Newell Rubbermaid Beats but Tempers

Newell Rubbermaid Inc. (NWL - Analyst Report), the producer of Sharpie pens and Rubbermaid containers, logged a fall of 9.8% in the second quarter of 2011 to report 46 cents a share from 51 cents a share in the year-ago quarter.

Input cost inflation coupled with higher selling, general & administrative (SG&A) expenses offset the positive impact from increased sales volume, favorable pricing and lower interest expense, leading to the earnings fall. Earnings nevertheless outpaced the Zacks Consensus Estimate of 42 cents a share.

On a reported basis, including special items, earnings per share came in at 49 cents a share, up 19.5% year over year.

Top-Line and Margin Details

During the quarter, Newell recorded a growth of 5.1% year over year in net sales to $1,572.8 million, ahead of the Zacks Consensus Estimate of $1,548.0 million. Core sales of the company inched up 1.9% for the quarter.

Newell’s quarterly gross profit rose 0.4% year over year to $589.9 million, while gross margin contracted 175 bps to 37.5% due to the negative impact of input cost inflation and higher overhead expenses that more than offset the gains from higher pricing. Operating income decreased 8.1% year over year to $207.9 million, and operating margin contracted 190 basis points to 13.2%.

Guidance Reviewed

Newell expects core sales to augment in the 1%–3% range for fiscal 2011 and in a 3%–5% band for the second half of fiscal 2011. Earlier, the company had expected core sales to grow in the range of 3% to 4% for fiscal 2011.

Better productivity, mix and pricing are expected to fully offset the impact of higher input cost inflation. Accordingly, gross margin expansion of 40–60 basis points is on the cards for fiscal 2011.

In addition, the company expects earnings per share of $1.55 to $1.62 for fiscal 2011, down from the previous expectation of $1.60 to $1.67 per share.

Other Financial Details

Newell ended the year with cash and cash equivalents of $143.6 million and long-term debt of $1,805.5 million. Shareholders’ equity was $2,181.2 million excluding non controlling interests of $3.5 million. Capital expenditure came in at $96.1 million for the quarter.

Operating cash flow came in at $92.8 million for the second quarter. The company expects operating cash flow to be between $520 million and $560 million in 2011 and plans to incur approximately $200.0 million in capital expenditures. Free cash flow for the quarter was $41.6 million.

Newell Rubbermaid is one of the leading manufacturers of home and office products in the U.S. The company also possesses a strong portfolio of widely popular brands, such as Sharpie, Paper Mate, Dymo, Expo, Waterman, Parker, Irwin, Lenox, Rubbermaid, Levolor, Graco, Calphalon and Goody. Leveraging its strong brand equity, Newell Rubbermaid expects modest earnings going ahead, provided the market scenario improves.

The company faces intense competition from numerous manufacturers and distributors of consumer and commercial products, such as Jarden Corp. (JAH - Snapshot Report), Fortune Brands Inc. (FO), Cooper Industries plc (CBE - Analyst Report), and Avery Dennison Corporation (AVY - Analyst Report).

Newell Rubbermaid currently has a Zacks #5 Rank, implying a short-term 'Strong Sell' rating on the stock. Besides, the company retains a long-term 'Neutral' recommendation.

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