諾威品牌 (NWL) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid's fourth quarter earnings release conference call. (OPERATOR INSTRUCTIONS). Just a reminder, today's conference will be recorded and will also be available live via audio webcast at www.NewellRubbermaid.com. And digital replay 2 hours following the call at 1-888-203-1112 for domestic participants, and 1-719-457-0820 for international participants. Please provide the conference code of 929053 to access the replay. I will now turn the call over to Mr. Jesse Herron, Vice President of Investor Relations.

Today I'm joined by CEO, Joe Galli, and CFO, Pat Robinson. Before we begin our conference call let me take a moment to read the obligatory forward-looking statement.

The statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees as 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, please refer to our 2003 Form 10-K, including Exhibit 99.1.

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

Good morning everyone. I'm pleased to tell you that in the face of a very challenging raw material environment Newell Rubbermaid delivered a very strong fourth quarter in 2004. And we enter 2005 with tremendous momentum here in this Company.

First of all in Q4 we finished up at 45 cents a share in EPS, which brought our full year performance in at $1.38. I think it is important to note that our EPS was up 18 percent in the fourth quarter versus 2003. A nice trend in the fourth quarter that reflected a great job on the part of our team.

Raw material, as you know, continues to inflate, and in fact in the fourth quarter raw material inflated a full $46 million over the prior year. That was $11 million more than we anticipated 3 months ago. Revenue inflated during the quarter 27 million. Ferris and nonferrous metals were up 14 million, and corrugate and wood products up an additional 5 million. So that came in at a $46 million level of inflation for the fourth quarter alone.

And that inflation in the fourth quarter continued to reflect the trend that we saw throughout '04 and that we will continue to see in '05 when it comes to raw materials. If you remember back to the beginning of 2004, we actually budgeted for 20 million of raw material inflation for 2004. And what happened is raw material went up in the first quarter alone 21 million, in the second quarter another 18 million, and in the third quarter another 31 million. And Q4, as I mentioned, it was up another 46. So for the year we had to offset $116 million of raw material inflation, again, for the full year of 2004.

Now our team did a very impressive job in the fourth quarter of offsetting the raw material head wind that we faced. First of all, our new Operational Excellence thrust continues to gain traction throughout the Corporation, particularly in writing instruments where we hadn't seen progress prior to the second half of last year. We really are starting to see some very encouraging momentum in that part of our Company, along with the rest of the Company where we have had good traction.

In the fourth quarter our productivity thrust delivered $37 million. So we had $37 million worth of positive productivity in Q4 to help offset that raw material inflation. And we also were able to generate $21 million worth of pricing in Q4, which reflected a lot of effort on the part of our sales and marketing team to work with our key retail partners and implement price increases that really reflected an unprecedented level over the last 5 years. So we got a total of $58 million worth of gross margin offsets between productivity and pricing, which more than offset, again, the 46 million raw material in the fourth quarter.

Turning towards the top line, our sales came in down 1 percent, which was at the high end of the guidance that we had issued, which was down 1 to 3. It is important to note that that sales decline does reflect the fact that we exited $75 million worth of non-strategic low margin products in the fourth quarter alone. And in fact, if you look at the full year, what you see is that we executed the plan that we had articulated last year, which was to continue to discontinue low margin, non-strategic products that were resin intensive and basically commodity oriented.

In the Rubbermaid Home Products business throughout the year we exited $245 million worth of these products. And in our Office Products Group in the Eldon resin intensive component we discontinued $30 million worth of products. So for the full year we actually exited $275 million worth of these resin intensive low margin commodity products, which is exactly the plan that we had laid out 12 months ago.

Turning towards cash flow. We had another strong cash flow performance at Newell Rubbermaid in 2004. Starting with our working capital performance we were very pleased that for the fourth year in a row we showed excellent progress in working cap as a percent of sales. Even though we made a decision in the second half of 2004 to increase our inventory levels, so that we could buttress our service level performance for the our key retailers in a time when we were going through broad based restructuring throughout the Company.

Although we did increase inventory, we still reduced working cap by significantly improving our DSO performance, and making incremental improvements in DPO. And our working cap actually came in at 23.7 percent of sales, down from last year's 242, down from 2002's 258. And again this was the fourth year in a row we improved working cap as a percent of sales.

Turning towards fixed capital. We have -- a year ago we implemented an important strategy in the Company that we called decapitalization. What this reflects is our thrust to reduce our fixed capital expenditure at Newell Rubbermaid by working closely with our supplier partners, and negotiating with our suppliers to absorb some of the fixed capital burden that we have in running our business. We also have exited capital intensive productlines via divestitures or discontinuance. And we have become even more disciplined at deploying fixed capital, focusing on investing our fixed capital in those high margin, high return businesses that have the most potential. With all that said, our performance in 2004 came through very strong.

We invested 122 million of fixed capital throughout the year of 2004. That was down 178 million from 2003's 300 million level. And really this 122 million of fixed capital reflects a whole new level of capital discipline for Newell Rubbermaid. If you look back over the last 5 years, this is an unprecedented low level of capital investment. And it is a zone that we intend to perpetuate here because of this new decapitalization discipline that we have infused throughout the Company.

So if you look at our working and fixed capital performance combined with earnings, what you see is that our free cash flow in Q4 came in strong. We delivered 154 million of free cash flow in Q4 alone. That allowed us to generate a total of 307 million free cash flow for the year of 2004, up from '03's 242 million, or a $65 million improvement. And again for the fourth year in a row we have shown very strong cash flow performance at Newell Rubbermaid while we experienced many challenges like raw material inflation and broad based restructuring. So we were pleased with our team's performance here in cash flow.

