Newell Brands: Margin Gains and Strategic Shifts Signal Turnaround Potential

Newell Brands (NWL) has emerged as a compelling turnaround story in the consumer goods sector, driven by disciplined margin expansion and strategic execution. Despite facing headwinds like inflation, tariffs, and macroeconomic uncertainty, the company's operational improvements and cost-saving initiatives have positioned it for sustained growth. Let's dissect the factors fueling its recovery and assess whether its trajectory justifies a long-term investment.

Margin Expansion: The Foundation of the Turnaround

Newell Brands' financial performance in 2024 and early 2025 underscores its ability to deliver margin growth even amid challenging conditions. In 2024, reported gross margin rose to 33.6%, up 470 basis points from 2023, while normalized gross margin hit 34.1%, reflecting productivity savings, pricing strategies, and cost discipline. This momentum carried into Q1 2025, where reported gross margin increased to 32.1%, marking the seventh consecutive quarter of year-over-year improvement.

The operating margin story is equally compelling. Normalized operating margin expanded to 8.2% in 2024, up from 6.1% in 2023, and the company reaffirmed its 2025 target of 9.0%–9.5%. While Q1 2025 saw a dip in normalized operating margin to 4.5% due to higher marketing spend, management remains confident in its full-year guidance. This resilience suggests that Newell's operational levers—such as restructuring savings and supply chain optimization—are working as intended.

Strategic Execution: Realignment and Balance Sheet Strength

The turnaround is not just about numbers; it's rooted in strategic initiatives that prioritize efficiency and scalability. Key moves include:

1. Organizational Realignment: A 2024 restructuring plan streamlined operations, cutting $75 million in annualized costs (net of reinvestment) while sharpening focus on commercial capabilities. This reduced overhead without sacrificing growth drivers like brand management and consumer insights.

2. Debt Management: Newell slashed total debt to $4.6 billion by year-end 2024 (down from $4.9 billion in 2023) through disciplined refinancing and EBITDA growth. While debt edged up slightly to $4.9 billion in Q1 2025, the company's $1.25 billion refinancing in late 2024 at favorable rates improved liquidity and reduced interest expense.

3. In-House Manufacturing: Management emphasized its commitment to domestic manufacturing, a strategic advantage over peers reliant on offshore production. This flexibility helps mitigate tariff risks and ensures supply chain resilience.

Segment Performance: Strengths and Weaknesses

Newell's portfolio spans three segments, each with distinct dynamics:

• Learning & Development: The strongest performer, with core sales growth of 4.2% in Q1 2025, driven by the Writing and Baby businesses. Margins here remain robust (normalized operating margin of 18.0%).

• Home & Commercial Solutions: Struggled with a 5.0% core sales decline in Q1 due to softness in Commercial and Kitchen categories. Margins contracted, though cost controls limited the damage.

• Outdoor & Recreation: Still unprofitable but improving, with losses narrowing to $5 million in Q1 (from $18 million in 2024). Progress here is critical for achieving full portfolio profitability.

Challenges Ahead: Tariffs and Top-Line Growth

While Newell's margin story is positive, two risks loom large:

1. Tariff Sensitivity: The potential 125% U.S. tariff on China imports could reduce 2025 EPS by up to $0.20. Management believes mitigations—such as pricing adjustments and supply chain shifts—can halve this impact, but the risk remains significant.

2. Sales Decline: Net sales fell 5.3% in Q1 2025, with core sales down 2.1%. While the company aims for stabilized core sales in 2025, weak consumer demand and retailer inventory adjustments could prolong the slump.

Investment Outlook: A Balanced Approach

Newell Brands' margin expansion and debt reduction make it a compelling recovery play, but investors must weigh risks against rewards. Here's the breakdown:

• Bull Case: Margins hit 9.5% in 2025, top-line declines stabilize, and tariffs ease. EPS could surpass $0.80, driving a stock price rebound from its current ~$12.

• Bear Case: Tariffs worsen, sales continue to decline, and operational costs escalate. The stock could stagnate or retreat further.

Investment Advice:
- Buy with caution: Newell's margin trajectory and balance sheet improvements justify a long-term position, but investors should wait for clarity on tariffs and Q2 sales trends.
- Consider a 5-10% allocation: Use dips below $10 as entry points, with a 12–18-month horizon.
- Monitor cash flow: While margins are strong, operating cash flow turned negative in Q1 due to working capital shifts. Sustained positive cash flow is critical for debt reduction.

Conclusion

Newell Brands' turnaround is far from complete, but its execution on margin expansion and strategic initiatives offers a clear path to recovery. The company's focus on cost discipline, in-house manufacturing, and portfolio optimization positions it to outperform peers if macro conditions stabilize. Investors seeking a contrarian play in consumer goods should take note—but remain vigilant on tariff risks and top-line trends.