諾威品牌 (NWL) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Newell Rubbermaid's fourther quarter 2008 earnings call. (Operator Instructions)

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

Good morning. Welcome to Newell Rubbermaid's fourth quarter and full-year 2008 earnings call. Before we get started, it is my job to remind you that our discussion today contains certain forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements include risks and uncertainties and actual events or results may differ materially. For a detailed discussion of some of the most important risk factors that may impact our performance, please see the file Form 10-K and 10-Q.

We further caution you that we do not assume any obligation to update any forward-looking statements that we make today. We will provide also certain non-GAAP financial measures on the call. Reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in our press release and is also available on our website.

With me on today's call as usual are Mark Ketchum, the Company's President and Chief Executive Officer and Patrick Robinson our Executive Vice President and Chief Financial Officer. I will turn the call over now to Mark.

Thank you, Nancy. Good morning everyone and thank you for joining us today. I would like to start by offering some perspective on Newell Rubbermaid's performance and our strategy and, most importantly, how we are managing our business in the face of the very significant challenges thrown at us by today's economy.

I won't belabor the point that we are in difficult times. We are all too familiar with issues confronting west businesses today. At the top of the list for consumer products companies is fewer people with jobs, contracting credit, declining consumer confidence, and the resulting top line pressure. The volatility we have experienced this past year, the depth and rate of the decline, and the resulting lack of clarity and visibility to forecast the future are unprecedented in my business career. However, it is what it is and we must and we will deal with it.

We are dedicated to making the best of a difficult situation. In today's environment, our first responsibility is to protect the long-term future of Newell Rubbermaid. By maintaining our solid liquidity position and the financial flexibility necessary to weather this economic storm. The way we will do that is by prioritizing the generation and preservation of cash and earnings, in that order.

We did a good job of managing the business to generate cash during 2008. Although at some sacrificed operating income particularly in the fourth quarter. Despite the unexpected sales short fall that materialized in November and December, we delivered operating cash of $212 million in the quarter and $455 million for the full year exceeding the high end of our guidance range. We were able to deliver on our cash targets through a laser-like focus on working capital, dramatically curtailing production in order to reduce inventories, and tight management of payables and receivables.

Looking ahead to 2009, we think it is prudent to plan for another difficult year. With that in mind, we announced today that we are reducing our 2009 dividend by half. This is not an easy decision. We are certainly mindful of the importance of returning value to investors through dividend income.

As we stand today, we believe it is likely we could operate our business, maintain an appropriate level of capital investment, and meet the 2009 debt maturity obligations without a change to our dividend. But the leadership team and the board said it makes more sense to reduce our risk profile and protect our solid credit investment rating and access to the credit markets. Our number one commitment to shareholders is to protect and preserve the long-term commitment of the Company. This more conservative dividend policy which frees up approximately $120 million in free cash flow creates an additional buffer to help deal with the unknowns that 2009 might throw at us. And the new dividend levels still offers an appropriate, attractive yield relative to our peers and the overall market given the lower stock price and earnings expectations.

In line with that conservative approach, a mantra will be flexibility and adaptability. Obviously, we have no control over the economy and we can't magically increase consumer confidence. So we will read and react. We anticipate the 2009 will be highly unpredictable, especially as it impacts revenue. We anticipate in our modeling year-over-year declines and core sales volume in addition to the 4% to 6% decline from product categories we are exiting.

In light of that, we are focused on protecting earnings by aggressively managing our cost structure. Keeping with our operating principles and flexibility and adaptability, we are preparing several layers of contingency plans in case economic conditions worsen. We will be ready to adjust on short notice as needed to deliver the cash and earnings targets.

As we announced back in December, we have initiated workforce reductions and wage freeze across the organization. This is part of a targeted structural SG&A reduction of over $100 million that expands the end of 2008 and first half of 2009. To further realize structural cost efficiencies, we are consolidating and simplifying our segment structure and reducing the number of global balance business units from 16 to 13. More on this later.

On a positive note, we think we can improve our gross margin in 2009, aided importantly by category exits hat will leave us with more focused, more profitable portfolio. We still expect that once completed, these exits will drive annualized gross margin improvement of more than 200 basis points. We will see much of that improvement in 2009.

In addition, we expect a benefit from the positive pricing actions taken last year. We are seeing relief in resin costs due to the decline in oil and natural gas prices, but still expect year-over-year inflation and other input costs such as metal and sourced finished good. Net, we believe pricing and inflation will be offset in 2009. This gross margin expansion will help fund continued selected investment and strategic brand building. Even in this weaker environment, we still see solid growth potential in a number of our GBUs and in developing markets. We will continue to invest strategically in innovation and new product launches in categories where consumers and retail dynamics are the most responsive.

Our long-term strategy has not changed. We remain committed to delivering sustainable growth by investing in consumer-driven brand building, optimizing our portfolio, and achieving best cost and efficiency across the organization. I am pleased to say we continue to make good progress in advancing these objectives even in the face of the 2008 and 2009 economic headwinds. Our careful fiscal management during the difficult period will help insure that we are well positioned period to resume our growth trajectory once the economy rebounds.

