Newell Rubbermaid, Inc. Q1 2009 Earnings Call Transcript

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 |  About: Newell Brands Inc. (NWL)
by: SA Transcripts

Newell Rubbermaid, Inc. (NYSE:NWL)

Q1 2009 Earnings Call Transcript

April 30, 2009 10:00 am ET

Executives

Nancy O’Donnell – VP, IR

Mark Ketchum – President and CEO

Pat Robinson – EVP and CFO

Analysts

Chris Ferrara – Merrill Lynch

Joe Altobello – Oppenheimer

Bill Schmitz – Deutsche Bank

John Faucher – JPMorgan

Wendy Nicholson – Citi Investment Research

Chad [ph] – Raymond James

Connie Maneaty – BMO Capital Markets

Linda Bolton Weiser – Caris

Operator

Good morning ladies and gentlemen. Welcome to Newell Rubbermaid’s First Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. Just a reminder, today’s conference will be recorded.

Today’s call is being webcast live at www.newellrubbermaid.com, on the Investor Relations home page under Events and Presentations. A slide presentation is also available for download. A digital replay will be available two hours following the call at 888-203-1112 or area code 719-457-0820, that is for international callers. Please provide the conference code 8804754 to access the replay.

I will now turn the call over to Nancy O’Donnell, Vice President of Investor Relations. You may begin.

Nancy O’Donnell

Thank you, Mark. Good morning. Welcome to Newell Rubbermaid’s first quarter investor review, we appreciate your participation. Presenting this morning, as usual, are Mark Ketchum, the company’s President and Chief Executive Officer, and Chief Financial Officer, Pat Robinson.

I’ll begin the call with our forward-looking statement reminder. On our call today, management will make certain forward-looking statements that it believes to be reasonable at this time. Actual results could differ materially from those indicated by these forward-looking statements as a result of various important factors, including those detailed in our most recently filed Form 10-K and 10-Q. We further caution you that the company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today.

We will also provide certain non-GAAP financial measures during the call. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our press release and are also available on our website.

Thank you. And I’ll turn the call over to Mark Ketchum.

Mark Ketchum

Thank you, Nancy. Good morning everyone and thank you for joining us today. While the economy continues to be a major challenge for all of us, I am pleased to report that Newell delivered first quarter normalized EPS well ahead of our guidance range. In addition, we generated meaningful expansion of both gross margin and operating margin and a significant year-over-year improvement in operating cash flow, all in the face of a very tough sales environment.

When we last reported to you at the end of January, we told you we were committed to protecting earnings and optimizing cash generation as we manage through this recession. We told you revenues would be more volatile and unpredictable than normal. We also committed to being flexible and adaptable to these conditions. That mindset and the contingency plans that we put in place have allowed us to get out in front of the situation this quarter and exceed our EPS and cash flow targets.

As we continue to weather this economic downturn, we remain focused on delivering our cash and EPS targets, while protecting the long-term health of Newell Rubbermaid and positioning the company for growth as the economy rebounds.

Let me briefly review our Q1 results. Net sales declined 16% in the quarter. This was in line with our most recent guidance and slightly worse than the decline that we had anticipated at the beginning of the quarter as customers continued to pare back their inventories.

Product line exits and foreign exchange negatively impacted sales by almost 10 points, while acquisitions added about 4 points. In simple terms, core sales were down 10%, about half due to customer de-stocking and half due to lower consumption.

Gross margin was 35.1%, an improvement of 90 basis points compared to last year. This expansion was driven in large part by the planned exit from low-margin, commoditized product categories and the read through of pricing taken in 2008. The expanded gross margin along with significantly lower SG&A expense, resulting from our focused cost management, drove normalized EPS of $0.20, well above our guidance range of $0.07 to $0.12.

Operating margin in the first quarter improved 20 basis points to 9.2% of sales. Our cash performance during the quarter also improved significantly, a credit to our disciplined management of working capital. Our Q1 use of $11 million in operating cash compares to a use of $123 million in last year’s first quarter. Lower inventory levels, down 15% over prior year, were a primary driver of this year’s better performance.

We also took important actions during the quarter to enhance our liquidity and protect our investment-grade credit rate. We have successfully addressed our short-term financing needs in a volatile credit market. With the capital structure now in place, we believe we will not need to access the capital markets through 2012.

As we look out to the remainder of the year, we expect business conditions to remain challenging. While there has been some anecdotal evidence to suggest the economy maybe starting to bottom out, we believe it is too soon to come to this conclusion. Our retail point-of-sale trends are stronger than our revenue trends, but consumer confidence remains low and retail customers continue to take down inventories wherever possible.

We are also seeing increased weakness in Europe and in commercial and industrial channels, two areas which had performed relatively better through the fourth quarter. Accordingly, we are maintaining our full-year 2009 sales, EPS, and cash flow guidance. We continue to expect a net sales decline of 10% to 15%. This assumes a year-over-year core sales decline of 3% to 8%, a negative currency exchange impact of 2% to 4%, and an additional 4% to 6% negative impact from planned product line exits.

