Newell Rubbermaid Reports Third Quarter 2011 Results and Reaffirms Full Year 2011 Guidance
Net Sales Growth of 5.8%; Core Sales Growth of 3.3%
Normalized EPS of $0.45
Announces Project Renewal: A Plan to Simplify the Organization for Growth
ATLANTA-Newell Rubbermaid (NYSE: NWL) today announced third quarter results and reaffirmed full-year core sales, normalized EPS and operating cash flow guidance. The company also announced Project Renewal, an initiative that will simplify and realign the structure of the company, freeing up resources to be reinvested for profitable growth and strengthened marketing and selling capabilities.
“After the CEO succession process, Jay was instrumental during my transition into the role and I appreciate his assistance in making that process seamless. I would like to wish him success as he leaves Newell Rubbermaid to pursue another leadership position.”
Michael Polk, President and Chief Executive Officer, commented, “Our third quarter results represent a solid step forward. Core sales growth, operating income margin improvement and operating cash flow came in as expected and improved meaningfully versus our first half and year ago results. These are good numbers in the context of a really tough macro environment and represent progress towards our goal of delivering consistent predictable results and sustainable profitable growth.”
“Our return to growth in the third quarter gives us the confidence to take the next important step toward our future. This morning we announced Project Renewal, an initiative designed to reduce complexity in our operating structure and realign resources to our highest potential businesses. We plan to achieve savings of approximately $90 to $100 million over the next twelve to eighteen months, and invest the majority of these funds back into the business in increased brand building support, strengthened demand creation capabilities in customer development and marketing, and the development of our business system in emerging markets. We are making these changes with the ambition to create a bigger, faster growing, more global and more profitable Newell Rubbermaid.”
- Third quarter 2011 net sales were $1.55 billion, an increase of 5.8 percent versus prior year results. Core sales, which exclude the impact of changes in foreign currency, rose 3.3 percent.
- Normalized earnings per share in the third quarter were up 7.1 percent to $0.45 compared with $0.42 in the prior year period. Normalized earnings per share growth was primarily due to the benefit of flow through from increased sales.
- The company reaffirmed its previous guidance for full year 2011 core sales growth of one to three percent, normalized earnings per share in the range of $1.55 to $1.62 and operating cash flow of $520 to $560 million.
- Diluted net loss per share for the quarter, as reported, was $0.61. The 2011 third quarter earnings results include a non-cash impairment charge of $382.6 million, or $1.05 per share, to write down to fair value goodwill primarily related to the company’s Baby & Parenting and Hardware global business units.
- Operating cash flow was $295.3 million, an increase of 51.8 percent compared with the year-ago period, due to tight working capital management and the timing of working capital sources and uses.
- The company reduced debt by $213.6 million in the third quarter, driving debt to the lowest level since the fourth quarter of 2007. The company also paid $23.5 million in dividends and $24.4 million for the repurchase of 1.9 million shares under its recently authorized $300 million share repurchase plan.
- The company divested its Bernzomatic hand torch and solder business and recorded a net loss from discontinued operations of $11.2 million, or $0.04 per share, reflecting the income from discontinued operations and the loss on disposal. Information presented for both current and prior year periods in this release has been restated to reflect the Bernzomatic results as discontinued operations.
- The company announced Project Renewal, a global initiative designed to reduce the complexity of the organization and increase investment in the most significant growth platforms within the business, funded by a reduction in structural SG&A costs. Beginning January 1, 2012, the company will reduce the number of its operating groups from three to two and the number of its global business units from thirteen to nine. Project Renewal is expected to result in aggregate restructuring charges of $90 to $100 million, to be substantially incurred by the end of 2012.
Third Quarter 2011 Operating Results
Net sales in the third quarter were $1.55 billion, an increase of 5.8 percent over the prior year. Core sales grew 3.3 percent and foreign currency had a positive 2.5 percent impact on sales. Strong performance from emerging markets, as well as distribution gains and share gains in all geographies, were the primary growth drivers.
Operating income margin on a normalized basis for the third quarter was 13.7 percent, up 20 basis points versus the prior year and 40 basis points versus the prior quarter. The improvement in operating income margin was achieved despite gross margin contraction of 100 basis points to 37.4 percent, as higher input cost inflation was only partially offset by pricing and productivity. Decreases in structural SG&A more than offset the gross margin decline enabling increased investment in strategic SG&A of 80 basis points as a percentage of sales versus the prior year period.
Third quarter operating income on a normalized basis was $211.8 million compared with $197.7 million in the prior year period. Third quarter normalized operating income excludes $382.6 million of impairment charges primarily related to goodwill write-downs associated with the Baby & Parenting and Hardware global business units,$17.0 million of restructuring and restructuring-related costs incurred in connection with the European Transformation Plan and $4.4 million in incremental costs associated with the company’s CEO transition. In 2010, normalized operating income excluded $23.1 million in Project Acceleration restructuring costs and restructuring-related costs incurred in connection with the European Transformation Plan.
