Newell Rubbermaid Inc. NWL reported spectacular second-quarter 2015 results, wherein both the top and bottom lines improved year over year and exceeded expectations.
The company’s quarterly adjusted earnings of 64 cents a share beat the Zacks Consensus Estimate of 62 cents and rose 8.5% year over year.
The year-over-year improvement in the bottom line resulted from higher core sales, increased gross margin, and contribution from acquisitions, reduced taxes and lower share count. This was, however, partly offset by unfavorable foreign currency translations, heightened advertising and promotion costs, and elevated interest expenses associated with borrowings to support last year’s acquisitions.
On a reported basis, including one-time items, the company recorded earnings of 55 cents per share, up 1.9% from the prior-year quarter figure of 54 cents.
Net sales advanced 3.9% to $1,560.9 million in the quarter, cruising ahead of the Zacks Consensus Estimate of $1,536 million. Core sales, excluding a negative impact of 600 basis points (bps) from foreign currency translation and 480 bps from acquisitions and planned divestitures, climbed 5.1%, reflecting core sales growth across all segments.
Segmental Performance
Writing net sales improved 1.3% from last year to $495.9 million, while core sales increased 10.8%; the Tools segment’s net sales declined 7.7% to $205.2 million, whereas core sales grew 1.3%; Commercial Products’ net sales decreased 5.8% to $210.6 million, while core sales rose 1.6%. Meanwhile, sales for the Home Solutions segment escalated 14.4% to $438.5 million and core sales were up 1.2%. Net sales for the Baby & Parenting segment jumped 14.7% to $210.7 million, while core sales grew 6%.
Margins
Newell’s normalized gross margin expanded 10 bps to 40.0%, backed by improved productivity and pricing, partially offset by unfavorable mix of acquisitions and negative foreign currency translations.
Normalized operating income increased roughly 4% as gains from Project Renewal and other cost-containment efforts outdid the hike in advertising and promotion expenses, and currency headwinds. Normalized operating income margin remained flat year over year at 16%, in spite of a 150 bps increase in advertising and promotion expenses.
Other Financial Details
Newell ended the quarter with cash and cash equivalents of $238.7 million, long-term debt of $2,080.9 million, and shareholders’ equity of $1,783.1 million.
In the second quarter, the company used $102.5 million of cash flows in operating activities and bought back 1.3 million shares for about $50.4 million.
Outlook
Following the splendid quarter, management remains confident of delivering positive results in the second half of 2015 as well, on the back of its solid growth momentum, expected gains from the Project Renewal program, persistent cost savings and anticipation of better brand performance.
Taking cue from these factors, this Zacks Rank #2 (Buy) company raised its outlook for 2015, based on expectations of core sales improvement and on including the continued negative impact of foreign currency translations.
Newell now expects full-year adjusted earnings in the range of $2.14–$2.20 per share, compared with $2.10–$2.18 predicted earlier. However, it expects earnings per share to exclude expenses of $140–$160 million related to Project Renewal restructuring and other project costs, discontinued operations, costs associated with acquisitions and integrations, currency losses and expenses related to the Graco recall.
Further, the company now anticipates a negative impact of 36–39 cents on earnings per share from foreign currency translations, compared with 35–37 cents projected earlier, as the U.S. dollar continues to gain strength compared with other currencies.
Also, Newell now anticipates core sales growth of 4%–5% in 2015, up from 3.5%–4.5% estimated earlier. Net sales growth is expected in the band of 3%–4%, including about 5%–6% currency impact and nearly 4%–5% acquisition-related impact.
Additionally, after the extension of the Project Renewal Program, the company continues to anticipate cumulative costs of $690–$725 million pretax, including cash costs of $645–$675 million. Annualized cost savings from the program are expected to be about $620–$675 million by 2017 end.
Other Stocks to Consider
Another well-ranked stock in the same industry is Kimberly-Clark Corp. KMB, with a Zacks Rank #2. Other stocks in the broader consumer staples space worth considering include The Clorox Company CLX and Dean Foods Company DF, both carrying a Zacks Rank #2.
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