As I’ve said before, forecasting sales is difficult in this economic environment. However, I am more confident in our EPS and cash guidance because of the disciplined approach we have put in place to execute contingency plans and to manage expenses and working capital. Indeed, our strong first quarter performance gives us even greater confidence in our full-year earnings and cash flow projections.

For the full year 2009, we continue to expect normalized EPS in the range of $1 to $1.25 and expect cash flow in excess of $400 million. We expect approximately $100 million in SG&A savings this year as a result of the cost cutting initiatives that began in the fourth quarter of last year. And cash flow will continue to benefit from lower inventories and more efficient use of working capital.

Gross margin expansion will also be a benefit to us in 2009. Product line exits are the most significant driver of this expansion. Once completed, the exit of low-margin, commoditized product categories such as insulated coolers, low-end plastic shelving, opening price point totes and refuse containers, wooden pencils, and plastic chair mats, should improve gross margin by over 200 basis points.

In addition, we believe the overall combination of pricing, input cost moderation, and productivity will more than offset the negative impact of volume and transaction currency effects and will be net favorable to margins this year.

We will also continue to carefully manage our structural and strategic SG&A spending to protect our bottom line. As we did in the first quarter, we will implement contingency plans to reduce costs more aggressively should we see sales trends come in below expectations.

Now, despite our stringent cost management, we continue to fund our best investments in strategic brand building and consumer demand creation. Our brand building spending as a percent of sales will be virtually unchanged from 2008. Many of our brands are continuing to make inroads by launching innovative new products and engaging in effective marketing campaigns to gain market share.

For example, over the past several months, Calphalon, Rubbermaid Food, Levolor and Sharpie have all seen share gains in their respective categories in North America as has DYMO in Europe. These brands have successfully used consumer insights to create differentiated solutions. In many cases, we can call out a compelling value proposition.

Let me review just a few of the highlights. Rubbermaid Food & Home continues to expand sales and grow market share on its innovative food storage platform, which includes Premier, Produce Saver, and Easy Find Lids. The newest addition to the platform is Lock-its, featuring locking lid tabs for an extra-secure lid seal. And as with all of the offerings in the Rubbermaid Food storage platform, Lock-its incorporates interlocking lids and bases for easy organization and storage. Look for Lock-its in stores and on TV this spring.

In our Office Products segment, our Sharpie brand has managed to gain share even in a very difficult category. The Sharpie Pen, which offers the writing experience of a Sharpie marker, but without the ink lead-through has been a strong seller. In addition, we’ve gained additional placement at key retailers with the unique merchandizing concepts such as the Sharpie Try and Buy center. This store-within-a-store concept provides consumers with more options with individual customization, and the ability to experience the product before making a purchase.

Our Culinary Lifestyles business delivered mid-single sales growth in the first quarter, driven largely by new product introductions. You will recall Calphalon launched a new line of premium heating electrics in the fall of 2008. Calphalon Electrics are doing quite well at retail with sales exceeding initial projections by over 80%.

More recently, Calphalon introduced its new Unison line of nonstick dishwasher safe Gourmet Cookware. Unison combines two revolutionary nonstick services in the same set, slide for easy release, and sear to seal-in flavor. Initially launched exclusively with Williams-Sonoma, Unison is featured prominently in their print and in-store marketing. Early results have been very encouraging and we have high expectations as we continue to expand the availability of this line.

We continue to invest in marketing campaigns behind the DYMO brand in select European markets with good success, resulting in meaningful market share gains and increased distribution. And we are continuing to drive double-digit growth on DYMO’s Endicia Internet Postage and mimio Classroom Technology offerings by marketing their ease-of-use and value advantages versus competitive offerings.

So, even in challenging times, we are making progress in driving consumer-driven innovation, branding, and marketing across our portfolio. Our new products are resonating with consumers because they offer performance and value. The share gains we are achieving demonstrate that our brands do indeed matter.

At this point, I’ll turn the call over to Pat, who will walk through the financials and some additional detail, and then I will return to provide final comments. Pat?

Pat Robinson

Thank you, Mark. I’ll start with our first quarter 2009 income statement on a normalized earnings basis. Net sales for the quarter were $1.2 billion, down 16% to last year and consistent with our revised guidance of a sales decline in the mid to high-teens.

Our core sales decline excluding currency, acquisitions, and product line exits, was approximately 10% in the quarter. We estimate that about one-half of this was driven by retail inventory de-stocking and the remainder was due to lower consumer food traffic and corresponding lower demand. Planned product line exits contributed a negative 5 points and unfavorable foreign currency also contributed a negative 5 points to the sales decline. Both of these numbers were in line with our expectations. Acquisitions contributed approximately 4 points of growth in the quarter.

Gross margin was a positive story for us in the first quarter. We generated $423 million or 35.1% of net sales, which was a 90 basis point improvement over quarter one of last year and a 230 basis point improvement over the full year 2008. This improvement was largely driven by the favorable impact of product line exits along with better than anticipated input costs and the read through from 2008 pricing.

These improvements more than offset an unfavorable customer and product mix, as well as the drag on margins from lower volume in our manufacturing facilities caused by the significant sales decline and the disciplined management of inventory levels. We also did a good job this quarter managing down our structural SG&A costs.

