諾威品牌 (NWL) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to Newell Rubbermaid's fourth 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 call is also available live via audio webcast at www.newellrubbermaid.com and digital replay one hour following the call at 1-800-642-1687, for domestic participants and 706-645-9291 for International participants. Please provide the conference ID number 4816429 to access the replay.

We would now like to turn the call over to Mr. Jesse Herron, Vice President of Investor Relations. Mr. Herron, you may begin.

Thank you. Good morning and welcome to Newell Rubbermaid's fourth-quarter earnings conference call. Today, I am joined by our CEO, Joseph Galli and our CFO, Patrick Robinson.

Before we begin today's call, let me start with the obligatory forward-looking statement. The statements that are made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees because there are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of major factors that could cause actual results to differ materially from those projected, refer to our third-quarter 2003 form 10-Q including exhibit 99.1. Additional financial information about the company's 2003 fourth-quarter results are available under the Investor Relations section of our website at www.newellrubbermaid.com.

With that being said, now let me turn the call over to our CEO, Joseph Galli. Joe?

Thank you, Jesse. I would like to begin with a brief overview of our fourth-quarter results.

Internal sales finished up 2.3% for Q4, that reflects a $80 million increase versus our last estimate and while the bulk of this sales increase was at low margin sales, including the selloff of excess obsolete inventory, we did see a nice increase in full margin sales through the end of December. In fact, if you look at our sales results in Q4, by reporting segment, what you see is that although the Calphalon group was down 14.2%, the Sharpie group finished strong in December and was up 1.4%. Rubbermaid group was up 6.4% and the Irwin group came in at a very strong finish, up 10.4% paced by very strong sales and sell through of our new product programs in the Irwin group.

This sales strength in December and in the end of the fourth quarter allowed us to report EPS in the quarter of 40 cents a share. That is the high end of the range that we guided to of 37 to 40 cents a share. So for the year, that puts us in at $1.49 a share, again, at the high end of the range for 2003. That earnings includes the fact that resin was up $17 million versus 2002 in the fourth quarter alone and it also includes the fact that we did sell off significant inventory and we reduced our inventory significantly. Of course, that puts downward pressure on gross margins and yet, the team was still able to deliver a result on the high end of this range.

If you look at our cash flow performance for the quarter, we were encouraged by the company's cash flow performance in Q4 and for the year of 2003. Our guidance for cash flow was 200 to $225 million for 2003. The actual result came in at $242 million, that was driven by an outstanding inventory performance in the fourth quarter.

We had originally guided that we would reduce inventories between $150 million and $175 million for the fourth quarter. Our team actually came through and reduced inventory $224 million in Q4. So, again, that made us feel good about the earnings we were able to deliver, given that we took so much inventory out of the system, and we did clean up an awful lot of excess obsolete inventory that we think really does set the stage for 2004 and beyond for the company.

If you turn toward our overall working capital performance in 2003, what you see is excellent overall progress here, again, in working cap. Inventory in 2002 finished at 76 days. In 2003, we took that down 14 days down to 62 days. Again, shows, an excellent effort on the part of our operating units in reducing inventory. DSO finished at 63 days, up a day from last year, but DTO finished up two days up from 43 to 45. So our overall, working cap as a percent of sales came down two full points from last year's 26% down to this year's 24%.

And just to reference back to the year 2000, in 2000, the company had a 29% working cap ratio as a percent of sales. So we now have taken 500 basis points out of our working cap performance over that time span, finishing, again, in 2003 at 24%.

At this point, I would like to turn it over to Pat Robinson who will share additional details on Q4 and also cover our outlook for 2004. Patrick?

Thank you, Joe. I will start with the fourth quarter P&L results on continuing earnings basis.

Net sales for the quarter were $2.1 billion up $79 million or 3.9% for last year. Internal sales increased by 2.3% for last year consisting of the following; federal currency translation was $74 million or 3.7%, the exit of high-risk accounts, negative $20 million or 1%, unfavorable pricing was $37 million or negative 1.8% and core sales growth was a positive $29 million or 1.4% taking our internal sales growth to $46 million or 2.3%.

