Newell Brands Poised to Overcome Tariff Impact But Faces Risks From Demand Slump, RBC Says
17min read The global trade landscape has grown increasingly treacherous for manufacturers reliant on Chinese imports, yet newell brands (NASDAQ: NWL) is proving its mettle through strategic supply chain overhauls and cost discipline. Recent analysis by RBC Capital Markets underscores the company’s progress in mitigating the bite of U.S. tariffs—most notably a 125% levy on certain Chinese goods—while also flagging vulnerabilities tied to weakening consumer demand and a heavy debt load. Let’s dissect the data to assess whether Newell’s stock, trading at $4.79 as of May 2025, offers value for long-term investors.
Tariff Mitigation: A Hard-Won Victory
The 125% tariff on baby gear, food storage products, and other categories looms as a major overhang for Newell. RBC estimates this tariff could shave $0.20 per share from 2025 earnings if unaddressed. However, the company has already blunted the blow by shifting sourcing away from China and scaling up domestic manufacturing. Since 2017, Newell has slashed its reliance on Chinese imports from 35% to 15% of total COGS, while pouring $2 billion into U.S. factories. These moves have halved the potential EPS impact to just $0.10—a testament to management’s proactive strategy.
This pivot isn’t without costs. The $4.9 billion debt pile, including refinanced bonds at rates between 6.375% and 6.625%, continues to strain margins. Yet RBC acknowledges that Newell’s U.S.-made products, such as vacuum sealing bags and kitchen tools, now enjoy a tariff-advantaged position. This creates a “moat” for categories where pricing power remains intact, even as broader consumer spending falters.
Q1 2025 Results: Mixed Signals in a Tough Market
Newell’s first-quarter report provided a snapshot of its balancing act between cost control and macroeconomic headwinds:
- EPS: A normalized loss of $0.01 beat expectations by $0.05–$0.08, driven by a 150-basis-point improvement in gross margins to 32.5%.
- Sales: Net sales dropped 5.3% to $1.57 billion, with core sales down 2.1%, as consumers cut back on discretionary purchases like office supplies and home decor.
- Margins and Cash Flow: Operating margins compressed to 4.5% due to rising interest expenses ($72 million), while operating cash flow turned negative ($213 million) amid debt refinancing costs.
The mixed results highlight Newell’s operational progress—evident in margin gains—while underscoring the challenges of selling non-essential goods in a cost-conscious environment.
Risks on the Horizon: Debt, Demand, and Tariff Volatility
- Tariff Uncertainty: The 125% tariff’s full impact hinges on Newell’s ability to pass costs to consumers without eroding demand. RBC warns that further escalation or prolonged uncertainty could strain profitability.
- Debt Pressure: Interest expenses now account for nearly 15% of EBITDA, limiting the company’s flexibility to invest in growth. A default scenario, though unlikely, would be catastrophic.
- Slumping Demand: RBC forecasts a 1–2% sales decline for 2025, as households prioritize essentials over Newell’s products. Weakness in office and home categories—down 3% and 4% respectively in Q1—paints a grim outlook.
Valuation and Outlook: A Stock at a Crossroads
RBC’s lowered price target from $9.00 to $8.00 reflects skepticism about near-term upside, but the firm’s “Sector Perform” rating hints at long-term potential. Key data points to watch:
- 2025 EPS Guidance: $0.70–$0.76 vs. consensus $0.68, suggesting management’s confidence in its mitigation strategies.
- Debt Reduction: Newell aims to cut leverage to 4.0x by year-end from 4.5x, though this depends on stabilizing cash flow.
- Market Share Defense: Competitors like Rubbermaid (owned by Newell) and Cricut (a recent acquisition) must retain pricing power in a cost-sensitive market.
Conclusion: A Defensive Play for Patient Investors
Newell Brands is a classic “value trap” at current prices, offering a 6% dividend yield but carrying significant execution risk. Its supply chain reengineering has softened the blow of tariffs, and its U.S.-manufactured goods provide a shield against future levies. However, the company’s cash flow volatility and reliance on discretionary spending make it vulnerable to economic downturns.
Investors should weigh two critical facts:
1. Mitigation Success: The 125% tariff’s diluted EPS impact ($0.10) is far smaller than its peak threat, thanks to strategic sourcing shifts.
2. Valuation Floor: At $4.79, the stock trades at just 6x its 2025 EPS midpoint—a discount to historical averages—suggesting limited downside if management meets targets.
Yet, the path to recovery hinges on stabilizing sales and reducing debt. Until Newell demonstrates consistent cash flow generation, its stock remains a high-risk bet for those willing to bet on a turnaround. For now, RBC’s caution—reflected in the lowered price target—seems warranted.
In a market desperate for stability, Newell’s story is one of survival, not soaring returns. The question remains: Can a company once synonymous with household staples reinvent itself in a world of trade wars and frugal consumers? The jury is still out, but the data suggests patience—and a hefty margin of safety—is required.