Turning toward 2005, we are introducing guidance today as follows. For the full year our EPS guidance is that we will deliver between $1.38 and $1.48 a share of EPS. Again, for the full year of 2005. And in the first quarter our EPS guidance is as follows. We will deliver between 24 and 28 cents a share in EPS. Here again in Q1 of 2005.

Now let me emphasize that this EPS guidance for 2005 reflects the following. First of all, we are projecting raw material to inflate in 2005 $170 million. As I have shared with you earlier, raw material inflated in 2004 116 million, so we are seeing a significant increase in the price of raw materials in 2005.

And that breaks down as follows. We anticipate resin will be up 120 million this year. Ferrous and nonferrous metals will be up 40 million, and all other commodities that we buy will be up $10 million. That is how we end up with this $170 million worth of inflation.

Now our plan this year is that we will offset that raw material inflation as follows. We're projecting that our new Operational Excellence thrust will generate productivity in excess of $100 million. In addition, we're planning to secure pricing of 100 million throughout the course of 2005. So our plan is to more than offset this dramatic raw material increase with our productivity thrust and with our pricing plan that we're well on the way to implement in the marketplace.

Also reflected in our 2005 guidance is the fact that we were fortunate to receive a favorable tax impact for 2005. And this favorability will enable us to fund over $40 million of additional strategic restructuring projects. These restructuring projects include the closure of additional plants in high cost countries, and the reduction of overhead that will allow us in future years to improve our financial performance both in gross margin and in SG&A. So again, that activity -- that restructuring activity is reflected in this EPS guidance.

Finally, in terms of free cash flow for 2005 our guidance is as follows. We will generate this year, we believe, cash flow operations between 625 million and $675 million. We will invest in fixed capital between 125 and 150 million. And again that reflects our new decapitalization discipline in the Company. So that is a much lower level than our historic levels of fixed cap, and consistent with '04's performance. And of course we will maintain our dividend pay out of 230 million for the year, which will come out of that cash from operations.

So that is our overview for 2005. At this point I would like to turn it over to Pat Robinson to share more details on our results.

I will start with our fourth quarter P&L on our continuing earnings basis. Net sales for the quarter were 1.8 billion, down 19 million, or 1 percent, to last year consisting of the following, the favorable currency translation was 45 million in the quarter, a positive 2.5 percent, the favorable pricing of 21 million, or 1.1 percent. Product line rationalization was -75 million, or -4.1 percent. And our core sales declined by 10 million, or .5 percent.

Gross margin in the quarter was 522 million or 28.8 percent of sales, up 1.6 points to 2003. The increase in gross margin reflects the following. Favorable pricing of 21 million added 80 basis points to gross margin in the quarter. The raw material inflation of 46 million, which consisted of resin of 27 million, steel of 14 million and all other 5 million had a -2.5 point impact on gross margin. Gross productivity in the quarter was 37 million, or 3.1 percent, which added 2 points to gross margin. And then favorable mix driven by the rationalization of unprofitable product lines, primarily an our (indiscernible) business and products business added 1.3 points to margin in the quarter.

SG&A was 324 million, up 8 million to last year. This increase reflects a currency impact of 13 million and a pension cost increase of 4 million, with all other SG&A down about 9 million in the quarter. The overall SG&A spending includes 15 million of additional investment in the Office Products segment, partially offset by streamlining in the Cleaning and Organization segment. Operating income for the quarter was 197 million or 10.9 percent of sales, up 16 million to the prior year. The Company also recorded a net 4.2 million restructuring charge in the fourth quarter to close the manufacturing and distribution facility in the Home and Family segment.

I will now take a few moments to talk about our segment information. In our Cleaning and Organization segment, net sales were 486 million, down 23 million, or 4.6 percent to last year, driven primarily by the planned product line exits in the Rubbermaid Home Products business, partially offset by pricing and increases in core product line sales in Rubbermaid Foodservice and Rubbermaid Commercial.

Operating income for the group was 41 million, or 8.4 percent of sales compared to a loss of 1 million last year. The increase in operating income was the result of favorable pricing, core sales growth in Rubbermaid Foodservice and Rubbermaid Commercial, and reduced SG&A spending. I would also like to point out that the 2003 earnings include a charge for the tornado at our Wooster facility.

Their Office Products segment net sales were 440 million, up 17 million or 4.1 percent to last year, with the writing instrument business up about 5 percent, when the strength of new products and the Eldon Office Products business down 5 percent driven primarily by the exit of low margin resin based products.

Operating income for the group was 73 million, or 16.6 percent of sales, compared to 79 million, or 18.7 percent, last year. The decrease from the prior year is primarily the result of the increased investment in SG&A, partially offset by the gross margin drop through on the increase in sales.

In our Tools and Hardware segment net sales were 344 million, up 3 million or 1 percent to last year, driven by increases in LENOX and BernzOmatic. Operating income for the group was 50 million or 14.6 percent of sales, up from 43 million or 12.5 percent last year. The increase in operating income was generated primarily by productivity and streamlining in the quarter, partially offset by raw material inflation.

In our Home Fashions segment net sales were 228 million, down 2 million or 1 percent to last year, with currency benefits offset by planned product line exits in our Swiss-UK (ph) business. Operating income for the group was $8 million or 3.5 percent of sales, down from last year's operating income of 19 million or 8.1 percent. The decrease in operating income was primarily the result of raw material inflation and charges related to the liquidation of certain product lines in this segment.

Our Home and Family segment net sales were 311 million, down 13 million or 4.1 percent to last year, primarily as a result of declines experienced in our Graco business. Operating come for the group was 37 million or 11.9 percent of sales, compared to 48 million or 14.7 percent last year. Operating income decreased primarily as a result of the sales decrease at Graco, raw material inflation, and pricing pressure in our juvenile products businesses.

