諾威品牌 (NWL) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Newell Rubbermaid conference call. As a reminder today's conference will be recorded. Today's call is also available via live audio webcast at www.newellrubbermaid.com on the investor relations home page under events and presentation. And a digital replay will be available 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 4430926 to access the replay. I will now turn the call over to Ms. Nancy Davis, Vice President of Investor Relations and Corporate Communications.. Ms. Davis, you may begin.

Thanks and good morning. Welcome to Newell Rubbermaid's first quarter 2006 earnings call. Before we begin, I'd like to take a moment to read our forward-looking statement. The statements made in this conference call today, are not historical in nature are forward-looking statements. These forward-looking statements are not guarantees since there are 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 risk factors that could cause additional or actual results to differ materially from those projected refer to our 2005 Form 10-K including Exhibit 99.1. Additional information about Newell Rubbermaid's first quarter 2006 results are available under our Investor Relations section of our website. Let me now turn the call over to Mark Ketchum.

Thank you, Nancy. Good morning, everyone. We are pleased that you could join us today. The news is good. We completed a very strong first quarter with internal sales growth of 4.8%. This is the first quarter in the past nine that we have grown sales organically. Net sales including DYMO were 1.5 billion, up almost 9% from last year and well ahead of guidance.

We experienced solid growth in both our invest and fix businesses. Our invest businesses generated a 4.9% increase in sales over last year, led by the home & family group and the invest business units of cleaning and organization. Our fix businesses delivered sales growth of 4.8% over prior year driven by strong sales in our U.S. home fashions business and favorable year-over-year comparisons in Little Tikes and Rubbermaid home products.

We are in the early stages of transforming our business model but already are seeing significant traction. I am pleased to note that many of our business units we categorize as invest grew at double-digit rates. Two businesses formerly in the fix category, Goody and Graco, were among the strongest invest businesses for the quarter. Our accelerating top-line growth is a validation of efforts to build Brands That Matter, by knowing our consumers, delivering meaningful innovation, getting our cost structure right, and making selective investments in strategic FT&A. Gross margins for the quarter expanded by 340 basis points to 30.9% of sales. First quarter earnings per diluted share on a continuing basis were $0.47, significantly higher than our guidance and above our results of $0.33 a share one year ago. Operating income growth was strong, up $41 million, or plus 57% versus last year. Operating income contributed $0.19 per share to the quarter's earnings performance while a $78 million net tax benefit contributed the remainder.

In late February, we rolled out to the organization our revised strategy and our key imperatives. The tenets of is that strategy include building Brands That Matter, creating scale advantages through horizontal integration, commercializing innovation across the enterprise and creating a structure for business globalization. Let me take you through a few examples of what we mean and what actions we have taken thus far.

The first strategy is to create big consumer meaningful brands. We are moving from Newell's historic focus on excellent in manufacturing and distributing product to excellent in innovating and marketing brands. Consumer meaningful brands create more value than products alone, and big brands provide us with the economies of scale that can be leveraged in today's marketplace. In the quarter we made slightly more than a $20 million of incremental strategic investments and advertising promotion in R&D, particularly on brands like Calphalon, Graco, Goody, Lenox, Irwin, Sharpie, and DYMO. Speaking of DYMO, the integration of DYMO into the office products group remains on schedule and we are pleased with our performance.

We also initiated a consulting and training partnership this quarter with one of the largest worldwide creative and media agencies. Our objective is to create best in class branding capabilities across the Company. Our first step is to understand the brand vitality on our 16 largest brands using a common set of metrics. We will then integrate this understanding into our ongoing business processes for product innovation, competitive analysis, strategic planning, and brand marketing.

Our second strategy is to realize total company scale advantages through horizontal integration. We are exploring ways to best leverage our company's common functional capabilities, such as human resources, IT, supply chain, and finance, to improve efficiency and reduce costs. This broad reaching initiative already includes projects such as the corporate consolidation of distribution and transportation as well as aggregating company-wide purchasing efforts including both direct and indirect materials and services. During the quarter, we streamlined the structure of our tools and hardware create to create a more effective organization and leverage scaly efficiencies. We've also begun a process of creating shared services for our European businesses and are evaluating expanding the scope of shared services in the United States. The most important benefit of horizontal integration are that the cost savings from these initiatives will free up money for investment in innovation and brand building.

