Earnings Results: Newell Brands says raising prices by roughly 10% is ‘the right thing to do’

President Chris Peterson, who will succeed Ravi Saligram as chief executive officer in mid-May, addressed the elephant in the room on the earnings call with analysts by touching on Newell’s exposure to Bed Bath & Beyond Inc.
BBBY,
-7.98%,
the home-goods retailer that filed for bankruptcy this week. He said the retailer was an “important customer,” but it accounted for only 2% of Newell sales in 2022.

Newell’s stock rose 2.3% to close Friday at $12.15. That reversed an initial premarket loss of as much as 2.2% soon after results were reported and an intraday loss of as much as 0.7% after the opening bell.

For the first quarter, the company swung to a net loss of $102 million, or 25 cents a share, from net income of $228 million, or 54 cents a share, in the same period a year ago. Excluding nonrecurring items, the adjusted per-share loss of 6 cents, which was greater than the FactSet loss consensus of 3 cents, was in line with the company’s previously provided guidance of a loss of 6 cents to 3 cents.

Revenue fell 24.4% to $1.81 billion but still topped the FactSet consensus of $1.79 billion.

The cost of goods sold fell less than revenue, down 19.7%, as gross margin contracted to 26.7% from 31%.

Looking ahead, the company expects second-quarter adjusted EPS of 10 cents to 18 cents, which is below the FactSet consensus of 38 cents, and 2023 adjusted EPS of 95 cents to $1.08, which surrounds consensus expectations of $1.04.

“With [first-quarter] actuals now in hand, along with our [second-quarter] and full-year guidance, it becomes self-evident that we are expecting a much stronger top and bottom line during the back half of the year versus the front half,” Chief Financial Officer Mark Erceg said on the earnings call.

Erceg also said that the company would intervene to right some structural profitability challenges — such as not generating an appropriate level of return due to “unprecedented” inflation — by raising prices in third quarter.

“Absent this intervention, we will not be able to invest in the consumer-understanding, brand-building and innovation capabilities [that] our consumers and retail partners expect,” said Erceg said.

The price increases will be on roughly 30% of the company’s U.S. business, concentrated in the Home & Commercial Solutions segment. That segment includes brands such as Rubbermaid, Yankee Candle, Oster, Sunbeam, Calphalon and Crockpot.

Peterson added on the call that the price increases will range between “high single-digit and low double-digit” percentages. He said he believes the price increases are “appropriate and warranted,” given that current prices don’t fully reflect inflation.

“We think it’s the right thing to do for the long-term health of the business,” Peterson said. “Of course, we’re going to monitor the trends carefully.”

He noted that in the past, the competition has largely followed Newell’s higher pricing, but with a lag. While that might put some market share at risk in the short term, Peterson said the company still believes raising prices is the right move because the pricing is geared toward products that are relatively structurally challenged.

“Even if we do have volume loss, it doesn’t really cost us that much from a profitability standpoint, if you will,” Peterson said. “So that’s why we’re convinced it’s the right thing to do, and we’ll report out as we go along here.”

Newell’s stock has lost 7.7% year to date, while the Consumer Discretionary Select Sector SPDR exchange-traded fund
XLY,
+0.26%
has run up 14.3% and the S&P 500
SPX,
+0.83%
has advanced 8.3%.