Newell Brands Inc. (NWL) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to Newell Rubbermaid’s Fourth Quarter 2014 Earnings Conference Call. At this time all participants are in listen-only mode. After a brief discussion by management we will open up the call for questions. As a reminder today’s conference is being recorded. A live webcast of this call is available at newellrubbermaid.com on the investor relations home page under events and presentations. A slide presentation is also available for download. I will now turn the call over to Nancy O’Donnell Vice President of Investor Relations. Ms. O’Donnell you may begin.

Thank you good morning and welcome to Newell Rubbermaid’s quarter end conference call. I would like to remind you before we began that’s today’ discussion will include forward-looking statements. Such statements are based on assumptions of future events that may not prove to accurate and actual results may differ materially from current expectations. An explanation of related risks and uncertainties is provided in our earnings release and in our most recent 10-Q report. As required by Regulation G Newell I would like to remind you that our call will also include references to certain non-GAAP financial measures. Management believes these measures provide investors with helpful information on the underlying growth trends of our business. We provide a fully reconciliation with the corresponding GAAP measures in our release and in the investor relations section of our website at newellrubbermaid.com. I am joined this morning by Mike Polk, our President and CEO; and John Stipancich, our Interim CFO. And at this point I will turn the call over to Mike.

Thank you Nancy. Good morning everyone and thanks for joining our call. Over the last four months we have announced a series of strategic initiatives. First, on the heels of our acquisitions of the Contigo and bubba brands we completed a third acquisition of one of the leading marketers of premium baby strollers, Baby Jogger. Baby Jogger and its City Mini and City Select platforms are the perfect premium complement to our industry leading Graco brand and offer tremendous opportunity for Newell to participate in this fast growing segment of the market. These three acquisitions are growth accretive, operating margin accretive and EPS accretive. We also announced our Board’s decision to undertake the next phase of Project Renewal, to hold for sale our Calphalon kitchen electrics and outlet stores and our Endicia online postage businesses and to increase and extend our open market share repurchase authorization through 2017. These strategic choices are designed to strengthen our portfolio, accelerate our sales growth and improve our operating margins, while ensuring our shareholders have been simultaneously rewarded with a return of capital through share repurchase and steady dividend increases. So let’s get into the results. In our discussion the growth associated with our three acquisitions will be excluded from core sales until their respective first anniversaries with Newell. In the fourth quarter our company again delivered a very solid set of results. Core sales grew 3.3%, or approximately 4%, adjusting for SAP implementation timing and tools orders that were shifted into the fourth quarter as a result of our slow third quarter distribution centric transition. Net sales grew 4.1% despite a 320 basis point adverse impact from currency. Normalized gross margin increased 70 basis points, driven by positive mix, pricing and productivity partially offset by inflation. This improvement funded a 60 basis point increase in advertising and promotion as a percentage of sales. Despite the significant increase in brand support normalized operating margin improved a 120 basis points as a result of the accretive nature of our acquisitions and our continued progress on overheads related to Project Renewal. Normalized EPS was $0.49, $0.01 ahead of consensus and 6.5% ahead of prior year. In delivering this normalized EPS outcome we overcame a $0.04 adverse income tax impact due to the absence of prior year discrete benefits in our tax rate and the dilutive effect of businesses classified as discontinued operations. Operating cash flow was solid at $291 million and we have returned a $147 million to shareholders through dividends and share repurchases. Our fourth quarter performance was geographically broad based with core sales growth in all four regions and standout results in the US, UK, Australia, New Zealand, Mexico, Brazil and China. We continue to deliver very strong growth on our Win Bigger businesses. Combined our three Win Bigger businesses grew core sales 6.4%. Our Writing business grew core sales 5.7% driven by increased market share in most geographies as a result of strong innovation and increased marketing investment. Adjusted for the orders we pulled into the third quarter, ahead of our SAP implementation Writing core sales grew 9.3%. Commercial products core sales increased 6.7% as a result of new innovation and strong sales execution in the U.S., Brazil and China. Tools grew 7.5% driven by continued progress on Irwin inEurope, Latin America and Asia Pacific and very good growth on Lenox in North America. Adjusted for the distribution center transition related shift in sales from Q3 to Q4 Tools core sales grew just above 5%. Positive momentum in Writing, Commercial Products and Tools has helped us absorb the impacts of our strategic choices to reposition the Rubbermaid consumer business for profitable growth and to exit certain countries and product lines in Europe, primarily on baby and fine writing. Despite European exits the global baby business grew core sales of 0.7% in the fourth quarter with growth outside of EMEA of over 3%. As planned Home Solutions core sales declined 1.8%. However our newly acquired brands delivered terrific results and enabled home solutions net sales growth of 10.8%. For the full year core sales increased 3% despite over 40 basis points of product line and country exits in EMEA. Normalized gross margins increased 90 basis points enabling a 70 basis increase in advertising and promotion investment. Even with this increased investment normalized operating margins expanded to 40 basis points to 13.8%. Normalized EPS increased $0.18 to $2 despite having to overcome $0.17 adverse impacts from foreign currency. Operating cash flow increased to $634 million, giving us the flexibility to pass $546 million back to our shareholders in share repurchases and dividends. And most importantly our Win Bigger businesses grew core sales 7.3% with Writing up 7.8% Tools up 6.3% and Commercial Products up 7.2%. We are pleased with this 2014 performance and proud of the progress. With that let me hand over the call over to John to go through a more detailed review of Q4 and then I will return to provide some perspective on 2015 guidance.

