諾威品牌 (NWL) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Newell Rubbermaid's third quarter 2008 earnings conference call. 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 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 call at 888-203-1112 or 719-457-0820 for international callers. Please provide the conference code 9578247 to access the replay.

I will now turn the call over to Nancy O'Donnell, Vice President of Investor Relations. Miss O'Donnell you may begin.

Thank you. Good morning, everybody. Welcome to our call today. Joining me today are Mark Ketchum our President and Chief Executive Officer, and our Chief Financial Officer Pat Robinson. Before we begin, let me remind you that today's remarks will include certainly predictive statements that reflect our current views and estimates about our future financial performance. These forward-looking statements include risks and uncertainties and actual results may differ materially. Our most recent Form 10-K and 10-Q lists some of the most important risk factors that may impact our performance. We do not assume any obligation to update any forward-looking statements that we make today.

We will also be referring to non-GAAP financial measures on the call. A reconciliation of these non-GAAP measures, to the most directly comparable financial measures calculated in accordance with GAAP, is also available on our website.

As usual, Mark will begin the call by discussion the highlights and progress made during the quarter. Pat will follow with details our financial performance and the outlook for the fourth quarter and full year 2008, and then we'll turn to your questions. So with that, I'll turn it over to you, Mark.

Thank you, Nancy. Good morning, everyone and thanks for joining us today. As you are all aware, a lot has happened since our last earnings call at the end of July. The already soft economic macro environment took a dramatic turn for the worse during the last three months, with disruption in the global equity markets, instability in the credit markets, talk of a worldwide recession, and most recently, an extremely volatile currency environment. Consumer confidence is declining around the globe in response to these volatile and uncertain times.

So I want to begin by assuring you that Newell Rubbermaid is very focused on managing through this challenging time. Our most immediate focus is on taking the actions necessary to maintain our solid cash and liquidity position, strengthen our business portfolio, and achieve best costs in our operations. At the same time, we will continue to do the right things to grow our business over the long-term, including investing in consumer-driven innovation and brand building.

Let's start with the highlights. During Q3, we delivered solid normalized EPS of $0.36, slightly better than our most recent guidance. We also generated strong operating cash flow of $364 million, a 29% improvement over the prior year. For the full year 2008, we now expect operating cash flow in the range of $375 million to $400 million, at the high end of our prior guidance. A key driver of our improved outlook is successfully managing working capital down to maximize free cash flow and reduce our indebtedness.

We received a lot of questions about cash following the last call. I trust our Q3 results and our full year prognosis will put most of those to rest. While we participated in the commercial paper market during the third quarter, our strong operating cash flow, combined with our refinancing activities, has allowed us to be in a net cash investment position as of quarter end. We have no scheduled debt maturities until September, 2009. In short, we are very comfortable that we can meet our cash needs in 2009 and continue to return value to our shareholders through our healthy dividend. And frankly, in uncertain times such as these, we believe that's a pretty good position to be in.

We are also working hard to improve our business portfolio. In July we announced our plan to create a more focused and more profitable platform for growth, by eliminating $500 million in sales in selected low margin, commodity-like, mostly resin-intensive product categories. We've notified our customers of our plans, and in majority of cases we expect the exit process to be finalized by the middle of 2009. However, for certain categories, which we had hoped to monetize through divesture, the uncertain financial markets will delay the process into the second half of 2009. Net, we still expect annualized gross margin improvement of more than 200 basis points, and EPS improvement of $0.05 to $0.10, but the benefits will take a little longer to read through.

Lastly, we are aggressively attacking our cost structure. We're currently in the process of developing our 2009 operating budget. At this point, there seems to be little reason to believe that an economic recovery will be quick, so we think it's prudent to be conservative in our budget assumptions, and to develop contingency plans for a wide range of scenarios. We're working very hard to identify meaningful, structural cost savings opportunities across the Company. We mandated that every business, function, and region develop concrete plans to streamline processes, improve efficiency and ultimately to reduce costs.

While we're not ready at this point to talk in detail about 2009 guidance, we believe aggressive management of structural costs will allow us to protect our margins. And we think we can accomplish that while continuing to invest in critical R&D and marketing to build our brands and drive long-term top line growth.