Let me get more specific on our outlook going forward. As I said earlier, we expect difficult retail environment experienced in the fourth quarter to continue into 2009, particularly in the first half of the year. For the full year, we are anticipating a net sales decline of 10% to 15%. This reflects a year-over-year decrease in core sales, primarily driven by continued weakness in the US market, plus a negative currency exchange impact of 2% to 4% and an additional 4% to 6% negative impact from categories we are exiting.

I am very wary of being able to accurately forecast organic sales in the current environment. The consumer economy is resetting to a new base. Unemployment, reduced credit spending, and shaky consumer confidence will all reduce consumer spending. Who knows, Americans might start to save money again. So nobody knows exactly how big or how lasting this new consumption pattern will be. However, I have a much better level of confidence in our EPS and cash guidance.

As I stressed earlier, cash is our key priority this year. We expect to generate 2009 operating cash flow in excess of $400 million. Once again, disciplined management of inventory, accounts receivable, and accounts payable are the key levers. With our strong cash flow generation and our solid capital structure, we are confident we can comfortably satisfy our financing and liquidity needs in 2009.

We expect to deliver normalized EPS in the range of $1.00 to $1.25. This range is wider than usual, a reflection of the highly variable environment. And we believe that with the contingency plans we have in place and with our commitment to adapting to circumstances, we will be able to adjust our plans as needed to meet the EPS and cash targets.

One more detail before I turn the call over to Pat. As part of our overall focus on reducing and streamlining structural costs, we have recently introduced some changes in the organization structure of the business. Effective with the first quarter of 2009, GBUs within the cleaning organization will be reorganized as follows - - the Rubbermaid Commercial Products GBU will be managed as part of a renamed Tools, Hardware, and Commercial Products segment. Rubbermaid Food and Home Products in the Decor GBU, including the Amerock brand, will become part of our Home and Family Business segment.

We believe this reorganization will be a very positive change. The two step distribution route-to-market makes Rubbermaid Commercial Products a good fit with significant portions of the current Tools and Hardware Business. The target consumer for the majority of Decor and Rubbermaid Food and Home, namely the female head of household, makes these businesses a good fit for Home and Family. Besides making good business sense, this change recognizes and leverages the talents of our two business segment Presidents, Bill Burke and Jay Gould, will allow us to realize structural SG&A efficiencies consistent with our focus on cost management. The Office Products group has announced previously and is reporting directly to me until a permanent head is appointed. We expect to announce the new president of Office Products in a few months.

At this point, I will turn the call over to Pat who will walk through the financials in additional detail and I will return to provide final comments. Pat?

Thanks, Mark. I will start with our fourth quarter 2008 income statement on a normalized earnings basis. Net sales for the quarter were $1.5 billion, down 11.6% last year consistent with our revised guidance of sales decline in the low teens. Sales decline was driven by a significant deterioration of our retail sale in the fourth quarter across substantially all of our businesses and geographies with the Office Products and Tools and Hardware segments seeing the largest impact. Rapid decline in consumer foot traffic late in the quarter coupled with tight management of inventory levels by retailers led to the sales dropoff.

Foreign currency contributed four-points to the sales decline in line with our expectations. Previously announced product line exits contributed approximately 3 points to the decline. Acquisitions contributed approximately 4 points of growth in the quarter. Our international business decreased approximately 12% in total and 1% in local currency, while our domestic business was down 15% for the quarter.

Gross margin for the quarter was $435 million or 30% of net sales, about 510 basis points lower than the prior year: The following factors contributed to the margin decline. First, about half of the decline was driven by the impact of lower production volume in our operating facilities driven by both lower sales volume and aggressive inventory management which allowed us to maintain the days on hand at approximately 82 days despite the steep decline in sales. Secondly, in response to the sales decline, we accelerated our skew rationalization efforts on slow moving products in categories planned for exit. Adjusting the carrion values of existing inventories to reflect (inaudible) sales strategies or lower sales outlook driving about one quarter of the decline. Unfavorable customer and product mix as customer's favored value retailers and value products during the quarter drove the remaining 25%.

The impact of raw materials and source product inflation, those estimates anticipated were still a significant negative impact in the quarter. However, this was offset by positive pricing in the quarter. SG&A was $355 million for the quarter, down $16 million the last year. Incremental SG&A from acquisitions was more than offset by the aggressive management of structural and strategic SG&A spending.

Operating income of $80 million or 5.5% of sales was down $125 million or 61% to last year. Interest expense was $13 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 27.5% last year. The Company did have a period tax benefit of approximately $26 million or $0.09 per share related to the resolution of certain tax contingencies.

Normalized EPS of $0.11 for the fourth quarter is slightly above our revised guidance of $0.06 to $0.10 provided in our December press release. Management of SG&A spending and favorable interest rates accounted for the increase.