The third strategy is to invest in innovation that delivers product differentiation and a best cost position. Importantly, we have broadened the Company's definition of innovation beyond product invention. We will define innovation as the successful commercialization of invention. Innovation must be more than product development. It is a rigorous process that must permeate the entire development cycle. It begins with a deep understanding of how consumers interact with our brands and categories and all the factors that drive their purchase decisions and their end use experience. The next step is to turn that understanding into products that deliver unique features and benefits and a best cost position so the consumer is getting real value. Lastly, understanding how and where to best create awareness and trial and measuring the effectiveness of our advertising and promotion spending completes this broad innovation process. We have pockets of excellence using this expanded definition innovation, and we'll be continuing to build on this competency.

Our fourth strategy involves structuring the organization to facilitate globalization. We are expanding from a U.S.-centric business model to one that will include international growth as an increasing focus going forward. We are working hard to get the structure right for the future. For example, our office products businesses have been reorganized to operate across product lines that can target global consumer acceptance. This past quarter we also aligned our Graco and Little Tikes businesses under a global business unit structure reporting under the Home & Family group rather than to a geographic region. This realignment positions our businesses to leverage research and development, branding, marketing, and innovation on a global basis.

2006 will be a transformational year for our businesses. On a multiyear journey to becoming an integrated, innovative branding and marketing company. We are making the necessary investments now for the long-term success of our business. Let me now turn the call over to Pat Robinson to walk through the financials before I come back and provide some summary comments. Pat.

Thanks, Mark. I'll start with the first quarter P&L on a continuing earnings basis. Net sales for the quarter were 1.48 billion, up 122 million, or 8.9% over a year ago. Excluding DYMO sales internal sales were up 65 million or 4.8%, driven by core sales increases and favorable pricing partially offset by 17 million of negative foreign currency. Excluding the negative currency impact, internal sales increased 6.1% in the quarter. Internal sales grew by 4.9% in our invest businesses led by double-digit growth in our Calphalon, Graco, Goody, and Rubbermaid commercial businesses along with high single digits growth in our Rubbermaid food, and Irwin and Lenox branded tool businesses.

Internal sales in the office product group were up about 1% in the quarter, however excluding the impact of foreign currency sales were up approximately 3%. These increases were partially offset by a double-digit decline in our consumer electronics tools business as that product line nears the ends of its lifecycle. The businesses we classify as fixed saw a 4.8% increase due to double-digit growth in our Levolor and Rubbermaid home products businesses partially offset by lower sales in our European window fashion business.

Gross margin in the quarter was 459 million, or 30.9% of net sales, up 340 basis points to 2005. The increase in gross margin was the result of strong productivity, pricing, and favorable mix, more than offsetting the impact of raw material inflation. SG&A was 347 million, up 49 million to last year. The primary drivers of the increase were the additional strategic advertising and promotion investment in our Rubbermaid commercial products, tools and hardware, Calphalon, Graco, and office products businesses, and the DYMO acquisition. Also contributing to the increase were the impact of stock option accounting and the pension curtailment benefit recognized in 2005. Operating income for the quarter was 112 million or 7.5% of sales, up 41 million, or 57% for last year. Interest and other income was a net expense of 37 million in the first quarter of 2006, compared to a net expense of 28 million last year. The net increase was primarily due to increased interest expense as a result of the DYMO acquisition and rising interest rates.

In the quarter the Company reorganized certain of its non U.S. subsidiaries resulting in the recognition of a 78 million, or $0.28 per share income tax benefit. In the prior year, the resolution of tax contingencies resulted in a 59 million, or $0.21 per share benefit. The net impact of interest, taxes, and other income is a $0.05 improvement year-over-year. Consistent with our prior guidance the Company recorded 30 million in restructuring charges related to Project Acceleration in the quarter. These charges are not included in continuing earnings described previously. We are pleased to report that Project Acceleration is on track and we announced the closure of 12 facilities in the quarter in line with our expectations. We continue to expect cumulative charges of 350 to 400 million over the life of the initiative. Annualized savings are projected to exceed 120 million upon completion of the project with approximately 50 million benefit expected in 2007 and the remainder in 2008. In the first quarter the Company recorded noncash impairment charge of 50.9 million to write off the goodwill for certain businesses in the Company's home fashion segment.

