We maintain our long-term Neutral recommendation on
Newell Rubbermaid Inc.
) with a target price of $20.00 per share. Moreover, the company
has a Zacks #3 Rank, implying a short-term Hold rating.
Newell is one of the leading manufacturers of home and office
products in the U.S. The company possesses a strong portfolio of
well established brands, providing a competitive edge over its
Newell Rubbermaid delivered better-than-expected first-quarter
2012 results on the heels of increased volume coupled with lower
structural SG&A expenses and lower effective tax rate,
partially offset by higher input cost inflation. The company's
quarterly earnings rose 13.8% to 33 cents per share from the
prior-year quarter, beating the Zacks Consensus Estimate of 31
Moreover, management reiterated its outlook for fiscal 2012. The
company still expects earnings to grow in the range of 2% - 6% year
over year to $1.63 - $1.69 per share in fiscal 2012 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
facilitate the reduction of the complexity of the organization
while increasing investments in most important growth areas within
the business. Therefore, the company is expected to save costs
between $90 and $100 million through its Project Renewal program by
the first half of 2013.
Moreover, Newell's 'European Transformation Plan' is expected to
be completed by 2012. The plan aims to revamp its European
organizational structure and processes in order to integrate
certain operating activities, leverage the benefits of scale and
contribute to the effective implementation of an 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 suppliers are to be used. This considerably reduces
Newell Rubbermaid's pricing power against these giant retailers,
thereby exerting pressure on margins while limiting
Further, the company's results may be adversely affected due to
Newell's substantial exposure to international markets. 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 distributors of consumer and commercial
products, such as
Cooper Industries plc
Avery Dennison Corp.
). 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
COOPER INDS PLC (CBE): Free Stock Analysis
NEWELL RUBBERMD (NWL): Free Stock Analysis
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