Newell Rubbermaid Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2011. The filing registrant is Newell Rubbermaid Inc. (the company identified in the request as Newell Brands Inc.). The company sells consumer and commercial products through Home & Family, Office Products, and Tools, Hardware & Commercial Products.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net sales | $1,549.9 million | $1,465.5 million | $4,369.4 million | $4,216.7 million |
| Gross margin | $579.3 million; 37.4% | $563.4 million; 38.4% | $1,648.6 million; 37.7% | $1,611.1 million; 38.2% |
| Operating income (loss) | $(192.2) million | $174.6 million | $131.7 million | $505.2 million |
| Net income (loss) | $(177.6) million | $28.3 million | $44.8 million | $217.1 million |
| Diluted EPS | $(0.61) | $0.09 | $0.15 | $0.70 |
| Operating cash flow | Not separately provided | Not separately provided | $279.8 million | $377.9 million |
- Q3 sales increased 5.8%; core sales grew 3.3%, with foreign currency contributing 2.5%. Nine-month sales increased 3.6%; core sales grew 1.1%, with currency contributing 2.5%.
- Q3 operating results included $382.6 million of non-cash impairment charges. Excluding those charges, management reported an operating margin of 12.3% for the quarter. Nine-month operating income excluding impairment was $514.3 million, or 11.8% of sales.
- Gross margin declined 100 basis points in Q3 and 50 basis points for the nine-month period, principally due to input and sourced-product cost inflation, partly offset by pricing and productivity.
- Q3 net loss from discontinued operations was $11.2 million, including a $15.2 million after-tax disposal loss. For the nine months, discontinued operations produced an $8.1 million net loss.
Balance sheet, debt and liquidity
- At September 30, 2011, cash was $138.9 million; current assets were $2,288.9 million and current liabilities were $1,775.7 million. Working capital was $513.2 million and the current ratio was 1.29:1.
- Total debt was $2.315 billion, down from $2.369 billion at December 31, 2010. Short-term debt and current maturities totaled $503.3 million, including $250 million of senior notes due March 2012.
- The company had $632 million available under its $665 million revolving facility and $200 million outstanding under its receivables facility. It reported compliance with debt covenants. Credit ratings were Moody’s Baa3, S&P BBB−, and Fitch BBB, each with stable outlook.
- Nine-month operating cash flow fell to $279.8 million from $377.9 million. Inventory growth and customer-program payments were cited as key factors. Capital expenditures were $151.2 million, versus $108.1 million.
- Cash decreased by $0.7 million over the nine months to $138.9 million. Net cash used in investing activities was $139.4 million and net cash used in financing activities was $142.2 million.
Changes and business trends
- All three segments grew sales in Q3. Tools, Hardware & Commercial Products led with 10.3% reported growth and 7.5% core growth; Office Products grew 5.5% reported and 2.2% core; Home & Family grew 2.9% reported and 1.1% core.
- For the first nine months, Tools, Hardware & Commercial Products grew reported sales 8.0% and core sales 5.4%; Office Products grew 4.2% and 0.7%, respectively. Home & Family sales were up 0.3% despite a 1.3% core-sales decline, primarily reflecting weakness in Baby & Parenting.
- Impairment testing resulted in $305.5 million of goodwill impairment in Baby & Parenting and $64.7 million in Hardware, plus $12.4 million of impairment charges on trade names and other assets. Hardware goodwill was fully impaired; Baby & Parenting retained $136.1 million of goodwill.
- Interest expense declined to $65.0 million for the nine months from $95.5 million, reflecting lower borrowing costs. Prior-year results included $218.6 million of debt-extinguishment losses, versus $4.8 million in 2011.
Outlook, commentary and risks
- For full-year 2011, management expected operating cash flow of $520–$560 million after $85–$95 million of restructuring and restructuring-related cash payments, and capital expenditures of approximately $200 million.
- Project Renewal, announced in October 2011, is expected to generate $90–$100 million of savings by the end of 2012, most of which management expects to reinvest. The plan includes an estimated 500 net headcount reduction, $75–$90 million in cash costs, and $90–$100 million in pretax restructuring charges; $30–$40 million of charges were expected in Q4 2011.
- The European Transformation Plan is expected to be completed in 2012, with annual after-tax savings of $55–$65 million and a target European operating margin of at least 10%. Through September 2011, approximately $12 million of restructuring charges and $41 million of related SG&A costs had been incurred.
- Management cited weak consumer spending and challenging North American and European conditions, inflation in input and sourced-product costs, currency movements, customer concentration and bargaining power, and execution risks involving restructuring and SAP implementation. Further goodwill or intangible impairments may result if performance or economic conditions worsen.
- Environmental response-cost estimates ranged from $19.5 million to $31.9 million; the recorded reserve was $21.6 million. A Brazilian environmental authority sought fines of up to approximately $4 million. The filing states management did not expect the ultimate resolution of disclosed proceedings to materially affect the financial statements.
- The company sold its hand torch and solder business for $51 million, including $8 million held in escrow, and settled related Worthington litigation claims. The escrow remains conditional on resolution of relevant conditions.
Most important facts for investors to verify
- Whether core sales and segment operating trends improve, particularly in Baby & Parenting, Hardware, and Europe.
- Whether inflation, pricing and productivity affect gross margins as management expects.
- Whether Project Renewal and the European Transformation Plan achieve stated savings within expected costs and timelines.
- Cash conversion, inventory levels, operating cash flow, and the company’s ability to address the $250 million March 2012 note maturity and other current debt.
- Assumptions underlying the Baby & Parenting goodwill valuation and the possibility of additional impairment charges.
- Resolution of the $8 million sale escrow, environmental matters, and other legal or contingent liabilities.