The Company recorded approximately $19 million or $0.06 per share in restructuring charges related to product acceleration which are not included in continuing earnings described previously. The significant decline in the financial performance of certain business units and our Tools and Hardware and Office Products segments in the fourth quarter of 2008, combined with the adverse impact of the current macro-economic environment when our outlook for these businesses led us to evaluate the value the intangible assets. As a result of this evaluation, the Company recorded non-cash impairment charge of $299 million $1.07 per share in its fourth quarter results related to goodwill. These charges are not included in the continuing earnings described previously.

Operating cash flow for the fourth quarter was $212 million, up $13 million the last year despite a $100 million reduction in normalized earnings between years demonstrating our ability to generate cash in these difficult economic times. Working capital improvements drove the increase between years including improved DSL of 4 days and tight management of the inventory levels. For the year, we generated approximately $455 million in cash flow from operations above our July guidance.

I will now take a few moments and talk about the fourth quarter 2008 segment information. In our Cleaning, Organization and Decor segment, net sales decreased 8.2% or $45 million to last year with unfavorable currency contributing 3 points to the decline. The acquisition of Technical Concepts contributed 6 points of growth to the quarter. Approximately 6 points of the decline is attributable to a decrease in sales or low margin products that we are exiting. High single digit growth in the Rubbermaid Food Business was more than offset by a high single decline in Rubbermaid Home excluding the exits and a mid-teen decline in our Decor business.

Operating income for the segment was $60 million or 11.8% of net sales, an increase of $8 million or 16% versus a year ago. The benefit from acquisitions, favorable pricing, and aggressive management of SG&A spending more than offset the impact of the sales volume decline and raw material inflation.

Office Products net sales decreased by 14.4% for the quarter including approximately 5 points of decline from foreign currency. Our North American business was down mid teens to last year. While international business was down mid teens the last year while our international business was down 1 point in local currency.

From a GBU perspective, all businesses faced extreme pressure from the economy including lower consumer demand and inventory management of retail. Markers and highlighters and technology experienced declines in the mid to high single digit range while everyday writing, fine writing, and office organization experienced declines in the mid to high teens.

Operating income was $17 million or 4% of sales, down $72 million to last year. In response to the rapid sales decline in the quarter, we took aggressive steps to slow down our manufacturing facilities and accelerated our SKU rationalization efforts. Combined, these efforts resulted in approximately $30 million of operating income reduction in the quarter.

In our Tools and Hardware segment, net sales of $257 million down 23% to last year with currency accounting for approximately 5 points of the decline. Our domestic business was down approximately 24% in the quarter and our international business was down 2 points in local currency. Retail inventory management, a significant increase in softness and industrial construction channels continue to decline in the housing market and drop off in consumer foot traffic in the fourth quarter drove the decline. Operating income for the segment was $17 million or 6.4% of sales, down $32 million to last year. The volume impact on our plans and tight inventory management more than offset SG&A reductions and favorable pricing.

In our Home and Family segment, net sales were $261 million up $4 million or 1.5%. The acquisition of Aprica contributed approximately 12 points of sales growth of the quarter. Culinary Lifestyles had a high single digit sales decline and Baby & Parenting Essentials experienced a low single digit decline. Operating income of $7 million or 2.8% of sales was down $29 million the last year. Drop through of lower sales and unfavorable mix in the Baby & Parenting business and source product inflation all contributed to the decline. In addition, our Baby & Parenting business experienced approximately $10 million of increased cost associated with compliance with newly enacted child safety protection laws in the quarter.

Turning now to the full year results. Net sales were $6.5 billion, up 1% from last year including 3 points of benefit from the acquisitions of Technical Concepts and Aprica. Foreign currency contributed about 1 point of sales growth. Our international businesses increased approximately 8% in total and approximately 5% in local currency, while our domestic businesses were down 5%.

From a business unit perspective, mid to high single digit growth in our Rubbermaid Commercial, Rubbermaid Food, and Baby & Parenting businesses, it is more than offset by continued softness in our Office Product and Tools and Hardware business particularly in North America. Gross margin was 32.8%, down 240 basis points from the prior year. The main drivers were the significant raw material and source product inflation, fourth quarter volume decline and its impact on our plant productivity, and unfavorable mix which more than offset positive pricing for the year.

SG&A was $1.5 billion or $72 million higher than last year driven entirely by acquisitions and the impact of foreign currency. Fiscal year 2008 operating income was $621 million or 9.6% of sales down $206 million or 25% to last year.

Turning now to our 2009 outlook. For cash flow, we expect to generate in excess of $400 million in cash from operations in fiscal 2009, delivering $100 million from continued strong working capital management. This guidance includes $100 million in restructuring cash payments for the year. We expect capital expenditures to be $150 million in 2009, resulting in free cash flow and excess of $250 million available to cover dividend payments and reduce outstanding debt.

The Company currently has approximately $275 million of available cash and cash equivalence as well as approximately $690 of unused capacity under its revolving credit agreement which expires in 2012. The Company has two important loan covenants under its revolver and term loan bank facility. The first is interest coverage and then debt to capitalization ratio. As of 12-31-08, the Company has sufficient cushion under both covenants and expects to maintain significant cushion through 2009 even if the low end of its current earnings and cash flow guidance.

