CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page1of27
NewellRubbermaid(NWL)EarningsReport:Q42015ConferenceCallTranscriptThefollowingNewellRubbermaidconferencecalltookplaceonJanuary29,2016,08:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
NancyO'Donnell;NewellRubbermaid;VPofIRMichaelPolk;NewellRubbermaid;President&CEOJohnStipancich;NewellRubbermaid;CFO
OtherPart icipants
ChrisFerrara;WellsFargo;AnalystBillChappell;SunTrustRobinsonHumphrey;AnalystJohnFaucher;JPMorgan;AnalystKevinGrundy;Jefferies;AnalystBillSchmitz;DeutscheBank;AnalystJasonGere;KeyBancCapitalMarkets;AnalystJoeAltobello;RaymondJames;AnalystWendyNicholson;CitiInvestmentResearch;AnalystLaurenWolf;Citigroup;AnalystLindaBoltonWeiser;B.Riley;AnalystStevePowers;UBS;AnalystRupeshParikh;Oppenheimer;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheNewellRubbermaid'sfourth-quarter2015earningsconferencecall.
(OperatorInstructions)
Asareminder,today'sconferenceisbeingrecorded.AlivewebcastofthiscallisavailableatNewellRubbermaid.comontheInvestorRelationshomepage,underEventsandPresentations.Aslidepresentationisalsoavailablefordownload.
IwillnowturnthecallovertoNancyO'Donnell,VicePresidentofInvestorRelations.Ms.O 'Donnell,youmaybegin.
NancyO'Donnell(VPofIR):
Thankyou.Welcome,everyone.ThankyouforjoiningNewell'sfourth-quarterresultsconferencecall.
Beforewebegin,pleasetakenoteofNewell'scautionarystatementsregardingforward-lookingstatements,inourmostrecentSECfilings,andinthe8-Kthatwefiledwithourpressreleasethismorning.Suchforward-lookingstatementsarebasedonassumptions,andactualresultscoulddiffermateriallyfrommanagement'spredictions.Newellundertakenoobligationtoupdateanystatementsmadetoday.
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page2of27
Letmealsoremindyouthatontoday'scall,wewillrefertocertainnon-GAAPfinancialmeasures.PleasenotethatNewellhasprovidedreconciliationstocomparableGAAPfinancialmeasuresinourearningsrelease,inourcurrent8-K,andonourwebsite.
OurpresenterstodayareMikePolk,ourPresidentandChiefExecutiveOfficer;andJohnStipancich,ourChiefFinancialOfficer.AndI'llnowturnthecallovertoMike.
MichaelPolk(President&CEO):
Thankyou,Nancy.Goodmorning,everyone,andthanksforjoiningourcall.We'vedeliveredanotherstrongquarterofresults,andhaveterrificmomentumonourbusiness.Inthatcontext,thismorningwe'vereaffirmedthe2016fullyearguidanceweprovidedonourlastearningscall.
Beforewegetintotheresults,letmecommentonthreestrategicinitiatives.First,inlateOctoberwecompletedtheacquisitionofElmer'sProducts.Elmer'sKrazyGlueandX-ACTOrepresentterrificadditionstoourgreatportfolio,andwillprovidedryperiodsynergiesatback-to-school,greatcross-sellpotentialacrossourchannels.Andtogether,withourveryfastgrowingPrismacolor,PaperMateFlairandMr.Sketchbrandsstrengthenourpositionindrawingandcrafts.Elmer'ssaleswillnotcontributetocoresalesuntilthefirstanniversaryofthecompletionoftheacquisition.
Thismorning,wesharedourdecisiontodeconsolidateVenezuela.Wetookthisdecisionaftersignificantdeliberation.We'veconcludedthattheincreasinglyrestrictivenatureofregulationsinVenezuela,andthelimitedandinfrequentaccesstoUSdollarshasresultedinthelossoftheCompany'sabilitytomakekeyoperationaldecisions.
We'vetakenachargetoreportedearningsinQ4.AndstartinginQ1,wewillnolongerconsolidatetheperformanceofourVenezuelanoperations.We'vehavebeendoingbusinessinVenezuelaformanydecades,andweexpecttocontinuetomanufactureandsellourproductstoVenezuelanconsumers,despitethisaccountingchange.
Lastly,inDecember,weannouncedthedefinitiveagreementtocombineNewellRubbermaidandJardenCorporation.We'vesecuredcommittedfinancingtoensuredealclosure,beguntheprocesswiththeregulatoryagencies,andhaveaclearanddeliberatepathtosecurepermanentfinancing.Theprocesswillplayoutoverthenextfewmonths,andweexpectthetransactiontobecompletedinQ2.
We'vetakentheseactionsfromapositionofstrength,havingjustfinishedoneofthebestyearsinourhistory,withoutstandinggrossmarginandearningsdelivery.Sowiththat,let'sgetintoourfourth-quarterandfull-yearresults.
InQ4,coresalesgrew6.2%,thestrongestquarterlycoresalesgrowthinyears.ExcludingVenezuela,coresalesgrew4.4%.Normalizedgrossmarginincreased80basispointsto38.5%,drivenbypricing,productivityandlowerinputcosts,whichwerepartiallyoffsetbythenegativeimpactofforeigncurrency.
Theincreaseingrossmarginenableda70basispointincreaseinadvertisingandpromotioninvestmentto5.5%ofsales.Andwhencoupledwitha10basispointreductioninoverheads,resultedinanormalizedoperatingmarginincreaseof30basispointsto13.7%.NormalizedEPSwas$0.56,14.3%aheadofprioryear,despitehavingtoovercomea$0.06negativeimpactfromforeigncurrency.
Ourfourthquartercoresalesgrowthwasbroad-based,withgrowthinallfivesegments.Combined,ourWinBiggerbusinessesgrewcoresales11.3%.
Ourfullyearresultswerestrongaswell.Coresalesincreased5.5%,andexcludingVenezuela,coresalesgrew3.9%.OurWinBiggerbusinessesgrew9.4%andouracquisitionswhencoupledwiththecoresalesgrowth,haveoffsetthenegativeimpactofcurrencyanddivestiturestoyield3.3%netsalesgrowth.
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Despitecurrencypressureoncost,weexpandednormalizedgrossmargin40basispointsto39.2%.Importantly,forthefullyear,weincreasedA&Pinvestmentbyover17%to4.9%ofsales.Andwhilespendingmorebehindourbrands,wesimultaneouslyincreasednormalizedoperatingmargin50basispoints,enabledbyoureffortstomakeNewellleanerandmoreefficientthroughProjectRenewal.Allthistogetheryielded9%normalizedEPSgrowth,despitehavingtoabsorbanegative$0.39impactfromforeigncurrency.
Obviously,we'repleasedwithourresultsin2015,andwehaveclearmomentuminourbusiness,andouroperatingmodelisworking.LetmehandthecallovertoJohntogothroughourresultsinmoredetail.JohnwillalsowalkthroughthenextstepsintheJardentransaction.I'llreturntoprovideperspectiveonourlatestviewof2016,andsomethoughtsonthecreationofNewellBrands.
JohnStipancich (CFO):
Thanks,Mike,andgoodmorning.Fourthquarterreportednetsaleswere$1.56billion,a2.3%increaseversuslastyear.TheBubba,BabyJoggerandElmer'sacquisitionscontributed350basispointstoreportednetsales.Coresales,whichexcludethenetimpactofacquisitionsanddivestituresandthe540basispointnegativeimpactofforeigncurrencyincreased6.2%,andallfiveofoursegmentsgrewinthequarter.
Reportedgrossmarginwas38.3%,up70basispointstolastyear,andnormalizedgrossmarginwas38.5%,up80basispoints.Thisimprovementwasdrivenbypricing,productivityandfavorablecommoditieswhichmorethanoffsetunfavorablecurrency.NormalizedSG&Aexpensewas$387.3millionor24.8%ofsales,up50basispointsversustheprioryear.
Wecontinuedourprogressonoverheads,butsignificantlyincreasedourinvestmentinadvertisingandpromotionby70basispointsasapercentageofsales.Weinvestedinmajorcampaignsforwriting,includingourfinewritingbusinessandMr.Sketch,aswellasCalphalonSharpEndself-sharpeningcutlerysets.Wealsoinvestedinadvertisingforourfoodstoragebusiness,andacrossanumberofcommercialproductsplatforms.It'sworthnotingthatforthefullyear,wereducedoverheadsby70basispointsasapercentageofsales,plowingthosesavingsintothe60basispointincreasedinvestmentinA&P.
Normalizedoperatingmarginwas13.7%,up30basispointsreflectingthebenefitsofProjectRenewalandothercostsavingsinitiatives,pricingandproductivity,partiallyoffsetbyasignificantincreaseinstrategicinvestment,Reportedoperatingmarginwas6.5%,downfrom7.4%intheprioryear,dueinparttohigherrestructuringcharges,andacquisitionandintegrationcosts.Interestexpenseincreased$8.4millionyear-over-year,includingexpensesassociatedwiththeElmer'sandpendingJardentransactions.
Duringthefourthquarter,weissued$600millioninmediumtermnotes,theproceedsofwhichwereusedtoprovidepermanentfinancingforElmer's.Ournormalizedtaxratewas23.2%comparedwith26.5%ayearago,andourfullyearnormalized2015taxratelandedat23.4%,about10basispointsdownfromprioryear.NormalizedEPSwhichexcludesrestructuring,restructuringrelated,andotherprojectcostsandcertainotherone-timeitemswas$0.56,a14.3%increasetolastyear.Onareportedbasis,fourthquarterEPSwas$0.05comparedwith$0.19lastyear,mostlydrivenbythegainonthesaleoftheEndiciabusiness,beingmorethanoffsetbythenon-cashchargeassociatedwithdeconsolidatingVenezuela.
I'llnowmoveontooursegmentresults,andstartingwithwriting,reportedQ4netsaleswere$466.3million,up11.5%withElmer'scontributingabout$37million.Coresaleswereup12.5%.OurNorthAmericanwritingbusinessdeliveredhighsingle-digitgrowthagainfueledbystronginnovation,marketingandmerchandising.
InLatinAmerica,writingcoresalesshowedsignificantgrowth,inpartduetovolumeandpricinginVenezuela.Forthefullyear,coresalesgrew10.9%ledbyagreatback-to-school,pricing,andnew
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page4of27
productlaunches.Coresalesgrowthindrawingandcoloring,whichincludesMr.Sketch,PrismacolorandFlair,wereupover40%in2015.Q4normalizedoperatingmargininourwritingsegmentwas22.7%,a200basispointdeclineversusprioryear,assignificantincreasedA&Pinvestment,andchallengingforeignexchangemorethanoffsetproductivity,pricingandcostmanagement.
Netsalesinourhomesolutionssegmentdeclined3.7%to$441.8million.Coresalesincreased0.1%,drivenprimarilybygrowthinourfoodstorageandbeveragewarebusiness,offsettingourcontinuedexitofsomelowmarginRubbermaidconsumerstoragebusiness,andwellastransitionalproductlinesinculinary.Forthefullyear,homesolutionscoresalesgrew0.8%.Thesegment'snormalizedoperatingmarginwas12.9%forthequarter,a30basispoint[decrease]reflectingsignificantlyincreasedadvertising,fundedinpartbyproductivityandinputcostdeflation.
Ourtoolssegmentdeliverednetsalesof$207.7million,an8.6%decline.Coresalesgrew1.4%.Toolsdeliveredhighsingle-digitgrowthinEMEA,withmodestgrowthinNorthAmerica,whileLatinAmericadeclinedmidsingle-digits,reflectingchallengesinBrazilmacrosandtheimpactonvolumes,asaresultofpricingtocoverforeignexchange.
