Rubbermaid Moves Beyond Storage Bins, and Investors Like the Results

NEW YORK (TheStreet) -- Newell Rubbermaid (NWL), known primarily for the plastic storage bins in refrigerators, is expanding to provide consumers with everything from pricey Graco baby car seats to Sharpie highlighters. The company is also delighting shareholders with 35% gains over the past year.

"Over the next year and a half, you will see us take what is primarily a food storage business and extend the shoulders of the brand," Newell Rubbermaid's President and CEO Michael Polk said in an interview.

Polk, who has been at the helm since July 2011, has already begun turning Newell Rubbermaid into a diversified consumer products company. Its global design center now hosts 100 designers devoted to figuring out what consumers want. Staffing at its "insights" team has increased by 50% since 2011.

Last year, Newell Rubbermaid introduced the 4Ever children's car seat under its Graco brand. The product, which is a rear-facing infant car seat, a five-point harness seat, and booster, is designed to do the job of two or three products that would be purchased by parents over the years of raising a child.

"It's more expensive than what you would have paid in the past for an infant car seat, but it allows you to avoid multiple devices over time," Polk explained.

Prodding consumers to fork over a premium to own innovation is a hallmark of tech giant Apple (AAPL). And it's also present in Newell Rubbermaid's other divisions.

The company's Lenox tool brand -- part of a broader tool business including the Irwin and Hilmor brands -- just released a curved reciprocating saw blade for workers in housing construction or on industrial job sites.

"It's an expensive product relative to others you can buy," conceded Polk, but "it has twice the life."

A new Sharpie highlighter with a see-through tip allows for easier reading of documents. The brand recently unveiled Sharpie Extreme, a line of fade-resistant magic markers engineered to withstand inclement weather outdoors.  

Consumers responded to these new products in the first quarter. Core sales in the writing business, excluding the influence of currency fluctuations, increased 9% in the first quarter, led by growth in North America.

And at Newell Rubbermaid's baby and parenting division and tools business, core sales increased 0.8% and 3.2% respectively. Within both segments, sales in North America was described as "strong" or "robust."

The company's transformation has made its stock one of the hottest in the consumer products sector.

Over the last year, Newell Rubbermaid's stock price has surged 35%, trumping the gains on the S&P 500 (SPY) and Dow Jones Industrial Average (DIA) of 11.5% and 8.9%, respectively. Shares of competitor Avery Dennison (AVY) have gained a more modest 16.8% during that same time frame, while Tupperware's (TUP) stock has fallen 21%.

First-quarter sales for Newell Rubbermaid rose 4.1% year over year, to $1.26 billion. Wall Street had expected $1.27 billion. But core sales, subtracting the impact of acquisitions and currency fluctuations, climbed 4.7%. Normalized earnings per share, which exclude one-time items, tallied 36 cents a share, or 2 cents ahead of expectations.

Executives reiterated their full-year core sales growth estimate of 3.5% to 4.5%, with normalized EPS expected to fall between $2.10 to $2.18.

Newell Rubbermaid's hot stock and resilient financial performance may come as a surprise, however, to investors on several fronts.

First, Wall Street has historically not given the company credit as a true consumer products entity, one where people are consistently provoked to pay more for new products amid steady marketing efforts.

According to an April 30 report from J.P. Morgan analyst John Fauchner, Newell Rubbermaid's stock trades at a 12% discount on a price-to-earnings basis to other household consumer products companies. Fauchner, who rates Newell Rubbermaid shares overweight, the equivalent of a buy rating, hinted the valuation discount may be unwarranted.

"Over the past several years, the company has shown that it is becoming a real consumer-oriented business," wrote Fauchner.

Such a discount has also caught the attention of Newell Rubbermaid's Polk and the board.

"We believe our business is significantly undervalued," said Polk.

Since 2013, Newell Rubbermaid has repurchased about $906 million of its stock, which includes $73.6 million in the first quarter, even with the stock hovering near 52-week highs. Newell Rubbermaid has disclosed an intent to repurchase up to an additional $500 million in outstanding shares through the end of 2017.

Another surprise is that Newell Rubbermaid's solid financial performance and commitment to stock buybacks is in spite of a mixed U.S. economy.

Newell Rubbermaid says it will stay aggressive on the acquisition front. It sees U.S. consumers as time starved yet preferring healthier lifestyles. In October last year, the company purchased water hydration and thermal bottle businesses Contigo and Bubba, whose products could be found at the stores of Wal-Mart (WMT) and Target (TGT) -- typically at premium prices to Newell Rubbermaid's water bottles.

"These brands are right on track from a social perspective and a lifestyle perspective," said Polk. Both Contigo and Bubba products are being considered for more global distribution.

Any new acquisition for Newell Rubbermaid will likely resemble the company's purchase of high-end stroller and car seat brand Baby Jogger. Acquired in December 2014, Baby Jogger sells baby strollers and car seats at significant premiums to offerings under Newell Rubbermaid's Graco brand.

In the past three years, Newell Rubbermaid has undertaken in-depth analyses of 200 different companies, either stand-alone businesses or subsidiaries of larger companies.

"We are still active, and still engaged," Polk said of the company's search for more acquisitions.

Newell Rubbermaid is targeting a launch of new food-storage containers later this year. The containers will preserve produce for a "much longer period of time," Polk said. Food storage bins with nifty dividers to portion out meals and devices that keep a carrot fresher for longer, will join Newell Rubbermaid's containers with tops that snap to the bottom for easier cupboard storage.

The new containers could help the division's sales and profits to stay fresh.

In the first quarter, execs singled out food storage sales as "strong." Core sales for Newell Rubbermaid's home solutions business, which includes the food storage business, advanced 0.9% year over year.  Normalized operating margins expanded 210 basis points from the prior year, owing to strength in food storage. 

If recent new products are a harbinger, then those snazzy new food storage containers are likely to sport premium prices. 

"We haven't yet begun to benefit from economic tailwinds, despite some of the diagnostics that suggest the U.S. consumer is beginning to pivot into a more positive space -- we haven't really seen that yet in their behaviors," said Polk.

Newell Rubbermaid isn't giving up hope that the U.S. economy will kick into gear this year after a sluggish first quarter. Instead the company is focusing on making its products stick out in crowded aisles of Wal-Mart or Target.

"So perhaps economic improvement is still in front of us -- that would be terrific -- but to date, the underlying trends are pretty much the same as they were in the back half of last year -- which is modest growth," concluded Polk.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Investing

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Finding Stocks Right for You: Cramer's 'Mad Money' Recap (Friday 8/25/18)

Bitcoin Today: Prices Continue to Slump Heading Into Weekend

Bitcoin Today: Prices Continue to Slump Heading Into Weekend

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

Replay: Jim Cramer on the Markets, 10-Year Yield, Oil Prices and Foot Locker

3 Must Reads on the Market From TheStreet's Top Columnists

3 Must Reads on the Market From TheStreet's Top Columnists