Newell Q1 Earnings Beat Ests, Flat Y/Y - Analyst Blog

Newell Rubbermaid Inc. NWL, the producer of Sharpie pens and Rubbermaid containers, posted first-quarter 2014 adjusted earnings per share of 35 cents, which surpassed the Zacks Consensus Estimate of 32 cents. However, quarterly adjusted earnings were flat year over year since the benefits from increased gross margin and lower share count were fully offset by weak performance at the company's Baby and Home Solution divisions.

On a reported basis, including special items, the company reported earnings of 19 cents per share, which was in line with the year-ago comparable quarter figure.

During the quarter, Newell's net sales dropped 0.7% to $1,232.2 million from $1,240.8 million in the prior-year quarter and lagged the Zacks Consensus Estimate of $1,249 million. However, core sales of the company rose 0.7%, excluding a negative impact of 140 basis points (bps) from foreign currency translation.

Newell's gross profit fell 0.9% year over year to $469.3 million, while adjusted gross profit grew nearly 1% due to one-time items recorded in the reported quarter. Adjusted gross margin expanded 60 bps to 38.8% owing to improved productivity and pricing, partly offset by cost inflation and unfavorable currency exchange rates.

Adjusted operating income decreased 2.1% year over year to $135.9 million while operating margin contracted 20 bps to 11.0%.

Other Financial Details

Newell ended the quarter with cash and cash equivalents of $136.8 million and long-term debt of $1,666.7 million. Shareholders' equity was $2,070.0 million.

During the first quarter, the company's capital expenditures came in at $31.9 million. Total operating cash flows used in the quarter were $92.1 million. During the quarter, the company returned $42.9 million to shareholders through dividend payouts and repurchased 1.5 million shares for $44.4 million under its $350 million share repurchase program.

Along with its earnings release, the company's board of directors raised the quarterly dividend by 13% to 17 cents per share, marking the fourth dividend hike in the last three years.

Reiteration of Fiscal 2014 Guidance

The company reiterated its full-year 2014 adjusted earnings projection of $1.94–$2.00 per share. The company's 2014 adjusted earnings forecast exclude $100–$120 million expenses related to Project Renewal restructuring and other restructuring activities.

Further, Newell continues to anticipate core sales growth of 3%–4% and an improvement of up to 40 bps in the operating margin during fiscal 2014.

Newell expects to generate operating cash flow in the range of $600–$650 million in 2014, with planned capital expenditures between $150 million and $175 million.

Moreover, this Zacks Rank #3 (Hold) company expects to achieve its targeted annualized cost savings of $270–$325 million by the second quarter of 2015 through its Project Renewal program.

The initiative will be funded by savings generated through reduction of structural selling as well as general and administrative expenses. The Project Renewal scheme will enable the company to reduce the complexities of the organization, while increasing investments in the most important growth areas within the business.

Other Stocks to Consider

Other stocks that warrant a look in the retail space include Aaron's Inc. AAN, Leggett & Platt, Incorporated LEG and Best Buy Co., Inc. BBY. While Aaron's sports a Zacks Rank #1 (Strong Buy), Leggett & Platt and Best Buy hold a Zacks Rank #2 (Buy).