諾威品牌 (NWL) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Newell Rubbermaid's fourth quarter earnings release conference call. At this time participants are in a listen-only mode. Just as a reminder, today's conference will be recorded. Today's call is available via live audio webcast at www.newellrubbermaid.com on the Investor Relations homepage and digital replay for two hours following the call at 888-203-1112 for domestic participants and 719-457-0820 for international participants. Please provide the conference number of 7295044 to access the replay.

I will now turn the call over to Ms. Nancy de Jonge Davis, Vice President of Investor Relations and Corporate Communications. Ms. Davis, you may begin.

Thanks, Steve, and good morning.

Before we begin I would like to take a moment to read our forward-looking statements. The statements made in this conference call that are not historical in nature are forward-looking statements. These forward-looking statements are not guarantees and concern inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in the statements. For a list of major factors that could cause actual results to differ materially from those projected, refer to our most recent Form 10-Q including Exhibit 99.1.

Additional financial information about Newell Rubbermaid's fourth quarter and 2005 results are available under the Investor Relations section of our website. Let me now turn the call over to Mark Ketchum.

Thank you, Nancy, and good morning, everyone. I want to thank you for joining us today.

We completed the fourth quarter with net sales of 1.75 billion, nearly flat to last year's sales and consistent with the Company's guidance. Our invest businesses generated a 1% increase in sales over last year, led by several of our tools and home and family product lines. Our fixed businesses posted a sales decline of slightly more than 2% as we continued to rationalize products at an appropriate level and prioritize the bottom line on these businesses.

Gross margins continued their improvement over year ago an increase of 17 basis points. And fourth quarter earnings per diluted share on a continuing basis was $0.41 compared to results of $0.45 one year ago.

The Company worked through a challenging year to deliver solid 2005 results. For the full year 2005, sales were 6.34 billion, a decline of 2% from 2004 and in line with the guidance provided at our analyst day back in September. For the year, sales increased 2% in our invest segments and declined by 8% in our fixed segments.

Complexity in managing the business resulted from several moving parts. We overcame a great deal of raw material inflation, divested [Kirver], our European home storage and organization division, divested Newell Cookware Europe which operated under Pyrex and other [last] brands. We also restructured several businesses in our portfolio and made a large acquisition of DYMO, a global leader in designing, manufacturing, and marketing on demand labeling solutions.

Despite the headwinds, full year 2005 earnings per diluted share on a continuing basis were $1.54 up 10% over comparable results of $1.40 one year ago. Pat Robinson will walk you through the financials in in a few moments.

I would like to take this opportunity to thank our nearly 30,000 employees whose hard work and commitment allowed us to exceed our earnings plan for the fourth quarter and the full year and to deliver a solid 2005 which we can and will build upon.

I have now been in the CEO role for 100 days. I've spent much of that time reviewing our various business units and operations in the U.S. and Europe. And what is clear to me is that Newell Rubbermaid has a solid foundation to build from. I am very optimistic about the Company's future. The building blocks for increased shareholder value are here -- solid brands and strong people.

I have also spent many of my first 100 days engaged with the Board and with my leadership team on what's missing to realize this Company's potential. The answers fall into two categories.

First, we need to make some important fine-tuning adjustments to our strategies. Second, we need to identify the high impact set of business processes that will operationalize our strategies and then drive them to executional excellence.

I envision a global company of great brands delivering topline growth to produce strong shareholder returns. Let me take you through some examples of the changes we will be making and how they support that vision.

Our first strategy has been investing in brands to deliver topline growth. At various times, we have referred to these brands as power brands or strategic brands. What has been missing is a clear commitment to put the consumer first. We need to be building brands that really matter to our consumers. To do so, we will have to put in the systems to understand our consumers in detail, how they use our brands and our categories, what they value and how to delight them or excite them.

We'll have to invest in more innovation that differentiates our brands. We will have to invest a lot more in advertising and other consumer marketing to increase awareness and trial and repeat purchase. We'll have to be able to measure the effectiveness of these increased margin investments.

Where we have done some of this already we can see the payoff potential. For instance, within our office products group we increased advertising and promotion, including television campaigns, to launch the Sharpie Mini and continue to support the Sharpie Retractable. Sales of the Sharpie brands have more than doubled within just a few years and have dramatically expanded category consumption.

The LENOX team has made investments in understanding the professional consumers' needs and in the R&D to create a pipeline of current and future products. Many of the recently introduced LENOX products -- including our LENOX gold blades -- have proprietary technology that makes them cut faster or last longer or both. This really matters to LENOX's target consumer. In 2005, the LENOX brand grew double digits for the second consecutive year behind this focus.

Both DYMO and Calphalon ran new television advertising in the fourth quarter and saw an immediate response in point of sale offtake. Today across the Company we have several advertising and promotion investment tests in place. And are holding additional funds to invest behind the best performing test.

Two of our home and family businesses, which were categorized as fixed businesses in 2005, made significant strides by focusing on putting the consumer first. I am talking about the Graco and Goody brands. These businesses made dramatic improvements in gross margin and [Rona] and will be categorized internally in our invest portfolio beginning in 2006.

