ATLANTA--(BUSINESS WIRE)--Newell Brands (NASDAQ:NWL) today announced its third quarter 2020 financial results.

"We delivered very strong third quarter results, including broad-based sales growth underpinned by strong consumption, and significant improvement in operating margin and cash flow generation, as the organization rallied behind our strategic priorities,” said Ravi Saligram, Newell Brands President and CEO. “We are heading into the fourth quarter with a renewed sense of energy as we chase demand in certain high growth categories. We remain laser focused on increasing shareholder value by sustaining growth momentum, driving meaningful innovations that leverage consumer trends, building a competitive edge through omni-channel and significantly reducing organizational complexity."

Chris Peterson, Chief Financial Officer and President, Business Operations, said, “Stronger than anticipated top line growth, along with disciplined expense control, restructuring savings, sustained progress on complexity reduction and FUEL productivity savings drove significant year-over-year improvement in operating margin. Diligent execution behind working capital initiatives resulted in a substantial reduction in the company's cash conversion cycle time, with operating cash flow nearly doubling year-over-year during the first three quarters of 2020. For the full year, we expect to generate operating cash flow of $1.1 to $1.2 billion, with free cash flow productivity well over 100%.”

Third Quarter 2020 Executive Summary

• Net sales were $2.7 billion, an increase of 5.1 percent compared with the prior year period.
• Core sales grew 7.2 percent compared with the prior year period. Seven of eight business units and all major regions delivered core sales growth.
• Reported operating margin was 13.4 percent compared with a negative 33.4 percent in the prior year period. Normalized operating margin was 14.9 percent compared with 12.7 percent in the prior year period.
• Reported diluted earnings per share were $0.71 compared with a $1.48 diluted loss per share in the prior year period.
• Normalized diluted earnings per share were $0.84 compared with $0.73 per share in the prior year period.
• Year to date operating cash flow was $820 million compared with $424 million in the prior year period, with the improvement driven by working capital.
• The company redeemed the remaining $305 million of its 4.7 percent senior notes upon maturity.
• The company's leverage ratio improved to 3.9x at the end of the third quarter from 4.6x at the end of the previous quarter.
• The company reinstituted guidance for 2020, with projected full-year normalized earnings per share of $1.63 to $1.69 and operating cash flow of $1.1 to $1.2 billion.

Third Quarter 2020 Operating Results

Net sales were $2.7 billion, a 5.1 percent increase compared to the prior year period, as core sales growth of 7.2 percent was partially offset by a foreign exchange headwind and divested businesses.

Reported gross margin was 33.9 percent compared with 33.0 percent in the prior year period, as FUEL productivity savings more than offset the unfavorable impact from business unit mix, COVID-related expenses and inflation. Reported gross margin for the prior year period includes cumulative depreciation expense recorded as a result of the decision to retain the Commercial Products business. Normalized gross margin was 33.9 percent compared with 34.8 percent in the prior year period due to the business unit mix impact.

Reported operating income was $363 million compared with operating loss of $857 million in the prior year period, which reflected the impact of impairment charges. Reported operating margin was 13.4 percent compared with a negative 33.4 percent in the prior year period. Normalized operating income was $403 million, or 14.9 percent of sales, compared with $326 million, or 12.7 percent of sales, in the prior year period.

Interest expense was $71 million compared with $75 million in the prior year period, with the reduction driven by a lower debt balance.

The company reported tax benefit of $21 million compared with $327 million in the prior year period, reflecting a reduction in discrete tax benefits. Normalized tax benefit was $23 million, compared with $55 million in the prior year period.

The company reported net income of $304 million, or $0.71 diluted earnings per share, compared with net loss of $626 million, or $1.48 diluted loss per share, in the prior year period.

Normalized net income was $356 million, or $0.84 normalized diluted earnings per share, compared with $307 million, or $0.73 normalized diluted earnings per share, in the prior year period.

An explanation of non-GAAP measures and a reconciliation of these non-GAAP results to comparable GAAP measures are included in the tables attached to this release.

Balance Sheet and Cash Flow

Year to date through the third quarter, the company generated operating cash flow of $820 million compared with $424 million in the prior year period, reflecting a significant improvement in working capital.

During the third quarter, the company redeemed the remaining $305 million of its 4.7 percent senior notes upon maturity. At the end of the third quarter Newell Brands had cash and cash equivalents of $858 million and net debt outstanding of $5.0 billion, as compared to $5.6 billion in the second quarter. The company maintained a strong liquidity position, with over $2 billion in available short-term liquidity, including cash on hand. Newell Brands exited the third quarter with a leverage ratio of 3.9x compared to 4.6x at the end of the prior quarter.

Leverage ratio is defined as the ratio of net debt to normalized EBITDA from continuing operations. An explanation of how the leverage ratio is calculated and a related reconciliation, as well as a reconciliation of reported results to normalized results, are included in the tables attached to this release.