Forthefullyear,coresalesgrew2.2%inthetoolssegment.Q4normalizedoperatingmargininthesegmentwas9.4%,a10basispointdeclineversuslastyear.ThedeclinewasdrivenbyforeignexchangechallengesinEuropeandinflationinBrazil,morethanoffsettingproductivityanddisciplinedoverheadsmanagement.
Reportednetsalesinourcommercialproductssegmentdeclined2.8%to$207.1million,drivenbyforeignexchangeandthesaleofourmedicalcartsbusinessearlierintheyear.Coresalesincreased5.8%,drivenbypricingandstrongvolumegrowthinNorthAmerica,aswellasgrowthinLatinAmerica.Forthefullyear,commercialproductsgrewcoresales4.8%.Normalizedoperatingmargininthefourthquarterwas13.3%,a190basispointincreasetolastyear,thankstopricing,productivityandinputcostbenefits,partiallyoffsetbyhigherinvestmentinA&P.
Ourbabysegmentreported$237.9millioninnetsales,a13.9%increasecomparedto2014.Coresalesgrewaverystrong10.2%.Double-digitgrowthfromGracoNorthAmerica,drivenbystronginnovation,andpreviousadvertisingandpromotioninvestmentsmorethanoffsetdeclinesinEMEAandAPAC.
Forthefullyear,thesegment'scoresalesgrew6.4%.Baby'sQ4normalizedoperatingmarginwas11.7%,up340basispointstolastyearlargelyduetocontributionsfromBabyJoggerandnewproductdevelopment,aswellasthecomparisonagainsttheA&Pinvestmentwemadelastyeartostimulategrowth.
LookingatQ4salesbygeography,NorthAmericacoresalesgrew5.7%withstrongresultsfromwriting,commercialproductsandbaby.EMEAdeclined0.3%,withgrowthfromintoolsoffsetbymodestdeclinesinourotherEMEAbusinesses.InLatinAmericacoresalesgrew29.7%,withpricingandvolumegainsinwritingandcommercialproducts,morethanoffsettingchallengesintoolsrelatedprimarilytotheBrazilianeconomy.Andfinally,Asia-Pacificcoresalesgrew0.2%withgrowthfromwritingandtools,offsetbydeclinesinbaby.
Operatingcashflowforthefullyear2015cameinat$565.8million,comparedto$634.1millioninprioryear,thoughrecallin2015,wemadea$70millionvoluntarycontributiontoourUSpensionplan,andweincurredhigherrestructuringandProjectRenewalrelatedcashpaymentsin2015.Adjustingforthese,ouroperatingcashflowwasupabout2%year-over-year.You'llnotealsothatwerecognizedasignificantgainassociatedwiththesaleofEndiciainthefourthquarter,andwehaveabout$60millionintaxeswe'llneedtopayonthegain,whichwe'lldointhefirstquarter,andwhichwillbereflectedinourfirstquarteroperatingcashflow.
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Wereturned$65milliontoshareholdersinQ4,including$50.9millionindividends,and$14.1milliontorepurchase337,000shares.Forthefullyear2015,wedistributed$206.3millionindividends,and$180.4milliontobuyback4.53millionshares.Wesuspendedtherepurchaseofsharesmidwaythroughthefourthquarter,inlightoftheJardentransaction.
Withrespecttothetransaction,wecontinuetomakegreatprogresstowardtheclosingofthecombination.Thisweek,wefinalizedour$1.5billionthreeyeartermloanwhichwillfundaportionofthepurchaseprice.Wealsofinalizedtheamendmentofourrevolvingcreditfacility,includingincreasingthefacilityfrom$800millionto$1.25billiontoaccommodatetheincreasedseasonalworkingcapitalneedsassociatedwithaddingJardentothefamily.
WecontinuetoworkonthemechanicsforassumingtwotranchesofJardennotes,the3.75%couponnotesandthe5%couponnotes,whichweplantoretainafterthemerger.We'rewellunderway,ontheworkseemstogotothepublicdebtmarketsaswegetclosertotheanticipatedclosing,inordertosecurethebalanceoffundsforthetransaction.Andwedon'tanticipateanychallengesassociatedwiththeupcomingdebtoffer,orwithmaintainingourcommittedinvestmentgraderating.
Overthepastseveralweeks,we'veexecutedTreasuryratelocksforalittleover$2billionoftheanticipateddebtoffering.Andinaddition,recallthatwehaveafullycommittedbridgeloanfacilityinplace,whichisavailableforustoutilizeifweencounteranyunforeseenchallengeswithissuingdebtatattractiverates.
Withthat,I'llturnthecallbackovertoMike.
MichaelPolk(President&CEO):
Thanks,John.Let'snowturntoaquickdiscussionon2016,andthentosomecommentsontheJardencombination.
Thismorning,wereaffirmedour2016fullyearguidanceforcoresalesgrowthandnormalizedEPS,excludingourVenezuelanoperations.Our2016fullyearguidanceisforcoresalesgrowthof4%to5%,andnormalizedEPSof$2.21to$2.30,ourbestestimatefordelivery,asitisatthemidpointsoftheseranges.ExcludingVenezuelaforboth2016and2015results,themidpointofthenormalizedEPSrangerepresentsdouble-digitgrowth.Whilewedonotprovidequarterlyguidance,theexclusionofVenezuelawillnegativelyimpactourQ12016normalizedEPSbyabout$0.03to$0.04.
Therearetwokeyfactorsthatwillinfluencewherewefallinthe2016fullyearguidanceranges,thefirstbeingtheperformanceofourtoolsbusiness,andthesecond,theimpactofforeigncurrency.Ourtoolssegmenthadachallenging2015astheindustrialproductsandservicesbusinessslowedfromhighsingle-digitgrowthin2014toslightgrowthin2015.ThiscontractioninourgrowthratewasmostpronouncedinBrazilandChina.
Our2016outlookassumesbetterperformance,drivenbybuildingIP&SmomentumintheUSandEurope,partiallyoffsetbycontinuedsluggishnessinBrazil.Our2016fullyearcoresalesguidanceassumeslowtomidsingle-digitgrowthinourtoolssegment.
Thesecondfactorinfluencingourresultswillbeforeigncurrency.Our2016fullyearguidanceassumesa$0.26to$0.28negativeimpactofforeignexchange,$0.04to$0.05worsethanourlastestimate,drivenbythelateQ4strengtheningoftheUSdollar.We'vetakenbroadbasedactionstodealwiththeexpectednegativeForEximpact,withthemostpricingactionsalreadyinthemarket.
Weexpectthecombinationofpricing,grosstonetoptimization,productivityandProjectRenewaldrivenoverheadreductionstocovertheForExheadwinds,whilesimultaneouslyenablingincreasedinvestment
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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incapabilitiesandbrandsupport.In2016,we'replanningtoincreaseA&Pfundingbyabout20%to5.5%ofsales,andcontinuetostrengthenourinsightsande-commercecapabilitieswithfurtherinvestments.
Theseinvestmentsareyieldingstronggrowthdividends.IntheUSin2015,weincreasedvaluemarketsharein10ofthe13productcategoriesthatIRImeasures.Innineofthoseproductcategories,ourIRIdollarsell-outorPOSgrewbyover8%.ThesestrongUSmarketshareincreasesdroveUScoresalesgrowthof4.1%,andwhencoupledwithacquisitions,drovenetsalesgrowthof8.8%.
ThestrategicchoicetorepositiontheCompanyfromaholdingCompanytoanoperatingCompany,releasingcoststhroughProjectRenewalsuchthatweincreasedspendingbehindourbrands,andinvestinanadvancedsetofcapabilitiesisclearlyworking.Ourtrackrecordofdelivery,andthevaluecreationstoryderivedfromouracceleratinggrowthandmargindevelopmentsetsthestageforthenextveryexcitingperiodoftransformation,aswecombineourCompanywithJardentocreateNewellBrands.
Thiscombinationwillcreatea$16billionconsumergoodscompanyofleadingbrandsthatcompeteinlarge,growing,unconsolidatedglobalmarkets.ThecombinationscalestheCompanyinkeygeographies,customers,andchannels,morethandoublingthebusinessintheUS,Canada,UK,France,Germany,Mexico,Brazil,JapanandChina.Thecombinedportfolioiscomplementaryandquitefocused,withover80%ofrevenueconcentratedinjust30brands.AndthereareanumberofintuitivecombinationsofbrandsandcategorieslikeGracoandNook,aswellasRubbermaidFoodStorageandFoodSaverthatwillyieldgreaterconsumerandcustomerimpactforacceleratedgrowthandcategorydevelopment.
Thecombinedportfolioisquiteprofitable,with80%ofthecombinedrevenuehavingagrossmarginover39%,andoperatingmarginover15%beforesynergies.Sothereisplentyofgrossmargintoworkwith,andwithoverheadsfocusedandinsomecasesreorientedtotheactivitiesthatdrivegrowth,therewillbesignificantpotentialformargindevelopmentandgrowthbeyondwhatweexpecttodeliverthroughthesynergiesalreadyidentified.
Ourambitionistobringtogether,andleveragethebesttalentandcapabilitiesfrombothcompanies,todrivestronggrowth,increasedmarginsandincreasedcashflow,throughsuperiorinsightsinproductdesign,leadinginnovationandbranddevelopment,strategiccategorymanagementandselling,deliveryofthecostsynergiestomargin,achievementofsavingsbeyondthoseassumedintheacquisitionmodeltofundincreasedbrandinvestmentandenterprise-widecapabilitiesforgrowth.Andafterpayingdowndebttoourtargetleverageratioof3to3.5times,activeportfoliomanagementthatstrengthensourpositionsinkeycategories.
Wewilldeploythebestaspectsoftheplaybooksfrombothcompaniestodriveahighlycompetitivesetofoutcomes.We'llrespectthedifferencesineachcategory,channel,andbusinessmodel,yetsimultaneouslyestablishasetofenterprise-widecapabilities.Wewillscaleandstrengthenoursellingcapabilitiestoprovidebroadenedaccessandreachforourcategoriesandbrandsintonewchannelsandcustomers.
Wewillquicklyadaptbothcompaniesrapidlydevelopinge-commercestrengthstoestablishaleadingcapabilityindirect-to-consumere-com,whichisadifferentiatedJardencapability,andbricks-and-mortarandpureplaye-com,wherebothcompanieshaveexcellentmomentum.Wewillimmediatelyplayforprocurementsavings,asthecombinedcompaniesbuyover$9billioninsourcedfinishedgoods,commoditiesandotherservices.Wewillleverageourscalefordistributionsavingsinareaslikeoceanfreightwherecombinedweshipover65,00040-footoceancontainersayearfromAsia.
And,ofcourse,we'llquicklyconvertthesavingsassociatedwithbringingtwopubliccompaniestogether,establishingaleanandagilecorporateinfrastructure,verysimilartowhat'sinplacetodayatJarden.So
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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we'lldelivertheseoutcomesinastructuredway,extendingthescopeoftheNewelltransformationoffice,whichisinplacetosurethedeliveryofProjectRenewalsavingstothetotalenterprise,includingtheworkofintegration.We'reroughly30daysintoplanning,andweexpecttofindfarmoreopportunities,oncethetwoteamsareabletofullyengagewitheachother.
We'vebeenconservativeinourassumptions,butwe'llpursueeveryopportunityweuncover.Wehavenorevenuesynergies,noworkingcapitalbenefits,andnotaxsynergiesinourdealeconomics,andhaveaveryclearlineofsighttoataminimum$500millionofcostsynergies.Thefirst$500millioninsynergiesisexpectedtocreateaCompanywithEBITDAmarginsofover20%,andannualEBITDAofover$3billion,givingusthefirepowertoreducetheleverageratioto3to3.5timeswithintwotothreeyears,andthensubsequentlytodeploycapitaltocreatefurthervaluebeyondourorganicagenda.
