Newell Brands Inc. (NWL) Q3 2009 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid’s third quarter 2009 Earnings 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 homepage 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 719-457-0820 for international callers. Please provide the conference code 1218477 to access the replay. I will now turn the call over to Nancy O’Donnell, Vice President of Investor Relations. Ms. O’Donnell, you may begin.

Thanks. Welcome to Newell Rubbermaid’s third quarter earnings call. We appreciate your participation. Joining me this morning are Mark Ketchum, our President and Chief Executive Officer, and Pat Robinson, Chief Financial Officer. Let me remind everyone that today’s announcement includes certain forward-looking statements which are subject to a number of assumptions and variables. We encourage you to review the detailed Safe Harbor and Risk Factors disclosures that are laid out in our filings with the SEC. We further caution you that you the company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today. Please also note that during this call, we’ll refer to normalized earnings and other company-defined non-GAAP measures. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in the earnings release and also the Investor section of our website. With that, I would now like to turn the call over to Mark Ketchum.

Thanks. Welcome to Newell Rubbermaid’s third quarter earnings call. We appreciate your participation. Joining me this morning are Mark Ketchum, our President and Chief Executive Officer, and Pat Robinson, Chief Financial Officer. Let me remind everyone that today’s announcement includes certain forward-looking statements which are subject to a number of assumptions and variables. We encourage you to review the detailed Safe Harbor and Risk Factors disclosures that are laid out in our filings with the SEC. We further caution you that you the company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today. Please also note that during this call, we’ll refer to normalized earnings and other company-defined non-GAAP measures. Reconciliations of these non-GAAP financial measures to GAAP financial measures are included in the earnings release and also the Investor section of our website. With that, I would now like to turn the call over to Mark Ketchum.

I am pleased to report that Newell Rubbermaid delivered another solid quarter with results coming in better than we had forecasted on several fronts. Normalized EPS of $0.38 was ahead of our guidance and an improvement over last year despite a very challenging top line. Gross margin of 37.4% represents a significant improvement over last year’s results. Operating cash flow of 328 million was also strong. Based on Q3 results, our expectations for full year performance on these metrics have increased as well. Overall, the theme for the third quarter was stabilization. Core sales, although still down significantly compared with our year-ago results, seem to have found a relatively stable bottom with 8% to 10% declines for four quarters in a row now. We believe this is a new base we will grow from. Gross margins with help from our planned product exits, have bounced back from last year and even outperformed the high watermark we established in 2007 before the economy tanked. We’re quite proud of the fact that our 2009 gross margins will be an all-time record for Newell Rubbermaid. Year-to-date cash flow of $416 million has been very strong and significantly higher than fiscal ‘08 levels, thanks to continued discipline and reducing inventories and using working capital more efficiently. Finally we’re pleased that we’ve once again been able to deliver normalized EPS, inline with or better than guidance. We now expect to outperform 2008 full year normalized EPS results driven by gross margin improvement and the actions that we took to control our SG&A cost structure. So, all in all, we’re pleased with our performance this quarter and year-to-date and we’re cautiously optimistic about 2010. I’ll talk more about next year in a minute, but first, let me tell you more about how we’ve managed the current year. We’ve been extremely diligent in managing our SG&A spending to deliver targeted bottom line results, enacting contingency plans as necessary early in the year. However, higher gross margins and structural SG&A cuts have allowed us to begin reinvestment in certain areas of our portfolio. Recall, we told you last quarter we would spend incrementally in the back half of the year on selective advertising, promotion and sales support, as well as on longer term research and development. We did exactly that in Q3. While SG&A expense spending was down 11% to last year, it was about 30 million above the run rate of the first two quarters. In Q4, we’ll be supporting our brands for the important holiday season, so that spending will likely trend a little higher, to drive sales where we see some strength while building our new product pipeline and our growth platforms for 2010 and beyond. Let me give you some examples. During Q3, we invested to support the critical back-to-school season which helped drive slightly better than expected results. In addition to the media and in-store marketing I described last quarter, our Sharpie brand team extended their “Uncap What’s Inside,” campaign with innovative marketing and PR tied into New York Fashion Week. We saw market share gains in several product categories, and thanks to a more evenly distributed order pattern on the part of retailers, replenishment orders were relatively strong, and returns low relative to previous years’ results. Our Office Products Group is also investing by putting more feet on the street in support of our mimio interactive whiteboard technology and student response systems. This business, although relatively small is one of the fastest growing product offerings in our portfolio. Some of the federal government’s stimulus spending has been directed to capital investments in education, and these dollars are making their way down to the district level, presenting us with a prime opportunity to make inroads with mimio. In our Rubbermaid commercial products GBU, we are focusing on delivering innovative products that are responsive to concerns of commercial property managers in this challenging economic environment. For instance, our Technical Concepts offering of hand sanitizers and hand cleaner dispensers has been performing exceptionally well. As a result, Technical Concepts sales were up 10% in the third quarter. These products speak directly to property managers’ heightened awareness of health and hygiene best practices in public settings, driven most recently by the H1N1 concerns, and of course this product line is particularly attractive since it includes a high percentage of consumable sales of our proprietary skin care products. During Q3, we also increased support behind the launch of a new line of versatile, convertible Rubbermaid material handling cards. Initial results indicate very good consumer acceptance. With industry leading durability, superior ergonomics and enhanced maneuverability, this new line will help serve as a key platform for future growth. We are continuing to invest behind innovative Home & Family product launches, including Calphalon Unison, our newest line of premium, nonstick dishwasher safe gourmet cookware. Since launching this past spring Unison has performed extremely well, exceeding our expectations and driving substantial point-of-sale and market share gains. Calphalon has also won expanded distribution in key near-neighbor categories, such as cutlery, heating electrics and bakeware. Those are just a few examples, but across our portfolio, we believe these types of investments are critically important drivers for top-line growth. I’m pleased that our year-to-date performance has allowed us to move beyond the hunker-down mode and start back into the invest for the future mode. As we turn to our outlook for the remainder of the year, it’s worth noting that while we’re seeing stabilization in most of our businesses, we have yet to see a real rebound. The retail consumer is still very cautious and commercial demand is constrained by the weak construction and employment markets. Consequently our full-year 2009 sales outlook remains unchanged with the sales decline at the unfavorable end of minus 10% to minus 15%. This outlook reflects a high single-digit decline in year-over-year core sales, consistent with our year-to-date results. Balance of the decline reflects planned product line exits and unfavorable FX. Despite the sale softness, we are once again raising our normalized EPS and cash flow guidance. A reflection of a good third quarter and year-long attention to gross margin expansion, expense control, and inventory reduction. Our 2009 outlook now anticipates operating cash flow of approximately $550 million as compared to our previous forecast of around $500 million. This is a $100 million improvement over 2008, despite a significantly lower sales base. We are also increasing our 2009 normalized EPS guidance to a range of $1.27 to a $1.32, up from previous guidance of $1.15 to a $1.30. This improvement reflects the flow-through of our third quarter earnings upside. We are still in the early stages of our 2010 budget process, so we don’t have definitive guidance yet regarding next year’s performance, but I will share some of our preliminary thoughts with you to help with your own projections. We think it’s likely that consumer spending and commercial demand will begin to rebound next year but probably not until the second half. At this point, I think it’s reasonable to expect low single-digit core sales growth in 2010, which should just about offset the overhang from this year’s product line exits. Remember, we exited categories gradually throughout 2009, so we’ll experience about a two to three point year-over-year drag from this effect. Gross margin should continue to be a positive story for us in 2010. Mix improvement from innovation and brand building, plus category exit benefits and another year of restructuring savings should drive continued gross margin expansion. We will also continue to reinvest a portion of our 2010 gross margin growth into strategic brand building activities. We think it’s possible to use this combination of modest sales growth, further gross margin expansion and brand building reinvestment to push earnings growth towards 10%. Let me turn the call over to Pat at this point. He will walk you through the financials and additional detail, and then I’ll provide some summary comments.

