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New York, September 09, 2022 — Moody’s Investors Service (“Moody’s”) assigned Ba1 ratings to Newell Brands Inc.’s (“Newell”) proposed new $1 billion senior unsecured bonds with tenors of five and seven years. All other ratings for the company including the Ba1 Corporate Family Rating (“CFR”), Ba1-PD Probability of Default Rating, Ba1 unsecured debt instrument ratings, and Not Prime commercial paper rating remain unchanged. The outlook remains positive, and the Speculative Grade Liquidity Rating remains unchanged at SGL-1.
Proceeds from the notes will be used to repay outstanding debt and specifically the 3.85% $1.1 billion notes that mature in April 2023. The offering is credit positive because it extends Newell’s maturity profile and better disperses maturities in future periods. The company’s next maturity is manageable with $200 million 4.0% notes due in December 2024.
Moody’s expects that inflationary pressures will remain elevated for the remainder of this year and Newell will experience modest headwinds from lower consumer demand in some of its discretionary segments such as home fragrance, small home appliances, and outdoor & recreational. Newell’s reduction in sales, operating margin, and operating cash flow guidance for fiscal 2022 reflect the pressures from these headwinds. The Ba1 CFR and positive outlook are not affected because Moody’s believes the company remains committed to restore organic growth, improve the operating margin and reduce financial leverage with the company demonstrating good execution despite an increasingly challenging economic environment. 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 continue to remain focused on reducing leverage. Moody’s expects some temporary setback in growth and deleveraging for the remainder of 2022 as inflationary headwinds result in lower profitability with debt to EBITDA increasing to around 4.75x by year-end from 4.0x as of June 30, 2022. The company will generate negative free cash flows of around $300 million in 2022 as it will likely continue to pay out its annual large dividend of around $390 million per year.
For 2023, Moody’s expects Newell to return to organic growth and the company to benefit from continued integration through Project Ovid focused on improving distribution. However, risks remain elevated and the company’s ability to improve performance next year or take pricing actions to offset any volume declines if inflation persists will be limited. Moody’s expects the company to generate approximately $200 million to $300 million in free cash flows in 2023 and to continue to use excess cash to deleverage to below 3.75x (Moody’s adjusted debt to EBITDA). The SGL-1 reflects Newell’s very good liquidity with cash on hand of $323 million as of June 30, 2022, and $1.5 billion available under the new and recently upsized unsecured revolving credit facility expiring in 2027.
The following ratings/assessments are affected by today’s action:
New Assignments:
..Issuer: Newell Brands Inc.
….Senior Unsecured Notes, Assigned Ba1 (LGD4)
RATINGS RATIONALE
Newell’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.
Moody’s projects leverage will decline in 2023 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 level. Moody’s expects free cash flow to improve in 2023, which it could use for debt repayment, if needed, to offset any profit erosion caused by the current inflationary environment. Management’s track record is improving as the company’s strategic direction over the past three years has been consistent and management is successful 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.
Newell’s exposure to environmental risks is moderately negative (E-3). The company has moderately negative exposure across most environmental subcategories except for neutral to low water management risk. Physical climate risks stem from concentrated manufacturing locations for certain products, though not necessarily located in high risk coastal or fire prone areas. The company’s carbon transition risk is moderately negative and reflects the energy used in manufacturing of some of its products. Natural capital reliance reflects the use of raw materials such as oil-based resins, steel, and leather in its products. Waste and pollution risks are moderately negative given the limitations on end-of-life disposal of some of its products such as small electronics and plastic containers. Investment is necessary to minimize such environmental risks, and this can increase costs and reduce cash flow.
Newell’s exposure to social risks is moderately negative (S-3). The company has moderately negative exposure to demographic and social trends, health and safety and responsible production. Demographic and social trends reflect constantly changing consumer preferences that until recently have negatively impacted organic growth. Shifting trends will continue to influence the long-term demand 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. Health and safety carry moderate risks given the cumbersome nature of product manufacturing that is somewhat labor intensive. Newell’s ongoing investment in technology and automation to minimize such risks increase costs and complexity. Responsible production reflects moderately negative risks in the company’s ability to source responsibly products through third party manufacturers within its global supply chain.
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.
Newell’s exposure to governance considerations positions it below average and the exposure carries overall moderately negative credit risks (G-3). Governance risk is driven primarily by its financial strategy and risk management policies reflecting moderate financial leverage albeit an aggressive dividend policy. The company continues to maintain a sizable dividend despite divestitures that have reduced the earnings base. However, Newell recently reduced its financial leverage targets with a goal of returning to investment grade. Newell’s 2.5x target net debt-to-EBITDA leverage indicates a continued focus by management on further reducing leverage either through debt repayment or EBITDA growth. Management credibility and track record also is moderately negative reflecting numerous management and board changes over the past five years resulting in an unclear strategy that involved numerous acquisitions and changing divestiture plans. Current management has led the company with a much clearer direction and is taking actions to realize synergies from past acquisitions. Newell is a widely held public company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The positive outlook reflects Moody’s expectation that Newell’s operating performance will moderately improve in 2023 and that the company will continue to improve operating performance while prioritizing reducing debt-to-EBITDA leverage to 3.75x or lower in 2023. Moody’s expects free cash flow to improve meaningfully in 2023 from a weak level in 2022 due to improved earnings and a reduction in inventory and working capital from elevated levels that is consuming meaningful cash in 2022.
Ratings 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 DISCLOSURES
For 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. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Maria Iarriccio
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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