As you recall, in our December call, we estimated that internal sales for the fourth quarter would be down between 2 and 3%. Actual sales were approximately $80 million higher than projected in the quarter as follows: Approximately 60% of the increase sales relate to low margin product lines in the Rubbermaid and Levolor businesses. These increased sales occurred primarily in opening price point totes, drawers, clearers and blinds and enabled us to reduce inventory levels in excess of our previous estimate.

Approximately 20% of the increase was a result of excess in obsolete sales at no margin as we continue to focus on reducing inventory levels throughout the company. The remaining increases is a result of strong sales in our Al Sharpie and Irwin businesses, particularly in our hand tote division by the success of our straight line products. Gross margin in the quarter was $539 million or 25.7%, down 2.7 points to 2002. The decrease in gross margins is a result of the following: Unfavorable pricing of 1.8% or $37 million, accounted for 1.3-point decline.

Inventory reduction of approximately $224 million in the fourth quarter was $148 million greater than last year. Although this was partially offset by the increase in sales, we did experience an approximately $35 million or 1.7-point margin decline due to the lost absorption in our plants. Partially offsetting these declines was productivity in the quarter of 18 million or 1.4% which contributed approximately 90 basis points to gross margin in the quarter.

Our net productivity continues to be negatively impacted by resin pricing. In the fourth quarter, resin costs increased by $17 million to last year, bringing the year-to-date impact of resin cost increases to $75 million. Unfavorable product mix and the sale of additional excess and obsolete inventory accounted for the remaining margin decline of 60 basis points.

SG&A was $348 million or 16.6% of sales, up 12 million from last year. The acquisition of Lenox added an additional $12 million to SG&A in the quarter. All other SG&A was flat with our streamlining initiative of 2$8 million offsetting currency, pension and continuing investments in the business. Operating income was $191 million or 9.1% of sales down $44 million or 19% for last year.

EPS for the quarter was 40 cents which represented the high end of the range provided in the December earnings update. As a result of the strong sales in December, EPS was increased by approximately 2 cents as follows: As I mentioned earlier, the $80 million increase of sales, of the $80 million, approximately $48 million was generated from low margin products at Levolor, resulting in about $5 million incremental operating income or 1 cent a share. Secondly, the company continued its progress in E&O inventory. In the fourth quarter, the company sold an additional $16 million at net book value. Third, the company had higher than expected sales in both the Sharpie and Irwin groups, primarily in the hand hold business which resulted in an additional $4 million of operating income or 1 cent per share.

Now, I'll take a couple of minutes to talk about our segment information. In the Rubbermaid segment, net sales were $786 million up $48 million or 6.4% for last year. All of the businesses in the Rubbermaid group were up in the 4th quarter led by a double-digit increase in our Graco business.

Operating income for the group was $30 million or 3.8% of sales compared to 70 million or 9.4% of sales last year. The decrease in operating income is primarily the result of higher raw material costs of approximately $17 million, costs related to the tornado that struck our Wooster facility, lost absorption in our manufacturing facilities and pricing pressure on non differentiated items in our home products business.

In the Sharpie group, net sales were $404 million, up $6 million or 1.4% for last year, excluding $16 million in 2002 sales of the divested [Cosmolab] Business. The sales increase was achieved despite continued softness in the commercial sector which was down about 13% in the quarter. Operating income for the group was $77 million or 19.1% of sales compared to $79 million or 19.9% last year. Operating income was negatively impacted by a $32 million inventory reduction in the quarter and by $6 million of incremental investments in the business.

At the Irwin group, net sales were $568 million, up $98 million or 20.9% of last year while internal sales were up approximately 10% for the quarter. This increase was achieved despite continued soft innocence our domestic window fashion business as our U.S. tool businesses had an exceptional quarter driven by the Irwin launch and strong straight-line sales. Operating income for the group was $65 million or 11.5% of sales compared to $35 million or 7.5% of sales last year. The improvement in operating income was driven by net productivity of 7.5% in the quarter, new products, the Lenox acquisition and partially offset by continued softness in the Levolor/Kirsch business.

