諾威品牌 (NWL) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid's second quarter earnings release conference call. At this time, all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions. Today's program is also available live via audio webcast, at www.newellrubbermaid.com, and a digital replay one hour following the call at 800-642-1687 for domestic participants, and area code 706-645-9291 for international participants. Please provide the conference ID number 1425502 to access the replay. I will now turn the call over to Mr. David Hoden, Vice President of Investor Relations. Mr. Hoden, you may begin.

Thank you. Good morning, and welcome to the Newell Rubbermaid second quarter conference call. This morning, I'm joined by Joe Galli, our CEO and Pat Robinson, our CFO. Before we begin the call, I'd like to read our forward-looking statement reminder. The statements made in this conference call that are not of a historical nature are forward-looking statements. Forward-looking statements are not therapeutic, since there are apparent difficulties in predicting future results, and the actual results could differ materially from those expressed or implied in our forward-looking statements. For a list of major factors that could cause actual results to differ materially from those projected, please refer to our 2003 first quarter 10Q, including exhibit 99.1. Additional financial information about the company's 2003 second quarter and six-month results are available at our website at www.newellrubbermaid.com under the Investor Relations section. With that said, I would like to turn the call over to our CEO, Joe Galli.

Thank you, David. And good morning everyone. Let me start off with an overview of our second quarter results. We did deliver 42 cents a share, which is in line with [INAUDIBLE] for Q2. That result reflects strong results, strong performance from two of our groups, Sharpie and Irwin groups, which I will discuss more thoroughly in a moment. That also reflects softness in our Cephalon group and parts of our government group, which I will touch on here in a moment.

Our redeeming [INAUDIBLE] performance in Q2 improved from Q1 about 1.1 points. We were up 3/10 of a point in second quarter in organic growth. That was bolstered by a 3.3 improvement in currency, largely Europe, due to Euro. Negatively affected by 2.9 percent reduction in sales, due to a high risk retailer, where we are exiting our relationship. Also, we saw pricing erosion of 2.1 percent in the quarter, which netted out to a negative .3.

In current precash flow, we had estimated in the quarter of a negative [INAUDIBLE], we actually consumed 51.8m precash low, so it was $44 million miss. That was largely inventoried, some of which related to inventory build up and poor performing parts of the company, and some of that was a function of [INAUDIBLE] inventory because of our reconstruction program so we wouldn't have interruption in service [INAUDIBLE]. As you recall, our precash flow is after dividends or pay down, but we did unfortunately miss that number by 44 million. We have decided to revise our guidance for the balance of the year.

We believe that it is prudent now, based on the macroeconomic environment, based on a very small percentage of our company that's performing below expectations; fortunately, a very large of our company is performing well ahead of expectations and we will get to that. But our guidance in the past was $1.77 to $1.87 a share. The new guidance is $1.60 to $1.68, that reflects a range of between 1 to 6 percent growth from last year's EPS performance of $1.58.

We are disappointed that we are more conservative in our guidance for the balance of the year. We are still ahead of last year. But we think that it is appropriate for us at this point to tune our guidance, based on, again, the environment that we are competing in in the marketplace. We also adjusted our sales in organic growth guidance. Our new guidance is zero to two percent growth for the year, in which we are up slightly in Q2. We think that managed move makes sense.

Our cash flow guidance is now 2 to 250, precash flow; and again, that's after dividends, and yes, we do believe that we will deliver cash flow between 2 and 250 coming off of two record years of precash flow. That will would still be good progress this year given all the moving parts in the [INAUDIBLE] of the company. Let me reconcile the guidance change for you, just looking at P&L, to help you see how we have arrived at this new guidance. First of all, when we conducted our operator reviews last week looked at all the business issues of the company. What we see is sales shortfall in the back half.

Somewhere between 125 and $175 million, that which resulted in a margin shortfall based on sales decline of between 30 and 50 million, that is a function of macroeconomics sluggishness into our retail [INAUDIBLE] inventory down, in many cases, in some of our business units we don't yet have the brand or the new products to offset the economic -- overall economic weakness.

In businesses where we have those new products in place where the brands are strong, we see outstanding results. We will get to that in a moment. So I think 30 to 50 on sales line. Our gross margin originally, fell this year. Our gross margin improved by 100 basis points, we now believe it will be up 20 basis points this year, that's an 80 basis point reduction, that is an 80 basis point reduction, reflected in this guidance. That [INAUDIBLE] is $60 million in terms of gross margin.

Half of that is a shortfall and pricing in mix, this is largely in the OPP zone of the company. We will talk about those business units that have those issues of presales pricing and mix. The other half, roughly, of the 60 million gross margin, is a shortfall in productivity that we had planned on receiving in our organized group and [INAUDIBLE] group. At the same time, we have reduced SG&A by $30 million for the year, the basis factor for this new level of guidance.

While we have cut SG&A, we have everything that we think makes sense, we have been very, very thoughtful here about not interfering with the deployment of our long-term strategy. In fact, we feel strongly that our strategy, that it is very much on track with the long term. What we are doing this year to optimize profitability based on economic environment will not interfere with this company's deployment of long-term strategy. Things like new product, things like our operational excellence, our restructuring program, initiative and our brand building marketing.

Let me share with you five key take aways that I think will be helpful at this juncture. I also would like to share what we have learned here over the last quarter, or over the last six months. First take away is that a high percentage of this company's businesses are performing well. We feel very fortunate that we have a portfolio here that is filled with strong performing businesses that have high potential and that are doing well in this tough economic environment.

But a small percentage of our businesses are performing below expectations this year. We are disappointed with that. I can assure you we are taking -- we will take whatever action is necessary to solve those issues and fix those businesses. If we have learned anything, we have learned that the basic strategy of the company, of building businesses that have strong brands with the consumer, new product load, that basic formula is very much appropriate in good times and bad.

We have also learned [INAUDIBLE] to not overfocus on price points, even in tough economic environment. Fortunately, if you look at our product pipeline, our pipeline is filled with trade out product that have higher margins and we believe will be a commercial success. But we believe in the performing business units of the company. we have overemphasized OPP. We need to adjust that, and we will.

If you take a look at the businesses performing well versus the ones below expectations, which again is the majority of the company, and on the left side of the ledger, the performing well side. For example, the entire Irwin group had a strong quarter, a strong half, and is shaping up to have a strong year. If you remember a few years ago, the Irwin group, led by Jim Roberts, was filled with a lot of fix-it businesses like Levolor , like the windows business in Europe.