The Company has $750 million of debt maturities in 2009, approximately $500 million September and $250 million in December which expects to refinance most likely to the capital markets in the first half of the year. year.

As Mark noted, we expect 2009 will be another difficult year with extreme volatility in the marketplace. As a result, we will remain conservative in our guidance this year particularly as it pertains to sales volume. For the full year, we currently expect net sales will decrease 10% to 15%, including the 1 point benefit from acquisitions. Our guidance includes a 4 to 6 point decline of planned product line exits, and a 2 to 4 point decline from currency. We expect all of our operating segments to experience sales decline within this range with the exception of Home and Family which we expect to be flat to minus low single digits.

Our effective tax rate for the year is expected to be 30%. Our full year guidance for normalized EPS between $1.00 and $1.25 per share. We anticipate pre-tax restructuring charges between $100 and $150 million, or $0.28 to $0.43 per share. Outlook above does not include these charges.

Turning to the first quarter, we expect net sales do be down low to mid teens including 14 points of growth from acquisitions. Our guidance assumes a 3 to 5 point decline from unfavorable foreign currency and a 4% to 6% deadline from product line exits. We do not anticipate any relief from the weak consumer demand experienced late in the fourth quarter of 2008. We expect retailers to continue to tightly manage channel inventories as well. Accordingly, we expect the first quarter sales decline to be in-line with those experience in the fourth quarter of last year.

We anticipate normalized EPS for the quarter to range from $0.07 to $0.12 compared to $0.27 a year ago. Primary driver to the decrease are the core sales decline and related volume on our production facilities. Continued type inventory management, we expect quarter one inventory growth about half of what we saw a year ago. An unfavorable mix as we expect consumers to continue trading down to value retailers and products.

As Mark mentioned during the first quarter of 2009, the Company made a decision to align the GBUs and Cleaning, Organization, and Decor segment to our Tools and Hardware and Home and Family segments. Beginning with the first quarter of 2009 earnings call, we will begin reporting our financial results under the new three segment structure. We will release updated historical segment financial information prior to the first quarter earnings call.

Before we open the call for questions, Mark has some final comments.

Thank you, Pat. Before I close, I would like to thank our employees for their hard work and dedication. Particularly in light the difficult but necessary decisions made to position Newell Rubbermaid to deal with the recessionary times. We are committed to the long-term health and success of this Company and we will continue to do what is right to ensure its long-term prosperity.

Whatever 2009 may bring, I can assure you our top priorities are to protect cash and earnings and to remain flexible and adaptable in an ever-changing landscape, taking steps to further strengthen our already strong balance sheet. We have developed contingency plans for a variety of economic scenarios and we will aggressively manage our business as a appropriate to deliver on our financial targets. In the midst of economic turmoil, we have not lost sight of our long-term strategic objectives. The strategies that served us well during more robust times are still critical during the downturn.

Our moves to reshape the portfolio will make us a more innovation and marketing responsive, more profitable, and more global Company. Our focus on changing the business model to become more consumer and brand centered will help us win with consumers and customers, gain market share and ultimately grow the topline. In our continued drive to achieve best cost and efficiency and better supply chain management and greater leverage of the Company scale, we will reduce the cost of non-market facing activities and accelerate the adoption of best-in-class processes.

Despite all the short-term uncertainty, I feel good about the future of Newell Rubbermaid. The tough measures we have taken to deal with the current environment set us up to rebound more quickly as the economy recovers. Coming out of the recession, we will have a faster growing, more strategic, and more profitable portfolio, a leaner organizational structure, and a strong inventory and cash management ethos. I look forward to updating you on our progress on our next call.

Now, I will now ask the operator to open up the line for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from Bill Schmitz of Deutsche Bank.

Good morning, guys. I'm going to start on the product line exits. We talked before, we thought it probably wasn't a bid to sell some of the stuff off. Are you going to shudder them, or are there still plans in place to try to sell off some of those.

There are a couple of businesses we would like to be able to market and obviously the market isn't right for doing that today and we will continue to hold and run those in the immediate term. That looks like the best decision. And we also indicated, we will continue to exit other categories by withdrawing from them and that is the 4% to 6% of additional revenue decline that we referenced earlier.

We will be done by the fourth quarter or will there still be product line divestitures in the fourth quarter of next year?

I think the divestitures could still be with us at the end of the year. And I don't know that. And circumstances may change. We might find there there is a better way, better economic scenario in terms of monitorizing or exiting those businesses. For the current time, we are going to exit about two-thirds without divestitures and there is roughly a third of it we would hope to divest.

On the debt side, I think of the $750 million due. Roughly $450 or $500 million as the accounts receivable securitization facility. Is there any more color on whether or not that market is opening up again and whether or not you are going to be able to renew that facility?

We have been renewing that with the bigger bank facilities holding it now. And as far as I know, that market is still available. Our plans are more than likely - - we will term that out in the first half of the year.

What is the rationale for that?

Just balance sheet more secure and put some more maturity in our debt.

