Newell Brands' Tariff Troubles: How China's Trade Policies Are Hitting Earnings
14min read Newell Brands (NWL), the consumer goods giant behind brands like Rubbermaid, Coleman, and FoodSaver, is grappling with a stark reality: escalating China tariffs could derail its 2025 earnings targets. In a recent analysis, Morgan Stanley warned that a 125% retaliatory tariff on baby gear and other products—already in effect—threatens to cut the company’s earnings per share (EPS) by up to $0.10 for the year, with even deeper risks if the tariff persists.
The tariff’s impact is a critical “binary risk” for Newell, which has already spent $2 billion since 2017 to shift production to the U.S. and reduce its reliance on Chinese manufacturing. Yet, with 15% of its cost of goods sold still tied to China, the company remains vulnerable.
The Tariff Sword of Damocles
Newell’s Q1 2025 earnings report laid bare the tariff’s toll. While the company has slashed its China exposure from 35% to 15% of sourcing, the 125% tariff on baby gear and other categories continues to pressure margins. Morgan Stanley’s sensitivity analysis shows that if the tariff remains in place for the full year, it could slice EPS by $0.20. Even with mitigation measures—including price hikes, cost cuts, and supply chain reconfiguration—the drag could reach $0.10.
The tariff’s persistence has forced Newell to exclude it from its baseline financial outlook, a move that underscores its existential threat. The company reaffirmed its 2025 EPS guidance of $0.70–$0.76, but analysts had already lowered expectations to $0.68, suggesting little room for error.
Financials Under Strain
Newell’s Q1 results were a mixed bag. Sales fell 5.3% to $1.57 billion, with core sales dropping 2.1%—at the top end of its guided range. While gross margins improved to 32.5% due to cost discipline, operating margins tumbled to 4.5% as advertising expenses surged. Cash flow turned negative, with operating cash flow at -$213 million, reflecting tariff-related inventory costs and working capital pressures.
The company’s 2025 outlook is equally challenging. Sales are projected to decline 4%–2%, with normalized operating margins expected to stay between 9% and 9.5%. Q2 guidance is even more grim: EPS is seen at just $0.21–$0.24, far below the consensus estimate of $0.32.
Wall Street’s Split View
Analysts are split on Newell’s prospects. Morgan Stanley downgraded the stock to Equal Weight (Hold) and slashed its price target to $5.80 from $8.50, citing tariff risks and macroeconomic pressures. The firm noted that Newell’s valuation—currently trading at $5.25—could recover if tariffs ease, but its $4.9 billion debt pile and 4.5x leverage ratio (far higher than peers like Mastercraft’s 2.0x) pose a liquidity threat.
Other analysts remain cautiously optimistic. The average price target stands at $7.08, implying a 34.86% upside, while GuruFocus estimates a $7.91 fair value in one year, based on historical multiples. However, the consensus recommendation from 13 brokers is a Hold (average rating of 2.8), reflecting skepticism about execution risks.
Risks That Could Sink the Ship
Beyond tariffs, Newell faces a host of operational challenges. Its Home & Commercial Solutions segment saw core sales drop 5%, while Outdoor & Recreation sales fell 7.1%, signaling execution issues. Category growth is now expected to decline 1%–2%, as weak consumer confidence drags on spending.
The debt overhang looms largest. With limited cash reserves ($233 million) and a debt-to-EBITDA ratio of 4.5x, Newell’s ability to weather prolonged tariff pressures or rising interest rates is questionable. A downgrade in its credit rating could spike refinancing costs, compounding its financial stress.
Conclusion: A Gamble on Tariff Relief
Newell Brands’ fate hinges on two variables: resolving the China tariff issue and stabilizing its cash flow. The company has made strides in reducing China’s role in its supply chain and improving margins, but the 125% tariff remains a Sword of Damocles. If the tariff is lifted or reduced, the stock could rebound toward its $7.91 fair value. However, if it persists, the $0.10 EPS hit could push the company below its 2025 guidance, exacerbating its debt burden.
Investors are pricing in a worst-case scenario, with the stock down 7.45% to $4.79 in April 2025. The path to recovery requires not just tariff resolution but also a reversal of declining sales and margin compression. Until then, Newell remains a high-risk play, best suited for those willing to bet on a macroeconomic turnaround—and a swift end to trade tensions.