With that, let me turn to Q3 results. Total net sales increased 4.3%. Internal sales, which exclude the impact of major acquisitions rose 0.4%. This was below our prior guidance range due to lower than expected foreign currency benefits and softer core sales.

Q3 sales are an extension of first half trends. Our sales have contracted along with the market in U.S. Office Products and the U.S. housing-related categories, specifically Tools & Hardware and Home Decor. In addition we saw the expected declines in Rubbermaid Home products behind announced category exits and price increases.

On the positive side of the ledger is the continuing strength of our Baby & Parenting, Culinary Lifestyles, Rubbermaid Commercial and Rubbermaid Food Service businesses. Our international business also continues to grow, although the growth is beginning to slow, particularly in western Europe.

Gross margin was 32.6% a year-over-year decline of 300 basis points. Third quarter pricing actions were more than offset by the impact of significant input cost inflation and negative mix during the quarter. Our latest projection of input cost inflation is approximately $225 million to $250 million for 2008. This is a $50 million to $75 million reduction over our July estimate, reflecting relief in raw material costs, particularly resin.

Third quarter normalized earnings per share were $0.36, exceeding the high end of the guidance range, due to lower material inflation and judicious management of SG&A expense. Overall, a solid performance from our worldwide Newell Rubbermaid team during a very difficult time.

So, what are we anticipating for the fourth quarter? For starters, I can tell you the volatility we're experiencing in commodities, the financial markets, and in currencies, is unprecedented in my 37 years in business. It makes it difficult to forecast with any degree of precision. In this kind of environment, we are inclined to take a conservative view.

Here's a look at all of the moving parts. We've introduced higher pricing in many product categories effective October 1st, and we expect that pricing to stick. Sales volume in the quarter will be soft, particularly in housing-related categories. Across the board, we are seeing more cautious consumers and more cautious retailers, which is resulting in both volume declines and an unfavorable product mix. And given the significant movement in foreign currency exchange rates over the last month, we now expect that currency will be a pretty significant headwind in the fourth quarter, whereas it's been a help in the first three quarters.

On the positive side, I'm encouraged by the cost trends. We will benefit from the recent commodity price declines, although the big impact will be on 2009, assuming the trends hold. Further, we're carefully managing structural and strategic SG&A costs consistent with the demand trends. Netting it all down, we now view the fourth quarter more cautiously than we did three months ago. As a result, we expect our full year 2008 normalized EPS to fall towards the low end of our previous guidance range, between $1.40 and $1.45. This is not what we had planned for going into the year, but this is the new reality.

Despite is the immediate challenges we face, there's reason to be optimistic. We have changed the business model, making consumer-driven innovation and brand building the cornerstone of our efforts to drive top line growth. For example, our Baby & Parenting business delivered double digit internal sales growth this quarter, on the strength of innovative new products, like the Nautilus 3-in-1 Car Seat, which went into full production in July. As you remember from our last call, the Nautilus converts from a 5-point harness, to a high-back booster, and then to a backless booster, providing comfortable custom protection for children as they grow. Our Culinary Lifestyles business also posted double digit sales growth in Q3, as our expansion into near neighbor categories continues to be a significant sales driver.

I told you last quarter about the newest Calphalon product line, featuring sleek and stylish, premium heating electrics, including a countertop oven, slow cooker, waffle iron, and contact grill. We had strong retailer selling during Q3, and the consumer sell through has been quite positive already. In our Cleaning, Organization, and Decor segment, the Rubbermaid Food business continues to perform well, delivering high single digit sales growth in the quarter and year to date. Our strong sales results are proof that the innovative Rubbermaid Produce Saver, Premier, and Easy Find Lids product lines continue to offer consumers a compelling value proposition, especially important in this current environment.

Consumer-driven innovation is also propping up the otherwise soft Office Products category. The Sharpie Pen, which delivers the writing experience of a Sharpie Ultra-Fine, but with an ink formulated to not bleed through paper, is the latest hot item for this leadership brand. We are also expanding our platform in the Baby and Parenting business, by introducing the Teutonia brand into North America. Known for its quality engineering, unique styling, and numerous customization options, Teutonia was recently awarded top honors for innovation by a leading trade organization. Earlier this year, we initiated a pilot program to test Teutonia in several regional U.S. markets. Based on the success of that program, we recently launched Teutonia into national distribution, using a selected specialty dealer network.

