Newell Rubbermaid Inc.
), the producer of Sharpie pens and Rubbermaid containers, remains
on our Neutral list as the company continues to post robust
quarterly results, maintains its fiscal 2012 forecasts and
continues to grow through its ongoing Project Renewal program.
However, we remain concerned regarding the increasing material
costs, intense competition and slowdown in housing and remodeling
Second quarter 2012 earnings of 47 cents per share at Newell
exhibited an improvement of 4.4% from the year-ago quarter as well
as the Zacks Consensus Estimate of 45 cents per share. Earnings
gained mainly from the positive impact of pricing and productivity
and lower structural selling, general and administrative expenses
as a percentage of sales, partially offset by higher input cost
It is to be noted that the company has a history of beating Zacks
consensus numbers. The company has consistently posted positive
surprises in the past several quarters. The average positive
surprise in the trailing four quarters comes to 5.82%.
Following the improved second quarter results, management has
reiterated its outlook for fiscal 2012. Management continues to
anticipate core sales growth of 2% to 3% and adjusted earnings in
the range of $1.63 to $1.69 per share for fiscal 2012.
Moreover, Newell expects an improvement of 20 basis points in
operating margin during fiscal 2012. In addition, the company
expects incremental revenue of $55 - $65 million in the fiscal with
the completion of its ongoing European Transformation Plan.
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Newell's 'European Transformation Plan' is mainly focused on
revamping its European organizational structure and processes in
order to integrate certain operating activities, leverage the
benefits of scale and contribute to an effective implementation of
enterprise resource planning program in the region. The company
expects the plan to be completed by the end of 2012.
Additionally, the company's ongoing 'Project Renewal Program' is a
boon, targeting to save costs within the range of $90 million -
$100 million. The Project Renewal initiative will help reduce the
complexity of the organization and increase investments in the most
important growth areas within the business. The company plans to
fund the initiative through savings from reducing structural
selling, general and administrative expenses.
On the flip side, the company operates in a competitive environment
and strives to maintain its market share, actively competing with
numerous manufacturers and distributors of consumer and commercial
Cooper Industries Ltd.
Avery Dennison Corp.
). The company's primary traits to compete in the environment
include focus on pricing, big consumer brands, introduction of new
products, and customer service.
Further, Newell's results may be adversely affected by its
substantial exposure to the international market. Newell may have
to either raise prices or contract profit margins in locations
outside the U.S., if the foreign currencies weaken against the U.S.
dollar. A rise in the company's product price to offset increasing
input cost may have a direct impact on its product demand.
While our recommendation on Newell's rides on the various positives
mentioned above, threats of competition and foreign currency
translation, keep us on the side lines. The company retains a Zacks
#3 Rank, implying a short-term Hold rating. This is also consistent
with our long term Neutral view on the stock.