諾威品牌 (NWL) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to Newell Rubbermaid's first quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. After a brief discussion by Management, we will open up the call for questions. Just a reminder, today's conference will be recorded. Today's call is also being webcast live at www.newellrubbermaid.com on the investor relations home page under events and presentations. A slide presentation is also available for download. A digital replay will be available two hours following the conference at 719-457-0820. Please provide the confirmation code 4928363 to access the replay.

I will now turn the conference over to Mr. Ron Hardnock, Vice President of Investor Relations. Mr. Hardnock you may begin.

Thank you and good morning. Before we begin, I would like to take a moment to read our forward looking statement. The statements made in this conference call that are not historical in nature are forward looking statements. These statements are not guarantees and actual results could differ materially from those expressed or implied. For a list of major factors that could cause actual results to differ materially from those projected, please refer to our 2006 annual report on Form 10K including item 1a. We will also be referring to nonGAAP financial measures on this call. A reconciliation of these financial measures to the most directly comparable measures calculated in accordance with GAAP is available under the investor relations section of our website at newellrubbermaid.com. Let me now turn the call over to our, President and CEO, Mark Ketchum.

Thank you Ron, and good morning everyone. Thank you for joining us on our first quarter 2007 earnings call. I'm pleased to report that we are start off the year with another solid quarter. Total net sales were $1.4 billion up 3.1% from last year driven principally by growth in our Tools & Hardware and Office Product segment. Gross margins expanded 210 basis points to 34.3% of sales, exceeding our guidance. This expansion was driven by strong productivity gains and mix. First quarter continuing earnings per diluted share excluding charges were $0.28 compared to last year's results of $0.50. However adjusting for one-time tax benefits in both periods, normalized EPS was $0.27, a 23% improvement over last year's results of $0.22 per share. Operating income rose over 14% to $136 million.

At our analyst day back in February, our Management team laid out the vision for a new Newell Rubbermaid. We are on a multi-year journey to transform this Company into a global company of brands that matter and great people known for Best in Class results. During this evolution, several Company wide transformational strategies will guide us. Let me give you a brief update on the progress we have made thus far. At analyst day, I talked in some detail about our strategic focus on building our consumer driven branding capabilities. This effort is creating and expanding core competencies and processes centered on consumer understanding, innovation and demand creation. Last year, we engaged [inaudible], a leading global ad agency to help us assess our top brand and field incremental consumer and brand research. That research is beginning to be used to better segment our market and to define differentiated brand positioning that are meaningful to our target consumers.

We are developing form life training programs to help develop Best in Class consumer marketing capability. The first of these programs began rolling out in March and will reach over 700 marketing sales and product managers in the next 12 months. Subsequent programs for more senior marketers will be introduced in late 2007 and early 2008. Additionally, several of our brands are working with Monitor, a leading strategy consulting firm to help identify gaps and opportunities by comparing their current structure and current business processes with the highest value-creating activities for building their brands. These deep [dive] learnings on our lead brands will serve as a model for reapplication to our other brand teams.

We are also continuing to make incremental investments in strategic brand building to drive incremental sales growth. In 2007, we expect to increase our spending on consumer understanding, innovation and demand creation to over 6% of sales, up from 5.5% in 2006. For example, at Rubbermaid Food, we anticipate a 50% increase in AP spending this year to support the launch of a new line of premium food storage containers called Premiere. This innovative product, which reflects in-depth consumer research, solves many of the unmet needs and frustrations voiced by our consumers. Product features include our unique flex and seal lid that seal and unseal easier and also snap to each other and snap to the bases for better organized storage. Premiere also features high quality polycarbonate bases that resist odors and stains.

To drive consumer awareness and purchase intent, we are investing in a targeted multi-media marketing campaign using television, print and web advertising, as well as co-marketing with well-known food brands and retail demos. The Rubbermaid Premiere promise is straightforward, easy seal, easy clean, easy store. Behind the combination of consumer insight, innovation and a strong marketing investment, we've gotten excellent retailer support. The early point of sale data shows 100% plus increase in sales over the pre-media levels. We expect to see the ongoing benefit of this investment throughout the year.