The normalized tax rate for the quarter was 28.2 percent compared with 30.5 percent in the prior year. The year-over-year change in tax rate was primarily driven by the geographical mix in earnings and the timing of certain discrete items.
Normalized earnings were $0.45 per diluted share compared with prior year normalized results of $0.42 per diluted share, attributable to the increase in sales, lower structural SG&A costs and interest expense savings, partially offset by the impact of input cost inflation and higher strategic SG&A spending.
For the third quarter 2011, normalized diluted earnings per share exclude $1.05 per diluted share for impairment charges primarily related to goodwill write-downs, net of tax, $0.06 per diluted share for restructuring and restructuring-related costs associated with the European Transformation Plan, net of tax, $0.01 per diluted share related to the incremental costs associated with the Company’s CEO transition, $0.01 of dilution from adding common stock equivalents to the weighted average shares in the quarter, and a benefit of $0.10 per diluted share resulting from the reversal of certain tax contingencies due to the expiration of various statutes of limitation. In addition, the company recorded a net loss from discontinued operations of $11.2 million, or $0.04 per share, reflecting the income from discontinued operations and loss on disposal of the Bernzomatic hand torch and solder business, which has also been excluded from normalized earnings. For the third quarter 2010, normalized diluted earnings per share exclude $0.05 per diluted share for restructuring and restructuring-related costs, net of tax, $0.04 per diluted share of dilution related to the conversion feature of the convertible notes issued in March 2009 and the impact of associated hedge transactions, $0.45 per diluted share in charges and other impacts associated with the Capital Structure Optimization Plan, and a benefit of $0.21 per diluted share reflecting the favorable resolution of a tax examination. (A reconciliation of the “as reported” results to “normalized” results is included below.) All quarters presented in the attached financial statements have been restated to reflect the reclassification of the Bernzomatic results as discontinued operations.
As a result of its annual impairment testing of goodwill and other intangible assets, the company recorded a non-cash impairment charge of approximately $382.6 million, or $1.05 per diluted share. This charge primarily relates to the impairment of goodwill at the company’s Baby & Parenting and Hardware global business units.
Net loss, as reported, was $177.6 million, or a loss of $0.61 per diluted share, for the third quarter. This compares to net income of $28.3 million, or $0.09 per diluted share, in the prior year.
The company generated operating cash of $295.3 million during the third quarter, compared with $194.5 million in the comparable period last year. In the third quarter of 2010, the company made a voluntary $50 million pension contribution which did not occur in the current year. Other factors in the year-over-year change were a shift in working capital needs due to later Back To School order patterns by certain customers and the timing of new product launches. Capital expenditures were $55.1 million in the third quarter compared with $38.8 million in the prior year.
Third Quarter 2011 Operating Segment Results
The Home & Family segment’s net sales for the third quarter were $626.7 million, a 2.9 percent increase compared with the prior year quarter. Core sales in the segment increased 1.1 percent driven by growth in the Culinary Lifestyles, Beauty and Style and Rubbermaid Consumer businesses. Baby & Parenting core sales, although declining year over year, showed sequential improvement. Operating income in the Home & Family segment was $88.6 million, or 14.1 percent of sales, compared with the 2010 third quarter income of $76.2 million, or 12.5 percent of sales. The profitability improvement was largely the result of lower structural SG&A costs.
The company’s Office Products segment posted third quarter net sales of $474.9 million, a 5.5% increase over last year with foreign currency having a 3.3 percent positive impact on sales. Driving the year over year core sales improvement of 2.2 percent was a healthy Back To School performance, particularly in North America, as well as high single digit growth in our Technology business. The Office Products segment’s operating income was $76.9 million, or 16.2 percent of sales, as compared with $70.8 million, or 15.7 percent of sales, in the prior year. Gross margin was pressured by input cost inflation and a competitive North American Back To School environment. Increased strategic spending was partially offset by lower structural expenses.
Third quarter net sales in the Tools, Hardware & Commercial segment were $448.3 million, a 10.3 percent improvement over the prior year. Core sales increased 7.5 percent, excluding a favorable foreign currency impact of 2.8 percent. Core sales in emerging markets delivered continued momentum with double digit growth in the quarter. Third quarter operating income was $65.5 million, or 14.6 percent of sales, compared with $70.6 million, or 17.4 percent of sales, in the prior year. Input cost inflation and a competitive pricing environment pressured gross margins. Strategic SG&A increased over the prior year due to unfavorable foreign currency translation and targeted support to fuel organic growth in faster growing markets and new categories.
The company today announced Project Renewal, a global initiative designed to reduce the complexity of the organization and increase investment in the most significant growth platforms within the business, funded by a reduction in structural SG&A costs. Cost savings will be achieved in large part through a consolidation of the current three operating groups into two, and of thirteen global business units into nine. The new operating groups, which will be operational effective January 1, 2012, will be named Newell Consumer and Newell Professional. Newell Consumer will be headed by Penny McIntyre, currently President, Office Products, and Newell Professional will be headed by William Burke, currently President, Tools, Hardware & Commercial Products. The final alignment of the global business units into the two groups will be announced at a later date.