2008 has been a tough year, and we are not satisfied with our results. But, we are encouraged by the progress we are continuing to make transforming to a best-in-class consumer branding and marketing company. The challenges we face in this economic environment are ones that I don't think anyone foresaw, even as recently as three months ago. Despite these headwinds we are committed to doing the right things now to ensure Newell Rubbermaid weathers this current economic downturn and emerges a stronger and more profitable company.

At this point I'll turn the call over to Pat who will walk through the financials and details of our updated guidance before I return to provide some summary comments. Pat?

Thanks Mark. I'll start with our third quarter income statement on a normalized earnings basis. Net sales for the quarter were $1.8 billion, up 4.3% to last year, and approximately two points below our guidance of plus 6% to 7%. [And this] to our previous guidance was driven by a lower than anticipated benefit from foreign currency, positive 1.3 points versus our expected plus 2.5 points, softer domestic sales in our housing related businesses primarily Tools & Hardware and Decor, as well as a slowdown in our international growth rate.

Internal sales, which excludes the impact from Technical Concepts and Aprica acquisitions, increased 40 basis points. Favorable foreign currency, growth in our international businesses, and positive pricing more than offset softness in our Domestic, Office Products, Tools & Hardware, and Decor businesses. Our international business increased approximately 9% in total, and 4% in local currency, while our domestic business was down about 2% for the quarter. From a business unit prospective, double digit growth in our Baby & Parenting Essentials and Culinary Lifestyle businesses, and high single digit growth in our Rubbermaid Food business, led the sales improvement for the quarter.

Gross margin for the quarter was $575 million, or 32.6% of sales, about 300 basis points lower than the prior year. Raw material inflation, although significant, was less than anticipated going into the quarter, primarily due to lower resin costs. Raw material inflation, combined with lower manufacturing volume and unfavorable mix, drove the year-over-year decline.

SG&A was $394 million for the quarter, up $30 million to last year. Incremental SG&A from acquisitions and currency translation drove the increase. Operating income of $180 million, or 10.2% of sales, was down $56 million or 24% to last year. Interest expense was $11 million higher than the previous year, primarily as a result of the additional borrowings used to fund acquisitions.

The Company's continuing tax rate was 28.5% compared to 29.5% last year. The Company did have a period tax benefit of approximately $3.5 million, or $0.1 per share, related to the resolution of certain tax contingencies. As noted on our prior call in July, the Company elected to retire its reset put securities and related re-marketing option, resulting in a one-time charge of approximately $52 million, or $0.13 per share, in the quarter. Normalized EPS of $0.36 for the quarter is above our guidance of $0.31 to $0.35 provided on the last call, due to favorable raw material costs, more than offsetting the currency change, the core sales shortfall, and unfavorable mix. The Company reported approximately $14 million of $0.3 per share in restructuring charges, related to project [deceleration], which are not included in the continuing earnings described previously.

Operating cash flow for the quarter was $364 million, up $81 million to last year, with improvements in working capital, where both inventory and accounts receivable are now two days below September of last year, and the reversal of accrued liability timing issues noted on the last call, more than offsetting the decline in operating profit for the quarter. Given the strong cash flow performance in the quarter, we are narrowing our full year guidance to $375 million to $400 million, which is at the high end of the range communicated in July, driven by the improvements in working capital.

As announced in September, the Company successfully completed a $400 million unsecured three-year term loan facility with its bank group, and also extended its $450 million Accounts Receivable Securitization Agreement. The proceeds of the term loan were used to pay down commercial paper.

The Company currently has approximately $100 million of available cash and cash equivalents, as well as $700 million of unused capacity under its Revolving Credit Agreement which expires in 2012. We expect to fund our quarter four 2008 and full year 2009 fixed capital and dividend requirements with available cash, plus cash generated from operations. The Company has approximately $750 million of debt maturities in 2009, approximately $500 million in September, and $250 million in December, which it expects to refinance, most likely through the capital markets in the first half of 2009.

I'll now take a few moments to talk about our third quarter 2008 segment information. In our Cleaning, Organization & Decor segment, net sales increased 4.2%, or $23 million to last year. Excluding acquisitions, internal sales decreased 2.5%, as high single digit growth in the Rubbermaid Food business and low single digit growth in Rubbermaid Commercial business were offset by softness in the Decor and Rubbermaid Home businesses. Operating income for the segment was $57 million, or 9.9% of net sales, a decrease of $27 million or 33% versus a year ago. Higher raw material inflation, lower manufacturing volume, and unfavorable mix more than offset the contribution from acquisitions.