We are also continuing to make progress on our sourcing transformation, restructuring our manufacturing and sourcing footprint to optimize total delivered cost. We remain on track with this program, project acceleration, and we are starting to see the savings flow through to our financials. To date, we have announced 2/3 of the anticipated closings and consolidations. During the first quarter, we also announced that we have expanded the scope of project acceleration to include some of our scale leveraging initiatives. These additional initiatives will extend the program one year to 2009, and will add an additional 30 million in analyzed savings, bringing the total expected annual savings from project acceleration to $150 million. The scale leveraging initiatives, I just referenced, fall under a transformation we referred to as one Newell Rubbermaid. These include the centralization and consolidation of our distribution and transportation activities, the restructuring of our European organization and expansion of the shared service concept in North America. We are making good progress on leveraging one Newell Rubbermaid.

Let me give you some examples. We are 2/3 complete in the transition to the shared service center in Europe. We have negotiated new contract for resin and corrugated on behalf of total Newell Rubbermaid and achieve lower total cost than what we achieved by negotiating one business unit at a time. A few weeks ago, we broke ground on a new 400,000 square foot consolidated Newell Rubbermaid distribution center in Victorville, California. And we have consolidated the warehousing and logistics for all product groups in the U.K. at a single site near Birmingham, England. These are significant steps towards leveraging distribution and transportation across the Company to achieve low cost logistical excellence. We are also continuing to progress our multi-year Company wide rollout of S.A.P. beginning with Sanford North America in the fall this year. S.A.P. will be a key enabler of improved efficiency and Best in Class processes across the organization.

Finally, we continue to invest in the ongoing cultural transformation at Newell Rubbermaid that will drive us toward Best in Class. In the first quarter, we received the results of the first ever Company wide employee survey. The survey helped us gain valuable feedback on our vision and strategy, our values, our leadership, employee development and engagement and diversity and inclusion. Based on that feedback, we are developing specific action plans and initiatives to improve collaboration, strengthen employee development and to create an environment where every individual feels empowered to contribute to Newell Rubbermaid's success.

Turning briefly to our outlook for the year, we were encouraged by our first quarter results and as a result, we are raising gross margin and EPS guidance. The growth trifecta we began in 2006 will continue in 2007. With 3% to 5% sales growth, 150 to 200 basis points of gross margin expansion and double-digit earnings per share growth. By continuing to execute on our key strategic initiatives, we will not only drive a solid 2007 but we'll make continued progress towards Best in Class performance and sustainable growth. With that, let me turn the call over to Pat, who'll walk through the detailed financials and guidance before I return to provide some summary comments. Pat?

Thanks, Mark. I'll start with our first quarter P&L on a continuing earnings basis. Net sales for the quarter were $1.4 billion up $42 million or 3.1% over a year ago and at the upper end of our guidance of low single-digit growth. Sales growth excluding foreign currency was 1.7%. All four operating segments showed growth in the quarter led by mid single-digit growth in our Tools $ Hardware and Office Products segments with our Cleaning, Organization and Decor and Home & Family businesses up low single-digits. Recall that quarter one 2006 sales included some one-time benefits. We communicated at that time that the window fashion business benefited from the addition of a new warehouse at a key retailer and generally low customer inventories coming into the year, and a portion of the sales increase in Home & Family related to the timing of promotions and planet ram changes at retailers. These events did not repeat in the first quarter of 2007.

Gross margin in the quarter was $475 million or 34.3% of net sales representing a 210 basis point expansion versus 2006 above our previous guidance. Ongoing productivity initiatives and savings for project acceleration drove the majority of the year-over-year improvement. SG&A was $338 million, up $25 million to last year. Driving the increase was additional strategic brand building investments in our Office Products, Rubbermaid Commercial and Home & Family businesses. As Mark mentioned, approximately $8 million or about $0.02 per share of our planned quarter one SG&A spending will now occur in quarter two primarily related to promotional spending in our Home & Family and Office Products businesses. Operating income for the quarter was $136 million or 9.8% of sales, an improvement of $17 million or about 15% last year. Interest expense was approximately $6 million favorable to the prior year, reflecting the reduction in debt year-over-year. The first quarter results included a one-time tax benefit of $2 million compared to a one-time tax benefit of $78 million in the first quarter of 2006. Our continuing tax rate for the quarter was 29.5%.