In addition, the consolidation of two manufacturing facilities and two distribution centers will be implemented as part of the plan, with the goal of increasing operational efficiency, reducing costs, and improving gross margin.
Project Renewal is expected to generate cost savings of approximately $90 to $100 million when fully implemented by the end of 2012. The majority of the associated savings is expected to be realized in 2012 and will be reinvested in the business to unlock accelerated growth. The company expects to incur cash costs of $75 to $90 million and record pretax restructuring charges in the range of $90 to $100 million over the same period. Charges of between $30 and $40 million are expected to be incurred in the fourth quarter of 2011. The company estimates a total net headcount reduction of approximately 500 resulting from the plan.
As part of Project Renewal, Jay Gould will be leaving the company effective January 1, 2012. “I want to thank Jay for his leadership and service at Newell Rubbermaid,” said Polk. “After the CEO succession process, Jay was instrumental during my transition into the role and I appreciate his assistance in making that process seamless. I would like to wish him success as he leaves Newell Rubbermaid to pursue another leadership position.”
Nine Months Results
Net sales for the nine months ended September 30, 2011 increased 3.6 percent to $4.37 billion, compared with $4.22 billion in the prior year. Core sales increased 1.1 percent for the nine months and foreign currency translation increased net sales by 2.5 percent.
Gross margin was 37.7 percent, a 50 basis point decline versus the prior year, primarily due to higher input cost inflation partially offset by pricing and productivity.
Normalized earnings were $1.19 per diluted share compared with $1.18 per diluted share in the prior year. For the nine months ended September 30, 2011, normalized earnings exclude the same items as those in the third quarter 2011, with the exception of the dilution from adding common stock equivalents to the weighted average shares, as well as an additional benefit of $0.07 per diluted share resulting from the reversal in the first half of the year of certain tax contingencies due to the expiration of various worldwide statutes of limitation and $0.01 per diluted share for a loss related to the retirement of convertible notes. In addition, the company recorded a net loss from discontinued operations of $8.1 million, or $0.03 per share, reflecting the income from discontinued operations and the loss on disposal of the Bernzomatic hand torch and solder business, which has been excluded from normalized earnings. For the nine months ended September 30, 2010, normalized earnings excluded the same items as those in the third quarter 2010 as well as a benefit of $0.01 per diluted share related to the impact of hyperinflationary accounting for the company's Venezuelan operations. (A reconciliation of the “as reported” results to “normalized” results is included below.)
Net income, as reported, was $44.8 million, or $0.15 per diluted share. This compares to $217.1 million, or $0.70 per diluted share, in the prior year.
The company generated operating cash flow of $279.8 million during the first nine months of 2011 compared with $377.9 million in the prior year. The year-over-year change in operating cash flow is primarily driven by the timing of working capital requirements and higher inventory levels in anticipation of international expansion and new product introductions. Capital expenditures were $151.2 million, compared with $108.1 million in the prior year.
2011 Full Year Outlook
The company reaffirmed its full year expectation for sales growth of three to five percent. Core sales growth guidance of one to three percent is unchanged. In addition, foreign currency is still expected to have an approximate two point positive impact on full year sales.
The company updated its assumptions for gross margin to reflect its expectation for higher input cost inflation and a more price sensitive consumer environment in the U.S. Revised guidance is that gross margin will be flat to down 30 basis points year over year, compared with its previous expectation of gross margin expansion of 40 to 60 basis points.
The company continues to expect normalized earnings per diluted share in the range of $1.55 to $1.62 despite a $0.04 per share negative impact resulting from the company’s divestiture of its Bernzomatic torch and solder business.
The company’s 2011 normalized EPS expectation excludes approximately $8 million related to the incremental costs associated with its CEO transition, $383 million in impairment charges primarily associated with goodwill write-downs, between $60 and $70 million of restructuring and other plan-related costs associated with the company’s European Transformation Plan and between $30 and $40 million of restructuring charges associated with Project Renewal. (A reconciliation of the “as reported” results to “normalized” results is included below.)
Operating cash flow guidance is unchanged at between $520 and $560 million for the full year, including approximately $85 to $95 million in restructuring and restructuring-related cash payments. The company anticipates capital expenditures of approximately $200 million during the year.
Non-GAAP Financial Measures
This release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in this release is a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
About Newell Rubbermaid
Newell Rubbermaid Inc., an S&P 500 company, is a global marketer of consumer and commercial products with 2010 sales of approximately $5.7 billion and a strong portfolio of leading brands, including Rubbermaid®, Sharpie®, Graco®, Calphalon®, Irwin®, Lenox®, Levolor®, Paper Mate®, Dymo®, Waterman®, Parker®, Goody®, Rubbermaid Commercial Products® and Aprica®.
This press release and additional information about Newell Rubbermaid are available on the company’s Web site, www.newellrubbermaid.com.
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