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Newell to Sell Process Solutions Business for $500 Million

Zacks Equity Research

Newell Brands Inc. NWL has entered into an agreement with One Rock Capital Partners, LLC, a private equity firm, to sell its Process Solutions business for after-tax proceeds of $500 million. The deal, which is anticipated to close in the second quarter of 2019, is subjected to customary working capital as well as transaction adjustments.

The Process Solutions business involves making of custom-designed plastic, nylons, monofilament and zinc products catering to industrial and consumer challenges. The business, which recorded net sales of roughly $640 million in 2018, includes plastic solutions, lifoam, consumer table top, zinc products and applied materials.

Last month, Newell agreed to sell the Rexair business to Rhone Capital — a global private equity firm. The transaction is anticipated to close by the end of second-quarter 2019 and subject to customary closing conditions and regulatory approvals. This business, which manufactures unique Rainbow products to improve indoor environments since 1963, generated roughly $123 million of sales in 2018.

All these strategic moves clearly highlight Newell’s smooth progress of its Accelerated Transformation Plan. Restructuring the company into a global consumer product entity, valued at more than $9 billion, is the key aspect of this plan. As a result, the company intends to offload non-core businesses that account for nearly 35% of its sales; utilize $10 billion after-tax proceeds from divestitures and free cash flow to lower debt and make share repurchase as well as retain its investment grade rating and an annual dividend of 92 cents per share through 2019, targeting 30-35% payout ratio.

In 2018, Newell generated more than $5 billion of after-tax proceeds from divestitures. Going ahead, management expects to split up the Consumer and Commercial Solutions business besides offloading the MAPA and Spontex businesses in a separate transaction. It expects these divestitures to be completed by the end of 2019.

Meanwhile, proceeds from the sale of the underperforming assets have been utilized to lower balance sheet debt and make share repurchases. These efforts will help improve Newell’s operational performance by reshaping its portfolio and enhance shareholder value. Notably, the company improved leverage by allocating proceeds to pay down debt and share repurchases. As a result, it exited 2018 with the targeted leverage ratio of 3.5 times. The company repaid debt of $2.6 billion in fourth-quarter 2018. Also, Newell deployed $102 million for the payment of dividends and $996 million for share repurchases in the same period.

A glance at this Zacks Rank #4 (Sell) company’s share price performance shows that it has lost 21.7% in the past three months, against the industry’s 1.6% growth. This underperformance can be attributed to Newell’s dismal sales surprise history, having missed estimates for the fourth straight time including fourth-quarter 2018. Lower core sales, foreign currency headwinds and adverse impact from the new revenue recognition standard have been weighing on sales.

Three Better-Ranked Stocks in the Consumer Staples Space

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The Procter & Gamble Company PG has outpaced the earnings estimates in each of the trailing four quarters by an average of 3.1%. The company has a Zacks Rank #2 (Buy).

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