In the Calphalon Home group, net sales were $335 million down $56 million or 14.2% to last year. The sales decrease was a result of double-digit declines in both the U.S. picture frame and low-end cookware businesses. Operating income for the group was $24 million or 7.2% of sales compared to $58 million or 14.7% in the prior year. The decrease in operating income is primarily due to the sales decline noted previously, pricing pressure on OPP products and a decrease in inventory of $76 million in the quarter.

Free cash flow for the quarter was $242 million, up $66 million to last year. Additionally, the company generated approximately $34 million, which is not considered as part of free cash flow, by selling vacant facilities and equipment partially offsetting the cash restructuring expenses. The major drivers for this increase in free cash flow over the prior year are as follows: A reduction in inventory of $224 million in the quarter, which was $146 million better than year ago and about $62 million ahead of the midpoint of our previous estimate and in line with our $80 million increase in sales for the quarter. Capital expenditures of $53 million were approximately $14 million less than last year.

Partially offsetting these improvements in cash flow were an increase of cash restructuring cost of $27 million, the use of an additional $80 million in accounts payable reflecting the reduction in inventory and a decrease in operating earnings for the quarter.

I will now turn to our full-year results. Net sales for the year were $7.8 billion up $296 million or 4% to last year. Internal sales were flat compared to last year consisting of the following: Favorable currency translation was a positive $231 million or 3.1%. The exit of high risk accounts was $165 million or negative 2.2%. Unfavorable pricing of $141 million or negative 1.9% and core sales growth of $75 million, positive 1%.

Full-year gross margin was $2.1 billion or 26.9% of net sales down .9% from last year. Decrease of gross margin of 1.9% which decreased margins by 1.3 points. Offsetting this was net productivity of $77 million or 1.6% and improved margins by one point. The favorable impact of the Lenox acquisition was more than offset by unfavorable mix in the remainder of our businesses.

Full year SG&A was $1.3 billion or 17.4% of sales, up $50 million from last year. The acquisition of Lenox and American tool companies added an additional $81 million of SG&A in the current year. All other SG&A was down $31 million with our streamlining initiatives of $128 million more than offsetting increases from currency translation, pension and strategic investments. Operating income was $733 million or 9.5% of sales down $41 million or 5% to the prior year.

Free cash flow for the year was $242 million compared to $392 million in the prior year. The decrease is primarily the result of a decrease in the cash generated from working capital from $144 million in 2002 to $67 million in 2003 and an increase of $48 million in capital spending and the decline in operating income noted previously.

Turning now to restructuring. In the fourth quarter, we recorded a charge of $79 million our year to date charge to $245 million and plan-to-date charge to $417 million. The fourth quarter charge is $11 million less than the low end of the range provided in the December call. as certain projects have moved into the first quarter of 2004.

In total, we have exited or have begun exiting 78 facilities and have reduced head count by approximately 10,300 employees. In the first half of 2004, the company expects to incur between 43 and $63 million in restructuring charges. Approximately 25 to $35 million of this charge is expected to be recorded in the first quarter. This previously announced restructuring plan will result in a total charge of $460 million to $480 million with an annualized estimated savings of $150 million to $175 million when the plan completed.

The company continues to assess opportunities to divest nonstrategic businesses and we are pleased to report that the company made significant progress in the fourth quarter. In the quarter, we closed on the sale of our German frames business and recorded a noncash pretax loss on this sale of approximately $9 million. Additionally, in the fourth quarter, the company recorded a noncash pretax charge of $289 million, associated with the disposal of certain businesses and the exit of certain product lines as part of the company's rationalization strategy. The net sales of these businesses totaled approximately $875 million in 2003.