Encouragingly, Jim has turned that business around. They are in the midst of turning in an outstanding year. There is also the [INAUDIBLE] acquisition before that. I think the Irwin group is a great example of what we are capable of throughout the company. Additionally, the Sharpie group, led by Bob Parker, is also in the midst of an excellent year. They had a great quarter, back to school was excellent.

And Sharpie is shaping up to have, even in this tough economic environment, a very good year throughout the group. So, two of the groups are very much on track in delivering expectations across the board. In the Rubbermaid group, led by David Klatt, we do have businesses that are performing nicely and as planned and are in the midst of a turnaround;, for example, the Graco business is very much on track to deliver a turnaround, and has [INAUDIBLE]the future of our company, having a very solid year.

Also the Little Tikes business is turning around nicely and delivering expectations. In the Rubbermaid group on the other side, Rubbermaid home products business really is segmented into two large pockets. The opening price point of Rubbermaid home products is performing below expectations in terms of margin and pricing, and call it the ledger, you know, the major part of Rubbermaid home products business, which is--where we have, the future, that part of the business is going very well, led my things like Take Along and other new products that you will see launch in the back half.

But to be clear at Rubbermaid home products, we are disappointed with our financial results. The OPP zone of that business, we held our market share well, but we need to see the productivity gains and we need to do a better job managing mix and pricing in that part of our company. We will do that.

We also, in the Rubbermaid European arena, are still below expectations, making progress, but not where we hoped to be at this stage of the game. Our Rubbermaid commercial business is highly profitable, but not growing at the rate that we targeted this year. And there what we need are our product programs to kick in, we need to strengthen our sales management process, both things we can do.

If you turn to our Calphalon group, the strength here is the Calphalon brand, which was up 22 percent in the quarter, spectacular quarter. Pyrex in Europe also did very well, but the Calphalon group led by Jeff Cooley, our frames business had a very disappointing quarter first half and will not do well this year, in terms of sales line and market performance. Our glass business is a disappointment here, this is the business, you remember, we had sold, unfortunately we weren't able to exit that business two-years ago. It has disappointed us this year.

Our low-end cookware business is also running below the rate we expected. If you look at again, the basic formula of the company, branded products, new products with high margins, we feel very strongly that this strategy will work long-term. The Calphalon brand is up 22 percent this quarter with excellent margin. The Sharpie business is up 19 percent in the quarter with excellent margins, Sharpie is a 30-year old brand, something we are capable of. In the Irwin group, our hand-held business was up 11.5 percent in the quarter, and we are just getting started here. Our [INAUDIBLE] business up 9 percent in the quarter, Our [INAUDIBLE] business, a newly acquired company, up 6 percent in the quarter. When we get our formula right we know we can grow, no matter what the economy does.

Our second key take away is that we are, as I mentioned earlier, we are not compromising our long-term strategy based on the slower economic environment and the need to fix the 10 to 15 percent of our company that is underperforming today. We are still investing heavily in new product development. You will see that in [INAUDIBLE] at our analyst day in October, our whole array of new products that had high margins and that we're very excited about for 2004 and beyond.

We also continue to invest in our [INAUDIBLE], it's something that would be easy for us to scale back on, but we believe strongly that this is an important part of our future. We continue to invest in brand building efforts for those power brands that have so much potential in the company. So, is there an awful lot of this SG&A that we could cut? I think if we had a shorter term perspective, yes, we could. Yes, we could cut way back on these investments, but we are not compromising this company's long-term potential.

We will continue to make these investments this year. While we are disappointed we had to reduce guidance in the short-term, we are very encouraged by our long-term prospects in 2004 and beyond. Our third key take away is in productivity. You should know that we are working very hard in this company on ruling out a new operational excellence productivity program throughout the groups. Encouragingly, two of the groups were actually ahead of what our model set this year; and disappointingly, two of the groups were behind.

In both the Irwin and Sharpie groups, we delivered over 4 percent productivity in the first half. In fact, the Irwin group had 4.8 percent productivity, raw material, inflation, and all the restructuring, that incurred a 4.8 percent productivity. Excellent. And Sharpie group had 4.1 percent productivity, also excellent. Our Calphalon group is below our corporate target. This year, our model assumed a 4 percent productivity performance, internal part of 5 percent. Our corporate model assumed 4. Productivity for the year reference is $50 million of margin. Calphalon contributed 2.5 for the first half, which is disappointing.

The Irwin group came in with a net productivity of a negative1.5 percent, so the cost actually inflated by 1.5 points. They did achieve gross productivity of 2.5 percent before revenues, but the fact is, revenue's reality -- and revenues -- basically performing in the way we thought when we did our model, so our issue in our Rubbermaid group, and David Klatt all over this, is that we do need to infuse the same productivity that we are doing in Irwin and Sharpie. We, in fact, are about to hire a leader for that process for the Rubbermaid group. We understand what needs to be done. But this is a disappointment for the year, and the reason why our guidance came down.

If you look at the future, we have launched new operational excellence, Jim Roberts has led this record-size the company, we just trained 44 of the top op leaders in the company, we've benchmarked in putting an operational excellence product together. We've benchmarked [INAUDIBLE], [INAUDIBLE], Dell, and Colby-Palmolive, and we are in the very early stages of this, and as you know, we are doing an awful lot of restructuring throughout the company, and restructuring tends to consume a lot of time in our ops team, and takes the issue away from focusing on basic productivity. But we are rapidly reaching the point where restructuring is [INAUDIBLE], and we feel we can focus more on productivity. The fourth key take away I would like to share with you in a very [INAUDIBLE] is that

we do have a nucleus of fixed and evaluate businesses, some of which are on track to be turned around and deliver, and achieve a very high financial market. In fact, in some of these businesses, we have made progress based on our current managerial approach in fixing these businesses. I will give you a brief update.

In terms of the great progress side of this equation, if you go back a few years ago when we announced our decision to evaluate a turn around program for the businesses around here that were underperforming in the company, what you see is we have actually made great progress, on target progress, in the European window business, which is tracking on budget, in our U.S. Levolor Kirsch business, which has made some trusting calls in exiting low-margin businesses, but they are attracting to budget this year for the first time in many years. Our Graco business is turning around nicely. The Little Tykes business is improving nicely, and our higher end European business is showing good metrics in turning around.

If you look at the low expectations what you see here of course is frame business, which is disappointing worldwide, and needs to be addressed and will be; our glass business in the U.S. is disappointing--low end cookware business is well below expectations and the Rubbermaid European business is still performing at a rate below expectations, though improving from last year. But we still have work to do here. If you look at Rubbermaid home products, you really have, again, two stories here; you have the new product value added as part of that equation, which is delivering nicely.

