Newell Rubbermaid Inc. (NWL)

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Newell Rubbermaid (NWL)

Q4 2010 Earnings Call

January 27, 2011 10:00 am ET

Executives

Mark Ketchum - Chief Executive Officer, President, Director and Interim Executive Group President of Office Products & Cleaning for Organization & Decor

Juan Figuereo - Chief Financial Officer and Executive Vice President

Nancy O'Donnell - Vice President of Investor Relations

Analysts

Dara Mohsenian - Morgan Stanley

Lauren Lieberman - Barclays Capital

William Chappell - SunTrust Robinson Humphrey Capital Markets

Andrew White

Joseph Altobello - Oppenheimer & Co. Inc.

Chad Bolen - Raymond James

Jason Gere - RBC Capital Markets, LLC

William Schmitz - Deutsche Bank AG

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid's Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] A live webcast is available at newellrubbermaid.com on the Investor Relations home page under Events and Presentations. a slide presentation is also available for download.

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

Nancy O'Donnell

Great, thank you. Welcome everyone to Newell Rubbermaid's fourth quarter call. I'm Nancy O'Donnell. With me today are Mark Ketchum, our President and CEO; and our Chief Financial Officer, Juan Figuereo.

During the call today we will refer to certain non-GAAP financial measures. Management believes providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the comparable GAAP numbers can be found in our earnings release and on the Investor Relations area of our website as well as in our filings with the SEC.

Please recognize that this conference call includes forward-looking statements. These statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from management's current expectations and plans. The company undertakes no obligation to update any such statements made today. To review our most recent 10-Q filing and our other SEC filings, you will find a more detailed explanation of the inherent limitations in such forward-looking statements.

With that, let me turn it over to Mark Ketchum for his comments. Mark?

Mark Ketchum

Thank you, Nancy. Good morning, everyone, and thank you for joining us today.

I'm pleased to report the conclusion of a successful year for Newell Rubbermaid, finishing out 2010 with very positive the fourth quarter results. I know some of you are concerned about whether we could continue our sales momentum against tougher Q4 comps. The answer is we could. For both the quarter and the full year, we delivered mid-single-digit core sales growth year-over-year gross margin improvement and strong, double-digit normalized EPS growth.

During the fourth quarter, our ongoing investments in innovation, brand building and marketing help drive a 4.9% core sales increase. We delivered a 10 basis point improvement in gross margin to 37.1% as we were able to offset inflation with improved product and portfolio mix and our continued focus on productivity.

The combination of higher sales and gross margins drove normalized EPS of $0.34 in Q4, a 26% increase over the prior year, all this in the face of tougher Q4 comps in an economy that is slow to rebound in our larger markets. I'm proud of this quarter's results, and Juan will provide more detail shortly.

But first, I'd like to take this opportunity to reflect on our full year accomplishments. As I look back in 2010, I think it's most notable that we achieved or exceeded all of our financial targets while continuing to advance our long-term growth strategies. By staying focused on the drivers that are in our control, we have created our own momentum to deliver the growth trifecta once again in 2010: top line sales growth, significant gross margin expansion and bottom line earnings improvement.

2010 core sales grew 4.7% driven by a strong roster of new product launches, distribution gains and by geographic expansion. I'm proud to report that this growth was broad-based with all three operating segments posting a year-over-year increase in core sales. And perhaps even more encouraging, core sales growth accelerated in the back half of the year in line with our expectations, going at a rate of 5.3% compared with 4.1% in the first half of the year. So we're entering 2011 with good momentum.

Not surprisingly, our strongest contributor in sales growth this year was our International business, which collectively grew almost 8% in local currency. In North America, sales grew 2.5%, with 3.6% core growth after factoring in currency and category exits.

A key objective in our long-term growth strategy is to expand a percentage of sales from outside of North America, with a particular emphasis on fast-growing emerging markets such as Brazil and China. We concluded 2010 with 31% of our sales outside of the U.S., a new high for us. We will continue to invest strategically in the coming years to build an even more meaningful presence across the globe.

We also delivered a solid improvement in gross margins this year, expanding 100 basis points to 37.7%, primarily the result of strong productivity and improved product and portfolio mix. Across all of our markets, we continue to invest in consumer-driven innovation and brand building to support long-term sales growth.

We took strategic brand building at the percentage of sales to 6.4% this year, making good progress towards our target of about 8%, while holding SG&A to approximately 25% of sales. Operating income margin improved to 12.5% from 12.1% last year, and normalized EPS rose 16% to $1.52. It was a very strong year.

One of the 2010 accomplishments of which I'm most proud is the significant progress we've made in our European operations. This region delivered solid core sales growth of 4.6% in local currency, and operating margins were 7%, the best in at least a decade and likely our best ever.

We are reaping the productivity benefits of key restructuring projects executed under Project Acceleration and are on track to achieve our goal of at least 10% operating margins in Europe by the end of 2012. Our 2010 performance is a significant first step on the path towards that goal.

The initial work that we have done in key areas, which is pricing architecture and organizational structure, is already starting to yield results. These efforts along with other profitability-enhancing initiatives will drive further improvements in operating margin in 2011 and again in 2012.

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