The components of the charges are as follows: approximately $250 million of this charge is for the write-off of good will and other intangible assets of certain businesses which we are currently marketing for sale. Approximately half of the remaining charge relates to fixed asset writedowns, related to businesses that are currently marketed for sale, while the other half is associated with product lines that we are exiting. The potential sale of these businesses would have a negative impact of 11 to 13 cents on our EPS guidance and a 40 to $45 million impact to our cash flow guidance for 2004. We will disclose the earnings and cashing flow impact of these potential sales if and when they occur.

The increase in the total charge from the estimate provided in the last call was primarily related to the write-off of good will in several of our businesses. We have accelerated our pace with regard of divestiture of these businesses and have evaluated their fair value and determined that good will is impaired.

Turning now to our first-quarter outlook. We expect sales to decline 1 to 3% in the first quarter driven by the following: Product line rationalization is expected to reduce sales to $75 million to last year, pricing is expected to be negative 1.4% or about $24 million, foreign currency translation and sales growth in our core businesses are expected to increase sales by about $65 million.

In the first quarter, we expect earnings to be in the range of 16 to 20 cents, down from 27 cents in the prior year. To the midpoint of the range, that represents a 9-cent decline as follows: Again, we expect pricing to have a 1.4% negative impact in the first quarter resulting in an approximately 6 cent earnings decline compared to last year. Resin is expected to have negative $16 million or 4-cent negative impact on our range in the first quarter. Productivity of $25 million will be offset by lost absorption and restructuring related charges in the quarter and incremental gross margin from core sales growth will be partially offset by a $10 million increase in SG&A expense. The net impact is $4 million of operating income or 1 cent per share.

Turning to the full-year outlook, we expect sales to decline 1 to 3% for the full year and expect earnings to be in the range of $1.48 to $1.58 a share. Free cash flow is expected to be between $200 and $250 million. The $25 million decline in free cash flow to our previous guidance is strictly timing and is offset by the increase in cash flow in the fourth quarter of 2003. The seasonalization of the cash flow will be similar to 2003 with a use of cash in the first six months and positive cash flow in the back half. First-quarter cash flow is expected to be about the same as last year, with a use in the range of 100 to $125 million.

It breaks down as follows: Sources of cash in the quarter will be net income less depreciation and amortization of about $115 million, deferred taxes and other, a positive impact of $15 million, total sources of $130 million, the uses of cash will be restructuring after tax of about $30 million, working capital, primarily inventory increases and accrual paydowns in the quarter, of between 75 and $100 million, capital spending of approximately $65 million and dividends of $58 million for use of cash in the 230 to $255 million range.

I'll now turn it back over to Joe for some additional comments.

Just to wrap up this call before Q & A, I wanted to reiterate our guidance for 2004 is now $1.48 to $1.58 a share, that is, of course, before divestitures and that does, again, include $16 million resin impact in Q1 versus last year. Our cash flow guidance is 200 to $250 million for 2004, that reflects a $250 million estimate in fixed capital, which is below the company's depreciation level of $300 million for 2004.

I also wanted to reiterate that we have taken an impairment charge related to the potential sale of $875 million in revenues for the company, that's $250 million of good will impairment, $39 million of asset impairment and that reflects excellent progress on the divestiture front and a part of our M&A team. We are encouraged about the traction we are seeing in executing our portfolio restructuring plan and divesting businesses that are not going to be part of this company's future. With all that said, we'd now like to open it up to Q&A.

Thank you, we will now begin the Q&A session. If you have a question, you will need to press star and the number 1 on your touch-tone 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 handset before pressing the numbers. If we are unable to get to your question during the conference call, please contact Newell Rubbermaid Investor Relations 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 touch-tone phones now.

Our first question is from Wendy Nicholson with Smith Barney.

Good morning. My first question is just to play devil's advocate a little bit is on the, you know, huge kind of upside surprise in the internal sales growth for the fourth quarter. I guess it is great on the one hand, on the other hand a little unnerving to the extent your sales came in so much better in just the last two weeks of the quarter, does that call into question kind of your forecasting ability? You know to have that amount of sales come in the last 14 days of the quarter, or whatever, has got to been a humongous surprise?

