諾威品牌 (NWL) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Newell Rubbermaid's first quarter 2010 earnings conference call. (Operator Instructions) 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 2949893 to access the replay. I will now turn the call over the Nancy O'Donnell, Vice President of Investor Relations. Ms. O'Donnell, you may begin.

Thank you. Good morning and thank you for joining us to discuss Newell Rubbermaid's 2010 first quarter results. With me today are Mr. Mark Ketchum, President and Chief Executive Officer of the Company; and Juan Figuereo, Chief Financial Officer. Please note, that during today's call, we will make reference to financial measures that are not GAAP measures. Reconciliations of these non-GAAP financial measure to GAAP financial results are included in today's press release and are available on the investors section of the Newell Rubbermaid Website.

I also want to remind you that our discussion today, including the Q&A session, will include forward-looking statements. Actual results may differ materially from expected results because of various risks and uncertainties, some of which are outside of our control. These risks and uncertainties are described in our quarterly release and in our annual filings with the SEC. We further caution you that the Company does not undertake and specifically disclaims any obligation to update any forward-looking statements that we make today. With that, I'll turn the call over to Mark.

Thank you, Nancy. Good morning, everyone and thank you for joining us today. I am very pleased to share Newell Rubbermaid's strong first quarter results with you. For the first time since the economic turmoil of 2008 began, the Company once again delivered the growth trifecta; simultaneous sales growth, gross margin expansion and EPS growth. I must say, it feels good to be heading in that positive direction once again and I'm very excited about the prospects of our business going forward. First quarter net sales growth came in at 8.5% and gross margin improved 100 basis points to 36.1%. Our operating margin improved to 11.2% of net sales. The combination of top line growth and higher gross margins helped drive normalized EPS of $0.25, a 25% increase over last year's first quarter.

Our Company grew core sales over 7% in the first quarter, after excluding the impact of foreign currency and the overhang effect of last year's product line exits. Tools, hardware & commercial products and the office products segments, led the way with double digit sales growth. These are strong results, although a portion of the sales increase represents pull forward of Q2 sales. Some customers bought extra stock in advance of the April launch of our SAP conversion in our Rubbermaid commercial and Rubbermaid consumer businesses. We estimate between 2 and 3 percentage points of our total sales growth was due to SAP pre-buy.

Some of you have probably already noted that the sales trends in our operating segments this quarter were the inverse of last year's declines, with our tools, hardware & commercial products leading the pack. Followed by office products and then, home & family. We believe there are two broad factors at play here, geographic trends that are specific to a few business units and customer dynamics. Some of our markets outside of North America have come out of the recession earlier. This is particularly true in Latin America and in some of our other emerging markets, where we registered strong double digit sales increases. For example, in Brazil, tools, hardware & commercial product sales grew over 40% for the quarter. While the Parker brand globally grow over 20%, driven by China and Russia.

The customer dynamic I referenced applies mostly to North America and other developed markets. Customers that cut their inventories the most, over the past 18 months, are now starting to restock in anticipation of increased consumer demand across the balance of the year. As a result, we believe another 2 to 3 points of our Q1 sales growth was the result of customer inventory restocking. Looking to the balance of the year, we're not anticipating similar levels of restocking activity in subsequent quarters. So, stripping out the one-time impacts of SAP pre-buying and customer restocking about 2 to 3 points of our core growth reflects increased consumer demand, which is a little better than we had expected this early in the year. So, we are quite encouraged by these results.

This represents a critical inflection point in many of our categories, from sales decline to sales growth, and reinforces our belief that the trend will spread across our portfolio over the next quarter or two. Confidence in our outlook for revenue growth this year is increasing. We're convinced that the positive core sales trends are reflective of an increasing consumer demand, supported by our continued investments in new product innovations, branding and marketing. Across the portfolio, we are winning with both customers and consumers. We are gaining new distribution, expanding shelf space and taking market share, which will help drive sales growth in the balance of the year and beyond.