I will start with a review of the third quarter 2009 income statement on a normalized earnings basis. Net sales for the quarter were $1.4 billion, down 17.7% compared to last year, and consistent with our guidance of high-teens percentage sales decline. Core sales, which exclude the impact of currency and product line exits, declined 9.6% in the quarter, at the unfavorable end of our guidance for high single-digit decline. Planned product line exits reduced sales by six points, and unfavorable foreign currency contributed negative two points. Both of those metrics were in line with our guidance. We saw a significant improvement in gross margin this quarter. We generated $543 million, or 37.4% of sales for a 480 basis points improvement over the third quarter of 2008. There were several contributors, lower input costs, as we continue to comp against the dramatic raw material inflation from a year ago, the read-through from our 2008 and 2009 pricing actions as well the impact from product line exits and project acceleration. The negative in the quarter was lower plant utilization rates, resulting from the sales decline and the reduction in inventory levels. As Mark pointed out, we reduced SG&A expense by $44 million, compared to last year. This was driven by cost reduction programs initiated in 2008, and the incremental contingency plans we implemented this year in response to top-line pressure. However, we did invest about $30 million more in quarter three than the average quarterly spend in the first half of the year, and now expect to increase that rate of spend again in quarter four in support of he key branding, innovation and new product development opportunities. The increased investment compared to the first half trend is higher than we indicated on our last call, as our continued strong gross margin performance has given us the ability to selectively invest to drive top-line growth in 2010 and beyond. Quarter three operating income was $192 million or 13.3% of sales, compared to $180 million or 10.2% of sales last year, a solid improvement of 310 basis points. Our year-to-date operating margin was 12.8%, a 200 basis point improvement. Interest expense during the quarter was $36 million, $3 million lower than the previous year, as we continue to pay down debt and improve our credit metrics. Our continuing tax rate in the third quarter was 31.9% compared to 28.4% last year. The increase was driven by changes in the geographic mix of earnings. Moving into earnings per share, the combination of strong gross margin expansion and continued aggressive SG&A management drove normalized EPS of $0.38, ahead of our guidance of $0.25 to $0.35. The $0.38 excludes approximately $0.02 of dilution from the convertible bonds we issued back in the first quarter. Normalized EPS also excludes approximately $27 million or $0.07 per share in restructuring related impairment charges associated with project acceleration. Operating cash flow was another very positive story for us this quarter. We generated approximately $328 million in cash flow which includes a voluntary $75 million pension contribution. That $328 million compares to $364 million in the third quarter of last year. Our operating units did a nice job of managing working capital, particularly inventory. By reducing the inventories we generated cash of $75 million during the quarter and $270 million during the last 12 months, this reduction yielded three fewer days of inventory on hand compared to a year-ago. Year-to-date, we’ve generated operating cash flow of $416 million, an improvement of $173 million versus the same period last year. Based on our year-to-date performance, we’re raising full-year guidance for cash flow to approximately $550 million. That’s a $50 million increase to our July guidance and reflects continued working capital discipline in the fourth quarter. We continue to anticipate approximately $100 million in restructuring payments for the year and capital expenditures of about a $150 million. Now, I will turn to our segment information. Home & Family net sales were $597 million, a decrease of 16% versus last year. Planned product exits represented approximately 10 points of the segment’s overall sales decline, while unfavorable foreign currency reduced sales by one point. Our core sales declined about 5%. The best performance in the group, and for that matter in the company, came from Rubbermaid Home & Food and Culinary Lifestyles, but Baby & Parenting sales were negatively impacted by softness in the baby category worldwide. Home & Family operating income was $84 million or 14.1% of sales, an increase in absolute dollars and percentage basis compared to the last year’s $60 million or 8.4% of sales. This 570 basis point improvement is attributable to relief in the input cost inflation we experienced in 2008, the benefit from product line exits and disciplined SG&A management. These positives more than offset the negative impact from lower sales volumes and unfavorable product and customer mix. In our Office Products segment, quarter three net sales were $448 million, down 16%. Core sales declined about 7% as the Office Products category continues to be challenged both here in the US and internationally. About six points of the overall segment sales decline resulted from planned product line exits and another three points was attributable to foreign currency. Office Products operating income was $54 million, down $6 million compared to last year. Operating margin was 12%, a slight improvement compared to the 11.3% last year as the benefits from SG&A reductions and product line exits were offset by lower core sales and the negative impact of lower production volumes in our plants. In our Tools, Hardware & Commercial Products segment, net sales were $404 million, down 21%. Core sales declined about 19%. This business continues to be impacted by softness in commercial and industrial channels and sustained weakness in residential construction spending. Unfavorable foreign currency reduced sales by two points. Operating income was $75 million, down $6 million compared with last year. Operating margin improved 270 basis points to 18.6% of sales, reflecting lower input costs and structural SG&A reductions. Let me now turn to our 2009 outlook. Our sales guidance for full year 2009 is unchanged. We expect sales to be at the unfavorable end of a 10% to 15% decline. Core sales are expected to decline in the high single digits, while product line exits will contribute a negative four to six points. Foreign currency will result in about a two point reduction and acquisitions will contribute about one point of improvement. As a result of our third quarter performance, we are increasing our full year guidance for normalized EPS to a range of $1.27 to a range of $1.32. This guidance excludes any assumed dilution from the converts. We now expect interest expense to come in at approximately $145 million, and our effective tax rate should be about 31%. We anticipate pre-tax restructuring charges of between $110 million and $120 million or $0.28 to $0.31 a share. These restructuring charges are also excluded from our normalized EPS guidance. For the fourth quarter we are anticipating a net sales decline of between 2% and 4%. Core sales should be flat to down low single-digits as we begin to comp against significantly lower sales volumes from quarter four 2008 with a three to five-point decline from product line exits. Foreign currency exchange flips over to a positive impact of about two points this quarter. Quarter four normalized EPS is expected to be in the range of $0.23 to $0.28 compared to $0.11 a year ago. In conclusion, we’re feeling pretty good about our business. We haven’t yet seen improvement on the top line but the trends seem to have at least stabilized. I feel very good about cash flow and about the company’s capital structure after the last step in the refinancing was finalized this quarter. Also, our strong year-to-date performance on gross margin and SG&A reduction gives us the confidence to loosen up the purse strings a little and start to invest selectively to drive top-line growth in 2010 and beyond. In short, I think we’ve made good progress this year despite a number of challenges and I’m excited about our long-term prospects. With that, I will hand the call back to Mark for his final comments.

