Newell Brands: A Margin-Driven Turnaround in a Tariff-Plagued Sector?

The consumer goods sector in 2025 is a battlefield of margin pressures, with tariffs, inflation, and shifting demand testing the resilience of even the most established players. Amid this turbulence, Newell Brands (NEW) has emerged as a case study in strategic repositioning. Its updated 2025 EPS guidance and consistent gross margin expansion raise a critical question for long-term investors: Is this a compelling turnaround story, or a cautionary tale of overreaching in a tough market?

Margin Expansion: A Defensible Moat

Newell's gross margin expansion from 2020 to 2025 is nothing short of remarkable. In Q1 2025, the company reported a 32.1% reported gross margin and 32.5% normalized margin, representing a 470-basis-point increase since 2023. This trajectory has been driven by three pillars:
1. Pricing discipline: Swift interventions to offset U.S. tariffs, including dynamic pricing strategies that have preserved margins despite rising costs.
2. Cost optimization: $75 million in annualized savings from 2024 restructuring, coupled with a leaner supply chain that prioritizes domestic manufacturing (a strategic advantage over peers reliant on offshore production).
3. Product mix shifts: High-margin segments like Learning & Development (home to Sharpie and Baby) have outperformed, delivering 4.2% core sales growth in Q1 2025.

EPS Guidance: A Cautionary Signal or a Strategic Reassessment?

Newell recently revised its 2025 EPS guidance to $0.66–$0.70, down from $0.70–$0.76, citing $155 million in incremental tariff costs and a projected 2–3% decline in net sales. While the downward revision is jarring, it's a pragmatic acknowledgment of macroeconomic headwinds rather than a failure of strategy. The company remains on track for a 9.0–9.5% normalized operating margin and $400–$450 million in operating cash flow, underscoring its focus on operational efficiency over short-term sales growth.

Critically, Newell has contingency plans for the looming 125% U.S. tariff on China imports, which could reduce 2025 EPS by $0.20. Management estimates mitigating actions—such as sourcing diversification and pricing adjustments—could cut this impact in half. This proactive approach contrasts with peers like W.W. Grainger, which saw its Q2 2025 operating margin dip to 14.9% amid tariff-driven cost pressures.

Strategic Repositioning: Balancing Debt and Innovation

Newell's 2024 restructuring wasn't just about cost cuts—it was a portfolio reset. The company reduced total debt to $4.6 billion (from $4.9 billion in 2023) and executed a $1.25 billion refinancing at favorable rates, improving liquidity and reducing interest expenses. This financial discipline is key in a sector where debt-heavy peers like Kimberly-Clark are still grappling with margin compression.

However, the Home & Commercial Solutions segment remains a drag, with Q1 2025 core sales down 6.0%. Newell's response—cost controls and supply chain optimization—is logical, but investors must monitor whether these measures can reverse underperformance or if further divestitures are needed.

The Bigger Picture: Tariffs and the Sector's Future

The 2025 tariff environment is a double-edged sword. While U.S. customs collected $27 billion in tariffs in June 2025 (triple 2024's total), Newell's in-house manufacturing and pricing agility give it an edge. Competitors like Grainger, which relies heavily on imported MRO products, are more exposed to margin erosion.

Is This a Buy?

For long-term investors, Newell's story is a mix of resilience and risk. The company has proven it can expand margins and manage costs in a hostile environment, but the updated EPS guidance and segment-specific challenges (e.g., Home & Commercial Solutions) warrant caution.

• Upside catalysts: Continued margin expansion, successful mitigation of China tariffs, and a potential return to growth in core segments like Learning & Development.
• Downside risks: A deeper-than-expected economic slowdown, which could pressure discretionary spending on products like Coleman camping gear and Rubbermaid storage.

Verdict: Newell Brands isn't a slam-dunk buy, but it's a high-conviction opportunity for investors who believe in its ability to execute its strategic repositioning. The stock's current valuation—discounted by sector-wide pessimism—could offer a margin of safety if the company can maintain its gross margin momentum. However, patience is key; this is a multi-year play, not a quick trade.

In a sector where margin resilience is the new gold standard, Newell Brands has carved out a defensible position. Whether it becomes a turnaround success depends on its ability to navigate the next phase of tariff-driven chaos—and turn today's headwinds into tomorrow's tailwinds.