Newell Brands downgraded to ’B+’ by S&P Global Ratings due to consumer demand and tariff risks

Investing.com -- Newell Brands Inc., a U.S.-based company, has had its long-term issuer credit rating downgraded to ’B+’ from ’BB-’ by S&P Global Ratings, due to weakening discretionary demand for its products and tariff risks. The rating for its commercial paper remains at ’B’. The company’s unsecured notes’ issue-level rating also fell to ’B+’ from ’BB-’, while the recovery rating stays at ‘3’, indicating expectations of a significant recovery in case of a payment default.

S&P Global Ratings expects that Newell’s leverage, adjusted for ratings, will remain above 5x through 2025 due to these pressures on profit margins. However, the outlook for Newell remains stable, as the company anticipates being able to offset some of the top-line and tariff pressures with productivity, pricing, commodity, and input cost inflation easing in the coming year.

Newell’s net sales fell by 5.3% in the first quarter of 2025, following a 7% drop in 2024, due to lower global demand, losses from business exits, and unfavorable foreign currency headwinds. This decline is expected to continue in 2025, with revenue projected to drop by 7.5% before returning to slight growth in 2026. This is due to weak demand for the company’s discretionary product range, which includes Rubbermaid, Sharpie, and Yankee Candle, and the impact of the company’s focus on exiting smaller brands to optimize its product portfolio.

Despite making solid progress toward deleveraging in 2024, Newell ended the year with leverage at 5.2x, due to better-than-expected free operating cash flow (FOCF) generation. However, leverage increased to 5.5x in the first quarter of 2025, partly due to seasonal borrowing. S&P Global Ratings predicts that leverage will remain above 5x in the coming year and that the company will generate modest FOCF of about $80 million, less than half the 2024 levels. Newell has $1.23 billion of senior unsecured notes due on April 1, 2026, and failure to refinance this debt maturity over the next few months could result in a further rating downgrade.

Despite having a strong U.S. manufacturing base, Newell is still susceptible to tariff-related downside. The company has been implementing a tariff mitigation strategy for several years, investing nearly $2 billion in its U.S. manufacturing since 2017. More than half of 2024 U.S. sales were manufactured through a North America supply base and are not subject to tariffs. Imports from other countries accounted for about 24% of its total cost of goods sold (COGS), with China accounting for 15%, Mexico 5%, and the remainder other countries. Notably, 98% of its imports from Mexico are exempt from tariffs under the United States Mexico Canada Agreement (USMCA).

Newell has taken various actions to mitigate the impact of tariffs, including targeted price increases, effective management of discretionary overhead and promotional spending, and transitioning suppliers to other countries. These measures are expected to offset the incremental costs from tariffs in 2025, although at the expense of lower volume growth amid declining consumer sentiment.

S&P Global Ratings notes that there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses, specifically with regards to tariffs, and the potential effect on economies, supply chains, and credit conditions around the world. As such, their baseline forecasts carry a significant amount of uncertainty.

The stable outlook reflects that progress in improving credit metrics in the past year can provide a cushion to profit pressure from volume pullbacks amid potential price increases in the coming year. The rating could be lowered if leverage exceeds 6x on a sustained basis and FOCF turns negative. This could occur if Newell’s operating performance suffers further due to tariff pressure or reduced orders from key retailers amid tough macroeconomic conditions, or if the company is unable to fully refinance its near-term maturities in the next two quarters. The rating could be raised if improving operating performance and prudent financial policies enable Newell to sustain leverage below 5x, if consumer demand strengthens and the company successfully refinances its 2026 maturities and navigates tariff pressures with only modest margin impact.

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