Wendy, you know, it was an upside surprise. Remember, the bulk of that sales increase was either excess obsolete sell off or low margin product lines that we planned to exit in the future. What we saw was more success with the focus we are putting -- tremendous focus we are putting on reducing inventories and also there was strong retailer interest to buy up these, Wendy, low-margin product lines before we finally discontinue them. Since we had inventory in place on those lines, we elect to continue to honor retailer commitment and sell those products through the end of the year. So really -- there was really only 20% of that surprise was in full-margin sales which, you know, we think is kind of in the normal band of forecasting.

So, you know, the -- the, I guess, level of fear that oh, gosh, if they came in $80 million higher, couldn't that in turn mean that in one quarter they could come in $80 million below plan? That doesn't --is that not something we should be focused on?

No. Again, because 80% of the sales increase was in, you know, either products we were going to discontinue or E&O. Not a concern we have got. We have a pretty good handle on sales forecasting going forward.

Just my second question. There has got to be a lot of questions out there in terms of the outlook for '04, you know, the very back-end loaded nature of the year. I mean your confidence, I think you probably learned your lesson you don't want to put a number out there and potentially miss it and have to go through negative revision activity are. But your confidence in those back-half earnings numbers, is that, you know, can you back that up, I guess, in terms of specific or tangible cost-savings initiatives that you know come on line halfway through the year and can give us some sense of, yeah, these numbers are actually doable?

I believe we can. The lion's share of the resin impact is in the first quarter. We expect our resin comps to be relatively flat down in the back half of the year and that does take into account the most recent announcement a couple of days ago. There is also about $50 million of absorption and restructuring-related costs that happen in the first half of the year that do not happen in the back half of the year. We expect our pricing comps to get better as the year progresses, and we get out of the product lines that we are rationalizing, and we do expect the back half of the year to have stronger productivity than the front half of the year, based on the implementation of our Newell op ex across the country.

Fair enough, that sounds great. Thank you.

Thanks, Wendy

Next question from Dara Macenian with J.P. Morgan.

Good morning, guys.

Hi Dara.

The impact you quantified for 2004 for businesses planned for sale, can you give us a sense of if that is -- is the bulk of your planned divestitures or if there is more planned? And also, how comfortable are you that all these sales will occur?

The answer is that does reflect the buck bulk of the plan divestitures and, you know, we are increasingly confident we can consummate these divestitures and get them done in the course of 2004. You never know until deals are complete. But, you know, I would say based on today's announcement, we are increasingly confident we can complete these transactions.

Okay, are there any businesses you guys have where you don't necessarily want to sell them, they have solid results, but if you got an attractive offer, you would consider them or is it more about, you know, you guys are going to exit the businesses you want to and kind of not consider other businesses which you think have long-term potential?

We only are going to sell businesses that we have decided to exit. It is a very strategic and thoughtful process, Dara. We are fortunate, we have a series of businesses here that are highly regarded that have a lot of potential and many people call us on a regular basis to try to buy these things. We have no interest in selling our, what we call our core blue chip businesses. So this is strictly the sell off of businesses we have decided don't fit our long-term strategic road map.

Okay and you guys managed inventory well this quarter. I am wondering retailer inventory levels, do you think those are appropriate right now, do you think retailers will be making any adjustments going forward?

Retailers in through the fourth quarter, I think toward the end of the quarter, ordered more aggressively in some of our product lines and going into the year, I think they are about normal.

Okay. And I -- I assume since most of the revenue upside were due to products going to be discontinued, probably not a big issue if retailers came in at the end of the quarter and ordered more than you expected?

That's correct.

Okay. Great, thank you.

Our next question is from Budd Bugatch with Raymond James.

Yeah, hi, Joe.

Hi, Budd.

I have a couple of questions. One, can you just give us a little bit maybe some qualitative flavor on new products rollout and what that looks like?

