Newell Rubbermaid Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013; filed November 8, 2013. The filing reports the issuer as Newell Rubbermaid Inc. (not Newell Brands Inc.). Financial amounts are in U.S. dollars unless otherwise noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $1,487.2 million | $1,456.9 million | $4,202.7 million | $4,132.7 million |
| Gross margin | $564.9 million; 38.0% | $559.0 million; 38.4% | $1,621.2 million; 38.6% | $1,599.7 million; 38.7% |
| Operating income | $178.6 million; 12.0% | $187.0 million; 12.8% | $461.8 million; 11.0% | $487.6 million; 11.8% |
| Income from continuing operations | $122.3 million | $106.2 million | $302.7 million | $290.8 million |
| Net income | $193.3 million | $108.3 million | $357.3 million | $299.4 million |
| Diluted EPS | $0.66 | $0.37 | $1.22 | $1.02 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $301.0 million | $357.2 million |
- Reported sales rose 2.1% in Q3 and 1.7% year to date; core sales, excluding currency effects, rose 3.3% and 2.8%, respectively. Foreign currency reduced reported sales by 1.2% in Q3 and 1.1% year to date.
- Year-to-date SG&A declined to $1,061.7 million from $1,077.7 million, but restructuring costs increased to $97.7 million from $34.4 million. Management attributed lower operating income and margins mainly to the higher restructuring charges.
- Q3 net income included $71.0 million from discontinued operations, including a $76.6 million after-tax disposal gain. Nine-month discontinued-operations income of $54.6 million included a $57.9 million after-tax net disposal gain. Continuing-operations results provide a clearer view of ongoing earnings.
Segments and material changes
- For the first nine months, Home Solutions sales increased 4.2%, Baby & Parenting 5.5%, and Commercial Products 2.1%; Writing declined 1.6%, while Tools was nearly flat.
- Year-to-date segment operating income improved in Writing ($295.6 million versus $255.7 million), Home Solutions ($154.1 million versus $137.5 million), and Baby & Parenting ($71.6 million versus $59.9 million). It declined in Tools ($49.3 million versus $86.0 million) and Commercial Products ($67.0 million versus $70.9 million).
- Growth in North America and Latin America was partly offset by weaker EMEA and Asia Pacific sales. Management cited Western European economic weakness and China Fine Writing declines, including a distribution-model transition.
- The company sold its Hardware business in September for net cash consideration of $180.4 million and completed the Teach platform sale in July. The Teach sale was accompanied by $22.7 million of pretax impairment and write-down charges. These businesses were reported as discontinued operations.
- The company continued Project Renewal, an organizational and cost-reduction program. It reported $97.7 million of restructuring costs for the first nine months and expected total program costs of $340–$375 million, including $300–$340 million in cash costs. Expected annualized savings were $270–$325 million, with more than $160 million said to have been realized; completion was expected by mid-2015.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $197.4 million, total debt was $1,701.2 million, and stockholders’ equity was $2,193.1 million. Debt was down $217.2 million from December 31, 2012. Cash included $69.6 million subject to Venezuelan currency controls.
- Year-to-date operating cash flow was $301.0 million, down from $357.2 million. Investing activities provided $97.0 million, including proceeds from divestitures; financing activities used $382.2 million, including $119.2 million for share repurchases and $132.1 million in dividends. Cash increased by $13.6 million to $197.4 million.
- Working capital was $941.4 million and the current ratio was 1.65:1, versus $700.3 million and 1.45:1 at December 31, 2012. The company reported net debt to total capitalization of 0.41:1, down from 0.46:1.
- Available borrowing capacity was approximately $1.1 billion across the $800 million revolving facility and $350 million receivables facility. There were no revolving-facility borrowings and no receivables-facility borrowings at quarter-end; commercial paper outstanding was $14.4 million. The company reported compliance with its debt covenants.
- Year-to-date capital expenditures were $85.7 million, compared with $130.2 million. Cash conversion cycle was 86 days, versus 92 days a year earlier.
Outlook, risks and unusual items
- For 2013, management expected operating cash flow of $575–$625 million after $90–$110 million of restructuring and restructuring-related cash payments and a $100 million U.S. pension contribution. Planned capital expenditures were approximately $125–$150 million. Management said available cash, operating cash flow, capital-market access and borrowing facilities should cover existing business needs.
- In October 2013, after quarter-end, the company entered a $350 million accelerated share repurchase agreement, funded with cash and borrowings. It initially received 9,430,785 shares; the final share count was to be determined through a calculation period scheduled to run until April 2014. The filing notes that counterparty trading associated with the agreement could affect the common-stock market price.
- Venezuela’s 2013 currency devaluation caused an $11.1 million year-to-date foreign-exchange loss. Management estimated the devaluation would reduce 2013 reported net sales by about $9 million and operating income by about $5 million. The company had $76.6 million of Venezuelan net monetary assets exposed to further exchange-rate changes.
- Environmental remediation reserves totaled $21.0 million, within an estimated cost range of $20.5–$23.4 million. The company could not estimate its ultimate liability for the Lower Passaic River matter; it said an adverse outcome could be material, although it did not then consider a material impact reasonably likely. A separate São Paulo matter involved possible fines of up to approximately $4.0 million, which the company was contesting.
- Other risks discussed include consumer and commercial market weakness, currency and input-cost volatility, competition and retailer bargaining power, execution of restructuring and SAP implementation, pension funding requirements, and potential impairment of goodwill or intangible assets. The company reported no impairment in its 2013 annual goodwill and indefinite-lived-intangible testing, but identified future impairment as a risk if performance or economic conditions deteriorate.
- The filing cautions that results may be seasonal and that interim results may not indicate full-year performance. It did not provide a clear earnings-per-share or revenue forecast for full-year 2013.
Most important facts for investors to verify
- How much of the reported earnings increase reflects ongoing continuing operations versus disposal gains and other tax benefits.
- Whether core sales growth and segment profitability persist, particularly given weakness in Tools, Commercial Products, EMEA and Asia Pacific.
- Whether Project Renewal delivers its stated savings and completion timetable, and how much of those savings is reinvested rather than retained as margin improvement.
- Whether operating cash flow meets the 2013 outlook after seasonal working-capital needs, restructuring payments and pension funding.
- The final cost and share count under the $350 million accelerated repurchase, its effect on debt and liquidity, and any market-price effects.
- Developments in Venezuela’s exchange rate, environmental and legal matters, and the company’s goodwill and intangible-asset impairment assessments.