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Shares of Newell Rubbermaid Inc. (NWL - Analyst Report) reached a new 52-week high of $19.78 on Friday, October 12, 2012, beating its previous 52-week high of $19.74. The closing price of the producer of Sharpie pens and Rubbermaid containers as on October 12, 2012 was $19.75, which represented a solid year-to-date return of 54.2%. Average volume of shares traded over the last 3 months stands at approximately 2.839 million.
An impressive record of beating the quarterly earnings expectations, margin improvement, a positive fiscal 2012 outlook, and a decent dividend yield, are the major growth drivers for the shares of this company.
With respect to earnings surprise, Newell has topped the Zacks Consensus Estimates in the last four quarters, with an average of 5.8%.
Lately, the company reported adjusted earnings of 47 cents per share for the second quarter of fiscal 2012, up 4.4% from the year-ago quarter’s earnings of 45 cents. The earnings growth was driven by the positive impact of pricing and productivity gains and lower structural selling, general and administrative expenses as a percentage of sales, partially offset by higher input cost inflation. Moreover, quarterly earnings beat the Zacks Consensus Estimate of 45 cents.
Newell’s quarterly gross profit fell 0.5% year over year to $581.2 million; however, gross margin expanded 51 basis points to 38.3%, primarily due to higher pricing and productivity. Operating income increased marginally by 0.6% year over year to $207.1 million, while operating margin expanded 41 bps to 13.7%, primarily due to gross margin expansion and lower structural selling, general and administrative expenses.
Further, despite ongoing sluggishness in the global economy, the company has reiterated its outlook for fiscal 2012. It continues to anticipate core sales growth of 2% to 3% and adjusted earnings in the range of $1.63 to $1.69 per share for fiscal 2012. Moreover, Newell expects an improvement of 20 basis points in operating margin during fiscal 2012.
Newell rewards its shareholders through regular quarterly dividends and share repurchases. In September 2012, the company paid a quarterly dividend of 10 cents per share. This yields a solid 2.0%, while the company has a payout ratio of 110%. In the second quarter, the company bought back nearly 1.4 million shares, valued at approximately $24.9 million under its $300.0 million share repurchase program.
Furthermore, we believe that the company’s cost management initiatives will further boost its bottom line. It is expected that Newell will be saving $55–$65 million in fiscal 2012 with the completion of the European Transformation Plan. In addition, the company’s Project Renewal program will reduce its structural selling, general and administrative expenses by around $90–$100 million.
Newell currently trades at a forward P/E of 11.80x, compared with the peer group average of 11.76x. Again, its price-to-book ratio of 2.91 is at a premium to the peer group average of 2.55. Moreover, the company’s price-to-sales ratio of0.97 is at a discount to the peer group average of 0.99. Given the company’s compelling fundamentals and earnings surprise history in the last four quarters, we believe the chances for its EPS growth will be higher than the long-term expected growth of 9.0%.
At the same time, it is more efficient with its assets than its peers, which is a positive factor that will help this growth. It has a 12-month ROA of 7.7%, which is above its peer group average of 6.9%.
About the Company
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 Cooper Industries plc and Avery Dennison Corporation (AVY - Analyst Report).
Zacks Rank & Recommendation
Newell Rubbermaid currently has a Zacks #2 Rank, implying a short-term Buy rating. However, we remain slightly cautious on the stock and uphold our long-term Neutral recommendation, waiting to see further catalysts before becoming more positive on the stock.