I'll now take a few moments to talk about the first quarter segment information. In our cleaning and organization segment net sales were 333 million, up 33 million, or 10.9% to last year, driven by double-digit growth in both the Rubbermaid commercial and Rubbermaid home businesses and high single-digit growth in our Rubbermaid food business. The Rubbermaid commercial business continues to show strong sales momentum which we expect to continue with mid single-digit growth for the remainder of the year. The quarter one growth rates in both Rubbermaid food and Rubbermaid home benefited from relatively easy comps as 2005 Q1 sales were suppressed by product line exits and pricing actions required to offset raw material inflation. For the year we expect low single-digit growth in the Rubbermaid food business and the low single-digit decline in Rubbermaid home driven by the continued pruning of underperforming product lines in this business. Operating income for the segment was 21 million or 6.4% of sales, compared to 13 million last year, an increase of 72%. The increase in operating income is the result of a sales increase and favorable mix partially offset by raw material inflation and increased SG&A in the Rubbermaid commercial business.

In our office product segment, net sales were 391 million, up 58 million or 17.4% to last year, benefiting from the DYMO acquisition. Excluding the impact of DYMO and foreign currency internal sales were up about 3% from. From a product perspective double-digit growth in markers and mid-single-digit growth in everyday writing was partially offset by declines in fine writing and coloring. Operating income for the segment was 32 million, or 8.3% of sales, down 1 million to last year. Flat operating income was the result of increased SG&A investment, restructuring related expenses, and acquisition integration costs, offset by additional income from the DYMO acquisition. For the year, we anticipate growth in internal operating income for this segment plus the benefits from DYMO.

In the tools and hardware segment, net sales were 277 million, essentially flat to last year, driven by high single-digit growth in our Irwin and Lenox branded tools offset by double-digit decline in the sale of consumer electronic tools. We expect low to mid single-digit growth in this segment for the remainder of the year with high single-digit growth expected in both the Irwin and Lenox-branded tools, again partially offset by the continued decline in consumer electronics tools business.

Operating income for the segment was 33 million, or 12% of sales, up 6 million, or 24% to last year. Operating income increased primarily as a result of productivity initiatives and favorable mix, partially offset by increased SG&A investment. In our home fashion segment net sales were 196 million down 2 million or 1.1% to last year driven by a double-digit decline in Europe offset by double-digit growth in North America. Sales in North America benefited by the addition of a new warehouse at a key retailer and generally low customer inventories coming into the year.

We expect sales in the total segment to be down high single digits to low double digits in the second quarter and for the remainder of the year due primarily to continued softness in Europe. Operating income for the segment was 13 million or 6.6% of sales compared to an operating loss of 5 million in the prior year. The increase in operating income was the result of sales growth in North America, strong productivity, and a reduction in European SG&A expense.

Finally, our Home & Family segment net sales were 288 million up 33 million or 12.8% to last year, driven by double-digit increases at our Graco, Calphalon, and Goody businesses. A portion of the sales increase relates to the timing of promotions and plan a gram changes at our retailers. We expect low to mid single-digit growth for the rest of the year in this segment. Operating income for the group was 30 million, or 10.4% of sales, up 12 million or 61% to the prior year. The primary drivers of the improvement in operating income were the sales increase, productivity and favorable mix partially offset by increased SG&A investment. Operating cash flow for the quarter was a use of 11 million consistent with the range provided on the last call, compared to 55 million in cash generated in the prior year. Capital spending for the quarter was 25 million versus 23 million last year. This year's cash flow includes a 21 million contribution to our U.S. defined contribution plan. The remaining decrease to last year is primarily related to the timing of the payment of certain accrued liabilities.

Turning now to the quarter two outlook, we expect internal sales to be up low single digits including approximately 10 million of negative foreign currency impact. Our invest businesses are expected to contribute low to mid-single-digit growth led by Calphalon, Rubbermaid commercial, and Irwin and Lenox branded tools. While our fixed businesses are expected to decline mid single digits as we continue to experience softness in European home fashions. Gross margins are expected to expand by 175 to 225 basis points driven by productivity, pricing, and favorable mix, partially offset by increasing raw material inflation. SG&A expenses will increase by approximately 50 million driven by continued investment in strategic advertising and promotion initiatives, the DYMO acquisition, and the impact of stock option accounting. For quarter two we expect earnings to be in the range of $0.39 to $0.43 per share. This outlook does not include pretax restructuring charges of approximately 20 to 35 million or $0.06 to $0.10 per share. Operating cash flow is expected to be in the range of 20 to 60 million in the second quarter with capital expenditures of 30 to 40 million.