EPS for the quarter was $0.28, $0.06 above the mid-point of our guidance. Approximately $0.05 to the upside compared to guidance was driven by a continuing earnings improvement with the remaining $0.01 attributable to the one-time tax benefit. Normalized EPS which excludes the one-time tax benefit from both years improved from $0.22 in 2006 to $0.27 in the current year, an increase of $0.05 per share or 23%. The Company recorded approximately $16 million in restructuring charges related to the project acceleration in the quarter. These charges are not included in the continuing earnings described previously. I'm happy to report that we are on track to deliver the $50 million in savings committed for the year.

In the first quarter, the Company recognized a net loss from discontinued operations of $15.8 million, primarily reflecting the loss on disposal of the remaining portions of the Home Decor Europe business. And this completes the divestiture of Home Decor Europe. This loss is not included in continuing earnings described previously. Operating cash flow for the quarter was positive $15 million compared to a use of $12 million in the prior year. Capital spending was $33 million in the quarter versus $25 million last year. The increase in capital spending was driven primarily by investment in our S.A.P.

I'll now take a few moments to talk about our first quarter 2007 segment information. In our Clean, Organization and Decor segment, net sales were $457 million up 1.7% to the first quarter of '06. Mid-single-digit growth in our Rubbermaid consumer businesses driven by strength in Home [inaudible] and Insulated as well as mid-single-digit-growth in Rubbermaid Commercial more than offset softness in home fashions. The softness in home fashions is directly attributable to last year's strong first quarter sales driven by low customer inventory levels going into the year and by the one-time sell-in to a major customer's new distribution center that did not repeat this year. Operating income for the segment was $57 million or 12.5% of sales, an improvement of $19 million versus a year ago. Fueling this improvement were strong productivity initiatives and favorable material costs. We have spent a great deal of our effort the last several years rationalizing the manufacturing structure in this segment, the benefits of which began reading through in 2006 and continue to do so in the first quarter.

Office products net sales increased $16 million to $406 million, an increase of 4% versus last year. The sales improvement was driven by double-digit growth in our DYMO business and favorable foreign currency. Operating income was $35 million or 8.7% of sales, up $3 million the last year. The increase in sales coupled with favorable mix more than offset restructuring related inefficiencies and increased strategic brand building spend.

In our Tools & Hardware segment, net sales were $294 million, an increase of $17 million or 6.2% versus last year. Approximately 3 points of the growth was attributable to strong demand for our BernzOmatic hand tools driven by the cold weather conditions in the U.S. Our Irwin and Lenox branded tools grew mid-single-digits for the quarter. This growth more than offset continued softness at Amerock caused by lower OEM demand related to residential construction. For the remainder of the year, we continue to expect low single-digit growth in the segment as we continue to have a cautious outlook mostly due to the soft residential housing market. Operating income for the segment was $34 million or 11.7% of sales, ahead of 2006 by $1 million as income from sales growth was largely offset by raw material inflation in metals.

In our Home & Family segment, net sales were $227 million, an improvement of $2 million or 70 basis points in the first quarter, compared to last year's quarter one sales growth of 15%. Remember at the first quarter of 2006 sales benefited from the timing of promotions and planet ram changes at certain retailers. For the second quarter and the remainder of the year, we expect high single-digit growth in this segment. Operating income for the group or for the segment was $30 million or 13.4% of sales compared to $33 million in the prior year as we continue to invest in strategic SG&A in these businesses. We expect significant operating income improvement in the segment for the remainder of the year driven by both the expected sales growth and gross margin expansion more than offsetting the continued investment in strategic SG&A.

Turning now to the quarter two 2007 outlook. We expect sales to increase approximately 4% to 5% including approximately 1% of foreign currency benefit. Savings from project acceleration activities along with other ongoing productivity initiatives will read through to improve gross margins by 125 to 175 basis points. We expect SG&A expense to increase between $30 million and $35 million in the quarter, including the $8 million shift in strategic spending from the first quarter. Driving the increased spend in the second quarter will be demand creation activities, primarily in the Office Products, Home & Family and Clean, Organization and Decor segments. Corporate initiatives will also contribute to the increase as we continue to support such activities as the S.A.P. and shared services implementations. Lower interest expense is expected to improve EPS by a little more than $0.01 in the quarter.