Our second key strategy has been to achieve a best cost position. Up until now this was focused primarily on our manufacturing cost position. The restructuring undertaken a few years ago, as well as project acceleration announced last fall, was aimed at shrinking the size of our manufacturing footprint to get higher capacity utilization and lower overhead, while shifting more production to low-cost countries or outsourcing partners wherever that was required to get best cost.

Going forward, we will be broadening the scope of this best cost strategy to include all key elements of cost. We are not wasting any time. We have recently kicked off efforts to go after distribution and transportation as well as SG&A structural costs. This work will be critical to achieving our future goals.

As we announced in December, we were able to start Project Acceleration a few weeks earlier than originally planned. An example of Project Acceleration is the consolidation of our [Eldon] office products line from two locations into one. This effort will allow us to tap into excess manufacturing and distribution capacity and to better leverage efficiencies and know-how.

On Tuesday, we announced that several Rubbermaid facilities will consolidate to our Jackson, Missouri facility, in order to reduce transportation costs and improve overall manufacturing capacity utilization. There are scores of initiatives like these under the mantle of project acceleration.

Last year, we began consolidating certain elements of the supply chain under Ray Johnson. We started with the purchasing area, focusing on our highest volume cross divisional materials. Resin, energy, metals and packaging. Our objective was to leverage the aggregate purchasing power of Newell Rubbermaid and to identify and reapply best practices at a faster pace with more consistency. Within the past month we initiated the consolidation of the distribution and transportation element of the supply chain, also under Ray Johnson. The same opportunity to leverage corporate scale to reapply best practices exists here and will exist in other areas of the supply chain, as we dig into deeper layers of cost.

Another example of expanding the best cost strategy is the greater emphasis we are placing on reducing SG&A costs that don't build our brands. As mentioned on my last earnings call, all SG&A is not created equal. We need to invest more in advertising, promotion, and R&D. But I am convinced we can fund this largely through reductions elsewhere in SG&A.

A real-time example of this effort is the decision announced two weeks ago to further extend our European shared services. The scope of activities to be covered includes the Treasury and Accounting needs for all of our European businesses. This shared services initiative will free up our European managers to focus more on new product launch, marketing, sales, supply chain and operations.

Before I leave the subject of best costs, I want to be clear that our productivity focus for manufacturing has not diminished and will not diminish. The application of the operational practices we call Newell OpEx has been critical to achieving our bottom-line progress in the past two years and will be just as critical going forward. You will hear from Pat later in the call just how important our productivity efforts are.

Our third key strategy is to weed and feed the portfolio. Over the past three years the Company has made significant progress in strengthening the portfolio through strategic acquisitions of businesses totaling nearly $1 billion in sales -- including DYMO, which we completed ahead of schedule. We are now full swing into executing the plans to integrate DYMO within the Office Products group. All key milestones are on track. We already have some early wins selling in additional DYMO products into this year's spring Planograms at several key customers.

Our recent big acquisitions LENOX, IRWIN, and DYMO serve as good models for future acquisitions. Businesses with attractive consumer channel and industry dynamics, with gross margins and growth potential that enhance portfolio. We will prioritize acquisitions that had or build onto brands that matter to consumers, often with intellectual property as the differentiator. On the flip side we will continue to be active in divesting businesses that don't fit our business model.

Over the past three years, we have divested more than 1.1 billion in sales of non-strategic businesses, including Kirver and most recently Newell Cookware Europe. We expect 2006 to be another active year.

Now let me turn the call over to Pat to cover details before I will provide summary comment at the end.

I will start with our fourth quarter P&L on a continuing earnings basis. Net sales for the quarter were 1.7 billion, up 17 million or 1% over a year ago. Excluding DYMO sales, internal sales were down 8 million or four times of a point consisting of the following. Unfavorable currency translation was -15 million or 8/10 of a point. We had favorable pricing of 37 million or 2.1 points. We had product line rationalization of -40 million or -2.3 points. Our core sales grew by 10 million or 6/10 of a point for a total internal sales change of -8 million or 4/10 of a point.

Internal, our invest businesses grew about 1% in the quarter. Double-digit growth in our LENOX, IRWIN, and BernzOmatic brands along with mid to high single digit growth in our Rubbermaid commercial and Calphalon brands was partially offset by a 1.5% decline in our office products segment, primarily driven by unfavorable currency. The double digits declined in our consumer electronic tool business as that product line nears the end of its life cycle.

The businesses we classify as fixed saw a 2.4% decline due to lower sales in our European window fashion and those types of businesses. However seasonal promotions at our Rubbermaid home products business helped to minimize the deterioration in the fixed category. Gross margin in the quarter was 514 million or 29.4% of net sales, up 17 basis points for 2004.

