Newell Brands Navigates Tariff Headwinds in Q1 2025 Earnings

Newell Brands Inc (NASDAQ: NWL) reported its first-quarter 2025 earnings amid a backdrop of macroeconomic uncertainty and escalating trade tensions. While the company faced top-line pressures, its strategic pivot toward domestic manufacturing and tariff mitigation efforts highlighted resilience in an increasingly challenging environment.

Financial Performance: Mixed Results, Margin Gains

Newell’s Q1 net sales fell 5.3% year-over-year to $1.6 billion, driven by a 2.1% decline in core sales, unfavorable foreign exchange, and business exits. However, the company’s focus on pricing, cost discipline, and restructuring paid off in margins. Reported gross margin rose to 32.1%, a 160-basis-point improvement from 30.5% in 2024, while normalized gross margin increased to 32.5%, marking the seventh consecutive quarter of year-over-year growth.

Despite these gains, operating margins narrowed slightly to 4.5% (normalized) due to higher advertising spend, resulting in a reported net loss of $37 million—wider than the prior-year $9 million loss. However, normalized diluted EPS narrowed to a $0.01 loss, signaling progress in core operations.

Segment Performance: Learning & Development Shines, Others Struggle

Newell’s three segments painted a mixed picture:
- Learning & Development (L&D) grew net sales 2.1% to $572 million, with core sales up 4.2% in Writing and Baby categories.
- Home & Commercial Solutions (HCS) declined 9.5% to $812 million, as weakness in Commercial and Kitchen segments dragged margins down to 2.5% (normalized).
- Outdoor & Recreation fell 9.4% to $182 million, though losses narrowed to nominal levels.

Tariff Mitigation: A Strategic Lifeline

The 125% U.S. tariff on Chinese imports remains the largest overhang, with CFO Mark Erceg warning it could reduce 2025 normalized EPS by up to $0.20. However, Newell’s aggressive mitigation strategies—$2 billion invested in U.S. manufacturing since 2017, shifting sourcing to Mexico, and selective price hikes—could halve this impact. Notably, China’s contribution to cost of goods sold has dropped from 35% to 15%, a critical step toward tariff resilience.

Outlook: Maintained Guidance Amid Uncertainty

Newell reaffirmed its full-year 2025 outlook:
- Net sales: -4% to -2%
- Normalized operating margin: 9.0%-9.5%
- Normalized EPS: $0.70-$0.76

Q2 guidance calls for -5% to -3% core sales growth, with EPS expected between $0.21 and $0.24. However, operating cash flow guidance was widened to $400-$500 million due to tariff-related inventory costs—a stark reminder of the financial strain.

Risks and Challenges

• Tariff Volatility: The 125% tariff’s full impact will hit hardest in H2 2025, with CFO Erceg noting 60% of the cost burden expected in Q4.
• Debt Management: Net debt rose to $4.9 billion, with cash reserves declining to $233 million—a liquidity constraint if macro conditions worsen.
• Consumer Demand: Weak global demand and elevated interest rates continue to pressure sales, with Newell revising its market growth assumption to -1% to -2%.

Conclusion: A Strategic Gambit with Risks

Newell Brands’ Q1 results underscore its ability to navigate tariffs through operational agility and strategic investments. The 7th consecutive margin expansion and reduced China exposure reflect disciplined execution, while the company’s domestic manufacturing push positions it to capitalize on trade disruptions. However, risks loom large: the tariff’s full impact, debt levels, and soft consumer spending could test management’s resilience.

Investors should weigh Newell’s defensive moves against its financial leverage. While the stock has underperformed peers in recent quarters, its $2 billion manufacturing bet and 15% China sourcing reduction suggest a long-term play on tariff resilience. Yet, near-term EPS pressures and cash flow headwinds make this a high-risk, high-reward opportunity—one best suited for investors willing to bet on Newell’s ability to turn margins into sustainable growth.

In short, Newell Brands is a company in transition—its Q1 results reflect both the costs of its strategic bets and the potential rewards. The next six months will be critical in determining whether its tariff mitigation strategy can offset the storm clouds on the horizon.