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Q3 2012 Earnings Call Presentation
October 26, 2012
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Statements in this presentation that are not historical in nature constitute forward-looking statements. These forward-looking statements relate to information or assumptions about the effects of sales, income/(loss), earnings per share, operating income, operating or gross margin improvements or declines, Project Renewal, the European Transformation Plan, capital and other expenditures, cash flow, dividends, restructuring and restructuring-related costs, costs and cost savings, inflation or deflation, particularly with respect to commodities such as oil and resin, debt ratings, and management's plans, projections and objectives for future operations and performance. These statements are accompanied by words such as "anticipate," "expect," "project," "will," "believe," "estimate" and similar expressions. Actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, our dependence on the strength of retail, commercial and industrial sectors of the economy in light of the continuation or escalation of the global economic slowdown or regional sovereign debt issues; currency fluctuations; competition with other manufacturers and distributors of consumer products; major retailers' strong bargaining power; changes in the prices of raw materials and sourced products and our ability to obtain raw materials and sourced products in a timely manner from suppliers; our ability to develop innovative new products and to develop, maintain and strengthen our end-user brands; our ability to expeditiously close facilities and move operations while managing foreign regulations and other impediments; our ability to implement successfully information technology solutions throughout our organization; our ability to improve productivity and streamline operations; changes to our credit ratings; significant increases in the funding obligations related to our pension plans due to declining asset values, declining interest rates or otherwise; the imposition of tax liabilities greater than our provisions for such matters; the risks inherent in our foreign operations and those factors listed in the company’s latest quarterly report on Form 10-Q and Exhibit 99.1 thereto filed with the Securities and Exchange Commission. Changes in such assumptions or factors could produce significantly different results. The information contained in this presentation is as of the date indicated. The company assumes no obligation to update any forward-looking statements contained in this presentation as a result of new information or future events or developments. This presentation contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in this presentation is a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
Nancy O’Donnell
VP, Investor Relations
(770) 418-7723
Alisha Pennix
Sr. Manager, Investor Relations
(770) 418-7706
INVESTOR RELATIONS CONTACTS:
Forward-looking statement
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Net Sales of $1.54 billion, 0.9% below prior year, reflecting 1.5% core sales growth and 2.4% unfavorable foreign currency impact
Gross Margin up 50 basis points versus prior year to 37.9% as pricing and productivity more than offset the negative impact of input cost inflation
Normalized Operating Margin of 13.7%, flat to last year, as gross margin expansion was offset by an increase in SG&A expense attributable to the absence of certain prior year compensation-related benefits
Normalized EPS of $0.47, as compared with $0.45 in the prior year
Operating cash flow of $305.1 million, versus $295.3 million last year
The company increased the quarterly dividend by 50% to $0.15 a share
The company repurchased 1.5 million shares at a cost of $25.9 million
Q3 2012 summary
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Net Sales of $4.38 billion, a 0.3% increase versus prior year, reflecting a 2.2% core sales growth and 1.9% unfavorable foreign currency impact
Gross Margin up 50 basis points versus prior year to 38.2% as productivity gains and pricing more than offset the effect of input cost inflation
Normalized Operating Margin up 20 basis points versus prior year to 12.9%
Normalized EPS of $1.27, as compared with $1.19 in the prior year
Operating cash flow of $357.2 million, versus $279.8 million last year
The company repurchased 3.8 million shares at a cost of $67.2 million
Q3 YTD 2012 summary
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Q3 2012 Consumer Professional
Baby & Parenting Essentials
Total Net
Sales
Core Sales (0.4) 2.5 7.8 1.5
Currency Translation (1.7) (3.6) (2.6) (2.4)
Net Sales (2.1) (1.1) 5.2 (0.9)
Q3 2012: sales percent change by segment
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Q3 YTD 2012 Consumer Professional
Baby & Parenting Essentials
Total Net
Sales
Core Sales (1.2) 4.3 11.2 2.2
Currency Translation (1.4) (2.6) (1.6) (1.9)
Net Sales (2.6) 1.7 9.6 0.3
Q3 YTD 2012: sales percent change by segment
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* Reflects outlook communicated in the October 26, 2012 Q3 2012 Earnings Release and Earnings Call
** See reconciliation included in the Appendix
FY 2012 Outlook*
Core Sales 2% to 3%
Currency Translation -1.5% to -2%
Net Sales Growth 0% to 1.5%
“Normalized” Operating Margin Up to +20 basis points
“Normalized” EPS** $1.63 to $1.69
Cash Flow from Operations $550 to $600 million
Capital Expenditures $200 to $225 million
FY 2012 outlook
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Expansion of Project Renewal
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Expansion of Project Renewal
