Newell Rubbermaid Inc. (NWL) – the producer of
Sharpie pens and Rubbermaid containers – reported third-quarter
2012 adjusted earnings per share of 47 cents, beating the Zacks
Consensus Estimate of 44 cents and year-ago quarter’s earnings of
45 cents.
The earnings growth was a result of positive impact from pricing
and productivity and lower structural selling as well as general
and administrative expenses as a percentage of sales. On a reported
basis, including special items, the company reported earnings of 37
cents per share compared to a loss of 61 cents in the year-ago
quarter.
Top-Line and Margin Details
During the quarter, Newell’s net sales inched down 0.9% to
$1.535 billion, missing the Zacks Consensus Estimate of $1.540
million. However, core sales of the company inched up 1.5%,
excluding negative impact from foreign currency translation.
The growth in core sales was primarily driven by core sales
increases of 2.5% and 7.8% in the company’s Newell Professional and
Baby & Parenting Essential categories, respectively.
Newell’s quarterly gross profit marginally grew 0.5% year over
year to $0.582 billion, while gross margin expanded 50 basis points
to 37.9% primarily due to higher pricing and productivity,
partially offset by higher input cost inflation.
Operating income decreased marginally by 0.5% year over year to
$0.210 billion, while operating margin remains flat year over year
at 13.7%, as the benefit from gross margin expansion were fully
offset by higher overall selling, general and administrative
expenses (SG&A).
Segment Analysis
Net sales of the company’s Newell Consumer
segment dipped 2.1% year over year to $0.815 billion while
segment’s core sales slipped 0.4% primarily due to weak performance
in Decor and soft sales in Culinary business partially offset by
robust performance in Writing and Creative Expression global
business.
Segmental operating margin came in at $0.141 billion compared
with $0.129 billion in the year-ago quarter. Operating margin
expanded by 180 bps to 17.3%, primarily driven by improved gross
margin and lower SG&A expenses.
During the quarter, sales at Newell
Professional segment inched down 1.1% to $0.535 billion.
However, the segment’s core sales grew 2.5% primarily driven by
solid performance at the company’s Commercial Products global
business in North America and Latin America, which were partially
offset by weak performances in Europe, Australia and New
Zealand.
The segment's operating profit declined to $70.6 million during
the quarter compared with $84.5 million registered in the
prior-year quarter. As a percentage of sales, it contracted 240 bps
to 13.2% due to higher input costs along with increased investments
in selling and marketing.
Driven by strong performance of Graco brand in North America and
Aprica brand in Japan, the company’s sales at Baby &
Parenting segment improved 5.2% year over year to $0.185
billion, while core sales climbed 7.8% during the reported
quarter.
Operating profit increased to $18.3 million from $17.7 million
in the previous-year quarter. Operating margin during the quarter
contracted 10 bps to 9.9%.
Other Financial Details
Newell ended the quarter with cash and cash equivalents of
$0.250 billion and long-term debt of $1.366 billion. Shareholders’
equity was $1,971.2 million, excluding non-controlling interests of
$2.063 billion.
During the quarter, the company’s capital expenditure came in at
$45.2 million, generating a cash flow of $301.5 million from
operating activities.
Fiscal 2012 Guidance
Management continues to anticipate core sales growth of 2%–3%
and adjusted earnings in the range of $1.63–$1.69 per share for
fiscal 2012. Moreover, Newell expects an improvement of 20 basis
points in operating margin during fiscal 2012.
Moreover, the company expects an incremental annual net income
in the range of $55–$65 million from fiscal 2012 through its
European Transformation Plan. Moreover, Newell will be saving costs
in between $90 million and $100 million through its Project Renewal
program in the first half of 2013.
The initiative will be funded by savings through reduced
structural selling, general and administrative expenses. The
Project Renewal initiative will facilitate the company in reducing
the complexity of the organization while increasing investments in
most important growth areas within the business.
Further, Newell still expects to generate operating cash flow in
the range of $550–$600 million in fiscal 2012 with planned capital
expenditures in between $200 million and $225 million.
Expansion of Project Renewal Program
Concurrent with its third-quarter results, Newell has announced
to expand its Project Renewal Restructuring Program. The company
has outlined five new work stream in connection with the
expansion.
A) In
order to simplify its organizational structure, the company has
decided to report its financial results under six new segments
beginning fourth-quarter 2012. The company has eliminated its
Consumer and Professional segments while retained Baby &
Parenting. The six new reporting segments are – Tools, Commercial
Products, Writing, Home Solutions, Baby & Parenting, and
Specialty.
B) To
reduce costs Newell will enlarge its scope of SAP.
C) To
simplify decision making, transaction process and information
management, the company, along with aligning other resources, will
apply SAP.
D) The
company will enhance its efficiencies in customer services and
sourcing functions.
E)
Newell will optimize manufacturing and distribution facilities.
The company expects the implementation of the expansion program
would cost in between $340 million and $370 million. On the other
hand, with the completion of the program, Newell will be saving
additional $180–$225 million annually from the end of the second
quarter of fiscal 2015. Moreover, the company will be able to
reduce its global work force by 10% and above in the next two and a
half years.
Newell Rubbermaid is one of the leading manufacturers of home
and office products in the U.S. The company also possesses a strong
portfolio of widely popular brands, such as Sharpie, Paper Mate,
Dymo, Expo, Waterman, Parker, Irwin, Lenox, Rubbermaid, Levolor,
Graco, Calphalon and Goody. Leveraging its strong brand equity,
Newell Rubbermaid expects modest earnings going ahead, provided the
market scenario improves.
The company faces intense competition from numerous
manufacturers and distributors of consumer and commercial products,
such as Jarden Corp. (JAH), Cooper
Industries plc (CBE) and Avery Dennison
Corporation (AVY).
Newell Rubbermaid currently has a Zacks #2 Rank, implying a
short-term Buy rating. However, we maintain a long-term Neutral
recommendation on the stock.
AVERY DENNISON (AVY): Free Stock Analysis Report
COOPER INDS PLC (CBE): Free Stock Analysis Report
JARDEN CORP (JAH): Free Stock Analysis Report
NEWELL RUBBERMD (NWL): Free Stock Analysis Report
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