We told you in December that we were taking aggressive actions to manage SG&A spending this year. We saw the benefit of those actions during the quarter. We also told you that if sales trends were more negative than our guidance, we would proactively implement contingency plans to calibrate our spending, eliminating or delaying costs where possible to offset that weakness.

We did implement those contingency plans in certain areas of our business this quarter. The result, as you see, was SG&A expense of $311 million or 25.9% of sales for the quarter, down $50 million to last year. The $311 million of spend includes an incremental $20 million from acquisitions, which was offset by $20 million of beneficial impact from foreign currency translation.

Operating income was $111 million or 9.2% of sales compared to $130 million or 9% of sales last year. Interest expense was $5 million higher than the previous year, primarily as a result of the additional borrowings used to fund acquisitions in April 2008. While our debt balances reflect our first quarter financing activities, this had no impact on interest expense given their timing in the quarter. I will talk a little more about the details of our financing actions in a few moments.

The company’s continuing tax rate was 30.6% compared to 28.5% last year. So, between gross margin expansion and our aggressive monitoring and managing of SG&A expenses this quarter, we were able to more than offset the greater than anticipated sales softness and deliver normalized EPS of $0.20, well above our guidance of $0.07 to $0.12. We recorded approximately $30 million or $0.08 per share in restructuring charges related to project acceleration. These charges have been excluded from continuing our earnings described previously.

The other big win for us this quarter was in operating cash flow. We used $11 million in operating cash this quarter, an improvement of $112 million versus last year, despite an $18 million reduction in normalized earnings between years. This accomplishment came as a result of a very focused and disciplined management of our working capital, particularly inventory.

In the first quarter of 2008, we built inventory of $132 million. This year, the inventory build was held at $30 million, an improvement of over $100 million. This working capital improvement comes at the expense of some gross margin pressure of course since lower manufacturing volume means a loss of productivity and absorption in our plants.

But our primary focus this year has been strengthening our balance sheet and providing assurance to the rating agencies and our shareholders that we are still able to generate significant cash flow even in difficult economic times. Our first quarter cash performance is a strong start out of the gate towards our 2009 guidance of operating cash flow of more than $400 million.

I’ll now take a few moments to talk about our first quarter 2009 segment information. I’ll remind you that we have reported first quarter results using our reconfigured segment structure. Revised historical segment information was provided by press release two weeks ago and is available on our website.

I’ll start with our Home & Family segment. Net sales were $558 million, a decrease of 8% versus last year. Core sales volume in this segment declined about 3%, largely attributable to the baby and parenting essentials business as we worked with the retailers to bring their existing inventories into compliance with newly enacted child safety protection laws.

Approximately 6 points of the sales decline was attributable to the planned product line exits in our Rubbermaid Home business. Unfavorable currency contributed negative 3 points and the acquisitions of Aprica contributed 4 points of growth.

Operating income for the segment was $60 million or 10.8% of net sales versus $53 million or 8.8% of sales a year ago. Favorable input costs and aggressive management of SG&A spend more than offset the impact of lower sales volume and unfavorable mix.

In our Tools, Hardware & Commercial Products segment, net sales were $328 million, down 19% to last year. Core sales declined about 20% as we continue to see very tight management of inventory at retail in this segment, as well as continued softness in the housing market. We also saw increased weakness in the industrial and commercial channels in the quarter. Unfavorable foreign currency accounted for approximately 5 points of the decline and acquisitions contributed 6 points to growth.

Operating income for the segment was $38 million or 11.6% of sales, down from $61 million or 15% of sales last year as the decline in sales and tight inventory management more than offset SG&A reductions and favorable pricing.

Office Products’ first quarter net sales were $318 million, a decrease of 24%. Core sales declined about 10% in the quarter. The Office Products category continues be challenged both domestically and internationally by increased softness in the commercial channels, weak consumer demand, and aggressive inventory de-stocking at the retail level and our business was impacted along with the industry. Approximately 7 points of the decline resulted from product line exits and another 7 points was attributable to foreign currency translation.

Operating income in the segment was $31 million or 9.8% of sales versus $34 million or 8.1% of sales last year. The sales volumes decline and an unfavorable mix were partially offset by tight management of SG&A spend in the quarter.

Let me now turn to our 2009 outlook. We continue to expect to generate more than $400 million in cash from operations in 2009 after restructuring cash payments of $100 million. This projection assumes $100 million in cash from continued disciplined working capital management, primarily driven by a significant reduction in inventory levels.

We expect capital expenditures to be approximately $150 million, resulting in a free cash flow in excess of $250 million available to cover dividend payments and reduce outstanding debt. During the quarter, as most of you know, we accessed the public debt markets to raise $645 million to a combination of $345 million in convertible securities and $300 million in straight investment-grade bonds.

After payment of fees and the purchase of a call spread on the converts, we netted approximately $600 million. As a result of this financing activity, at quarter-end the company had $755 million in available cash. In addition, we have $690 million of unused capacity under our revolving credit agreement, which expires in 2012. We have $750 million of debt maturities in 2009, about $500 million in September, and $250 million in December.