And the OPP zone, where because of a blend of productivity, residents and pricing mix, conceptions of all markets here we have seen our margins coming below the level that we targeted. We are prepared every one to do whatever is necessary to fix our businesses that are poor performers. Fortunately, it's a small percentage of the company -- but to be clear, we will take whatever steps are necessary to resolve these issues and get our poor performing businesses to a point where they deliver -- where we will exit parts of the company, product lines, that we don't think have potential to achieve our very high financial standards.

We sold nine businesses so far, having sold two small businesses in the last quarter. And we will continue to either exit, divest or restructure in an aggressive way, businesses that are below the standards that we require so that this company achieves its full potential financially. I should also emphasize that this guidance adjustment this year does not interfere with our long-term three year plan, in terms of becoming a double-digit earnings grower on a very consistent bases. We are very positive we will achieve that long term, but this year we have adjusted our guidance based on what we have experienced here.

The 5th comment I'll make is in the restructuring, a new cut -- a low margin exit part of the equation here. We have made a lot of progress in restructuring, we've made a lot of progress in moving out of businesses for product lines that don't make sense, and we have more to do. We are in a heavy lifting phase. I am proud of our team for the amount of effort and the progress that we have made because there has been good progress throughout the company. We still need to continue in this progress and finish up the job that we start. To give you some perspective. Between January 1 this year and the end of the second quarter,

We actually have discontinued 54,000 SKUs throughout the company or 21 percent of what we started with. So we walked off 54,000 SKU's starting at 256,000, and that is a breath-taking SKU reduction and reflects a lot of managerial rigor and discipline. All four groups out there are very active in pruning their [INAUDIBLE] that don't make sense. Yes, we still have a lot more SKU reduction to go in the back half of this year. When you are cutting SKUs, as you know, there is a lot of activity around selling off those SKU's, and we carried the inventory longer than we'd like, and there is a short-term cost associated with that reduction, and that is why a lot of managers don't do it.

It affects short-term results, but is absolutely the right thing to do in terms of long term, in terms of productivity, business implementation, and for a variety of other reasons. and so we are adamant that we will continue our reduction effort, and you'll see that unfold over the next six months. Finally, in terms of restructuring the manufacturing facility and distribution center. We are adapting previously announced restructuring program from the 350 level to a revised range of 460 to 480. To give you a perspective, a third of that reduction is a function of currency rated through the reality of the Euro of when we first put the program together.

Second part of that is the American tool business, a business we acquired 16 months ago, where we've uncovered more [INAUDIBLE] projects that weren't part of the acquisition restructure. That business is very well managed. We are confident this is a good investment. We do have additional projects that are very high ROE projects that we want to pursue, all of which puts us in the range of 460 to 480.

Our target here is to wrap up the deployment of these projects by the end of the second quarter of 2004. To give you a perspective, we have exited 69 facilities over the last two years. We have done a lot of heavy lifting. There is short-term nonrecurring costs associated with it. In general, I think our team is handling the reconstruction well, although I do believe that some of our poor performing businesses have absorbed some short-term costs associated to restructuring and that have led to our revision of guidance.

So ladies and gentlemen, just to wrap my part up, I can tell you that we are very confident that we are doing the right thing to the company, while in turn, we are trying to build a company that will have not a good year but a good decade. I think our strong performing businesses demonstrate that the company's formula for success could be very successful, even in a tough economic environment. Pat Robinson will now share with you a few more details about our specific financial results. Patrick?

Thanks, Bill, I will start with our second quarter P&L results with a continuing earnings basis. Net sales for the quarter were $2 billion up $84 million or 4.3 percent to last year. Internal sales increased by 0.3 percent from last year, which consisted of the following: Favorable currency translation was 62 million, or 3.3 percent. The exit of high risk accounts was negative 55 million, or 2.9 percent. Unfavorable pricing in the quarter was 39 million or 2.1 percent. And our core sales growth was 38 million or plus 2 percent.

First margins of the quarter were 552 million or 27.9 percent of net sales, up 42 basis points to the last year. This improvement reflects the 2003 Lennox acquisition and our continued focus on productivity, which generated a net improvement of 25 million in the quarter, more than offsetting $28 million cost in revenue for the quarter. These improvements are partially offset by 2.1 negative pricing. SG&A continued on plan at $352 million, 17.7 percent of sales, up 22 million from a year ago.

The acquisition of Lennox and the American Tool company added an additional 22 million, SG&A in the current year. Our streamlining initiatives of 35 million offset our continued investment in strategic growth initiatives. Our operating income $201 million or 10.2 percent of sales up 9 million or 5 percent to last year.

Now turn to our segment information for the quarter. Rubbermaid group saw net sales of $751 million, up $13 million or 1.8 percent to last year. High single digit increases at Little Tykes, and a double digit increase at our Rubbermaid Euro group, which was primarily currency driven, were partially offset by mid single digit decline in our Graco business.

Operating income from the group was 40 million or 5.3 percent of sales compared to 52 million or 7 percent of sales last year. The decrease in operating income was primarily the result of higher raw material costs and pricing pressure on opening price point items. The Sharpie group had net sales of 485 million, up 33 million or 7.4 percent over last year, excluding $12 million in 2002 sales of our divested [INAUDIBLE] business.

The increase in sales was primarily as a result of high single digit increases in North America, and Europe in our [INAUDIBLE] business, driven by strong back to school selling. Operating income for the group was $108 million or 22.2 percent of sales compared to 96 million and 21.2 percent of sales in the prior year. Operating income was positively impacted by poor sales growth, productivity, and favorable mix management, partially offset by investments in marketing.

The Irwin group had sales of $521, million up 73 million or 16 percent to last year, while internal sales were down approximately 3 percent in the quarter. Excluding the double digit decline in our Levolor Kirsch business, resulting from the planned exit of low margin product lines, internal sales increased about 5 percent. Operating income from the group was 56 million or 10.7 percent of sales compared to 41 million or 9.2 percent of sales last year. The improvement in operating income was driven by productivity, new products, the Lennox acquisition, and was partially offset by planned product line exits at Levolor Kirsch and incremental investments in marketing.

Calphalon group saw net sales of $219 million, down 26 million or 10.7 percent the last year. This decrease was primarily the result of a double digit decline in our U.S. picture frame business.