Thanks Mike and good morning. Fourth quarter reported net sales were $1.53 billion, a 4.1% increase versus last year. The Contigo, bubba and Baby Jogger acquisitions contributed 400 basis points to reported net sales. Core sales, which exclude the contribution from acquisitions and the 320 basis point negative impact of foreign currency increased 3.3%. Strong volume growth in Tools, Commercial Products and Writing drove our core growth, partially offset by a decline in home solutions, as we continued to reposition that segment for profitable growth. Reported gross margin was 37.6%. Normalized gross margin was 37.7% up 70 basis points over last year. This improvement was driven by productivity, favorable mix in pricing which more than offset input cost inflation and unfavorable currency. Normalized SG&A expense was $371 million or 24.3% of sales, down 40 basis points versus prior year. We reduced overheads by 100 basis points but also increased our investment in advertising and promotion by 60 basis points as a percentage of sales. We invested in major campaigns for Rubbermaid’s Commercial’s Brute and Hygen Microfiber in North Africa and support behind distribution gains in China and Brazil. Our Tool segment also benefited from incremental advertising for Irwin Impact accessories and Vise-Grip. And we also supported our successful Graco full rubber car seat and Mode Stroller campaigns as well as advertising for Levolor custom blind and shades. Normalized operating margin was 13.4% up 120 basis points, reflecting the benefits of Project Renewal and other cost saving initiatives, partially offset by a significant increase in strategic investment. Reported operating margin was 7.4%, down from 10.7% in the prior year due to non-cash charges relating to our previously disclosed voluntary lump sum offer for certain inactive U.S. pension plan participants. Excluding the pension charge operating margin was 11.7% of sales for a 100 basis points year-over-year improvement. Interest expense was $16.7 million, increased 1.7 million year-over-year. During the fourth quarter we issued $860 million in medium term notes the proceeds of which we used to provide permanent financing for acquisitions, refinanced debt and extend our maturity profile. Our normalized cash rate was 26.5% compared with 19.1% a year ago due to the absence of prior year discrete benefits. Our full year normalized 2014 tax rate landed at 23.5%. Normalized EPS which excludes restructuring and restructuring related costs and certain another one-time cost was $0.49, a 6.5% increase to last year. On a reported basis fourth quarter EPS was $0.19 compared with $0.41 last year. I will now move on our segments results starting with Writing reported Q4 net sales of $418.2 million were essentially flat to last year, though core sales increased 5.7%. Our North American writing business delivered good volume growth fueled by strong innovation, marketing and merchandising. In Latin America Writing core sales declined low single-digits due to the SAP related pull forward of about $15 million of core sales from Q4 into Q3. Adjusted for the SAP shift writing core sales of Latin America increased double digit, driven by pricing and the continued success of InkJoy. Q4 normalized operating margin in our Writing segment was 24.7%, a 260 basis point increase over prior year due to strong productivity, cost management and lower A&P spend as compared to last year’s heavy InkJoy advertising campaign. Net sales in our home solutions segment increased 10.8% to $458.6 million with acquisitions contributing $55.5 million. Core sales decreased 1.8% driven primarily by the exit of some low margin Rubbermaid consumer business and our decision to pull back from less profitable non-strategic promotional activity. Partially offsetting the decline was good growth in Rubbermaid food storage and into core, driven by increased advertising and promotion. Home Solutions normalized operating margin was 13.2%, a 70 basis point decrease reflecting increased advertising, input cost inflation and negative FX, partially offset by better mix and pricing. Our Tools segment delivered net sales of $227.3 million, a 3% increase. Core sales grew 7.5%. Tools delivered double digit growth in Latin America, reflecting the continuing success of our expanded offerings in Brazil. North America and Asia Pacific grew high single-digits fueled largely by our Lenox band saw and tools business. And as anticipated Irwin North America return to growth as it rebounded nicely from the Q3 disruption, related to our distribution center transition. Approximately $5.6 million of Q4 shipments represented the backlog from our Q3 transition issues. Adjusted for this timing shift Q4 core sales growth was 4.9%. Normalized operating margin in the Tools segment was 9.5%, a 90 basis point improvement versus last year. This increase was driven by a significant reduction in overhead costs, partially offset by increased advertising and promotion. Reported net sales in our Commercial Products segment increased 5% to $213 million. Core sales increased 6.7%, driven by pricing and strong volume growth in North America, as well as expanded distribution in emerging markets such as Brazil and China. Commercial Products normalized operating margin was 11.4%, a 380 basis point increase to last year, thanks to pricing, productivity and favorable channel mix partially offset by higher A&P. Our Baby segment reported $208.9 million in net sales, a 20 basis point decrease. Baby Jogger contributed $4.4 million in net sales for the two week period after the close date. Core sales grew 0.7%, Graco North America grew low single-digits as strong innovation and increased advertising and promotion delivered sequential improvement at point of sale. Our Baby business in Asia Pacific returned to growth in Q4 as a result of gains in China. Aprica Japan saw modest recovery in POS driven by new product introductions and promotional activity. Baby’s Q4 normalized operating margin was 8.3%, down 110 basis points to last year, largely due to increased A&P spend to reignite growth in the segment. Looking at Q4 core sales by geography; North America core sales grew 2.7% with strong results from Tools, Commercial Products and Writing. In EMEA, we are very pleased with the progress we have made in repositioning the region for profitable growth. Core sales in Q4 grew 3.2%, driven by strong performance from Writing, partially offset by planned product line and country exits of about $7 million. Our normalized operating margins in EMEA has also improved significantly to an all-time high as we are realizing the benefits of our extensive transformation initiatives in the region. In Latin America, core sales grew 3.5% reflecting pricing and volume gains in Tools and Writing, partially offset by the $15 million negative impact of the SAP related timing shift from Q4 into Q3. If we adjust for this timing shift Latin America core sales growth was 16.5%. And finally, Asia Pacific core sales grew 8.2%, with solid growth from Writing, Baby and Commercial Products. Moving on to cash and our balance sheet operating cash flow was $290.8 million in Q4 compared with $304.2 million in the prior year. For the full year 2014 operating cash flow came in at $634.1 million compared to $605.2 million last year. We returned $147 million to shareholders in Q4, including $46.4 million in dividends and $100.6 million to repurchase 2.8 million shares. For the full year 2014 we paid $182.5 million in dividends and $363.2 million to buy back 11.4 million of our shares. In the fourth quarter we also announced an expansion of our share repurchase program to buy back up to $500 million in outstanding shares through the end of 2017. As of the end of Q4 we have $437 million available under our authorized market repurchase plan. For the full year 2015 we are now modeling an annualized average share count of about 272 million shares. We expect interest expense to increase to around $70 million to $75 million and our tax rate should continue around 24%. And finally our balance sheet remains very healthy. We have about $200 million in cash on hand and about $770 million in liquidity. Even with the increase in debt to finance our recent acquisitions our debt to equity, EBITDA multiple and interest coverage ratios continue to be strong giving us continued financial flexibility for acquisitions or further share repurchases when we choose to pursue these options. With that, I will turn the call back over to Mike.

