Newell Rubbermaid Inc. (NWL)

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Newell Rubbermaid (NWL)

Q4 2012 Earnings Call

February 01, 2013 8:30 am ET

Executives

Nancy O'Donnell - Vice President of Investor Relations

Michael B. Polk - Chief Executive Officer, President and Director

Douglas L. Martin - Chief Financial Officer

Analysts

John A. Faucher - JP Morgan Chase & Co, Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Wendy Nicholson - Citigroup Inc, Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Presentation

Operator

Good morning, and welcome to Newell Rubbermaid's Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. A live webcast of this call is available at newellrubbermaid.com on the Investor Relations homepage, under Events and Presentations. A slide presentation is also available for download.

I will now turn the call over to Nancy O'Donnell, Vice President of Investor Relations. Ms. O'Donnell, you may begin.

Nancy O'Donnell

Thank, Morley. Thank you, everyone, for joining us this morning. As usual, with me today is Newell Rubbermaid President and CEO, Mike Polk; and EVP and CFO, Doug Martin.

Let me remind you that as we conduct this call, we will be making forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions. Actual results or trends could differ materially. Risk factors that may impact these statements are discussed in the Risk Factors section of our latest annual report on Form 10-K and in the company's other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

Please also note that any non-GAAP financial measures, including, but not limited to, normalized operating margin and normalized earnings per share, should be viewed in addition to and not in lieu of Newell Rubbermaid's GAAP results. A reconciliation of the non-GAAP financial measures to GAAP results is included in our financial summary slide deck on our website and in today's earnings release.

With that, I'd like to turn the call over to Mike.

Michael B. Polk

Thank you, Nancy. Good morning, everyone, and thanks for joining our call. We have 2 objectives today. First, we'll review our fourth quarter and full year results and provide some perspective on that performance. Second, I'll give you some insights into our thinking about 2013 and provide guidance for the year.

Let's get into the results. Our Q4 results represent our sixth consecutive quarter of consistent delivery. Up against our strongest year-ago quarter, Q4 core sales grew 2.2% in line with our expectations. We delivered normalized EPS of $0.43, about 7% ahead of prior year and $0.01 ahead of consensus. Q4 normalized operating margin was 11.7%, down 10 basis points versus prior year.

Increased advertising and promotion, continued investment in sales force feet on the street and incremental customer programming associated with Q4 merchandising and 2013 new item sell-in was largely offset by productivity and structural SG&A reductions linked to Project Renewal. These investments were also enabled by good visibility into below-the-line benefits that gave us the flexibility to accept gross margin compression in the quarter. Importantly, we generated operating cash flow of slightly over $261 million, capping off a very strong cash flow year.

Our full year results reinforce our commitment to steady, sequential improvement of our performance. For the full year, we grew core sales by 2.2%, a 40 basis point sequential improvement in core growth rate versus last year and a solid outcome in the face of tough economic conditions in Europe and challenges on our decor business. Normalized operating margin expanded 10 basis points as productivity, positive pricing and structural SG&A reductions more than covered a 30 basis point increase in strategic SG&A related to sales force investment and increased advertising and promotion spending.

Normalized EPS was $1.70, 6.9% ahead a year ago despite having to overcome an $0.08 headwind as we replenished management incentive compensation levels this year. Operating cash flow came in about the high end of our guidance range at nearly $619 million, 10.2% ahead of prior year. We nearly doubled our dividend from $0.32 per year to the current annualized rate of $0.60, which drove our payout ratio to the high end of our targeted range of 30% to 35%. We also bought back nearly 5 million shares in 2012 at an average price of $18.62.

And we strengthened our balance sheet by refining -- refinancing the QUIPS and the April 2013 notes and extending our $800 million revolver, exiting the year with an adjusted debt-to-EBITDA ratio of 2.2, down from 2.6 in 2011 and 2.7 in 2010. As a result, we significantly improved our return on invested capital to 13.3%, up 80 basis points versus last year and up 140 basis points versus 2010. I'm proud of the organization for driving this delivery while simultaneously driving change.

During 2012, we executed the first phase of Project Renewal, taking steps to simplify our organization structure and helping to bridge 2011 to 2012. We launched the Growth Game Plan, our new strategy to make Newell Rubbermaid a larger, faster-growing, more global, more profitable company. We launched a new European SAP platform that gives us better clarity into costs. We deployed a new selling structure across our U.S. business with the creation of the Customer Development Organization. We partnered with IBM to launch a new indirect procurement initiative that delivered over $20 million of savings on the way to $50 million by the end of 2013.

We announced Phase 2 of Project Renewal, a major next step to drive the Growth Game Plan into action, with 5 new cost work streams, including organization simplification, EMEA transformation, best cost finance, best cost back office and new global supply chain. We announced a big swing to align our structure to our strategy, reorganizing the company around the Growth Game Plan, further simplifying our structure to 6 business segments and creating 2 focused organization pillars, development and delivery.

And lastly, we strengthened our executive leadership with key new appointments from both within and outside of the company. My new team is now in place, and they've hit the ground running. So we've delivered a year of sequential improvement despite a number of headwinds, and we've implemented a tremendous change agenda.

Within these results, we've had some notable achievements. Our U.S. business, which represents over 65% of our total revenue delivered solid growth despite serious headwinds on Décor. Core growth across all of our U. S. businesses was up 2.3%. Excluding the Décor business, core growth in the U.S. was up 4%, driven by greater than 5% growth on Baby, Commercial Products and Tools.

Our emerging market core sales growth was nearly 12% with core growth in Latin America of about 15%. Increased investment in sales force feet on the street helped fuel our Tools, Writing and Commercial Products businesses, resulting in nearly 20% growth in Mexico, 18% in Andean, 14% in Brazil and 12% in Southern Cone. The balance of our emerging markets grew over 9%.

Our Tools segment had another great year, delivering 7% core sales growth. 2012 represented Tools' fourth consecutive year of core sales growth greater than 5%, and almost half of the Tools growth was generated outside the United States.

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