Operating income for the group was 2 million or .7 percent of sales compared to 9 million or 3.6 percent last year. The decrease in operating income is due to the decline in U.S. picture frame business, unfavorable product mix, and unfavorable pricing pressure on opening price point segment of the market. Switching to cash flow, free cash flow for the quarter was negative 52 million compared to positive $55 million last year. Major drivers for the decrease were capital expenditures, which increased by about 30 million over the prior year, which reflects our investment in new product and productivity.

The after tax cash restructuring costs increased by about 16 million over the last year, as we continue to aggressively execute our global restructuring plan. Inventories used an additional 16 million in the quarter. The increased inventory levels were the result of increased safety stock related to our restructuring programs and new product launches in third quarter, and lower than expected sales in the second quarter. The change in accrued liabilities accounted for 75 million decrease in cash. The major components of this are lower compensation and [INAUDIBLE] accruals, timing of interest payments, timing of tax payments, all which account for about a third of that decrease.

Partially offsetting the decreases are improvements in other working capital areas, AR and AT primarily, and the increase in continuing earnings for the quarter. Year to date results showed net sales of 3.7 billion, up $229 million or 6.3 percent last year; internal sales declined by .2 percent last year, consisting of the following: Favorable currency translation of $109 million or 3.1 percent; the exit of high risk accounts, negative 98 million or 2.8 percent. Unfavorable pricing of 66 million or 1.9 percent, and poor sales growth of 48 million or 1.4 percent.

Gross margin in the first half was 1 billion or 27.5 percent of net sales, up 34 basis points the last year. This improvement reflects our focus on productivity, which generated net improvement of $49 million year to date, offsetting 45 million of revenue cost increases. These improvements were partially offset by a 1.9 percent decline in pricing year to date. SG&A was $674 million or 18.1 percent of sales up, 48 million or 23 basis points from the last year. The acquisition of Lennox and the American Tool company added an additional 62 million SG&A for the year.

Our streamline initiatives of 65 million more than offset our investment in our growth initiatives. Operating income year to date was $346 million or 9.3 percent of sales, up 25 million or 8 percent to last year. Cash flow year to date basis was the use of $162 million versus positive 85 million last year. The components of this decrease are the same this quarter too, namely capital expenditures, which are up 87 million. 50 million related to new product, and the remainder related to productivity. After tax restructuring cost are up 22 million. The change in inventory was a negative 54 million, and the change of accrued liabilities is 183 million year to date.

As Joe mentioned, we are revising our full year precash flow estimate to a range of 200 to 250 million. Turning to restructuring in the second quarter, we recorded a charge of 58 million, consistent with the guidance we provided in our last call, bringing our year to date charge to approximately 118 million. Approximately half of the charge relates to employee severance, and half to facility and other exit costs. To date, we have exited 69 facilities, and have reduced headcount by approximately 8400 employees.

For the full year, the company now expects to incur between 190 and 210 million of restructuring charges, and 30 to 50 million of this charge is expected to be recorded in the third quarter. As Joe mentioned, we are revising our total cost restructuring cost estimate to a range of 460 to 480. 1/3 of the increase is related to currency translation impact of European projects, another third relates to the projects in our American Tool business. The final third is for new high return projects in our existing businesses. We still expect to complete the accounting charges for this program in Quarter 2, 2004. I will now turn it back to Joe for some summary comments.

Thanks, Pat. I want to summarize before I take questions, and share with everyone. We have learned an awful lot here over the last two-years, certainly over the last quarter. We have made some mistakes, but I feel like we have excellent visibility where we have made a mistake, and we have planned corrective action in place, in most cases we already have.

I want to acknowledge that Pat Robinson and his team have done an exceptional job of installing a financial control system in the company that will put it in a position as we go forward, where we will have outstanding visibility, short and long term. In fact, we successfully rolled out Hyperion, which is a leading software package for financial control. Our operating reviews, our rollups, investments are improving every quarter as we go along. But to be clear, we had some room for improvement when we started, and we're not perfect yet, although, again, Pat's done a nice job here. We have [INAUDIBLE], and we are only going to get better as we go forward. With all that, David, I'd like to open it up for questions.

Thank you, we will now begin the question and answer session. If you have a question, you will need to press 1 and star on your touchtone phone. If your question has been answered and you wish to be removed from the queue, please press the pound sign. Your questions will be queued in the order they are received. If you are using a speakerphone, please pick up the hand set before pressing the numbers. If we are unable to get to your question during the conference call, please contact Newell Rubbermaid Investor Relations at 815-381-8150 after the conclusion of the conference call. Once again, if there are any questions, please press star and then the number 1 on your touchtone phone. Your first question comes from Wendy Nicholson of Smith Barney.

Hi, good morning.

Hi, Wendy.

A couple of questions. First of all, it looks like obviously, you are lowering dramatically your guidance on the sales and earnings front in the second half. Sequentially, things are kind of falling apart. But you are looking for an incredible turn around in free cash flow in the back half, over the next six months you have to do like $300 million plus or positive free cash to get to your full year number. Am I missing something? What is the disconnect there?

Wendy, first of all, maybe give us a little credibility. We did generate record cash flow over the last two years, up from historic levels of the company, which were less than $100 million. So we do have good discipline placed on precash flow in general. I will let Patrick reconcile the rest.

Sure, Wendy, the continuing earnings before G&A in the back half would generate between 400 and 425 million of cash flow.

We will be reducing our inventory from the back half between $175 to $200 million. Our other working capital will generate between $75 and $100 million in the back half, primarily in the accrued liability area where we accrue customer relates as we go through the year, as well as any compensations or accruals at year end. In the use side, we have capital expenditures of 120 to 140 million, scheduled for the back half. A dividend payment of $115 million. And restructuring cash between 40 and 60 million in the back half. So use of cash, 275 to 315.

Now, if you take the midpoint of all of those numbers I gave you, the generation of 385 million in the back half. I think our biggest task ahead of us is to take the inventory out of the system that is reflected in our back half guidance for the P&L. as we take that reduction out of the plans, but I believe it is a number we can achieve in the last six months.

And Wendy, there is a seasonality to the cash flow that is historic that will benefit us as well.

Is there any risk of the dividend being cut?

No.

Okay. Then on the inventory subject, which businesses do you think you can bring the inventory out of the fastest, in other words, over the next three or six months. Where is the inventory going to come from?

Across all of our businesses, frankly, we are high. All four groups. But the largest decreases are coming in our Calphalon group, and in our Sharpie group.