Okay. That makes sense. Just lastly. that was only two, but I have one third quick one. Resin prices are down $0.35 or $0.40 if you look at some of the published numbers. Why aren't your source good numbers coming down instead of going up? Because a lot of the contents of those products is obviously resin.

Actually. It is not. We make the resin stuff ourselves.

Okay. So what is driving that inflation on the source products?

The other materials - - metals and packaging has not come down, at least not as significantly as resin, which are actually going up. The other thing we have labor inflation is happening in primarily in China. And the currency, although the depreciation of the dollar hasn't happened as rapidly. It's still happening. So, those combined are still causing some pressure on the source products.

Okay. Great. Thanks very much.

Your next question comes from Wendy Nicholson with Citi Investment Research.

Can you start by talking about the European business versus the US business. I'm surprised the European business or the international business as a whole has been as strong as it has. And in terms of your forecasting for next year, are you assuming more of a slow down in the growth rate there like you have seen in the US?

Well, specific to Europe, Wendy, it has lagged the US but generally is following the same trend. The downturn there has started later. And we are seeing it more now. Frankly, it is reflected first quarter, first half estimates. So we will see more of a drag from Europe than we had seen previously. We did start to see that from the end of the fourth quarter. You read the news as well. You got some fairly serious decline in places like the UK and Spain. And moderate, but still significant declines throughout Central Europe.

You said the European business was only down 1% versus the US business down mid teens. Is that right?

That's right. That wasn't just Europe. That was all international, Latin America, Asia, as well.

Okay, but fair to assume that's going to deteriorate from here, I would assume.

I think our European business, as Mark mentioned- certainly in Western and Central Europe will follow the US pattern is our assumption. Eastern Europe and some of the developing areas we include in Europe like the Middle East and what have - - they may decline from their growth rates but still grow. Their growth rates will decline, but they will still be in the growth mode.

And Latin American and Asia will continue to grow.

Okay. And the product line exits - - are those almost all based the US?

Yes.

Can you comment just on the US business? bill mentioned the drop in resin pricing and obviously that should turn into a big tailwind for you and some of the other guys out there. Have you seen private labels start to pull back pricing or have the conversations with retailers gotten more difficult and can you also comment on inventory levels on some of your bigger categories at retailers?

Couple of questions in there. I will try to take them all, if I missed anything, tell me. Your first comment on resin. So, certainly we have seen a significant decline in resin and versus last year in total and versus its peak. But also, I would offer as perspective, the lowest quarter for resin last year was Q1. So we are also - - the benefit isn't the benefit we would see versus at the peak. Obviously for September it's versus - - we have to look at it versus the same point in time a year ago. That is relative to the question in resin benefit we are seeing.

The other thing we are seeing obviously is a lot of price pressure. The price pressure comes not from customers as much as it does competitors. Competitors are willing, in some cases, to drop their prices. And we have to adjust our prices to stay competitive. The third I would say is where we are seeing this most pressure and places we would get the most benefit from resin, price declined as well as where we are seeing the most price pressure are precisely the categories we are expecting. That's the reason we are exiting that. We don't like that business dynamic. We don't want to be in those kind of commoditized categories. So, the other thing is over time we have less and less of an impact of neither the benefit from resin or the negative price pressure effects. So that was that question on pricing resin.

Second, you asked about pressure from private label. Again, I would characterize the problem or the issue a little bit differently. I think we are seeing more and more pressure from consumers and customers trading down. It is not just trading down to private label, but it is trading down within our own mix. We have got a fairly significant negative mix impact that we are seeing that we started seeing in the fourth quarter versus again in the first quarter. As both consumers, but also customers. Customers want to make a value statement to their respective shoppers. And a way they often times they think they can do that best is by offering something that looks like a fabulous deal, meaning low price. So they will pick the items that they can offer that fabulous deal price on.

Often times that entry price points on all kinds of products. So that affects our mix. We we are seeing that. We are getting the benefit of that from a buying standpoint, but it's a mixed (inaudible).

It's not just a private label pressure that we are seeing as much as there is just a general pressure for customers and consumers to mix down in this environment.

Third question, I think was inventory related.

That's right. Inventory levels, out retailers.

Again, it varies by customer and by category and channel. Frankly, a lot of our customers and a lot of our channels we think have evened themselves out pretty well in the last few months. But I would be naive to sit here and think that with the pressure on cash being what it is some customers and/or channels won't see driving their inventories down further to be a continued opportunity that they might go after.

Just in terms of what the middle comment you made how people are trading down and how the retailers are trying to offer more value. Does that effect the way you think about innovation this year? I know over the last couple you have focused more on innovating at the higher end and the more value added side whether it's in the family care or even on the office products side. And does that affect not only the number of new products but the type of new products you are launching this year?

Not really a lot. What it does is it effects our rate of spending, our pace of spending in terms of launching those initiatives. And in some cases we have scaled back on launch plans or we are testing them more before we go ahead with the launch. Obviously we have to - - we just can't ignore that factor. And in some cases, it is frankly, delaying the timing of them until we think there a receptive audience, both consumer and customer. And the answer is our innovation is still focused on where we could really bring performance that differentiates us and our innovation has always been focused - - the other half of our innovation dollars and always been focused on how do we do that at a best cost and how we engineer the products, design them and engineer them, and also by how and where we manufactured them.