For quarter two, we expect earnings to be in the range of $0.50 to $0.52 per share compared to $0.54 per share in the year ago period. As you will recall in the second quarter of 2006, the Company recorded approximately $0.08 per share relating to the resolution of [Pax] contingencies. This favorability is not expected to repeat in the second quarter of '07. Therefore, on a normalized basis, EPS is expected to increase $0.04 to $0.06 per share or 9% to 13% for the quarter. This outlook does not include pretax restructuring charges of approximately $20 million to $40 million, or $0.06 to $0.12 a share. And finally, operating cash flow is expected to be in the range of $75 million to $125 million in the second quarter consistent with $104 million in the prior year. With capital expenditures of $35 million to $45 million compared to $32 million a year ago. For the year, we expect 3% to 5% sales growth driven primarily by core sales improvement with favorable foreign currency now contributing approximately 75 basis points.

We continue to anticipate low-to-moderate economic growth for the cautious outlook for remainder of the first half, mostly due to the soft residential housing market with some improvement anticipated in the back half of the year. We now expect gross margins to expand by between 150 and 200 basis points, an improvement of 25 basis points to our previous guidance. Productivity of between 2.5% and 3% resulting from product acceleration savings and ongoing initiatives combined with favorable mix will drive the market expansion. We now expect pricing and raw material inflation to offset for the year. We continue to expect to invest about 60% of our gross margin expansions strategic brand-building initiatives such as customer understanding, innovation and demand creation, as well as strategic corporate initiatives including shared services and the S.A.P. implementation.

Consistent with previous guidance, the effective tax rate for 2007 is expected to be between 29% and 30%, but we now expect EPS for the year to be in the range of $1.73 and $1.78 per share, representing a $0.04 improvement to our previous guidance. This outlook does not include pretax restructuring charges of approximately $100 million to $130 million or $0.30 to $0.39 a share. We continue to estimate cash flow from operations to be between $575 million and $625 million including approximately $100 million to $125 million of cash restructuring payments. Capital expenditures are estimated to be in the $140 million to $160 million range including S.A.P. Similar to last quarter we have posted a brief supporting slide presentation on our website, www.newellrubbermaid.com under quarterly earnings in the investor relations section. And before we open the call for questions, Mark has some final comments. Mark?

Thank you, Pat. In closing, I'd like to thank all of our employees for their contribution to yet another solid quarter. We were able to drive sales growth across all of our segments despite tougher comps and macro economic headwinds in some of our businesses. We continue to drive gross margin expansion, providing the fuel for greater investment in our strategic brand building initiatives. By getting off to a good start, we were able to increase our confidence on the total year and raise our fiscal guidance for gross margin and EPS accordingly. As we look towards the rest of the year, we will remain focused on executing our strategic transformations and building a Best in Class consumer centric branded products organization. To all of our shareholders, we thank you for your continue support. And thank all of you for joining today's call. I will now ask the operator to open the line for questions.

Thank you. We will now begin the question and answer session. (OPERATOR INSTRUCTIONS) If we are unable to get to your question during the conference call, please contact Newell Rubbermaid investor relations at 770-407-3994 after the conclusion of the conference call. (OPERATOR INSTRUCTIONS) Our first question will come from Bill Schmitz with Deutsche BanK.

Hi good morning.

Good morning, Bill.

Hey, can you talk about what's driving this pretty solid local currency growth in Europe?

I'm not sure I understand the question.

Because the European growth was up something like 7% in local currency in the quarter, and I was just curious--

I'm sorry, okay local currency. I thought you were talking about the currency change.

No, no, no, no. I would be [inaudible] that as well, but that's another conversation.

Bill we've had good results in a number of categories. We had particularly strong results in some of our Tools & Hardware business, especially our Lenox band saw business. We had some real strength in fine writing, so fine writing, which has been a-- frankly a weakness for us and a lot of that business is centered in Europe. It's started to grow again. And our S.A.P. business, our Rubbermaid commercial business also is very strong.

Great thanks. And then just in terms of the SG&A expenses in the quarter, can you give us a little bit more granularity on sort of how much of that was strategic in dollar amounts strategic AP spending and then some of the restructuring related charges, how much is that in the quarter, and some of the other different components?

Pat why don't you start with the restructuring related charges.

Restructuring related was, well, roughly $5 million to $7 million in the quarter.

Okay.