AsJohnstatedinhiscomments,we'vesecuredcommittedfinancingtoenabledealclosure,andexpecttomaintainourinvestmentgraderating.We'reintheprocessofseekingthenecessaryregulatoryapprovals,andexpecttosecurepermanentfinancingafterbothcompaniesfiletheir10-Ks.Withthecurrentassumptionsanddespitewidenedcreditspreads,weexpectthedealwilldeliverhighsingle-digitaccretioninyearone,midtohighteensaccretionbyyeartwo,andstrongdouble-digitaccretionbyyearthree.
Soletmeclosenowbyreiteratingthatwe'vehadanoutstanding2015,deliveringstrong,competitiveresults.Growthcontinuestoaccelerate,anddespiteunprecedentedforeigncurrencypressure,we'veincreasedmargins,anddeliveredverystrongnormalizedEPSgrowth.Ourbuildingmomentumisafunctionofthesharpchoiceswe'vemade.
We'reinvestingtocreateadvantagedbranddevelopmentandinnovationcapabilities,andasaresultourinnovationfunnelhasmorethandoubledsince2013,withprojectvalueup160%.Theseinnovationsleverageanewproductdesigncapabilitywe'veinvestedtocreateatourpurpose-builtdesigncenter,andwearebackingourgrowthideaswithindustry-leadingmarketinginvestment.ThisinvestmenthasbeenenabledbyourdeterminationtomakeNewellleanerandmoreefficient,andtounlockthetrappedcapacityforgrowth.
Coupledwiththeactionswe'vetakentostrengthenourportfolio,thesechoicesareyieldingsomeofthestrongestresultsNewellhaseverexperienced.We'reonapathtocompletelytransformNewellRubbermaid,deliveringhighlycompetitiveanddifferentiatedresults.Ouroperatingmodelisextendabletomorecategories,morebrands,andmoregeographies.ThisisthecorelogicthatunderpinstheJardencombination.
ThecreationofNewellBrandswillnowallowthebesttalentatbothcompaniestoapplythebestofwhatisworkingatbothcompanies,acrossabroader,morecompellingandmorediversifiedlandscapeofopportunityandbrands.Wewillbuildoneofthemostexcitingcompaniesinourindustry,adestinationfortalent,whilesimultaneouslyunlockinganincredibleamountofvalueforourshareholders.ThatistheGrowthGamePlanintoaction.ThatisthefutureofNewellBrands.
Letmenowpassthelinetotheoperatorforquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
ChrisFerrarawithWellsFargo.
ChrisFerrara(Analyst-WellsFargo):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page8of27
Hey.Goodmorning,guys.
MichaelPolk(President&CEO):
Hi,Chris.
ChrisFerrara(Analyst-WellsFargo):
Hey,Mike.Iguess,onthetopline,obviouslythe4.4%paceyouguysdidthisquarterexcludingVenezuelaisstrong,right,andit'sinatoughenvironment.Yourguide,andyoutalkedalittlebitaboutit,butyourguideis4%to5%fornextyear,butthecompsgetalittlebittougher.
Obviously,wetalkedaboutBrazilandChinaalittlebit,butcanyoujustgothroughyourconfidenceformaintainingthatgrowthrateinatougherenvironmentontoughercomps?AndIknowpartofitistheincreaseinA&P,butifyoucangothroughthatalittlebitandexpressit,thatwouldbegreat?
MichaelPolk(President&CEO):
Yes.Well,it'sthecombinationoftheincreaseinspending,Chris,butalsowe'vegotthestrongestinnovationplanwe'vehadsinceI'vebeenhere.Soifyouremember,wechangedourwholemodelbackinthemiddleof2013.AndI'vesaidthatthegestationperiodonnewideasthatwerecomingthroughourbranddevelopmentorganizationwas18to24months.Andthewaytheseprojectsworkis,theysortoflayerintothemarket.
Andso,asweprogressthrough2016andinto2017,we'dgetsomeofthestrongestinnovationideaswe'vereallyeverhadhittingthemarketplace.
Anexampleofthat,isinthefirstquarter,we'llhave--we'lllaunchnewPaperMateInkJoygelswiththreetimesfasterdryinginkversustheleadinggelpen,foranadvantagedperformance,lesssmearing.We'lllaunchRubbermaidFRESHWORKS,whichis--whichleveragesourfoodstoragebusiness,butappliesafiltration,amembranetopreventoxidationfromoccurringonfreshfruitsandvegetableswhichshouldextendtheproducelifeby--weexpecttoextendtheproductlifebynearly80%.
Soyou'vegotawholeseriesofinnovations.Johnmentionedthesharpenedknives,whereCalphalon'sgottheseceramicsharpenersinthebutcherblock.Soeverytimeyouwithdrawtheknife,youhavetheperfectlyhonedblade.Andso,thesearetheexamplesofthekindofinnovationthathasstartedtofilterintoourbusinessinlate2015,andreallyhitsitsstridein2016.
Soyou'vegotthecombinationofincreasedspending.We'vereallysequentiallyincreasedspendingsincewe'vebeenhere.Wetripledtheamountofadvertisingwe'respendingonthesebrands.
IfyoulookatthenumberofGRPswe'redelivering,we'veactuallyincreaseditbyfivetimessincewestarted,becausewe'vegottensomuchefficiencyinbuying,bygoingtoonebuyingagency.Sowe'vegotallofthesethingsconverginginthemarketplace.Whichgivesustheofconfidencethatwhencoupledwithwhat'sabuilding,asellingsystemwithrespecttocommercialexecution,andstrengthinsellingexecution,thosethingsallconvergetogiveusconfidencethat4%to5%isdeliverable.AndQ4isgoodevidenceofthat,at4.4%ofgrowthexcludingVenezuela.
ChrisFerrara(Analyst-WellsFargo):
Andthen,justIguess,twoquickones.
Numberone,doestheJardenacquisitionatallaffectthetimingoftheplannedwritinglaunchinChina?
Andthen,youtalkedaboutfinancing,doyoustillthinkat4%isadecentwaytolookatfinancingrates,
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page9of27
orhasthatcreptupyouthink?
MichaelPolk(President&CEO):
Yes,letmeanswerthefirstquestion.Theanswerissimplyisno.Butwedidn'thavealotbuiltintoourplansin2016forChina.Remember,we'lllaunchlateinQ4togettomarketinmaybeoneortwobigcities.
Theteamispresentingtheirfinalplanstomeshortly.Butoneortwobigcitiesforback-to-school2017,whichisinFebruary-ishinChina.Sowedon'tgetalotofbenefitintherevenuelinefromChinathisyear.Butwewillgetsomenicegrowthinwritingin2017.Butno,itshouldnotimpactanythingwe'redoingonNewellRubbermaid.
Infact,oneofthemostimportantthingsthatbothcompaniescando,inthetransitionistoexecutetheir2016plansflawlessly.Andwhiletherewillbealotofworkgoingoninthecentertoorganizethedeliveryofthesynergies,andit'sreallycriticalthateachsetofoperatingunitsstaysfocusedontheplansthey'vebuiltfor2016.SoIwouldn'tenvision,reallyanythingmateriallychangingforeitherCompany,intermsoftheircoreplans.
Onfinancing,yes,creditspreadshavewidenedsinceweannouncedthedealinDecember.Butthere'sallkindsofleverswecanpulltomitigatethatissue.Andquitefrankly,theinterestratesensitivityintheoveralldealistheleastmeaningfulvariableaswe'velookedatsensitivities.Sowedon'tknowwhereitallends.
Ithinkitwillcomedowntothedifferenceintenorwecouldchoosetoplaceonthenewdebt,andwe'llmakethatdecisionbasedonthebesteconomicchoicefortheCompany.Andifwehavetoacceptslightlyhigherinterestratesforthesakeofmakingtherighteconomicchoice,we'lldothat.We'llcoveritsomeplaceelseinthealgorithm.Andobviously,oneofthebigleverswehaveisthebalanceoffixedtofloatingratedebtwechoosetodeploy.
Butlook,we'rerelativelyrelaxed.Ofcourse,wewouldhavepreferredtonotseecreditspreadswiden.ThewideningofcreditspreadsforBBB-debtis--ourspreadsdon'tlookanydifferentthanthemarketatthispoint.Sowe'removing--whilewemayhavemovedalittleearlierthanthemarket,we'reinlinewiththemarkettoday.Andwe'lljusthavetoseehowthatplaysout.We'renotgoingtocompromisetherightlong-termchoiceforthesakeofmanagingtoaninterestrateassumption,becausewehavesomanyotherleversintheP&Ltocompensateforthatintheverynear-term.
ChrisFerrara(Analyst-WellsFargo):
Thankyou.
Operator :
BillChappellwithSunTrust.
BillChappell(Analyst-SunTrustRobinsonHumphrey):
Thanks,goodmorning.
MichaelPolk(President&CEO):
Hey,Bill.
BillChappell(Analyst-SunTrustRobinsonHumphrey):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Goodmorning.Hey,justafirstquestiononSG&Ainthequarter,justtryingtounderstandhowthatcameinversusexpectations.AswhenIsaythat,Imean,typicallyinthepastfewyears,you'vekindofsteppedupadvertisingpromotioninthefourthquarter,justtokindofgetaheadstartonthenextyear,anddidn'tknowifthathappenedagain.Andalso,iftherewassomekindofstepupofincentivecomps,sinceyou--itlookedlikeyououtperformedyourcoreprojections?
JohnStipancich (CFO):
Hey,Bill,it'sJohn.You'reabsolutelycorrect.WedidstepupA&P.
Wemadesome--alsosomestep-upsinstrategicSG&Ainvestmentaswell.Soforexample,e-commercewhichhasbeenafantasticresultforus,we'replowingmoreresourcesinto.Andyou'rerightontheincentivecomp,thatalsodroveuptheSG&Anumber,inlightofthestrengthenedperformanceandthegoodfinishtotheyear.
MichaelPolk(President&CEO):
Wealso,John,justtobuildonthat,wealsoplacedamarkerinQ4onshopperinsights.Whilewe'vemadealotofprogress,we'vedoubledtheamountofinsightworkwe'vedone,andactuallythesizeoftheteamisupby50%sincewestartedin2011.Butwherewehaven'tdoneasmuchresearch,isintheareaofshopperinsights,andbecausewewantedtogetthefundamentalconsumerinsightworkdonetosupporttheinnovationandbrandagenda.
InQ4,wemadethefirstinaseriesofinvestments,we'llmakeinshopperinsights,toensurethatwe'redrivingleadinglevelsofcategorymanagement.JoeArcuriandhisteamarereallyfocusedontakingoursellingcapabilitiessortofthenextlevel,bringingthebestofwhatfastmovingconsumergoodshave,andcategorymanagementcapabilitiestotheconsumerdurablespace.Andpartofputtingthefundamentalsinplaceisestablishingagoodfoundationofshopperinsights.SowemadeaninvestmentinQ4inthataswell.
Wehadtheflexibilitytodothat.Andasyouknow,withthe--ontheQ3call,Imentionedthatifwehadtheroomtodomore,wewouldinvestmore.Andthat'sinfact,whatwedid.It'sastrategicinvestmentinA&P.It'sstrategicinvestmentinstructuralcosts,ande-com,andinsights,coupledwithasJohnsaid,wehadareallyterrificyearfromaperformancestandpointintruingupabonus.
BillChappell(Analyst-SunTrustRobinsonHumphrey):
That's--no,thanksforthecolor.Andthen,justsecondontheJardentransaction,isthereanywayyoucouldkindofgiveusanideaoraroughguess--notaguess--onhowfourthquarternumberskindofcameinforthem?Andthereseemstobeabitofconsternationabouttheirorganicgrowth.I'massumingitwasprobablythe2%to3%[rate],justwiththeweatherbeingwarm,butmaybesomecolorthere?