Got it. Thank you very much.

Your next question comes from Chris Ferrara Bank of America Merrill Lynch.

Hi guys. I wanted to know if could just comment on the Q1 sales outlook in '09. How much of that weakness is assumed further destocking at retail?

Well, it is hard for us to split that, to be honest with you, Chris. We think in the fourth quarter, if you remove currency and remove (inaudible) and get down to our core sales decline. It was around 8.5% and roughly a third of that would have been retail inventory adjustment. The other two-thirds, consumer demand. And when we look at inventories as Mark mentioned, we think they are down from where they were a year ago, not in every channel, but most of the channels. But we think most of the retailers may continue to do that and we are baking that into our first quarter guidance. Maybe roughly a third, but it's hard to get an exact read.

That's understandable. But the right way to characterize your thinking is that Q1 suffers from that as much as Q4 did and then it eases from there? Is that right?

And that's a general rule, yes.

Great. And then I guess, Pat, I might not have heard this right. I thought you said one quarter of the gross margin decline you saw in the quarter. It sounded like something related to an inventory writeoff. Is that right or wrong? Can you give a little more clarity on the first quarter you cited?

It wasn't write-offs, but write downs of inventory related to some of the product line exits we are doing as well as some SKU actualization efforts that we had planned but we decided to accelerate. So, with downturn sales and downturn outlook, we reevaluated those reserves and took some charges in the quarter.

So it also has to do with - - there here have been promotional items that retailers were cancelling their orders for their promotions. Even display pieces and display packs that we made specifically with agreement with those customers that they then came back and said I am not going to do this. It is a very unusual circumstances but it is real. I have got a promotional pack or displays that I prebuilt and put into inventory and now it looks like I can't move them or their contract for them has gone away. Then, I have got to do something.

Great. Then to the extent that you ratcheted in your top line To the extent that you ratcheted in your top line expectations and presumably won't be surprised by the (inaudible) being sent back. I mean, can we look at that as a one type of event on that write down?

I think so. I think it is something we do in our regular course of business is evalue the inventory right at the lower cost of marketing. Just more of it is happening in this quarter because of the economic circumstances and the decline in sales. And in some cases a change in how were were going to take this product to market and accelerate, as I said, this SKU rationalization meaning that there were some SKUs we knew we wanted to get out of. We decided to go faster and write them off rather than try to bleed them out for the market over the next 12 months, let's say.

Okay. Finally, Mark, would you be able to comment a little bit on the departure of Jim Roberts. And he was a guy what was viewed as an important driver in productivity and to see him leave suddenly like that. I am just wondering if you can give your perspective on that?

I am not going to. I will decline to do that. I will only say that it was a mutually agreeable separation. And I think it has also given us an opportunity that we are advantage of to restructure in a more cost efficient and an effective way that really utilizes our other executives.

Great. Thanks a lot, guys.

Your next question comes from Budd Bugatch with Raymond James.

Good morning Mark. Good morning Pat. I was wondering hopefully if you could help us walk from the first quarter guidance which you are expecting to the full-year guidance. I recognize that the first quarter is always the lowest quarter, but this seems particularly low. I wonder if you can give us some flavor of what SG&A and cost-to-sale or gross profits expected for respective first quarter versus the rest of the year and how you look at that.

I am not going to give you different line items, we are not going to do that by quarter. I will tell you what's happening in Q1versus both a year ago and how we expect maybe these trends to continue. Okay. I will start with the core volume declines. And if you back out currency and (inaudible) exits and take the mid-point of those guidance there. You would say the core volume decline for the year is somewhere in the 3% to 8% range is the numbers we back into. For the quarter, we are looking more at 7% to 10%. It is the largest quarter of core sales decline we expect for the year. And we expect that to get a little better in Q2. Not significantly, but then the back half as our comps get easier we think that number will get better in the balk half. Still be a decline, but it will improve.

Okay.

The second major item is inventory build. Last year in the first quarter and actually the last few years, we had significantly inventory built in Q1. I believe last year it was $130 million. We do not expect to have anywhere near that type of inventory built back up. I think as I mentioned about half of that in the first quarter. We will build inventory because the second quarter is our largest sales quarter. But nowhere near to the degree we did a year ago so we are going to have volume pressure not only the sales decline, but from the inventory build. Particularly in the first quarter. That will come back to help us later in the year because we won't have that inventory to take out of the system later. So our production volumes will be somewhat higher than as we get into the later part of the year. And our build will be more evenly balanced as we move across the year.

So a disproportionate impact basically on cost of sales earlier in the year?

That's right.

Will there be SG&A sales savings as we go through the balance of the year? It looks like corporate overhead for the year 2008 versus 2007 was about flat at $82 million. How do you look at that?

