Newell Brands Inc. — Moody’s affirms Newell Brands’ Ba1 CFR; outlook remains positive

Rating Action: Moody’s affirms Newell Brands’ Ba1 CFR; outlook remains positiveGlobal Credit Research – 16 Aug 2022New York, August 16, 2022 — Moody’s Investors Service (“Moody’s”) today affirmed Newell Brands Inc.’s (“Newell”) Ba1 Corporate Family Rating (“CFR”), Ba1-PD Probability of Default Rating, Ba1 unsecured debt instrument ratings, and Not Prime commercial paper rating. The outlook remains positive and the Speculative Grade Liquidity Rating remains unchanged at SGL-1.The affirmation reflects Newell’s large scale and good operating performance arising from sustained organic growth and sound operating profit margins, even during the current inflationary period. Although the company continues to execute well on its commitment to return to organic growth, reduce financial leverage and maintain a more conservative financial policy, risks remain elevated over the next 6-12 months that its performance will be negatively impacted by inflationary pressure on consumers. Moody’s expects that inflationary pressures will remain for the remainder of this year and into next year and this will dampen consumer spending in discretionary segments such as home fragrance, small home appliances, and outdoor & recreational. Additionally, the company’s ability to take pricing actions to offset volume declines may be limited during this period as consumers continue to reduce discretionary spending due to rapidly rising costs of food and fuel. Uncertainty and downside risks remain high during this period. However, Moody’s believes Newell’s focus will be to maintain a moderate financial policy.Moody’s expects financial leverage to be maintained at just below 3.75x debt-to-EBITDA over the next 12-18 months compared to 4.0x as of June 30, 2022. Newell has a stated target net debt-to-EBITDA leverage ratio of 2.5x (based on the company’s calculation) compared to 3.4x as of June 30, 2022, which indicates the company will remain focused on reducing and sustaining leverage at a lower levels. Moody’s also expects the company to generate free cash flow of around $250 million to $275 million over the next 12-18 months, which it could use towards debt repayment, if needed, to offset any profit erosion caused by the current environment. Moody’s believes management’s track record is improving as the company’s strategic direction over the past three years has been consistent and management remains focused on improving margins through initiatives focused on cost reduction and integration of businesses acquired years ago. The company is also focused on some international expansion which should help to offset some inflationary headwinds. The SGL-1 reflects Newell’s very good liquidity with cash on hand of $323 million and $1.25 billion available under the unsecured revolving credit facility expiring in December 2023. The company has $1.1 billion in bonds that mature in April 2023. Moody’s expects the company will seek to proactively refinance the maturity though there is sufficient revolver availability to fund the maturity in the event market access is restricted.The positive outlook reflects Moody’s expectation that Newell will continue to prioritize reducing leverage to their stated target goal and that operating performance will remain stable despite inflationary headwinds. Moody’s expects free cash flow to improve meaningfully in 2023 from a weak near break even level in 2022 due to a reduction in inventory and working capital from elevated levels that is consuming meaningful cash in 2022The following ratings/assessments are affected by today’s action:Affirmations:..Issuer: Newell Brands Inc….. Corporate Family Rating, Affirmed Ba1…. Probability of Default Rating, Affirmed Ba1-PD….Senior Unsecured Commercial Paper, Affirmed NP….Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1….Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 (LGD4)Outlook Actions:..Issuer: Newell Brands Inc…..Outlook, Remains PositiveRATINGS RATIONALENewell’s Ba1 CFR reflects its large scale, well recognized brands, strong product and geographic diversity, and good free cash flow generation ability. The financial and operating strategies are positioning the company for more consistent performance following a period of significant strategy shifts that included portfolio reshaping through acquisitions and divestitures. The rating is constrained by concerns around the long-term growth prospects of the company’s mature product categories such as appliance and cookware, food storage, and writing which require constant investment to spur growth. The rating also reflects the moderate operating margin and potential pressure from rising input costs and supply chain disruptions. The high dividend payout ratio is also a significant drag on free cash flow.The coronavirus outbreak and the government measures put in place to contain it continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, continuation will be closely tied to containment of the virus. As a result, there is uncertainty around Moody’s forecasts. Moody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The consumer durables industry is one of the sectors most meaningfully affected by the coronavirus because of exposure to discretionary spending.Social factors relating to demographics and changes in consumer preferences abetted by technology will continue to influence the long-term demand trends for the company’s products. The company’s diverse business portfolio with a mix of growing products helps mitigate categories where demand is declining, providing some stability to the overall revenue base and good operating cash flow generation.Moody’s views the dividend policy as aggressive but financial policy relating to leverage is moderate and has become more conservative over the last two years. The company continues to maintain a sizable dividend despite divestitures that have reduced the earnings base. However, Newell’s 2.5x target net debt-to-EBITDA leverage (based on the company’s definition) indicates a continued focus by management on reducing leverage either through debt repayment or EBITDA growth. Moody’s believes reducing leverage will improve free cash flow and investment flexibility as the company continues to focus on maintaining sustainable organic revenue growth.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if Newell delivers good operating execution including sustained organic revenue growth with a stable to higher EBITDA margin while maintaining a financial policy that results in sustained debt to EBITDA leverage below 3.75x. Newell would also need to maintain very good liquidity, solid free cash flow relative to debt, and a consistent strategic direction to be considered for an upgrade.Ratings could be downgraded if Newell’s revenue or EBITDA margin weakens materially, liquidity deteriorates or the company utilizes debt to fund acquisitions or share repurchases. Additionally, the ratings could be downgraded if Newell’s debt-to-EBITDA is sustained above 4.5x or retained-cash-flow to net debt is below 10%.The principal methodology used in these ratings was Consumer Durables published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74987. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Newell Brands Inc. is a global marketer of consumer and commercial products utilized in the home, office and commercial segments. Key brands include Rubbermaid, Sharpie, Mr. Coffee and Yankee Candle. The publicly-traded company generated $10.5 billion of revenue for the 12 months ended June 30, 2022.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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