AndthenalsoMike,asyoulookforward,anykindofideaofyouhowthisworksintermsofnumberofdivisions?Imean,Jardenhas3divisions,butkindof25differentkeydivisions,andyouhave5.Didn'tknowifyouhavekindanarchitectureofhowitwouldbreakout,andhowyouseeitsplittingup?
MichaelPolk(President&CEO):
LetmefirstcommentonyourquestionregardingQ4.Obviously,I--wedon'townJarden.AndIactuallydon'thaveaccesstotheirperformancedata,asthey--theonesthathavetocommunicatethat.AllIwouldsaythough,isifyoulookedatthenumbersthroughthemiddleof--throughthethirdquarter,theirorganicgrowthwas--year-to-datewas5.9%.Sotheyhaveterrificmomentumintheirbusiness.
Theyhaveanincrediblystrongyear-agoperformanceinQ4thattheyneedtolap.AndIknow--I'msure
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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youallknowthis,buttheirorganicgrowthinQ4of2014was11.4%.Soabighurdletocross.Nomatterwhatwayyoucutit,with5.9%bankedthroughtheendofQ3,they'regoingtohaveaverygoodyear.
Andifyoulookatthecombinationofthetwocompanies,andlookattheirperformanceonceyougettheirdata,thecombinationisgoingtobeprettydarnstrong,relativetoanybodyelseinourindustry.Withthemhaving5.9%growthbankedthroughQ3,andushavingnow5.5%bankedonthefullyear,that'sastrongsetofnumbers.Andso,Ithinkoureyesaresetonthefuture.
AsI'vesaidbefore,Idon'tgetkindoflockedinonanykindof90dayperformancecycles.Ourviewissetonwhat'sgoingtohappenoverthenextthreeyears,andhowtounlockthevalueinthiscombination.Sohopefully,Iexpressedthatinacompellingwayinmyscript.Butobviously,we'revery,veryexcitedaboutleveragingwhatisterrificmomentumintheirbusiness,andterrificmomentuminours,tobringthebestofbothcompaniestogether,tobuildasetofassetsandbusinessesthatperformbetterthaneitherofuswouldhavebeenabletodoonourown.
WithrespecttothedesignoftheCompany,whatIneedourteamstodo,andwhatIknowJimLillieatJardenisencouraginghisteamtodo,istojustfocusondeliveryin2016.OurenergyandoursynergieswillbefocusedonthethingsIspokeaboutpreviously,andnotonbig,sweepingorgdesignchanges,reallyimportanttokeepoureyeontheball,withrespecttothedemandcreationactivitiesinbothbusinessestopreservethemomentumthatIwasreferringtoearlier.
We'llfigureout--aswegettoknowthebusinessovertime,we'llfigureoutwhattherightmodelisfortheoverallcompany.We'lldothatquickly,aswedidwhenwejoinedNewellRubbermaid.It'simportanttoarticulateasetofportfolioprioritiesandresources.Humancapitalandmoneyneedstoflowtothebusinesseswiththegreatestopportunities.Andso,wewilldoallofthatwork.
Butwe'renotgoingtowalkin,withapreconceivednotionofthat.We'lldothatworkovertime,andthatwillhelpshapeourapproachtohowweorganize.Whatisclear,isthatwewillbuildasetofenterprise-widecapabilitiesthatcutacrossbothbusinesses,thatintheareasofinsightanddesignandinnovationthatourbusinessescantapinto,ine-commerce,forexample.
Sothosearereallyobviousopportunities,andwewillobviouslycombinetwopubliccompaniesintoone,andtherewillbechangesassociatedwiththatreality.Butintheoperatingunits,wewanttohaveeverybody'sheaddown,focusedonexecutionoftheplansthatthey'vegotinplace.Bothcompanieshaveaverycompellingsetofplansfor2016.It'sreallyimportantthatweexecutethosewithexcellence.
BillChappell(Analyst-SunTrustRobinsonHumphrey):
Perfect.Thankssomuch.
Operator :
JohnFaucherwithJPMorgan.
JohnFaucher (Analyst-JPMorgan):
Thanks.Goodmorning.
MichaelPolk(President&CEO):
Hey,John.
JohnFaucher (Analyst-JPMorgan):
Yes.Goodmorning,Mike.Canyoutalkalittlebitabout--asidefromBrazil,maybehowsomeofyourmore
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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economicallysensitivecategoriesaredoingrightnow?Obviously,there'ssomeconcernintermsofdiscretionaryexposure,particularlyaswelookatthecombinationofthetwobusinesses.Soanythoughts,injusttermsofeconomicsensitivity,andhowthat'simpactingthingsrightnow?
MichaelPolk(President&CEO):
Yes,it'sreallyinteresting.Ireadalotaboutit.Isee--Ihearalotaboutit.
IquotedsomenumbersonourUSPOSasmeasuredbyIRI,10of13categories,increasingmarketsharesellout,upover8%,in9ofthose13categories.SoI'vealwayshadthispointofviewthatideastrumpthemacros.Thatitisourresponsibilityasaconsumerbrandcompanytobringtheideastomarket,andleverageourbrandswiththerightkindofsupportbehindthemtotrumpwhateverenvironmentwe'rein.Andourgrowthof4.1%intheUS,and8.8%intheUSincludingacquisitions,shouldbegoodtestimonytothat.
Idon'tseeanyimpactin--fromaconsumerperspective,inthegrowthofourcategories,wherewecanmeasurethatthroughIRI.Ijustdon'tseeanimpactatthispoint.Theonlybusinessinourportfoliothathasbeensensitivetothis,hasbeentheindustrialproductsandservicesbusiness.WhereasIsaid,wewentfromhighsingle-digitgrowthin2014,toessentiallyslightgrowthin2015.AndIpreviouslycommentedthatthattrendbeganinaboutOctoberof2014.
Andso,wesee--that'sprobablytheonlypieceofourportfoliothatiscyclical,asourbusinesshasevolvedoverthelastnumberofyears.Wewerefarlesscyclicalthanwewerewhenwestarted,andwe'remoreconsumer-driventhanwewerethen.Andwehavewaymorebrandsupportbehindourbrandssuchthattheycanabsorbthemacrocyclesalotbetterthantheycouldinthepast.Butatthemoment,Idon'tseetheslowdowninmarketsorinthemacros.AndIdon'tseeourcustomersreallybehavingin,particularlyadefensivewayliketheydidin2009duringtherecession.
Soyoudon'thearustalkingaboutthe--amacroissue,withtheexceptionofBrazil,whereit'sacombinationofGDPslowdown,andthecurrencyimpactonthebusiness.Andtheneedforustopricetoprotectmarginstocoverthetransactionforitseffect,andtheintersectionofthat,withaslowereconomycreatingpressureonvolumes.Sothat'smostimportanttoourtoolsbusiness.It'scertainlyafactorthat'sinfluencedourtoolsperformancein2015.Andthemostsensitiveportionofourtoolsbusinesstothattypeofenvironmentistheindustrialproductsandservicessegmentofthatbusiness.
JohnFaucher (Analyst-JPMorgan):
Great.Andthenjustaquickfollow-up.Youguystweakedthelanguagealittlebitonsynergies,butitdoesn'tappearthatyou'readdingin--likeyousaid,you'renotaddingintherevenuesynergiesetcetera.Sojustanycolorintermsofthelittletweakinthelanguage,intermsofsayingatleast$500million?Andthat'sitfromme.Thanks.
MichaelPolk(President&CEO):
Yes.Imean,thewayI'danswerthatis,whenwelookatProjectRenewal,andwhatthatwillgeneratebytheendof2017,we'llbesomewherearound$700millionofannualizedsavingsfromProjectRenewal.We'vedeliveredthosesavingsonabaserevenuestreamthatstartedat$5.5billion.Sodothemathon$700milliondividedby$5.5billion,andthenaskyourselfwhether$500milliononthebaseof[$10billion],whichistheproformasizeofJarden,isconservativeornotconservative?
Sowe'vemadeacommitmentto$500million.Webelievethereprobablyismore.Ifwefindmore,whichIexpectwewilllikelydoovertime,aswedidwithProjectRenewal--remember,itwasasequentialseriesofunpackingofthecoststructureatNewellRubbermaid.Butifwedofindmore,aportionofthatmoney
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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willbeinvestedbackintothebusinessforacceleratedperformance,eitherincapabilitiesorinbrandsupportontheJardenbusinesses.Andsomewillflowtomarginbeyondthe$500millioncommittedtoaspartofthedeal.
Thefirst$500millionisgoingtoflowtomargin.Whathappensafterthat,wewillleverageanycostsavingsbeyondthat,thatwecanfind,toputtheworktosetupadifferentstrategicfuturefortheCompany,whilealsopassingsomebacktoinvestors.Sothatyoucomealongfortheride.
JohnFaucher (Analyst-JPMorgan):
Great.Thankyou.
Operator :
KevinGrundywithJefferies.
KevinGrundy(Analyst-Jefferies):
Hey,thanks,goodmorning,guys.
MichaelPolk(President&CEO):
Hey,Kevin.
KevinGrundy(Analyst-Jefferies):
Goodmorning.First,ifIcouldjuststartwithahousekeepingquestion.OntheProjectRenewal,the$350million,canyougiveusanupdate,wherewearewiththat?Andthen,what'stheexpectationforFY16,intermsofhowmuchflexibilityyouhave?That'sthefirstpart.
Andthen,thesecondpartontheJardentransaction,Mike,itsoundslikeyouseeverylittleriskwithrespecttoregulatoryapproval,shareholderapproval,financing--wanttoknowifthatwasafairsortofcharacterization?Andthen,justasecondpartontheJardenquestion,haveyourconversationswithretailersbeguntochangenowgiventheaddedscale,particularlythatthat'sreallyaUSmassretailersortofcomment?Havethoseconversationsalreadystartedtochange?Doyoufeellikeyou'regoingtoseesomesortofbenefittherefromtheaddedscale?Thanks.
MichaelPolk(President&CEO):
Yes,onyourfirstquestionregardingProjectRenewal,cumulatively,sotheannualizedsavingsthroughtheendof2015is$360million.Sothat'sbanked,andthat'sinthebank.Wehavearticulatedarangeof$625millionto$675millionincumulativesavings.ButIjustsortofsharedwithyou,myambitionandhopeisthatwegetcloserto$700millionwhenit'sallsaidanddone,attheendof2017orintoearly2018.
2016isabigyearofrenewalsavingsdelivery.We'vegotalotofworkthatwasinitiatedlastyear,thatflowsintotheP&Lin2016.Wesetupthetransformationoffice,inordertoreallyestablishasetofverydisciplinedprojectmanagementcapabilities.We'vegotteamsorganizedalong,andacrossmanydifferentworkstreams.Soweexpect2016tobeabanneryear,withrespecttosavings,andit'simportanttotheoverallalgorithm.WithrespecttotheJardentransaction,I'llpassthatovertoJohntoanswer.
JohnStipancich (CFO):
Sure.Hey,Kevin.WithrespecttoJarden,wedon'tanticipateanychallengesfromaregulatorystandpointoranythingelse.Wemadegoodprogress.Obviously,bothteamshavebeenworkinghardtogetherwiththeiroutsideadvisors.Sowedon'tanticipateanychallenges.We'restillmarchingtowards
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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aclosingsometimeinQ2,andnoredflags.Sowe'reingoodshape.