I thought the inventory had been built up to not only support new product launches but also to deal with the transition from your old plant to new plant, or plant, rationalization program. You know, that is clearly a huge lengthy program. What gives you confidence that you can take all of that inventory out that quickly without mixing up service levels?

First of all, Wendy, if you go back the last two years, since we started the turn around of the company we did demonstrate good discipline and over all reduction in inventory. We know how to do it in this environment. I think we are managing it better than we were two-years ago. Secondly, we have closed 69 facilities, the inventory was in place. We have good visibility on inventory reduction plan throughout the business between now and the end of the year. The least visible part is, as you know, what will happen in terms of sales or retail. We can't-- we think we have been conservative here, so we will deliver on this commitment.

Okay. Then the very last question. With the back half now showing -- you know, best case flat, more likely, negative earnings growth, I mean, does that set us up for--I mean, I guess I am beginning to look into 04 here. You are now going to be facing, I guess, fairly difficult comparisons to the first half, do you think earnings growth remains negative as we go into the first part of the year?

No, Wendy, actually, I don't believe we are going to face difficult comps in the first half of the next year. As you recall, I do think this is an important turn around direction here for the company. We are exiting major retail, that is done, as we move into October. That will help our comp in the first half.

Secondly, the new product pipeline, which you will see much more specific example of, on the analyst day, that will significantly strengthen our top-line performance in the first half. We are assuming the economy won't get worse. Now we are not betting on any improvement, but everyone in the company would suggest it will not get more difficult than it is now. I frankly believe in talking to our top retailers, I frankly talked to just about all of them the last quarter. I frankly believe that their inventory reduction program will be behind them as we move out of this year and into 2004. We are very confident about 2004 earnings growth. We [INAUDIBLE] top line, we're not issuing guidance today, but we will talk about specifics at the analyst's day

Thanks you.

The next question comes from Bud Bugatch with Raymond James.

Hi, Bud.

Can you talk a little bit about what you see for pricing compressions going forward, price points, 60 basis points higher than you were projecting in Q2. What do you think about Q3 and Q4?

In our model, price erosion, we saw more erosion in the second quarter.

Mainly because of OPP, market share issues, we are holding market share, we gave up more pricing in the model. There were some divisions where we were over zealous. We need to manage that, but more carefully, but throughout the company, we have very good pricing controls. As we go forward, I don't see any reason to back off from 1.5. One reason is that we will downsize our risk with these OPP partner companies. There are a lot of ways that we are going to do that.

We also have a growing percentage of our revenue that will come from the product. None of which will give up price. The strongest pricing position you ever have, of course, is when a product is new. It is a percentage of revenue that comes from product growth that will automatically wind that number down. So I agree that 1.5 is the right number to use in our model. I believe that where we have made mistakes, which is in a very small percentage of the company in terms of pricing controls, we have corrected those. Therefore, I think 1.5 is the number you should continue to use.

Third and fourth quarter? I think you are saying in the model going forward, actually 1.5 percent, but in the remainder of the year we expect it to be in the 2 percent type of range.

When you look at the restructuring plan, we are 69 facilities have been closed. How many left to be closed, 31 or so? Well, you know, we still think it's inappropriate to give you the specific number of how many facilities we will close. We have exited 69 facilities worldwide.

We will continue to actively wrap up that phase of the restructuring of the company in the next 12 months. I think rationally that is the right kind of number, but we don't want to talk specifically about how many facilities.

Well what I am really trying to get to is when do we begin to see the restructuring take hold into the bottom-bottom line or gross margin?

Okay, a good question, Bud. You know, if you look at the four groups, Irwin is seeing it now, they've done a significant amount of restructuring, and the benefits are starting to improve our SG&L. We've also done a significant restructuring in Sharpie. and those benefits are [INAUDIBLE]. Remember, we just say [INAUDIBLE] from Gillette less that three years ago, and that's been simulated in restructuring. Those benefits have run through.

I think in the balance of the company, you know, there is a little bit of lag time, after you close a factory, until you reap the restructuring because of redundancy [INAUDIBLE]. As you peel back the onion, we are seeing the results of restructuring, when it has been successfully implemented. We are very confident with that visibility on restructuring savings flow going forward.

Can you quantify that any way, Joe, what is the delta in the gross margin percentage for Irwin or Sharpie over the last year, what is that growth?

I don't have it that way by group. We can give you that number after the call. I will tell you taking the high end of our range of 480 million over the higher restructuring plan, about 50 percent of that is cash, 50 percent noncash. The pay back from the cash portion on average -- and some of this varies between 1 and 3 years -- but the average is about two-year pay backs. 120 million a year in cash pay back.

Noncash write off of that is about 240. We will see, of course, the benefit of that in our depreciation and amortization going forward. We need an average of like eight years, under that set that would be about $30 million a year. So the full P&L benefit at the completion of the project would be about $150 million a year.

Okay. That is very helpful on that. The only other question I have is some of the new products, can you give us any read on what successes you had, what disciplines you have had, in some of your new products so far this year?

Well, in this environment, Calphalon, for example, has been a tremendous success. The Sharpie business is up 19 on new products throughout that brand. That will continue. The Rubbermaid launch, which was just rolled out last week is off to an excellent start. The high margin line of tools targeting the casual DI wire for the home end department.

The brand in this case is a perfect fit and the design of the product are going over very well at the consumer level. We will highlight the product, you will see a very broad array of products about to be launched in Q4 of next year.

Thank you very much.

Your next question comes from Connie Manisi with Prudential.

Good morning.

Hi, Connie.

Let's see, I have a bunch of questions here. How much time are you going to give the opening price point businesses to either turn themselves around or make a decision on what to do with them?

Connie, not a lot of time. Look, we, as you know, we can't disclose divestiture plans specifically because that is destructive. I can tell you we are taking the actions necessary to get this company in a position where we deliver our financial commitments. In the OPP zone, we have a lot of alternatives. We will significantly change the business models there, exit or remix those businesses.

We know how to do that. In some cases we have been disappointed by the results that those businesses have demonstrated. But we are making it clear that we are very commitedly acting on that right now. So this is not a two or three-year, let's see how it works out kind of direction. That is not appropriate for the OPP zone in the company where we have had disappointment.

You know, as I look at the picture frame business, it is like 4 sticks and a piece of glass. That will never change. You make them in pretty low-cost locations like Mexico, right?

For the most part, China and Mexico. We still do a little bit of work in the U.S. there.

So what is wrong with that business if you are making it in low-cost locations already?