That ran through our operating results. As you know, the restructuring charge was about $16 million.

Got you. And is that $5 million to $7 million kind of consistent throughout the year per quarter?

I'd have to look, but for the year, I'm not sure it's going to be the same each quarter but that's about the right number for the year and so if you multiply it times four.

And Bill relative to your first question, the majority of SG&A is strategic brand building SG&A and/or the SG&A investments that we're making to bring to life some of these other projects. So we're still investing in some outside help on projects like our distribution and transportation, the projects that I referenced that we're using help from Monitor or [inaudible] and so on. But most of it is further investments in R&D, field sales representatives in the businesses where that really is what drives point of purchase and marketing and promotion.

Great. Thanks very much.

Thank you. And our next question will come from Wendy Nicholson with Citigroup Investment.

Hi, my first question was just a follow-up on the Home & Family growth, the high single-digit growth you're expecting for the next couple of quarters. Is that a function of the new product activity in Graco that we saw at the analyst day, or is there something else there I'm forgetting about?

Frankly, it's new product activity across the board. So yes it's Graco but it's also-- we have continued new product activity that's going on in Calphalon. Recall last year throughout the year they were introducing new product lines, bar ware, serving ware, utensils, textiles and so on. And now we'll get full year benefit of that. They recently introduced cast iron, a line of cast iron enamel coated. We're going to get lift from that. So they've got new products going on as well. And on Goody's products like our styling therapy brushes that were just introduced. So there's a lot of good innovation going on in all those categories.

All right sounds great. And then my second question is on the S.A.P. launch at the end of this year, is there anything that we should expect to see in Sanford, stronger sales growth in the second quarter as you sort of build stocks at retailers to prevent out of stocks, are there any precautionary measures you're taking that are going to affect the income statement or the balance sheet, building up inventories or anything like that, that we should anticipate?

I don't think so. I think it's up to customers whether they choose to order in a little more protection stock. We're-- you may recall, we had our original goal live for Sanford scheduled for the first quarter of this year and we postponed it because we believed we weren't quite ready. By doing that, I think all we've done is made doubly sure that when we do push the button, we'll be ready to go you without any hiccups. And so we're anticipating a smooth transition and we're keeping our customers well informed about the steps that we're taking to make sure that happens.

Terrific. Thank you very much.

Thank you. And we'll move to our next question with Connie Maneaty with Prudential Securities.

Good morning.

Good morning, Connie.

I was wondering if you would share with us some of the results from the first ever employee survey? Because I know it will point to changes that you're making but what are the one or two things that people are most happy about, and the one or two biggest gripes that they all have?

All right, well without going into exhaustive detail, I'll give you the top line. I'd say the thing that they feel best about is the vision and the strategy. They really have a lot of confidence that that's going to take us to the right place and there's kind of a renewed sense of purpose and pride behind doing that. So I think that's real strong. To a large extent, they have expressed a lot of confidence in the leadership of the Company. I think on the opportunity side, probably the biggest opportunity is for us to really invest in employee development and career planning, and we've had what I think is a fairly high degree of turn over in our Management ranks and we want that to lessen. And one of the keys to lessening that is to make sure we're doing the right kind of investments in individual personal development and in career planning.

Okay. Also, I don't know if you've commented on this. First of all the-- your comments about the housing market, is this related to purchases consumers would make or is it builder and OEM related?

This is primarily OEM related.

And how much of a percentage of sales does OEM represent to make this sort of different?

Less than 10% is the path. In our Tools & Hardware business we believe about 20% of that is affected by the housing environment.

Is Amerock almost entirely OEM at this point?

No it's about 1/2 and 1/2.

Okay. So do you think you're just being a little bit overly cautious in your outlook for part of the business that represents only 10% of total sales?

I don't know if it's overly cautious is the right thing. Obviously this is one that the story keeps changing, in terms of whether people are a little more pessimistic, a little less pessimistic. Seems like every month there's kind of a changing point of view. I guess as Pat referenced since Tools & Hardware is about 20% of our total Company revenue and approximately 1/4 of the segment sales are probably directly related to residential construction activity. You do the math and that affects about 5% of our total business. So even if we saw a pretty dramatic drop in housing activity as we've seen continue throughout the year, let's say a 20% downturn it's going to affect us on a top line by about one growth point. So it's not going to make or break the Company. And that's what-- that's the way we're viewing it. Is obviously, we'd rather be helping us not giving us a little head wind, but it's not going to make or break our ability to throw the tool in the Rubbermaid business.