MichaelPolk(President&CEO):
Withrespecttoyourquestiononcustomers,it'salittleearly.We'renotengagingcustomerswithonevoiceatthispoint,becausethatwouldbeinappropriateastwoseparatecompanies.Butthegeneralfeedbackonthedaythedealwasannounced--andIknowMartingotsomeofthisfeedbackaswell,fromcustomersfrom--ontheannouncementdate.Andwe'vesubsequenthadtheminourconversationswithretailers,hasbeenvery,verypositive.
Asyouknow,thecombinationsignificantlyscalesourpresenceinanumberofretailersintheUS.Weputthatintothewebdeckthatweputtogether,whenweannouncedthedeal.We'llhaveover$2billionofrevenueatWal-mart.Ithinkwe'llendupbeingprobablyatop--intheeighthorninthposition,intermsoftheiroverallsuppliers.Andonthegeneralmerchandiseside,we'llbeatthetop,ifnotnearthetop.
Ithinkthat'sveryexciting.Thatwillleadtoareallystrategicsetofconversationswithallofourretailerswherewescale.Andtheotherthingaboutthecomecombinationofthecompaniesis,itopensupaccesstonewchannelsforsomecategories.SoJardenhasrealstrengthinmasssportinggoods,withtheColemanbrand,andwithsomeoftheiractionsportsbusinesses.ThatopensupopportunitiesforbrandslikeContigoandAvex,whereweprobablyneverwouldhavegottentoinvestingtheSG&Aandsellingexpensetoaccessthosemarkets,whichwecannowaccess.
AndthereverseistrueforJarden.Wehavetremendousscaleinhomecentersandhardware,andthedistributedtradeintheUSforcommercialproductsandtools,whichcanprovidetheJardenbusinessesaccesstochannels.Andso,it'sgoingtobeveryexcitingtounlockallthoseopportunities.
Idon'tviewscaleatcustomerasbeingaleveragepointwithrespecttonegotiating.Somepeoplethink,oh,we'regoingtobeaabletoyieldabiggerstickatthesecustomers.That'snothowwethinkaboutengagementwithourretailpartners.Wethinkaboutbuildingourbusinesscollaboratively.
Wehavearesponsibilityasleadersinourcategoriestoownthedevelopmentofthosecategoriesatthoseretailers.And,ofcourse,weleverageourbrandedassetstodothat.Sowebuildsharewhenwedothateffectively.Butweshareaccountabilitywithourretailpartnersfordevelopingthesizeofthepie,thesizeofthecategories.Andthat'showweapproachourrelationships,andweexpectthecombinationtonowbeabletodothatacrossabroaderlandscapeofcategoriesforourretailpartners.Andthroughthat,becomemoreofastrategicsuppliertothem.Sounbelievablesetofopportunitiesconnectedtotheselling,andthepotentialforastrengthenedstrategiccapabilitiesinthatspace.
KevinGrundy(Analyst-Jefferies):
That'shelpfulcolor.Thanks,guys.Goodluck.
MichaelPolk(President&CEO):
Thanks.
Operator :
BillSchmitzwithDeutscheBank.
BillSchmitz (Analyst-DeutscheBank):
Hey,guys,goodmorning.
MichaelPolk(President&CEO):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Hi,Bill.
BillSchmitz (Analyst-DeutscheBank):
CanyoujustfirsttalkaboutJanuarysell-in,sell-throughtrends?Andthen,usuallyyougiveuscoloronthequarterlycadenceofearnings.Isthereanythingfunkytopayattentiontothisyear?Andthen,Ihaveafollow-uponthedeal.
MichaelPolk(President&CEO):
Yes,IgaveyousomecoloronquarterlyflowinQ1,inthatIgaveyoutheVenezuelanimpact.IfwehadnotdeconsolidatedVenezuelain2016,itwouldhavebeenworth$0.03to$0.04inQ1.Sothat'ssomecoloronflow.Ididn'tgiveyouthenumbersforayearago,butthat'sslightlymorethanwhatVenezuelacontributedintheyearagoperiod.Sothere'salittlebitofcolor.
We'reprettybullishonwhatthefirsthalfoftheyearhastooffer,becausealotofournewitemsshipinthefirsthalfoftheyear.SoRubbermaidFRESHWORKSgoes,InkJoygelsgointhefirstquarter.Wehadgoodperformancelastyear,very,verygoodsell-outperformance.Sowedon'tentertheyear--youcanseeitinourreceivablesnumbers.Youdidn'tseeatremendousmovementinourreceivablesnumbersyear-over-year.
Sothat'sagoodsignthatinventorieshavecomedowninthefourthquarter,retailinventorieshavecomedowninthefourthquarter.That'strueinanumberofplaces,Isuspect.AndthekindofPOSandsell-outthatwe'vegotgoingonisreallyencouraging.Weshouldhaveverygood--withgoodsell-through,comesgoodsell-in.Andthat'ssetupwell.
WewillspendmoreinQ1thanwedidyear-ago,fromanA&Pperspectivewithstrongerinnovation.Andso,we'resetupforagoodfirstquarterIthink.Andobviouslytheproofofthepudding'sintheeating,andit'sonlynotevenreallytheendofJanuaryyet.Butthegreenlightisintheengineroom.Sotherearealwaysthingsthatyouhavegotchallenges,thatyou'vegottoovercome.Andundoubtedly,wewillhavethosetodealwiththisyear.
BillSchmitz (Analyst-DeutscheBank):
Great.Thanks.Andthen,justontheJardendeal,canyoujust--housekeepingitems,likewhatyourassumptionisontheinterestrateandthedebt?Ithinkbeforeyousaiditwasplusorminus3.5%.Andthen,wouldyou[ever]considerdoinglikeanincrementalequitydealtosortofacceleratethedeleveraging?Howlongyouthinkitisgoingtotaketogetto3.5turnsofleverage?Maybelikethebroadermacroassumption,asyoukindofdidyourdealmath?Andthenlastthing--Iknowthere'salotofquestionshere,butwhatthetaxrateweshouldusefortheproformacompany?
JohnStipancich (CFO):
Hey,Bill.It'sJohn.Sowithrespecttothedebt,there'sacoupleofmovingpieces.Butoverall,thetermloanislocked,andthatrateis--roughlyforyourmodeling2%to2.2%.It'savariablerateinstrument.
ThepublicdebtthatMikewastalkingaboutearlier.Rightnow,weoriginallysaidintheS-4,wemodeled4%.Creditspreadshavemoved,butthere'sstillalotofmovingpieces.Sowedon'tknowwherethetenorwillbe,orhowmuchwe'llgowithvariableratedebtoverall.Sothere'sstillalotofworktodone--todo.Butwe'renottooworriedaboutthecreepoff,ofthe4%,onthepublicportionofthedebt.Sothatpartis--againaworkinprocess.Andthere's,asyouknow,alotofmarketvolatilitybetweennowandthetimethatweultimatelygotomarket.
BillSchmitz (Analyst-DeutscheBank):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Great.Andthe,howaboutlikethetimingtogetto3.5leverageratio,andthemacroassumptionsunderlyingthedeal?Andthen,justtheproformataxrateifyouhaveit?
JohnStipancich (CFO):
Yes,sowegettothatratio,we'recommitted.Sopartofthereasonwhywestructuredthedealwedid,isthetermloanisathreeyearinstrumentthatwehavetopaydown,the$1.5billionthatImentionedearlierinmyscript.
Andso,partofthatisacommitment,sowegetdowntothat3,3.5times,twotothreeyearsrightnow,andwe'vemodeledinanumberofsensitivities.Sowe'reverycomfortablethat2.5yearsfromnowwewillbebackinthatrange,giveortake,absentsomemassivechangeintheunderlyingeconomiccultureoftheworldoverall.Sowehavegoodshape,intermsofthat.
Withrespecttotax,rightnow,obviously,Ithinktheeasiestthingtodoismodeljusttheblendedtaxratebetweenthetwocompanies,butthereisopportunity.NownoneofthatisreflectedasMikesaidinthesynergynumbersthathe'stalkedaboutandsoforth.Andwe'reexcitedaboutbringingJardenintogetherwithus,intermsofwhatwecandowithsomeofourtaxstructuresandsoforth.Sowedefinitelyseeupsideonthat.Butitwilltakesometimeobviouslytogetthetwocompaniestogether,andintoonetaxsystem.
MichaelPolk(President&CEO):
Sowe'regoingtopushtogetthedeleverasquicklyaswecan.Ifyoulookatournumbers,andyouprobablyhaven'thadtimetokindofplowthroughthemall,we'vegotEBITDAaround$900millioninforNewell.AndJardenis--youcanfigureoutwhatJardenis.Withsynergiescomingperhapsalittlebitquickerthanwhatwasmodeled,we'llbeveryquicklyapproaching$3billionofEBITDA.
Andso,we'regoingtohavelotsofflexibilitytopaydownthedebtquickly,andwewillwanttodothat.That'sthecommitmentwemadetogetbackintotherangeof3to3.5timeswithintwotothreeyears.ButI'mhopingwecandothatclosertothetwo,thantothethree.
Withrespecttotheotherissueson--potentialderailersthat'scouldunderminethat.Ireallydon'tseethem,becausewe'vebeensoconservativeintheassumptionswe'vemade,onthetimingofsynergies,thegrowthratethatwebuiltintothemodel.Sothetaxopportunities,theworkingcapitalopportunities,weshouldhavesomequickwinsthere,thatarenotbuiltintothedealeconomics.Andit'sjustgoingtotakealittlebitoftimetogetourarmsaroundthat,oncewe'reabletomoreopenlyengagewitheachother,butnotmuchtime.We'llwanttogoforthattypeofstuffquitequickly.
Andtheotherthingtorecognizeisthattheleverageratioslookhighatthebeginning,inpartbecauseofthetimingoftheyearwe'redoingthisdeal.Right?SoQ1isprobablytheworstmomenttotrytoconvertadeallikethiswith--giventheflowofcashflowforbothcompanies.Sotheopticsofourleverageratiosareprettyhigh,probablyhalfaclickhighin--attheendofthefirstquarter,versuswhattheywillquicklybeoverthenextfewquarters.Sothere'sallthosedynamicsatplay.
We'vemadeacommitmenttogetdownto3to3.5times.We'regoingtodothatinafocusedway.Weareprioritizingcapitalallocationtothatoutcome.AndtheonlyexceptiontothatistheCapExassumptionswe'vegotinthebusiness,whichwehavenotcompromisedonCapExinvestmentoneitherbusiness.
We'veblendedthebaseplans.Andwewon'tpullbackonthatfront.AndyoushouldexpectintheNewellRubbermaidsideforustobespendingaround$200millioninCapExthisyear,maybeslightlyabovethat.Andthenonthedividend,we'veassumedthatwemaintainNewell'scurrentdividendof$0.76pershare.Obviously,acrossahighersharecount,whichmeansmorecashoutforthatinthecombination,butwe
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
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believethat'sanimportantelementofourcapitalallocationstrategythatwillbeandshouldbepreserved.
BillSchmitz (Analyst-DeutscheBank):
Okay.Andthen,justontheequityraise,wouldyoumaybethinkaboutraisingequitytoacceleratethedeleveragingprocess?
MichaelPolk(President&CEO):
That'snotinourlineofsightrightnow,anddoinganequitydealnotinourlineofsightrightnow.We'regoingtobereallyfocusedonexecutingbothcompanies'plans.Obviously,ifwegetgoodmomentuminthecoreofthebusiness,wecanthinkofdifferentoptionsaswecomeinto2017.
Butourfocusrightnowwillbeonexecutionofthedeal,executionoftheindividualbusinessplans,deliveryoftheEBITDAprogressionthat'sbuiltintothosetwoplansandintothedealeconomics.AndplayingformoreEBITDAifwecanfindit,eitherthroughaccelerationofthesynergies,orthroughacceleratedgrowthinthebusinesses.Orthroughothermeansofinfluencinggrossmargindevelopmentwhicharealsoavailabletous.
