Newell Rubbermaid today announced solid second quarter 2012 results and reaffirmed full-year core sales, normalized operating margin, normalized EPS and operating cash flow guidance.

"Our solid second quarter results build on the momentum established in the first quarter, resulting in a good first half of 2012. During the first half, we reported 2.5 percent core sales growth, normalized operating margin expansion of 20 basis points, and normalized earnings per share increase of 8.1 percent," said Michael Polk, Newell Rubbermaid's President and CEO. "This performance was driven by strong core sales growth in our Professional and Baby & Parenting segments and double-digit core sales growth in emerging markets. We generated over $70 million more operating cash flow in the first half of 2012 than prior year, continued to improve our capital structure by initiating the refinancing of $437 million of convertible securities on more favorable terms, and returned $95 million to our shareholders in the form of dividends and share repurchases. We're encouraged by the first half results, and we believe our portfolio is well positioned to meet our financial and strategic goals for the year."

Second Quarter Executive Summary

• Second quarter 2012 net sales were $1.52 billion, a decrease of 1.9 percent versus prior year results. Core sales, which exclude the impact of changes in foreign currency translation, grew by 0.4 percent. Adjusted for an estimated timing shift in customer orders from the second quarter to the first quarter related to the company's European SAP conversion, core sales in the quarter rose 2.3 percent over the year-ago quarter. Net sales for the first six months were $2.85 billion, an increase of 1.0 percent versus prior year first half results.

• Normalized diluted earnings per share were $0.47 compared with $0.45 in the prior year period; reported diluted earnings per share were $0.38 compared with $0.49 in the year-ago period.

• Operating cash flow in the quarter was $103.1 million, an improvement of $10.3 million compared with the year-ago period.
• During the quarter, the company issued $500 million of medium term notes in two tranches of $250 million, with 3 and 10 year maturities. Subsequent to quarter end, the proceeds were used to redeem $437 million in outstanding junior convertible subordinated debentures resulting in annualized interest expense savings of approximately $0.02 per diluted share.
• The company paid $24.9 million to repurchase 1.4 million shares under its authorized $300 million share repurchase plan.
• The company reaffirmed its 2012 guidance for core sales growth in a range from 2 to 3 percent, normalized operating margin improvement of up to 20 basis points, normalized diluted earnings per share growth of about 3 to 6 percent, or $1.63 to $1.69, and operating cash flow of $550 to $600 million.

Second Quarter 2012 Operating Results

Net sales in the second quarter were $1.52 billion, a decline of 1.9 percent compared with the prior year. Excluding 230 basis points of adverse foreign currency translation, core sales grew 0.4 percent. The company estimates the timing shift in customer orders related to its European SAP conversion reduced the reported core sales increase in the quarter by 1.9 percentage points. The underlying core sales growth of 2.3 percent was driven by strong performance in the Newell Professional and Baby & Parenting segments and continued growth in emerging markets.

Gross margin of 38.3 percent expanded 50 basis points versus the prior year as pricing and productivity more than offset the negative impact of input cost inflation.

Operating margin for the quarter on a normalized basis was 13.7 percent, up 40 basis points from the prior year, driven by gross margin expansion and lower structural SG&A expense. On a reported basis, operating margin for the quarter was 12.2 percent, a 50 basis point decline from the prior year due to an increase in restructuring and restructuring-related costs.

Second quarter operating income on a normalized basis was $207.1 million compared with $205.9 million in the prior year period, and reported operating income was $185.5 million compared to $195.9 million in the prior year period. Second quarter normalized operating income excludes $21.6 million of restructuring and restructuring-related costs incurred primarily in connection with the European Transformation Plan and Project Renewal. In 2011, normalized operating income excluded $10.0 million in restructuring and restructuring-related costs incurred in connection with the European Transformation Plan.

The normalized tax rate for the quarter was 25.8 percent compared with 26.0 percent in the prior year. The reported tax rate for the quarter was 32.0 percent compared with15.0 percent in the prior year. The year-over-year change in the reported tax rate was primarily driven by certain discrete items recorded in each of the quarters. In the second quarter of 2012, certain tax contingencies and other non-cash tax charges related to the European Transformation Plan increased the effective tax rate. In the second quarter of 2011, the effective tax rate was lowered as a result of the reversal of certain tax contingencies due to expiration of various worldwide statutes of limitation.

Net income, as reported, was $111.8 million, or $0.38 per diluted share, for the second quarter. This compares with net income of $146.7 million, or $0.49 per diluted share, in the prior year.

Normalized earnings of $0.47 per diluted share compares against prior year normalized results of $0.45 per diluted share. The improvement was driven by gross margin expansion and lower structural SG&A expense.

For the second quarter 2012, normalized diluted earnings per share exclude $0.05 per diluted share for restructuring and restructuring-related costs associated with the European Transformation Plan and Project Renewal; and income tax charges of $0.04 per diluted share attributable to certain tax contingencies and other non-cash tax charges associated with the European Transformation Plan. For the second quarter 2011, normalized diluted earnings per share exclude $0.03 per diluted share for restructuring and restructuring-related costs associated with the European Transformation Plan; a $0.07 per diluted share benefit resulting from the reversal of certain tax contingencies due to the expiration of various worldwide statutes of limitation; as well as the impact on net income from discontinued operations of $1.3 million. (A reconciliation of the "as reported" results to "normalized" results is included below.)