Thanks, Pat. I want to conclude by thanking all of my new Rubbermaid colleagues for a terrific job of delivering on our financial commitments in the face of a very challenging economic environment. I’m pleased by our strong third quarter and year-to-date earnings, cash flow, and gross margin performance. Our solid results during these difficult times give us even more confidence in our strategy. As we look forward to 2010, we will continue to manage the business to protect cash and earnings, and to invest strategically to support future sustainable growth. By investing in consumer driven innovation and brand building, optimizing our portfolio towards higher growth and higher margin businesses and achieving best cost and efficiency across the organization, we will ensure Newell Rubbermaid is well positioned for long-term success. As always, we thank you, our shareholders, for your continued support. With that, I’ll now ask the operator to open the lines for questions.

and:

(Operator Instructions) Our first question comes from Bill Schmitz with Deutsche Bank.

Can you just talk about how the production downtime has impacted gross margins and whether or not you expect that trend to continue in the fourth quarter and the next year? Deutsche Bank: Can you just talk about how the production downtime has impacted gross margins and whether or not you expect that trend to continue in the fourth quarter and the next year?

It’s been a pretty heavy negative impact for us. As we start the comp against last year’s quarter for, however it will be less and as we get the next year it should be a slight positive for us.

Can you put any numbers behind it? Deutsche Bank: Can you put any numbers behind it?

Not only give the specifics around it, but that’s sort of the trend, the trend we’re seeing has been very negative for volume in the plants for last four quarters. It’s stabilized this quarter, and again, be a positive going into next year.

Can you just talk about the level of destocking? Are we done with the destocking? How much is left in kind of where do retailer inventory levels stand right now? Deutsche Bank: Can you just talk about the level of destocking? Are we done with the destocking? How much is left in kind of where do retailer inventory levels stand right now?

Bill, we think the answer is, yes. Destocking is essentially behind us, kind of tailend of it because recall that it started first in retail, and then followed in commercial and we think the commercial now is about at the end of its destocking as well.

How much is left on the sort of project acceleration savings and kind of what are you expecting for next year? Deutsche Bank: How much is left on the sort of project acceleration savings and kind of what are you expecting for next year?

We expect about another $50 million incremental next year, and then the tailend will read-through in 2011 just from our actions next year and this is probably about half of that number.

Your next question comes from Budd Bugatch of Raymond James.

I got a couple of question. First, Pat can you talk a little bit about the Office Products segment in terms of the margin, I know the operating margin was 70 basis points better than last year, but last year was an unusual year, and usually between second quarter and third quarter, the rate of decline in op margin is not as high as it was this year. I think this year is the highest that at least I’ve gotten in memory. I think around 800 basis points from second quarter to third quarter. Was there something going on that caused that? How do we look at that going forward? Raymond James: I got a couple of question. First, Pat can you talk a little bit about the Office Products segment in terms of the margin, I know the operating margin was 70 basis points better than last year, but last year was an unusual year, and usually between second quarter and third quarter, the rate of decline in op margin is not as high as it was this year. I think this year is the highest that at least I’ve gotten in memory. I think around 800 basis points from second quarter to third quarter. Was there something going on that caused that? How do we look at that going forward?

The gross margins were relatively flat between quarters. SG&A expense was significantly higher in quarter three as the lion share of our investment was in that segment, particularly in the technology and markers and highlighters part of the business.

