NEWELL RUBBERMAID INC. $39(New York symbol NWL; Aggressive Growth and Income Portfolios, Consumer sector; Shares outstanding: 269.0 million; Market cap: $10.5 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.9%; TSINetwork Rating: Average; www.newellrubbermaid.com) makes plastic storage bins, tools, window blinds, pens and many other household goods.
Newell is up 30.0% since we made it our Stock of the Year for 2014 at $30 in our February 2014 issue. That’s mainly because of its successful multi-year cost-cutting plan, which included closing plants and merging distribution centres.
Savings sent earnings soaring
Following the recession, Newell’s sales rose 9.6%, from $5.2 billion in 2010 to $5.7 billion in 2014. As it realized more restructuring savings, earnings jumped 27.8%, from $436.4 million in 2010 to $557.8 million in 2014. Per-share profits gained 31.6%, from $1.52 to $2.00, on fewer shares outstanding.
Newell is investing its improving earnings in acquisitions, particularly companies that can benefit from its manufacturing expertise and global distribution networks.
In 2014, the company spent $602.3 million on three deals: $312.9 million for Ignite Holdings (a maker of reusable water bottles and thermal mugs); $206.5 million for Baby Jogger Holdings (baby strollers and accessories); and $82.9 million for Bubba Brands (thermal mugs).
Newell’s restructuring also involves unloading less important businesses. To that end, it recently agreed to sell its Endicia subsidiary, which makes software for printing mailing labels and stamps. Endicia’s products also help its clients make their warehouses more efficient. Newell will receive $215 million when it completes the sale by the end of 2015.
In addition to acquisitions, the company is spending more to develop new products. Its research costs rose 4.5%, to $107.5 million (or 1.9% of sales) in 2014 from $102.9 million (or 1.8%) in 2013.
Writedown risk is low
Newell’s sound balance will let it keep expanding. Its long-term debt of $2.1 billion (as of December 31, 2014) is a moderate 20% of its market cap. It also holds cash of $199.4 million, or $0.74 a share.
Recent acquisitions have increased the company’s goodwill to $2.5 billion, or a high 24% of its market cap. However, it mainly buys small, easy-to-integrate firms, which cuts the risk of a big writedown.
Newell gets 30% of its sales from outside of the U.S., so the high U.S. dollar could slow its growth. But even so, its new businesses should increase its earnings to $2.14 a share in 2015. The stock trades at a reasonable 18.2 times that forecast.
Higher dividends ahead
The company’s earnings should also benefit as it streamlines its manufacturing and distribution operations, cutting $470 million to $525 million from its yearly costs by the end of 2017. That will give it more room to increase its $0.68-a-share dividend, which yields 1.9%.
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