Office Products net sales decreased about 0.9% for the quarter, including 2 points of benefit from foreign currency. Our North American business continues to be down mid single digits to last year, while our international business was essentially flat in local currency. From a GBU prospective, growth in Markers and Highlighters, Technology, and Fine Writing, were more than offset by declines in Everyday Writing and Office Organization. Operating income was $61 million or 11.3% of sales, down $23 million to last year as a result of the core sales decline, raw material inflation, unfavorable mix, and increased investment in strategic SG&A.

In our Tools & Hardware segment, net sales were $331 million, down $5 million or 1.5% to last year, with currency contributing approximately two points to the top line. Our Domestic business was down mid single digits in the quarter, driven by increased softness in U.S. residential construction, while our international business was up mid single digits in local currency. Operating income for the segment was $47 million or 14.2% of sales, down $4 million to last year, as favorable pricing and productivity improvements were more than offset by raw material inflation and the read through of core sales declines in North America.

In our Home & Family segment net sales were $319 million, an improvement of $60 million or 23%. Internal sales, which exclude the impact of the Aprica acquisition, grew $31 million or 11.9%. Double digit growth in the Baby & Parenting Essentials and Culinary Lifestyle businesses led to sales improvement. Operating income of $30 million or 11.7% of sales was flat to last year, as the drop through of increased sales was offset by brand building investments, source product inflation, and unfavorable mix in our Baby & Parenting business.

Turning now to our year-to-date results, net sales were $5 billion, up approximately 5.3% to last year in total, and up about 2.3% on an internal basis, which includes about 2.5 points of currency benefit. Our international businesses increased 15% in total, at approximately 7% in local currency, while our domestic businesses were down about 2%. From a business unit prospective, double digit growth in our Rubbermaid Commercial and Rubbermaid Food businesses and high single digit growth in our Home & Family segment led the year-to-date sales improvement.

Gross margin was 33.6%, down 165 basis points from the prior year, as significant raw material and source finished goods inflation more than offset positive pricing and savings from project acceleration. SG&A for the first nine months was $1.15 billion, or $88 million higher than last year, driven by the Technical Concepts and Aprica acquisitions, the impact of foreign currency, and continuing investment in brand building strategic corporate initiatives. Year-to-date operating income was $540 million or 10.8% of sales, down $80 million or 13% to last year.

Turning now to the fourth quarter, we expect net sales to be flat to minus 2%, including the benefit of approximately four points of growth from acquisitions, and four points of negative impact from foreign currency. It is worth pointing out that the foreign currency impact on fourth quarter sales is approximately six points worse than on our last call. Our growth rate excluding acquisitions and foreign currency will also be flat, to minus 2%, consistent with the performance in the third quarter.

We expect our domestic sales decline to be in line with the third quarter, and our international growth rate to be low single digits in local currencies. We anticipate normalized EPS for the quarter to range from $0.29 to $0.34, compared to $0.47 a year ago, driven by unfavorable foreign currency, core sales softness, inflation, and unfavorable mix, partially offset by pricing and productivity.

Turning to the full year outlook, we now expect net sales will increase 3.5% to 4%, which includes the contribution of Technical Concepts in Aprica. Excluding these acquisitions, we expect internal sales to be essentially flat to last year, with foreign currency now expected to contribute approximately 50 basis points of growth for the year, compared to a 250 basis point lift expected on our last call.

From a segment perspective, we continue to expect approximately 20% total sales growth and high single digit internal growth in our Home & Family segment. We now expect sales in our Tools & Hardware segment will decline low single digits, as a result of two points less foreign currency benefit, and increased core sales softness relating to the housing environment. We now expect mid single digit growth in our Cleaning, Organization & Decor segment, driven by our TC acquisition, as well as continued strength in our Rubbermaid Commercial and Rubbermaid Food businesses.

We are adjusting our internal sales expectation to be approximately flat to last year, due to lower foreign currency benefit, the volume impact of fourth quarter pricing actions, and increased softness in the Home Decor business. We're adjusting Office Product segment internal sales growth guidance to be approximately flat, due to less foreign currency benefit of approximately three points.