Thanks John. So now let’s turn to 2015 guidance. This morning we revised our initial 2015 guidance to reflect the underlying positive momentum in our business, the acquisition of Baby Jogger and our latest view of foreign exchange. In that context we are raising our 2015 full year core sales growth guidance to 3.5% to 4.5%. This new higher guidance reflects our increased confidence in the sustained momentum of our Win Bigger businesses, the return to growth in Baby and the early signs of stabilization in our home solutions business. Regarding normalized EPS guidance, the unprecedented strengthening of the U.S. dollar over the last few months against most currency has created pressure on our financials. Our business is more susceptible than you might think to the strengthening of the U.S. dollar, because of the dollar denominated profile of both our sub manufactured and sourced finished goods. Unlike some other competitors the resulting negative transaction ForEx impact is actually larger than our translation impact when the U.S. dollar strengthens. The current view of the total year-over-year negative foreign exchange impact to operating income is about a $110 million and will result in a translation and transaction ForEx impact, a normalized EPS of just over $0.30 about $0.16 worse than the impact presumed in the initial 2015 guidance we provided. We have taken action to cover as much of the new currency impact as possible reflecting the most recent commodity cost benefits and lower energy cost to cost of goods, and drove incremental pricing in markets where transaction ForEx pressure is most acute and competitive conditions allow. We have also now incorporated the accretive impact of the Baby Jogger acquisition in our numbers which helps close some of the gap. Additionally our strong Win Bigger performance in building POS growth across the balance of the portfolio has given us confidence to raise our core growth outlook which flows through to earnings. We have considered but rejected the option to pull back on the 2015 incremental marketing investments. Our conviction to step up brand support again in 2015 has been strengthened based on the 2014 growth acceleration we experienced in our Win Bigger businesses as a result of stronger innovation, better marketing and additional investment. Our new outlook assumes we increase advertising and promotional investment in 2015 by about 20%. So in this context we are revising our 2015 full year guidance range for normalized EPS down by about 2% to $2.10 to $2.18. The $2.14 midpoint of the range represents normalized EPS growth of 7% versus 2014. Adjusting for the year-over-year impact of currency translation only, the midpoint of the new 2015 guidance range represents nearly a 14% increase in normalized EPS versus 2014 on a currency neutral basis. Our revised 2015 full year guidance assumes we sustain mid-single digit core growth in our Win Bigger businesses of writing tools and commercial products; that we recover growth momentum on our baby business with a real acceleration in the second half the year behind new innovation and brand support; that we stabilize core sales in home solutions as continued repositioning at the Rubbermaid consumer business in the first half of 2015 is offset by sustained momentum on Food storage and the inclusion of Contigo and bubba in core sales after their first anniversary with Newell; that we deliver strong year-over-year growth on our newly acquired brands of Contigo, bubba and Baby Jogger; and that we partially offset the negative impact on normalized gross margin of transaction ForEx and mix associated with Baby and home solutions growth with positive pricing, commodity benefits and productivity; and finally we deliver strong progress on overhead through Project Renewal which win coupled with growth enables us to increase brand support. There are two factors that can influence where we fall in our 2015 full year guidance ranges. The first factor is the planned recovery of growth on our baby business. We were pleased with return to growth in baby in Q4 despite continued European exits. In 2015 we expect to deliver good growth in North America behind strong innovations and marketing support. And in Japan we expect to return to growth from the second quarter forward. We’ve invested significant marketing support behind Baby in the second half of 2014 and will sustained increased investment in innovation and advertising in 2015 accepting operating income margin compression, in order to reignite growth. The second factor that could influence where we land is foreign exchange. Our team has done an excellent job dynamically managing our business in the context of sustained currency headwinds, last year overcoming $0.17 per share of negative currency impact to deliver a new all-time record normalized EPS results. While nearly two-thirds of our revenue and profit has generated in the U.S. where macro conditions are improving we have a large and profitable businesses in Canada, Japan and after years of work, Europe. These profit pools are exposed to the currency volatility we are currently experiencing. Our teams have taken actions to cover over 80% to the negative currency exposure and will be working through the year to try and cover more through accelerated savings and increased pricing. Our new guidance assumes the major currencies are at current market rates and the Venezuelan Bolivar is at the Sycat 1 [ph] rate of 12 bolivar per dollar. While devaluation of the bolivar seems likely at some point in the future we had access to Sycat 1 [ph] option in the fourth quarter and we hold our current position in currency in Venezuela until market conditions or the currency frame work changes. Obviously the environment remains dynamic and we will continue to adapt our plans to what will likely be continued changing conditions. While we do not provide quarterly guidance let me make a few comments regarding the phasing of this year’s sales and earnings. With regard to core sales we expect core sales to be near the low end of the range in the first half of 2015 and near the high end of the range in the second half of 2015. The higher core growth rate quarter should be Q4 when Contigo and bubba growth will start to be recognized in our core sales. The lowest core growth rate quarter should be Q2 related to the shift of some back-to-school shipments on writing from Q2 back to Q3. Our core growth in Q2 could be below the bottom of our full year guidance range. The phasing of normalized EPS growth should also skew towards the back of the year driven by two factors. First nearly two-thirds of the adverse foreign currency impact is expected to occur in the first half of the year, with the most significant impact in Q1. Second we plan to increase advertising and promotion in 2015 with a majority of the incremental investment occurring in the first six months of the year. In this context we expect the first half of 2015 normalized EPS growth rate to be lower than the growth rate in the second half of 2015. And consistent with previous communications we are likely to deliver only flat year-over-year EPS growth in Q1 2015 as we invest in brand support ahead of year ago levels despite the adverse foreign currency pressure. So let me close now. I am proud of our team’s delivering 2014 after a turbulent start to the year we grew core sales 3% despite over 40% basis points of product line exits and country exists in Europe. We were steadfast in protecting about $50 million of incremental brand investment despite having to overcome $0.17 per share of adverse foreign currency impact. We achieved that and increased normalized operating margins 40 basis points and normalized EPS nearly 10% to $2 per share an all-time high for Newell. These are strong competitive results and we've delivered them while simultaneously driving change. We're in the midst of the strategic phase of the growth game plan investing behind the core activity systems for critical door business success establishing an operating company that releases the full potential of our $6 billion business rather than simply our individual brands or operating units. We're unlocking the trapped capacity for growth through Project Renewal and are now deploying cash back into the business investing in new capabilities in our brands for accelerated growth while simultaneously increasing operating margin. We've strengthened our portfolio by exiting or divesting nearly $400 million of less attractive businesses and now acquiring nearly $300 million of growth of operating margin and EPS accretive businesses that are focused within the core of our portfolio. We've also put cash to work, repurchasing nearly $1 billion of our own shares over the last three and half years while increasing the annualized dividend from $0.20 in early 2011 to $0.68 per share today. We are proud of the progress, but more importantly we're excited by the future. There is a much bigger value creation story still to be written and we're convinced that we're on track to both strengthen the company and create that upside. With that let me pass the line back for Q&A.

[Operator Instructions]. Your first question today comes from Chris Ferrara with Wells Fargo.

Hey Chris.

Hey, good morning. Mike, can we talk about pricing a little bit right in the light of the pretty big FX transactions drag. I'm just wondering how reliant is the new fiscal '15 guidance on getting pricing, and how much did you get, because it strikes me that pricing in LatAm is one thing but Canada maybe a little bit of a different issue right and do you believe your competitor’s cost structures are similar to yours?

Yeah, it’s a great question and this is something we ought to be very sensitive to. It depends on where people are sourcing their business from. We've got some local competitors that will make that pricing difficult, that's true in Europe on some of the tools product lines. Canada I think will it will be a tough discussion with customers. We've already initiated that. We'll get some pricing to land there. Latin America will be easier to land pricing typically. So it won't, it's not a simple process to land pricing. It's very important in the context of solving for the transaction issues. In most cases we have a competitive framework that will allow us to get that pricing landed, but your observation is right Chris. It's a market-by-market product line-by-product line dynamic that we have to wrestle with. And you really can't let your pricing, your relative pricing versus competitions get out of line or you’ll pay a huge volume penalty. So it's a really gritty kind of nuts and bolts type of conversations. It's not a broad conversation. You have to deal with it country-by-country, product line-by-product line. So we'll get pricing landed in most places across most product lines and where it makes sense not to do that we won't do it because our long-term agenda is about building our market share position. And we've successfully kind of struck that balance in 2014 where we've faced similar issues but not quite to the degree we now do. So plenty of the tough -- the tough markets will be Japan and Canada largely, although in Japan our competitors are sourcing from China like us and so their effectively they are dollar denominated good -- finished goods. But it's still tough market. When there is flat GDP growth you're just -- it’s tough to convince customers to go. But we've successfully done it. The last -- it's actually over the last couple of years. And we are going to do it again this year.

And so with the 14% growth rate in '15 that's implied on a just an ex-FX transactions basis alone and again or ex-translation -- transaction would be even worse. It’s now the second year running that you are facing these sort of headwinds. So why not take the number lower, why are you going to stress the organization to deliver 14% kind of constant currency. And I appreciate you keeping are the advertising number but for a business where you have managed expectations on growth pretty well, why are you willing to stretch to 14$ for the year?

I think we have got what we believe is a balanced forecast now. We have re-planned the year three times from October to now as currency -- as the dollar has strengthened. I think we have got a balanced and appropriately stretched plan and a balanced and appropriately stretched commitment externally. Remember we have got tremendous progress coming in on the cost side through Project Renewal and you see us getting leverage now on the overhead line through the P&L on Q4 from that and also from the accretive nature of our acquisitions. So the acquisitions clearly help. We have been more aggressive on the repurchase line, which works for the denominator and so I don’t feel of course this is a stretch in plan but I don’t think at all that this is an irresponsible plan and I think we want to keep that pressure operationally in the organization. So, we are not compromising on anything strategic by kind of pushing down this path. We are fortunate to have made the choices we have made along the way on share repurchases, on restructuring what we have done, getting that overhead leverage, getting the overhead ratios down and the acquisitions certainly helped. But yeah now is not the time in our transformation to take the pressure out of the system. In fact we want to continue to build the mass memory with respect to our operating excellence and discipline in the company. And we can’t let the external dynamics shift our focus away from the strategic agenda we have got. So I feel like it’s in balance and we would have been able to spend more clearly had we not and perhaps driven growth even faster than what we have committed to, have we not had these headwinds but they are what they are and you can’t control the things you don’t control. And so you have to adapt to them and I feel like we have got, we have struck the right balance.