Free cash flow for the quarter was 154 million, slightly above the high end of our range. The major drivers in free cash flow were as follows, sources of cash for continuing earnings plus depreciation of 192 million, working capital contributed 105 million, and deferred taxes another 18 million for total sources of cash of $315 million.

Uses of cash were capital expenditures of 27 million, our dividend payment of 58 million, restructuring cash payments of 12 million, and the change in accruals of 64 million, which reflects a change in tax payment timing year-on-year. Total uses of cash was 161 million. Also in the fourth quarter the Company recognized the net 6.2 million tax benefit related to the expiration of the statue of limitations on certain tax contingencies.

On January 12, 2005 the Company entered into an agreement for the sale of the Curver business, which is our Rubbermaid Home Products business in Europe. In connection with this transaction the Company expects to record a non-cash loss on the sale in the amount of 75 to 95 million in the first quarter of 2005. The Curver business had 2004 sales of approximately 150 million.

Turning now to our full year results. Net sales were 6.7 billion, down 150 million or 2.2 percent to last year. Internal sales declined by 140 million or 2 percent consisting of the following, the favorable currency translation of 160 million or 2.3 points, unfavorable pricing for the year of 3 million or -.1 points, product line rationalization of 275 million or 4 percent, and our core sales declined by 22 million or .2 of a point.

Gross margin for the year was 1.9 billion or 28.2 percent of sales, essentially flat to last year. In 2004 gross margin was impacted by the following. Again we had unfavorable pricing of 3 million, which had no impact in gross margin for the year, but just as a reminder, we had -27 million of pricing in the front half of the year, 3 million or positive pricing in the third quarter, and now 21 million positive in the fourth quarter. So we're exiting the year with some pretty good momentum on pricing, which we expect to carry through 2005. Raw material inflation for the year was 116 million, resin was 66 million, steel 36 million, and all other 14 million, which had a -1.7 point impact on gross margin.

Gross productivity of 123 million or 2.8 percent was partially offset by restructuring related costs of 66 million, the net impact positive 80 basis points, and favorable mix driven by the rationalization of unprofitable product lines primarily in our Rubbermaid Home Products business added 80 basis points to our margin for the year.

SG&A for the year was 1.3 billion up 47 million to last year. This increase in SG&A reflects a currency impact of 44 million, and a pension cost increase of 16 million. All other SG&A was down 13 million, with strategic investments more than offset by streamlining initiatives. Operating income for the year, excluding restructuring and other onetime charges, was 638 million or 9.5 percent of sales. Free cash flow for the year was 307 million compared to 242 million in the prior year.

Turning now to our 2005 outlook. We expect sales to be in the range of -1 to +1 percent driven by the following. We have product line rationalization is expected to reduce sales by 200 million versus last year, with about half of this in the Rubbermaid Home Products business and the remainder in our Graco, window fashion UK, and Office Products businesses. Pricing for the year is expected to be 100 million favorable. The foreign currency translation and sales growth in our core businesses are expected to increase sales by about 100 million.

For 2005 we expect earnings in the range of $1.38 to $1.48. This range includes 170 million of raw material inflation, and resin of 120 million, steel of 40 million, and all other of 10 million. More than offsetting this raw material inflation is gross productivity of 2.5 percent, or 110 million, and positive pricing of 100 million. The combined impact of these is approximately positive 40 million, or positive 10 cents a share.

We have planned investment in SG&A, primarily in our writing instrument and Tools and Hardware segment, which will be partially offset by the positive impact of the U.S. pension curtailment. The net impact is an increase in SG&A of about 20 million, or -5 cents a share.

We also anticipate favorable resolution of tax matters which will be used to further reduce manufacturing infrastructure in our Office Products, Tools and Hardware and Home and Family segment, as well as to right size the European overhead structure following the sale of our Curver business, resulting in no net impact to earnings for the year. And finally the favorable impact from foreign currency, product line rationalization, and core sales growth will be offset by unfavorable interest and other costs, again, resulting in no net impact on earnings for the year.

The impact of all the above changes is approximately a 5 cent improvement in EPS, at the midpoint of our guidance. In December 2004 the FASB issued a pronouncement requiring companies to expense employee stock options based on their fair value beginning in the third quarter of 2005. The Company is currently evaluating the impact of this statement on 2005 earnings, and has not considered this pronouncement in the guidance presented today. 2005 cash flow from operations is expected to be between 625 and 675 million, with capital expenditures estimated to be between 125 and 150 million for the year.

Turning now to the Q1 2005 outlook, we expect sales to be in the range of -1 to -3 percent driven by product line rationalization, partially offset by pricing and currency. For quarter 1 we expect earnings to be in the range of 24 to 28 cents compared to 19 cents last year. This range includes 52 million of raw material inflation, partially offset by pricing and productivity of approximately 40 million combined. The net impact is -3 cents a share in the quarter.

Incremental investments in SG&A of approximately 15 million occurring in the writing instrument and Tools and Hardware segments will be offset by the positive impact of the pension curtailment, resulting in no net impact on earnings for the quarter.

As mentioned earlier, the anticipated resolution of tax matters will be used to further reduce manufacturing infrastructure and to right size our European overhead structure. The net impact on the first quarter is +11 cents. Interest and other costs are expected to reduce earnings by about 1 cent in the quarter.

Operating cash flow is expected to be in the range of 50 to 100 million in the first quarter, with capital expenditures between 25 and 50 million. Now I will turn it back over to Joe for some additional comments.

2004 was certainly a year were this Company focused on our restructuring activities, on our divestiture activities and on positioning Newell Rubbermaid for the future. But our teams did an encouragingly good job in increasing momentum in new product development. And I just wanted to share some highlights of new product launches that you can expect to see from us in 2005. This is not an all inclusive list but rather a quick tour of again some important new product launches that you'll see in the Company.