Budd, the new product pipeline is gaining momentum throughout the company. I think Irwin is the furthest along and you saw that in the fourth quarter where we had impressive sell-in and sell-through successes in a variety of our new products in Irwin. But I will say the Sharpie group is making nice progress in new products, they have a myriad of new products that will flow through this year but the Calphalon team has important new products. Graco is really going to start to hit their stride this year in new product. I think in general, you know, the momentum builds here.

The good news, Budd, with all the restruction activity, all the inventory we are selling off and, you know, all the sort of the fundamentals we are trying to get right in this company, we have been methodical about installing and feeding and fostering this new product development program. So I think by analysts' day, you will see some more good anecdotal evidence and it will be an encouraging year for new products.

Two other quick questions. One, I think in the past you have given us a number of excess and obsolete of a couple hundred million dollars, do you have a number for that now?

I do, but I will have to get back to you off line on that. I don't have that number.

Lastly, Pat, the accounting rules on divestitures I think have changed if I am not mistaken. Let me make sure I understand what you have done. So far, you have written down to realizable value what you think those businesses represent $875 million are?

That's correct.

But yet, there is still $70 million to $90 million charge to come through the CTA account.

That's correct.

That has not been written down yet.

That charge can't be taken until the deals are -- either finalized or they actually meet the held-for-sale criteria. At this time, they do not meet that criteria.

And I thought -- so have you -- you have not classified the $875 million worth of businesses as held-for-sale yet?

That's correct.

Once you do that, do you have to restate even though it is not a full segment, you have to go and actually restate within segments when you sell an item -- sell a company within a segment, that's correct?

That's correct. When they reach that criteria, that's correct.

What will do that and when should we see that?

Two criteria -- [ OVERLAPPING SPEAKERS ] --.

I thought that would be one of the criterion.

There's two criteria that has not been met yet. We have a preliminary offer that a subject is still to negotiations. So when that purchase agreement is actually agreed upon, that's one criteria and the second is when we receive approval from our Board of Directors for the sale.

I see. So during the year we are going to see multiple restatements I would suspect, is that correct?

Well, it depends on the timing, Budd. I can't say if it will all happen at once or not.

But assuming that they don't, we could see -- we could potentially see a restatement every quarter as we get these -- get through the quarters?

Essentially, that is correct.

Thank you very much, Pat.

Thanks, Budd.

Bye Joe.

Our next question is from Eric Bosshard with Midwest Research.

Good morning.

Hey, Eric.

Hey a couple of things, in terms of internal growth, can you help us understand why the internal growth is negative in 1Q and negative in '04, I understand a portion of this fourth-quarter number was by selling off excess inventory but can you just help us understand where the sales momentum and business is with those levels of guidance?

Well, you know, Eric, as we have reiterated, we are exiting a series of low margin, nonstrategic product lines and the impact of that will be felt significantly in the first quarter and somewhat throughout the year. I think that is the single biggest factor.

Okay. I mean is there a number that you can give us that is what represents the exit from those product lines in 1Q and for the year so we can better understand what internal growth would be without that piece of the business?

I don't have that exactly by quarter, but between 250 and 350. About 50 of that happened in the fourth quarter. So, narrow it down to 250 to 300.

Great. Secondly on the divestitures, Joe, just to clarify --

Yes.

It's 785 million of revenue, all you expect to sell in 2004 and kind of all you expect to sell within this -- you know, that's all you really considered selling, once you are done with that you are done with divestitures, is that accurate?

Eric, that is our plan in here through 2004. We constantly go through a process of evaluating our portfolio, so I think it is inappropriate to say we will never sell anything again but, that is our current plan that reflects that level of divestiture activity.

I know you can't be certain of when you would get something done, but based on the fact that you have not negotiated a price, and there are other things to go through, I mean, is this sort of a midyear event at best or is that realistic --

I can't comment but I can tell you I am proud of the activity our team has demonstrated here over the last three months but we can't comment on when anything would take place.