Thanks a lot Mike.

Your next question comes from Joe Altobello with Raymond James.

Good morning. Just wanted to shift gears a little bit to commodities, I mean obviously you have seen oil come down and you guys are fully levered there, just curious when you expect commodities to turn to a tailwind in ‘15?

Well they are starting to, you remember a good chunk of our -- we are getting some commodity benefits in resins now flowing through the P&L. We are also getting energy benefits in -- through our distribution transportation areas, the cost of running factories. There is some good positive stuff flowing through the P&L which has helped us cover some of the FX issues we have got. However remember a good chunk of our revenue is sourced finished goods. So we still have inflation in the P&L that’s coming out as a result of labor rate increases in many countries around the world. So it’s not all positive. We will have net inflation in our business this year. It will not be a positive year with respect to the overall inflation curve. So I don’t know whether that we will see as we move into 2016, whether we get more tailwinds on cost, it really is going to depend on whether energy stays low and also whether the planned increases in resin capacity in the U.S. come online at the end of 2015, as we expect they will. That may depend on the economics for these companies based on the current energy input cost. So that remains to be seen. If that happens 2016 we should get some further benefit on resin than we are getting this year.

Got it, that’s helpful. And then secondly in terms of the new optimization model you have got from [indiscernible] in the U.S. what’s been the response from customers and your own sales force to that?

Look we went live on 1/1, so when you change a go-to-market program like this you have to be really cautious at the point you flip the switch. You want to be able to invoice, you want all those things, it’s like an SAP implementation and I am really pleased to say that, that went well. The team did an excellent job of getting us through that transition. And this is an empowering approach to go in the market for our selling organization. So people are excited about it. I think we will see some really interesting benefits overtime because it’s a much simpler approach from a back room perspective as we get more comfortable with the way we will fund the checkbooks and then withdraw money out of these checkbooks. And so this will simplify the transaction. So we've got behind the -- in the back office. And so I think we just beginning to kind a feel the energy that will come from this into the organization will be positive from a -- and empowering from a sales force perspective and it should simplify transactions. Our customers end up having skin in the game, because of the way the program is designed and this is not a breakthrough program. This is what happens in fast moving consumer goods. Because of the way the program is designed the money will flow to the growing customers. And so unlike fixed fund base approaches to trade promotion this is a live or pro-based program. So as customers perform better for us they earn more money. And that causes our gross to net money to flow to growing customers, and also reach consumers effectively where they shop as opposed to where they have historically shop. And so that should yield some really interesting benefits for us overtime. That’s still to be proven because we just went live a few weeks back but so far I'm encouraged by the transition and the energy that our teams are playing back to me with respect to the empowerment that comes with this type of design.

Great, thanks Mike.

Your next question comes from John Faucher with JP Morgan.

Hey John.

Hey good morning. So Mike I know you're obviously getting a lot of your core sales growth from Latin America and you probably completed an aggressive push there recently in terms of new product launches and what have you. This quarter was negatively impacted by some of the timing shifts. But I do get a question about sort of the overreliance on Latin America or Venezuela in particular as we look at the growth year-over-year in core sales. So can you talk about sort of what we should think about for Latin America in 2015, Venezuela generally what's the contribution to growth going to look like for this year, thanks.

Sure, I mean Venezuela has been an important contributor to growth in Latin America in last two years. The next year it actually will not contribute as much to our overall growth performance. It's important to note that ex-Venezuela Latin America is up very strong double-digits. So Venezuela is not driving our Latin numbers exclusively. But next year, you should recognize that the contribution to growth in Latin America from Venezuela will go down pretty materially, like over 25% decline because of the dynamics of the new margin catalogs and how we can price. So our growth will be less a function of pricing in Venezuela. We've got really good volume momentum across the whole patch. Because as you recall, we're deploying more aggressively our writing portfolio across Latin America, we're investing more in [indiscernible] Latin America, we're getting great traction in the market share result. I think Mark showed some of those things that at the Analyst Day, some of the progress on the market share in those geographies. So and in tools we've deployed a whole new portfolio into Brazil. So we've had very good growth, fundamental growth in Latin America. And while pricing has certainly been a factor and will continue to be a factor next year as we deal with the valuations across the patch connected to the stronger dollar, Venezuela's contribution to our overall performance will be probably 25% less next year. And we still expect to deliver very solid double digit growth in '15 in Latin America.

Great thanks. And then one sort of separate question. There’s been from discussion lower gas prices to consumer are generally helping more discretionary items. Can you talk a little bit about whether you're seeing any impact in the U.S. from that?

I'm hopeful, I'm hopefully we've finally kind of turned -- this is sort of the last domino that gets us to kind of finally turn the corner. I think you'll be able to read this more when you see some of the retailers report after these, when you can net out the effect of the holiday. It's -- from what I can see is some of those numbers were little blurred by holiday transition. So look we have very POS momentum in our business in the U.S. One the reasons we're confident in taking up our guidance on core sales is because we had very strong POS really across the patch, across the whole portfolio in Q4. We had some inventory shifting going on there that didn't have it all play through the revenue growth, but we see good momentum. I can't -- because of these categories and the quality of the syndicated data it’s very difficult to tease out the market growth effect but I know what -- and I know we are doing a lot of things and our shares are building but we’ve seen strengthening in our POS in the U.S. over the last four months or so and that’s encouraging either it’s foot traffic-related tied to lower energy cost, I don’t know. I think, that you are going to get a better -- we’;; all get a better read when we start to watch what the retailers say.

Great, thanks.

Your next question will come from Olivia Tong with Bank of America Merrill Lynch.

Thank you. Hi, Mike question on the exits. You mentioned this year that you saw 40 basis points -- you had to absorb 40 basis points of hit from exits In terms of your portfolio how do you think about that for 2015, do you think that there might be more exits needed how often do you evaluate your portfolio?

I’ll let John handle that one, Olivia.

Hi, Good morning Olivia. So with respect to the 40 basis points all in Europe we are pretty much done with those and those are behind us. Now we’ve a little bit to tease out in the first quarter here. With respect to Rubbermaid consumers we continue to reposition that business. There will be some continuing exits of less profitable product lines for us, so that we can focus on the more important like food storage and so forth for us that are more strategic. So we continue to look at it. But net-net I would say we will have some decline overall in terms of product exits in ’15 but certainly not to the same scale that we had in ’14.

And how often you guys evaluate the portfolio in terms of thinking about any potential new exits that you might be thinking for ‘15 that aren’t necessarily in the existing core sale outlook for ‘15?

I think, it’s probably fair to say that we are looking at it more and more all the time. At the end of the day what we want to focus on is not growth but profitable growth and so again we are holding ourselves accountable to making more difficult decisions in terms of jettisoning things that just aren’t attractive to us on an overall basis. So I would say it’s probably a more continuing process now than it ever has been before.

Got it and are you factoring in any potential -- is that -- how does that factor in to your 2015 outlook?

Yeah, we have taken that into account right now what we anticipate with our exits and so forth. So I don’t think it will -- nothing that we do will materially change, it’s all baked into what we’ve guided to you today.

And Olivia just with respect to the broader portfolio question we’ve actioned the choices we think we need to action for the time being with respect to our portfolio, with the choices to try and sale our additional [ph] business in the broader group that we have taken to discontinued operations. So this year’s portfolio is one that we are going to sweat. We will see whether there are any other things we are interested in from an M&A perspective that we might hope on but we’ve got three great assets that we are adding to the portfolio and we are very busy integrating or broadening their growth agenda, depending on the business you are referring to and -- of the three. And so we are pretty pleased with the way we’ve actively managed the portfolio over the last 18 months. This was an important part of the strategic phase of growth, game plan was to confront some of these things and get them behind us before we get to the acceleration phase in 2016.