Turning now to the full-year outlook, we are increasing our full-year sales guidance. We now expect internal sales to be up low single digits including approximately 40 million of unfavorable foreign currency impact. We expect our invest businesses to grow low single digits while the businesses we classify as fix are expected to decline mid single digits. We now expect a 200 to 250-basis-point expansion in gross margin driven by productivity of 2.5 to 3%, pricing of approximately 1.5%, and favorable mix driven primarily by the DYMO acquisition, partially offset by raw material inflation of 2 to 2.5%. Gross margin expansion is a key component of our strategy, and as such we actively manage each of the individual components on a full-year basis, and consequently are comfortable continuing to provide detailed full-year guidance.

We now expect SG&A expense to increase by 160 to 180 million from the prior year. About one-half of the increase is due to the DYMO acquisition. Of the remaining increase two-thirds is increased investment in A&P and new product development in our invest businesses and one-third is due to the impact of stock option accounting and the pension curtailment benefit recognized in 2005. The increase to our last SG&A guidance is due to the following.

Approximately half of the increase is A&P and new product development investment. About one quarter is start-up costs to analyze and begin implementation of the SG&A and distribution, transportation, consolidation initiatives, and the remaining increase relates primarily to variable expenses associated with the increased full-year sales and operating performance of the Company. We are increasing our 2006 earnings estimate by $0.10 a share to a range of $1.65 to $1.75, reflecting the higher sales outlook, the improvement in gross margin, and the additional tax benefit partially offset by the increased SG&A investments discussed previously. This outlook does not include pretax restructuring charges of approximately 170 to 200 million or $0.52 to $0.62 per share. We continue to expect cash flow from operations to be between 550 and 600 million including approximately 100 million of cash restructuring charges. Capital expenditures are estimated to be in the 125 to 150 million range. I'll now turn the discussion back over to Mark for some additional comments.

Thanks, Pat. I want to thank our over 28,000 employees for delivering a strong quarter. Before I provide my summary comments I would also like to highlight the addition of Steve Strobel from Motorola to our Board of Directors. Steve brings an extensive financial management background to Newell Rubbermaid. His background in consumer and industrial channels and global brands is a welcome addition to further strengthening our Board. I look forward to working with Steve and the rest of our Board members as we execute our transformational business plan. Today 11 of our 12 Board members are independent directors, making Newell Rubbermaid one of the select few companies with such strong independence.

In closing, I am pleased to see the strengthening sales trends across so many of our businesses, along with the continued progress we are making on our gross margin expansion goals for the year. We are making selective investments in the right areas of SG&A to benefit our brands and our company for the long term. At the same time, we're initiating important projects to reduce our long-term nonstrategic SG&A costs. This quarter we made critical progress. We delivered strong results and were able to raise our sales and earnings guidance for the year. We are already beginning to drive greater collaboration and teamwork, identify and apply best practices across the total company, and identify horizontal integration cost synergies. We are getting some early wins from the increased marketing and innovation that we initiated starting in the second half of 2005. I must say I am very pleased by how quickly the men and women of Newell Rubbermaid have embraced the needed changes to our business model and our culture.

Looking to the remainder of the year, we remain focused on several priorities. Driving top-line sales growth, executing Project Acceleration on time and on budget, expanding our definition of best cost performance, and initiating key horizontal integration and organizational streamlining projects to drive synergies. Thank you for joining today's call, and I would now ask the operator to open up the lines for questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Bill Schmitz with Deutsche Bank.

The first question has to do with the office products business. If you kind of watch some of the big office center retailers, office product retailers rather, it looks like private label is growing pretty rapidly. Have you kind of seen that in your business? And what you need to do to kind of combat that?

Private label in the office products business is still not a large segment in total. There is interest from some retailers in growing that segment as frankly there is in almost every business segment we compete in across the entire company, but we're not seeing it -- any different pressure there than I would say we're seeing anyplace else, and we're managing that by driving Brands That Matter to consumers. Again, to the extent that we have a best cost position and products that are truly innovative and provide important benefits to consumers, that's our best defense, and with that, I don't worry about private label.