First of all in our Office Products group, we're going to continue to expand our Sharpie franchise, which has been highly successful. This year we roll out in the second quarter our highly innovative Mini Sharpies. This is a new product line in the Sharpie family that has met with outstanding reaction from both retailers and consumers. You'll see it on the shelf in the second quarter. We have high hopes for this Mini Sharpie. We also plan to market this Mini Sharpie line with a blend of national TV and other marketing efforts.

Additionally, our retractable Sharpie, which we launched last year, and which is off to a great start, will be expanded this year with more colors, more set configurations. There is great momentum here with retractable Sharpie. And we think this business has a bright future for us worldwide.

Also, in our writing instrument sector, our Expo Dry Erase Markers actually represent our fastest-growing business today. In 2005 we will expand Expo with new colors and a the range of Expo Dry Erase Boards, which will fuel we believe additional demand for these Expo Dry Erase Markers.

In our Paper Mate series we last year rolled out a new generation of Flex Grip Elite Paper Mate pens. This is in the everyday price segment. These products feature an antibacterial coating which is a timely product enhancement. This will have an important impact on our Paper Mate franchise throughout 2005.

Turning toward our Tool and Hardware group. Under the leadership of Jim Roberts, we have -- the Company's strongest product pipeline today is an our Tool sector. In 2005 you will see significant product roll outs in this Tool segment of our Company. For example, in the first quarter we will roll out a broad range of leadership professional grade pliers under the Irwin VISE-GRIP brand. This extends our current strong position in the plier sector. It is an important growth sector of the hand tool market. And it is a great sign of things to come when you look at our hand tool area.

We also are rolling out in both our LENOX and Irwin brands a new innovative line of Torpedo levels. These feature a superior rare earth magnet technology. These products will be well received by both professional users and do-it-yourselfers. And again, this reflects the stock product pipeline that we feel fortunate to have in our Tool sector.

Additionally, we roll out this year our new LENOX gold reciprocating saw blade. This is a large segment in the Tool market. These blades feature a unique titanium nitride coating and some other design enhancements and unique tooth configurations. And this'll continue to strengthen our fast-growing LENOX brand franchise in the U.S. and worldwide.

Turning toward our window fasten business, also under the leadership of Jim Roberts, Levolor this year will have a number of new product launches (indiscernible). And 2 of these launches are in the fast-growing wood blind sector, the custom wood blind sector. First of all, we will launch a line of antique finishes in our custom wood range of Levolor. And secondly we will have a new generation of remote-controlled wood blinds. Again, also in the Levolor custom area. This business has turned around for us nicely. We have strong brands, and these new products will certainly help the momentum in Levolor.

Turning toward Tim Yahnke Home and Family group, we'll have some important new product launches throughout Tim's group in 2005. For example in Calphalon, we are in a process here in the first quarter of rolling out a new line of contemporary stainless premium gourmet cookware. This is a range of stainless cookware that targets a key segment of the market where we have very low share. We have a product line with a $499 retail price point, superior design and performance characteristics. And we believe this will help fuel the impressive growth that we are seeing with Calphalon as we look at 2005.

Turning toward Graco, in 2005 we will bring to market a series of new products featuring a new generation of Pack and Play, our popular portable play system in the Graco family. And we will also have later this year European style stroller system, which has seen excellent reaction from the consumer in the marketplace.

Finally, our Goody’s haircare business has been a very strong performer for this Company over the past too years. This is a business, you may recall, that was losing money, and has turned around to a point where it is delivering excellent financial returns. This year we will fuel the Goody’s business with a couple of important new product launches. First of all we are rolling out a new line of Stay Put elastics. These are elastic haircare products designed for athletic women, a growing segment. We also are rolling out our new generation of Ausiwitch (ph) brushes, which again we have seen great consumer reaction on this new generation of brushes in the Goody’s family.

Again these are not all the new product we are rolling this year, but I think it is encouraging that in a time when we have had so much restructuring activities and so much divestiture activity that our managers are focused on, we still have built our product development system. We've got good traction here in product development, and a bright future when it comes to new products.

As we summarize 2004, Newell Rubbermaid made great progress here are on many, many fronts in a tough year. Number one, we were able to strengthen our Company's organization throughout 2004. And some highlights include the recent announcement we made in terms of our new Board of Directors additions. We added two board members here recently that will really give us some terrific additional perspective and mentorship at the board level.

First of all, Mike Cowhig who is currently the President of Global Technology and Manufacturing for Gillette. And Mike runs all 5 -- runs all the R&D and manufacturing from Gillette's 5 business units. Mike will be a fantastic addition when it comes to Operational Excellence and product development.

We also were fortunate to add Mark Ketchum of Procter & Gamble fame. Mark's most recent responsibility at Proctor was that he was President of the $10 billion global baby and family care sector of Procter & Gamble. Mark brings fabulous experience in many functional areas worldwide, and again will be a welcome and very valuable addition to our Board of Directors. I think to add both Mike Cowhig and Mark Ketchum at the same time really does give us an infusion of great experience and perspective at the Board level.

In our managerial ranks 2004 saw the Company also get stronger. We were very excited to announce the addition of Steve Martin. Steve is now the worldwide President of our Office Products group. He joined us from Colgate where he had an outstanding career. Steve will bring us terrific experience, global experience in the consumer products arena, and is off to an excellent start. We're very excited to welcome Steve to our ranks.

We also in 2004 promoted Rory Leyden to the position of President of our North American Office Products group. Rory has done an excellent job. In fact, North American Office Products delivered a strong fourth quarter. They had a great momentum going to 2005. Rory has strengthened his management team. And I think as we move into this year it is clear that we have a much stronger management team running our high potential Office Products group than we had 12 months ago. This is very exciting for the Company.