BillSchmitz (Analyst-DeutscheBank):
Great.Thankssomuch,guys.
Operator :
JasonGerewithKeyBancCapitalMarkets.
JasonGere (Analyst-KeyBancCapitalMarkets):
Okay.Thanks.Goodmorning,guys.Justacoupleofquestions.One,justinthesixweekssinceyou'veannounceddeal,Mike,maybecanyoutalkalittlebitaboutwhathassurprisedyoumoreontheupsideofthisdeal?
Obviously,Iknowitcametogetheroverthefallkindofquickly,butandwithinthat,whatshouldweanticipatewhenyouguystalkatCAGNY?Willsomeofthemaybetheintegrationteammembersbewithyou,justtogetabettersenseofthedeal,andinvestorsgettingmorecomfortablewithit?That'sthefirstquestion.
MichaelPolk(President&CEO):
Yes,Idon'tthinkyoushouldexpectustogodeepintotheintegrationatCAGNY.Becauseagain,wewillnotown--wewillnotbecombinedatthatpoint,thetwocompanies.Wewilllayoutwhereweseetheopportunities.Andthoseopportunitieswillbearticulatedbasedonthethinkingthatwentoninthefall,andconversationsthathavehappenedwithseniormanagementsincethattime.Buttheplanningstagesareearlyon.It'salittleprematureforustobedoingadeepdiveonexactlywhatwe'regoingtodowhen,inacoupleofweeks.
Thatsaid,I'lllayitout.I'llvisuallypresentwhatIjustdescribedtoyouintheearningscall,inalittlebitmoredetailtogiveyousomeevidenceofwheretheopportunitiesare,andtalkabouttheambitionwehaveforthebusiness.ButIwouldexpectthemoredetaileddiscussiontohappenaftertheshareholdervotes,andafterthetransaction'sconsummated.That'swhenwe'llgetintosomefarmoredetail.
Ourfocusthough,willbeonengagingbothsidesofthehouse,inunderstandingwheretheirbusinessopportunitiesare,learningtheJardenbusinesses.Andthenafteraperiodofworkandthinkingabout
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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those,bringingthatbacktogetherintoanintegratedapproachandstrategyfortheCompany.Ofcourse,we'llprovideguidancefor2016,revisedguidancefor2016.Andwe'llprovideperspectiveontheoutyears,oncethetransaction'scompleted.
JasonGere (Analyst-KeyBancCapitalMarkets):
Okay.No,that'sfairenough.Andthen,Iguesstheotherquestion,Iwasjustwonderingifyoucouldtalkalittleaboutthecompetitivelandscape,maybeintheUS,especiallyasIthinktheeconomyisalittlebitmoreskittish.You'reseeingalittlebitofcommoditydeflationcomingthrough.Iknowitmaynotaffectyoudirectly,asitdoesotherstaplecompanies.
SoIwasjustwonderingifyoucouldtalkaboutanycategorieswhereyoumightbeseeingalittlemorepressure,competitorstryingtothwarttheinnovationthatyou'rebringingout?Andwithinthatpoint,Iknowyoukindofgaveustheoutlookfortoolsfor2016,butIwasjustwonderingifmaybeyoucankindofgiveusaframeworkforcoresalesintheothersegmentstoo?Thanks.
MichaelPolk(President&CEO):
Yes,wetypicallydon'tguidecoresalesbysegment,butIthinkyoushouldexpectwritingtohaveanotherverygoodyear,albeitwithoutthebenefitofVenezuela.Youshouldexpectbabytohaveaverygoodyearaswell.We'vegotterrificmomentumthere,withgreatinnovationcoming.Commercialproducts,Ithinkyoushouldexpectanotheryearofgoodprogress.
Andyou'llseeprobablythemostchangeinhomesolutions,whereRubbermaidhasawholeseriesofinnovationsthatarecomingtomarketlikeFRESHWORKS,likeFasten+Gowhichiseffectivelytakingourlunchboxconcept,andexecutinganadultversionofalunchboxforwork.Andso,thatwillcome.
Andtheninthebackhalfoftheyear,we'vegotanotherexcitingfoodstorageinnovationthatIwon'tdisclosenow,thatreallywillbevery,verycool,andfuntoseehowconsumersrespondto.Soyou'vegotthreeinnovationsinRubbermaidcomingthisyear.You'vegotabigyearinbeveragesaswecontinuetodevelopandbuildtheContigo,Avex,bubbaandRubbermaidbrandsinthisspaceso.
AndCalphalonisgoing--CalphalonandGoodywillgothroughcompleterelaunches.WesawsomeweaknessinCalphaloninthefourthquarter,aswe'retransitioningoutofproductlinesandintonewproductlines,whichstartflowinginhereinthemiddleofQ1.Sowe'vegotafullfaceliftgoingonCalphalon.Andwe'vegottheGoodybrandrelaunchwhichsetforthesecondquarterofthisyear.SoIthinkhomesolutionswillprobablytheplacewhereyouseethemostchange.
Wewillcontinueinthe--tocontinueoptimizetheRubbermaidconsumerbusinessbycontinuingtopullbackonconsumerstorage,thelessprofitableendofthatbusiness.SosomeofthepositivesthatIwasjustreferringto,willbepartiallyoffsetbycontinuedcontractioninthatportionofthebusiness,aswelooktorepositiontheRubbermaidbrandtoplayinareaswherethebrandcanbedifferentiated.Andthroughdifferentiationcomeshighergrossmargins,throughmarginscomeshigheraffordabilityandtoinvestinreallycreatetherenaissanceinRubbermaidthatwehopetodeliveroverthenextcoupleofyears.
JasonGere (Analyst-KeyBancCapitalMarkets):
Okay,great.Thanksfortakingmyquestions.
Operator :
JoeAltobellowithRaymondJames.
JoeAltobello (Analyst-RaymondJames):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Thanks.Hey,guys.
MichaelPolk(President&CEO):
Hey,Joe.
JoeAltobello (Analyst-RaymondJames):
Hey,goodmorning.Justacouplequickones.Iguessfirst,andMikeyousortoftouchedonthisearlier.IntermsoftheneedtoinvestbehindtheJardenbrand,itsoundslikeyoudon'tseeabigcatch-upperiodhere,giventhatthefirst$500millionofcostsaveswilldroptothebottomlineeffectively.ButhowdoyouthinkaboutyourneedtoinvestbehindtheJardenbrands?Andsecondly,howdoestheacquisitionimpactyourgoalofgettingtoA&Pspendofabout7%ofsales?
MichaelPolk(President&CEO):
Yes.Soyes,letmetakethesecondpartofthequestionfirst.TheacquisitionwillnotimpactourdrivetogettheNewellRubbermaidportfolioto7%ofsales.AsIsaidin2016,we'llgetthatratioupto5%,probablyaround5.5%.Andso,wecontinueonthatjourneytothe7%threshold,andwethinkthathappensin2018,maybealittlebitofableedoverinto2019,dependingonhowtherenewalcostsavingsflowthroughtotheP&L.Sowedon'tseeanyinterruptioninthatdrive.
OntheJardenbusinesses,we'rejustgettingtoknowthesebusinesses.Iwilltellyou,allyouhavetodotounderstandtheJardenbusinessesandwhethertheyhavethealgorithmright,islookat5.9%coresalesgrowth,throughtheninemonthperiodin2015.Thatwouldsuggestthattherearealotofthingsgoingrightinthesebusinesses.Ofcourse,webelieveinbrands,andifwecanfindtheflexibilitybeyondthefirst$500milliontofindsavings,we'regoingtowanttoinvestbackintobrands.
Webelievethatourdesigncapability,whichisenablingthestep-upininnovationontheNewellRubbermaidsideofthefamily,isapplicable,morebroadlyacrossmorecategories.Inordertofundthat,we'llhavetoinvestsomemoney,toextendtheshouldersofthatcapability,tobeabletopotentiallyhelpsomeoftheJardenbusinesses.But--andofcourse,ifwecanstrengtheninnovationinthesebusinessesthroughthatdesigncapability,wearegoingtowanttoputadvertisingandpromotionmoneybehindit,tosimulateawarenessandtrialofthenewideas.SoIthinkiftherewasaplacewhereyoucouldorshouldexpectustoexploreinvesting,it'sinthatarea.
Andweofcourse,acrossthetotallandscapearegoingtocontinuetoinvestine-commerce.ForNewellRubbermaid,inthefullyear,oure-commercecontributionintheUStoourPOSgrowthwassomethingcloseto14%.WhichifyougoallthewaybacktoourAnalystDayinMayof2012,youcanlookatwhatwequotedthere,asthecontributiontorevenue.Andyouseethisbigstep-up.That'sinpartafunctionoftheinvestmentswe'vemade.
Weexpecttomakeinvestmentsacrossthetotalenterpriseine-commerce.We'llfundthatthroughanysavingsthatcomesbeyondthe$500million.Now,unlikewhatwedidwithProjectRenewal,wherethefirstcoupleoftranchesofsavingswentfullybackintothebusiness,youshouldnotexpectustodothatwithanythingbeyondthe$500millionthatwefind.Someofthisisgoingtoflowbacktoinvestorsformargindevelopment,beyondwhatwe'vecommittedtowiththefirst$500million.Andsomeofitwillflowbackintothebusiness.
Howthatratiobreaksdown?Yettobedetermined.Wehavealotofworktodotounderstandtheopportunities.IhavetheopportunitytomeetHopeMargala,andherteamupatYankeelastweek,justtosayhello,andgettoknowthem.They'vegotallkindsofreallyinterestingthingsgoingonthere.
Andso,Isuspectaswegetintothesebusinesses,wewillseeandfindallkindsofopportunitiesthatto
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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hopefullybybringingthecompaniestogether,we'llbeabletoplusup.JustlikeJardenhashistoricallydone,asithasboughtbusinessesandintegratedintothecompany.YoulookattheprogressonYankee.IusedtobeontheBoardtherein2005,2006.
They'vegotabigdynamicbusinessinEuropethatdidn'texistwhenIwasthere.Andthat'shappenedsincetheJardenacquisition.Sothereisplentyofevidencethatthatworkisalreadyunderway.Andthequestionis,canyouoverlaymorefundstoreallyunlocktheupsideinanyofthoseareasthatareparticularlyattractive?Andagain,tooearlytosaywhereyou'dplacethosebets,orwhetheryoucanfindthemoneybeyondthe$500million,althoughourjudgmenttellsusthere'smoretobefoundthere.Andweshouldgogetthatmoney,sowecanputitbackintothebusinessforgrowthacceleration.
JoeAltobello (Analyst-RaymondJames):
Veryhelpful.Thanks,Mike.
Operator :
WendyNicholsonwithCiti.
WendyNicholson (Analyst-CitiInvestmentResearch):
Hi,goodmorning.Socouldyoutalkalittleaboutwritingandtheoperatingmarginsthere?Iknowyoutalkedaboutbothforeignexchangeandthehigherinvestmentspendingpressuringtheopmargininthefourthquarter.Butit'sbeenawhilesincewe'veseenmarginsgodowntothetuneof200bps.SoIknowit'sonlyonequarter,andstillfortheyeartheywereup,butI'mjustwonderingwherewearewithyourcommitmenttohigherspendinggoingforward,withtheChinalaunch,andallthatkindofgoodstuff?Justonthatbusinessspecifically,doyouthink25%iskindoftheright/peakoperatingmargin,ordoyoustillthinkthere'sroomformarginexpansionahead?
MichaelPolk(President&CEO):
Inanygivenquarter,themarginwillfloat,dependinghowmuchinvestmentweputin.WesaidwespentmoremoneyinA&Pthanwewereplanningonspendinginthequarter,andwritingwasthebeneficiaryofthat,whichitisalmostalwaysis.The--butwedon'thaveatargetmarginforbusinesses.