Do you think you have the cost structure yet to kind of manage the category holistically and do private label and branded product? I know you do some of it now, but I was wondering if you can actually do that broadly for some of the major retailers.

Directionally while we do some private label for major retailers that's not a key focus so even if I have the cost structure it won't be the focus of our business plans.

Great. Thanks. Pat, just a couple of follow-up questions. So is the $100 million of raw material inflation for the year still the number we should focus on?

Yes.

Okay. Great. Then just your operating profit target now for the year. I think it was raised by about 10 million to around 710. Is that a good number?

That's pretty close to the number. That's right.

Thanks very much.

Our next question comes from Connie Maneaty with Prudential Securities.

Just a couple of quick questions, why should internal sales growth slow from the first quarter rate?

I'm sorry? Say again?

Why should internal sales growth slow from the first quarter rate of--?

A couple things. One is, several of the businesses that we talked about benefited in the first quarter from either favorable year-over-year comps or from kind of one-time events. And we alluded to those. And most of those are in our fixed businesses. We talked about window fashions where we had a -- one of our big customers start up a new DC, and we had to stock that DC, and some of our customers had come into the calendar year with a relatively low inventory position. They had actually taken inventory down in the calendar year, and we had good sell-through, and we had to restock that inventory in order to get the right kind of customer service for them. Some of our businesses had favorable comps and they were driven in many cases by the fact that we had taken some pricing in the first quarter of 2005 which caused us to have somewhat slower sales in the first quarter 2005, which, again, on a comp basis, didn't repeat. So that would be the key reason.

Our other businesses will be largely as robust, and I think the important thing I would ask you to look at, Connie, is kind of what the first half looks like. The first half will be about a 3% growth, and I think that's -- that's what I feel best about. So I don't want to overfocus on the almost 5% growth in the first quarter, nor the low single digits in the second quarter but kind of where the first half comes out, because I think that's a better indication of the business momentum when you take out these one-time effects.

We have just one follow-up question also. What is the decline in -- what are these consumer electronics tools?

Well, the consumer electronics tools are like the lasers, the laser levels and laser measuring devices and so on. It looks like there was a pretty significant product lifecycle effect there. Those peaked I guess in probably the end of 2004 and 2005, and it started falling off since then and are off pretty dramatic. Pat may have more.

They were off dramatically in '05 to '04 they are continuing to drop now in '06 as the product lifecycle is really coming to an end.

Thanks very much.

Our next question comes from Eric Bosshard, FTN Midwest Research.

Two things. First of all, for you, Mark, could you talk a little bit about a good example of what you're trying to do with your strategic initiatives related to, I guess, brand and also the horizontal strategy? Could you just give us what a good example of success or an effort underway in that area is?

Yes. Well, one that I reference is that we have struck up a partnership with one of the largest creative media agencies to help us do a brand vitality assessment on our 16 top brands using a common set of metrics. And this is something that we'll start installing what I call best practices in terms of the way we look at our markets, our consumers, our brand equities, our competitors and so on. Then we'll apply those commonly across the Company. This is something that has been -- I'll use the word "spotty," meaning that in some places on some brands it's pretty good and other places it's not, so we need to get to a much higher level so we're using this outside help to go do that. Where we have that, the -- for instance, you asked examples of how it it's going to play out.

We're starting to design products that can work globally. Again, against understanding consumer. In our everyday writing business, after being down many quarters, consecutively in the past, was up this quarter, and it was up because we launched some new initiatives, and they were based on global understanding of what consumers wanted in terms of a smoother writing experience or how the pen fit in their hand, things like that. So by doing that we've been able to launch that product initiative across every region and it's building business in every region so that would be an example.

Secondly, Patrick, for you, can you help us understand the tax benefit in the quarter, I think was $0.28. What is the tax benefit that is assumed within your full-year guidance?

$0.28.

That is the conclusion of that number. What do you think that number will be in 2007?

I can't provide it. I don't know right now, Eric. Frankly, we wouldn't comment on if we knew.

Is it a material number that will continue into 2007?

I can't comment on it right now.

Thank you.

Your next question comes from Wendy Nicholson, Citigroup Investment Research.

Hi. My question has to do with the European window fashions business, and the fact that it sounds like you've done sort of a global realignment of that business but in terms of just continues to be such a huge drag on the Company how are you looking at that business in terms of whether it still fits in the portfolio or whether that should move into the divest category?