Earlier this month, we completed a tender offer to repurchase $180 million of the $250 million of our December 2009 notes. We also are conducting a tender offer for $145 million of the $250 million of our May 2010 notes. We expect to complete the second tender offer in the next few days. The tender offers are being funded with the proceeds from our quarter one refinancings.

Total debt at the end of the first quarter was $3.4 billion. We expect to reduce debt to $3.1 billion by the end of the second quarter through our tender offer and to approximately $2.8 billion by the end of the year. As Mark pointed out earlier, with the actions we’ve taken in the capital markets this year, we have successfully addressed our short-term financing needs and are confident we will be able to fund all scheduled debt maturities through 2012 through available cash and future operating cash flows.

Turning now to our full year sales guidance. Like you, we are hearing some companies suggest that things have begun to stabilize and even offer some anecdotal evidence that the economy is starting to show some growth. However, we are not ready to call the bottom. Our guidance for the remainder of 2009 assumes the year will continue to be challenging from a top line perspective.

For the full year, we reiterate our expectation that net sales will decline 10 percentage points to 15 percentage points with core sales declining in the mid-to-high-single digits. We continue to expect a 4 point to 6 point decline from planned product line exits and a 2 point to 4 point decline from currency. Acquisitions will contribute about 1 point of growth for the year.

Our full year guidance for normalized EPS is between $1 and $1.25 per share. As discussed previously, we issued convertible bonds during the quarter, which will have a dilutive impact on our earnings per share for GAAP purposes when our average stock price for a period exceeds $8.61. Due to the uncertainty of predicting the stock price, we will continue to provide guidance, excluding any dilutive impact of the convertible bonds. Please reference the presentation on our website for details on the potential accounting dilution calculation.

In the first quarter – if the first quarter sales softness continues unchanged for the year, we will likely be at the lower end of the net sales guidance range. However, as we’ve stated previously, we remain confident that we can deliver our earnings and cash flow guidance even at the low end of our sales guidance.

In other full year data points, interest expense is estimated to be approximately $170 million. Our effective tax rate for 2009 is expected to be 30%. We anticipate pretax restructuring charges of between $100 million and $150 million or $0.28 to $0.43 per share and restructuring charges are excluded from our normalized EPS guidance.

Moving to our second quarter, we are assuming net sales will be down approximately 20%. We expect a high-single digit core sales decline, similar to what we have seen in the past two quarters. Our guidance assumes a 6 point to 8 point decline from product line exits and a 4 point to 6 point decline from unfavorable foreign currency.

Product line exits are expected to be highest this quarter and next due to the seasonal nature of some of the products exited. For example, woodcase pencils and cores. The negative translation impact from FX is also expected to peak in quarters two and three as the dollar did not begin to strengthen significantly until Q4 of last year.

We anticipate normalized EPS for the quarter to range from $0.30 to $0.37 compared to $0.49 a year ago. We expect operating cash flow to be consistent with the second quarter of last year, excluding the one-time cash payment of approximately $75 million to settle a foreign currency swap in the quarter. This $75 million payment has been anticipated and included in our full year cash flow guidance of more than $400 million.

In closing, our performance in quarter one increases our confidence that we will deliver full year EPS and cash flow guidance since we have been able to successfully demonstrate our ability to both improve gross margin and manage SG&A costs in the face of top line challenges during the first quarter.

And before we open the call for questions, Mark has some final comments.

Mark Ketchum

Thank you, Pat. Over the past several months, we’ve asked everyone at Newell Rubbermaid to rise to the challenge and help make 2009 a year of fulfilled opportunity. We’ve asked them to focus on the things that are in our control. This means finding ways to simplify work, reduce cost, conserve cash, gain market share, and build organizational capability for the future across all of our businesses.

Our first quarter results are a testament to the hard work of new associates. They are rising to the challenge and I appreciate their efforts. It is our responsibility to manage the company appropriately for these challenging times and yet, always keep an eye on Newell Rubbermaid’s long-term success. And so, while we are relentlessly focused on managing through the near-term challenges, our long-term strategy has not changed.

We remain committed to investing in consumer-driven innovation and brand building to drive sustainable growth, to optimizing our portfolio toward higher growth, higher margin, innovative, responsive branded businesses, and to achieving best cost and efficiency throughout the enterprise. We’ve made demonstrable progress on all of these fronts in the last few years and we will make further progress in 2009.

The biggest opportunity presented by the current crisis is to challenge the status quo. The cost reductions that we need to make are being made very thoughtfully. We are cutting the least essential and the least effective structural and demand creation SG&A dollars. Conversely, we are protecting the most effective. This not only allows us to deliver our short-term objectives, but also gives us tremendous upside leverage when consumer confidence and spending recovers, as of course it will.

Given the volatility and unpredictability 2009, we will remain flexible and adaptable, managing the business to protect earnings and cash flow. If economic conditions worsen, we have contingency plans in place to help us ensure that we can continue to deliver on our cash and EPS targets. Our solid first quarter results in the face of a weaker than expected sales environment support our confidence in doing so.

We are encouraged by the market share gains achieved across key portions of our portfolio as a result of our investments in consumer-driven innovation and strategic brand building. The exits from low-margin, commoditized product lines, while painful in the short term, make us healthier long term.