The increase in gross margin was a result of the following. We had favorable pricing of 37 million or 2.1% which added 1.5 points for gross margin. Gross productivity in the quarter of 20 million or 1.8% lifted margins by 1.2 points. Favorable mix improved margins by 30 basis points and raw material inflation of 48 million decreased margins by 2.8 points. SG&A was 341 million up 30 million last year. Primary drivers of the increase were the impact of additional strategic advertising promotional investment of 15 million in our RCP tools and hardware, Calphalon and office products businesses as well as the DYMO acquisition. Operating income was 173 million or 9.9% of sales.

The Company recorded 51 million in non-cash restructuring charges, related to Project Acceleration in the quarter. Due to the importance of this initiative we began executing Project Acceleration one month earlier than previously expected. We continue to expect cumulative charges of 350 to 400 million -- approximately 60% of which will be cash -- over the life of the initiative. Annualized statements are projected to exceed 120 million upon completion of the project. These charges are not included in continuing earnings described previously.

Interest and other income was a net expense of 9 million in the fourth quarter of 2005, compared to a net expense of 22 million in 2004. The net decrease of 13 million or $0.03 per share is primarily the result of gains recognized on the sale of fixed assets in 2005. We also did not repeat a $0.02 per share benefit from the resolution of tax contingencies in the prior year. The net impact of all of the above is a $0.01 improvement year-over-year.

I will now take a few moments and talk about our fourth quarter segment information. In the Cleaning & Organization segment, net sales were 464 million, up 19 million or 4.2% last year driven primarily by increases in core product sales and Rubbermaid commercial, and the success of home organization holiday promotions in the Rubbermaid home products business, as well as successful pricing. Operating income for the group was 24 million or 5.1% of sales, compared to 41 million last year. The decrease in operating income was the result of raw material inflation, unfavorable manufacturing volume as inventories were reduced approximately 55 million in the segment in the quarter, and increased SG&A and Rubbermaid commercial. Successful pricing actions partially offset these declines.

In our office products segment, net sales were 457 million, up 17 million or 3.9% the last year, benefiting from the DYMO acquisition. Excluding the impact of DYMO, internal sales were down about 1.5% as a result of unfavorable currency fluctuation, primarily in Europe. From a product perspective, continued double-digit growth in markers was offset by declines in fine writing and colorings.

Operating income for the group was 17. -- 74 million or 16.1% of sales, essentially flat the last year. The additional income from the DYMO acquisition was partially offset by the foreign currency impact, and increased investment in advertising and promotion. In our tools and hardware segment, net sales were 350 million, up 6 million or 1.8% the last year, driven by strong sales in IRWIN-branded tools, LENOX, and BernzOmatic. This segment experienced a double-digit decline in the sale of consumer electronic tools. Excluding the decline of consumer [e-tools], segment sales were up approximately 10% for the quarter. Operating income for the group was essentially flat to last year at 49 million or 14% of sales. The operating income from the increased sales was offset by raw material inflation and increased investment in SG&A.

In our home fashion segment, net sales were 210 million, down 18 million or 7.8% the last year. About half the decrease was the result of foreign currency fluctuation but the remaining decrease primarily the result of planned product line exits in our Swiss UK business, and core sales declines in our European home fashion business.

Due to the success of our size and store program and our drapery hardware line, sales were up high single digits in our North American home fashion business. Operating income for the group was 10 million or 4.7% of sales, compared to 8 million in the prior year. The increase in operating income was a result of the strong sales in North America coupled with productivity, partially offset by the core sales decline in Europe.

In our home and family segment, net sales were 268 million, down 7 million or 2.5% the last year, primarily as a result of core sales declines in our Little Tikes battery-operated products. The rest of the segment posted mid single digit growth.

Operating income for the group was 34 million or 12.6% of sales, consistent with the prior year. The income dropped through when the sales decline, resin inflation and increased advertising promotional investment in our Calphalon business were offset by strong productivity and pricing actions.

Operating cash flow for the quarter was 190 million or slightly above the midpoint of our range. Capital spending for the quarter was 22 million versus 27 million last year. This year's cash flow includes a 25 million voluntary contribution to our UK pension plan.

We continue to make progress in improving our portfolio and at the beginning of 2006 announced that we completed the sale of the European cookware business. The results of this business have been presented as discontinued operations and include a loss and disposal of 34 million, 10 million of which was recorded in the fourth quarter. The impact to continuing EPS of this disposition was a $0.01 improvement to the September year-to-date results, offset by a $0.01 decline in the fourth quarter, making it EPS neutral for the year.

In the second quarter of 2005 the Company committed to the disposal of business in the Cleaning & Organization segment and recognized an impairment loss of 24.5 million. In the third and fourth quarters of 2005, the Company revised its estimate of the fair value of this business after weighing several line reviews with key retailers. As a result of the line review wins and the identification of significant productivity opportunities the Company ultimately decided to retain and operate this business and reverse the full amount of the impairment charge. The results of this business are now reflected in continuing operations.

The impact for continuing EPS of this restatement was a $0.02 improvement to the September year-to-date results, offset by 8 $0.01 decline in the fourth quarter, making it accretive to EPS by $0.01 for the year.