So, that’s going to continue in Q4 as well? Raymond James: So, that’s going to continue in Q4 as well?

I think the spending will be more distributed in quarter four across the segments, but they will get their share of the increased investment. They won’t have the lion share like they had in quarter three, but they’ll have their fair share in quarter four.

Two things affected that SG&A spending trend; one is that back-to-school was later this year than it’s been in previous years and that’s what our customers were telling us, and so we feted our spending in that direction, and then secondly, we made some of the incremental investments, which I alluded to including mimio and Sharpie in my remarks. Those are some of the incremental investments that we saw because those are the things that we saw were working.

Do I appropriately infer from that, Mark, that the op margin for Office Products in the fourth quarter should be a little bit higher than it was in the third quarter, as it typically has been in a number of past years except for last year? Raymond James: Do I appropriately infer from that, Mark, that the op margin for Office Products in the fourth quarter should be a little bit higher than it was in the third quarter, as it typically has been in a number of past years except for last year?

I don’t think we want to give that level of specificity. It certainly won’t be anything close to what it was in the second quarter. It will again be more like the third quarter than the second quarter.

For my second question, can you talk about where you are in the product line exits from a standpoint of what poundage of resins you’re using today on an annualized rate, where you’ll think you’ll be next year? I think resin costs, at least by our numbers are starting to go up, so that should start to be unfavorable year-over-year in the fourth quarter, is that not correct. Raymond James: For my second question, can you talk about where you are in the product line exits from a standpoint of what poundage of resins you’re using today on an annualized rate, where you’ll think you’ll be next year? I think resin costs, at least by our numbers are starting to go up, so that should start to be unfavorable year-over-year in the fourth quarter, is that not correct.

I think they will be slightly unfavorable in the fourth quarter. Our usage of resin is in the 350 to 375 range right now.

On an annualized basis, so you are at your target. You were going to try to get it to 400 million pounds, if I remember. Raymond James: On an annualized basis, so you are at your target. You were going to try to get it to 400 million pounds, if I remember.

We are actually below that.

Your next question comes from Bill Chappell with SunTrust.

Mark, you talked a little bit about next year seeing some end-commercial markets improving by the second half. Is there anything that we can kind of base that on or get excited about? When you look at your top-line growth expectations for the core business, is that just market share gains, or is that some assumption that the end market do actually improve as the year progresses? SunTrust: Mark, you talked a little bit about next year seeing some end-commercial markets improving by the second half. Is there anything that we can kind of base that on or get excited about? When you look at your top-line growth expectations for the core business, is that just market share gains, or is that some assumption that the end market do actually improve as the year progresses?

It’s sum of both. It’s certainly driven most importantly by market share, especially in the first half of the year. Our expectation is that in the second half of the year we’ll see that growth coming in terms of total consumption in both the consumer and commercial channels. I mean, a lot of these products are product categories that eventually have to be replaced. So while in the short-term, businesses or individual consumers can postpone a purchase and [make do with] what they have, eventually they have to go buy more.

Specifically on the Baby & Parenting comment, any reason behind the weakness that you know of during the quarter? Is that expected to extend through fourth quarter and into early next year? SunTrust: Specifically on the Baby & Parenting comment, any reason behind the weakness that you know of during the quarter? Is that expected to extend through fourth quarter and into early next year?

We think we’re going to see better results in the fourth quarter. It was a little bit of surprise. Some of it was timing of promotional events, some big customers, some has actually been restructuring and reset timing at some big customers and some has been a trend in consumers to continue. Again, the new mom, the expected mom, right? Those are people that are usually not flowing-in money. They are trying to conserve their money, and so again we are just seeing a trend for women to, in some cases trade down, in some cases borrow a stroller or car seat and some of those kinds of effects, so it’s put a damper on that category. We held share during the period, and yet saw a bigger decline than we had anticipated going in.

Have you seen some improvement in October, or it’s more of the same? SunTrust: Have you seen some improvement in October, or it’s more of the same?

We don’t have that visibility yet.

We’ll expect to see that segment grow from a core standpoint in the fourth quarter.

Your next question comes from Jason Gere with RBC Capital Markets.

Just talking about the core sales for next year, right now I assume that you are having the dialogues on planogram resets with, both [mass] and specialty channels. Can you just talk about where you stand on that? When you think you will have more visibility in terms of expansion on the shelf? RBC Capital Markets: Just talking about the core sales for next year, right now I assume that you are having the dialogues on planogram resets with, both [mass] and specialty channels. Can you just talk about where you stand on that? When you think you will have more visibility in terms of expansion on the shelf?

Are you referring to any particular category, Jason? Obviously, that varies across our broad range of businesses.

Yeah. Talking, more generally speaking, but I guess I would focus more on Office Products and Home & Family. RBC Capital Markets: Yeah. Talking, more generally speaking, but I guess I would focus more on Office Products and Home & Family.

Again, without going into category-by-category or customer-by-customer specifics, our trends are good. We are seeing expanded distribution on several of our key new product initiatives on a number of our most important categories in both Home & Family and in Office Products. So, we anticipate that it will be a positive for us next year.

Then just on the same topic of core sales, when you’re talking about flat to slightly negative fourth quarter, and as we look to next year, I think you said low single-digit kind of organic sales. Should we anticipate that the trend should continue at the fourth quarter levels in the first half and then a broader expansion in the back half? Or how are you kind of looking at that kind of taking into consideration although the easy comp? RBC Capital Markets: Then just on the same topic of core sales, when you’re talking about flat to slightly negative fourth quarter, and as we look to next year, I think you said low single-digit kind of organic sales. Should we anticipate that the trend should continue at the fourth quarter levels in the first half and then a broader expansion in the back half? Or how are you kind of looking at that kind of taking into consideration although the easy comp?