Got it and if I could just follow-up on the Win Bigger businesses, those clearly you are still growing quite a bit faster than the remaining part of portfolio today, but you did see some deceleration in growth in Q4 versus the full year rate. So can you talk about are your expectation for growth in 2015, are they similar to 2014 or would you expect them to contribute even more relative to more to the rest of the portfolio?

Olivia, we didn’t adjust the Win Bigger business numbers for the timing shifts for SAP. We did when we talked to you about writing and we also did when we talked to you about tools in the shift between Q3/Q4. If you want to get to the underlying Win Bigger numbers you’d have to add probably about $10 million, $11 million back to the top line in Q4 to get to a timing adjusted performance. That would be the better underlying reference point. So I don’t think the -- while the numbers suggest what you say, the actual underlying numbers are better than what we quoted. But I am really reluctant to do the withs and withouts on these timing shift so I didn’t adjust the Win Bigger number we quoted for Q4 but that would have been $11 million stronger, as a result of…

Understood, so in terms of the contribution to 2015, the growth rate in 2015 relative to 2014 for your Win Bigger businesses would you expect that to be fairly similar?

Yeah, we have mid-single digits across all three and hopefully we can beat that. We’ll see how that plays out as the year unfolds. We’re going to -- we got to get -- as we layer the A&P in the measure for whether we are getting a return on investment is the growth rate in the places that we’re laying that A&P into and those two things go hand in hand. So we need to get a good growth yield on those investments, so they are not smart investments and we’ll watch both of those variables. We’ve built a plan that assumes mid-single digit performance, a recovery of momentum on Baby, stabilization of Home Solutions and we’ll see whether we can do better than that.

Great, thanks guys.

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

Thanks, hey good morning guys. I guess first question, if I think about the FX, I mean the FX that you have to make up with the revised guidance of the $0.16 change, two-thirds of that is price and cost savings. So really we’ve talked a little bit about the price side. So wondering if you could talk about the cost savings. The bucket that you have kind of coming to this year is there any that’s being kind of pulled forward from the out years is the first question? And then the second question is with I guess round three of Project Renewal that’s out there as you see the next year or two or even three kind of play out do you see more of the cost savings kind of flowing to the bottom line as is now and rather than getting reinvested? So I was just wondering if you could maybe talk a little bit more conceptually about the cost savings, what’s coming through this year and then how that’s going to contribute to kind of earnings growth in the out years?

Sure, so we are clearly looking at whether we can pull Renewal three savings into 2015. We’re going to want to have that as insurance policies, whether we can pull that off or not. The teams are fully immersed in that as we speak. We have formed a transformation office that is diving on a number of different work streams to see whether there is paths to pull forward ‘16 savings into ’15. It’s too early to know whether we will be able to do that but clearly that’s something that’s top of mind for John, for myself for the whole executive leadership team and but we have a lot of room to go on cost. That’s why when I say that there is more -- a bigger value creation story to be created in front of us, we’re making great progress on our overhead ratios. As we exit the year we’re lower than we’ve been. I would probably have to go back to the early 2000s to find a ratio that compares to this, but we’ve got a lot further to go. We still have probably 200 basis points of opportunity in overheads. And so we’re working on that and we got to do it in a disciplined way. It’s got to be tied to efforts we make to simplify the way we work, complexity reduction but all these costs will eventually flow to a pool of money that can be either used to put back into the business or can flow to margin expansion. So we’re on that. I think we won’t put money into the business unless we have something strategic to spend it on. As we think forward to 2016 and 2017 remember we set our eyes -- we said our deployment strategy for our portfolio is to first focus south and then east. While we have been focusing south we delivered 20 plus percent core sales growth last year, with this year 2013, 20 plus percent core growth in Latin America, 2014, 20 plus percent core growth again. And so we are seeing the yield on those investments but the next horizon is Southeast Asia and China for us and that will come with cost. Now we are not just going to throw money at it. We got to validate that our brands can work, that we can build brands in those markets. We are looking for efficient routes to market in those geographies but those will be -- the money will flow there. There will be uses of funds connected to those choices. What I do not want to do in the near-term is mortgage our home markets in order to pay for that. So establishing our foothold in Southeast Asia and China will requirement incremental investment and we’ll do that in a disciplined way. We’ve always said that we want to deliver operating income margin expansion at the same time as we are pushing those investments in. So we’ll strike a balance. When we get our advertising and promotion ratios to somewhere around 7% I think we’ve got our work done. We’ve gotten that ratio to where it needs to be able to be support our business and grow our business and build market share in our home markets and then extend the footprint of the business. We’re not there yet. We’re a couple of years away from reaching that milestone I think. But that’s the algorithm that’s the financial algorithm to the company; get gross margins to 40s; get the E&P to 6 to 7; get the overheads as low as they possibly can be, and let the balance flow through to operating income margin. And that’s what we’re trying to do with the growth game plan.

Okay great. Thank you and thanks for all that color and then just I think just a follow up on one of the earlier questions about the portfolio. So obviously you’re busy this past year with three nice tuck-in acquisitions. So as you do look at the portfolio are there some glaring, I won’t call them holes but like areas that you feel that there is an opportunity to really kind of strengthen a core win bigger category at this point and are there assets out there that kind of hit that bell. So I was just kind of wondering how, I guess aggressive you’re looking right now as opposed to kind of the blocking and tackling that you’re doing in the core business as we think about 2015?

I think our principles, for what we’re going to do haven’t changed at all from what I’ve said before that we start with a strategic rationale, we’re focused in the core of our business. We want to scale all five of our categories, we want to scale the company in general. But that’s sort of the opportunity in front of us. So scale those five categories through bolt-ons and grow the company as a whole. Our energy is focused in the core right now and there are clearly some interesting assets out there but the challenge is extracting them from the current owners and getting alignment convergence on those opportunities that are not easy. So we will be on hunt again in 2015. You should expect us to be active. Whether we convert anything or not it’s completely a question mark. In the very short-term, the next few months we’re focused on really getting the value from the choices we’ve made already and but our confidence, we’re ready organizationally our confidence is increasing our core agenda. We’re starting to get a kind of traction that proves the model’s working and that gives us some more latitude and room to complement that with M&A.

Okay great and we’ll see you down at Florida in a few weeks.

Yeah, great, thanks.

Your next question comes from Constance Maneaty with BMO Capital.

Good morning. I don’t know if you touched on this but could you help us understand the influences on the gross margin because they were the accretive acquisitions and I think they’re going to be at least partially offset by the transaction costs from FX so having said, how did those factors and anything else positive raw material how do they combine for an outlook for the gross margin this year?

Yeah so Connie we’ve said there our acquisitions are accretive at the operating margin level not gross margin levels. They are accretive to Home Solutions but they’re not accretive to the total company. So there is a mix negative that comes as those filter in, a mix positive to Home Solutions, a mix negative for the company. The other thing that’s going to happen to us this year is that Baby recovery, Home Solutions recovery, those will work against as well will the ForEx. So I think it’s going to be a difficult year on gross margins it was brilliant year on gross margin for us. We’ll continue to press aggressively on our Win Bigger businesses which are all, most all accretive. The key things that are of interest within those portfolios so I don’t know how to play out but this will be a much different year than last year with respect to the aggregate effect at gross margin. If you think about it on a pro forma basis, we’re definitely going to increase gross margins this year. So if you were to layer all the acquisitions into the year ago numbers, we’re focused on 30 to 50 basis points of gross margin improvements on a pro forma basis and that’s probably the right way for us to think about it going forward. And operating income margins because of the incredibly, the great fixed cost leverage we get from those assets they are clearly accretive but if you want to make sure I clarified that. So we’re focused on pricing obviously Project Renewals is really important, it’s not just in overheads but obviously in the flow through of some of the more interesting projects that are in there to gross margin. Simplification of our supply chain organization structure flows through the gross margin and so there is a lot of levers we will be pulling, to try to maximize the impact, but the way we are thinking about gross margin this year given the acquisitions is that we will grow our gross margins on a pro forma basis. But it doesn’t change our strategic view. We will continue to build towards that 40% number. And we will see whether we can build them in aggregate. That will be one of those sort of stretching goals we set for everybody.