We demonstrated that our brands do matter to consumers and we believe that they will be the key growth driver as we return to a more robust economic environment. Our transformation to a best-in-class consumer innovation and brand new company is continuing and we look forward to sharing our progress with you.

With that, I’ll now ask the operator to open up the line to questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator instructions) Your first question comes from Chris Ferrara with Merrill Lynch.

Chris Ferrara – Merrill Lynch

I just wanted to ask – Pat, you were talking about us seeing and other people seeing possibly a bottoming out of the economy, you said you are not ready to make that call. I’m just wondering is that because you are not seeing it in your end markets or is it because maybe you are seeing it, but you really don’t want to base anything on one quarter as worth of seeing it or one month worth of seeing it?

Mark Ketchum

Chris, let me take that one. The answer is we are not seeing a strong enough indication across the big enough portion of our portfolio to make that call. So, the evidence is still too spotty.

Chris Ferrara – Merrill Lynch

Okay. And I just – I guess real quickly on gross margin – I mean, so obviously you are up pretty nicely this quarter relatively to where I guess we think you would have come in. I guess simply, is there any structural reason why Q4 gross margins in the business would be lower than any other quarter across the businesses? I’m just looking at that 30% that you guys put up last quarter and obviously, there was a lot going on in the December quarter of ’08 versus the 35% we saw in the December quarter of ’07. So just – I guess simply stated, structurally is there any reason why that – why Q4 would be lower than every other quarter?

Pat Robinson

No, there is not.

Mark Ketchum

I think fourth quarter of last year was specifically impacted by – as we saw the rather sudden decline in November and December, we reacted in our manufacturing locations and starting shutting down production and obviously that affected our ability to absorb some of the costs.

Pat Robinson

There was also some inventory write-downs we took in the quarter that affected fourth quarter of ’08 that were sort of one-time in nature.

Chris Ferrara – Merrill Lynch

Great. Thanks guys, I appreciate it.

Operator

Your next question comes from Joe Altobello with Oppenheimer.

Joe Altobello – Oppenheimer

Hi guys, good morning. The first question – I just wanted to follow up on Chris’ question on the gross margin. When do we start to see the commodity costs pullback really push gross margin higher, is it 2Q or 3Q or are we starting to see that already?

Pat Robinson

Well, as you know, resin has been running favorable for us; it’s one of our commodities. Some of the other commodities will certainly level off, but year-over-year they are still showing increases for us, but we are not going to comment on each of the pieces. The product line exits are probably the biggest – are the biggest driver of our gross margin improvement. We had the 2008 pricing carryover in our normal productivity in our plants, which are driving positive gross margin improvement.

On the negative side, we have the transactional effects and we are still seeing the negative mix from the consumers and customers frankly trading down. But net of all of that, we said it’s going to be positive and the product line exits alone will be positive 200 basis points when we are completed. So, we said that all along. So, those are the drivers, but we don’t want to break out each of those for you individually just because they move so frequently and we will be wrong whatever we tell you.

Joe Altobello – Oppenheimer

Right. So, even if you exclude the product exits, all of the other moving parts you mentioned are moving in the right direction. So, I guess the point I’m trying to make is that the up 90 BPs this quarter is probably a low watermark.

Pat Robinson

Well, yes, I think as a delta maybe the low watermark – as a delta, it will probably be the low mark, you are right. But as an absolute number, I’m not sure it will be the low mark, but those margins can be maintained for the rest of the year and would be a reasonable assumption.

Joe Altobello – Oppenheimer

Okay. And then in terms of the Office Products business, obviously the sales were pretty weak, but you held your operating profit very nicely. What’s going on there that is different from the other segments?

Pat Robinson

I think they took the most actions from an SG&A standpoint because of that substantial sales decline. So, they – of our SG&A decline, they were the largest piece.

Mark Ketchum

And again, I’d just remind you, Joe, that the decline – out of that 24 point decline, 14 points of that was FX and purposeful product line exits.

Pat Robinson

Which have very little drop to the bottom line compared to our core sales decline.

Joe Altobello – Oppenheimer

Okay. So, that was not due to the guy who is running Office Products these days?

Pat Robinson

Well, he has done a really great job, I have to say.

Joe Altobello – Oppenheimer

Got it. Okay. And then lastly, if I could, you mentioned some weakness in Europe and in the commercial and industrial end users. Is Europe getting worse at a faster pace and then secondly, what percentage of your business is commercial and industrial?

Pat Robinson

Well, Europe has certainly caught up with the US quickly. I will say that. So – I wouldn’t say that they are any worse than US right now, but they are certainly equal to the US as far as their economic impact. The commercial and industrial piece, Mark, do you have a percentage of the total business? Are you talking about Office Products or just total –?

Joe Altobello – Oppenheimer

Just in general, just roughly.

Pat Robinson

I don’t have that – we’ll give you a number, I don’t know. Can we get back to you on that?

Joe Altobello – Oppenheimer

Sure, absolutely.

Pat Robinson

Okay.

Joe Altobello – Oppenheimer

Okay. Great, thank you.