The answer is, yes, about the way you just described it. We think that sequentially it ought to get stronger throughout the year. I don’t know if it will be exactly every quarter being stronger than one before, but certainly the back half will be stronger than front half, and that’s both because we think the commercial market will kick in later than the retail. One thing I would offer up is that, we’re already seeing and will see first in our consumer heavy product categories and business units, we’ll see that growth occur first. We’ll see it lag in Tools, Hardware and Commercial. So, even in the fourth quarter of this year, we’ll begin to see more of the Home & family categories as an example grow. Office Products will probably be next because it’s a lot of consumer but also has a strong commercial component to it and we’ll see the Tools, Hardware and Commercial Products probably be the last to start coming out of it, because it is even more heavily weighted towards commercial product.

Then just a last question. Just adding on to Bill’s question before on the Baby & Parenting. The Home & Family, while the sales came in I think a bit lighter than anticipated, the margins were very strong. So, how do we think about that going forward? Is this one where you are going to see a lot more investment to just support category growth going forward? So, is that 14%, which I think is the best I’ve seen from this in terms of what you’ve delivered, are we looking more back into that 12% range as more of a normalized way of looking at the margins of this segment? Thank you. RBC Capital Markets: Then just a last question. Just adding on to Bill’s question before on the Baby & Parenting. The Home & Family, while the sales came in I think a bit lighter than anticipated, the margins were very strong. So, how do we think about that going forward? Is this one where you are going to see a lot more investment to just support category growth going forward? So, is that 14%, which I think is the best I’ve seen from this in terms of what you’ve delivered, are we looking more back into that 12% range as more of a normalized way of looking at the margins of this segment? Thank you.

I don’t think we’re ready to talk about margins for 2010. However, again, Home & Family business is one of the businesses as I just said; we’ll see some of the best opportunities in fourth quarter and right away in 2010 to drive the top line. So, that’s one of the places that we will be increasing our SG&A investments. Having said that, they’ve made nice progress on their structural costs and their gross margin and we think that’s sustainable.

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

With the downtime you’ve taken and as you look at what demand might be when it rebounds, do you think that your plant layout is appropriate for the size of the sales growth you think over the long-term will happen or as you look at it, do you think you have too much capacity? BMO Capital Markets: With the downtime you’ve taken and as you look at what demand might be when it rebounds, do you think that your plant layout is appropriate for the size of the sales growth you think over the long-term will happen or as you look at it, do you think you have too much capacity?

No, we actually think it’s pretty good. We think we’re about right. The steps we’ve taken this year in terms of structural reductions have tried to address where we too much capacity. Going forward, we wouldn’t anticipate needing to substantially change our manufacturing footprint to be right going forward. Recall, we’ve been in continuous process of restructuring manufacturing, and the other thing you need to keep in mind is roughly half of our manufacturing now is third-party sourcing, and therefore we can flex that up and down easier during these kinds of times. It’s only about half of our total output that we have to pay attention to what you just described.

Going back to the outlook for sales growth for next year, I think you said that the increase in core sales growth would be offset by pretty much of what’s left in the product line exits. So, does that mean that any sales growth, total sales growth, reported sales growth would be based more on the contribution from currency? Is that a the right way to think about it? BMO Capital Markets: Going back to the outlook for sales growth for next year, I think you said that the increase in core sales growth would be offset by pretty much of what’s left in the product line exits. So, does that mean that any sales growth, total sales growth, reported sales growth would be based more on the contribution from currency? Is that a the right way to think about it?

Our total sales growth will probably be flattish, right, and with the low single digits in core pretty much offset by the carryover effects of product line exits. We are essentially done with the vast majority of those product line exits, but because they didn’t occur all at once on January 1, there’s that lag effect that will be a drag all year long.

Right. The sales will be essentially flat with core sales up low single-digit range offset by that 2% to 3% carryover effect of product line exits. There should also be a positive impact from foreign currency. We haven’t tried to quantify that yet. It keeps changing, so we should have a little bit of tailwind there.

If I could just ask one last question on your gross margin, given the business you now have, is there variability in the quarter on how we should think about modeling for next year, because the middle quarters aren’t the full year rate or are they? BMO Capital Markets: If I could just ask one last question on your gross margin, given the business you now have, is there variability in the quarter on how we should think about modeling for next year, because the middle quarters aren’t the full year rate or are they?

The first and fourth quarters historically have been the lower two, and the second and third, the higher. The biggest driver is that Office Products had the highest gross margins of the segments and their sales are highest in those two quarters as a percentage of our total. The other driver is that our total volume is low in Q1, so that suppresses that margin a little bit. Then in Q4, with a higher percentage of promotional business, particularly in consumer businesses, that also suppresses the margins a little bit in quarter four.

Your next question comes from Lauren Lieberman with Barclays Capital.

Thanks. First question was just going to be on that Home & Family business. So, margins were good enough that it would almost suggest you weren’t totally surprised by the rate of core sales decline. So, I’m wondering if that’s sort of the case then how much of this really was related to timing, maybe of sort of the planogram stuff you talked about not happening until Q4, and thus maybe spent less money on those businesses in Q3 than you would have anticipated if the planogram stuff had gone into the market? Barclays Capital: Thanks. First question was just going to be on that Home & Family business. So, margins were good enough that it would almost suggest you weren’t totally surprised by the rate of core sales decline. So, I’m wondering if that’s sort of the case then how much of this really was related to timing, maybe of sort of the planogram stuff you talked about not happening until Q4, and thus maybe spent less money on those businesses in Q3 than you would have anticipated if the planogram stuff had gone into the market?

A little bit of it is timing. We do believe that, and again, we expect to see growth in that segment in quarter four. As far as the timing of the SG&A spending, we’re spending pretty much on plan, and we do expect an uptick in quarter four in that segment.

Then why were margins up so much in the quarter if sales were a significant negative surprise? Barclays Capital: Then why were margins up so much in the quarter if sales were a significant negative surprise?

Gross margins came in as a positive force in that segment, so that covered the gap in the missing sales.

