09** in Q3 2024 to satisfy employee tax withholding obligations Issuer Purchases of Equity Securities (Q3 2024) | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 365,720 | $6.06 | | August | 7,578 | $7.09 | | September | 1,818 | $7.83 | | **Total** | **375,116** | **$6.09** | - Shares purchased during the quarter were acquired to satisfy employees' **tax withholding obligations** in connection with the vesting of restricted stock units and were not part of a publicly announced buyback program[190](index=190&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2024 - No directors or officers adopted, modified, or terminated a **Rule 10b5-1** or **non-Rule 10b5-1 trading arrangement** during the third quarter of **2024**[191](index=191&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the 10-Q report, including CEO and CFO certifications and the Interactive Data File (XBRL) - The report includes required certifications from the **Chief Executive Officer** and **Chief Financial Officer** pursuant to the **Sarbanes-Oxley Act**[193](index=193&type=chunk) - The **Interactive Data File (XBRL)** is included as an exhibit[193](index=193&type=chunk) Signatures