Let me take a moment to highlight a few examples of our first quarter successes. Our industrial products and services business, which goes to market under the Lenox brand, grew core sales in the high teens this quarter. While inventory restocking had an impact, a meaningful portion of the improvement was due to successful new product launches and key wins with customers. For example, Lenox is benefiting from the introduction of its new Q88 bi-metal band saw blade, designed specifically for Asian markets. This is one of the investments we made in the second half of 2009. With a patented design that maximizes blade life, while still delivering superior cutting performance, the Q88 has helped Lenox achieve 80% end user conversion rates. This kind of conversion rate is best in class in this segment.

Our technology business also delivered high teens core sales growth. A significant portion of that growth is attributable to restocking but we generated meaningful core sales growth improvement across all three of our key platforms, Dymo labeling, and Endicia Internet postage and most dramatically, in our Mimio interactive teaching technology business. We continue to invest heavily in building sales and marketing capability at Mimio, which impressively, grew over 50% in the first quarter. We are also investing behind our core Dymo labeling business and we're seeing the results of those efforts, as well. As one example, Dymo recently entered into a partnership with 3M that will leverage 3M's expansive selling organization to increase our sales and distribution within the high volume industrial labeling category.

We're pleased with the progress of our fine writing business, returning to solid growth this quarter after a very challenging 2009, where sales increases were fueled by strong results in China, Russia and the UK. Growth in our flagship Parker brand was over 20%, anchored by the recent launch of four new products. We are also investing strategically to create dedicated Parker shop-in-shop in key retail locations and to enhance our in-store merchandising and these investments are beginning to pay off. In China, for example, we saw a 29% same-store sales growth in our new shop-in-shops during the first quarter.

The everyday writing business also performed well this quarter, with high single digit core sales growth. Perhaps you saw our television advertising during the Winter Olympics, promoting our new Paper Mate biodegradable, design metallic and gel pen lines. These adds were very successful. We gained several new retail listings during the quarter and saw a 10 point increase in point of sale in regions where the ads were shown versus regions with no ads. I'm excited with the evidence that innovation and marketing can grow our everyday writing business. And lastly, our Rubbermaid consumer business performed well again this quarter with solid, low single digit core sales growth, even after excluding the impact of the SAP pre-buy.

Our food storage business continues to introduce innovative new products. Most recently in March, Rubbermaid debuted its new Premier line, which has all of the previous features and benefits, including stain and odor resistance and the popular easy-find lids. But now comes with the added appeal of BPA-free plastic. These examples give me comfort that our approach to innovation is creating products that are being embraced by consumers, improving our relationships with our customers and increasingly, giving us the right to win in the marketplace. I am very pleased with the progress I am seeing across all of our business units. This is the fuel that will was sustain the core sales growth trend that we started this quarter.

Gross margin was also a positive story for us in Q1. We delivered a healthy 100 basis point increase, driven primarily by better product mix and strong productivity, which more than offset higher input costs. Our restructuring efforts continue to deliver cost savings and our improved mix is further evidence of the progress we are making in driving effective innovation and new product development. Some of you have expressed concerns about input cost inflation. I want to reiterate, in addition to our relentless focus on productivity, we are prepared to take pricing when necessary. As we did, effective mid-April, on our Rubbermaid consumer business and effective mid-May, on our Rubbermaid commercial business. Our exits from commoditized product lines and investments in differentiated products have bolstered our ability to do so.

Now, turning to our full year outlook. Awhile ago, I told you that I was cautiously optimistic. Well, I'm still cautious but I am now more optimistic. So, we are increasing our 2010 full year guidance. We are increasing our sales growth outlook to the range of low to mid single digits. We have several marketing initiatives and some exciting new product launches impacting the second half of the year. And beginning late Q2, we will begin to reap the benefits of some recent distribution wins and shelf space gains. Now, keep in mind ,we have yet to see a full scale rebound in our commercial and industrial or consumer end markets, and developed markets continue to face record high unemployment levels. However, we believe that customer restocking and the specific strength that we've seen in selected categories and markets, is a very positive sign.