I will now cover the full year results. Net sales were 6.3 billion, down 137 million or 2.1% for last year. Internal sales declined by 162 million or 2.5% consisting of the following. Favorable currency translation of 48 million or 7/10 of a point, favorable pricing of 132 million or 2 full points. product line rationalization of -200 million or 3.1 points. And our core sales declined by 142 million or 2.1 points. For the year, net sales in our invest businesses improved by 2% over last year led by double-digit growth in our LENOX and BernzOmatic tool brands and high single digit growth at Rubbermaid commercial products and IRWIN-branded tools.

Internal sales in our office products segment were essentially flat for the year with double-digit growth in our marker and highlighter business, offset by declines in fine writing and office products. Full year sales in our fixed businesses experienced declines of 8%, impacted by low margin product line exits and Rubbermaid home products, and core sales declines in our Little Tikes battery operated products and European window fashion businesses.

Gross margin was 1.9 billion or 29.9% of net sales, up 1.3 points to last year. In 2005 gross margin was impacted by the following. Favorable pricing of 132 million or 2% added 1.4 points to gross margin. Gross productivity of 87 million or 2.1% added 1.3 points to gross margin. Favorable mix driven by the rationalization of unprofitable product lines added 1 full point to our margins for the year and raw material inflation of 153 million reduced margins by 2.4 points for the year.

SG&A for the year was 1.3 billion, up 58 million the last year. The increase in SG&A reflects strategic investments in our invest businesses, a currency impact of 11 million and about 9 million related to the acquisition of DYMO, partially offset by streamlining our fixed businesses. Operating income for the year excluding Project Acceleration restructuring and other one-time charges was 608 million, or 9.6% of sales.

The favorable resolution of tax matters was used to reduce manufacturing infrastructure and right-size our European overhead structure resulting in a net $0.04 per share improvement versus 2004. Interest and other income improved earnings by approximately 12 million or $0.03 per share compared to the prior year, primarily as a result of gains recognized in the sale of fixed assets in 2005. Operating cash flow was 642 million for the year compared to 660 million last year. Capital spending was 91 million versus 122 million a year ago. In addition, the Company generated cash of 64 million from the sale of fixed assets.

Turning now to the 2006 outlook, we expect internal sales to be in the range of -1 to +1% driven by the following. Pricing for the year is expected to be 100 million favorable. Product line rationalization is expected to reduce sales by 75 million versus last year, with more than 75% occurring in the Rubbermaid home products business and the remainder in our window fashions UK business.

Foreign currency translation is expected to negatively impact sales by about 50 million. Core sales are expected to be up about 25 million, driven by an increase in our invest businesses of between 2 and 4%, partially offset by a decline in our fixed businesses of between 5 and 10%. We expect 2006 earnings to be in the range of $1.55 to $1.65. This outlook does not include pretax restructuring charges of approximately 170 to 200 million or $0.52 to $0.62 per share. The range does include 100 million in raw material inflation, predominantly in resin, which is expected to be substantially offset by pricing actions. The combined impact of these items will be neutral to earnings for the year.

The Company expects 120 million in gross productivity or 2.9% to be partially offset by unfavorable manufacturing volume and manufacturing inefficiencies resulting from the shutdown of facilities as a result of Project Acceleration. The combination will yield positive $0.17 per share in 2006. Strategic SG&A investments of about 40 million primarily in our invest businesses will be partially offset by $20 million of streamlining activities in our non-strategic areas of SG&A. The net impact is a -$0.05 per share for the year.

The DYMO acquisition is expected to be $0.06 per share accretive to earnings for the year. In 2006 the Company is required to expense employee stock options, which is expected to reduce earnings by approximately $0.05 per share.

And, finally, the net impact of one-time tax resolutions, restructuring, and other income will reduce earnings by approximately $0.07 per share for the year. The impact of all the above changes an approximate $0.06 improvement in EPS in 2006 at the midpoint of our guidance.

Cash flow from operations is expected to be between 550 and 600 million including approximately 100 million of cash restructuring charges. Capital expenditures are estimated to be between 125 and 150 million.

Turning now to the quarter one 2006 outlook. We expect internal sales to be flat to -1% as 25 million in negative currency will be partially offset by about 20 million in pricing. Our invest businesses are expected to contribute between 2 and 4% of sales growth led by our Rubbermaid commercial products, IRWIN-branded tools, BernzOmatic, LENOX and Graco businesses, while our fixed businesses are expected to decline between 5 and 10% as we continue to experience core sales declines in our Little Tikes and European home fashion businesses.

For quarter one we expect earnings to be in the range of $0.08 to $0.13 per share. This outlook does not include pretax restructuring charges of approximately 25 to 35 million or $0.07 to $0.11 per share. The range does include the following.