Operator

Your next question comes from Bill Schmitz with Deutsche Bank.

Bill Schmitz – Deutsche Bank

Hi guys, good morning.

Pat Robinson

Good morning.

Mark Ketchum

Good morning.

Bill Schmitz – Deutsche Bank

Can we just get some more of the assumptions into the model? I mean maybe it’s too much granularity, but did you say what you think the commodity pressure is going to be in aggregate for the year or what the benefit is going to be?

Pat Robinson

No, we are not saying that. No, we don’t want to break that out because it changes every quarter, Bill. And if we told you a number even a quarter ago, we’d be wrong right now. I told you six months ago, we’d be really wrong. So, it just changes so rapidly, we just don’t want to give specifics on each number anymore because –

Mark Ketchum

But I think it’s true as we are expecting that to be offset – to also offset positive benefits of pricing potentially. So, we took some pricing, as you know, last year we were getting carry-through effect of that in the first quarter, but to the extent that commodities go down, that will – they will put pressure on the pricing and then we have to get back some of that pricing. So, we are assuming that that’s a wash.

Bill Schmitz – Deutsche Bank

Got you. And then, on production downtime, is that limited to this quarter or we are going to see that throughout the year because it seems like you made some great progress on the inventory side, I mean do you guys start firing these facilities up again?

Pat Robinson

No. Well, we did a nice job this quarter, a $100 million less growth in inventories than a year ago. I think it’s a super job of the operations and especially in the face of the sales decline that we are seeing, okay? But we expect that inventories will be down year-over-year. That will be the biggest driver of our working capital being down. So we still have some work to do to make sure that we do that. But I like what we’ve done in the first quarter and it’s a great start.

Mark Ketchum

Yes, we will have to continue to take downtime in our factories throughout the year to get our inventory targets throughout all four quarters.

Bill Schmitz – Deutsche Bank

Got you. And then, last one if I could, are you – when you talk about retail inventory de-stocking, I mean how much of it is de-stocking and how of it is dilutions? I mean, are you seeing guys say, you know, well, we just don’t want this product anymore for good or is it just we got too much inventory in the warehouse and we are going to work some of it down?

Mark Ketchum

It really is the ladder. It really is we got too much inventory and we are going to work it down. I mean, they are risking and seeing some increased level of out-of-stocks and so on in order to do that, but they are aggressively managing cash as well. And I’d say in some cases, in some channels or customers, they recognize that they haven’t been as diligent in this area as they could have been in the past and obviously, the times demand that they be diligent.

Bill Schmitz – Deutsche Bank

Got you. And I lied, and I thought just one more if I could. Was there any change in the pace of sales? I know your January and February were really weak. I mean March and April, did you see any uptick at all in some of the sales trends?

Pat Robinson

Well, our first quarter was relatively flat month-to-month as far as changes last year.

Bill Schmitz – Deutsche Bank

Okay. And how about April?

Mark Ketchum

I’d say so far it is, again, not a material change.

Bill Schmitz – Deutsche Bank

Okay. Great, thank you very much.

Operator

And your next question comes from John Faucher with JPMorgan.

John Faucher – JPMorgan

All of my questions have been answered, thanks.

Pat Robinson

Okay.

Operator

Thank you very much. Your next question comes from Wendy Nicholson with Citi Investment Research.

Wendy Nicholson – Citi Investment Research

Back to Chris’ question, is the fourth quarter was really just an anomaly due to sort of production downtimes? I mean, is it reasonable to expect that in 2009 full-year gross margin could be in the kind of 34% to 35% range again or is that just too aggressive?

Pat Robinson

I don’t think that’s unreasonable at all.

Wendy Nicholson – Citi Investment Research

Okay. And the 200 basis points of the product line exits, I want to go back to the – original guidance I think you gave us was the two-thirds of the product line exits were going to come from just SKU discontinuation and a third from the sale of the businesses or the sale of the products. Has that ratio changed and I’m just wondering how the timing of that’s going to flow?

Mark Ketchum

Well, I’d say the ratio has probably not changed. Again though, as we assessed our ability to make the divestitures of those businesses that we think are – can be pulled out and divested and don’t find the right markets for those. We continue to consider all the other alternatives. So, ultimately that ratio could change and if it changes, it will change in the direction of less divestiture and more just flat-out exits.

Wendy Nicholson – Citi Investment Research

And do you have a timeframe in mind? In other words, because I’m trying to figure out that 200 basis points, is it a, hey, we got to realize that over the four quarters, six quarters, if we can’t sell it, boom, it’s gone or what’s kind of the internal discipline or thinking around that?

Mark Ketchum

We think we are going to be out of roughly 80% of it by the end of this year and I think it’s the best way to think of it and yet that will affect all four quarters of the year. Now, recall we made this announcement in July of last year. I told you at that time we were giving our customers time to find alternative supplies, normally about six months.

So, while we started to see a little bit of exit in the fourth quarter last year, most of that decline we are going to see throughout this year because most of them took advantage of that six-month window we gave them to continue buying our product lines and then we’ll see the effect – it will be a year-over-year effect in all four quarters this year. It started out reasonably strong in the first quarter, it will be even strong in the second and third quarter and will start to fall off a little bit in the fourth quarter because as I said, we saw some of that last year in the fourth quarter.