That was the fourth. I don't think we can go there now. SG&A savings will ramp up as we go through the year. Our lowest comp savings, if you will, last year will be in Q1. That's the fourth factor, probably the least factor. The third one I was going to mention was mix. We have seen consumers - - we talked about trade down or retailers trade down to value product. That really began in Q3, if you recall, we had a pretty big mix, a negative mix impact in Q3. And that was the first quarter we saw that. And so the first half of the year, we make that negative mix impact then. That will annualize itself, if you will, by the time we get to the back half.

So, as we compare '09 to '08, those are the four factors that hurting us in Q1. And the ones that start to improve in the latter half or the volume declines will not be as steep. The inventory build will actually be more balanced and the SG&A savings will happen more as we go through the year and ramp up.

As I recall, there was also, I think, $50 million or so of restructuring savings that should have impacted from acceleration in '09. Is that still planned?

That is still planned. It's part of our productivity efforts for the year. And some of the headwind on that will be the FX impact, the currency impact on our product cost, and outside the US, our outsourcing product. into (inaudible) sourcing product. Canada that is denominated in the dollars. They are paying more for that product. That is is taking part of that productivity away. But we do expect to get $50 million savings from acceleration again this year.

Did you answer the corporate overhead question? The $82 million? Is that going to be lower for year-over-year for '09 versus '08?

The $82 is the amount that remains in corporate after allocation to the groups. Our corporate costs will be down year-over-year substantially.

So that number as we see it should be down year-over-year?

Well, again, that's the amount leftover after allocations. And I am not sure whether the left over amount that you see is corporate will be the same or not. If you are following me?

I follow you. I know how the accounting was done. We only get to see certain numbers. I was looking at what we get to see.

The total bucket of corporate costs are coming down.

Okay. Lastly, I was curious on your comment on raw materials. And I have seen most materials and many of the specialty material down 50% to 60% and the steel is down. In surprisingly from the peak, as well. Your comment on that and particularly in China and seeing what is happening with container costs. The sourcing issue was a surprise issue. Could you review for me? I am confused.

As far as materials themselves and particular steels - - I don't have enough information to find for me to comment on that. The information I have from our sourcing people is that steel is actually relatively flat - - some is up and some is down. But overall, I would say that metals in total, that's a steel, metals in total are relatively flat year-over-year. On an average cost basis through our forecast for average cost this year.

That's really a variance with the numbers that I track every week.

You're right.

And the costs of fuel should have really impacted containers coming from Asia.

Container costs are coming down, yes.

So I would see - - but you overall expecting pricing to offset deflation irrespective for this year.

That's right. We were looking for $250 million of resin deflation this year and and you are going to give it back pretty much. It will be $250 million, we will buy 400 to 450 million pounds of resin. So, if you look at the average cost for resin in '08 and take it to the current price. And I am not sure you get to your number there.

We do it quarter by quarter. I will send it to see what we are doing wrong. Okay. And we are in that same 400 to 450 million pounds so that's not a variance. Thank you very much. Good luck for the first quarter and for the year.

Thanks.

Your next question will come from Bill Chappell with Suntrust Robinson Humphrey

Good morning. Can you talk a little about in terms of the product exit that you announced, how or is that having any impact on the other categories in terms of retailers? Are you getting penalized in other categories for pulling the rug out for what you did? How are retailers looking at that?

For the most part, we are not getting penalized because we did it in a way that allowed them has allowed them time to find alternative sources of supply. We are exiting gradually. We have given them time to finally alternative supplies. In cases where these products were in their catalogs, We maintained them in their catalog and so on. The answer is no, we are not getting punished.

For the remainder third of the business which I guess you will be throughout 2009. Is that under similar management? How does that continue to operate in limbo.

Again, one the reasons we don't talk specifically about those is that the people presume involved in the business don't think of themselves in limbo. They are working hard to continue to make those businesses everything they can be. That is obviously want to maximize value to go back and try to divest them. That's one of the reasons why we don't talk about specifically (inaudible).

On the currency side. I assume your guidance is based on current spot rates today. Any color you can give us on if something moves what this translation effect on the overall business?

Well, that would be difficult. We do about 30% of our business outside the US Trying to think in percentages now. Of that, maybe two-thirds of that is in Europe, so that's mainly the pound and the Euro. Which is as you expect. And obviously the big currencies is the Canadian dollar and Mexican peso. There is - - those are relatively minor. I don't know if that helps or not.

Basically you are assuming the currency spot rates for those - -

For now, we can say current rates (inaudible). We don't try to predict whether they are moving one way or the other.

Okay. Great. Thank you.

Next question will come from Joe Altobello with Oppenheimer.

Thanks. Good morning guys. Most of my questions have been answered.I have just two quick one. Just going back to our gross margins for a second. In terms of your guidance. When are you guys assuming we will start to see gross margin expansion again if at all this year? Is that the back half?

I think it is more back half than front. And for the reasons I talked to Q1, it is going to be our lowest comp to last year. I don't expect much expansion this quarter at all. But I think we could start to see in Q2 and in the back half, I would expect to seeing it.

There are a lot of moving parts on that.

