Can Newell's Cost-Saving Drive Sustain Its Margin Expansion Momentum?

Newell Brands (NWL) reported its eighth consecutive quarter of margin improvement in Q2 2025, with gross margin rising 80 bps to 35.6% and operating margin gaining 10 bps to 10.7%. This expansion, despite top-line pressure, stems from a multi-pronged cost-saving strategy, including $2 billion in automation investments and tariff-related price actions, which are expected to fully offset $155 million in tariff costs for 2025. The company projects 2025 operating margins of 9-9.5% and EPS of $0.66-$0.70. NWL shares have notably outperformed the market and peers, gaining 11.8% over the past three months, and trade at a discounted forward P/E of 8.87x, indicating the market's recognition of its operational efficiency and potential for stronger earnings as consumer demand stabilizes.

Analysis

Newell Brands (NWL) is demonstrating significant progress in its operational turnaround, achieving its eighth consecutive quarter of margin improvement despite continued pressure on top-line sales. In Q2 2025, the company expanded its normalized gross margin by 80 basis points to 35.6% and its operating margin by 10 basis points to 10.7%. This expansion is driven by a multi-pronged cost-saving strategy, including a $2 billion investment in automation since 2017 and tariff-related price actions, which are projected to fully offset $155 million in gross tariff costs in 2025. Management's confidence is reflected in its full-year 2025 guidance, which projects a normalized operating margin of 9.0-9.5% and EPS of $0.66-$0.70, alongside an expectation of sequential top-line improvement in the second half. The market has rewarded this execution, with NWL shares gaining 11.8% over the past three months, substantially outperforming its sector and the S&P 500. Despite this rally, the stock trades at a forward 12-month P/E ratio of 8.87x, a notable discount to its industry average of 19.80x, suggesting the market is still cautiously weighing the company's margin story against persistent consumer demand headwinds.

Key Decisions for Investors

• Investors may view Newell's discounted forward P/E ratio of 8.87x as a compelling value proposition, contingent on the company's proven ability to execute its margin expansion strategy and meet its 2025 EPS guidance.
• It is critical to monitor for the projected sequential top-line improvement in the second half of 2025, as the investment thesis requires sales stabilization to complement the structural cost savings and drive sustainable earnings growth.
• Given the stock's recent 11.8% outperformance against a declining sector, investors should weigh the possibility that the successful cost-cutting narrative is partially priced in against the potential for further upside if consumer demand recovers.