And that's very helpful. Thank you.

And we'll move next to Budd Bugatch with Raymond James.

Good morning, Mark, good morning, Pat. And congratulations on the continued progress.

Thank you.

If you gave us the sales trends I think for Home & Family, I hope I didn't miss them but I might have. Can you kind of rank the other three segments in kind of where you think the sales trends for the rest of the year will be, you gave us high single-digit for Home & Family. How would you rank the other thee?

I think we told you before but the Home & Family was in high single-digits for the rest of the year. Tools & Hardware we're seeing low single-digits. Do see pressure there as we mentioned, and the other two segments Office should be somewhere in the middle of our range as is Cleaning and Decor in the quarter.

Say it again on Cleaning and--?

Middle of our range, Cleaning work and Office Products at some-- be in the middle of range.

Both of those in the middle of the range?

Yes.

Okay and the second question has to do with Office Products which typically has had the highest op margin of all of them. And I realize I suspect there's some restructuring related activity going on in this quarter and it was a little bit almost equal with, I guess, last year's op margin. What do we look for at the end of the year? Will that be the highest op margin division is as typical or will that maybe not make that range?

We do expect it to be the highest margin business for us. And the Q1 has traditionally and historically been the lowest margin quarter for that business because of all our businesses it's the most seasonal if you will. So quarter one's our lowest sales quarter by far. And but we do expect the margins to improve year-over-year and for that to be the highest margin business for us.

And the $5 million to $7 million restructuring related, was that all in Office Products?

Wasn't all there but the lion's share of it's there. A lot of our activity this year is in Office Products.

Yes I think that's true, right way to characterize it. We'll continue to see a heavy load for acceleration falling on Office Products this year.

At that same rate you think, Mark?

I wouldn't want to give you those exact numbers but in order of magnitude it'll probably be about that.

Okay thank you very much. Congratulations again.

Thank you.

Thank you. And now we'll hear from Merrill Lynch's Chris Ferrara.

Hi guys.

Hi Chris.

Just want to talk-- I guess you're looking for 150 to 200 basis points in gross margin expansion and I think you said 50 basis points increase in strategic SG&A. So I guess if we assume the 60% reinvestment rate you've guys have been talking about, it implies almost like a 50/50 breakout between strategic brand building and I guess strategic corporate initiatives. Is that right and is there a reason why that deviates from the 2/3 to 1/3 break out you guys talked about at analyst day?

First, let me maybe give a little additional charity on the numbers. I said in my script that our strategic brand building would be above 6%. It's actually going to be somewhere between 6% and 6.5%. So it'll probably be up a little bit more than what you just referenced. In fact it will be up a little more. I think we're looking at more like 60% of our total investment going in from our gross margin improvement going into SG&A and the lion's share of that will be in brand building, the consumer understanding, innovation which is R&D, and then the marketing which is specifically consumer advertising and promotion. So the split won't be quite what you described but it will be more heavily weighted towards the specific brand building and less on the corporate initiatives, but we are again, we are making significant investments in getting kind of the necessary health and adding people as required to make these corporate initiatives come true.

Great that's really helpful. And can you just talk about what you're thinking with respect to gross margin upside? So say you hit the high end of your target. Is that strategic reinvestment number a very flexible number? I mean are there people chomping at the bit for additional reinvestment and you'd have no problem at all piling more behind it at any given quarter? Or is that something you'd see more drop to the bottom line?

I think I'd expect it actually to split. There are people chomping at the bit to invest more. And as we become more databased in two ways, databased in terms of being able to calculate return on investment for some of these incremental marketing investments. As well as more databased in terms of having the understanding going in that we're really on to something big by doing concept testing or testing advertisement communication effectiveness before we run the ad and things like that. All of that gives us additional confidence in spending more. And so that's the criteria for whether the people who are chomping at the bit will get to spend more. You have to be able to prove the case increasingly more as we go forward. So I think there's opportunity for some of it to fall through to the bottom line, but also, I'm hoping to the reinvestment if people can qualify it as I just described.