Expansion of Project Renewal is expected to generate incremental annualized cost savings of $180 to $225 million when fully implemented by the end of the second quarter of 2015
Expect to incur incremental cash costs of $225 to $250 million and record pretax restructuring charges of $250 to $275 million over the same period
Majority of savings reinvested to drive faster growth and geographic expansion in priority emerging markets
Cumulative costs of the expanded Project Renewal are now expected to be $340 to $375 million pretax, with cash costs of $300 to $340 million
Project Renewal in total is expected to generate annualized costs savings of $270 to $325 million by the end of the second quarter of 2015
The company is on track to realize annualized cost savings from first phase of Project Renewal of $90 to $100 million by the first half of 2013
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Project Renewal: Five new work streams
Supply Chain Footprint
Best Cost Back Office
Best Cost Finance
EMEA Transformation
Organizational Simplification
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Project Renewal: Expected outcomes
Flatter and simplified organization with strengthened Brand and Category Development and Execution and Delivery capabilities
Accelerated release of costs, the majority of which will be invested in faster growth and the geographic expansion of our leading brands
A greater line of sight to earnings and operating cash flow growth while the company invests to accelerate performance
Strengthened leadership team that can drive faster implementation of Growth Game Plan
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New Organizational Model
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BU
SIN
ESS
MO
DEL
5 W
AY
S TO
WIN
WH
ERE
TO P
LAY
WIN BIGGER
WIN WHEREWE ARE
INCUBATEFOR
GROWTH
CT&A, IP&S, LABELING, COMMERCIAL PRODUCTSFINE WRITINGWRITING & CREATIVE EXPRESSION
HOME ORGANIZATION & STYLECULINARY LIFESTYLESHARDWARE
BABY & PARENTINGENDICIA, MIMIORUBBERMAID MEDICAL SOLUTIONS
NWL is a growing brand-led business with a strong home in the United States and global ambition
Our Consumer brands win at the point of decision through excellence in performance, design and innovation
Our Professional brands win the loyalty of the chooser by improving the productivity and performance of the user
We collaborate with our supplier and customer partners across the total enterprise in a shared commitment to growth and creating value
We deliver competitive returns to our shareholders through consistent, sustainable and profitable growth
Sharpen brand strategies on highest impact growth levers
Launch new USA customer development organization
Deliver European Transformation, Project Renewal savings, and working capital reduction
Drive performance culture aligned to business strategy
Accelerate Latin Americaand Asia in Win BiggerCategories.
MAKE OUR BRANDS REALLY MATTER
BUILD AN EXECUTIONPOWERHOUSE
UNLOCK TRAPPEDCAPACITY FOR GROWTH
DEVELOP THE TEAMFOR GROWTH
EXTEND BEYONDOUR BORDERS
Partner to win with customers and suppliers
Develop joint business plans for new channel penetration and broader distribution
Simplify everything to release costs for growth
Build a more global perspective and talent base
Strategic insight program in China
Newell Rubbermaid helps people flourish every day, where they live, learn, work and play
EDGE: EVERY DAY GREAT EXECUTION
PU
RP
OSE
AM
BIT
ION
Growth Game Plan
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Make brands really matter
Build an execution powerhouse
Unlock trapped capacity for growth
Extend our boundaries
Develop a growth team
5 Ways to Win shape activities
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Development
Marketing & Insight
Advertising
R&D
Industrial Design
e-Branding Building
Public Relations
Delivery
General Management
Customer Development
Planning
Procurement
Manufacturing
Customer Service
Interdependent and Equal in Importance
Two capabilities of equal stature
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Create new Development Organization accountable for building big brand ideas, high-impact disruptive innovation, and a true point of difference through superior design and product experience
Create new Delivery Organization accountable for P&L management and delivering the maximum commercial value from the growth ideas built by the Development Organization
Create much flatter structures giving bigger roles to key leaders while driving simplification in order to focus on growth
Delayer top structures eliminating two operating Groups (Consumer and Professional) and further consolidating Global Business Units from 9 to 6 reporting Business Segments
New Business Segments are part of Delivery Organization
Structure follows Strategy
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Six new Business Segments
Home Solutions
Baby & Parenting
Writing
Commercial Products
Tools
Specialty
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New Newell Executive Team
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30 years of management and marketing experience (10 years NWL, 20 years Black & Decker)
Previously President – Newell Professional Group and President of Lenox
Accelerated international expansion in the Professional businesses
Repositioned the Lenox brand to deliver double-digit sales growth
Businesses under his leadership have been the most significant growth contributors over the last few years
Key appointments
William A. Burke III Chief Operating Officer
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Former head of Global Corporate Strategy at Unilever reporting to the Global Chief Executive Officer
Founder of international consulting firm Tarchetti & Co. Ltd.
