Newell Rubbermaid Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2010. The filing is by Newell Rubbermaid Inc. (the issuer’s name at the time). Figures are in millions of dollars except per-share data.
Business context and performance
The company sells consumer and commercial products through Home & Family, Office Products, and Tools, Hardware & Commercial Products. Results are seasonal; management cautioned that interim results may not indicate full-year performance.
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net sales | $1,487.3 | $1,449.0 | $4,289.9 | $4,157.2 |
| Gross margin | $567.1; 38.1% | $542.6; 37.4% | $1,626.1; 37.9% | $1,523.7; 36.7% |
| Operating income | $174.5; 11.7% | $165.3; 11.4% | $508.1; 11.8% | $445.6; 10.7% |
| Net income | $28.3 | $85.5 | $217.1 | $224.9 |
| Diluted EPS | $0.09 | $0.28 | $0.70 | $0.78 |
| Operating cash flow | Not separately stated | Not separately stated | $377.9 | $415.7 |
Q3 sales rose 2.6%; core sales increased 5.7%, partly offset by currency and product-line exits. Nine-month sales increased 3.2%, including 4.6% core growth. Productivity and favorable mix lifted gross margins, while input-cost inflation and higher strategic SG&A spending were offsets.
- Segments, Q3: Home & Family sales +2.0%, operating income down 9.2%; Office Products sales +0.4%, operating income up 31.4%; Tools, Hardware & Commercial Products sales +6.0%, operating income down 6.4%.
- Segments, nine months: Home & Family sales -0.8%, operating income -1.8%; Office Products sales +1.7%, operating income +18.1%; Tools, Hardware & Commercial Products sales +11.1%, operating income +6.2%.
Financial position, liquidity and debt
- At September 30, cash was $153.5; total assets $6,570.2; working capital $441.2; and the current ratio 1.23:1.
- Total debt was $2,557.4, compared with $2,508.8 at December 31, 2009. Current and short-term debt totaled $460.9. Net debt-to-total-capitalization, as defined by the company, was 0.56:1.
- Cash from operations of $377.9, less investing outflows of $102.2, was more than offset by financing outflows of $404.2; cash declined $124.8 during the first nine months.
- Available borrowing capacity was $640 under the revolving credit facility and $60 under the receivables facility. The company reported compliance with debt covenants.
Material changes, outlook and risks
- Capital structure plan: Issued $550 of 4.70% senior notes due 2020; repurchased $500 of shares through an accelerated buyback; tendered for $279.3 of the $300 principal amount of 10.60% notes due 2019; and exchanged $324.7 principal amount of convertible notes for approximately 37.7 million shares and $52 cash. The company recognized $218.6 of pretax debt-extinguishment losses. It estimated nearly $35 of annual interest savings; final buyback share settlement remained pending.
- Tax: Q3 tax benefit was $99.2, including a $63.6 benefit from resolving 2005–2006 U.S. federal tax examinations. The nine-month tax benefit was $13.4.
- Management outlook: For 2010, the company expected operating cash flow above $500 after restructuring cash payments of approximately $70–$100, and capital expenditures of approximately $160–$170. It expected the European Transformation Plan to produce annual savings of $50–$60 after tax when complete, targeting at least a 10% European operating margin. Project Acceleration was expected to be completed by year-end 2010, with annualized savings exceeding $200 once fully implemented.
- Risks and contingencies: The European plan was expected to cost $90–$100 in restructuring and other implementation expenses. Venezuelan currency controls and the SITME rate exposed results to foreign-exchange changes; management estimated 2010 sales and operating income would decline approximately 1% and 3%, respectively, due solely to Venezuela translation effects. The company identified potential goodwill impairment sensitivity at Baby & Parenting Essentials. Litigation included a patent dispute on appeal, Brazilian environmental fines sought of up to approximately $4, and an appealed $15.8 jury award in the company’s favor that had not been recorded as income.
- Other stated risks include economic and retailer conditions, raw-material costs and supply, currency movements, pension funding, credit ratings, tax exposures, and successful execution of restructuring and SAP implementation.
Important facts for investors to verify
- Separate underlying operating improvement from the $218.6 debt-extinguishment charge and the $63.6 tax-reserve reversal when assessing earnings and EPS.
- Track working-capital investment—especially receivables and inventory—and cash generation against management’s full-year outlook.
- Confirm final accelerated-buyback settlement, resulting share count, and whether projected interest savings are realized.
- Monitor implementation costs, timing, and savings from the European Transformation Plan and Project Acceleration.
- Assess Venezuela exchange-rate exposure, Baby & Parenting Essentials goodwill headroom, and outcomes of the disclosed legal matters.