Newell Rubbermaid, Inc. (NWL)
Q1 2010 Earnings Call
April 30, 2010 10:00 am ET
Nancy O’Donnell – Vice President of Investor Relations
Mark D. Ketchum – President, Chief Executive Officer & Director
Juan R. Figuereo – Chief Financial Officer & Executive Vice President
Chris Ferrara – Bank of America Merrill Lynch
John Faucher – JP Morgan
Michael Kelter – Goldman Sachs
Wendy Nicholson – Citi Investment Research
Connie Maneaty – BMO Capital
William Schmitz – Deutsche Bank
Lauren Lieberman – Barclays Capital
Joseph Altobello – Oppenheimer & Co.
Budd Bugatch – Raymond James & Associates
Mark Rupe – Longbow Research
Jason Gere – RBC Capital Markets
William Chappell – SunTrust Robinson Humphrey
Previous Statements by NWL
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A slide presentation is also available for download. A digital replay will be available two hours following the call at 888-203-1112 or 719-457-0820 for international callers. Please provide the conference code 2949893 to access the replay. I will now turn the call over to Nancy O’Donnell, Vice President of Investor Relations.
Thank you for joining us to discuss Newell Rubbermaid’s 2010 first quarter results. With me today are Mr. Mark Ketchum, President and Chief Executive of the company and Juan Figuereo, Chief Financial Officer. Please note that during today’s call we will make reference to financial measures that are not GAAP measures. Reconciliation of these non-GAAP financial measures to GAAP financial results are included in today’s press release and are available on the investor’s section of the Newell Rubbermaid website.
I also want to remind you that our discussion today including the Q&A session will include forward-looking statements. Actual results may differ materially from expected results because of various risks and uncertainties, some of which are outside our control. These risks and uncertainties are described in our quarterly release and in our annual filings with the SEC. We further caution you that the company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today.
With that, I’ll turn the call over to Mark.
Mark D. Ketchum
I am very pleased to share Newell Rubbermaid’s strong first quarter results with you. For the first time since the economic turmoil of 2008 began, the company once again delivered the growth trifecta, simultaneous sales growth, gross margin expansion and EPS growth. I must say, it feels good to be heading in that positive direction once again and I’m very excited about the prospects of our business going forward.
First quarter net sales growth came in at 8.5% and gross margin improved 100 basis points to 36.1%. Our operating margin improved to 11.2% of net sales. The combination of top line growth and higher gross margins helped drive normalized EPS of $0.25, a 25% increase over last year’s first quarter. Our company grew core sales over 7% in the first quarter after excluding the impact of foreign currency and the overhang affect of last year’s product line exits.
Tools, hardware and commercial products in the office product segments led the way with double digit sales growth. These are strong results. Although a portion of this sales increase represents pull forward of Q2 sales as some customers bought extra stock in advance of the April launch of our SAP conversion in our Rubbermaid commercial and Rubbermaid consumer businesses. We estimate between two and three percentage points of our total sales growth was due to SAP pre-buy.
Some of you have probably already noted that the sales trends in our operating segments this quarter were the inverse of last year’s declines with our tools, hardware and commercial products leading the pack followed by office products and then home and family. We believe there are two broad factors at play here, geographic trends that are specific to a few business units and customer dynamics.
Some of our markets outside of North America have come out of the recession earlier. This was particularly true in Latin America and some of our other emerging markets where we registered strong double digit sales increases. For example in Brazil tools, hardware and commercial sales grew over 40% for the quarter while the Parker brand globally grew over 20% driven by China and Russia.
The customer dynamic I referenced applies mostly to North America and other developed markets. Customers that cut their inventory the most over the past 18 months are now starting to restock in anticipation of increased consumer demand across the balance of the year. As a result, we believe another two to three points of our Q1 sales growth was the result of customer inventory restocking. Looking to the balance of the year, we’re not anticipating similar levels of restocking activity in subsequent quarters.
So, striking out the onetime impacts of SAP pre-buying and customer restocking, about two to three points of our core growth reflects increased consumer demand which is a little better than we had expected this early in the year. So, we are quiet encouraged by these results. This represents a critical inflection point in many of our categories from sales decline to sales growth and reinforces our belief that the trend will spread across our portfolio over the next quarter or two.
Confidence in our outlook for revenue growth this year is increasing. We’re convinced that the positive core sales trends are reflective of increasing consumer demand supported by our continued investments in new product innovations, branding and marketing. Across the portfolio we are winning with both customers and consumers. We are gaining new distribution, expanding shelf space and taking market share which will help drive sales growth in the balance of the year and beyond.