On the gross margin front, we continue to expect to deliver a 75 to 100 basis point improvement, driven by the positive impact of improved product mix, product line exits, restructuring savings and increased productivity. And beginning in the second quarter, we'll benefit from price increases several of our businesses implemented to help offset the impact of higher year-over-year input costs. Going forward, we will continue to drive productivity initiatives to help neutralize any further inflation and we'll consider additional pricing later this year, if the input cost increase is warranted.

Turning now to our EPS outlook. We are taking our EPS guidance for the year up, as well, to a new range of $1.38 to $1.48. This incorporates the early resumption of growth already experienced in Q1, as well as the impact of the pre-buying on our expectations for Q2 sales. We will continue to reinvest across the portfolio in brand building activities, such as R&D and A&P and the buildout of our sales and marketing capabilities in key growth areas, such as office technology and industrial products. In summary, I think we are executing well against our strategy and I am excited about the growth prospects for our business. With that, let me turn the call over to Juan to walk you through the financials in more detail. Juan?

Thank you, Mark. I'll start with the review of the income statement on a normalized earning basis. Net sales for the quarter were $1.3 billion, up 8.5% compared to last year. Core sales, which exclude the impact of foreign currency and product line exits, increased 7.2%. Favorable foreign currency contributed a positive 2.5% and the impact of the 2009 product line exits reduced sales by approximately 1.2%. Our sales growth was particularly strong outside of North America, where we grew 15.2%, or 8.9% excluding currency impact.

As Mark previously mentioned, our first quarter results include an estimated $30 million to $35 million in sales related to pre-buying by certain customers in anticipation of the early April SAP go-live at our Rubbermaid commercial products and Rubbermaid consumer business units. Gross margin, we generated $472 million or 36.1% of sales, an increase of 100 basis points compared to the first quarter of 2009. The biggest contributors to this significant improvement were productivity gains, resulting from a number of initiatives, including project acceleration and favorable product mix across all three operating segments. These positive factors were more than enough to offset the impact of input cost inflation experienced during the quarter.

SG&A expenses were $326 million or 24.9% of net sales, compared with $312 million or 25.9% of net sales last year. Currency accounted for $8 million of the year-over-year increase, while SAP and other capability build investments accounted for the rest of the increase. Due to the phasing of certain planned spend shifting into next quarter, our G&A spend was lower than anticipated this quarter. Operating income, excluding charges, was $146 million or 11.2% of sales, a 200 basis point improvement versus last year.

Interest expense during the quarter was $32 million, a $1.4 million increase compared to the previous year, reflecting higher interest rates, partially offset by lower outstanding debt levels. As you may recall, we issued higher coupon debt at the end of the first quarter last year. Our continuing tax rate in the first quarter was 37.2%, compared to 30.6% last year, as a result of a couple of items discrete to the period, including a noncash tax charges associated with the vesting of equity-based compensation. The rate also increased because of the expiration of certain US tax incentives, including the R&D tax credit. Although these items are not expected to significantly affect the continuing tax rate through the remainder of 2010, our full year tax rate is now more likely to approximate 31% to 32%.

Our normalized EPS for the quarter came in at $0.25. This $0.25 excludes approximately $0.02 of GAAP dilution from the convertible notes, which we issued in 2009. Please note, that due to the call spread feature associated with these notes, the economic dilution is a little less than $0.01. We have included a schedule in our earnings call presentation, located on our Website, that illustrates the methodology for calculating both the GAAP and economic dilution from the convertible notes and associated hedge transaction. Normalized EPS also excludes approximately $16 million or $0.04 per share in restructuring and related impairment charges associated with project acceleration. Restructuring charges included in the prior year quarter were $31 million or $0.08 per share.

Turning to cash flow. We generated $29 million in operating cash flow during the quarter, which compares to a use of $11 million in the first quarter of last year. The primary drivers of this improvement were increased earnings and continued working capital management. As you may have noticed, accounts receivable, normally a source of cash, was a net use, mainly due to the heavier than normal sales the last few weeks of the quarter, as a result of SAP pre-buying. Conversely, our days in inventory were a little better than we anticipated due to higher than planned sales and continued improvement by our supply chain teams. CapEx for the quarter was approximately $32 million.

