We are maintaining our long-term ‘Neutral’ recommendation on Newell Rubbermaid Inc. (NWL) with a target price of $13.00 per share.
Moreover, the company holds a Zacks #3 Rank, implying a short-term 'Hold' rating.
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 well established brands, such as Sharpie, Paper Mate, Dymo, Expo, Waterman, Parker, Irwin, Lenox, Rubbermaid, Levolor, Graco, Calphalon and Goody. As a result, Newell Rubbermaid can expect a reversal of fortunes once the market fully recovers.
Moreover, the company has completed its multi-year global restructuring program 'Project Accelerate' during the fiscal year 2010, which was aimed at improving productivity, reducing overheads, streamlining distribution and transportation processes, and exiting low-margin product categories. The program is aimed at realizing annualized savings in excess of $200 million. Consequently, Newell Rubbermaid can expect a steady improvement in its bottom-line in the future.
Furthermore, Newell's 'European Transformation Plan', which is expected to be completed in 2012, aims to revamp its European organizational structure and processes in order to integrate certain operating activities, leverage the benefits of scale and contribute for an effective implementation of enterprise resource planning program in the region. The company expects to realize annual savings of $50 to $60 million from the plan.
In addition, Newell is actively managing its capital. During the second quarter of fiscal 2011, the company generated an operating cash flow of $92.8 million and incurred capital expenditures of $51.2 million, resulting in free cash flow of $41.6 million. This offers Newell financial flexibility to drive future growth. 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.
However, the company is heavily dependent on a handful of customers, including large discounters, department stores, home centers, warehouse clubs and office superstores. The company's principal customers continuously evaluate which product supplier to be used. This considerably reduces Newell Rubbermaid's pricing power against these giant retailers, thereby exerting pressure on margins and limiting profitability.
Moreover, the company's results may be adversely affected due to Newell's substantial exposure to international markets. Newell may have to either raise prices or contract profit margins in locations outside the U.S. if the foreign currencies weaken against the U.S. dollar. A rise in the company's product price to offset increasing input cost may have a direct impact on its product demand.
Above all, Newell Rubbermaid faces intense competition from numerous manufacturers and distributors of consumer and commercial products, such as Jarden Corp. (JAH) and Fortune Brands Inc. (FO). In such a competitive environment, the company has to focus on pricing, big consumer brands, introduction of new products, and customer service to retain its market share in the industry.
FORTUNE BRANDS (FO): Free Stock Analysis Report
JARDEN CORP (JAH): Free Stock Analysis Report
NEWELL RUBBERMD (NWL): Free Stock Analysis Report
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