Then what is it though about Q4 because, again, it sounds like the sequential deceleration in that business really was a surprise. So, is it the easy comps for Q4 that are giving you comfort? Is it your knowledge of what’s getting on the shelf and when, new product activity? I feel like I want something else to hold on to, for why I should be comfortable with growth after a 5% decline sequentially? Barclays Capital: Then what is it though about Q4 because, again, it sounds like the sequential deceleration in that business really was a surprise. So, is it the easy comps for Q4 that are giving you comfort? Is it your knowledge of what’s getting on the shelf and when, new product activity? I feel like I want something else to hold on to, for why I should be comfortable with growth after a 5% decline sequentially?

Lauren, it really is all those things. It’s the new product initiatives. It’s the timing of promotional or reset activities across our customers. It’s all the things you just mentioned.

Some of the [reset] stuff, it’s an end of ‘09 event, and it’s not just a 2010 event. Barclays Capital: Some of the [reset] stuff, it’s an end of ‘09 event, and it’s not just a 2010 event.

Depending on the business and the segment, that’s right. Commercial activity can happen in Baby & Parenting business. It’s choppy quarter-to-quarter, depending on when the retailers run their promotion, so we’re getting a little bit of rebound just from the timing of that activity.

My other question was just going to be on pricing. You ended last year, I think it was at a $200 million run rate for incremental pricing, but you realized about 100 million through the year. In 2009, thus far, are you on track for that other 100 million to sort of show up, or have you adjusted price points along the way? Barclays Capital: My other question was just going to be on pricing. You ended last year, I think it was at a $200 million run rate for incremental pricing, but you realized about 100 million through the year. In 2009, thus far, are you on track for that other 100 million to sort of show up, or have you adjusted price points along the way?

We’re on track and for that to read-through as well as some additional price we’ve taken, mainly in our international businesses related to currency, so the pricing is read-through pretty much on our expectation.

If you look into next year at this point, is there much in the way of inflation in your very preliminary budget, or is it sort of thinking it will be fairly benign? Barclays Capital: If you look into next year at this point, is there much in the way of inflation in your very preliminary budget, or is it sort of thinking it will be fairly benign?

There is going to be modest inflation. We have seen recently a tick-up in oil, and its related impact on resin. We don’t think it will be at the 2008 levels, but we think it will be higher than ‘09.

Does it feel like the market could bear additional pricing? Should the inflation be to the degree you’d needed it? Barclays Capital: Does it feel like the market could bear additional pricing? Should the inflation be to the degree you’d needed it?

In certain categories we can take pricing. We also think that we will get a strong benefit from project acceleration, from our ongoing productivity initiatives, from the overhang if you will all the product line exist, and frankly, we think we have a favorable mix next year driven by new products. The combination of that will more than offset this modest inflation to allow us to improve gross margins again next year. Now, not to the extent we’re improving them this year, so again sort of that 350 basis point improvement now this year, but yes, we think 100 basis points is not unreasonable.

Your next question comes from Joe Altobello with OppenheimerFunds.

First question is on the sales outlook for next year. Just to be clear, you guys are not assuming any restocking of inventory at the retail level in that number. OppenheimerFunds: First question is on the sales outlook for next year. Just to be clear, you guys are not assuming any restocking of inventory at the retail level in that number.

No, we’re not.

Any market share gains in that number? OppenheimerFunds: Any market share gains in that number?

Yes, both the market share gains and a gradual return of consumer spending.

So, its category growth plus some modest market share gains in terms of the 2% to 3% organic growth? OppenheimerFunds: So, its category growth plus some modest market share gains in terms of the 2% to 3% organic growth?

That’s right, and accelerating gradually throughout the year.

Secondly, in terms of the SG&A, you guys have obviously done a good job of managing that this year and Mark you mentioned earlier about some reinvestment next year. In terms of the amount of reinvestment, you are sort of, I guess target has been about half of gross margin expansion getting reinvested. Is that still a good assumption for 2010 as well? OppenheimerFunds: Secondly, in terms of the SG&A, you guys have obviously done a good job of managing that this year and Mark you mentioned earlier about some reinvestment next year. In terms of the amount of reinvestment, you are sort of, I guess target has been about half of gross margin expansion getting reinvested. Is that still a good assumption for 2010 as well?

I think that’s a good starting place. Again, we haven’t put together our final budgets, so it’s a little early to [try and zero it] in that closely, but order of magnitude, that’s the way we’ve always thought.

Lastly, on the gross margin expansion, the [1,400 bits] in the quarter, you guys already talked about a number of factors there. Was one a standout, or were all three or all four of them sort of equal? OppenheimerFunds: Lastly, on the gross margin expansion, the [1,400 bits] in the quarter, you guys already talked about a number of factors there. Was one a standout, or were all three or all four of them sort of equal?

They were sort of equal. Yes, the three major ones again are the product line exits, the input costs, and the pricing combination and other three, they are all pretty equal.

In the product line exits, you guys have talked about a 200 basis point increase from that and it sounds like you’re pretty much on course for that. Is there upside to that number? OppenheimerFunds: In the product line exits, you guys have talked about a 200 basis point increase from that and it sounds like you’re pretty much on course for that. Is there upside to that number?

No. Of them, about three quarters of that is reading through this year and the remainder will come through next year because we’re not out of that entire product as of the first day. So, yes, we are on track for the total of 200 with the split that I just mentioned.

Your next question comes from Wendy Nicholson with Citi Investment Research.

My first question just to clarify on the top-line, could you offer us any preliminary guidance for currency impact on 2010 top-line? Citi Investment Research: My first question just to clarify on the top-line, could you offer us any preliminary guidance for currency impact on 2010 top-line?

Actually we did not, but again I mentioned just on the previous question that with the currencies as they are today we expect a little tailwind.

