Be Ready to Buy Newell Rubbermaid (NYSE: NWL) Stock on Pullbacks

Consumer products maker Newell Brands Inc. NYSE: NWL stock is still trading under its February pre-COVID highs underperforming the benchmark S&P 500 index NYSEARCA: SPY recovery. The Company is a likely pandemic benefactor from the stay-at-home restrictions but has been able to accelerate its business recovery during the restart initiatives. The variety of consumer items range from appliances, food storage, outdoor lifestyle products to writing instruments, baby gear and sanitizers. Competitor Tupperware Brands NYSE: TUP surprised analysts with its recent earnings release that didn’t carry over to shares of NWL shares. Consumer consumption demand continues to accelerate and the threat of a third wave in the pandemic can accelerate the food appliance and storage segment. This provides a bargain entry for risk-tolerant investors seeking exposure on opportunistic pullbacks in Newell Brands, especially in light of its most recent blow out quarterly results followed by low ball forecasts.

Q3 FY 2020 Earnings Release

On Oct. 30, 2020, Newell Brands released its fiscal third-quarter 2020 results for the quarter ending September 2020. The Company reported an adjusted earnings-per-share (EPS) profit of $0.84 excluding non-recurring items versus consensus analyst estimates for a $0.44, handily beating estimates by $0.40. Revenues grew by 5.1% year-over-year (YOY) to $2.7 billion beating analyst estimates of $2.48 billion. Core growth for Q3 rose 7.2% versus (-1.1%) analyst expectations and gross margins were 33.9% vs. 33.3% analyst consensus. The Company beat on top and bottom line with exceptional tailwinds as a result of strong consumer demand stemming from the Pandemic.

Conference Call Takeaways

Newell Brands CEO, Ravi Saligram, was upbeat in the conference call, “Gross sales grew in all geographies without internal businesses accelerating more sharply in the U.S., especially in Latin America. The standouts in the third quarter were our food, appliance and cookware and commercial business units. All of it generated impressive double-digit sales core sales growth.” E-commerce sales grew to 21% of total sales, up double from 2018 levels. Online sales are up 40% year-to-date in Q3. Digital and mass are the two largest channels grew double digits offsetting declines in specialty and office channels. FoodSaver was one of the growth drivers for the Q and the June launch of the BS 3000 food vacuum is showing strength. The Ball Canning business sales are up 60% YTD fueled by Millennial purchases. Home Fragrances rebound with specialty retail stores reopening in the quarter. The Appliance segment saw a 17% sales pop in Q3. The Mr. Coffee iced coffee maker launch at a mass retailer in September was a smash success “flying off the shelves with sell-out significantly ahead of expectations.” Baby gear segment including Graco gained market share in the casting category with its Graco Cradle Me four-in-one carriers and NUKs temperature control bottle which took leading market share spot in Germany. While the Writing segment as able to gain 900 basis points in market share, the Company expects to remain under pressure for the rest of the year due to the elongated back-to-school season. The Learning and Development segment was the only segment seeing a decline (-9.5%) due to the delay of school and office reopening. Supply chain improvements are a top priority moving forward.

Operational and Guidance

Newell Brands CFO, Chris Peterson, provided operational highlights on the Company turnaround plan started 18 months ago. Regarding complexity reduction, Newell Brands eliminated 10,000 SKUs in the quarter for a 23% YTD reduction. IT footprint was reduced from 6,000 at its peak to less than 800 applications today. The Company generated $820 million cash flow YTD, doubling last year as cash conversion cycle improved by 30-days. Q3 ended with $858 million in cash and cash equivalents and $500 million in debt reduction to bring balance down to $5 billion. The credit revolver and AR securitization facilities are undrawn and fully available to tap. The Company expects flat to low single-digit core sales in Q4 guiding to “normalized” EPS in the range of $0.40 to $0.46 and full-year EPS at $1.60 to $1.69. The Company expects full-year 2020 sales in the $9.2 billion to $9.3 billion range from $9.1 billion.

Low Ball Guidance

The reversion to the mean guidance appears more in-line with prior forecasts. However, the upbeat narrative during the call and October quarter-to-date consumption demand has “remained strong” is a clue that the bar is being set conservatively low. Margin improvement and the stated second-half of the year being much stronger than first half is an example of hidden in plain sight clues. Management didn’t comment about the pent-up holiday seasonal demand improvements which could greatly surprise to the upside. Newell Brands is a turnaround story that prudent investors can look for exposure especially in light of a falling macro market at opportunistic pullback levels.

 NWL Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NWL stock. The monthly rifle chart has a stochastic mini pup with a rising 5-period moving average (MA) support at $16.62 with upper monthly Bollinger Bands at $21.55 Fibonacci (fib) level. The weekly market structure low (MSL) buy triggered at $13.86. The weekly rifle chart has a double barreled pup composed of a daily pup breakout fueled by a stochastic high band mini pup which can press prices towards the weekly upper BBS at $19.00. The bearish SPY headwinds may pressure shares back down towards opportunistic pullback levels at the $16.89 fib, $15.49 fib, $14.58 and $13.85 weekly MSL/fib. The correlation with peer TUP fluctuates but has been historically positive. Upside trajectories range from the $20.26 trend line resistance up through February pre-COVID highs towards the $24.26 fib on this turnaround story.