Consumer products giant Newell Brands Inc., in the middle of a big restructuring, has put a price tag on new tariffs: up to $100 million in annual sales.
Newell CEO Michael Polk gave the figure in the company's second quarter conference call. Polk said the maker of Crock-Pots and Sharpie pens, Rubbermaid housewares, Elmer's Glue and many other products is raising prices to compensate for the higher costs, which signals inflation for consumer products as a result of the tariffs.
Newell already is facing a radically changing retail environment, as more buyers move online. The closing of Babies R Us, as part of its parent business Toys R Us, hit Newell's sales, and the company is moving to meet new selling channels.
Newell also is undergoing a massive downsizing that includes selling some of its plastics businesses: Rubbermaid, Goody hair brushes and combs and Quickie cleaning brushes.
The first major divestiture came in May, when Newell sold Waddington Group, a maker of plastic disposable food packaging, to plastic bag major Novolex for about $2.3 billion. In its second quarter call, Chief Financial Officer Ralph Nicoletti said Goody is also "well on its way" to being sold.
Polk said money from the Waddington sale, as well as that of Rawlings sports equipment, went to pay down debt. He said "maintaining investment grade rating" is key for Newell, which has seen its stock price plunge.
Newell also plans to use money to buy back shares over the next 12 to 18 months, Nicoletti told financial analysts. He said the plan is to sell non-core businesses this year and into 2019. That will bring in far more cash than the company needs to deleverage, he said.
In answer to an analyst's question, Polk said the company announced price increases early on, to get ahead of the tariffs. About one-third of the price hikes are coming in the last half of 2018, he said.
Polk said Newell is being impacted by U.S. tariffs against China, and retaliatory tariffs from Europe and Canada in response to U.S. tariffs against steel and aluminum. Newell is appealing the tariffs with the U.S. Trade Representative.
Polk said Newell officials "are considering, where possible, alternative sourcing options. Virtually every business has been impacted, with the greatest exposure on baby [products], appliances and food."
Polk said his estimate of the impact assumes U.S. tariffs of 10 percent on goods from China. The next round of tariffs covering $200 billion in Chinese products calls for a 10 percent levy, however President Donald Trump has recently said the tariff might bump up to 25 percent. Hearings are set for Aug. 20 in Washington.
Two uncertainties could change the ultimate impact of tariffs on Newell, Polk said. One is the company's ability to raise prices. The second is "the recent escalation of rhetoric" regarding the potential move from 10 to 25 percent on the second round of tariffs, he said.
"If the China tariffs are raised to 25 percent, we'll amend our price increases upward, to reflect the full impact of the tariff," he said. But later in the call he said that a larger price hike would be "tricky."
Tariffs aren't the only factor that could affect Newell's sales for the second half of the year. Polk also cited ongoing moves to rejigger sales channels for baby products after the Babies R Us shutdown, and a major inventory pullback in writing instruments to reach office superstores.
Even so, Polk said the company expects core businesses will improve in the second half, buoyed by good consumer spending, and will recover to growth in the fourth quarter. "While we expect the retail landscape to remain difficult, the second-half impact will be less severe than the first," he said.
Polk said Newell expects full-year sales between $8.7 billion and $9 billion, a range that only includes sales from its continuing operations.
Newell Brands, based in Hoboken, N.J., is traded on the New York Exchange.