Newell Rubbermaid: Quietly Coming Back To Life
Newell Rubbermaid (NWL) is coming back to life. Newell was our first newsletter idea for 2005, and as usual with most ideas that I write about, I was a year too early in forecasting their turnaround. As the chart shows, investor interest in the stock has picked up, driving it from $24 to $25.50 during the last month. In addition, CNBC mentioned earlier this week that the stock was one of the more widely accumulated stocks in 2006.
It has been a rough road for Newell Rubbermaid. Newell and Rubbermaid combined in the 1990s as the fortunes for both companies were deteriorating. Rubbermaid was the poster child for great shareholder returns and excellent management during the late 1980s and Newell was a well-respected roll-up during the 80s and 90s.
To solve the multiple problems the company had, new management was brought in in 2000 to turn it around. The company has a chock full of well-respected brand names and was a nice free cash flow generator. But Newell had too many plants spread out across the country; Rubbermaid had lost its edge at creating new products that could command a premium price and could not be easily knocked off by Asian competitors. In addition, the company got hit hard by higher natural gas prices (which drove up the cost of resin) and a strong dollar from 2000 to 2002. This led to margins contracting and little to no revenue growth.
Joe Galli ran the company from 2000 to fall of 2005. Galli did a good job at lowering costs, consolidating facilities and moving manufacturing to Asia when it made sense. He also did a good job at getting product innovation going again. If anything was accomplished under Galli’s rein it was product innovation. In its meeting with analysts last fall, the company had tons of new products to bring to market.
After last fall’s analyst meeting, it became apparent that the company had to do a better job at lining up its marketing dollars with fewer products and begin to drive revenue growth again. The board turned to a fellow member Mark Ketchum, a long-time executive at P&G with some good areas of success.
After a shaky conference call when first appointed interim CEO, Ketchum appears to be getting a good grasp of Newell’s businesses. In addition, it appears that no major shake up is required. Most of what occurred during Galli’s tenure was pretty good stuff, but now they have to get more targeted with the products they decide to bring to mass market and market them appropriately.
Newell earned about $2.50 per share early in this decade. In 2004, earnings bottomed at $1.39 per share and, in 2005, EPS equaled $1.54, so earnings are back on the upswing. Also, in 2006 the company should begin to benefit from more stable, or even possibly, lower resin costs as natural gas prices are way off their peak. And further, the company is not dealing with a blind strong US dollar policy of the 1998 to 2002 period.
All told, Newell which has been facing one brutal headwind after another may finally have the wind at its back. From all the work the company has done, they should be able to surpass the $2.50 in EPS of the earlier part of this decade. This is a stock to hold on to and let the benefits of the restructuring take hold.
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