Newell Rubbermaid Inc. (NWL), the producer of Sharpie pens and Rubbermaid containers, logged a strong earnings growth of 20.0% in the first quarter of 2011 to 30 cents a share from 25 cents a share in the year-ago quarter. Earnings also outpaced the Zacks Consensus Estimate of 28 cents a share.
On a reported basis, including special items, earnings per share came in at 25 cents a share, up 31.6% year over year. The strong quarterly performance was mainly attributable to increased core sales in international businesses and improved productivity.
Buoyed by the first quarter 2011 results, the company also raised its quarterly dividend 60% to 8 cents a share.
Top-Line and Margin Details
During the quarter, Newell recorded a marginal decline of 0.3% year over year in net sales to $1,302.7 million, falling behind the Zacks Consensus Estimate of $1,329.0 million. Core sales of the company inched down 1.7% for the quarter.
Newell’s quarterly gross profit rose 4.1% year over year to $490.9 million, while gross margin expanded 160 bps to 37.7% mainly driven by productivity gains and favorable product mix that more than offset the negative impact of input cost inflation. Operating income decreased 3.0% year over year to $141.7 million, while operating margin contracted 30 basis points to 10.9%.
Management Reiterates Guidance
Newell continues to expect core sales to augment in the 4%–5% range in fiscal 2011. Better productivity, mix and pricing are expected to fully offset the impact of higher input cost inflation. Accordingly, gross margin expansion of 50–75 basis points is on the cards for fiscal 2011.
In addition, the company also stood by its expected guidance of 10% to 12% year-over-year increase in earnings per diluted share for 2011. The company expects its 2011 adjusted earnings to range between $1.67 and $1.70 per share.
Other Financial Details
Newell ended the year with cash and cash equivalents of $139.7 million and long-term debt of $1,796.3 million with shareholders equity of $2,035.2, excluding the non controlling interests of $3.5 million. Capital expenditure came in at $44.9 million for the quarter.
The company expects operating cash flow to go beyond $550.0 million in 2011 and plans to incur approximately $200.0 million in capital expenditures.
Company’s Strategic Initiative
During the reported quarter, the company accomplished the accelerated share repurchase program, concluding its strategy of optimizing its capital structure. The move is aimed toward abolishing potential dilution of shares and trimming down the interest expenditure resulting in fortifying the financials of the company.
Going with the strategy, the company acquired 27.9 million of the 40 million shares issued in convertible debt exchanges, which will result in interest savings and is expected to add $0.02 to earnings per share.
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 robust earnings, provided the market scenario changes for the better.
The company faces intense competition from numerous manufacturers and distributors of consumer and commercial products, such as Jarden Corp. (JAH), Fortune Brands Inc. (FO), Cooper Industries plc (CBE), and Avery Dennison Corporation (AVY).
Newell Rubbermaid currently has a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation.
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