In 2004, as you know, we have been very busy divesting non-strategic low margin businesses, culminating with our recent announcement where we agreed to sell our European Rubbermaid Home Products, which is branded Curver. So we now have with the addition of Curver with that announcement we have sold $1 billion of non-strategic low margin businesses that weren't part of our future. And although this had taken a lot of time and effort on the part of our management team worldwide, we're a much stronger Company now moving forward with a portfolio that fits our long-term strategic direction.

Additionally, throughout 2004 we, as I mentioned, discontinued $275 million worth of low margin products there were non-strategic, and in all cases resin intensive. And I think this is also going to help this Company long-term have a much better product line. It fits our intellectual property thrust and brand focus in the Company.

Last year we did announce that we completed our previously announced restructuring program. We invested 480 million in cash and non-cash, closing 85 facilities in Western Europe and North America. This is a massive restructuring effort. I am extremely proud of our management team for completing this restructuring activity for the Company. And we're now in a much better position in terms of our supply chain. As we have shifted a lot of the Company's production to low-cost countries. And we're doing a lot more outsourcing. And we have exited a number of facilities that simply weren't competitive. This was very time consuming, but a great achievement on the part of the Company.

I think it is important to reiterate that in 2004 our team offset significant raw material inflation all year. And we did deliver all 4 quarters of EPS commitments, and we exceeded our free cash flow commitment. We did that because our new Operational Excellence program is generating productivity throughout the Company. This is a thrust that was launched by Jim Roberts, who has done a great job, and is really on the vanguard of our Operational Excellence program in the Company.

But throughout 2004 Tim Yahnke Home and Family group also really got serious about Operational Excellence. And in the back half our Office Products group for the first time really began to see some progress in terms of productivity. We also in 2004 were fortunate that we were able to implement price actions in the market. And this is something that we weren't doing in the early part of the year. We have got 21 million in pricing alone in Q4. That is 1.1 percent. And I think our team did a nice job in a tough environment of implementing price increases that allowed us to offset raw material.

Throughout 2004 we were able to increase investment in new product development, R&D and marketing. As we still have more to do here, but we have continued to stay focused on building our intellectual property thrust in the Company and developing innovative product that can generate high margins.

And so as we look back over 2004, I just want to say to our managers in this Company and all of our employees, I am really proud of what our team delivered. And I just want to say thanks to our people for an excellent 2004. I do believe that although we're facing a very tough raw material head wind, moving to 2005, this Company has exciting momentum worldwide. We have a bright future. We have great brands. We have a stronger portfolio. We have an improved management team. We have a highly supportive and strengthened Board of Directors. And I think we're positioned for a bright future. With all that, I would like to open it up for Q&A.

(OPERATOR INSTRUCTIONS). Bill Schmidt with Deutsche Bank.

On the raw material resin front it looks like -- so you got rid of or you are getting rid of about 300 million pounds of resin. But your estimate for 2005 is going to be another $120 million of incremental costs. So I'm a little bit confused as to why you had that $120 million number out when you're getting rid of 300 million pounds of product, or of raw materials rather?

We still buy between 900 million and 1 billion pounds of resin. And we are seeing an average increase of about 12 cents a pound year-on-year. All of that which has happened already, that increase happened throughout 2004 and into now January of 2005. We just saw another increase in the TDI index. So we're not anticipating more increase in the price from here on out. But the increases that have already occurred have resulted in $120 million increase year-on-year.

In addition, as you know, we announced the sale of Cuver in Europe, but that sale doesn't happen until the end of the first quarter. So we continue to of course support that business and buy resin in Q1.

Okay. But that Curver resin is not in your $120 million estimate for the year?

That's right.

And then how is the pen business going to be managed going forward? I mean what is going to change with the new management team? Have you kind of laid out the statistic plan? And what can we look for in terms of go to market strategy, new products, new marketing and, etc.?

Yes, we have built laid out a strategy and it is exciting. I think Steve Martin's addition will focus on Operational Excellence, on rationalizing SKUs, on rationalizing the plethora of brands we have. So today we have over 40,000 SKUs worldwide in writing instruments. We have way too much inventory to support the business. We need to strengthen our supply chain management here. We need to streamline these SKUs out.

We have far too many regional or indigenous brands. We're going to migrate to more global power brands like Sharpie, like Paper Mate. So what you can expect to see in addition to a growing flow of new product, which is a new core competence for that business, what can you can expect to see is a thrust in business simplification and streamlining unnecessary or superfluous SKUs and brands, and making fewer bets on bigger more powerful brands like Sharpie and Paper Mate.

Okay. Great. And then just I was a little bit surprised at the other category was soft, because I was under the assumption that Little Tikes had a very good holiday season with their new product line. What went wrong with Graco, and what are you doing to fix that?

Graco is a business that has over the last 3 years seen its price points drift down. And we are too focused on the opening price point and the low end zone of that market. And through the Enter the fourth quarter we walked away from some of that low end. And we're beginning the process of positioning -- restaging Graco as more of a mid price point or trade up line.

And additionally, we are developing a broader distribution network for Graco. We are over focused -- we are overly concentrated when it comes to distributing Graco products in the U.S. Actually in Europe we have broader distribution and a higher price point position. But we have some work to do there in the U.S. So the key to Graco will be new products. And it will be new products that will be targeting a higher end of the marketplace. And it will feature more innovative value-added features and more brand building activity.

Okay, great. And then if I could press the raw material point just a step further. Would you view those assumptions as very conservative?

I think they're realistic.

Even with the 3 million pounds of resin gone or 400 million gone?

We're less reliant on resin than before, but we're still again buying roughly sort of 1 billion pounds of resin. So we're still -- it still has an impact on us as we go forward.