Imean,anythingover[20%]inmyexperienceisareallyexcitingplacetobe,becauseifyougrow,youreallycreateatonofvalueso.ButIdon'tenvisionusdriftingdowntothatlevel.ButIalsodon'twanttotargetandpeg25%operatingincomemarginasatargetmarginforthewritingbusiness,becauseIfeellikewemightconstraintheopportunitiesforgrowth.Aswemovewritingintonewgeographies,there'ssortofanSG&Abubbleyouhavetoacceptinfrontofthe--aheadoftherevenuestream.Andourambitionistodeploythisportfolioasbroadlyasitisrelevanttodeployitoverthenext5to10years.
Sotherewillbeperiodswherethere'sacostofgrowthassociatedwiththatchoice,thatwillbecoveredbysomeotherbusiness.Justlikeyousawsomeofthebusinessescovertoolsinvestmentin2014.Youseeotherbusinessescoveredbabyinvestment,atthebeginningofthisyear.We'llnowseebabymarginscomebacktofundotherinvestmentsinhomesolutions.Andso,wemanagethismoneyverydynamically,andwedon'tletitgettrappedinanyparticularsegment.Theleadershipteamallocatesresource.Andinanygivenperiod,youshouldexpectoperatingincomemarginstoflexupanddown,dependingonwhatinvestmentbetswe'remaking.
WendyNicholson (Analyst-CitiInvestmentResearch):
Gotit.Gotit.Andtothepointofyourabilityto--Idon'tknow,reallocateresourcesandmanageitall,Ithinkyou'vetalkedinthepast,howSAPhashelpedtoacertainextent,andhowyouexpectSAPwillhelp
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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moregoingforward.ButspecificallytotheJardentransaction,IthinkoneoftheconcernsthatI'veheardfrominvestors,it'sjustthecomplexityofthatbusiness,andthescope,andthebreadth,andallofthat.Socanyoutellus--aretheyonSAP?Howquicklydoyouthinkitwilltaketobringthemontoyoursystems,sothatyoucanpreservethatgreatsenseofmanagementofthenumbers,andmanagementofthebusiness?
Andthen,justthelastthingonthattransactionspecifically,obviouslyinvestorshavekindofshownthatthere'safairamountofconcernaboutthetransactionandallofthat.Canyouaddress,ifinternallywithinNewell,whattheresponseamongtheemployeeshasbeentothetransaction?Obviously,Tarchettiisexcitedaboutit,butwhatabouteverybodyelse?Dotheyfeellikethey'regoingdownadifferentpaththantheythoughtyouwere?Thanks.
MichaelPolk(President&CEO):
Yes,that'sagreatquestion.Butletmeanswerthatonelast,andmaybeJohncanprovidesomeperspective,sothatit'snotbiasedbyme,becauseI'mobviouslyveryexcitedbyittoo.Ithinkpeopleareveryenergizedbythis,becausethey'veseenwhat'shappenedhere.Andtheynow--mostpeopleareprobablythinking,gosh,there'sallkindsofopportunityformepersonally,togoworkindifferenttypesofbusinessesovertime,andIgetthesensethere'salotofexcitementaboutthis.
Thegroup'sbeenthroughatonofchange,sotheyunderstandhowto--andthey'reresilientasallheck,tobeabletoabsorbtherhythmofchangethatwe'vehadoverthelastnumberofyears.Butthere'salotofexcitement.There'sprideinthefactthatwe'recreatingsomethingbigandspecialthatcouldreallybevery,veryexciting.ButmaybeJohn,youshouldanswerthatlastpart,ratherthanme?
JohnStipancich (CFO):
Sure.SoWendy,I'lladdsomecolorinasecond,withrespecttothesystem,sopartofJardenisonaversionofSAP.Butwe'refairlycomfortablethatwe'llbeabletogetthem,andgetourarmsaroundtheirsystemsrelativelyquickly.Obviously,theyhaveagreatbusiness,andthey'veruntheirbusinessextremelywell.Sotheycertainlyunderstandtheirnumbers,andwe'reencouragedcomingin,thatwecankindofgettoacommonnomenclature,andcommonvocabularyrelativelyquickly.OurITguysarereallyexcitedtoworkwiththem.Andcertainly,Ithinkwecangivethemsomeperspectiveonthingsthathaveworkedwellforus.
AndasMikesaid,it'sreallyconsistent,withtakingthebestofbothcompanies.SowealsohavesomethingsI'msurewecanlearnaboutthem,andgetalittlemoreleverageoutofoursystemsoverall.Socomfortable,we'llgetourarmaroundthebusinessfairlyquickly.Andcertainlyinourmeetingswiththem,theyclearly,theyhavearmsaroundtheirbusiness.Sowe'reverycomfortablewiththat.
Intermsoftheexcitement,certainly,it'snotsomethingIthinkthatmanyoftheemployeesexpected,butwe'reexcited.We'reexcitedabouttheprogressthatcertainlyMikeandtheteamhasmadeoverthepastfiveyearstoputusinthisposition,tobeabletorewritethefutureforthisCompany.Andthat'swhatpeoplearemostexcitedaboutyounow.
WelookattheopportunitynowwithJardenandthingsthatwethinkwecando,aswebroadenedoursetofcableabilitiesacrossanumberofdifferentnewcategoriesandnewbrands.AndasMikesaid,aswellasthesynergies,placeswhereJardenhasbeenverysuccessful,andwehaven'tbeenassuccessfulincertainchannels.Sothere'salotofexcitement.Weknowit'sgoingtobealotofwork.
It'sbeenalotofworkforanumberofpeopleforthepastthreeorfourmonths,butit'sgoingtobeagreatcombinationoverall.Soit'sa--we'realittlebitdisappointedmaybesomepeopledon'tseeitthatway.Butforus,weonlyseeupside.
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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MichaelPolk(President&CEO):
Yes,Ithinkthemarket'sreactionI--I'mnotevengoingtofocusonittobehonestwithyou,becausetheopportunityisinfrontofus.It'snotinthemoment.Andso,theopportunityistobringthiscombinationtogether,andcreatethevaluereleasethatwillnaturallyoccur.Butmoreimportantly,strategicallytocreateoneoftheleadingconsumerbrandedcompaniesintheworld.
Andcertainly,aleaderinthedurablespace,wherenobody'sgoingtobeabletohavethecapabilitieswehave.We'llhavethe[affordability]toinvestinareallyadvantagedsetofbranddevelopmentcapabilities,thatshouldenableustotrumpthecompetition.We'llcompeteincategorycountrysalesagainstlessercompetitionisquitesmall.
Soifwewant--aswesetthiscompanyuptobemanagedthewaywemanagethingstoday,wherewe--aseniorgroupofpeople,leadersfromeachofthebusinessescometogethereveryyeartoallocateresource,asweallocatethoseagainstthebusinesseswiththegreatestrighttowin,weshouldseereallytremendousreleaseofvalueandgrowth.Andthatwillcreateavery,veryexcitingstorygoingforward.We'rearisk-onscenarioandarisk=offenvironmentatthemoment,becauseoftheleveragethatweneedtoraisetobringthesetwocompaniestogether.Andthatisfine.
Wehavetheclarity,thesecurity,andthesenseofwhatwillhappennext,togiveustheconfidence,thatwhatwe'vesaidaboutmaintaininginvestmentgrade,gettingthedealfinanced,gettingthedeal--havingthedealdeliverhighsingle-digitaccretioninyearone,andmid-teenstohighteensinyeartwo,andstrongdouble-digitaccretioninyearthree--wehavetheconfidenceandlineofsight,toallthemovingpartsinthatalgorithm,togiveusthesecuritythattherisk-onincreaseisappropriateforourCompany.
Themarketdoesn'thaveaccesstoeverythingthatwe'vegotaccessto.Andwedon'thavetheopportunitytotalkasexplicitlyaswe'dliketo,tothemarketuntilthetransactionisconsummated.Sowe'reinthatperiodwhere,there'suncertaintyinarisk-offenvironment,andI'msurethat'screatingpressure.Wewillovertime,inaverydeliberatewayarticulateourvisionfortheCompany,whatwebelieveisgoingtobepossiblethroughthecombination.AndIamcertain,wewillfindmoreopportunity,themoretimewehavetoengagewiththepartnersontheJardenside.
Andweintendtobringthebestofbothtogether,tobearonthiscollectionofcategoriesthatarereallyquitestrategic.Theopportunityisquitestrategic.Thesearelarge,growingcategorieswithunconsolidatedmarkets.Andthebrandportfolioispowerful,becausewehaveleadingpositionsinthosecategories.Andso,there'ssomuchroll-uppotential,eitherorganicallyorthroughacombinationoforganicandexternaldevelopmentthatyoujustsortoffeellikeakidinacandystore,intermsofthepotentialopportunitiesahead.
We'regoingtodothisdeliberately.We'regoingtodothiswithputtingthebestpeopleonthefieldthatwecan,tounlocktheupside.Andwecouldn'tbemoreexcitedbywhat'sahead.Butourlineofsightgoesbeyondthenext90or30days,it'sthenextthreeyears.Andit'sputtinginmotionthesetofchoices,thatIthinkwewillilluminateovertimeforthemarket.Butwearecertain,we'llunlockthevaluewehaverepresentedtoyou,ifnotmore.
WendyNicholson (Analyst-CitiInvestmentResearch):
Terrific.Thankyouverymuch.
Operator :
StephWissinkwithPiperJaffray.
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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LaurenWolf (Analyst-Citigroup):
Hi,thisisactuallyLaurenWolfcallinginforSteph.Switchinggearsalittlebit,we'veseensomesignificantmomentumoverthepastyearwithinthebabybusiness,inparticular.Doyouthinkthislevelofgrowthissustainableinto2016andbeyond?Andwouldyoubeabletoprovideanyadditionalcolorabouttheinnovationsthatyoumentionedearlier?
MichaelPolk(President&CEO):
Yes,Iwouldn'tcountonthe10%typeofgrowthlevels,asbeingsomethingthat'ssustainableeveryquarter,butwe'vegotalotofinnovationcominginbaby.We'reexcitedaboutbaby.Thecombinationactuallypotentiallybringstogethersomereallyexcitingopportunities,particularlywithNukandBabyJogger.AndthereareacoupleofEuropean[soothing]businessesaswellthatJardenhas.Sowe'vegotsometremendousopportunityhere.
Weloveourbabybusiness.It'sadifferentbusinessthantherest,inthatonoursideofthefamily,we'veoutsourcedthemanufacturingtoastrategicpartner.SoourgrossmarginsaredilutivetothetotalCompanyperformance.Butbecausewedon'towntheassets,ourreturnoninvestedcapitalisquitehigh.It'sjustnexttowriting,intermsofitsvaluecreationpotentialifwegrow.
Sowhenyougrowbaby,youcreateatonofvalueforinvestorstotheROICof[RONA],returnonthatassetissohigh,justshyofwriting'slevels.Andwriting'slevelsaremargin-driven,baby'slevelsaredrivenbytheabsenceoffixedassets,andaveryshortvaluechainbecausemostofourretailpartners--somanyofthem,DI,directimportfromthepointofdepartureinAsia.Sowehaveaveryshortvaluechain,inventorychain.Sothisisagreatbusiness.Weexpecttogrowit.
IthinkifIwerebuildingamodelforthenextnumberofyears,I'dbebuildingsortofmidsingle-digitgrowth.Therewillbeamomentintime,whenChinaopensupasahugemarket.Therearenowcarseatlegislation,thereisnowcarseatlegislationinplace,notyetbeingenforced.Butthatwillcreateacarseatmarketovertime.Andwhenthathappens,wewanttoberightinthemiddleofthegrowththatwillcomewithbabygear.
