Newell Rubbermaid (NWL)

Q2 2010 Earnings Call

July 30, 2010 9:00 am ET


Mark Ketchum - Chief Executive Officer, President, Director and Interim Executive Group President of Office Products & Cleaning for Organization & Decor

Juan Figuereo - Chief Financial Officer and Executive Vice President

Nancy O'Donnell - Vice President of Investor Relations


William Chappell - SunTrust Robinson Humphrey Capital Markets

Lauren Lieberman - Barclays Capital

Joseph Altobello - Oppenheimer & Co. Inc.

Chad Bolen - Raymond James

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets Corporation

Linda Weiser - Caris & Company

Christopher Ferrara - BofA Merrill Lynch



Good morning, ladies and gentlemen and welcome to the Newell Rubbermaid Second Quarter 2010 Earnings Conference Call. [Operator Instructions] Today's call is being webcast live at on the Investor Relations home page under Events and Presentations. A slide presentation is available for download. A digital replay will be available two hours following the call at (888)203-1112 or (719)457-0820 for international callers. Please provide the confirmation code 7071403 to access the replay. 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

Good morning. Welcome to Newell Rubbermaid's quarterly conference call. Today's discussion will include forward-looking statements about our company's performance, I remind you that actual results may differ materially from expected results because of various factors.

If you refer to our most recent 10-K, 10-Q and 8-K reports, you will find cautionary statements and risk factors which provide a more detailed explanation of the inherent limitations in such forward-looking statements. The company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today.

We further caution you that the company will make a number of references to non-GAAP and other financial measures in order to help you better understand the underlying performance of our business. You can find the GAAP to non-GAAP reconciliations in our earnings release and on the Investor Relations section of our website. With me today are Mr. Mark Ketchum, President and Chief Executive Officer of the company; and our Chief Financial Officer, Juan Figuereo.

And I'll now hand it over to Mark.

Mark Ketchum

Thank you, Nancy. Good morning, everyone and thank you for joining us today. I'm very pleased to share the results of another strong quarter with you.

Newell Rubbermaid once again achieved core sales growth, strong gross margin expansion, and year-over-year normalized EPS growth. We're delivering consistently on the objectives that we outlined at the beginning of the year and reinforced at our May Analyst Day. Our strategy is working and we remain confident about our ability to meet our full-year financial targets.

Second quarter core sales increased about 4% after adjusting for the $35 million of SAP-related prebuy reported in our Q1 call. Without this adjustment, core sales were up 1.5% in Q2. Second quarter sales trends are consistent with the full first half, with year-to-date core sales up 4.1%. We're pleased with this rate of growth, especially given that we're not getting much help from the economy.

Across our portfolio, we continue to gain market share and new distribution on the strength of our new product introductions and robust advertising, marketing and sales support. Our innovations are winning with consumers and customers alike.

We're also benefiting from the fact that many of our international markets, particularly those in the emerging economies, are growing significantly faster than the North American markets. We're making good inroads in Asia-Pacific and continue to build our business in Latin America, where some of our business units are posting strong double-digit growth. Our international sales this quarter grew 9% in local currency, similar to the first quarter.

Next, our sales year-to-date are consistent with our full year outlook for both core sales and total sales. Gross margin expansion also continued this quarter, improving 220 basis points to 39.3% of sales on strong productivity and improved product mix. Operating margin was also healthy at 15% of sales and normalized EPS was $0.51, a 9% increase over last year's second quarter. These positive data points give me confidence that our long-term strategy is working and our business model is delivering.

I'd like to take some time now to review a few of the business highlights from the quarter. One of our key priorities is to improve our operations in Europe, which comprise approximately half of our international sales. As many of you know, Europe has been a challenge area for us for many years. In January, we announced new leadership and revised commercial operation structure. Behind these changes and numerous detailed gross margin improvement plans, we are already showing steady improvement. However, we decided that we needed to move even more boldly to capitalize on the momentum and to reach the profitability levels required to really leverage our significant presence in this region.

Last month, we announced an accelerated approach to addressing the structural issues in the region. The European Transformation Plan will simplify our business and improve profitability on an accelerated basis. By centralizing key decision-making through an EPC structure, and streamlining support functions, we will reduce the complexity of the business, speed up our time to market and enable a more efficient and cost-effective SAP implementation. When completed in 2012, the plan will generate a $50 million to $60 million annual profitability improvement.

In the meantime, we'll see benefits in 2010 from the best practices and process improvement opportunities that accompanied the leadership changes implemented earlier this year. All these benefits will position our European business for profitable growth as we target a 10% or higher operating income margin sustainably in Europe. While the plan is still in the early stages, I'm pleased to report that initial reaction by our employees has been largely positive and we're making good progress on the detailed planning ahead. We look forward to keeping you updated as the program progresses.

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