Well, first of all, the percentage that we bring out of China, relative to Japan, is lower. But secondly, the brand, in that business beyond the burns brand in that business, Connie, as you know--we don't have a brand that sustains any kind of a premium price.

I don't think anybody in the industry has a brand.

With the exception of [INAUDIBLE], which is a small percentage there, I agree with you; therefore, therefore, we have to evaluate this and come up with the right path to optimize that business as a result so it is not a drain on the company. That does generate profit, not losing money, generates cash. But we will fix that business. We are not concerned about how large this business is, we are only concerned about the quality of the earnings and strength of the business. We do have a new president.

She is outstanding. She has experience in that category, Connie, and I think you will see that we are going to make a hard decision to get the business on the right track. In fact for the first time, last quarter, business cut a significant swat of SKU's out of the product range. For years that business has had way too many SKUs. That is up. That is an indication of an overall strategy to get that business, Connie, on the right track.

This whole thing with opening price point pressure has been around for the better part of the decade. How do you know that once you fix this round of it, it won't creep up again?

For me, opening price points have been around for me for two decades. The issue is how to manage it, and to manage OPP, you still need a brand to command some kind of premium. There is no brand with any equity.

That is combined with a lack of rehabilitation on the manufacturing side and product side, then I think you are destined to mediocrity or worse in financial results, so you have to either innovate to get a low cost position, or develop a product alternative that reconfigures the market. We have a brand like Sharpie that commands -- even on a relatively low price based product -- commands a nice premium.

If you can't do those things in that business, then we are probably not in the right place for those businesses and so we will exit. It is really black and white. I can tell you we will not be talking about this issue long term. We have to fix this. We are disappointed with what has come through here for the year's estimate. But we do, Connie, feel confident that we know how to deal with it.

I guess if I could ask one final question, why did things get much worse in this quarter? You talked about maintaining share in Rubbermaid products?

But did you loose share in other accounts and other product line. Did you lose share in other accounts and other products lines?

Connie, for the quarter and for the year, we've lost share in picture frames because pricing levels have dropped faster than our model, and we lost share in some cases intentionally, and in some cases, we didn't know.

We have a new president and a different rigor now, but in that business, we have lost some share. Beyond frames, the issue is not a share loss. The issue is that we followed price points down to a point we can compress our margin below the model we have for the year.

In a few businesses, just a few, but in a few, pricing compression occurred in the second quarter. We didn't have visibility on that in the first quarter. That's why we are lowering the guidance down. But for the vast majority of the company, of course, things are on track even though it is a tough economic environment.

Okay, many thanks.

Thank you, Connie.

Your next question comes from Carol Wilke with Merrill Lynch.

Thanks, a couple of questions. I was curious, but I don't think I heard the dialogue. What were your sales up at your eight strategic retailers in the quarter.

About 12 percent, Carol.

This is sort of a bigger picture question. We heard a lot of talk this call about the economy, the economy, the economy, the economy. I mean, is your business that subject to economic fluctuations, and it would seem versus a year ago, the economy has actually been getting better. I guess I am surprised at how much I am hearing sort of blamed on economic weakness in these categories.

That really sort of repositions your whole business, I would think, in terms of who you use as peer companies, etc. I know that is a bigger picture question. I mean, is there really such an economic impact? Did you loose distribution somewhere?

That is a very good question, Carol. The fact is that when we have strong brands, new products, the economy is irrelevant. We grow nicely, as in Sharpie, Calphalon, if you look at the parts of the company where we have branding, new products, and [INAUDIBLE], there is no issue with the economy.

However, when you have a business -- we talked about the low-end picture frame, and without a compelling new product, in those cases, what we see is inventory correction or price compression that we can't stop because we don't have a brand that consumers insist on. For us, this validates our strategy, confirms to us that we are exactly on the right track, transforming Newell Rubbermaid into a company that is a consumer brand products company. This gives us great confident that the path we are going is right.

To be clear, there are part of the company, very small percentage unfortunately, but there are parts that probably won't make that transition. We have sold nine businesses. We are not interested in maintaining all the businesses we had the last decade. We are interested in a very high quality portfolio of business, Carol, that are branded new product intensive that we will have growing gross margin and sustain their positions in good times and bad.

The only thing I consider new is that the inventory correction in retail, the economic environment. I hate, believe me, I hate even mentioning the economic environment, although we are pretty close to it. I can tell you when you don't have the strong brand, you are subject to having margin compression or losing some business. So hopefully, that answers your question.

It does. I have one more question on sales, a sort of multi-part one. It is interesting, I think in response to Connie's question, talking about, you know, the new products that we are going to see at the analyst meeting this fall. Last year we saw a lot of new products. Each quarter this year we are going to hearing about how they will kick in the second half. Now I hear, wait until next fall or next year. Did we ever see an impact from those, will we? What happened to that?

Carol, you know, look, I feel badly that our sales results are down this year, but I do want to emphasize that we are exiting a number of low-margin parts of the company; that does reduce organic sales growth. For example, the Levolor brand is down 11 percent this year, that is by design because we walked away from the low margin parts of that particular business unit. That happened to be a business unit that was a fixer upper two-years that's actually delivering budget this year, much that is performance. That is what happens when you clean up business and exit the wrong parts of it.

As I mentioned in the call, we have have cut 54,000 SKUs out of the company in the first half of this year alone. That is a significant SKU reduction. It takes discipline to do that, and it does put pressure short-term on profit and top line profit performance. But it is the right thing to do. We have been deferring it forever.

We need to clean up the company and exit these parts of the company that don't deliver the financial results. On the flip side, if you do look at the new product highlights -- I won't go through all of then. But we have seen nice traction in products that we want, in all of our groups. We will continue to see that next year.

But to be clear, if Sharpie does 19, but we are discontinuing low end of glass, the offset is we are netting out where sales are only up .3 of a point.

So next year, when you are through, a lot of the -- you will actually see it benefit the top line as opposed to being all offset by getting out of some of these other businesses?

Yes, let me make a few more points, okay, there are, in several divisions, we had some new product, I will call it disappointments, where we marked product before it was ready. We tried to rush it to market.

We didn't have the right managerial rigor in place. Those new products are impact, we had to go in an readjust the new product line. That is disappointing. We learned a lot from it. Fortunately, that's only a couple of parts of the company.

What were those?

Well, in our revenues business, for example, we launched a product called Pendulum. It was not fully thought through when we brought it to market, we launched it. The product quality wasn't the standard we expect. So we brought it back. It was a relatively small launch. Initially, when it was conceived, we had high hopes.