Pat Robinson

And really, the only reason we are not – our goal is to be out all of it this year but because of the market for these – trying to sell these businesses is just not available right now, we won’t reach that goal.

Wendy Nicholson – Citi Investment Research

Fair enough, but that sounds great. But my last question is just on the pricing side, Mark. In response to another question I think you said that you were anticipating maybe some price rollbacks given the raw material environment and how much relief you’ve seen. I’m honestly surprised that you haven’t started to see that sooner or already given just how much resin has come down, how big private label is in some of your categories and how weak the consumer is, but it sounds like you haven’t seen anything yet. Is that right?

Mark Ketchum

Well, let me respond kind of to each of those elements, Wendy. One, remember we are getting out of a lot of these resin-sensitive categories. So, the very categories we are exiting, in many cases are the ones that are resin-sensitive commoditized, all right? So, we wouldn’t see – have to get back pricing because we are getting out.

I think we are seeing pricing pressure in general just because – not just because of the effect of commodity costs, but the economy in general, all right? And so, I’m seeing as much pressure, I think that’s due to that. Pat said before and it may have not registered, but we are actually seeing cost increases still year-over-year in several key areas, packaging, our source product, some metals. And so, we actually are still seeing increases and therefore, we’ve got pretty information to go back to our customers and say, you know what, we are still – the pricing that we took is still pricing that’s appropriate to be taking.

But as I said, we are going to be responding to pricing I think as much because of the total competitive environment as anything else. And the other thing is what we are doing is we are really judiciously looking at some of the requests because the requests from some of the customers are kind of crazy we think. They are going to destroy the value in the category and we don’t want to chase those price points. We would rather walk away from the promotional sales on some of these possibilities than to let our brand be exposed to extreme discounting because it doesn’t help in the long run.

That’s – I mean, so we are considering all of those factors in there when we are talking about what we expect to see happen with pricing and that’s why we are not being too aggressive with our – the positive, potential positive impact of pricing even though we had a good effect in that in the first quarter.

Wendy Nicholson – Citi Investment Research

Got it. Wonderful, thank you very much.

Operator

Your next question comes from Budd Bugatch with Raymond James.

Chad – Raymond James

Good morning, Mark, Pat, and Nancy. This is actually Chad [ph] filling in for Budd.

Mark Ketchum

Hi, Chad.

Pat Robinson

Good morning.

Chad – Raymond James

A couple of questions if I may. Congratulations obviously on a very good performance in Q1, although we were certainly surprised by the magnitude of the upside relative to your guidance considering you had reaffirmed that fairly close to the end of the quarter. Could you maybe give us a little more detail or help us understand – I mean, what went right, what really drove the variance versus the guidance and why was it so much better?

Mark Ketchum

Right. Well, first let me respond to why we didn’t say anything different on the guidance when we talked in March. I’d remind you that our visibility of sales is very immediate, all right? We get daily sales reports and so by the end of March, I get a real good idea of what the first quarter sales are going to look like. We normally roll up our profit numbers on a monthly basis and even then not all of the items on every line item there.

And so, we just – we didn’t have any reason to believe that we are going to exceed guidance by that much. We were tracking at the top end of our guidance range, but not there. Second thing I’d tell you is that my expectation is that our businesses are all managing their business conservatively.

We’ve told you before we are doing everything we can to protect our cash and our EPS numbers. And so, I think that’s – we are seeing that come through, businesses are managing. I’ve told them to manage for the worst and then be pleasantly surprised when things turn out a little bit better and then in fact, that’s what – that’s exactly what they are doing.

So, we saw a penny or two across to all of our – each of our businesses and a penny or two from corporate and that added up to the difference between us being at the high end of our guidance and being at $0.20.

Chad – Raymond James

Great. Well, that’s obviously very good to hear. Another question, you maintained the FY ’09 revenue outlook for down 10 percentage points to 15 percentage points and even though sales in Q1 were down worse than that and we are expecting Q2 now to be down about 20 percentage points and Pat talked about Q2 being a little heavier impact from the product line exits and currency, but it does seem to assume a moderation in the decline in the core sales and should I read that as you are assuming consumer demand remains pretty weak, but maybe less of an inventory reduction at consumers or how do we think about that?

Mark Ketchum

No, that’s exactly the right way to think about it. We will have less of an impact from inventory reductions by customers as the year goes on and then, finally when we get to the fourth quarter, we actually will see an easier comp.

Chad – Raymond James

Okay. And one last question. Pat, could you share with us the assumptions for sales and operating margins by segments that you’re embedded into the ’09 guidance?

Pat Robinson

Well, not operating margin, but sales, we’ve said before that Home & Family should be at the better end of our guidance and the other two segments at the lower end. So, that’s the extent of what we talked about before and we haven’t given operating guidance by segment and we are not going to now.

Chad – Raymond James

Okay. Thanks a lot, guys. Good luck for the rest of the year.

Mark Ketchum

Thank you.

Operator

Your next question comes from Connie Maneaty with BMO Capital Markets.