I think if you look at raw material assumption, the assumptions we have made are accurate based on literally real-time input. If the price of raw material goes up further, we will have more head wind. If we get a break and there's a correction in the market, that will help us. But I wouldn't classify the assumption as conservative, just highly accurate.

Bud Bugatch with Raymond James & Associates.

I got a couple of questions. Product line exits of $200 million in the year, is the Curver sale included in that, or is that beyond the Curver sale?

It is not included.

So that is in addition to that. So another $100 million out of RHP and 100 million out of Eldon, is that what you --?

About half of it is RHP. The remainder is split between Graco, Office Products and window fashions in the UK.

And how will that breakout quarter by quarter, is it roughly -- ?

Can I get back to you on that? I will have Jesse get back to you.

Okay. A couple of other just quick questions. I know you have chosen not to include options in your guidance. It has been between 16 million and $19 million for the last 3 years per year. Is that -- what was the expense in 2004, and how should we think about it if we want to include that in our numbers?

We're still going through that evaluation, but it is a different calculation than what is in our footnotes. So we will have to get back to you when we've done that work. It is still in the evaluation stage.

Home Fashions was a disappointing margin performance in the quarter. Can you give us little more color on what happens there?

Again it related to the sales decline in Graco and some charges related to the liquidation of product line. (multiple speakers) Home Fashions -- I was talking about Home Fashions. Home Fashions was again the liquidation of product lines in the UK, as well as some raw material pressure.

What will likely continued in there? Is the liquidation charges a onetime event?

They are. We expect the earnings in that segment to the relatively flat in '05 compared to '04.

Let me just -- last questions so I don't dominate. The cash on the balance sheet of 500 million, how much of that is in Europe? Is there a tax impact of that?

I will have to get back to you off-line on that.

Eric Bosshard with Midwest Research.

2 questions for you. First of all on the Office business, profits down 10 percent in the fourth quarter year-over-year on top of down 10 percent in the fourth quarter last year. And I know you get a new management team there and a new plan. But my 2 questions within that, first of all what has changed in Office that you are now talking about this need for a global restructuring? What has changed in the marketplace? And then second, when will we see a stabilization in the profit performance out of that business?

First, you know, a significant part of the change in earnings is due to SG&A investment. This is a business where we had to build up the capability in product development, along with R&D and marketing worldwide. So that is reflected. The writing instrument part of our OP actually has great momentum. The Office Products, or Eldon part, is an area that we are down sizing. It is resin intensive. There is a lot of commodity orientation there, and we are making that a smaller, better business.

The writing instrument strategy is -- I wouldn't classify it as new as much as we're going to align our direction in OP I should say with the rest of the Company. The focus is new products, brand building, and Operational Excellence. And this is a part of the Company that will be aligned with the rest of our strategy. So our new manager, Steve Martin, of Worldwide and Rory Leyden of the North American business, they really are going to align themselves with the old Company. And you will see the same kind of progress in writing instruments that we want to see in the rest of the Company.

In terms of when the profits of that business stabilize should that business have flat or grow profits in 2005?

Yes, -- well, in the first half they should be down slightly as we deal with the restructuring that I mentioned earlier, and show profit growth in the back half.

And then secondly, Pat if you can help us understand a little better, what is the tax rate going to be in '05, and help us understand a little bit better? It sounds like there's some tax benefit and then that is going to offset some expenses within the business. Can you just be a little more clear in what you're talking about in terms of those two areas?

For ongoing tax rate you should use 31 percent. As far as the tax benefit, I really can't discuss that on the call here. We can handle that off-line the onetime tax benefit.

Okay. And then I guess if I could just ask one last question. It looked like inventories in the quarter were up 10 percent, and sales were down 2 percent. Clearly there's a lot moving around on your balance sheet. Can you just help us understand is that the right way to think about the inventory position, and how long until we get that corrected?

I'm sorry, ask that one more time?

Inventories look like they were reported up 10 percent year-over-year.

They are up what about 87 million I believe, is that right? Okay. Most of that increase is in the Office Products segment where we had -- we had some service level issues in midyear. And so for the short term we needed to add about half of that increase was in Office Products. We also added some inventory in the areas that we're doing the restructuring this year to build inventory to get ready to close 3 facilities. So yes, you can expect that to come back down during 2005 once we get through that restructuring phase.

Connie Maneaty with Prudential Securities.

It is actually Daryl Arnell (ph) for Connie. Just a couple of quick questions. On pricing can you talk in a little more detail just roughly what areas -- what products segments you are getting the pricing in?

We can't. We have a logical plan to focus in the areas where we are seeing the most raw material inflation. But for a lot of reasons we're not disclosing specifics on that pricing.

Daryl Arnell And do you feel like you've been -- generally speaking you've been successful in what you've tried to get?

Yes.

And then in Tools and Hardware, Joe, I know you said you have a good product pipeline for Q1. My understanding --.

Not Q1 for -- I'm sorry, for 2005 and beyond.

By understanding was that Q4 '04 had a strong line up as well? And I know you were facing tough comps, but I thought sales might have been -- was going to be up a little more than 1 percent.

You're right. We did flow new products in Q4. We were facing very tough comps. And so that's basically what happened in '04 -- in Q4 '04. The product line pipeline for tools though is kind of a building gradual process. And I think it will be very clear as time unfolds that that business has a bright future thanks to new products.

And then just 1 quick question. The other income line had about a $7 million gain, $7 million worth of other income. What was in that?

It was a gain on the sale of the repurchase of some quips.

We got a 4.4 from (indiscernible) quips and about 1.6 from translation are the big drivers.

Joe Altobello with CIBC World Markets.