Well, let me tell you first, as a matter of policy, we don't comment on our acquisition and divestiture activities and so I'm going to not do that. I mean, what I will tell you is we continue to be focused on driving all of our businesses to -- that remain in the portfolio to be in the invest category. So you look at the statistics, we started 2005 with 58% of our businesses called invest. We started 2006 with 71%, and we did that -- we made that improvement by a combination of things. We did some divestitures, and we also improved our Goody and Graco business and they flipped over the transom into the invest category. I expect, one thing I can commit to you is that when we report the start of 2007 that number of invest businesses will be a lot higher than 71%, and it will be higher because we'll have continued to look at both those opportunities, both divestitures and fixing businesses.

Just talking about the acquisition outlook -- I'm not interested in specific businesses or anything like that -- but can you just talk generally about your kind of appetite for acquisitions, or comment on the Company's ability to make acquisitions and focus on expanding the business in that direction at this point, or are you very much focused on the core?

Well, look, I'm, A, focused on the core, and, B, focused on integrating DYMO. We need to make sure we've done a great job integrating DYMO. We've gone a long way towards getting out of the temporary service agreement. That's kind of step one. We're starting to drive the business that was there and we're looking for the opportunities to grow that business quickly, both through new product categories and through synergies with our other business units, which there are many. And so that's kind of the -- that's the concentration of our focus now. Beyond that, I just don't, as a policy, want to comment on that. But we've got plenty to do this year to finish that integration and really maximize the value of that acquisition.

Terrific. Sounds great. Thank you.

Your next question comes from Budd Bugatch with Raymond James & Associates.

Just a couple of questions. Pricing and productivity for both the quarter and the year, did I miss the quantification of that?

We did quantify it for the year, Budd. We actually want to move away from quantifying that each quarter just because of the quarterly fluctuations in each of those elements could actually be somewhat misleading, I think, especially as it relates to raw material. We really try to manage, and actively manage each of those components on a full-year basis, so we're going to continue to give you full-year guidance on each element but not give quarterly guidance on each element of the change. We did give you the range of gross margin improvement for the second quarter of 175 to 225 basis points.

So refresh me. You said pricing for the year is like 1%. What is productivity for the year?

Productivity for the year--.

2.5 to 3%.

2.5 to 3%. Pricing for the year is about 1.5%, and raw material inflation is about 2 to 2.5%.

Still 100 million for the raw material, as I think you told Eric.

That's right.

The other question, Mark, is strategically on European window fashions, that's persisted to be a difficult business for awhile. What specifically are you doing for that. When do you think you'll see a turnaround and maybe you can talk a little bit about that and tell us how we should think about that?

Well, again, rather than -- I'm not going to get into specifics of our decision making process, but I can tell you that it has been a continuing problem, and so it's an intense focus of our problem solving.

Okay. Thank you very much.

Your next question comes from Chris Ferrara with Merrill Lynch.

Can you talk a little bit about the initiatives to get closer to the consumer? Specifically, how are you executing that, whether it's through better consumer research. Just looking for a little detail there.

Again, I'll start by referencing the partnership that I said we've struck up and that we're going to be using to evaluate the brand vitality and our 16 top brands. But just to be a little more granular, what does that brand vitality look like. Well, it looks like really understanding and answering questions like what does our brand stand for today what are the key features and benefits consumers think of top of mind when they think about our brand, answer those exact same questions for competitive brands, how do we like that answer, what are the unmet needs in the category, how do we know, how important are those unmet needs, and bring some quantification to those unmet needs. Start testing concepts for delivering on improvements to those unmet needs, test prototypes, so all those things are things that we can bring and we will bring quantification to.

So yes, the answer is it starts with a lot of consumer research and understanding, some of which we have and some of which we have gaps and we're going to have to go fill. When you have that it allows you to do a much better job of saying, okay, here's my competitive position, here's what I kind of own its strength, here's what my competitors might own its strengths, here's where we're at parity, here's what's important and where I can make important progress and start driving your product development and innovation stream against meeting those needs. Then when you've got those needs you go test that you, in fact, have an exciting proposition in terms of your advertising or promotion offering to the consumer to make sure that, okay, I knew when I did this research and was able to talk to them in an extended conversation what was important.