In the first quarter of 2005, the Company recorded approximately $0.24 per share relating to the resolution of tax contingencies and a gain of the curtailment of the U.S. pension plan partially offset by restructuring charges taken above the line. This favorability will not repeat in the first quarter of 2006. Raw material inflation of 20 million will be offset by positive pricing of 20 million. Gross productivity of approximately 25 million or 2.7% will be partially offset by unfavorable manufacturing volume and manufacturing inefficiencies resulting from the shutdown of facilities under our Project Acceleration plan. The combination of these items will yield positive $0.04 per share in 2006. The strategic SG&A investments as well as 2006 stock option expense recognition will be partially offset by streamlined initiatives. The combination of these activities will result in a $0.03 per share decline in the quarter. Finally, our DYMO acquisition will contribute $0.01 of earnings to our first quarter results.

Operating cash flow is expected to be in the range of -25 to +25 million in the first quarter with capital expenditures of 30 to 40 million. I will now turn the discussion back over to Mark for some additional comments.

Thank you Pat. In closing I want to reiterate how pleased I am to see the Company work through a very challenging year to deliver a solid 2005 and exceed bottom-line guidance for the quarter and the year. The business faced significant headwinds in 2005 including resin and other commodity cost inflations, while also managing through the divestiture of non-strategic businesses from the portfolio.

Despite these headwinds we were able to deliver our commitments and set ourselves up to accelerate progress in 2006, including closing the DYMO acquisition and beginning the execution of Project Acceleration earlier than planned. The Company delivered solid operating cash flow performance and we will continue to take a balanced approach to capital allocation, investing selectively in our businesses, and returning cash to our shareholders through our dividends.

Looking forward, managing commodity costs will be a challenge once again in 2006. As Pat told you, our anticipated raw material inflation is $100 million. But we expect to manage this successfully as we did in 2005 through a combination of productivity and judicious pricing. Our juvenile products and personal care businesses -- Graco and Goody respectively -- will be added to the invest portfolio in 2006. We are in a good position to make selective investment innovation and marketing for their continued success.

Companywide efforts such as Max, which trains people on best practices and marketing and new product launch, will reach another 200+ marketing and product development folks on top of the 200 people already trained. This training is fundamental to building brands that matter.

The new opportunities we have uncovered to drive cost reduction and the business momentum we see going into 2006 make us comfortable increasing the earnings per share guidance from continuing operations to the range of $1.55 to $1.65, including the expensing of stock options. Our executive team is energized to implement a vision for building big consumer meaningful global brands and building our people and our organization.

We will be emphasizing teamwork, collaboration, leveraging our scale and the use of best practices to accelerate our progress. The strategic finetuning I discussed earlier will make us tougher competitors. Putting the consumer first to create and build upon brands that matter, expanding our best cost focus beyond manufacturing to include all elements of cost, and sharpening the criteria for weeding and feeding the portfolio.

But strategies are only as good as the activity systems you put in place to support them and in the quality of the execution. And we will pay great attention to the latter.

The combination of strategic finetuning and excellent execution of new business proceeds will unleash our Company's potential. I am confident these efforts will allow us to deliver on healthy, long-term financial targets to win versus tough competitors and to create substantial shareholder value along the way.

Thank you for your time and I would ask the operator to now please open the line for questions.

(OPERATOR INSTRUCTIONS) Chris Ferrara with Merrill Lynch.

Good morning. Mark, you talked a lot about some changes in the strategy of the Company and committing to the consumer first and the need to invest a lot more in advertising. I am just wondering how incremental that is? Because I know you didn't quantify a lot of it but how incremental is that to the plan that was announced in the fall and the idea to increase strategic adds and R&D? Are we talking about a big change here, relative to what we heard about in the fall?

I don't remember exactly how much we quantified it, Chris, but what I'd tell you is that that number, I think, will constantly go up over a series of years. We are going to do it as we can afford it. And so our strategy is to do it and a lot of the other kind of cost savings efforts that I mentioned are meant to free up the fuel to be able to fund this. So frankly, the faster we can free up that money so that we can still deliver or improve upon our bottom-line commitments at the same time investing more -- that is our plan.

So it is not -- it is kind of a we will figure it out as we go. But I anticipate dramatic improvements in those areas. That is what it takes to really create brands that matter and to make sure consumers know about them, make sure they try them, make sure they come back and buy them again.

And that all sounds good but in that context how would that relate to the EPS targets that were expressed after 2008? Would there be any changes to that?

No. Not at this time.

Got it. Then I just wanted to ask quickly, are the underperforming parts of invest businesses ripe for sale as well? Such as -- I mean if you ultimately decide that the fine writing instruments business is beyond repair, I mean, could we potentially hear about that in addition to what is in the fixed category?

We don't comment on that kind of specific planning and I don't want to do that today. Again, let me just say that I think weeding and feeding a portfolio for a company on an ongoing basis is a healthy activity and you constantly are looking at which businesses fit the model and which don't and we will do that, I think, forever. But the answer is, today, what we told you is, there is no change beyond what we told you.

Wendy Nicholson with Citigroup Investment Research.

Could you give us an update in terms of what is going on in the management team? Not only, Mark, your plans whether to stay and become a permanent CEO or not and also we have seen, I think, a couple of announcements of some other members of management leaving the Company. Is that by design? How many more of those should we expect and just comment on the relative stability of the management team at this time?