OurbusinessissourcedfromChina,sowe'vegotgreatpresencethere.Sothatifandwhenthatmarketopens,wewillbeinthepositiontoparticipateinamorematerialwaythanwedotoday.Butthatwill--whenthatmomentcomes,thatwilltriggeradifferentlevelofgrowthfortheCompanyinthatsegment.ButIthinktherightplanningstanceismidsingles.
LaurenWolf (Analyst-Citigroup):
Thanks.That'shelpful.
Operator :
LindaBoltonWeiserwithB.Riley.
MichaelPolk(President&CEO):
Hey,Linda.
LindaBoltonWeiser (Analyst-B.Riley):
Hi.Canyoujustcomment--younamedafewthingsaboutwhycashflow,operatingcashflowwasdownyear-over-year.Canyouremindus,howdoesthe$566milliondorelativetoyouroriginalguidancerange?Andthen,doyouhavesomeguidanceonthatfor2016,excludingJarden?Andtomeetthoseleverageratiotargets,doyouthinkyou'regoingtohavetostepupinitiativeslikeonworkingcapital?Or
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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doyouthinkyoucanjustgettothoseleverageratioskindofonthestatus,justoperatingcashflowwithoutanyspecialeffortsintheworkingcapitalarea?
JohnStipancich (CFO):
Sure.Goodmorning,Linda.Sowegenerallydon'tguidewithrespecttocashflow,operatingcashflowoverall.Sowewon'tgiveyouanyguidancenumbersfor2016or2015.Iwillgiveyou--I'llgiveyouanexplanationwherewelandedfor2015versus2014.Essentially,wewereupabout2%ifyoutakeoutthe$70millionpensionpaymentthatwemadein2015,togetourpensionplanuptoabouta93%fundedstatus.Andthen,wehadalittlemorecashspendonProjectRenewalandsomeotherrestructuringcostsoverall.Intermsoffocusoncashgoingforward,themodelwasbuiltwithoutanyworkingcapitalimprovements.Butthereareplentyofworkingcapitalimprovementsforthetransaction,aswellasonourside.
Aswe'vetalkedaboutbefore,we--ourinventorieswecandoalittlebetterjobon.Overall,webuiltsomeinventoriesthisyearforgrowthandsoforth,butweknowwecandoabetterjobmanaginginventory,aswellasmanagingtheotherpiecesofworkingcapital.Sothatwillbeafocus.Itwillbepartofourincentiveplannextyearwe'vetalkedabout,becauseoftheimportanceofdeliveringoncashoverallforus,intermsofgettingourleverageratiodown,asMikesaidasquicklyaswereasonablycantothe3to3.5timesratio.Butagain,agoodfocusoncash,butwemadegoodprogressinQ4,aswelloninventory.SoI'mrelativelycomfortablethatwehavelineofsighttoanotherstrongyearfor2016.
MichaelPolk(President&CEO):
JusttopunctuatethepointJohnmade,wewill--we'verecommendedtotheBoard,thatour2016,theNewellRubbermaid2016bonusprogram,theshort-termincentiveprogramincludeacomponentonoperatingcashflow.Andso,obviouslycashflowmattersalot,andoperatingcashflowmattersalot,inthecontextofthisdeal.Sowewillputsomeskininthegameforouremployees,withrespecttoreallymovingtheneedleonoperatingcashflow.
LikeJohnsaid,wedon'tguide,butyoucanbeyouassuredit'sgoingtobeafocalpointforus.There'salotofopportunityinworkingcapitalasI'vesaidovertime.Andthisisthetimetogogetit.Wehavenotassumedanybenefit.We'vejustblendedtheprogramsthatexistedfrombothcompaniesinourdealeconomicassumptions.
Soyoucanrestassured,cashiskinginthecomingyears,andreallyoughttobeallthetime.Andyoushouldexpectustoreallymovetheneedleonthisovertime.AndIagain,Ithinkwe'vegotaveryclearlineofsighttobeingabletogetdownintotheleverageratiorangethatwe'vecommittedto.AndI'mhopefulthatwecandothat,closertothetwoyearhorizon,thanthethreeyearhorizon.Butourcommitmentistodothatwithintwotothreeyears.
LindaBoltonWeiser (Analyst-B.Riley):
Great.Thanksverymuch.
MichaelPolk(President&CEO):
Yes.
Operator :
StevePowerswithUBS.
MichaelPolk(President&CEO):
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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Hey,Steve.
StevePowers (Analyst-UBS):
Hey,great.Thanks.Maybejustcarryonthecashtheme.CanyoutalkalittleabouthowthedeconsolidationofVenezuelaimpactstheoperatingcashflowsourcesandusesoutlookthatyou'dcommunicatedbackinSeptember?
Imean,obviouslyFXhasshiftedaswell.Butyouhadsaidabout$5billionbetween2016and2020,withabout$2.4billionuncommittedafterCapExanddividendsandbaselevelrepurchases.AndI'mjustcurious,obviously,beforeconsideringJarden,iftheoutlookismateriallydifferentnow,withVenezuelacarvedout?
JohnStipancich (CFO):
Yes.Sowithrespecttothecashgenerationandthesourcesanduses,it--thecashflowwrite-off,forusgoingforward,thedifferencewillbeabout$50milliononanannualbasis.Soitdoesn'tmateriallychangethenumbersthatweputtogether,intermsofthesourcesandusesofcashoverall.
MichaelPolk(President&CEO):
TheotherthingI'dsayisthatallofthemodelingwedidwiththeratingagencies,allthemodelingwedidonthedealeconomics,assumedVenezuelaout.Soeverythingthatwe'vearticulatedexternallyexcludesVenezuela.
StevePowers (Analyst-UBS):
Allright.That'sgreat.Thankyouverymuch.Andthenjust,Iguess,onecleanuponwritingifIcould.SoIthinkgrowthinthesegmentwas6%thisquarterex-Venezuela,andyoucancorrectmeifthat'swrong.Ithinkyousaidhighsingle-digitsinNorthAmerica,whichimpliesthatgrowthinternationallyex-Venezuelawasverymodest.Andjust,anycommentaryonthat,andhowyouexpectsortofNorthAmericaversusinternationaltotrendin2016,thatwouldbehelpful?
JohnStipancich (CFO):
Yes.Sowehavethreedifferentwritingbusinesses.Wehaveafinewritingbusiness.WehavetheDymobusiness,whichgetsconsolidatedinourwritingsegment,andthenwhatwecallwritingandcreativeexpression.
Writingandcreativeexpressionisgrowingvery,verywell.ThisiswhereSharpieandPaperMate,andExpoandPrismacolor,theyallliveinthatcluster.Finewritinghasbeenlesspositivetogrowthrate.Andyourobservationisaccurate,growthinEuropewasnotasstrong,aswebelieveitcanbeovertime.Inpartbecause[WACE]growth,orwritingandcreativeexpressiongrowthwasoffsetbyfinewritingdeclines.
Andso,we'reinthemidstofrepositioningourfinewritingportfolioinEurope,pullingbackonsomeofthelowendportionsofthatportfolio,sothatwefocusbrandslikeParkerandWatermanonthehighendportionsofthatportfolio.SothatiswhatcontributedtoEurope'ssortofmodestwritingresults.TerrificgrowthonhewritingandcreativeinvestigationinmarketsliketheUKandinFrance,offsetbyfinewritingcontractioninthesamegeographies.Overtime,youshouldexpectourwritingbusinesstobecomemoredominantandpresentinthecore,whichiswritingandcreativeexpression.
We'vegotaterrificplaninplaceforourwritingbusinessin2016.Ithinkyoushouldplanforlikeperformanceinyourmodelsfor2016,aswedeliveredin2015ex-Venezuela.Andwhilewehaven'tquotedaspecificnumberforwritingex-Venezuela,andyoushouldn'texpectusto,you'reinthegeneral
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
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ballparkwithyouranalysis.
StevePowers (Analyst-UBS):
Okay,great.Thankyouverymuch.Helpful.
Operator :
AndyourfinalquestioncomesfromRupeshParikhwithOppenheimer.
MichaelPolk(President&CEO):
Hi,Rupesh.
RupeshParikh (Analyst-Oppenheimer):
Goodmorning.Thanksforfittingmein.Somyfirstquestion,Mike,hastodowithinnovation.Throughoutthecall,youmadealotofcommentaryaboutalltheinnovationyouexpectthisyear.Isthereanywaytoquantifytheimpactofinnovationthisyear,maybeversustheprioryear?Andafollow-upquestion,asconsumerscontinuetomigratemoreonlinetobuytheirproducts,howdoesyourdeliveryofe-commerce--orhowdoesyourdeliveryofinnovationchangewiththatdynamicofconsumersbuyingmoreonline?
MichaelPolk(President&CEO):
Yes.Sogreatquestions.I'llgiveyousomeperspectiveoninnovation.Sowhenweevaluatetheimpactthatinnovationishavingonourbusiness,welookatwhatwecallthevitalityrateortheinnovationrate.Andwemeasureinnovationrate,asthepercentageofourrevenuethat'sbeentouchedbyinnovationlaunchedinthelastthreeyears.
Andwhenwestartedin2013withthenewmodel,ourinnovationrateswerequitelow,inthelowteenstypeoflevel.Andasweenter2016,we'regettingveryclosetowhatwehaveasourlong-termobjectivefortheinnovationrate,whichis30%.Andso,thisisavitalityrateoraninnovationratethatthebestconsumergoodscompanieswouldconsiderthegoldstandard.Andwe'rewellonourwaytogettingthere.Wewillgettherein2016,withthepipelineofideasthatarecomingtomarket.
RupeshParikh (Analyst-Oppenheimer):
Okay.Great.Andthen,maybejustonehousekeepingquestion.Isitpossibletogetthe2015grossmarginrateandSG&Amarginrate,excludingVenezuela?
JohnStipancich (CFO):
Wedon'ttypicallycommunicatethat.ButI'llletNancyandyouguystrytotriangulatearoundwhatthatwouldbe.Butthewayyoushouldthinkaboutit--it'snotthatbigofadeal,withrespecttoitsimpactonoverallmargins.Itmaybeslightly--mayhurtusabitonoperatingmargin,butnotatgrossmargin.
SoIthinkitactuallymayhelpuswith(inaudible)gross,andhurtusinoperatingincomemargin,becausewedon'tspendatonofmoneyinA&Pthere.Butjustmodestly,notasmuchasyoumightthink.
RupeshParikh (Analyst-Oppenheimer):
Okay,great.Thankyou.
Operator :
Thisconcludesourquestion-and-answersession.IwillnowturnthecallbacktoMr.Polkforclosing
CompanyName:NewellRubbermaidIncCompanyTicker:NWLSector:ConsumerGoodsIndustry:ConsumerDurables
EventDescription:Q42015EarningsCallMarketCapasofEventDate:10.02BPriceasofEventDate:38.78
©2014TheStreet,Inc.Al l R ightsReserved Page27of27
remarks.
JohnStipancich (CFO):
Well,thankyouverymuch,Leanne.AndthankyoutoallonthecallforyourinterestinourCompany.Andmostimportantly,thankyoutoalltheNewellpeoplewhoworkedtirelesslytomaketheseresultshappen,andtoourfuturecolleaguesatJarden,whohaveworkedtirelesslyaswelloverthelastfewmonthswithourteamtopullthistransactiontogether.Ithinktogether,we'regoingtomakeagreatteam.
Thankyouverymuch.
Operator :
Areplayoftoday'scallwillbeavailablelatertodayonourwebsite,Newellrubbermaid.com.Thisconcludesourconference.
Allrightsreserved(c)2014TheStreet,Inc.
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