Okay. And then lastly, within resin, pat, I think you commented that resin is mostly a 1Q event and then less of an issue. Can you changed the way or modify the way you are buying resin or still a meaningful component of it on a trailing 12-month basis?

We haven't changed significantly, Eric.

Very good. Thank you.

Our next question is from Carol Wilke with Merrill Lynch.

Two questions. First, has there been any change on the Phoenix strategy, specifically at Wal-Mart. Do you still have the same number of Phoenix reps there is and has there been any change to that program?

Carol, as we have announced previously, we have reduced our Phoenix program in Wal-Mart, and, in fact, increased it in some other areas which fits our strategy. So that's -- that's something, though, we have communicated previously and we are executing exactly for that plan.

So the numbers haven't changed, it is just where they are doing it is a different retailers and from Wal-Mart?

The numbers have changed slightly, and you can -- Jesse will help you work through that but, again, it is old news because we communicated that before.

I guess I just -- thank you for educating me. I guess I missed that. Secondly, on, and Eric might have just asked this, but I just was curious, the expectations are for sales to be down 1.3 in Q1 and for the year and maybe he asked this and I am just curious also because I didn't get it. I would think that you -- I mean, are you being conservative? Because I would think they would improve over the course of the year as you are done exiting these and got pretty big negative comps in the second half of the year? I guess I would assume for the full year, it may be better than Q1 as it picks up over the course of the year as your new products hit, et cetera?

That is correct, but we do have a currency favorability in Q1 that gets less and less as we go through the year that is somewhat offsetting what you are saying.

On a sales basis, ex-currency, you would expect it to pick up over the course of the year?

That's correct.

What is your currency assumption for the first quarter, that minus 1 to minus 3 are you assuming a 3 or 4% positive currency?

I would have to have Jesse get back to you. I don't have the exact percent.

All right, thanks

Our next question is from David Cumberland with Robert Baird.

Good morning, for your 2004 plan, have you budgeted for R&D and marketing to grow as a percent of sales and how firm are your marketing and R&D budgets?

Repeat the question, please.

Sure, for 2004, within your guidance, have you budgeted for the R&D and marketing expense lines to grow, and how firm are your marketing and R&D budgets?

Yes, they are growing for the year but are being offset by reductions in other areas and they are firm.

And then the other question, I would like you to comment on your service levels with retailers as you shifted production, how service levels have compared to historical levels?

The service levels, fortunately, have been consistent with historic levels and for the vast majority of the company, we have had strong service levels. We have had a few pockets of disruption, which is why we built so much inventory in the early part of last year, but, again, worldwide for the most part, our service levels have been very strong given all the restructuring that is under way, I think it has been a real highlight of the company.

I wanted to elaborate a little bit on the SG&A also. we do expect an increase in SG&A for the year, I don't want to leave you with the impression that with don't. Some of that driven by currency, increase in pension cost, increase in marketing and promotional costs which are partially offset by reductions in other areas, but we will have a net increase for the year.

Then one more question on sales to strategic accounts, how did that finish up the year?

11% in Q4.

11%.

Thank you very much

Our next question is from Connie Maneaty with Prudential Group.

Can you tell us what kind of interest you are getting in the businesses you have identified for sales, just very generally? And how -- do you also -- you know, if -- if you don't get the kind of interest you hope in a sale, would you then turn to discontinuing these businesses?

Connie, we have received interest in the businesses that we are divesting and so we are not in a mode where we are looking at exiting or discontinuing. We are, right now we are moving forward with a plan to divest these businesses as units. We have product lines that we are exiting that, and that's well under way, but we are divesting the businesses as business units as of now.

Could you talk a little bit also about what you see the pricing environment of the businesses you choose to retain looks like it will be?

As far as -- in 2004, we anticipate less than 1% pricing on the businesses that we intend to retain.

Pricing decline.

Decline.

Okay. Also, I think you mentioned that you thought raw materials comparisons get easier after Q1? I seem to be hearing something a little bit different from some industry sources, especially as it affects propylene with some big increases coming in February and March, do you have that budgeted?

