FO Fortune Brands

Newell Rubbermaid Inc. (NWL), the producer of Sharpie pens and Rubbermaid containers, logged an increase in adjusted earnings of 7.1% in the third quarter of 2011 to 45 cents a share from 42 cents a share in the year-ago quarter.

Earnings growth driven by positive impact from increased sales volume coupled with lower interest expenses and structural selling, general and administrative expenses were partially offset by higher input cost inflation and higher strategic selling, general & administrative (SG&A) expenses. Quarterly earnings also outpaced the Zacks Consensus Estimate of 43 cents a share.

On a reported basis, including special items, the company reported net loss of 61 cents per share compared with earnings of 9 cents in the year-ago quarter.

Top-Line and Margin Details

During the quarter, Newell recorded a growth of 5.8% year over year in net sales to $1,549.9 million. Core sales of the company contributed 3.3% while favorable foreign currency translation contributed 2.5% to net sales growth. However, net sales missed the Zacks Consensus Estimate of $1,561.0 million.

Newell’s quarterly gross profit rose 2.8% year over year to $579.3 million, while gross margin contracted 100 bps to 38.4% due to the negative impact of input cost inflation that more than offset the gains from higher pricing and productivity. Operating income increased 7.1% year over year to $211.8 million, and operating margin expanded 20 basis points to 13.7%, primarily due to lower structural selling, general and administrative expenses.

Other Financial Details

Newell ended the year with cash and cash equivalents of $138.9 million and long-term debt of $1,811.3 million. Shareholders’ equity was $1,895.3 million excluding non controlling interests of $3.5 million. Capital expenditure came in at $151.2 million for the quarter.

Operating cash flow came in at $279.8 million for the third quarter. 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. Free cash flow for the quarter was $240.2 million.

Guidance

Newell has reiterated its fiscal 2011 earnings and sales guidance. Based on core sales growth in the range of 1% - 3%, Newell expects to achieve a growth of 3% - 5% in net sales.

The company now expects gross margin to expand in the range of flat to 30 basis points in fiscal 2011, instead of 40 - 60 basis points expected previously. Higher input cost and price sensitive consumer environment are the reasons behind this cut.

However, the company has reaffirmed its earnings guidance range of $1.55 to $1.62 per share for fiscal 2011.

Newell has reported to start a Project Renewal initiative from the beginning of fiscal 2012 at an estimated cost of $90 - $100 million. The initiative will be funded by savings through reducing structural selling, general and administrative expenses. Project Renewal initiative will help the company in reducing the complexity of the organization and increasing investments in most important growth areas within the business.

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 modest earnings going ahead, provided the market scenario improves.

The company faces intense competition from numerous manufacturers and distributors of consumer and commercial products, such as Fortune Brands Inc. (FO), Cooper Industries plc (CBE), and Avery Dennison Corporation (AVY).

Newell Rubbermaid currently has a Zacks #4 Rank, implying a short-term Sell rating on the stock. Besides, the company retains a long-term Neutral recommendation.

 
AVERY DENNISON (AVY): Free Stock Analysis Report
 
COOPER INDS PLC (CBE): Free Stock Analysis Report
 
NEWELL RUBBERMD (NWL): Free Stock Analysis Report
 
Zacks Investment Research