The second thing is just sort of a bigger picture question on the loosen up the purse strings, we’re going to spend a little bit more money to drive top-line growth. That sounds like absolutely the right strategy, but I guess in terms of your confidence level in where you are spending money, I know there has been a shift over the years in terms of more consumer marketing as opposed to retailing, more marketing directly to the retailers and different types of promotions. I guess Mark, maybe if you can just speak to where you are from a marketing/investment perspective and your confidence that the money you spend will actually bear fruit in terms of driving those market shares that you’re expecting. Citi Investment Research: The second thing is just sort of a bigger picture question on the loosen up the purse strings, we’re going to spend a little bit more money to drive top-line growth. That sounds like absolutely the right strategy, but I guess in terms of your confidence level in where you are spending money, I know there has been a shift over the years in terms of more consumer marketing as opposed to retailing, more marketing directly to the retailers and different types of promotions. I guess Mark, maybe if you can just speak to where you are from a marketing/investment perspective and your confidence that the money you spend will actually bear fruit in terms of driving those market shares that you’re expecting.

We’re highly confident, Wendy. I think the thing that we’ve been most encouraged by is we’re seeing more and more of those kinds of success stories. I try and mention a few of them on each of my calls, but across the board, including some of the businesses that I think in the early days were the most skeptical as to whether or not this would work. So starting with great consumer understanding, making sure that our concepts and our product innovations really are addressing truly important and unmet consumer needs, and then doing a great job actually building that into the product, getting those manufactured for the right cost. So that we could offer them for the right retail price and making sure that our marking is effective. Our marketing mix continues to shift and certainly will continue to vary by business unit. What hasn’t changed is that, for instance, our commercial businesses. Still you need to go more direct to the end users and demonstrations count a lot, and we continue to invest in that. I talked about more feet on the street in our mimio, and that’s an example of an investment that frankly is more sales people and product demonstrators because ultimately that’s how you make that conversion to a school board or a teacher who is running a test on behalf of the district or the school board and so those are examples of how we are really targeting that spending. In many of our more consumption-driven categories, like our Office Products, like our Rubbermaid food, more broad-based media support, including TV, works and we are continuing to drive that, and so I think that businesses now are really in tune with the concept of, starting with consumer understanding, building good concepts, putting products that match the concepts, getting the price points right so that gets retail support and shows up as our value on shelf and then making sure the marketing message is put through in the most effective way.

If you could sort of clarify in terms of the loosening the purse strings concept, would you say two-thirds of that is oriented towards stuff that either the retailer or the consumer is going to see, and one-third of it is R&D? How much of it is internal spending versus external spending? Citi Investment Research: If you could sort of clarify in terms of the loosening the purse strings concept, would you say two-thirds of that is oriented towards stuff that either the retailer or the consumer is going to see, and one-third of it is R&D? How much of it is internal spending versus external spending?

That’s probably a good guess. I think typically about a third of our spending is R&D, and the other two-thirds is activation. Citi Investment Research: That’s probably a good guess. I think typically about a third of our spending is R&D, and the other two-thirds is activation.

Your next question comes from Chris Ferrara with Bank of America.

I just wonder if you could talk about what the new product initiative pipeline looks like as you go into next year. I guess I understand this hasn’t probably been the most aggressive of new product years given the macro setting, but is the pipeline pretty full for 2010 and is that part of your confidence in sort of that low single digit growth rate? Or would you say the pipeline is closer to a normalized level relative to history? Bank of America: I just wonder if you could talk about what the new product initiative pipeline looks like as you go into next year. I guess I understand this hasn’t probably been the most aggressive of new product years given the macro setting, but is the pipeline pretty full for 2010 and is that part of your confidence in sort of that low single digit growth rate? Or would you say the pipeline is closer to a normalized level relative to history?

No, I think it’s fuller than history, Chris, and I think that the only question we still have in terms of our planning for our budget is really making sure that the consumer market really is ready for each of those initiatives. So, we will time them. We will sequence them and we will spend according to where we see the strongest demand, but the pipeline clearly is more robust now than it’s been in the past years.

I think that gets back to another question that was asked earlier around shelf space. I think you were answering on planograms in view, specifically on the businesses that were asked. You mentioned that you have some visibility into some new products, but if you take a step back and you look overall at how you feel about shelf space across the company; A, is there any visibility into those planograms more broadly across the whole portfolio and if there is, is it good or is it just too early to tell at this point? Bank of America: I think that gets back to another question that was asked earlier around shelf space. I think you were answering on planograms in view, specifically on the businesses that were asked. You mentioned that you have some visibility into some new products, but if you take a step back and you look overall at how you feel about shelf space across the company; A, is there any visibility into those planograms more broadly across the whole portfolio and if there is, is it good or is it just too early to tell at this point?

That’s always just a really hard question to try and answer for the company, because it’s really important to go business by business and customer by customer, and I don’t think that’s appropriate to try and do on this call. Again, I’d say broadly speaking, we’re pleased with the reception that we’re getting to our now product. That’s where we clearly look for new product placement and strong support on the shelf. The places where we’ve seen reductions in the past year are places where we purposely wanted to see reductions. So, we have deemphasized our exited categories, and that’s where we expected to actually see shelf declines and have done so. So part of getting this mix right and getting the base right to grow from going forward was giving that up. So we’ve lost some shelf space on wood-cased pencils for example, but we’re gaining or holding or gaining shelf space on our value added Office Products, and so that’s the trend that we wanted to see and we are seeing that.

Your next question comes from John Faucher with JPMorgan.

Actually all my questions have been asked. Thanks. JPMorgan: Actually all my questions have been asked. Thanks.

(Operator Instructions). Our next question comes from Michael Kelter with Goldman Sachs.

A quick question on Tools & Hardware. It’s been down running roughly 20% on a core basis now for four quarters. You’ve run through that and you’ve got a new base to work off from. I heard you on the beginning part of 2010, is there a point, either the back half of ‘10 or even into ‘11 where it shows true cyclicality and really grows and make up some of that lost ground? Or is this really a new base and a lot of that demand is gone forever? How should we think about it? Goldman Sachs: A quick question on Tools & Hardware. It’s been down running roughly 20% on a core basis now for four quarters. You’ve run through that and you’ve got a new base to work off from. I heard you on the beginning part of 2010, is there a point, either the back half of ‘10 or even into ‘11 where it shows true cyclicality and really grows and make up some of that lost ground? Or is this really a new base and a lot of that demand is gone forever? How should we think about it?