There certainly are.

Secondly, the tax rate I guess you mentioned earlier was going to about 30% in '09, up significantly versus '08. What's driving that?

And it is really the mix from where our earnings are coming from. One of the issues we have with this change inn this dollar versus the euro and the pound is the are not earning as much money in Europe as we were. And that's where we have our tax And that's where we have our tax carry forward that are lowering the rate. So that - - our tax loss carry forward. So, that's the main impact, where we earning the money.

Lastly, if I could. The accounts receivable was down significantly year-over-year, as well as sequentlly, and obviously you guys are managing that. What are you doing specifically to improve collections?

It really is a combination of two thing things. One was the timing of sales in the quarter. And we are managing the collections very tightly because of the economy and other factors. but our sales drop-off was late in the year, late November, December. So that alone had a significant impact on the DSO. I think our only DSO will remain in the low 60 days, 61 if I'm not mistaken. Last year was 65. And I think in that range is where we will be going forward. A lot of that was timing of the sales in the quarter. And maybe a day or so was tighter collections.

And thank you.

Your next question comes from Connie Maneaty with BMO Capital Markets.

Good morning.

Good morning Connie.

You mentioned that there was a $10 million additional cost in the Home and Family business for some regulation.

That's right.

What was that and was it a one quarter event or does it continue going forward?

It was a quarter event and there was new regulation around child safety for our Baby and Parenting businesses. I am not intimately familiar with the legislation. The costs were to rework our products to make them compliant with that legislation - - put product in our own warehouses and products at retail.

Connie, basically what this legislation does is that it requires certification and what I call tracking from secondary and tertiary supplier all the way to the retailer shelves that can certify that every element is safe. The key things they were looking for, probably number one on the list is lead - - lead paint and lead based dyes. So, what it requires is that any product that you didn't have records of that in the past. You have to develop those. And obviously we have been at that - - the legislation didn't just happen. But we have been on it.

And the other thing is, frankly, customers took advantage of this. so, if they had some slow moving stock or old stock, they might have returned it to us and said can you vouch for this that it passes in the current law and of course, maybe we couldn't, right. And so, frankly, we had to take back some product that we hadn't expected to take it back. and we worked to recertify it or do something else. And so, that is part of what we are doing there. So, this something that is affecting everybody in the category. It has actually created a disturbance in the force, if you will, because there has been a lot of inventory swings across certain product lines and product categories within Baby & Parenting. Bottom line, it a period event that should be essentially behind us after the first quarter.

Okay. So little bit more still in Q1 but then it is done.

Right.

As consumers and retailers change their mix to lower priced products. Could you give us what the order of magnitude difference is on the profit of opening price point versus what you sell the most of?

No. It would vary so much by product that it wouldn't be meaningful. But the impact in the quarter was about a point - - a little more than a point to our gross margin. It is hard to answer that with a number or even a range of numbers that would be helpful. It really does so dramatically vary by product category depending on competitive situation, retailer's profile, our own cost structure.

Okay. How does moving from four segments to three really save a meaningful amount of money?

It eliminates the group overhead - - is the key place that it does that.

There is duplication in several functions in terms of group support and that's the biggest way it does it. One final question. Where are you on your SAP implementation?

We are continuing on it. nd so we have two other businesses that are on track to do their conversion this year.

And which are those?

That is our Tools and Hardware business and our Cleaning and Organization business units.

Okay. Thank you.

Your final question today comes from Linda Bolton Weiser with Caris.

Hi. Thanks. I know it is hard in many of your categories to measure your market share but can you give us some broad brush stroke comments maybe on some areas where you gaining sharehold strongly and then areas where market you market share gains are not as strong or even declining share?

I can't give you as much as I am sure you would like and as much as I wished I could give you, Linda. Partly because there is this lag effect. What I can do is to tell you through probably around October and what we don't have yet, is we don't have very good numbers from the November and December period. And, of course, that's when we are starting to see some of this really dramatic shift in consumer habits here. We were gaining share in Culinary, and gaining share in many of our international business across Tools and Office Products. We were gaining share in Rubbermaid Food and some of our Baby and Parenting product lines. It really varies by category and product lines, but those are some of the stronger ones. What the total outcome based on what happened in November and December, we just don't have visibility on that yet.

Okay. And can you just - - do you have numbers on what pension expense is going to be in '09 versus in '08 and what the cash contribution would be '09 versus '08?

From our cash, we don't know an exact number yet, but we do expect it to make a contribution. We believe it will be in the $50 to $75 million range. And that is baked into the cash guidance that we gave. From an expense standpoint, I can't tell you what the total expenses - I know it up year-over-year. I want to say it's up $0.02 to $0.03 per share, something like that. $8 to $12 million. Nancy will verify that later. But I think that's right.

Okay. Thank you very much.

If we were are unable to get to your question during this call, please call Newell Rubbermaid Investor Relations at this number at area code 770-418-7662. I'll repeat that, that's area code 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 conference code of 606-2144 starting two hours following the completion of today's call and ending February 12th. This concludes today's conference. You may disconnect.