Now on an actual basis, what we are going to see reported not pro forma?

Yeah, it will be tough to see growth on gross margin percentage.

Okay, that’s helpful another question on the transaction impact in effect. We can all pretty much calculate the translation impact but on the transaction side of it, which segments and which geographies are going to be most affected by transaction effect?

We source our Baby business from -- in many ways from China. So you get a dollar denominated transaction platform there. So anywhere outside the U.S. where we have a Baby business there is going to be -- there will be a challenge. So unless those currencies are connected to the dollar which most of them aren’t, you are going to have -- you have an issue of pressure in those areas. The transaction impact, it will be euro denominated, it will be Canadian dollar’s a f big issue for us because we source out of the U.S. into Canada. So I’d say, it’s euro and its Canadian dollar we have our Europe purchase [ph] companies based in Switzerland, so we have a Swiss Franc driven cost up charge that we got to deal with, but I think the balance will be -- it’s the yen, it’s the euros, the Canadian dollar. We have some stuff in Latin America but it’s lot easier for us to -- and obviously Brazil and Mexico and Venezuela are issues but we can price more easily in those markets to cover. So the transaction issues that you should think about largely Canada, Japan and Europe and it has to do with where we source from.

And if I could just ask one last question on the composition of the 16.5% core sales increase in Latin America, could you break that down between volume and price?

We don’t typically break it down because it’s difficult for us to actually have visibility to it but it’s -- I’d say it’s probably more than 50% price this past year and that will shift the other direction next year.

Okay, great. Thank you.

Your next question comes from Nik Modi with RBC Capital Markets. Mr. Modi, if you are on speakerphone please pick up your handset or depress your mute function.

Sorry about that Mike. I was on mute. Just two quick questions, CFO if you could just give us an update on kind of how that’s progressing in terms of the search? And then the second question is just wanted to -- it looks like the writing business is really starting to react and respond to lot of spending. How is the fine writing business doing in some of the key geographies that you have a presence in?

Well, first of all, on the CFO search we have our Board meeting the week after next, and coming out of that we should have the search resolved and I appreciate everything that’s John done for us over the last five months now and we will bring that to a close at that point in time and I am excited by the choice we will make, got the recommendation into the Board. We’ll just kind of tie it up with them in the couple of weeks. On writing it’s been very exciting to watch the responsiveness of this business to investment. It’s been terrific and I think, the underlying growth in Q4 is really pretty extraordinary at 9.3% when you adjust for SAP timing. So this is a very responsive business to investment. The innovation funnel is stronger than it’s been a long time. We got great advertising now. And so we are very well positioned. We were in London last week for the opening of a museum dedicated to Parker that’s in one of our facilities. And we’ve re-launched the Parker brand -- we are in the midst of re-launching the Parker brand, we re-launched the Waterman last year, we re-launched Rotring last year. We saw very good growth particularly in Q4 on fine writing in Asia and as we finished up the exits in Europe we should see that business start to get some good traction. I love this business. I am particularly intrigued about Parker and Rotring and what we can do with those two brands. We have not focused our investment dollars within Writing on that business yet. We have focused them on Sharpie, on Paper Mate, on Expo on Mr. Sketch and also on Dymo. But the next -- one of the next opportunities we have is to place some meaningful money behind those businesses. This is a very high gross margin business but also a very high SG&A business. So one of the challenges in this business is a plus [ph] profitable on the balance of Writing portfolio. So we have to be thoughtful about how we go to market and whether we can figure out how to shift the money that are in SG&A that are focused on fixtures and furniture to more dedicated brand support. And we are working through that. And with the brand work that’s happened over the last 18 months and with some of the thinking that’s going out in this area that I just mentioned, I think we are getting ourselves into a position where a little bit more investment maybe warranted. But our priority is clearly within Writing around Paper Mate, on Sharpie, on Expo, on the [indiscernible] business on Prismacolor, on Dymo before we would take a big pat on Fine Writing given the margin differences and the potential for deployment on the balance of the Writing portfolio.

Great, thanks Mike.

Your next question comes from Lauren Lieberman with Barclays.

Hey Lauren.

Hey, just a couple of questions on baby, first was just a mention of China in the release surprised me because I thought that -- like you said the Southeast Asia and China expansion plans were sort of a more into ’15, into ’16 plans, so curious on that. And then secondly talk a little bit about Baby Jogger why the acquisition, what your plans are there for the distribution, the synergy opportunities that are because it strikes me as a pretty well distributed brand but that maybe geographically biased? Thanks.

Yeah, it’s actually got a pretty good broad footprint. It actually opens up Australia to us. We didn’t have a Baby business in Australia so Baby Jogger opens up Australia with a sizable presence there. It’s got a presence in Europe. So we are pleased with the sort of the anchors it creates for us to work from and more importantly though we are playing in a completely different space than Graco plays. So Graco obviously a world leading brand, strong positions in many markets around the world, mainstream brand with opportunities for premiumization and we are playing that story out and that’s part of why in 2012, 2013 you saw a double-digit growth and you have seen great margin developments since we started, we doubled the operating income margin coming into 2014 and now we are putting real money behind it so we are stepping back. So you have seen a great story in the core of this business and you will see really nice momentum building back here in ’15 after the disruption of the first part of ’14. The beauty of Baby Jogger is that it plays in a completely different space. It’s first of all Graco is suburban positioned brand, Baby Jogger is an urban positioned brand and it’s a super-premium brand. So some of these Joggers go for $600, $700, $800 per Jogger. Graco tops out around $400 and so it plays in a completely different part of the -- what we call the need state [ph] map. And so it’s going to be largely incremental to our core Baby business suite which is why we were interested in it. Remember, when we do M&A we are looking for either brands that can play where our current brands don’t, from a market development perspective or technologies or geographic deployment opportunities and this one checked two boxes. It had a broader footprint which opens up a couple of new market for Baby, it even plays in a different part of the map, so very excited. On China we had a great quarter in China. We are the leader in the Chinese gear market with Graco. We source from China. I wouldn’t read it as a big strategic thrust and if that’s how it came off in the press release that’s certainly not the intent. But we have a nice business in China. We are the leader. The market is small as I mentioned before and until [indiscernible] legislation is broadly enforced in China the market will stay small. We want to be positioned to play in China in baby when that moment happens there’s lots of cars and there’s lots of babies. So that sets up well for the baby care business but until there is a regulatory framework being enforced the market won’t develop as quickly as it has developed in other developed world markets. So it’s anomaly of a quarter, I guess is the way I would describe as opposed to reflection of the strategic thrust.

Okay great and then one other thing if I may on the emerging markets just any broad commentary you can offer again on why your growth seem so disconnected from macro slowdown. You’re seeing slowdown in construction in big cities but there is no impact on the tools business or commercial products, so any commentary you can offer will be great.

It’s from where we start Lauren. We’re building and deploying a portfolio. Although we’re seeing terrific growth in sell-throughs. So we know that we’re on the right track here. But we start from a little lower bar. We’re not starting with this big established business. We got -- it’s more than a $100 million worth of business now in Brazil, and it’s great. But we have so much more opportunity in front of us. So our businesses tend to be less connected to GDP in the emerging markets and are more of function of what we do.