No. I think at some point it really does return. I don’t know if they, for instance they, home construction will ever be at the peaks that it was in ‘06 and ‘07, but it certainly will come up off of where it is today. Commercial construction will also rebound from where it is today. The replenishment and the outfitting of both existing and new buildings from our commercial products are not even entirely dependent on construction bouncing back so that will come back more quickly. So, I think there is a lot of cyclical upside in all the Tools and Hardware, and in particular, the Rubbermaid Commercial business.

Thanks. The other question I was going to ask is around SG&A. If I look forward to 2010 and you have, let’s say, a low single-digit core sales offset by the low single-digit product line exits, maybe, you’ve one or two points on FOREX that leads to a top line up 1% or 2%. Is it feasible that SG&A could be up less than that or even down on an absolute basis to generate some fixed cost leverage if you’re going to spend back against the business, does acceleration give you some of that leeway? Or is SG&A going to kind of come up in a low single-digit fashion as well and the real margin gains are from gross margin only? Goldman Sachs: Thanks. The other question I was going to ask is around SG&A. If I look forward to 2010 and you have, let’s say, a low single-digit core sales offset by the low single-digit product line exits, maybe, you’ve one or two points on FOREX that leads to a top line up 1% or 2%. Is it feasible that SG&A could be up less than that or even down on an absolute basis to generate some fixed cost leverage if you’re going to spend back against the business, does acceleration give you some of that leeway? Or is SG&A going to kind of come up in a low single-digit fashion as well and the real margin gains are from gross margin only?

The gain will be from gross margin expansion as far as the drop to the operating margins. We will have some structural cost take-out next year from the project acceleration. A lot of that would be in Europe and some of it frankly in the finance organization as we get further down the road on shared services. However, we will invest more in our strategic SG&A next year, and that will more than offset the structural change.

Your next question comes from Mark Rupe with Longbow Research.

Hey guys. As it relates to gross margin expansion for next year, do you expect it to evenly flow through the quarters relative to 2009? Longbow Research: Hey guys. As it relates to gross margin expansion for next year, do you expect it to evenly flow through the quarters relative to 2009?

I’m sorry. Ask that again.

The improvement in gross margin; do you think the flow through next year will be kind of even on a quarter relative to this year’s quarter basis or will be more back half weighted with volume? Longbow Research: The improvement in gross margin; do you think the flow through next year will be kind of even on a quarter relative to this year’s quarter basis or will be more back half weighted with volume?

I honestly can’t answer that. We haven’t done the quarterly breakout yet. I just don’t know yet.

Secondly, on the inventory position, obviously, it came down three days. How do you feel about your situation there? Longbow Research: Secondly, on the inventory position, obviously, it came down three days. How do you feel about your situation there?

We feel good about what the operations have done on inventory. We are down $270 million to the same point last year. Take out is more than the sales decline or in the cost of sales decline, that why read-through in days. We think that will read-through for the year. We don’t think we’re done there. We’re still in the 75 to 77 day range, and that’s not the ultimate destination. We think over next several years, there to five, we should be able to get down to 60 days of inventory with the initiative around SAP, rolling out throughout the company as well as our process around inventory management is improving every quarter. So we’re happy with the progress, but we think there’s still room to go.

Lastly on the product line exists for next year, is it still in the Home & Family and office primarily? Longbow Research: Lastly on the product line exists for next year, is it still in the Home & Family and office primarily?

That’s correct.

Your next question comes from Linda Bolton Weiser with Caris.

When you give EPS guidance for 2010, are you still going to be using that lower share count and just kind of curious, I mean it’s a little bit deviating from GAAP rules to not use the higher share count. Are you going to convert to that at some point? Caris: When you give EPS guidance for 2010, are you still going to be using that lower share count and just kind of curious, I mean it’s a little bit deviating from GAAP rules to not use the higher share count. Are you going to convert to that at some point?

We’ve already hold the share count, not constant. We will play through any changes due to equity compensation, but as far as the convertible is concerned, we are going to exclude that from normalized guidance on EPS.

Can you just review the balance sheet for us and just refresh us on when the next piece of debt is coming due and what you’re kind of thoughts are on the balance sheet at this point? Caris: Can you just review the balance sheet for us and just refresh us on when the next piece of debt is coming due and what you’re kind of thoughts are on the balance sheet at this point?

We’re happy with the progress. We’re down to about $2.6 billion that I believe at the end of the third quarter. We’ll continue to pay that down through next year. In fact that’s our main objective for cash over the next 12 months is to get our credit metrics back to the solid BBB. I think we have about $75 million left of the notes due in May still to pay down, and then we have about $50 million of the term loan with our bank group due in September of next year, and we have I think about $50 million due in December of this year still of the bonds that we partially paid down in March. So just call it around $175 million over next 12 months. As we improve EBITDA, we think that our metrics that will get back to support that solid BBB rating.

Your last question is a follow-up from Connie Maneaty with BMO Capital Markets.

On the second quarter call you said you thought you might have to rollback prices in the second half, because of what was going on competitively. Did that materialize or not? BMO Capital Markets: On the second quarter call you said you thought you might have to rollback prices in the second half, because of what was going on competitively. Did that materialize or not?

Not to any great degree, no. I mean, there might be certain specific instances where we’ve given up price, but again pricing is reading-through to our expectation right now.

If we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at 770-418-7662. Today’s call will be available on the web at newellrubbermaid.com and on digital replay at 888-203-1112, or 719-457-0820 for international callers, with the conference code of 1218477 starting two hours following the conclusion of today’s call and ending November 12. This concludes today’s conference. You may disconnect.