Now, I'll turn to our segment information. Home & Family net sales were $557 million, essentially flat to last year. Core sales in this segment decreased 1.5%. ForEx contributed a positive 1.9% and the impact of last year's product line exits reduced sales by 0.5%. Strong growth in our Rubbermaid consumer business was offset by softness in baby & parenting, particularly in Asia, and a first quarter decline in beauty & style related to the timing of a major customer category reset. Home & family operating income was $69 million or 12.4% of sales, an increase of 160 basis points in operating margins, as compared to last year. This improvement is attributed to productivity gains and the positive impact from product line exits.

In our office products segment, Q1 net sales were $352 million, up 10.5% to last year, with growth generated across all of their business units. Core sales increased 13%. Product line exits reduced sales by 3.6% and currency had a favorable impact of 1.1%. As a parenthetical note, some of you may recall that Mark has pointed to some of the office product business units as recipients of focused strategic SG&A investment in the second half of 2009. As you may have noted in Mark's earlier remarks today, those units recorded core sales growth in the high teens this quarter. So, back to office products. Operating income was $47 million. Operating margin was 13.5%, a 370 basis point improvement compared to last year, driven primarily by better leverage of structural SG&A as a result of increased sales and improved productivity.

Tools, hardware & commercial products, net sales were up to $398 million, a 21.3% improvement over last year. Once again, with growth across all GBU's. Core sales increased 16.7% and favorable ForEx increased sales by 4.6%. As you know, this is the most cyclical part of our business and we're happy to report that most of their growth came outside of North America. Emerging economies are recovering faster, which is why the segment's faster growth was in places like Brazil and China. Tools, hardware & commercial products operating income was $52 million. Operating margin improved 140 basis points, to 13%, as a result of leveraging structural SG&A costs with the increase in net sales.

Turning to the update of our full year 2010 outlook, we're now projecting full year core sales growth in the low to mid single digit range. We anticipate a 1% to 2% decline from the impact of last year's product line exits. And at this point, we project a slightly negative impact from ForEx. Please note, that the first quarter results include an estimated $30 million to $35 million in sales that were pulled forward from Q2, as a result of the SAP pre-buying and Rubbermaid consumer and Rubbermaid commercial products. Gross margin is expected to expand by 75 to 100 basis points for the full year.

We plan to more than offset the impact of expected input cost inflation through a combination of productivity, product mix and pricing. Margin expansion will be spread fairly evenly throughout the year. Although, we do expect higher commodity pressure in the second quarter, we also have price increases going into effect in that same quarter. We will maintain SG&A spend for the full year at or below 25% of net sales. Substantially, all of the year-over-year increase will be related to brand building and other revenue generating strategic SG&A. It is also important to note that we still expect $40 million to $50 million of incremental spend to be incurred in the first half of this year.

Interest expense for the year is expected to decline 5% to 8%, as compared to 2009, as lower net debt levels offset higher interest rates in the balance of the year. Our effective tax rate for the year is expected to be approximately 31% to 32%. As Mark indicated earlier, we are raising our outlook for normalized EPS to between $1.38 and $1.48 per share. We anticipate 2010 pre-tax restructuring charges of between $60 million to $80 million, or $0.15 to $0.25 per share. Our normalized EPS outlook of $1.38 to $1.48 excludes these charges. Operating cash flow is projected to exceed $500 million, after $70 million to $100 million in restructuring cash payments for the year. Capital expenditures are expected to total between $160 million and $170 million, resulting in free cash flow well in excess of $300 million, available to pay dividends and reduce outstanding debt.