We expect gross margins will contract between 120 and 160 basis points to last year. We now estimate the impact from raw material and source product inflations to range from $225 million to $250 million, due to favorable impact of oil and natural gas prices on resin and transportation. This favorability of the last call will be offset by unfavorable mix and lower volume in our manufacturing plants, as we reduce production to match the revised sales forecast, and take additional inventory out of the system. Unfavorable mix is attributable to unfavorable customer mix, as value retailers are winning in the current environment, unfavorable product mix as some consumers are trading down to value products over performance, and some customers buying ahead on product categories planned for exit.

We are narrowing our full year guidance for normalized EPS to between $1.40 and $1.45, as favorable inflation news will be more than offset by core sales growth declines, the corresponding impact of lower volume in our manufacturing plants, lower foreign currency benefits, and an unfavorable mix. We anticipate pretax restructuring charges of between $150 million and $200 million, or $0.40 to $0.53 per share. This is down from our previous guidance of $175 million and $225 million, and reflects the timing of the accounting for our restructuring activities. The outlook above does not include these charges. Before we open up the call for questions, Mark has some final comments.

Thanks, Pat. Over the past month, I have conducted Town Hall meetings in Atlanta, and at least half a dozen of our other largest sites. I have thanked our employees for their perseverance and dedication in these difficult times. I've asked them to be flexible and to keep the faith. I am struck by the words of Charles Darwin. He said "It's not the strongest species that survive, more the most intelligent, but the ones who are most adaptive to change." I think this is pretty good advice right now. The rate of change, the volatility that we're seeing is unprecedented. We are and we must be constantly adapting.

In the midst of this economic turndown, we remain committed to our long-term strategic direction. We will continue reshaping the portfolio to be more global, faster growing, and more profitable. We will continue changing the business model to become more consumer and brand centric, driving innovation and investing in brand building. And we will continue to drive for best cost and efficiency, by restructuring the supply chain and leveraging the scale of Newell Rubbermaid, to reduce the cost of non market facing activities, and to accelerate the adoption of best-in-class business practices.

We will not the talk about 2009 guidance until our next earnings call. There is just too much volatility right now for those numbers to be meaningful. But our objective will be to grow earnings and cash flow, even in a tough year, for top line growth.

Here's where the adaptability comes in. We are putting special focus on managing cash. Cash generation has been a historical strength of Newell Rubbermaid, and needs to be even more so now. We're paying particular attention to managing inventories, in the face of rapid consumer demand fluctuations, and customer inventory reductions.

We have accelerated our portfolio optimization, with the category exits we announced in July. Even with resin now moving in a favorable direction, we're sticking by our decision to exit these product lines. We will be a more focused and profitable Company after these moves, despite the short-term pain of executing them.

We are reorganizing our global business units to gain efficiency and effectiveness, combining several smaller ones into larger ones. They are reducing structural SG&A costs, to maintain margins and to protect brand building SG&A, as the economy impacts top line revenue. And we will continue to adapt to the changing circumstances which none of us can yet foresee.

Our objective is to emerge from these troubled times a better and stronger Company. I'm confident we are taking the steps to do so. Thank you for joining today's call and I will now ask the Operator to open up the lines for questions.

Thank you. (OPERATOR INSTRUCTIONS). First question comes from Wendy Nicholson with Citi Investment Research.

My question has to do with pricing. I think you said that you were putting through pricing and had to put through pricing as of October 1, and that your retailers had accepted that, and I know it's only been whatever, 30 days, but we seen a ton of price rollbacks from some of your big customers in other product categories. So what is it that gives you confidence that that pricing is in fact going to stick? I know you're still behind the curve from a raw material prospective, but just given how weak the consumer is, have you had any of those retailers come back and say you can hold your pricing, but give us some incremental promotional dollars or anything like that?

The answer is yes to the latter. In other words, there is that kind of pressure from retailers. They're trying to emphasize within their product mix those things that they think they can offer apparent or transparent value to their consumer, and so we're obviously in those conversations a regular basis. I think that you made the key point earlier though in your statement, Wendy, which is that this pricing that we've taken really just gets us caught up with the inflation that we experienced.

