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Stumble Not Fall

04 November 2019 by jbchevrel

Newell Brands Inc. (NWL) is a consumer products retailer (housewares, home furnishings, office supplies, tools & hardware, hair accessories) worldwide. The 5y CDS has closed at around 100bp at our London close on Friday, so before the headline *S&P DOWNGRADES NEWELL BRANDS TO 'BB+/B', OUTLOOK STABLE, making officially NWL the latest fallen angel in the US market. The 5y CDS widened by around 30bp, the curve steepened in the <5y segment (1s5s +30 3s5s +20), curve ~unch in the >5y segment. S&P cut NWL’s ratings to junk-rated BB+ from investment-grade-rated BBB- late last Friday. It joins Fitch, which downgraded Newell to junk in February. Moody’s maintains a Baa3/stable rating. The downgrade follows an announcement by the company that it plans to keep 1/ Mapa Spontex 2/ Quickie, which had both been previously identified for sale and that will likely prevent NWL from meeting S&P’s debt reduction and deleveraging targets. The aim of keeping those two is to improve margin and cash flow, and NWL presented this in a context of quicker than expected turnaround plan. The CFO explained that ‘Q3 operating margin, earnings per share and operating cash flow ahead of plan, fueled by a disciplined focus on productivity, overhead cost savings and working capital initiatives.’ Nevertheless, S&P now expects NWL’s debt leverage to be mid-4x (19) high-3x (20). NWL targets 4x (19) 3.5x (20). In Q3, core sales came down -2.5% oqa and operating margin came down -0.5% to 12.7%. Going forward, NWL expects Q4 sales of $2.5B-$2.6B. The recently appointed President and Chief Executive Officer Ravi Saligram said that ‘stronger than anticipated performance thus far in the year gives us the confidence to raise full year guidance for normalized earnings per share to $1.63 to $1.68 and full year operating cash flow to $700 to $850 million. We are taking decisive and strategic actions to stabilize the company’s performance in the near term and return to sustainable profitable growth over time.’