Well, we have it in our current projection. Our comps get significantly better in Q2 and throughout the rest of the year as they are in Q1. Without the specifics of what you are looking at, I can't comment any further than that.

Okay. And finally, you did mention some activity on new products in the different divisions but you made no comment on Rubbermaid and it seems like -- did I recall correctly that Rubbermaid's new products, their R&D was in the plant you are closing in Wooster. So what happens to all of that?

Well, Connie, first of all, the R&D of Rubbermaid is alive and well and will continue on as part of our new strategy. We are clearly not going to invest in R&D in parts of Rubbermaid we are exiting. We are highly focused on the R&D process in the value-added trade-up zone of Rubbermaid where we have the margin potential and where we think new products are a key to the future and you will see a series of new products in the Rubbermaid family in 2004 and beyond.

Can I just ask one follow-up and that is, you had hoped by the end of 2004 to have 50% of your sales in low cost countries, are you still on track for that?

Yes, by the end of 2004, we are very much on track to 50 percent plus, LCC.

Okay. Great.

Thanks, Connie.

Our next question from Kelly Nash with McDonald Investments.

Thanks, can you talk more about the new products launched in the fourth quarter and more specifically, about how the rollout in the new product margins, for example, performed in line with your expectations?

The highlight of new products in the fourth quarter was in the Irwin launch where we introduced a series of Irwin-brand tools and straight-line laser products. In all cases, these products carried an accretive gross margin. Our target is that new products should carry 10 points higher gross margin than products they replace and we were able to achieve that in our Irwin family of new product launches in the fourth quarter.

And looking into the first quarter, can you talk about more specifically what kind of product launches you expect to see contributing to results?

The -- as 2004 unfolds, I think a highlight will clearly be in the Sharpie group and you will see Sharpie new products rolling out in the first quarter and beyond, but there will be, as this year unfolds, you will see momentum building in new product rollouts.

Okay, and the gross margin target for the new products still looks very achievable as you look for your product line-up for this year?

It does. We are encouraged that the new products we are developing and introducing do carry excellent gross margins. I think, Kelly, analysts' day will be an opportunity for us to showcase some of the key new products and you will see some good examples there, but, yes, the team is doing a nice job of developing new products that have the kind of margins we need to improve our overall gross margin improvement targets.

Okay and just one final question also related to the new products. As far as timing-wise, have these products been launched essentially according to the schedule you have laid out?

In the Irwin area, the team did an excellent job of achieving products launch dates and that helped the real strength here in December. And I think for the most part, across the company, we are doing a better and better job of achieving our milestone process and launching projects per our schedule. We had some delays in '03, but the team is working hard here to continue to improve the new product development process. So, I am confident about that process in '04 achieving the deadlines that we have in place to achieve our guidance.

Great. Thank you.

Our final question is from Linda Bolton-Weiser with Oppenheimer.

Thank you. Maybe I missed this explanation, but can you just explain why the pricing was improved sequentially even though you moved a lot of discontinued products through the channel in the fourth quarter?

I am not sure I understand the question.

Well, your pricing, I believe, was negative 2.1% in the third quarter but I believe it was a little less negative in the fourth quarter, and yet you moved a lot of discontinued product through the channel, which I would expect would put pressure on your pricing. So, I mean, were there other areas that made up for that?

I will have to get back to you.

Okay. All right, thanks very much.

Thank you, Linda. At this point, I would just like to thank everyone for joining us on this call. We look forward to our upcoming conference call at the end of the first quarter and also to our analysts' day where we will communicate more broadly our strategies and progress in making and transforming this company. Thanks so much

Again, ladies and gentlemen, if we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations 815-381-8150. Today's call will be available on the web at www.newellrubbermaid.com and on digital replay at 1-800-642-1687 domestically, and 706-645-9291 Internationally with a conference ID number of 4816429, one hour following the conclusion of today's conference for 30 days ending on February 29, 2004. This concludes today's conference, you may now disconnect.