You may recall we said that run rate after this October pricing, the run rate for the price increases we will have taken in 2008, is roughly $200 million, and we just told you also earlier in this call that our expectation now for inflation in the year is something a little north of $200 million, and so we're now just getting caught back up with these increases, and we've been transparent with our customers in terms of that relationship.

Thank you.

Budd Bugatch with Raymond James has our next question.

On the theme of adaptability, you made the point regarding the exit. What has changed other than price, costs in your thinking about the exit of product lines and the timing of that for those less than desirable profitable lines?

Well the key thing that's changed is the credit markets, and also the ability to do a divestiture in these kinds of situations. It's really hard to do evaluation given the moving parts, meaning the movement in top line sales, as well as the movement in profitability driven by things like inflation, but it's also obviously harder for an [acquire] to get access to credit to do the deal. The biggest thing that changed is that some of the businesses that we had expected to or at least anticipated that we would be able to divest, we may not able to divest or we may have take longer to divest. That's really the only thing that's changed.

Other than that, the other categories that we had expected to gradually go out of, and when I say gradually, Budd, you may recall what we said we were going to do is work with our customers to give them time to find alternate supply, but tell them that in no uncertain terms, these are firm decisions and we are sticking to those.

You've been able to get some additional pricing from them on these less than margin efficient lines?

Yes, so again, that was kind of the starting point. We said here's the pricing that we're taking. We're taking it across these entire categories of products, including the products that we're exiting. That's obviously one thing that's also hastened their desire to work with us in order to find alternate suppliers as well.

Thank you, good luck on the fourth quarter and 2009.

Thanks.

Next we'll hear from Chris Ferrara with Merrill Lynch.

Hey, guys, Pat, I was wondering if you could give a little bit more color on how currency translates to the bottom line. Maybe give a little insight into what the transactional pressures are that you might be coming across as you move into next year, as long as spot rates stay where they are.

Okay, so you're talking transaction versus translation?

Yeah, I mean touching to both would be great. I think translation's a little more - -

Translation, about a 10% drop through to OI. We're a little less profitable outside the U.S., particularly in Europe in our overall Company, whereas as Latin America is a little more profitable, but overall, I think a 10% drop through in the sales decline from currency would be a good number.

As far as transaction, we're still working through that, Chris. It is negative for us. The stronger dollar from a transaction standpoint, the higher cost of sales for a lot of our products outside the U.S., but I can't quantify that for you right now.

And just to be clear on the translation effect, you said 10% on OI, is that what it will be 2008, that's what your assumption is? I'm sorry for 2009?

That's a rough number, but in other words if we, - - it was off roughly two points of foreign currency this year in total. Six points in the fourth quarter, and about a point and a half in the third. That equates to roughly $130 million of sales from currency. The drop through on that for us in rough term is about $13 million. That's from a translation stance.

Right, I guess I am not completely following. For the full year - - okay, let me move on in a different way. So that sounds like that's the mixed impact of the issue? What about - -

That's not the mixed impact. We've lost $130 million roughly in sales, two points of sales on the top line this year, in dollar sales just from translation. But you also translate the gross margin and the SG&A at lower dollars, so the drop through to OI, on just a translation basis, is about roughly 10% of the missing sales.

Okay, but that doesn't take into account - -actually this is a question - - does that take into account the fact you guys probably have a little heavier weighting of cost dollars than you do in foreign currency? And the fact your margins are different from region to region?

They are a little different. Again that's a little lighter than our overall margins; our operating margins are higher than 10% for the Company but if you take an international average it's about 10.

Okay. And then just if I have it right I guess, your margin outlook for the full year, is it right to think that assumes that you have, from a gross margin prospective,a pretty good acceleration in the year-over-year trend in Q4. Looks like you might be looking for 50 to 100 basis points of gross margin contraction in Q4, and if that's right, it look like SG&A is really going to come up in a big way, like a couple of hundred basis points. If that is right, and if so, and what is the SG&A mover?

You are right that the gross margins are going to be better from a trend standpoint than we've seen certainly in the third quarter, and the driver there is we're going to have less pressure from raw materials then Q3, and we have the additional pricing kicking in that Mark talked about in October. From an SG&A standpoint, we do expect SG&A to be up quarter-over-quarter. A lot of that is driven frankly by the acquisitions, but there will be some investment still in our growth businesses in the quarter. We're going to continue to invest in R&D and marketing initiatives in the businesses that we're growing in.

