Newell Rubbermaid Inc. (NWL)

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Newell Rubbermaid (NWL)

Q1 2011 Earnings Call

April 29, 2011 9:00 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

Constance Maneaty - BMO Capital Markets U.S.

Mark Rupe - Longbow Research LLC

John Faucher - JP Morgan Chase & Co

Joseph Altobello - Oppenheimer & Co. Inc.

William Chappell - SunTrust Robinson Humphrey, Inc.

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets, LLC

Wendy Nicholson - Citigroup Inc

Linda Weiser - Caris & Company

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid's First Quarter 2011 Earnings Conference Call. [Operator Instructions] Just a reminder, today's conference is being recorded. 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 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 first quarter conference call. I'm Nancy O'Donnell. And with me today are Mark Ketchum, our President and CEO; and our Chief Financial Officer, Juan Figuereo. During the call today we will be referring to certain non-GAAP financial measures. Management believes providing insights on these measures enables investors to better understand and analyze our ongoing results of operation. 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.

Also, 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. If you review our most recent 10-K filing and our other SEC filings, you will find a more detailed explanation of the inherent limitations in such forward-looking statements.

We thank you for that. And at this point, I'll turn it over to Mark Ketchum.

Mark Ketchum

Thank you, Nancy. Good morning, everyone, and thank you for joining us today. Our Q1 results represent another solid quarter with the highlights being 20% year-over-year EPS growth and strong gross margin expansion. Our top line results a core sales decline of 1.7% was disappointing. But that number is not representative of our business trends and has not given us any reason to change our full year guidance of 4% to 5% sales growth.

You will recall from our last earnings call some timing events that affect our Q1 comparisons. Juan will remind you of the details later. After adjusting for these, our Q1 core sales growth would've been plus 1.5%, that's still slightly below our internal expectations but it represents a mixture of very good top line performance across most of our portfolio, especially in our developing regions, netted against a small number of GBUs in which we had a lower start to the year. I'll provide more detail in a moment.

As I said before, full year results provide the best gauge of our ongoing progress and we remain confident in our ability to deliver on the financial targets we laid out for you earlier this year. 4% to 5% core sales growth, 50 to 75 basis points of gross margin expansion and 10% to 12% normalized EPS growth for the full year. The specific reasons for our confidence should become clearer during our presentation. We are also announcing today that we plan to increase our dividend by 60%, from $0.05 to $0.08 per quarter. This action reflects our improved capital structure, continued optimism with respect to our growth prospects and healthy ability to generate strong cash flows; all in all, a relatively good start to 2011.

Now let's turn to some details. Sales performance across most of the portfolio is positive, with the majority of our 13 business units posting year-over-year core sales growth. However, a couple of our businesses are off to what looks like a slow start, and I want to start this morning by explaining why these businesses have lagged the pack and why we are not alarmed. There will be 2 key takeaways that I would like you to remember. First, we are confident we will return to revenue growth as the year progresses in these slow-start GBUs. Second, the strength of the other business units, combined with this rebound, is the basis for maintaining full year guidance of 4% to 5% sales growth. In fact, this demonstrates the value of our diverse portfolio.

The most challenging of our businesses is Baby & Parenting. The trends that we have referenced in the past several quarters, declining North American birthrates and financially strapped consumers trading down to lower price points have turned out to be more persistent and more problematic than previously thought. In response, we're executing the more comprehensive set of plans to counteract the trend going forward. We believe these aggressive plans will deliver a return to core sales growth in the back half of the year.

First, we're working with our retail partners to introduce a line of products geared towards more value-conscious consumers. This line of 5 key items will be sub-branded Century by Graco and will be available in stores starting in late Q2 of this year. Second, we continue to respond to real unmet consumer needs, like ease of operation and ease-of-use, age-appropriate customization and side impact safety.

We are rolling out the Graco signature series in Q2, which includes the Graco Smart Seat, the newest addition to our successful Grow With Me platform. The Smart Seat is designed to accommodate from newborns all the way up to children weighing 100 pounds. Smart Seat includes a versatile new stay-in-the-car base. The parents only have to install the base one time even as the seating configurations change.

The signature series also includes the Graco Love Buggy Stroller [ph], which features a parent-friendly design that allows multiple seating variations to enhance the parent-child connection. Third, we have customer support for a significant increase in promotional activity in the back half of the year, which should positively impact sales. Importantly, the promotional activity is tied into our new product launch calendar. Fourth, we have strengthened product and promotional plans in all of our international regions in support of Teutonia in EMEA, Aprica in Japan and the Graco launch in Brazil.

And lastly, we are aggressively going after competitors that we believe are infringing on our patents. This has been especially egregious to some of the private label suppliers who target the trade down on consumer. We have recently filed lawsuits against these competitors and we'll continue to fight vigorously to protect our intellectual property rights, although success through the courts seldom comes quickly.

Our Rubbermaid Consumer business also got off to a slow start due to a year-over-year reduction in promotional activities and copied against last year's fourth quarter pre-buys. This business is also going through their own portfolio transformation, learning to grow in new categories and new geographies. We have exited or downsized our presence in the commoditized segments of refuse containers and basic store containers and are now focused on re-handling, cleaning, garage and closet organization, and some specialized storage solutions for our future growth.

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