Newell Rubbermaid Inc. NWL, the producer of Sharpie pens and Rubbermaid containers, reported first-quarter 2015 adjusted earnings of 36 cents a share that came ahead of the Zacks Consensus Estimate of 34 cents and rose 5.9% year over year.
The increase in the bottom line resulted from higher core sales, increased gross margin, contribution from acquisitions and reduced share count. It was, however, partly offset by increased tax rate, 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 reported earnings of 20 cents per share, up 5.3% from the prior-year quarter figure of 19 cents.
Net sales rose 4.1% to $1,264 million from the year-ago quarter but fell slightly short of the Zacks Consensus Estimate of $1,269 million. Core sales, excluding a negative impact of 550 basis points (bps) from foreign currency translation and 490 bps from acquisitions, climbed 4.7%, reflecting core sales growth across all segments.
Writing net sales fell 1.8% from the last year to $341.8 million, while core sales increased 9%; Tools segment net sales declined 3.9% to $180.4 million, whereas core sales grew 3.2%; and Commercial Products net sales jumped 1.4% to $185.2 million, while core sales grew 9%.
Meanwhile, sales for the Home Solutions segment rose 15.2% to $364.5 million and core sales for the segment was up 9%. Net sales for Baby & Parenting segment jumped 7.1% to $192.1 million but core sales grew 0.8%.
Newell’s gross profit increased 6.7% year over year to $487.5 million whereas gross margin expanded 100 bps to 38.6%. Adjusted gross margin increased 50 bps to 38.8% backed by improved productivity, pricing and commodity deflation, offset by unfavorable mix of acquisitions and negative foreign currency translations.
Adjusted operating income rose 12.7% year over year to $152.6 million, while operating margin expanded 90 bps to 12.1%, despite a 50 bps increase in advertising and promotion expenses.
Other Financial Details
Newell ended the year with cash and cash equivalents of $215.4 million, long-term debt of $2,094.1 million and shareholders’ equity of $1,699 million.
In the first quarter, the company used $154.3 million of cash flows in operating activities, incurred capital expenditures of $50.9 million and paid dividend of $53.2 million. During the quarter, the company bought back 1.9 million shares for about $73.6 million.
Other Developments
Newell Rubbermaid announced the latest in its Project Renewal Program by committing to save an additional $150 million annually by 2017 through further overhead reduction. The company intends to use a major portion of these savings to accelerate growth by investing back into the business, while the remaining cost savings are expected to be reflected in earnings.
Further, the company revealed its decision to divest its Rubbermaid medical cart business to move ahead with its plan to build a faster growing, higher margin and more focused portfolio that will boost its performance.
Outlook
The company reiterated its outlook for 2015 based on expectations of core sales improvement and the negative impact of foreign currency translations. Newell expects full-year adjusted earnings in the range of $2.10–$2.18 per share. However, it now expects earnings per share to exclude expenses worth $100–$140 million related to Project Renewal restructuring and other project costs, discontinued operations and expenses related with the Graco recall.
Further, the company now expects a negative impact of 35–37 cents on earnings per share from foreign currency translation, a 4-cent increase from the previous guidance as the U.S. dollar continues to gain strength compared with other currencies.
Further, Newell projects core sales growth of 3.5%–4.5%. Net sales growth is expected within 3%–4%, including about 4.5–5.5% currency impact and nearly 4%–5% acquisition-related impacts.
Additionally, after the aforementioned extension of the Project Renewal Program, the company anticipates cumulative costs of $690 to $725 million pretax, including cash costs of $645 to $675 million. Annualized cost savings from the program is expected to be about $620 to $675 million by 2017-end.
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.
Stocks to Consider
Newell currently has a Zacks Rank #4 (Sell). A better-ranked stock in the same industry is Kimberly-Clark Corp. KMB carrying Zacks Rank #2 (Buy). A couple of stocks in the broader retail space that are worth considering include Citi Trends Inc. CTRN and American Eagle Outfitters Inc. AEO, both sporting a Zacks Rank #1 (Strong Buy).
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