Because it would be such a significant acceleration. Is any of that a leverage factor? It looks like it would be 200 basis points higher, versus your pace of anywhere between 50 and 100 basis points, or do you really have that big an initiative scheduled for Q4?

I don't know the basis impact. From a dollar impact it's probably ex currency and ex acquisitions, it's something like $15 million in the quarter.

Okay. Thanks.

Your next question comes from Bill Schmitz with Deutsche Bank.

Good morning, guys. Can we just talk through a little bit about the moving pieces again? Because I think you said there were $13 million of translation on currency so that's probably about $0.3 a share-ish. What was the transaction piece of that?

That's a little bit harder for me to quantify. I didn't give a number for that. A lot of moving parts there, but it is negative for us.

Will it be the same order of magnitude.

I can't give that number. I'll have to do it offline at this point.

Okay. Gotcha, and then just looking at your fixed overhead piece, because I know you said there might be negative volume absorption, and that's going to obviously hit gross and the operating margin. Can you just directionally tell me again what percentage your cost structure is, fixed versus variable?

About half of our product source, so when you look at the product that we make it's about anywhere from 25% to 30% fixed. Okay. On the cost of goods sold line or on the total cost structure? On the cost of goods sold line.

How about SG&A?

Most of that is fixed, the SG&A line I would say probably 75% fixed,.

On that sourced product, I know you're still taking price increases on the trade. Are your outsourcing partners still trying to take pricing, and when do you think that stuff start to pull back with the pullback in oil and then resin as the first derivative?

I think what's happened with the volatility that we're seeing both this year, and I think going into next year, is that these conversations become monthly conversations, and so we're having those conversations as we speak with a lot of our sourcing partners in the same way we have to have them with our customers.

That makes sense, and then lastly, I'm sorry for drawing this out, but are you having any problems with getting stuff out of China now, because we've heard that a lot of those 40-foot containers are stacking things up because these people can't get letters of credit, and so you have a lot of inventory clogged up, and it's really elongating the supply chain, and you wonder how to that corresponds with trying to take inventory out if these folks can't get the stuff over here faster.

No, we're not having any problem.

Okay. Are you helping these guys or are they financing themselves?

To my knowledge we haven't had any of those kinds of issues with any our suppliers. It would be small ones that haven't even shown up on our radar screen. None of our big suppliers have had any problems.

Okay great, thank you very much.

Your next question will come from Connie Maneaty with BMO Capital Markets.

I would like to ask a question about the $500 million worth of sales that you're hoping to divest, and as I recall when you made the announcement about these products, they had a 3% growth margin. So I guess my question is, is there really a market for, even before the credit crisis, was there ever a market for something that only produces a 3% growth margin, and is it more likely now that you just closed these product lines down and not sell them?

Let me answer that with a little more clarification, Connie. First, we were only trying to divest a portion of them. So some of them we would, either they weren't separable or they were such a margin that we didn't think they were divestible. So that probably refers to the lowest margin of those products. For the remainder, what we know is it's going to be a cyclical market.

In other words, we were at the worst point in the market in terms of high resin costs, and therefore the lowest profitability, but if you look over the longer period of time they were more profitable than that. They're still below our fleet average, and still operate in a commoditized way, which is why they are not a fit for our portfolio and why we're continuing with our plans to exit from them. But they do have profitable value to, and can be good cash contributors to someone who operates under a different business model.

That's right. The average was, I think we said, we said low single digits. I'm not sure if we said three, but it's not that far off, and they weren't all that low. Some were maybe even low double digits and again, that was at a point where resin was at its highest cost, but regardless of that even though the margins on those products have improved, they still don't fit our model. So we haven't changed our view from a strategic standpoint.

And secondly, you were talking about changes to your structural costs. Seems to me that Newell's been doing that for the last six or seven years. What are the big opportunities left that haven't already been addressed on the structural cost side?

I think it's really taken an even harder look at how we simplify our business processes. Take work out. As you know, we've talked before about the complicated, and in some cases, unsophisticated business processes we have, and so driving to quicker resolution on those. I mentioned an example in my remarks about combining some smaller business units into larger ones. Those are the kinds of things that we're working on. A lot of the structural things we've been working on have, in the past year and a half, have really focused on Europe. We're expanding that in every point in the globe, in every function.

