Newell Rubbermaid Inc. (NWL), the producer of Sharpie pens and Rubbermaid containers, posted fourth-quarter 2014 adjusted earnings of 49 cents a share that came a penny ahead of the Zacks Consensus Estimate and rose 6.5% year over year.
The increase in the bottom line was due to higher core sales, increased gross margin, contribution from acquisitions and reduced share count, partly offset by increased tax rate, unfavorable foreign currency translations and heightened advertising and promotion costs.
On a reported basis, including one-time items, the company reported earnings of 19 cents per share, down over 53% from the prior-year quarter earnings of 41 cents per share.
This Zacks Rank #3 (Hold) stock’s net sales rose 4.1% to $1,526 million from the year-ago quarter and also surpassed the Zacks Consensus Estimate of $1,520 million. Core sales, excluding a negative impact of 320 basis points (bps) from foreign currency translation and 400 bps from acquisitions, climbed 3.3%, reflecting sales growth across Writing, Tools and Commercial Products segments.
Writing net sales remained flat with last year at $418.2 million, while core sales increased 5.7%; Tools segment net sales increased 3% to $227.3 million, whereas core sales grew 7.5%; and Commercial Products net sales jumped 5% to $213 million, while core sales grew 6.7%.
Meanwhile, sales for the Home Solutions segment rose 10.8% to $458.6 million due to contributions from recent acquisitions, while core sales fell 1.8%. Net sales for Baby & Parenting segment fell by a marginal 0.2% to $208.9 million but core sales grew 0.7%.
Newell’s gross profit increased 6% year over year to $574.1 million whereas gross margin expanded 60 bps to 37.6%. Adjusted gross margin increased 70 bps to 37.7% owing to improved productivity, pricing and favorable segment mix, offset by input cost inflation and negative foreign currency translations.
Adjusted operating income rose 14% year over year to $204.6 million while operating margin expanded 120 bps to 13.4%, despite a 60 bps increase in advertising and promotion expenses.
Full-Year Synopsis
For 2014, the company’s adjusted earnings came in at $2.00 per share, up 9.9% from 2013 and in line with the Zacks Consensus Estimate. Revenues for the year increased 2.1% to $5,727 million, while core sales grew 3%. The company’s top line fell slightly short of the Zacks Consensus Estimate of $5,729 million.
Other Financial Details
Newell ended the year with cash and cash equivalents of $199.4 million, long-term debt of $2,084.5 million, and shareholders’ equity of $1,854.9 million.
As of Dec 31, 2014, the company generated operating cash flow of $634.1 million, incurred capital expenditures of $161.9 million and paid dividend of $182.5 million. During the fourth quarter, the company expanded its existing share buyback program, authorizing repurchase of additional $500 million worth of shares through the end of 2017.
Other Developments
The company successfully completed the acquisition of Ignite Holdings LLC and also announced the acquisition of bubba brands inc. in October.
Further, the company announced the next phase of its Project Renewal Program, primarily focused on saving costs in the areas of procurement, manufacturing and distribution, and through further overhead reduction. As part of the extended program, the company expects to save an additional $200 million annually by reducing the complexity of its business and simplifying the process of procuring products.
The extended program is expected to generate annualized cost savings of nearly $470 to $525 million by the end of 2017. The company intends to use the savings from the program to strengthen capabilities and its brand position in the fast growing emerging markets of Latin America and Asia.
On the other hand, the company anticipates cumulative costs of $540 to $575 million pretax from the extended program, including cash costs of $510 to $540 million.
Further, the company remains on track to achieve annual cost savings of nearly $270 to $325 million from the first two phases of the Project Renewal program by mid-2015.
Outlook
Following the year-end results, the company revised its outlook for 2015 based on expectations of core sales improvement and the negative impact of foreign currency translations. Newell now expects full-year adjusted earnings in the range of $2.10–$2.18 per share, excluding expenses worth $80–$120 million related to Project Renewal restructuring and other restructuring activities as well as other project costs. Further, the company expects a negative impact of 31–33 cents on earnings per share from foreign currency translation.
Further, Newell projects core sales growth of 3.5%–4.5%. Net sales growth is expected to be 3%–4%, including about 4%–5% currency impact and nearly 3.5%–4.5% acquisition-related impacts.
Other Stocks to Consider
A better-ranked stock in the same industry is WD-40 Company (WDFC), carrying Zacks Rank #2 (Buy). Other stocks in the broader retail space that are worth considering include Bebe Stores Inc. (BEBE) and Zumiez Inc. (ZUMZ), both sporting a Zacks Rank #1 (Strong Buy).
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