Here's Why Newell Brands Rose Stock Today – The Motley Fool

What happened

Actions of Newell Brands (NASDAQ: NWL) rose nearly 14% on May 3, following the release of the group's first quarter results, early in the morning.

The company's sales continued to decline, falling 5.5% in the quarter but close to expectations, while adjusted earnings of $ 0.14 per share were more than double that of $ 0.06 per share. action expected by Mr. Market.

So what

The most positive part of Newell's report on results has been what is happening in its operational area of ​​learning and development. The liquidation of Toys R Us in March 2018 weighed heavily on this segment – especially the baby division of the segment – over the past year, but the results improved this quarter.

Base sales fell 1.5%, a modest decline considering the business business figure at Toys R Us of $ 40 million in the first quarter of last year. Profitability has improved significantly: the operating margin is set at 15.2%, up from 10.9% last year, while the profit is Increased by $ 22 million, to reach $ 88.5 million during the quarter.

Now what

While the learning and development segment has improved significantly as a result of the drag reduction by Toys R Us, Newell's consolidated operations continue to spend cash and its other segments are not not as profitable.

The company spent $ 200 million in operating cash during the quarter and reported a GAAP loss of $ 0.36 per share. In other words, some progress has been made – as indicated by the jump in the share price – but Newell has lot work to be done simply to return to generate positive revenue from its operations.

The company closed the sale of non-core assets on May 1, earning $ 735 million, but between cash consumption and the need to repay its large debt, it must quickly generate operating cash flow again.

Management remains optimistic and sticks to the full-year forecasts that were set during the fourth quarter earnings call: base sales are expected to fall to less than 10% and the company to generate cash flow operating cash flow of $ 300 to $ 350 million.

From this investor's point of view, I do not think the results to date show sufficient improvement to make Newell a buy. Until the company is able to generate positive cash flow for several quarters, its dividend will remain risky and could be a value trap. It is worth it to be on your watch list, but there is still too much uncertainty and a company whose cash flow is negative can quickly turn into a dividend trap.