That business, the Sharpie business, still delivers numbers, which is good news, but we would have done a better job, Carol, had that particular product worked out. In the Rubbermaid business, we launched a high priced product called a corner desk box, and try as we might to get everything right, and this particular product hit the price relationship so we are disappointed with those results.

But we have, I think, a long list of items that has never exceeded their target so far. We will get it all right. We decided to learn from our issues as we move forward, and I think we get better. We have had a couple of those disappointments that affected us this year. The bulk of this discussion is that the impact as time unfolds, more and more businesses getting truly competent and launching a product. Again, you will see the benefit, incrementally, quarter after quarter. It will be very clear in '04 and beyond.

Graco, Little Tikes, Irwin businesses across the board, new product programs have out standing traction, you see the results for Calphalon, up 22 points. I think the key, Carol, is to develop an over-arching team in the company, our results right now would be wrong--it is important enough that two full groups of the company are very much on track, delivering exactly what their expectations were in the economic environment. We have two other groups where we have room for improvement and we have some disappointment. We have to improve our skills in those businesses, in terms of new products and the other.

That is very helpful. Thank you.

Thanks, Carol.

Your next question comes from Eric Bosshard from Midwest Research.

Good morning.

Hi, Eric.

Couple of questions, first of all, on the margin front, EBITDA margins, I know operating margins were up, but EBITDA margins are down in the quarter. You talk about success with new products and mixing up, but can you talk a little bit more success about getting real sell through on these higher mix, higher margin products relative to what is going on in the OPP side and how you can change that going forward with your business mix?

Well, Eric, let me answer the question. I do believe that when we launch a new product, the success we have in the four new parts of Calphalon, many different lines of Irwin, Rubbermaid house tools, Rubbermaid and Sharpie, it is very clear that we can sell products at a gross margin that get great traction; even in the Rubbermaid family, our [INAUDIBLE] take along line, we continue to enjoy great traction, whereby [INAUDIBLE] high-end channels where product has been very successful.

So, you know, everything we have seen in the first half of this year, in our mind, validates our direction to focus the company on innovative value-add product, reduce the mix of this company sales from the current OPP to a smaller number. We are certain that we can improve the mix and get to the targets that we set out long term.

Secondly, can you talk about when you cycle Kmart. I remember from the first quarter conference call it seemed like once you got into the second half this year we would see a sales recovery, we would see less of a drag from that and a new product contribution. Your guidance today suggests second half internal growth is not all that dissimilar from the first half. When do you cycle Kmart? What changed so meaningfully in terms of the sales situation?

We don't refer to any retail partner specifically, but in general we commented on this call about exiting certain retailers, and that [INAUDIBLE] process is in October. We will be in Q4 at a point where we don't anniversary revenues with retailers we are no longer working with. So does that--the second part of the question, Eric?

The second part of the question is why the sales outlook, excluding that, is different in the second half. I guess it was asked earlier, but --

Yes. I think as we said, through the first half of this year, we discontinued over 50,000 SKUs. We have between 10 and 15 percent of the company that is doing business at margin levels below our expectation. We will exit. We will either adjust pricing, mix or exit, in one form or another, businesses that aren't delivering on financial commitments that we require. That will put some downward pressure on sales.

For example, in the Levolor business, business is down 11 percent this year by design, but its profit is up, equal to the budget commitment for that business. There will be other business units in the company where we will walk away from low or no margin volume as we continue to turn the corporation around and get our gross margin to the level that we are capable of. That will put some pressure on Q4. It is reflected in the guidance.

Last question, Rubbermaid home products I think was up 8 percent in the first quarter. Can you talk a little more specifically about that big business, how it performed in the second quarter?

Pat, can we talk specific number? Let me answer, the Rubbermaid home products business remains on track to restore its historic new product capability. We have done a good job of holding market share of Rubbermaid home product, done a good job of bringing an array of new products, most of which have been a commercial success. The corner desk box has been a disappointment.

I would also say that the take along in part of that business is one of the corporation's real highlights. That product is taking off like wildfire. Here's an example, and this answers a lot of folks' questions, the take along really is an OPP kind of product. But because of unique technology, because we were soft in the way we designed and marketed the product, and because we branded the product rather than take along, take along is actually a high-gross margin OPT product. That is exactly an example of what we can do when we do sustain OPP zones with that kind of thoughtfulness.

With that said where Rubbermaid needs to improve is first and foremost productivity. This has nothing to do with [INAUDIBLE]. We have a lot of manufacturing facilities in Rubbermaid home products. We need to raise our gain in terms of operational excellence and productivity in Rubbermaid. We can do that.

We need to cut our costs in the cost of goods sold line, in the D&T and manufacturing. That is the single most important area for the Rubbermaid home products business to improve. Secondly, we need to continue on our strategy of changing our model on the opening price point zone of RHT.

With take alongs in the food arena, that's an example of what we can do in our in a broader context of Rubbermaid home products, where we can make money and deliver our consumer need at the right kind of price point. That will take more time. You will see that.

Eric, the second quarter, home products part of the business was in line with the group performance, low single digits.

Margin performance, last question, in Rubbermaid, was meaningfully different 2Q versus 1Q; is that all explained in that segment by picture frames? Was the core Rubbermaid performance profitability-wise similar to 1Q?

Picture frames is in the Calphalon group. Ask your question again.

Ask my question again. The Rubbermaid segment margins were down 170 basis points in 2Q, you were up or flat in 1Q; what explains the margin performance difference in Q2 relative to 1Q on a year over year basis?

We have a bigger impact from residence in Q2, Eric. You remember, in Quarter 1 it was 17 million, in Q2 it was 28 million. That is a big part of it. We also experienced more pricing pressure, again, on some of the opening price point segment of that part of the business.

More in Q2 than in Q1.

Okay, thank you.

Thanks, Eric.

Your next question comes from Sandra Barker of Montag and Caldwell.

Yes, I had a couple of questions. How big is the part of Rubbermaid that you would consider opening price point versus value added piece?

15 percent of that is the direction of OPP. There are a lot of ways you can interpret that but a good directional line is 15 percent.

That is going forward it will be15 percent?

The going forward number will go down because you will see the majority of new products launched in the mid to higher price point zone of that market. You will see Rubbermaid brand expand off into other distribution channels, other product sectors that were not into that.

You will have a very visible example about it, in that we will announce on the analyst day. This will be a brand new zone for Rubbermaid to pursue that's in a different distribution channel, a high margin launch that has no OPT that is really a principled example of what that team is working on going out. I do think we will manage that number increasingly down as we go forward.