Okay, thanks.

Your next question will come from Bill Chappell with SunTrust.

Good morning. You may have talked about this. I got on a a little late. Can you talk about trends inter-quarter and as we moved, in terms of a POS standpoint, have you seen things tighten up even more as we get to September and October, or was it pretty much similar throughout the quarter.

We did see some additional softening probably in October, and I think that's what is giving some of the retailers cautionary - - you listen to a lot of retailers already as they report it ,and they're talking in cautionary tones about what kind of a holiday season this is going to be, shat kind of Q4 this is going to be. So we did see some slowdown from that.

But the other thing I would continue to come back to and remark, about half of our businesses are growing, and about somewhere between 60% and 70% of our businesses are growing share in this market. That's what we can control. So we're seeing some fairly downed categories. We've talked about them before, Office Products, Decor, and a lot of the Tools & Hardware business, but despite that, half of our businesses are growing, and as I said, something over 60% we believe are growing share, and that's what we can control. So that's where the POS - - the best way to describe what's going on from a POS standpoint.

To followup with that. With everything going on in the past couple of months, has your outlook for acquisitions changed on the businesses that are growing and that have gone through the whole restructuring, are you still looking for opportunities, or would you rather wait it out for four, six months before kind of re-initiating the process?

We're not actively looking for anything major now, primarily because we're a little constrained from our balance sheet standpoint, with the recent acquisitions that we did, and need to get our metrics back in line with our ratings. So, we may do something very small, but we're not going to do anything significant in the time frame you just mentioned.

Gotcha. All right, thank you.

Your next question will come from Henry [Capellon] with Oppenheimer.

My first question has to do with the earnings guidance revision for '08, and I was wondering if there was any way to break out how much of that was the benefit - - was coming from the benefit of lower commodity costs, versus the change in sales outlook that you provided?

About $0.15 roughly was the positive impact from raw materials. About a $0.10 negative impact from the combined core sales decline in currency change. And then I would say roughly $0.12 of volume and mix negative impact.

Okay, great. And then you talked earlier about continuing to invest in strategic SG&A, and I was wondering how you're thinking about that, given the slowdown in consumer spending? Are you going to continue with previous plans, or is that probably going to be adjusted for the change in demand?

Well, the principal continues to be one that we adhere to. How we're adapting that to the current circumstances are the businesses that we're continuing to make those investments, will make the most investments in, are those ones that I referred to before are growing or have demonstrated they can grow share. The ones that we tend to cut back on are the ones where the consumer is just not coming into the store and shopping for that category, or the business doesn't have an initiative that's hot right now, so we are making those kinds of adjustments. So directionally, we continue to make those investments, but in terms of quantifying that, the rate of increased investment has slowed down versus what it would have been in better economic times.

Okay, but as a percentage of sales, are we talking about a similar percentage of sales that we've seen historically? Or would that decline as well?

It won't decline, I don't believe it will decline. It will increase at the same pace it's been increasing.

Great, and then would you be able to share with us what the average price increase was on October 1st, because I think in the July 15th press release you said some of the price increases would be as high as 22%. I was wondering if that was still reasonable given what we're seeing in terms of consumer demand and cautious retailer outlook?

Those percentages were in some of the product categories that we're exiting, and the margins were extremely low and were pounded by the resin inflation, but overall our run rate on pricing right now, run rate in the fourth quarter is about a $200 million annual run rate. Which you can do the math, is about a little over 3%. That's sort of the average, but we're all over that. Some products are not taking any pricing; some are as high as 20, and everywhere in between, depending on the pressure we've seen from materials, the competitive nature of the product lines, how much innovation we have, and so forth. So it's hard to do anything with that average, but that's the run rate.

I can that's an important characterization, 3% is not 22%, right. That's much more reflective than the average price that we're seeing, something in the low single digits.

Thank you very much.

That does conclude our question and answer session. If we were unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at (770)418-7662. Today's call will be available on the web at www.newellRubbermaid. com, and on digital replay at 888-203-1112 or 719-457-0820 for international callers, with a confirmation code of 9578247. Starting two hours following the conclusion of today's call and ending November 13. This concludes today's conference.