First one to start out, I think you mentioned the 11 cent tax benefit in the first quarter. And I realize you don't want to talk about this too much in detail on the call. But could you quantify the benefit beyond the first quarter? Is 11 cents for the year as well or is it (multiple speakers).

It is neutral for the year. When you take -- we are using that benefit to restructure facilities in Office Products, Tools and Hardware and Home and Family, as well as restructure the overhead in Europe after the sale of Curver. So the net impact of that tax benefit and those actions is actually neutral to earnings for the year. It is a positive in the first quarter, but neutral for the year.

Got you. Second, obviously you guys had taken some pricing and hope to continue to do that as well. How does that impact the relationship you guys have right now with some of your key retailers? And also on the flip side of that, you've also cut CapEx pretty substantially. How has that impacted your relationship with your suppliers?

In terms of pricing we're certainly not alone in the consumer products world in terms of taking price increases. So price increases are something our retail partners never look forward to. And the meetings are always challenging. However, many, many companies have taken pricing throughout the course of '04 and will continue to do so in '05. And I think our salespeople and our Presidents are managing this process pretty well. We're very committed to supporting our retail partners. Unfortunately, we're facing raw material inflation, and we're not passing on all of that, just a fraction of it. And so far it has worked out pretty well for us with our retail partners.

In terms of fixed capital, this really has not adversely affected relationships with suppliers. In fact I think the Company is strengthening its ability to work with and manage our key suppliers. We are windowing out a number of sort of second-tier suppliers. And we're -- so we're streamlining the number of suppliers we've got. Therefore the remaining suppliers are guaranteeing more business with Newell Rubbermaid. And we're allowing these suppliers to become closer and closer to the Company. They are in many cases investing in fixed capital on their own based on stronger commitments between Newell and the supply base. So I would say our purchasing network worldwide has done an excellent job here. And if anything, our supplier relationships are much stronger than they were even 2 years ago.

Okay. So the short answer is that you guys haven't seen or anticipate to see a loss in shelf space anytime soon?

I'm sorry. Can you repeat that?

You guys don't anticipate a loss of shelf space because of the pricing actions you're taking?

Look, I believe that we will see some decline in volume in certain low margin parts of the Company where the price increases are significant. And that is per plan. So in other words, our volume was down last year. We exited 275 million worth of product. And there will be some volume decline this year in areas where we're taking a lot of pricing driven by resin inflation. We anticipate this change in volume. This is a part of sort of a negotiation with our retail partners. But it is nothing unplanned.

And then finally if I could you guys have obviously sold $1 billion of business. Yo7u have walked away from well over $200 million of business as well. It is sort of been and addition by subtraction, if you will. I was curious if '05 was the year we start we see some addition by addition in terms of acquisitions? You've got 500 million on the balance sheet in cash. It looks like your debt levels are at least manageable.

You're exactly right. In 2004 we made a decision to not be acquisitive. We were focused on restructuring. We were focused on divestiture. However, as we move into 2005 thanks to our fourth year in a row of strong free cash flow, and a stronger balance sheet, we are in a position to be acquisitive. And we're going to look at selective strategic accretive acquisitions in 2005.

Chris Ferrara with Merrill Lynch.

I was wondering if you guys could talk about what your -- I know you broke out for '05 what the combination of core sales and currency is expected to be. But can you breakout what you expect actual currency to be or what you expect it to be on a local currency basis?

As far as the breakout of the core in currency it is about 50-50.

And then just specifically on Eldon. I think you guys said it was down about 5 percent for the quarter and that was on product line divestitures, or exits anyway.

Our exits.

Last quarter it was down so much more than that. And it seems to be a big sequential rebound on the positive side. What is going on there?

I think it is just timing to the year before. Timing of sales to the year before.

Meaning what? You had extra sell in the comp quarter like a year ago for the third quarter?

I would have to look back at it, but I don't know if anything significant that happened year-on-year. We have exited some product lines there were very low margin. And I don't even have that comp in front of me. What was the comp in Q3?

Plus 20, down 27 I think.

Okay. I will have to get back to you on why it was so big in Q3.

Maybe a strategic comment is Eldon is 3 things. It is our Rolodex business, which is small but strong. It is our sheer matte (ph) business, and it is our resin based Office Products Supply business, office accessory business. And we have a very well thought out plan to right size that business and maximize its financial return. And part of that includes walking away from parts of that that are overly resin intensive, overly commodity oriented, while we strengthen parts of the business that have better margins and where there is more innovation potential. And I have to tell you that the team has done a good job in managing that process. I agree with that. There is some timing along the way that may skew these numbers. But where it is having is where we set out to be with that Eldon business.

Got it. And not to beat the new products thing to death, but it sounds like for the core '05 number you're expecting stripping out currency maybe a little more than half a percentage point of growth. But it sounds like you have a decent new products pipeline heading into '05. So obviously you're backing out of product lines but that core number, what is going on in the core piece? Do you have other existing product lines that are particularly weak and new products that are sort of of taking the place of them with some kind of (indiscernible). How does is that flowing through?

Yes, we do. You're right, our products pipeline is growing, and it is very encouraging. At the same time, as mentioned earlier, our Graco business is going through a restaging. And the Graco business is going to end up smaller and more possible, with stronger, more innovative products. So that is one of the areas where you're seeing downward pressure on the top line.

Secondly, in Little Tikes, we had a volume spike last year. And we understand the lifecycle nature of that toy business. And we are I think prudently planning for different kind of sales levels, lower sales levels in Tikes based on the reality of lifecycle management. And then finally, in Europe, we are conscientiously reducing our home decor business, largely in the UK, because the business has not performed financially. And that is also the third area that is having a downward impact on our topline.

And those are not included in the 200 million per product line rationalizations?

Not all of it, no. Because -- yes I'm sorry.

