Newell Rubbermaid Inc.
) reached a new 52-week high of $19.78 on Friday, October 12, 2012,
beating its previous 52-week high of $19.74. The closing price of
the producer of Sharpie pens and Rubbermaid containers as on
October 12, 2012 was $19.75, which represented a solid year-to-date
return of 54.2%. Average volume of shares traded over the last 3
months stands at approximately 2.839 million.
An impressive record of beating the quarterly earnings
expectations, margin improvement, a positive fiscal 2012 outlook,
and a decent dividend yield, are the major growth drivers for the
shares of this company.
With respect to earnings surprise, Newell has topped the Zacks
Consensus Estimates in the last four quarters, with an average of
Lately, the company reported adjusted earnings of 47 cents per
share for the second quarter of fiscal 2012, up 4.4% from the
year-ago quarter's earnings of 45 cents. The earnings growth was
driven by the positive impact of pricing and productivity gains and
lower structural selling, general and administrative expenses as a
percentage of sales, partially offset by higher input cost
inflation. Moreover, quarterly earnings beat the Zacks Consensus
Estimate of 45 cents.
Newell's quarterly gross profit fell 0.5% year over year to
$581.2 million; however, gross margin expanded 51 basis points to
38.3%, primarily due to higher pricing and productivity. Operating
income increased marginally by 0.6% year over year to $207.1
million, while operating margin expanded 41 bps to 13.7%, primarily
due to gross margin expansion and lower structural selling, general
and administrative expenses.
Further, despite ongoing sluggishness in the global economy, the
company has reiterated its outlook for fiscal 2012. It 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.
Newell rewards its shareholders through regular quarterly
dividends and share repurchases. In September 2012, the company
paid a quarterly dividend of 10 cents per share. This yields a
solid 2.0%, while the company has a payout ratio of 110%. In the
second quarter, the company bought back nearly 1.4 million shares,
valued at approximately $24.9 million under its $300.0 million
share repurchase program.
Furthermore, we believe that the company's cost management
initiatives will further boost its bottom line. It is expected that
Newell will be saving $55-$65 million in fiscal 2012 with the
completion of the European Transformation Plan. In addition, the
company's Project Renewal program will reduce its structural
selling, general and administrative expenses by around $90-$100
Newell currently trades at a forward P/E of 11.80x, compared
with the peer group average of 11.76x. Again, its price-to-book
ratio of 2.91 is at a premium to the peer group average of 2.55.
Moreover, the company's price-to-sales ratio of0.97 is at a
discount to the peer group average of 0.99. Given the company's
compelling fundamentals and earnings surprise history in the last
four quarters, we believe the chances for its EPS growth will be
higher than the long-term expected growth of 9.0%.
At the same time, it is more efficient with its assets than its
peers, which is a positive factor that will help this growth. It
has a 12-month ROA of 7.7%, which is above its peer group average
About the Company
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
Cooper Industries plc
Avery Dennison Corporation
Zacks Rank & Recommendation
Newell Rubbermaid currently has a Zacks #2 Rank, implying a
short-term Buy rating. However, we remain slightly cautious on the
stock and uphold our long-term Neutral recommendation, waiting to
see further catalysts before becoming more positive on the
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