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Newell Rubbermaid (NWL)

Q2 2012 Earnings Call

July 27, 2012 8:30 am ET


Nancy O'Donnell - Vice President of Investor Relations

Michael B. Polk - Chief Executive Officer, President and Director

Juan R. Figuereo - Chief Financial Officer and Executive Vice President


William Schmitz - Deutsche Bank AG, Research Division

John A. Faucher - JP Morgan Chase & Co, Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Jason Gere - RBC Capital Markets, LLC, Research Division



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Good morning, and welcome to Newell Rubbermaid's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. A live webcast of this call is available at, on the Investor Relations home page, under Events and Presentations. A slide presentation is also available for download. I will now turn the call over to Nancy O'Donnell, Vice President of Investor Relations. Ms. O'Donnell, you may begin.

Nancy O'Donnell

Thank you, and good morning. Welcome to the Newell Rubbermaid Second Quarter Earnings Call. With me today is Mike Polk, President and Chief Executive Officer; and Juan Figuereo, Chief Financial Officer.

Let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release.

Also, our press release in this call contains non-GAAP financial measures that include, but are not limited to, normalized operating income, operating margin and normalized earnings per share.

We believe that these measures are important indicators of our operations, and they're provided to facilitate meaningful year-over-year comparisons.

A reconciliation of those measures to the most directly comparable GAAP measures is included in the Investor Relations area of our website, as well as in our filings with the SEC.

With that, let me turn it over to Mike.

Michael B. Polk

Thank you, Nancy. Good morning, everyone, and thanks for joining our call. This morning, we reported a solid set of Q2 results with good underlying growth trends across most of our portfolio, a 40-basis-point increase in normalized operating margin, driven by a 50-basis-point gross margin increase, and 11% increase in operating cash flow and $0.47 normalized EPS, $0.02 ahead of consensus and 4.4% ahead of year ago.

Through the first 6 months, core sales increased 2.5%, right in the middle of our 2% to 3% full year guidance range. Normalized operating margins expanded 20 basis points, which is at the high end of our full year guidance range of up to 20 basis points.

Normalized EPS was $0.80, up 8.1% versus prior year and above the high end of our full year guidance range of 3% to 6%. And operating cash flow increased over $70 million versus prior year and is on track to deliver in our full year guidance range of $550 million to $600 million. So a pretty good set of numbers at the halfway point in the year.

Importantly, at the same time that we're driving delivery, we're driving change. During the first half of 2012, we deployed a new simplified group in GBU structure, launched our new customer development organization, executed the European SAP EPC transition, closed the significant Rubbermaid Consumer factory, initiated a new indirect procurement partnership with IBM and gained traction around on our working capital reduction program.

I'm proud of the team's effort. We're driving the business towards more consistent performance, and we delivered in a very tough environment.

Perhaps as importantly, they believe in our new vision and strategy and are resolved to strengthen our company and accelerate performance as we move into 2013 and beyond.

There's still much to do, but we're on track to where I hope we would be 1 year into my time at Newell Rubbermaid.

As you know from our press release, we've reaffirmed our full year guidance. Before exploring the factors that could influence full year delivery, let me walk through the highlight reel for Q2 in the first half.

As you know, Q2 was a complicated quarter as a result of SAP implementation in EMEA. There were no big surprises in the SAP transition, and in fact, I was very pleased with the execution of the program.

To protect shipments through the Q2 startup window, we pulled about $28 million in net sales from Q2 into Q1. This pre-buy in Q1 and then the deliberate startup of our order management systems in Q2 limited our merchandising activity in the quarter, resulting in less sales than would otherwise have been delivered in a normal quarter.

Adjusting for the impact of the SAP pre-buy, but reflecting the absence of the merchandising in EMEA, Q2 core sales were up 2.3%.

In Q2, our Professional segment had another very good quarter with core sales growth of 4.6% excluding the impact of the SAP shift.

For the first half, core sales in the Professional segment rose 5.3%, with all 4 global business units contributing to the increase.

The 5.3% core growth in professional was achieved against a full year core growth rate in 2011 of nearly 6%, so strong momentum and good growth on growth as we invest project renewal savings into the professional segment selling systems in the fast-growing emerging markets.

Our Consumer segment has had a tougher start to the year. In Q2, core sales excluding the SAP timing shift were nearly flat, declined 3/10 of a percent. This is an improvement versus Q1.

Despite good results in our writing and creative expression GBU, we continued to have challenges in our Décor business and an increasingly difficult macroenvironment impacted our European Fine Writing brands.

While our Décor operational issues are largely resolved as we exit Q2, the recovery has been tempered by a change in corporate strategy at our third largest customer in this category, JCPenney.

JCP's new everyday low priced approach has adversely impacted our highly merchandising sensitive Décor business, and we now expect this impact to persist until our partner's new strategic vision is fully implemented in our categories.

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