Now I need to be able to deliver that in the short time that they're going to be interested in watching a TV ad, looking at a print ad, seeing a display in the store, whatever that kind of attention getting marketing needs to be, and am I still -- am I delivering on that, are those effective. So it's bringing quantification to that entire stream, starting with the -- what I call the fuzzy front end of really knowing your consumer at a very detailed level and knowing your competitors at a very detailed level does. That get it for you?

That does. I appreciate the color. I guess on a completely different note, can you just talk a little bit more about the run in oil and the fact that your raw materials outlook for the full year hasn't changed? Is that related to cushion that you guys had before, or are you doing something else with respect to mitigating costs there?

Well, the one thing is that we know that, resin has a lot of volatility, and about half our resin purchase is directly related to oil feedstock. So as you see that go up I can only anticipate that that will drive that resin stock up as well. And so I think what we have in there continues to be prudent for the full year, and that's the way we keep looking at it. I'll just go back and reference last year. Last year we saw tremendous fluctuation quarter to quarter. That's one of the reasons why Pat mentioned before that we're going to spend less time talking about quarterly inflation and so on on raw materials and really stick to what the year's outlook was. We did a good job last year of estimating the year and covering for that raw material inflation with pricing productivity last year. We believe we are in good position to do that again this year. I think we've got good estimates for what the total impact should be to the year, and I think we have good plans to cover with pricing productivity.

Thank you very much.

Your next question comes from Joe Altobello with CIBC Capital Markets.

Just a few quick questions for Mark actually. Mark, you mentioned earlier on the call this shift away from a manufacturing business model to one more based on innovation and marketing. Obviously it will never be complete, but how long do you think that will take before you really see some meaningful results?

Well, I think we're already starting to see some results in a couple of our businesses, and why? For a couple of reasons. One, because they had a better head-start on understanding the consumer and driving their innovation stream. Also, a couple of businesses have a head-start on getting to low-cost manufacturing. Remember, we did one round of restructuring starting in 2001 that ended in 2004, but we concluded at the end of that point in time we hadn't gone far enough, and that's why we announced Project Acceleration to take us to that next level.

So over the next three years as we complete Project Acceleration we'll have our manufacturing footprint to the position that we think will have best cost in many of our businesses, but as you noted I don't think it's ever going to end. We'll continue to have to go in and year by year look at do we have the opportunities for further consolidation to reduce costs? Do we have opportunities to move our locus of production to more low-cost regions, or do we have an opportunity to outsource manufacturing completely? What we know is manufacturing cost, quality, and innovation, and ability is going to be very important. We have to have a much more cost-effective way of doing it, and that's what we're all about.

Secondly, on Project Acceleration, obviously you've been in the CEO role now for a few months and you are still targeting about 120 million plus of cost savings. Is that just being conservative, or are you seeing potential for upside to that number?

I think that's still a good number. Everything we see today, I think that's still a good number.

Great. Thanks.

And your last question comes from April Scee with Banc of America Securities.

I was just hoping you could share some thoughts on your upcoming products cycle versus what you had six months ago, or a year ago, and also if you could talk briefly about destocking at Wal-Mart and elsewhere and what sort of an impact that may have had on your business during the quarter?

I don't want to talk about specifics on our product cycle other than to say that, again, we're trying to really do a better job of measuring this. I'll just use that as an example. For instance, we're measuring new product vitality in all of our businesses, and I believe I've made the comment before that going forward, this year we're -- or going forward our objective is to have something around 30% of all of our sales in products that have been introduced in the most recent three years. We're about half of that today. So we still have lot of improvement to go to get to that goal. But we think that's going to be kind of a good measurer of the vitality of our innovation stream.

Frankly, the other way we'll measure that is some of the detailed examples I was using before about really understanding our brand and our consumer. That shows up in your consumer preference, shows up in your share growth, shows up in having a much stronger consumer identification when you ask what's the top of mind thing you think about for product X or brand X. They can tell you. And that says because it's an important differentiator and we've done a good job marketing it and branding it. On the other question relative to Wal-Mart, we don't really like to comment on any specific customer but I will make the comment that broadly speaking we have not seen any more adjustments by our customers having a material effect on sales right now.

Thank you.

Okay. Well, listen, thank you again for joining our call, and that concludes our first quarter report.

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