NEWELL RUBBERMAID INC. $30 (New York symbol NWL; Aggressive Growth and Income Portfolios, Consumer sector; Shares outstanding: 287.2 million; Market cap: $8.6 billion; Priceto- sales ratio: 1.5; Dividend yield: 2.0%; TSINetwork Rating: Average; www.newellrubbermaid.com) makes plastic storage bins, tools, window blinds, pens and many other household goods.
The company has five divisions: Writing makes pens and markers (30% of sales, 46% of earnings); Home Solutions makes foodstorage and cooking products (28%, 24%); Tools makes hand and power tools and accessories (14%, 8%); Commercial Products makes cleaning supplies (14%, 11%); and Baby & Parenting makes high chairs, car seats and other goods for infants (14%, 11%).
Newell owns some the top brands in these markets, including Sharpie markers, Parker and Paper Mate pens, Calphalon cookware, Levolor blinds, Irwin tools and Graco car seats and strollers.
The recession forced consumers to spend less on household goods, and the company stopped making certain unprofitable products. As a result, its sales fell 13.8%, from $6.5 billion in 2008 to $5.6 billion in 2009. However, sales quickly recovered and reached $5.9 billion in 2012.
Over the past few years, Newell has aggressively restructured, including closing plants and merging distribution centres. The resulting savings caused its earnings to jump 47.7%, from $338.7 million in 2008 to $500.3 million in 2012. Due to more shares outstanding, earnings per share rose at slower pace of 40.5%, from $1.21 to $1.70.
Freeing up cash for new investments
The company is now selling less-important businesses under its Project Renewal cost-cutting plan, which began in October 2011.
In 2013, it sold its teaching-products division, which makes items like dry-erase whiteboards. It also sold parts of its hardware operations, which produce knobs, hinges and handles for doors and windows. In all, the company received proceeds of $180.9 million.
Project Renewal mainly involves streamlining Newell’s manufacturing and distribution operations. So far, these moves have cut its annual costs by $160 million. That should rise to $270 million to $325 million a year by mid-2015.
Thanks to these savings, Newell’s earnings rose 11.1% in the three months ended September 30, 2013, to $151.6 million, or $0.52 a share. A year earlier, the company earned $136.5 million, or $0.47. These figures exclude restructuring costs.
Sales gained 2.1%, to $1.49 billion from $1.46 billion. If you adjust for the businesses Newell sold, its sales rose 3.3%.
The savings will help fund Newell’s new Growth Game Plan, which aims to spur its sales in many ways, including innovative new products. Right now, the company spends just 2% of its revenue on research, but that should rise over the next few years.
Plenty of room for overseas growth
Another key part of Newell’s plan is expansion in fast-growing markets like China and Latin America. Right now, international markets supply just a third of its sales, so there’s lots of room to grow. The company’s well-known brands should help it attract more consumers as it continues to grow beyond the U.S.
At the same time, Newell’s improving efficiency will help it better serve its main customers, including Wal- Mart, which accounts for 11% of its revenue. Big retailers like this prefer to buy on a just-in-time basis, which keeps their inventory costs down. The company’s streamlining will let it avoid shortages and respond to consumer buying patterns more quickly.
Newell’s improving earnings are also letting it buy back more shares. In October 2013, it spent $350.0 million on repurchases under a special one-time program. It can still buy back an additional $43.2 million worth of shares under its regular plan, which expires in August 2014.
In the first nine months of 2013, the company cut its long-term debt by 2.1%, to $1.67 billion (or 19% of its market cap) from $1.71 billion. It also held cash of $197.4 million, or $0.69 a share, as of September 30, 2013.
Newell likely earned $1.83 a share in 2013, but its profits should rise 12.1%, to $2.00 a share, in 2014. The stock trades at 15.0 times the 2014 forecast. That’s a moderate p/e ratio, particularly as the improving U.S. housing market spurs demand for household products like window blinds. Moreover, the company is making fewer items with plastic resins, which cuts its exposure to volatile oil prices.
Dividend hike seems likely
The current annual dividend rate of $0.60 yields 2.0%. However, Newell pays out just a third of its earnings as dividends. That gives it plenty of room to increase the payout in 2014.
Newell Rubbermaid is our #1 buy for 2014.