Okay great. Thank you so much.

Your next question will come from Wendy Nicholson with Citi Research.

Hi good morning.

Good morning.

Just to follow up on some of the comments you made earlier on the writing business, that business just continues to kind of astound me in terms of its relative profitability and I wonder first of all kind of when you think about that business over the next two to three to four years, sort of in a context of what you’ve said about how that business responds to advertising, I mean do you think net-net margins in writing have still room to expand further and specific to that, I think you talked at the analyst day a little bit about media expanding writing on into Asia, if it’s not late 2015 then into 2016. How much margin dilution could that represent for the overall writing segment or is that sort of do you think it would be de minimus?

Well we have to look at that really carefully and we will. That probably results in some step back in the percentages. We’re not focused on growing the operating income margin on writing. We’re focused on revenue generation. This business and baby, believe it or not are the highest return on net asset businesses we’ve got. So there is huge value creation to be had even though baby dilutes margins for us, there is really strong value creations sought to be had by growing these businesses. I think we have the tremendous opportunities still within the writing business to confront the complexity of that portfolio, to confront complexity in our manufacturing footprint and the movement of componentry around the world. And there’s going to be a lot of cost that will come out as a result of Project Renewal, in ’16 and to ’17 connected to really improving the manufacturing footprint of that business and simplifying the portfolio. The question will be do we have a use for those monies within writing which could be related to deployment into Southeast Asia and into China, or do we have another business that will tap those monies and that are a higher priority for us. Now it’s hard to imagine what that would be given writing’s margins and given writing’s ability to draft [ph] on the back of economic developments that’s happening in the emerging markets. With economic development and social development access to education our writing business hits right in the middle of that mega trend. There’s going to - it’s unstoppable in the emerging markets irrespective of what’s happening with economic development on a rate basis. You just got the power of numbers in those geography, people. And so people are moving out of poverty into the middle class and we want to be there in those education systems if we can be. So I think if we’re able to unlock more cost and margin in that business we will probably put it back in to that business to enable the geographic deployment into Southeast Asia and China. So don’t look for a flow-through of savings to percentage margin improvement in writing. We are already well north of 20% operating margins in that business. So if we grow it we -- disproportionately we get this great sort of virtuous benefit as a company in total.

And to the extent of that is one of the businesses that lends itself maybe on just sort of online better than some of your other segments, what are the revenues like or the margins like when you sell something on Amazon versus at Stables, are you margin agnostic if you will?

As you know we sell our products at parity cost to all of our customers if they meet certain criteria. So how they price our products to the end consumer is the call they make. And so different retailers take different margins and as a result you see different price points at retail. The interesting thing about -- I think there is tremendous opportunities across the total landscape. You are seeing this major shift going on in this market in the U.S. as some of the traditional writing retailers shift their business model to become more broad commercial facing businesses with their professional portions of their model. And I think that's where they see the growth long-term. But our pricing is common across the landscape and so you won't see pricing differential. From a margin perspective, obviously there is a higher cost. There are different layers of cost depending on which retailer you're talking about and traditional retailers you're going to have a higher SG&A cost because you have your selling cost to cover at retail landscape physical space. But then there is distribution cost associated with the e-retailers that tend to be a little bit higher if you are selling out of your facilities. So it's all the way down the operating income margin I think you are always more profitable where you have growth and that's how I like to think about the differences across the retail landscape. So you want to reach consumers where they shop and you want to grow with the growing customer. That drives sort of our choices.

Perfect thanks so much.

Your next question comes from Bill Schmitz with Deutsche Bank.

Hey guys good morning.

Good morning.

Hey the receivable balance is in the second quarter in a row at a big year-over-year tick up. Was there like a bit difference in the timing of orders through the quarter or is there something else going on there? So I think it was up on our math like eight days year-over-year.

Remember you've got the acquisitions coming into the receivables balances. So be careful in how you calculate your days numbers. In fact all the working capital metrics look different now with those guys in.

One second on that, because I think that the cash flow tables is excluding the effects of the acquisitions and investments on your reported one. So maybe I…?

Okay I'm not sure what numbers you're referring to, but I am pretty sure the receivables balances I was looking at had -- we'll come back to you on the specifics Bill. But on your point though your point is right, where our orders in the first quarter came later than we would have liked. So we have some receivables that are hung up that are reverse in the first quarter as a positive, but you're right they came later than we would have liked.

Okay, and then just and maybe it's not a fair question because I mean, I'm not sure you have the data handy. But can you just tell us what your fixed overhead is now dollar as a percentages. And then how you kind of bring this acquisitions in? So when you buy these companies are you taking just the brands and a few people or you bring the infrastructure also? And then part of that can you just give us like a EPS number, accretion number that you're assuming for 2015 on the deals?

Yeah we haven't quoted a specific number Bill, but let me give you the overhead ratio that you're looking for. As we exit the year we're just below 20% in terms of overhead ratio which gives you the size of the -- allows you to kind see the opportunity. All three deals are accretive to operating income and to EPS and I've seen a bunch of different notes about it -- about them and in general they’re pretty accurate. So I don't know how to get more specific than that without telling you what the numbers are. And they all come -- there different approach with the different -- the three different businesses so clearly Baby Jogger we're buying a brand, we're buying some people that have built that brand. But that's clearly being integrated into the baby businesses so they will be run out of Atlanta. Our beverage acquisitions, there are really two different approaches. Our beverage acquisitions will be run out of the Contigo, Ignite office by the Ignite team. So our -- bubba acquisition will be integrated into our Chicago operations lead by the Ignite team. So rather than that business come in to this building here in Atlanta our priority was to sustain the growth momentum these businesses have. And while bubba’s the smaller of the two beverage businesses clearly it’s a great brand, different position from Contigo. To me that’s the real opportunity for the leadership team of Contigo that’s built this beautiful business that’s keep on growing to take hold of that asset and take hold of Rubbermaid and build an integrated beverage strategy for us. So there is less cost synergies in the Contigo deal, the Ignite , there is some more, there is more in bubba and there is a fair amount in Baby Jogger.

Okay, great and then how patience you will be on the home products turnaround especially Rubbermaid home, I know you got new management there and they are still some line exits to happen and I also know and I agree with you that the equity is massively [ph] monetized relative to the awareness. So what do you think the sort of runway is for that?

Right now if I add another dollar to spend on our brand I put in against Sharpie or Paper Mate given the responsiveness. We have work to do still on Rubbermaid to clean it up and get it ready for growth. We are doing that. We are putting nice money behind Rubbermaid food storage to build that business and be [indiscernible] within that portfolio and so those are where the bets would go but we got to be disciplined in terms of our priorities across the portfolio. So there is it’s a little early for us to be pushing money against home solutions if there is an opportunity still to be had on commercial products tools or writing. So I am patient on that. It’s always been modeled in the way we are seeing it. I mean we took a choice in 2014 to pull back hard on the throttle on some of the portions of the portfolio that were less attractive so that we can create space within our manufacturing footprint for the things that we wanted to emphasize that use the same technology for the most part and so we are pivoting that business. I think the first half you will see some continued challenges. The really interesting thing that John and I were talking about just the other day we can deliver nice core growth on Rubbermaid consumer if you want to lean into some of these higher volume low margin businesses like we have in the past. We are not just not going to do it though. So I think, we are quite patient with Home Solutions. We should see decent growth this year on top line, given the investment we are pretty behind the innovations that are coming. We should see very good growth on Rubbermaid food storage and in the beverage segments and there is some opportunity on -- you need to see some growth as well but I think the balance of the portfolio you should expect not to be growing until we sort the brand out, I think the Rubbermaid investment will be opportunistic and focused on food storage.