Great, thanks. And I just wanted to ask about the Office Product segment I guess. Can you talk about the pricing environment there. I guess where you took pricing and what its impact was to the overall Office Product side? And also, I guess everyday writing seems like it was off to a good trend and now you're not calling it out. Is that-- has that really fallen off again?

I don't think anything in the first quarter would be indicative of what's going to go on for the year. And specific to your pricing question, I don't really think it's appropriate to give you that level of granularity. There was a little bit of pricing across many of our segments, and let me just say the pricing was kind of broad based. It wasn't skewed to any one segment more than the other.

Got it. Thanks a lot. I appreciate it.

And we'll now move on to Eric Bosshard with Cleveland Research Company.

Good morning.

Morning.

The fist quarter upside was $0.05 and you raised the full year by $0.03 or $0.04. Can you just talk about what the thinking was in managing the full year guidance especially in light of what seems like is an accelerating environment for you?

The $0.02 is clear, but we removed $0.02 of SG&A from quarter one to quarter two. So what we really did was allow the sales and gros margin improvement to read through as well as the $0.01 from tax. That was the thing.

Okay. So you would say that the first quarter was not $0.05 it was more like $0.03?

We said that the SG&A shifted about 8 million, shifted from Q1 to Q2 was about $0.02 a share.

Okay, okay. And then my second question, if you can talk a little bit about the gross margin upside which drove that, I guess true $0.03 surprise in the quarter. What is driving that and also within that, if you can just speak specifically to material costs and the benefit that you're seeing from the lower year-over-year resin?

Okay on a full-year basis, our productivity and product acceleration savings are reading through as we expected and we continue to expect them to do so. What we saw for the year or improvement standpoint is on analyst day, we said that pricing would be flat to slightly negative and raw materials slightly negative so combined they would put a little pressure on margins. Our current view is that they will offset for the year. So pricing and raw materials will offset for the year, to slightly better.

Rather than be slightly neglect which is what you--?

That's right. That's right. So that's improved our margin outlook by about 25 basis points.

And is that what the experience was in 1Q that drove the gross margin upside?

We did have a little upside in both those elements, that's right.

Thank you.

All right. And our last question will come from Joe Altobello with CIBC World Market.

Thanks, good morning.

Good morning, Joe.

First question is on the Cleaning and Organizing-- the improvement in the operating income this quarter. You talked about productivity and some other issues there. Could you break it down in more detail the $19 million year-over-year?

Well the lion's share is through productivity and product acceleration. As I mentioned in my comments, a lion's share of our activity in '05 and '06 was rationalizing the plan structure in that segment. We began to see that read through last year and it's putting to fully now in the first quarter. And as we go through the year, that benefit will continue to read through but will get left then as we get to the back half of the year because we will annualize it. But-- so a lot of our activity was focused on getting that plant structure right and getting the utilization rates to a reasonable level.

Okay so it sounds like to is somewhat sustainable?

I believe it's sustainable, our utilization rate's now where we believe they should be. We still have a little bit of work to do in that segment, we're not finished yet, but we've got a lot of work there. And the ongoing productivity is also contributing. They're also getting-- ongoing productivity initiatives are reading through also.

And then secondly in terms of the restructuring charges you rented the P&L, the $5 million to $7 million this quarter, what does that look like next year? Does that go away?

I'm thinking now. It should be largely behind us as we leave this year, but I'd have to go back and check and see if-- there'll be some carryover from whatever activity we still have but it will be largely behind us.

Okay and then lastly, one more on the BernzOmatic comment you made about that adding three points to your Tools & Hardware sales growth, is that all the outdoor patio heaters?

No. No. It's a lot of just our basic torches. When it gets cold, pipes freeze up and you sell a lot more hand held torches that are used to thaw out frozen pipes for example.

Got you.

Joe, I want to add a little more on my last answer. The distribution and transportation activity will continue through, of course through next year and we're still working through the details of that. I don't know what restructure-related charges will be with that that we can't charge those restructuring. But there will be the move of some inventories from one distribution center to another and that type of activity is not classified as restructuring, that's operating activity. So there will be some charges related to that project.

It should be down pretty meaningfully though I'd imagine.

I would think so, but again I know how those numbers are following me, but there will be-- that project will be in full force next year, some of that moving of inventory around won't read through.

Okay perfect, thanks.

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