Drove development of Growth Game Plan with top executive team
Served in variety of senior strategy, business and finance roles at Unilever for 14 years
Originally from United Kingdom
Key appointments
Mark Tarchetti Chief Development Officer
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Key appointments
Doug Martin Chief Financial Officer
25 years of experience at Newell Rubbermaid in virtually every aspect of corporate and operating finance
Recently appointed to serve as CFO and coordinate all of the company’s cost and cash initiatives to unlock the trapped capacity for growth
As Deputy CFO, designed roadmap for streamlining the company’s cost structure
Previously Vice President of Finance – Newell Consumer Group; Vice President of Finance – Office Products; and Treasurer
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Key appointments
Jim Sweet Chief Human Resources Officer
Over 28 years of human resources management experience with diverse global companies
Provided strong change management leadership and business partnering to the company’s leadership
Former President and Co-Founder of Capital H Inc., a human resource services company
Held top-level human resource roles with the Kohler Co., Keystone International and the Brady Corporation
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Key appointments
John Stipancich Chief Legal Officer & EMEA Lead
Broad legal and business background including experience in private equity
Recently assumed responsibility for the European Team managing the company’s results in EMEA in addition to role as Chief Legal Officer and General Counsel
Previously Executive Vice President and General Counsel of Evenflo, a former Kohlberg Kravis Roberts & Co. portfolio company
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Over 28 years of customer development experience (8 years Unilever, 20 years Kraft Foods)
Led customer development for Unilever’s $11 billion North American business
Responsible for catapulting Unilever to top 5 placement in the U.S. consumer goods industry as measured by Kantar
Responsible for transforming customer development capabilities at Kraft and Unilever
Key appointments
Joe Cavaliere Global Chief Customer Officer
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Key appointments
Chuck Jones Chief Design and R&D Officer
Successfully built global design and development teams that deliver high-impact innovations at Whirlpool, Masco, Xerox and Herman Miller
Winner of prestigious Smithsonian National Design Award; named a Master of Design by Fast Company
Elected to the Academy of Fellows of the World Technology Network and the Academy of Fellows of the International Design Society
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Over 30 years of marketing, insights and brand strategy experience
Built and led Unilever’s Global Insights function of more than 700 people in over 50 countries
Proven track record of creating brands and bringing innovation to consumers
Lived and worked in Taiwan, Korea, Japan, UK
Originally from New Zealand
Key appointments
Richard Davies Chief Marketing & Insights Officer
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Key appointments
Gordon Steele Chief Information Officer
Over 20 years of senior management experience in information technology
Previously Vice President and CIO for Global Information Technology at Nike, where he led the successful implementation of SAP on a global basis
Also served in leadership capacities with Mentor Graphics Corporation, Warwick Financial Systems, US Bancorp and Fred Meyer Savings & Loan
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Appendix
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Reconciliation: Q3 2012 and Q3 2011 “Normalized” EPS
Q3 2012* Q3 2011*
Diluted earnings per share (as reported): $0.37 ($0.61)
Impairment charges $0.00 $1.05
Restructuring and restructuring-related costs $0.06 $0.06
Discontinued operations ($0.01) $0.04
CEO transition costs $0.00 $0.01
Income tax - discrete contingencies, expiration of
statutes of limitation and resolution of examinations $0.03 ($0.10)
Loss related to the extinguishment of debt $0.01 $0.00
Other items $0.00 ($0.01)
"Normalized" EPS $0.47 $0.45
* totals may not add due to rounding
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Reconciliation: Q3 YTD 2012 and Q3 YTD 2011 “Normalized” EPS
Q3 YTD 2012 Q3 YTD 2011*
Diluted earnings per share (as reported): $1.02 $0.15
Impairment charges $0.00 $1.03
Restructuring and restructuring-related costs $0.18 $0.12
Discontinued operations ($0.01) $0.03
CEO transition costs $0.00 $0.01
Income tax - discrete contingencies, expiration of
statutes of limitation and resolution of examinations$0.07 ($0.17)
Loss related to the extinguishment of debt $0.01 $0.01
"Normalized" EPS $1.27 $1.19
* totals may not add due to rounding
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Reconciliation: Full Year 2012 Outlook for “Normalized” EPS
FY 2012
Diluted earnings per share $1.27 to $1.33
Restructuring and restructuring-related costs [ 1 ] $0.27 to $0.32
Discontinued operations ($0.01)
Income tax - discrete contingencies, expiration of statutes of
limitation and resolution of examinations $0.07
Loss related to the extinguishment of debt $0.01
"Normalized" EPS $1.63 to $1.69
[ 1 ] Restructuring and restructuring-related costs include impairment charges, employee
termination benefits and other costs associated with the European Transformation Plan and
Project Renewal.
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$ millions
Reconciliation: Q3 2012 and Q3 2011 Operating Income, As Reported, to Normalized Operating Income
Q3 2012 Q3 2011
Net sales $1,535.3 $1,549.9
Operating income (as reported) $188.4 ($192.2)
CEO transition costs $ - $4.4
Impairment charges $ - $382.6
Restructuring and restructuring-related costs $22.3 $17.0
Operating income (normalized) $210.7 $211.8
Operating margin (normalized) 13.7% 13.7%
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$ millions
Reconciliation: Q3 YTD 2012 and Q3 YTD 2011 Operating Income, As Reported, to Normalized Operating Income
Q3 YTD 2012 Q3 YTD 2011
Net sales $4,383.9 $4,369.4
Operating income (as reported) $498.1 $131.7
CEO transition costs $ - $4.4
Impairment charges $ - $382.6
Restructuring and restructuring-related costs $66.6 $38.1
Operating income (normalized) $564.7 $556.8
Operating margin (normalized) 12.9% 12.7%