Let me take those in the 2 parts. I will start with myself. Of course you asked me this question on our last earnings call and that was within the first two weeks after I had taken the assignment and I told you that I thought there was a low probability that I would take it on a permanent basis. And was based on that assessment that the Board obviously was obligated to start a search process which they have done and they are well into. I have to tell you that as time has gone on, the job has really grown on me and I'm excited by the challenge and the opportunity and the people I will be working with. And so I have recently informed the Board of my desire to do this on a permanent basis. But having said that, I also encouraged the Board to kind of complete the process they started and [ref] the top external candidates. So I expect that will be judicious in doing so and that's the status of that.

Relative to the other questions -- the other question that you asked. We have had a couple of our division leaders turn over in the recent month or so. Frankly I think this is not unexpected, based on our history in terms of about what we see that kind of turnover. Both of these individuals left to take jobs that were for them a step up. They were promotions in their minds so they saw these as opportunities and also opportunities that may have met other personal needs.

And as we look at going forward, we will look at these as opportunities to constantly look at the structure of our organization, as well.

Terrific. Not that my vote counts but I think it's terrific that you want the job. I think that's great. Can I just ask one more follow up question? Just in terms of the pricing expectation for 2006 I know one of the things that was a moving peace in 2005 was pricing resulting in maybe some loss of shelf space at retailers and some drop-off in volume. I guess in terms of raising the target for next year, in terms of the outlook for volume growth for the core business do you feel like you have been sufficiently conservative in terms of maybe losing a little bit more shelf space, have the categories shrunk at some of the retailers with that higher pricing? Or do you think that that sort of thing has gone away? The risk?

No. We think that is all cooked into our assumptions. So we do have some selective pricing in, our retailers never like pricing but we've been very transparent about the relationship to our pricing, and the pricing of our raw materials; and we are doing it on selective categories where we think it's most appropriate to make these continue to be reasonably attractive businesses for us.

But, anyway, I guess the best way to answer your question is all the assumptions about where that might cause a softening of either consumer demand or customer support have been baked into our assumptions.

Bill Schmitz with Deutsche Bank.

Just an update. I guess Stanley reported some pretty soft numbers this morning on tools and hardware and you see a lot of news in the press now that remodelings are down, new housing starts are down. And there's been some destocking in a lot of the big box DIY retailers. So does that kind of temper your expectations in the tools and hardware business?

It really doesn't. I mean, our businesses -- both of our tools businesses, both IRWIN and LENOX -- were up double digits. Now that is with one exception on the IRWIN side of the business, our electronic tools -- laser levels and so on -- were down significantly, as appeared to be a product with a limited lifecycle, if you will. And I think all manufactures of laser tools have seen that kind of rapid rise and now, a rapid decline of that category. But accepting that both of our tools businesses grew up double digits and see strong innovation continuing to drive next year as well.

Then just in terms of the first quarter I think numbers are a lot lower than the street was expecting. And I know a lot of that is raw material related. Are you modeling any kind of sequential pullback, or at least moderation of raw material prices as the year progresses? Especially considering the spike after the hurricane?

As far as raw materials this is Pat. The one that affects us most of course is resin. And actually, no, we expect the resin prices to stay relatively high throughout the year. We saw a big dip in the second and third quarter of last year. At this point we are not expecting to see that type of dip this year. So relative inflation year-over-year will be highest in Qs 2 and 3 and then actually will diminish by Q4 because you know they spiked up in Q4 of this year. That is our assumption right now.

Then one last one. Sorry about all these questions. But when can't we expect the manufacturing variances to improve? I know it's brewing the restructuring program but at what point are you going to have to stay until there is no longer going to be a hindrance? I know it is going to be a source of earnings at some point in the future closer to when Project Acceleration is done. But when does that negative variance kind of roll over?

We actually are going to have positive productivity in the year so it is going to contribute about $0.17 a share, even with the inefficiencies in volume impact that we have. As you know, Project Acceleration, we are still committing to +120 million of benefit for that starting in 2007. Not the full impact in '07. It is about 50 million in '07. The full impact by '08.

Chris Thornsberry with Raymond James & Associates.

It is actually Sam Darkatsh, pinch hitting for Budd Bugatch. Couple of quick questions if I could. Some of your peers have noted some pretty pronounced retailer inventory drawdowns late in the fourth quarter in certain categories. Did you folks see that and if so what was the effect on the quarter?

No, we really do not see that. We finished the quarter pretty good. So the answer is, no, we didn't say that. Now we saw that throughout the year on some of our categories but we did not see anything pronounced in the fourth quarter.

Your plant count what is the current state of how many plants you have and how should we look at that this time next year?

That exact number is in the high 70s. I'll -- Nancy will get back to you where we ended the year and she can update you at where we will be at year-end. I don't have that exact number here. We are, as you know started Project Accelerate but I don't have the exact number of plants.

Pat I will go back and check, but we're at probably four or five plants [produced] according to the plants we announced since January 1st.