In certain areas where we chose to exit the product line, those are included. But in the rest of the parts where their businesses is declining we have not included those. It was a mix for those business.

I guess I'm just trying to get a sense for -- it sounds like there are 2 buckets, like one is planned product line exits and another is businesses that you just -- you're leading shrink and --?

I would say both of those are planned for actions. In other words, we have identified a prime (ph) item out of products discontinuance. That is baked into the budget for the year. But there's also businesses that -- you're right -- we are winding down their topline. That is also part of the plan. But it is difficult to anticipate exactly what level of sales will come in and so there is more of a range that we baked into our plan.

You look at that toy businesses there is some volatility there. There is lifecycle management there. We look at it more in terms of a range. Likewise with Graco where we're going through a lot of restaging, there is more of a range. So we can certainly outline, perhaps give you more help in modeling this up, but maybe that will give you some direction.

I appreciate it. Thanks.

Ann Gillin with Lehman Brothers.

A quick question. I didn't hear quite clearly the answer on the 7 million benefit number. I didn't hear the first part of that that represented about 4.4 million?

That was the repurchase of quips (ph) instrument. We had a gain on that repurchase.

Okay. That's one time?

That's right.

And then secondly I just wondered is there any inventory balance benefit from some of the discontinued businesses and/or the planned exit of low margin businesses? Anything that would have flowed through inventory as you made those decisions?

I'm not sure I understand the question.

I'm just trying to understand -- a similar question was asked before the year-over-year change in inventory growing faster than sales, and whether there would have been any write-offs of inventories flowing through?

No.

So your inventory is basically at cost at this point, not at perhaps a reduced expectation?

We do have inventory reserves for excess and obsolete inventory. They are about the same level they were a year ago. Does that answer your question?

Yes, that's exactly the answer. And, Joe, my perennial question, as I look at SG&A I always look at where ad and promo may be changing. Can you help me out with that this quarter, because I understand the FX and the pension, and that you have some strategic investments that you'll be shifting as they add in promo tours. But can we get a sense as to what is happening on that line?

The SG&A investment in '05 -- this is Pat -- is in the Office Products segment, primarily North America, and in the Tools and Hardware segment.

This is not SG&A in total, Pat, this is add and promo?

I will have to get back to you on the split out. How much of that in promo, but it is -- the categories are new product development, marketing and promotion and sales comp. But I will have to get back to you what that split out is off line. I don't have it in front of me.

And maybe this will help. Not all of our demand creation investment falls in add and promo. We do -- some things roll up in sales comp that are really based on end-user demand. So we can certainly work through this with you off line and give you a good indication where we're investing.

Is it fair -- I'd love the off line. Is it fair to say that they are rising -- that your new product investments are rising given what you're talking about with the pipeline?

Absolutely. As we did invest in 2004. And it was certainly tempting to curtail those investments, but we were disciplined about it. And we will continue, as Pat pointed out, to invest in our -- invest grow business in '05.

Is the net number higher at the end of all this? Because the invest grow (ph) should be now larger percentage of total?

That's right.

Yes.

Last question. It is the last outlook for a full year that we will hear about from low margin businesses we're discontinuing? Are we at the end of this finally?

I'm not sure I understand your question? Is it the last year we will be exiting low margin businesses?

We had an expectation that you would actually see some positive sales growth in your range. And now that incremental 200 million that you are discussing today is kind of a new news to the revenue line? If this it? Have you done enough of a portfolio review? I know that that process is always ongoing for all companies, but order of magnitude, 200 million being large --.

It is ongoing now. We do have a different scenario today than we had a year ago. The raw material inflation was significantly higher in both '04 and '05 and plan. And it did make us take a look at some of these other product lines given that inflation. That's what drove some of this additional exit.

Certainly as we look at 2006 and beyond, we intend to grow the Company. And while we're not issuing guidance for that time frame today, of course, it is clear and our plans are that we'll grow our business in 2006 and beyond.

Our last question will come from Mr. Derek Leckow with Barrington Research.

My question relates to your 2005 revenue outlook as well. You talked about 200 million rationalization of product lines and then 100 million from pricing, and 100 million from foreign currency offsetting that. I just wondered why are you using such a low assumption for internal growth? And then perhaps I should ask the question more broadly. What is your outlook for internal growth over the long term? What do you think that number should be?

I'll handle the first part. The growth varies by segment, and we expect internal growth in '05 in our Tools and Hardware, in our writing instrument part of Office Products. And the core decline is in, as we mentioned, Graco and Little Tikes. Some of that is related to some of the actions -- one of the key retailers in that space. And we expect some store takeout in one of our key retailers, and that is affecting that number. But it is a mixed growth situation between our segments. Our growth segments we do expect to grow, and we do expect some contraction in some of the other areas.

And to answer the second part of your question, ongoing or long term, we believe we can grow this Company's topline 2 to 4 percent. That is organic growth before acquisition. And we're very hopeful we can move into that zone in 2006. We recognize we have got a lot of moving parts here. And there's been a lot of planned divestiture, but we're confident we can grow this Company 2 to 4 percent over the long term.

So does 2005 look more like a slow start and then ramping up toward the end of the year? Is that how you characterize the internal growth overall?

Yes, exactly.

Okay, thanks a lot.

Okay, and thank you everyone for your interest in Newell Rubbermaid. We look forward to our next really conference call.

If we were unable to get your question during this call, please call Newell Rubbermaid Investor Relations at 770-407-3994. Today's call will be available on the Web at www.NewellRubbermaid.com and on digital replay at 1-888-203-1112 domestically, and 719-457-0820 internationally, with a confirmation code of 929053, 2 hours following the inclusion of today's conference for 30 days, ending on February 25, 2005.

This concludes today's conference. At this time you may disconnect. Thank you and have a great day.