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Newell Beats, Expects Margin Growth

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Newell Rubbermaid Inc. (NYSE:NWL - News), the producer of Sharpie pens and Rubbermaid containers, logged a 21.2% increase in adjusted earnings per share in the fourth quarter of 2011 to 40 cents from 42 cents in the year-ago quarter. Quarterly earnings also outpaced the Zacks Consensus Estimate of 38 cents a share.

Earnings growth, driven by positive impact from increased sales volume and lower structural selling, general and administrative expenses, was partially offset by higher input cost inflation and higher effective tax rate. On a reported basis, including special items, the company reported earnings of 27 cents per share compared with earnings of 25 cents in the year-ago quarter.

Top-Line and Margin Details

During the quarter, Newell recorded a year-over-year growth of 3.7% in net sales to $1,495.2 million. Core sales of the company contributed 3.7%, while favorable foreign currency translation made nominal contribution to net sales growth. The growth was primarily driven by introduction of new products coupled with share gain in North America and solid performance in emerging markets. However, net sales missed the Zacks Consensus Estimate of $1,497.0 million.

Newell’s quarterly gross profit rose 3.5% year over year to $556.6 million, while gross margin contracted 10 basis points to 37.2% due to the negative impact of input cost inflation and increased operational issues costs at Décor global unit that more than offset the gains from higher pricing and productivity. Operating income increased 18.6% year over year to $176.8 million, and operating margin expanded 150 basis points to 11.8%, primarily due to lower structural selling, general and administrative expenses.

Other Financial Details

Newell ended the year with cash and cash equivalents of $170.2 million and long-term debt of $1,809.3 million. Shareholders’ equity was $1,849.1 million excluding non controlling interests of $3.5 million.

Capital expenditure came in at $222.9 million for the year, above the company’s planned expenditure of approximately $200.0 million. Operating cash flow came in at $561.3 million for fiscal 2011, which was above the company’s guidance range of $520.0 million to $560.0 million. During the year, the company generated a free cash flow of $338.4 million.

Fiscal 2012 Guidance

Based on expectations of core sales growth of 2% to 3%, management expects adjusted earnings in the range of $1.63 to $1.69 per share for fiscal 2012. Moreover, Newell anticipates an improvement of 20 basis points in operating margin during fiscal 2012

Moreover, the company is expecting an incremental annual net income in the range of $55 to $65 million from fiscal 2012 through its European Transformation Plan. Moreover, Newell will be saving costs in between $90-$100 million through its Project Renewal program by the first half of 2013. 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.

Further, Newell is expecting to generate operating cash flow in the range of $500-$600 million in fiscal 2012 with planned capital expenditures in between $200 million and $225 million.

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 Jarden Corp. (NYSE:JAH - News), Fortune Brands Inc. (:FO), Cooper Industries plc (NYSE:CBE - News), and Avery Dennison Corporation (NYSE:AVY - News).

Newell Rubbermaid currently has a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock. Besides, the company retains a long-term 'Neutral' recommendation.

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