Connie Maneaty – BMO Capital Markets

Thanks. First a follow-up on that last question. I mean, the variance from your last guidance was so surprising. Were you looking – before you realized how strong the quarter was going to be, were you anticipating that the gross margin would decline because of the product line exits?

Pat Robinson

We were never anticipating it was going to decline, we thought it would be up year-over-year. But as Mark said, we don’t get real-time updates on our earnings; we are – update on our earnings is on a monthly basis. So, at the time we did the pre-announcement we had the February information and really the improvement was right across all the segments, all the segments beat their numbers by a penny or two and then we had about a penny or two improvement at corporate. So, it was just – but we expected to be at the high end, but the combination of that brought us to $0.20.

Connie Maneaty – BMO Capital Markets

Okay. Why was interest expense so low in the quarter? Is it the timing of all the financing or is there something quirky in the quarter?

Pat Robinson

No, that’s right. No, we should expect now the interest expense is going to increase because of the new financing that we’ve done and to be relatively flat now by quarter for the rest of the year, so kind of in the mid $0.40 range, $0.45, $0.46 a quarter.

Connie Maneaty – BMO Capital Markets

Okay. That’s all I had.

Pat Robinson

I’m sorry, $45 million, $46 million a quarter.

Connie Maneaty – BMO Capital Markets

Thanks. That’s all I had.

Operator

Your last question comes from Linda Bolton Weiser with Caris.

Linda Bolton Weiser – Caris

Hi, thanks. I was under the impression that really your intent on the product line exits was to eliminate things that were highly based on certain commodities, like plastic. But it does seem like some of the stuff you are doing is quite strategic like I think you mentioned the woodcase pencils.

Mark Ketchum

I just said commodity sensitive and not responsive innovation, wooden pencils, the number 2 yellow pencil with a pink eraser is not that innovative.

Pat Robinson

I will point out that is only an exit in North America, not in other areas of the world where woodcase pencils are still very important, primarily Latin America. So, we will stay in the business there, but North America they’ve become commoditized and it’s not a good category for us.

Linda Bolton Weiser – Caris

So, are there any other areas that are like that, that are not so much quantity based, but just based on the nature of the product that you are exiting or planning to exit?

Pat Robinson

There are some that don’t fit our business model such as, our Ashland business doesn’t fit our models and our OEM business in our Tools & Hardware segment that’s an OEM supplier to the window industry. So, it’s not a business that we would respond to any type of marketing or input. So, that’s another example of one that wouldn’t fit the original characterization.

Linda Bolton Weiser – Caris

Okay. And – I mean, just in many years of following Newell, it just seems like you are always exiting and divesting and deciding something isn’t a really good business to be in. I remember, Newell always used to say never get into anything with electrical cords attached and here you are, getting into electrical things in Calphalon. So, are you kind of coming to a period where you think the product line exits and all of this will be really over or is this just a perpetual thing with the way Newell is as a company?

Mark Ketchum

I wouldn’t want to characterize it as perpetual because of the way Newell is as a company. I would tell you, Linda, that I think this has been a key strategic plank for the time I’ve been sitting in this chair and that key plank has been we are going to change our business model and we are going to get the portfolio right to fit that business model.

We started telling you – we started breaking down our business into – one of the ways we looked at it was looking at it as what part of it is commoditized, what part of it is premium branded, what part of it is affordable luxury, and what part of it is commercial and industrial and we said, we want to be in those latter three categories, but not in the commoditized part of it.

In 2003 or 2004, we had as much as 44% of our total revenue in that commoditized category. Coming into 2008, it was still roughly 10%. So, we still had a portion left to go and with the moves that we announced in July, we are basically addressing that last 10%. So, as we come out of 2009, we think that portion that’s commoditized will be low-single digits, 1% to 3%.

So, I think we’ve been doing what we said we are going to do and we will have that – we will have a portfolio at the end of 2009 that we think is almost entirely a good business model. That said, I’ll never say that we shouldn’t be continuing to look at what’s it going to take to optimize the business model.

Business has changed, competitive situation changes and so on, but at least with this round I think we will now have the vast majority done, but I would hope that you would expect us to always evaluate our portfolio every year and add good things and take away less good things.

Linda Bolton Weiser – Caris

Okay. And just – can you just tell us what is the magnitude of the dilutive impact if the share prices stays as high as it is, how much of that’s EPS?

Pat Robinson

Yes, it’s out on the web, but let me help you out here. Hold on just a second. At a – well, there is two types of dilution first of all, one is economic and the other is GAAP, okay? And the economic dilution is less than the GAAP dilution. They will become the same at the maturity of the security in five years, but in the mean time the GAAP dilution will be higher, okay? And we can explain that offline why that is, but the GAAP dilution at a share price of, let’s call $11 a share, is around 3% and zero from an economic standpoint of that price.

Linda Bolton Weiser – Caris

Thank you very much.

Operator

If we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at area code 770-418-7662. This call will be available on the web at www.newellrubbermaid.com and on digital replay at 888-203-1112 or area code 719-457-0820 for international callers with the conference code of 8804754, starting two hours following the conclusion of today’s call and ending February the 12th.

This concludes today’s conference. You may disconnect.

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