Third Quarter 2020 Operating Segment Results

The Appliances & Cookware segment generated net sales of $479 million compared with $430 million in the year ago period, reflecting core sales growth of 17.0 percent, partially offset by the impact of unfavorable foreign exchange. Reported operating income was $32 million, or 6.7 percent of sales, compared with a loss of $595 million, or negative 138.4 percent of sales in the prior year period. Normalized operating income was $35 million, or 7.3 percent of sales, versus $18 million, or 4.2 percent of sales, in the prior year period.

The Commercial Solutions segment generated net sales of $535 million compared with $475 million in the prior year period, primarily driven by a core sales increase of 13.3 percent. Core sales improved in both the Commercial and Connected Home & Security business units. Reported operating income was $84 million, or 15.7 percent of sales, compared with a loss of $216 million, or negative 45.5 percent of sales, in the prior year period. Normalized operating income was $88 million, or 16.4 percent of sales, versus $69 million, or 14.5 percent of sales, in the prior year period.

The Home Solutions segment generated net sales of $574 million compared with $484 million in the prior year period, reflecting a core sales increase of 19.5 percent and the impact of favorable foreign exchange, partially offset by the exit of 76 underperforming Yankee Candle retail locations during the first nine months of the year. Both Food and Home Fragrance business units delivered core sales growth. Reported operating income was $112 million, or 19.5 percent of sales, compared with a loss of $112 million, or negative 23.1 percent of sales, in the prior year period. Normalized operating income was $124 million, or 21.6 percent of sales, versus $60 million, or 12.4 percent of sales, in the prior year period.

The Learning & Development segment generated net sales of $728 million compared with $824 million in the prior year period, primarily driven by a core sales decline of 9.5 percent. Core sales growth in Baby was more than offset by a decrease in the Writing business unit, reflecting the impact of the delayed re-opening of schools and offices. Reported operating income was $159 million, or 21.8 percent of sales, compared with $182 million, or 22.1 percent of sales, in the prior year period. Normalized operating income was $164 million, or 22.5 percent of sales, compared with $190 million, or 23.1 percent of sales, in the prior year period.

The Outdoor & Recreation segment generated net sales of $383 million compared with $356 million in the prior year period, reflecting a core sales increase of 8.1 percent and the impact of unfavorable foreign exchange. Reported operating income was $40 million, or 10.4 percent of sales, compared with a loss of $41 million, or negative 11.5 percent of sales, in the prior year period. Normalized operating income was $46 million, or 12.0 percent of sales, compared with $37 million, or 10.4 percent of sales, in the prior year period.

Outlook for Full Year and Fourth Quarter 2020

As visibility has improved in recent months relative to the impact of the pandemic on the business, the company reinstituted its practice of providing guidance as follows:

The company has presented forward-looking statements regarding core sales, normalized operating margin, normalized earnings per share and free cash flow productivity. These non-GAAP financial measures are derived by excluding certain amounts, expenses or income from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgement and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of forward-looking core sales, normalized operating margin, normalized earnings per share, or free cash flow productivity to their most directly comparable forward-looking GAAP financial measures because such information is not available, and management cannot reliably predict all of the necessary components of such GAAP measures without unreasonable effort of expense. In addition, we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. The unavailable information could have a significant impact on the company's full-year and fourth quarter 2020 financial results. These non-GAAP financial measures are preliminary estimate and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end and year-end adjustments. Any variation between the company's actual results and preliminary financial data set forth above may be material.

Investor Relations Leadership Update

Nancy O'Donnell, Senior Vice President, Investor Relations and Corporate Communications, and a valued member of Newell Brands' Leadership Team, will retire at year-end after twelve years with the company. Following O'Donnell's retirement, Sofya Tsinis, Vice President, Investor Relations, will lead the Investor Relations function. Tsinis joined the company's Investor Relations department four years ago, after a thirteen-year career in equity research at J.P. Morgan.

About Newell Brands

Newell Brands (NASDAQ:NWL) is a leading global consumer goods company with a strong portfolio of well-known brands, including Paper Mate®, Sharpie®, Dymo®, EXPO®, Parker®, Elmer’s®, Coleman®, Marmot®, Oster®, Sunbeam®, FoodSaver®, Mr. Coffee®, Rubbermaid Commercial Products®, Graco®, Baby Jogger®, NUK®, Calphalon®, Rubbermaid®, Contigo®, First Alert®, Mapa®, Spontex® and Yankee Candle®. Newell Brands is committed to enhancing the lives of consumers around the world with planet friendly, innovative and attractive products that create moments of joy and provide peace of mind.

This press release and additional information about Newell Brands are available on the company’s website, www.newellbrands.com.