And if I could add we still have some work to do as part of Renewal Three on the Rubbermaid consumer business In terms of getting the gross margin back to a place where it’s more attractive for us to invest in as Mike mentioned. So that’s something else we plan to tackle as part of our third leg of renewal.

Great, thanks so much and sorry I interrupted you in the first question.

I didn’t feel like you interrupted me. What was the first question?

It was about the receivables?

We will get back to you on the receivables questions. I think you are right on the receivables. So -- the receivables numbers I looked at include the acquisition balances. So you are looking at a different statement. We will get back to -- I will have Nancy give you a call work through the numbers with you.

That sounds good. Thanks.

Your next question comes from Dara Mohsenian with Morgan Stanley.

Hey, Dara.

So just want to follow up on your comments on M&A earlier in the call, given the acquisitions recently, can you just revisit your view on returning cash to shareholders versus the allure of acquisitions and potential to increase your dividend payout ratio overtime?

Look we set three priorities in our capital allocation, if you can find bolt-ons that are accretive, that are strategically interesting we would do them. You have seen the types assets that we are talking about. We continue to -- with our line of sight to savings we continue to think the company is undervalued and clearly we’ve been active in terms of passing capital back to shareholders through our share repurchase program and given our line of sight on renewals we’ll continue -- and the growth potential in this business we will continue to do that. I don’t think the market quite appreciates the story in part because of the choices we are making strategically to exit businesses in Europe, which cost 40 basis points in the core growth and because of the work we did on Rubbermaid consumer which cost us another chunk of core sales growth in 2014 and will in the first half of ’15. So I don’t think we are -- believe the market yet sees the full value of what we are doing, which is fine. It gives us opportunity to take more shares off the table. So we will continue to focus in that way. Our principle right now is that our payout ratio needs to be 30% to 35% and if we didn’t believe that we had good growth opportunities in front of us we might take a different point of view on that. Obviously the fast moving consumer goods guys that are -- to the slower growth at this point are -- they have 40% to 50% payout ratios. If we didn’t believe in what I was just saying before we would shift your philosophy, or you would work with the core consumer [ph] see what the comfortable shift in the philosophy. We are not there right now and while it doesn’t say that in the future we wouldn’t change that point of view.

Okay, thanks. And in your 2015 earnings guidance can you tell us one level of oil you are budgeting and are you assuming any improvement in U.S. macros or rebounding U.S. consumer spending in the revised topline guidance?

We haven’t assumed any recovery. So it’s more the same. So if that were to happen that would be fun and exciting. I haven’t seen that since I have been here. But that will be terrific to get a little tailwind. We have assumed current market on resin. We really don’t focus on oil too much. So we are looking at the markets, the biggest commodity driver for us isn’t really the primary commodity it’s the derivatives. So it’s the resin cost. So we have assumed that the markets are just down for the primary commodity, which it has and it is in the midst of doing, although the resin guys are a little sticky in terms that they are passing through the energy benefits. And then we have got this dynamic at the end of the year as I described that relates to capacity. And whether more capacity is going to come online as our suppliers suggest it will, whether that algorithm economically for them still makes sense in today’s energy environment is something that remains to be seen, but our assumptions are really kind of tied to the resin cost as opposed to oil.

Okay, thanks.

Your next question comes from Rupesh Parikh with Oppenheimer.

Good morning. Thanks for fitting me in. I just want to [indiscernible] may be advertising. So clearly it seems like the Writing category gives you some benefits from some of their advertising investments. So any more color or updates you can provide in terms of what you are seeing from increased advertising.

We talked about this a little bit at the end of September at Analyst Day and we will update it again in a couple of weeks at Cagny with the latest data we have. Obviously Writing is very responsive, the Baby Care business was really responsive to advertising around innovation, the point of sale, around the Forever Car Seat was really quite strong and there was a combination of the innovation and the message and the merchandising and the customer support that we got. So it’s not just the advertising it’s the synergistic effect of advertising, merchandising, placements, pricing all those things coming together. That’s said we have seen a more responsiveness than we have -- than I ever envisioned us getting to be honest with you. It’s not been true everywhere. When we tied a message to innovation we get the best growth yield, that obviously makes some intuitive sense but that lessons have been confirmed through the work we are doing, which is why you see some of our communication, more of our communication shifting in that direction. But we will report out in a couple of weeks at Cagny how that story played out but it’s a pretty broad based story across multiple categories. And I think part of this and we have to be careful is that these categories have not been advertised for a long -- these businesses have not been advertised for a long time. So putting the brand out there like that obviously has got some traction. Whether of the second year of doing it we will get the same traction for the same dollar is a question mark and we have to be thoughtful about whether the incrementality you get to a point of diminishing returns on the incrementality of the growth yield. And that’s something we will be watching as we go through ‘15. But on balance the story is very positive across the whole patch and we will decide whether we want to continue what we are doing exactly as we have or we will take some lessons learned on some of those things that haven’t worked.

Okay and just a clarification question, on your thoughts for operating margins this year did I hear correctly that you expect operating margins to be down this year?

No, we expect operating margins to be up. We expect gross margins to be down a little bit and we are going to try to do everything we can to get it back to where we would like it to be which is flat or up. But you have got a significant mix effect the gross margin. But at operating margin we are going to get leverage through revenue growth, we are going to get leverage through Project Renewal and the sustained focus we have got on overheads and even within that algorithm of gross margin being flattish as reported but up on a pro forma basis we will get the flexibility to spend to more in A&P and we watch it quite closely and believe that, that outlook is one we can deliver.

Thank you

Your final question comes from Steph Wissink with Piper Jaffray.

Hey Steph.

Ms. Wissink if you are on speakerphone please pick up your handset or depress your mute function.

Sorry about that, this is Travis on for Steph. In the Baby business can you talk about how you are investing in digital assets to connect with the millennial mom?

So obviously the Baby business 70% of the baby care category is done amongst first time expected moms. So you have to be connected with that younger constituent. A good chunk of the decision making happens through the connections that those moms have with each other or with their sisters or with their neighbors or with their friends and we are very active in participating in those conversations. Many of them happen on line, many of them happen through registry platforms and so this is -- our Baby business spends a chunk of money building the brands and the innovations and awareness through television and the vast majority of the money beyond that is spent in digital and we are very actively curating our own platforms and working with customers to curate theirs in order to make sure that we are participating in those dialogues. That’s part of how this brand has been built overtime. This is probably the most aggressive digitally connected team that I have got and obviously the consumer is the most digitally engaged because 70% of the ear mark [ph] is done amongst first time expected moms which tend to be the 23 to 27 year old women.

Awesome and also real quick can you talk a little bit about the innovation pipeline and what opportunities our brands will be emphasizing in 2015?

So our pipeline is stronger than it’s been over the last four years. Every Mark profiled this at analyst day, gave you some of the key metrics there. We wouldn’t share any new news with respect to the strengthening and lengthening of the funnel, the increase in project size and the more disruptive nature of the funnel in general. We are in market now with a number of innovations from Calphalon to Writing to our Tools business and I wouldn’t want to put anything out there in this forum that would disclose too much of the forward-looking view to our competitors. But be rese assured our funnel is stronger than it was last year and last year’s was stronger than year before and a critical enabler to us, effectively taking our growth guidance up for core sales to the acceleration phase metric we committed to back in 2012 one year earlier then we otherwise expected to be able to do.

Awesome. Thank you very much and I am looking forward to 2015.

Great, so are we.

Thank you

Okay, I think that’s it. I am talking to myself probably. So we want to thank you all for your support, for the questions and I appreciate all the feedback.

Thank you very much. A replay of today’s call will be available later today on our website newellrubbermaid.com. This concludes our conference. You may now disconnect.