Newell Rubbermaid Stays Neutral - Analyst Blog


We are maintaining our long-term Neutral recommendation on Newell Rubbermaid Inc. ( NWL ) with a target price of $20.00. Moreover, the company has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Newell, one of the leading manufacturers of home and office products in the U.S, possesses a strong portfolio of well established brands, such as Sharpie, Paper Mate, Dymo, Expo, Waterman, Parker, Irwin, Lenox, Rubbermaid, Levolor, Graco, Calphalon and Goody. Therefore, Newell Rubbermaid can expect a reversal of fortunes once the market fully recovers.

Newell delivered better-than-expected fourth-quarter 2011 results on the heels of increased volume growth coupled with lower structural SG&A expenses. The company's quarterly earnings of 40 cents per share rose 21.2% from the prior-year quarter, beating the Zacks Consensus Estimate of 38 cents.

Management now expects earnings for fiscal 2012 to grow in the range of 2% - 6% year over year to $1.63 - $1.69 per share and projects operating margin expansion of 20 basis points on the heels of core sales growth of 2% - 3%.

We believe that Newell's ongoing Project Renewal initiative will help in reducing the complexity of the organization while increasing investments in most important growth areas within the business. Therefore, the company is expected to be saving costs between $90 and $100 million through its Project Renewal program by the first half of 2013.

Moreover, Newell's 'European Transformation Plan,' which is expected to complete in 2012, aims to revamp its European organizational structure and processes in order to integrate certain operating activities, leverage the benefits of scale and contribute for an effective implementation of enterprise resource planning program in the region. The company expects to realize annual savings of $55 to $65 million from the plan.

However, the company is heavily dependent on a handful of customers, including large discounters, department stores, home centers, warehouse clubs and office superstores. The company's principal customers are in the continuous process of evaluating which product supplier to be used. This considerably reduces Newell Rubbermaid's pricing power against these giant retailers, thereby exerting pressure on margins while limiting profitability.

Further, the company's results may be adversely affected due to Newell's substantial exposure to international market. Newell may have to either raise prices or contract profit margins in locations outside the U.S. provided 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.

Above all, Newell Rubbermaid faces intense competition from numerous manufacturers and distributorsof consumer and commercial products, such as Cooper Industries plc ( CBE ), Beam Inc. ( BEAM ) and Avery Dennison Corp. ( AVY ). In such a competitive environment, the company has to focus more on pricing, big consumer brands, introduction of new products, and customer service to retain its market share in the industry.

AVERY DENNISON ( AVY ): Free Stock Analysis Report
BEAM INC ( BEAM ): Free Stock Analysis Report

COOPER INDS PLC ( CBE ): Free Stock Analysis Report
NEWELL RUBBERMD ( NWL ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AVY , BEAM , CBE , NWL

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