Consider Newell Brands (NWL) as a potential turnaround investment due to several upcoming catalysts. The company may receive a significant cash refund, potentially up to $170 million, from illegally collected tariffs, which could be used to regain market share. Its strategy of moving manufacturing to the U.S. has already proven successful with the Sharpie brand, leading to higher efficiency and margins. This highlights the broader investment theme of U.S. manufacturing and reshoring, which is gaining momentum due to advances in automation. Investors interested in this trend should explore companies in sectors like automotive, steel, aluminum, and factory automation.

Newell Brands (NWL)

• Newell Brands is a large consumer goods company that owns many household brands, including Crock-Pot, Rubbermaid, Yankee Candle, Papermate, Sharpie, and Graco.
• The company's recent financial performance has been weak, reporting a net loss of $315 million in its latest earnings, with net sales down 2.7%.
• Tariffs have been a major headwind for the company, costing it over $170 million last year. This forced the company to raise prices, which led to a temporary loss of market share.
• A recent Supreme Court ruling declared many of the tariffs the company paid to be illegal. The CEO stated that a "substantial majority" of the $170 million paid falls under this ruling, opening the door for a potential "fairly significant claim for a refund."
• The company has been actively shifting its manufacturing strategy:
  • It has invested over $2 billion since 2017 to bring more manufacturing back to the U.S.
  • The portion of its goods sold in the U.S. that are also made in the U.S. has increased from 45% to 57%.
  • It has significantly reduced its reliance on China, which now accounts for less than 10% of its U.S. sourcing. It has diversified manufacturing to other countries like Mexico, Vietnam, and Thailand.
• The Sharpie brand is a key success story for this reshoring strategy.
  • By bringing production to a highly automated plant in Tennessee, the company made the manufacturing process 20 times more efficient.
  • As a result, Sharpie's market shares are at an all-time high, and the brand has seen consistent revenue growth of 3% to 5% annually, operating at "very high margins."
• Not all brands can be easily moved to the U.S. The Graco car seat brand, for example, is difficult to move from its specialized manufacturing base in China due to regulatory complexity and an established supply chain.

Takeaways

• Newell Brands could be considered a potential turnaround story. While recent financials are poor, there are several potential positive catalysts on the horizon.
• Potential Catalyst 1: Tariff Refund. A successful claim for a refund on the $170 million in tariffs paid could provide a significant cash infusion, which the CEO suggested could be used to lower consumer prices and regain market share.
• Potential Catalyst 2: Reshoring Success. The successful turnaround of the Sharpie brand through U.S. automation and manufacturing provides a proven playbook. If this success can be replicated across other brands, it could lead to higher margins and reduced supply chain risk.
• Risk vs. Reward: Investors should weigh the company's recent losses and sales decline against the potential upside from the tariff refund and the long-term benefits of its manufacturing overhaul.

Investment Theme: U.S. Manufacturing & Reshoring

• The discussion highlights a growing trend of "reshoring," where companies move manufacturing from overseas back to the United States.
• The CEO of Newell Brands argues that advances in automation have made U.S. manufacturing cost-competitive again, as labor is now a smaller component of the total cost for many products.
• A key advantage of manufacturing in the U.S. for U.S. consumers is a much shorter cycle time. Lead times can drop from 70-75 days for products from Asia to just 7-10 days for U.S.-made goods, allowing companies to be more agile and responsive to demand.
• The CEO believes the U.S. is "ripe for more manufacturing," particularly in industries that can be highly automated.
• Specific sectors mentioned as being well-positioned for a U.S. manufacturing comeback include:
  • Injection molded parts
  • Steel
  • Aluminum
  • Automotive
• Conversely, some industries are not good candidates for reshoring. The apparel industry, which requires skills like sewing that are not widely available in the U.S., was mentioned as an example of an industry likely to remain overseas.

Takeaways

• Investors interested in this theme could look for opportunities in companies that are either beneficiaries of reshoring (like Newell Brands) or enablers of the trend (such as companies specializing in factory automation and robotics).
• When evaluating companies, consider their supply chain. A company that is successfully moving production to the U.S. may have a long-term competitive advantage in terms of stability and speed to market.
• Focus on sectors with high potential for automation, such as industrials and automotive, rather than labor-intensive industries like apparel.