Secondly, can you quantify the total hit to sales from the businesses that you have exited or the product lines that you have--the SKU's you have discontinued and that kind of thing, what kind of an impact does that have?

Yes, Sandra, we don't have it rolled off that way. We are still selling off, closing out some of these SKUs. Some of those are -- they are discontinued but still for sale. We will follow up with you on that in answer to your question. David will talk to you. We will sort that out with you.

Finally, just any comment on how the Phoenix program is doing and where they are spending their time and having an impact?

Yes, Sandra, as you know, we have been very careful to not let short-term issues affect the long-term power of what Phoenix is doing for the company.

Phoenix is very much increasing its traction with retail partners, at Walmart, Home Depot, Lowe's, and Kohl's. along with all of the office supply stores, where our focus has expanded today. We have expanded our retail coverage because we believe there is so much more opportunity with retail partners we are working with right now.

In fact, we have expanded significantly in the last quarter with this roll out of Phoenix's appointment of the new rep on campus at the new Walmart. We are trying to focus on customers and do a better job. I will tell you that when we roll out things like [INAUDIBLE] tools, where the new Irwin products or Sharpie colors, or new Calphalon ranges, the Phoenix part of the equation is extremely effective. It is one of this company's competitive advantages, and as it goes forward it will become increasingly so.

Thank you.

Thank you, Sandra.

Your next question comes from Linda Boltonwieser of Fonstock.

Thank you. Joe, last year we saw a pattern of inventory increasing more rapidly than sales for the first three quarters of the year. Then we saw an improvement at the end of the your, you idled some plants for better improvement. Will we see a similar pattern this year, in other words, will it not be until the fourth quarter that we will see inventory improvement or do you expect some improvement on inventory in the third quarter?

Linda, we will see improvement in the third quarter. Some part of the improvement is the straight seasonality that you are referring to, you are familiar with, some of it is, as we wind out of post facilities, we are able to reduce inventory at a faster pace. So we do believe you will see evidence of inventory improvement in Q3. It will continue on to Q4.

Are you leaving room in your projections for earnings for the second half for potential idling of plants in the second half of the year?

Yes, the guidance reflects that. We recognize that course as we reduce inventories, for whatever reason, inventories are higher now than we like, because in some cases we have inventory restructuring, in other cases sales were softer than some of the poor performing business, in any event we will reduce inventory, restructure. Due to overhead, our guidance is to reduce part of that as a result of inventory reduction, that's exactly right.

The [INAUDIBLE] reduction number we are talking about is $200 million for the back half, [INAUDIBLE] of that is right now our Q3 and Q4.

Just another question, on the productivity cost savings, I believe you said it was $25 million in the quarter?

Yes.

That seems a little low to me. Can you remind us of what you are targeting as productivity, what percentage rate of productivity you are hoping to achieve, what it is trending is at and what you are targeting for the full year?

Yes, I was disappointed with productivity in the second quarter, as I mentioned, two of the groups delivered, actually [INAUDIBLE] for productivity, 4 percentage points. We did have shortfall in Rubbermaid productivity, rather than redues, as I say, inflate our cost by 28 million in the quarter. Beyond that, we do need to improve our productivity performance in the Rubbermaid group. We also need to do it in Calphalon group.

In some cases, we do fall short of the corporate target. What I am encouraged by is--I am not making any excuse, we have missed in two cases, that is a disappointment. I am encouraged we have two full groups that are basically -- have increased in productivity gains on the basis of raw material, inflation, natural gas issues, etc. That is good news.

Our new operational excellence front, which we are training, thoroughly, the company, I do believe it will create an environment here where productivity is the norm. You will be encouraged by those results as we go forward.

Which two businesses had higher than expected productivity?

Well, the Irwin group as a group exceeded productivity. The Sharpie group also exceeded productivity. In both cases they came above, Irwin came in well above. Two-years ago, Irwin was filled with six kinds of digits, which was the heaviest fixer upper in the company. Now that business enjoys productivity, but they have two hard years of putting the right system in place to pull that off. But in those two cases we have seen very encouraging results, better than expected.

Just one final question. Joe, I know in the past you had said that you would never really use macrofactors as a reason for missing numbers. There must be some things that are quite unexpected for new this turn around. If you had to name a single thing that is sort of most unexpected in the turn around, what is that one thing?

Well, the most unexpected thing for me is when a business doesn't have a brand, your ability to hold pricing and margin in a tough time is even less than I would have thought. I was surprised at how little strength you have when you don't have a brand in your product. Fortunately, that is a very small percentage of the company. Fortunately, we have a portfolio of terrific brands where we can hold our position. But this confirms very much to me the need to reconfigure the 10-15 percent of the company where the brands aren't strong either build a brand or do something different, and we will.

Okay, thank you.

Your next question comes from David Cumberland from Robert Baird.

Two quick questions. At the opening price points, are you seeing retailers opting for private label to a greater extent in some categories; second, on the 30 million reduction in SG&A, versus prior plan, the second half, what is the source of that?

Yes, we have 30 million of SG&A out, about two-thirds of that was in the groups that we are not seeing the performance in this year, Rubbermaid, group, specifically in home products area. Also Calphalon group, about half of the main was in corporate, the other half was across the Irwin and Sharpie groups.

David, in terms of private label, we are not seeing any more private label in the OPT zone.

What we are seeing is a broader away of alternatives from companies that had lower profit expectations. You may have a small company in China that can produce picture frames and sell them 50 ppercent below the going rate. The retailers around are driving that, but those companies are surfacing, retailers are capitalizing at a time when they are looking for lower price points for sales. I think that is the good news on private labels is that the retailers are making excellent margins on these [INAUDIBLE] that we are in.

Generally, a two-product label, when they are in a position where they don't make good gross margin so they have private labels to raise their margins. In many cases, they already have a good margin, but see price alternatives and they have pressure on price or they switch to another supplier. Again, the answer is very simple. It is the brand. When you have a brand and a compelling product, it is a design issue. That is where we are going.

Okay, thank you.

Okay. Thank you, everyone. We appreciate very much your interest in Rubbermaid. We would like to wrap up Q&A at this point. David will be available for any of your followup questions. Thank you very much.

If we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at area code 815-381-8150. Today's call will be available on the web at www.newellrubbermaid.com and on digital replay at 800-642-1687 domestically, and area code 706-645- 9291 internationally, with a conference ID number of 1425502, one hour following the conclusion of today's conference, for 30 days, ending August 31, 2003. This concludes today's conference call. You may now all disconnect