The company generated operating cash flow of $103.1 million during the second quarter of 2012, compared with $92.8 million in the comparable period last year. Capital expenditures were $36.7 million in the second quarter compared with $51.2 million in the prior year.

Second Quarter 2012 Operating Segment Results

The Newell Consumer segment's net sales for the second quarter were $808.4 million, a 3.0 percent decline compared with the prior year quarter. Core sales in the segment decreased 0.3 percent after adjusting for the estimated effects of the European SAP pre-buy. The decline was primarily due to macro-driven softness in Fine Writing in Western Europe, as well as improving but continued weak performance in Décor within the Home Organization & Style global business unit. Operating income in the Newell Consumer segment was $145.6 million, or 18.0 percent of sales, compared with $143.5 million, or 17.2 percent of sales, in the prior year. The operating margin improvement was driven by gross margin expansion, as productivity and pricing more than offset inflation and the impact of operational challenges in Décor.

The Newell Professional segment posted second quarter net sales of $525.4 million, a 2.0 percent decline from the prior year. Core sales growth for the segment was 4.6 percent after excluding the estimated effects of the European SAP pre-buy. Strong performances from the Construction Tools & Accessories and Industrial Products & Services global business units drove the growth. The segment's operating income was $63.6 million, or 12.1 percent of sales, as compared with $69.6 million, or 13.0 percent of sales, in the prior year. The decline in operating margin was attributable to lower sales volume associated with the SAP pre-buy in combination with slightly higher SG&A spending to support selling capabilities.

Second quarter net sales in the Baby & Parenting segment were $182.4 million, a 4.1 percent improvement over the prior year. Excluding the estimated effect of the European SAP pre-buy, core sales increased 7.3 percent driven primarily by improved performance by the Graco^® brand in North America and continued strong performance of the Aprica^® brand in Japan. Second quarter operating income was $19.2 million, or 10.5 percent of sales, compared with $13.0 million, or 7.4 percent of sales, in the prior year, with the operating margin improvement primarily driven by the increase in sales volume, improved mix, and productivity initiatives.

Six Month Results

Net sales for the six months ended June 30, 2012 increased 1.0 percent to $2.85 billion, compared with $2.82 billion in the prior year. Core sales increased 2.5 percent for the six months with foreign currency translation adversely impacting net sales by 1.5 percent.

Gross margin was 38.3 percent, a 40 basis point expansion compared to the prior year, as productivity gains and pricing more than offset the effect of input cost inflation.

Normalized operating margin of 12.4% was an increase of 20 basis points compared with 12.2% in the prior year. Reported operating margin declined by 60 basis points due to higher restructuring and restructuring-related costs primarily related to Project Renewal.

Normalized earnings were $0.80 per diluted share compared with $0.74 per diluted share in the prior year. For the six months ended June 30, 2012, normalized diluted earnings per share exclude $0.11 per diluted share for restructuring and restructuring-related costs associated with the European Transformation Plan and Project Renewal and income tax charges of $0.04 per diluted share attributable to certain tax contingencies and other non-cash tax charges associated with the European Transformation Plan. For the six months ended June 30, 2011, normalized diluted earnings per share exclude $0.06 per diluted share for restructuring and restructuring-related costs associated with the European Transformation Plan; a $0.07 per diluted share benefit resulting from the reversal of certain tax contingencies due to the expiration of various worldwide statutes of limitation; a $0.01 per diluted share loss related to the retirement of convertible notes; as well as the impact on net income from discontinued operations of $3.1 million, or $0.01 per diluted share. (A reconciliation of the "as reported" results to "normalized" results is included below.)

Net income, as reported, was $191.1 million, or $0.65 per diluted share. This compares to $222.4 million, or $0.75 per diluted share, in the prior year.

The company generated operating cash flow of $55.7 million during the first six months of 2012 compared to a use of $15.5 million in the prior year. Capital expenditures were $85.0 million, compared to $96.1 million in the prior year.

2012 Full Year Outlook

The company reaffirmed its full year expectation for core sales growth of 2 to 3 percent. It revised its expectation for the projected negative impact on net sales from currency to approximately 2 percentage points, from its previous expectation of between 1 and 2 percentage points. Net sales are now projected to be flat to up 1 percent.

The company continues to expect 2012 normalized operating margin improvement of up to 20 basis points and 2012 normalized diluted earnings per share of between $1.63 and $1.69.

The company's 2012 normalized EPS expectation excludes between $110 and $130 million of restructuring and restructuring-related costs associated with the company's European Transformation Plan and Project Renewal. It also excludes approximately $0.06 in certain tax contingencies and other non-cash tax charges associated with the European Transformation Plan. (A reconciliation to normalized results is included below.)

The company is on track to realize cumulative annualized profitability improvement of $55 to $65 million related to the European Transformation Plan, the majority of which was reflected in 2011 results. The Project Renewal annualized cost savings of approximately $90 to $100 million are expected to be realized by the first half of 2013 and are intended to fund increased investments to strengthen brand building and selling capabilities in priority markets around the world.

Operating cash flow outlook is unchanged at between $550 and $600 million for the full year, including approximately $110 to $120 million in restructuring and restructuring-related cash payments. The company anticipates capital expenditures of $200 to $225 million during the year.