What happened
Shares of Newell Brands (NWL 0.88%), a widely diversified consumer products company, rose sharply in early trading on Feb. 11, gaining as much as 11.5% at one point. The big news was the company's pre-market fourth-quarter 2021 earnings release. Although investors were clearly pleased, the story wasn't all good.
So what
On the top line, sales increased 4.3% in the fourth quarter of 2021 compared to the year-ago period, hitting $2.8 billion. The company's sales increased in each of its five reporting divisions. Wall Street analysts had been looking for revenue of $2.65 billion. On the bottom line, Newell reported adjusted earnings of $0.42 per share, while analysts had been targeting $0.32. So the company beat on both the top and bottom lines, which investors tend to like.
However, in the fourth quarter of 2020 Newell reported adjusted earnings of $0.56 per share, so earnings actually declined here. The major year-over-year headwind was inflation, including rising costs for materials, labor, and logistics.
Image source: Getty Images.
Rising costs are normally a hot-button issue for investors these days, but Wall Street seemed willing to overlook the headwind in Newell's case. That said, there were other issues scattered throughout the highly varied businesses the company runs. For example, the company is still trying to right size its Yankee Candle footprint (closing nearly 100 locations) in its home solutions segment, and sales in the division's food group were weak. And in the learning and development division, sales of baby products were soft. While the positives in the other areas of these two divisions more than offset the negatives, Newell is certainly not hitting on all cylinders.
Now what
Overall, Newell had a better quarter than analysts were expecting and that does count for something. It was clearly enough to put investors in a buying mood today. Still, it would probably be wise to consider the broad inflationary headwinds the company faces and the pockets of weakness in its highly diversified portfolio before getting too excited about the company's future from here.