Last quick questions if I could. Mark, you noticed or you mentioned the advertising need for a step up and a more pronounced consumer message. Would we see -- now I know you want to take some savings from other areas of SG&A and put it into advertising. Would we see ultimately in time the advertising as a percent of sales creep more towards the Proctor and Gamble level that you are used to or are you still looking ultimately at a low single digit percent of sales advertising rate for the Company?

I think it will be neither. It won't be the low single digits necessarily and it won't be Procter & Gamble levels. Procter & Gamble is advertising different kind of products. They have high repeat purchase and some of our products don't have that. Some of our products respond better to promotions. Respond better to driving sales like our professional businesses.

So we won't have the same kind of models since I don't think they are comparable. But the other thing I tell you is that I've encouraged and our businesses are responding by testing higher levels of advertising promotion support. And we will do so going forward.

So what I can tell you is that by the time we are ready to go spend it we will know what we are doing. We will note that the spend will be effective.

So if you're saying it's not low single digit and it's not the 9 or 10% to Proctor so somewhere in the mid single digits ultimately would be a way to look at it?

Oh yes. We are at a couple percent today and now there are 9 and we will be somewhere in between there. I just don't want to try and quantify yet because I think it really varies business by business and as I said we are putting the processes in place to really try and understand better. And that is the thing I mentioned that as an example at the beginning. We really need to have a great strong understanding of the correlation between business growth and specific investments and advertising and promotion and adding coverage to our sales force and so on. And then be able to make those investments appropriately.

And that is some of the systems that I was talking about that you need to really put underneath to make sure you've got a strategy and underlying systems that are synchronized.

Joe Altobello with CIBC World Markets.

Good morning. Just wanted to follow up on that last point, Mark. Obviously your predecessor had also talked about ramping up marketing and R&D I guess, when you came on board and I still have my Pendulum pen, I think somewhere. But is the difference basically just understanding the consumer better and having the systems in place to know what marketing spending works and what doesn't?

I don't want to call it simple because I don't think it is. I think it's a lot of work but, again, it starts with making sure our focus is right and our focus isn't on big brand. Our focus is on a consumer meaningful brand. You have got a consumer meaningful brand and then you've got the right to expect it can be a big brand. You have got the right to expect it could be a global brand. So the change in focus is not a small change.

Now to put that in place, we have got to put all the support systems that really help us to do that. Some of our businesses are well on the way to doing that and others are neophytes. And so, we are really going to reapply best practices and get much more rigorous in how we go do that. And then once we do that, we will -- as I said we will be testing spending higher levels on various aspects of our advertising, our promotion, our R&D, whatever. All these parts that build your business and expanding and growing appropriately from there.

In terms of the product portfolio, obviously you just mentioned this morning, you are probably going to sell somewhere around 75 million of sales in '06 give or take. How much more do you think you need to do before the portfolio is sort of where you want it to be?

(MULTIPLE SPEAKERS)

-- misunderstood. That was product line exits. (MULTIPLE SPEAKERS) 75 million of product line exits.

If you take the 75 million plus the divesters how much more do you need to do before the portfolio is where you want it to be?

I don't think we are going to comment on that. We don't want to get that specific on our acquisition or divestiture plans.

Just rough order of magnitude, I mean is it a couple of hundred million? Is it a billion?

I'm not going to go there.

Eric Bosshard with Midwest Research.

Good morning. Two questions. First of all, in terms of the first quarter, I guess, is a question for Pat. You commented that price ought to equal material costs and so I'm trying to a figure out the 1Q guidance. Seems to be low. And what are the factors that are putting the 1Q where it is? And then understanding how the full year number is raised and the confidence there? Is there something different in 1Q that you get greater benefit on later in the year? Can you just help me understand that?

Yes. It really has to do with the seasonality of our sales. Q1 is significantly lower than any other quarter during the year. About 300 million on average compared to quarters 2, 3 and 4. Our back to school business in office helps Q2 and a lot of our businesses are just back end loaded due to seasonality. So that 300 million shortfall -- it's consistent with last year by the way and consistent with other years and that causes two things, of course.

We had the drop through. Just the regular gross margin dropthrough related to that and there is a volume impact to our manufacturing facilities that also is kind of a double hit, if you will. And just the mix of our product we sell is a [third way] to the first quarter is less in earnings than the other three quarters in this. It's really driven by again the volume that we sell in that quarter and the mix of the products sold in that quarter.

By the way, last year on an apples to apples basis if you remove the onetime tax benefit and the pension curtailment we are at similar earnings. I think going forward you can expect that the first quarter will be significantly lower in earnings than the other three quarters.

Has something changed within that because as I look at the history of the business, historically, the first quarter earnings were not so much smaller than the rest of the year. Other years you made $1.60, you made $0.25 in the first quarter. Has the mix of the business change impacted that?

I would have to go back and look. I don't have that comparison in front of me. I just have '05 to '06 so can I handle that off-line with you?

That's fine. Then my second question is. in terms of the office segment can you give us a little color of the growth in that segment and total of the margin performance? I guess it was a little disappointing, relative to what I think you looked to long-term achieve, revenue and profit growth there. Can you give us a little color of what took place in the fourth quarter to leave the results where they were?

Fourth quarter was flat, excluding currency impact, which is actually consistent with what we've seen for the year. If you look at the year, we are also flat in internal sales. So it's consistent with what we saw throughout the year. Now what we're seeing is double-digit growth in our marker and highlighter business, offset by declines in fine writing and throughout most of the year and I'll call it office accessory business. But in the fourth quarter our coloring business was also down.

What is different going forward is actually we see -- we have some new products in the office accessory part of the business and we see some turnaround there. But more significantly is our everyday writing has stabilized. And we actually expect that to show better performance year-over-year. I'm talking about our Paper Mate brand primarily.

So that is what is going to contribute to and probably continue growth in our marker business and we think that the office products business will show growth consistent with the 2 to 4% invest business growth we are going to see in '06.

Just to add some additional detail to that, our Paper Mate business has introduced several new items within the past quarter and has just begun selling those in now that we think will stop what has been a decline in that everyday writing business and start turning that around. And as Pat mentioned in our office accessories business we've introduced several new accessory lines and are rebranding a number of those products under the Rolodex brand or the Rubbermaid brand.

So it will help us drive -- again, this is behind brands that matter. We know that those brands matter to consumers and have the potential to matter to consumers more than Eldon does.

Linda Bolton Weiser with Oppenheimer & Co..

Thank you. Sorry if you already said this but can you comment on whether you think the overhead in Admin expense piece of the SG&A ratio is high or low relative to peer consumer product companies?

You know what? We are just starting that detailed kind of an analysis, but I think that, again, as I look at it, we will have to find some savings there. And I think we can. Just looking at our numbers in total, my gut feel is that they are higher than they need to be and that is where we are looking. But we are getting the help of some outside benchmarks to zero in on specific numbers and specific target.

Then as you said at least part of that would be redeployed into advertising and promo, right?

Yes.

Okay and then, secondly, one of the things that I guess has been a little frustrated with Newell over the years is that it seems that businesses are categorized as fixed or invest, based on current performance. Do you have any metrics that you are using to think about whether something is fixed or invest, aside from how the business is currently performing?

The answer is yes and we are not going to give you the specific metrics but again let me describe them in qualitative terms. One of the reasons I've started using this language "brands that matter" is that is going be one of the criteria. You want to invest in brands that we know really matter to consumers and build on those brands because that is a long-term equity that you can continue to leverage.

Obviously the businesses need to be delivering certain level of profitability and so driving gross margins. And the higher those gross margins, the more we are willing to invest in them. So there are metrics like that, that are both qualitative as well as quantitative that define it. It's some science and some art.

Your last question comes from Derek Leckow with Barrington Research.

Subject of internal growth, I wonder if you could discuss a little more detail about the impact from new products? Where will we see the greatest impact and maybe you can give us a comparison revenue from new products, compared to what you saw in 2005?

I'm not actually prepared to go into that level of detail with you but, again, what I'd tell you this that every one of our businesses has been increasing their investment in R&D and innovation. And I think across the board -- certainly across the board on all of our invest businesses -- I would see a higher level on most businesses and at least an equal level in all businesses in innovation activity in 2006.

Again, given the examples of Graco and Goody we weren't investing a lot in those last year because they didn't have the right kind of profitability profile and growth potential. And they've invested a lot in really understanding their consumer, understanding what were the opportunities to drive consumer preference for their brand and have been working hard for the last year to develop the products that would meet those needs. And coming forward you'll see more from them as an example because now we are in a position to invest.

And as you look at new projects to invest in R&D wondering just what kinds of consumer studies you are planning to conduct and how that will be a factor in driving R&D?

I'm not quite sure what you are looking for there.

Well, in terms of you mentioned what your plan is to invest to study consumer behavior, to study consumers more in detail this year, and I wondered what that means relative to your new product development?

I don't want to spend a lot of time going into detailed kind of product and consumer studies but, again, there's pretty classic and standardized ways to understand how your product performed, how your competitors' products performed, current brand image, value of your products, pricing sensitivity, understand consumers' frustrations in a category and so on and we use those kinds of techniques in a much more rigorous and uniform way across our businesses to make sure we understand where the opportunities are and are filling the voids with our product innovation.

Those techniques sound like they've been employed for some time as far as I know.

Well they've been employed -- they're employed broadly in the consumer products industry. They haven't been employed uniformly and consistently across many of our businesses.

Okay. That is what I'm trying to get at is, what exactly is going to be changing in that area?

I think I just told you.

Okay. I will have to follow off-line.

Okay. Very good. Thank you all.

If you were unable to get your question during his 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 888-203-1112 domestically and 719 457-0820 internationally with a confirmation coat of 7295044, two hours following the conclusion of today's conference for two weeks ending on February 10th 2006. This concludes today's conference. You may disconnect.