So, in conclusion, we are very encouraged by the evidence we're seeing in the marketplace, that our strategies are working with our customers and consumers. The trends we're seeing in our business make us feel a little bit more optimistic about our short term prospects and have helped to validate our decision to invest earlier, behind certain key initiatives. We are focused on maintaining our growth momentum, while continuing to execute against the strategies that will ensure long term, sustainable, top line growth, slow and steady progress expanding our margins, and improved ability to leverage our SG&A investments. This will keep us on a course towards increased profitability and increased cash flow generation. Our first quarter results represent good progress towards these goals and provide even more confidence that we are improving our ability to create value for our shareholders. So, with that, I'll hand the call back over to Mark for his final comments. Mark?

Thanks, Juan. Before I close, I want to remind you that you'll hear more about our growth prospects, have an opportunity to meet our management team and explore firsthand, many of our new products at our upcoming analysts day, which will be held May 26 at our global quarters here in Atlanta. We're working hard to put together a very productive day for you and we encourage your participation. I'm quite sure you'll enjoy it.

I also want to thank my Newell Rubbermaid colleagues for all of their hard work, supporting the Company's strong first quarter results. It's great to see the energy and enthusiasm that all of our employees are bringing to task of returning to growth. I am proud to lead this organization and I greatly appreciate your efforts. The year 2010 is off to a strong start, with a return to top line growth, continued strong gross margin improvement and solid EPS results. We're encouraged by the start and we have increased confidence about our growth prospect for 2010 and beyond. I look forward to giving you more detail on our progress at analysts day. I'll ask the operator, at this point, to open up the line for questions. Operator?

(Operator Instructions) We will go first to Chris Ferrara, Banc of America.

(technical difficulty) you can talk about gross margin leverage? I get that productivity and price mix really helped gross margin. But with that massive top line this quarter, can you try to put some numbers around how big fixed cost leverage is, especially on the year-over-year change basis?

Chris, this is Juan. Let me take a stab at that. The productivity that we referred to includes the top line, the growth leverage. And there was significant productivity but there was also significant inflation in input costs in the quarter. The good news is that the combination of the productivity and the improved product mix completely offset the inflation but the inflation was significant.

And going forward, you expect inflation to continue and you might build a price on that. But do you not expect the same level of productivity? The same level of productivity wouldn't be inherent in what your sales forecast is going forward. Is that right?

We're actually very bullish on productivity. I think we have a good track record of delivering productivity. But as we look at the short term, we're actually looking at inflation even higher than this quarter in the very near term.

And Chris, the other perspective, I'd just remind you of is about 50% of our products are sourced. And those sources are also prone to some inflation, specifically in the Far East. The other 50% is the 50% that we have the leverage on to drive the productivity. So, we can leverage, with higher volumes, about 50% of what we manufacture -- excuse me, about 50% of what we sell.

Great. That helps. And then just finally, Mark, can you just give your thoughts on the strategic SG&A, in light of the fact you are more optimistic? Sales came in much better than expected this quarter. Has it changed your plans for how you're going to spend strategically this year?

No, I don't think it has. So, what I'd give you is the following. Number one, we would expect to maintain our total SG&A spend at or below 25% of sales for the year. We expect to spend, incrementally, that would probably amount to $50 million to $75 million of incremental SG&A spend to match both that 25% threshold, as well as the increase in sales for the year. And of that $50 million to $75 million in increased SG&A, the vast majority of that will be on brand building and other strategic investments.

And then, lastly, I'd tell you that that's not materially different -- it's not different than what we would have told you at the beginning of the year. We continue to see good opportunities for investment and I cited a number of the examples in my remarks of how those investments are paying off. The effectiveness of our Paper Mate advertising, the effectiveness in our investment in better fixturing on our fine writing business, the investment in driving trial on our band saw blades in the Asia and so on.

Great. That's really helpful. Thanks a lot.

Your next question comes from John Faucher with JPMorgan.

Yes, good morning, two questions. The first would be sort of -- I understand the need to take pricing in terms of looking at the raw material inflation. We're hearing a bunch of companies sort of talk about the potential for pricing. So what gives you the confidence that it will go through and that retailers and consumers will both accept the pricing? And then, also, if we excluded the SAP piece, did you see any sort of sequential improvement, as you went through the quarter, that shows that consumers are, in fact, coming back and that you can feel a little bit better about the consumer because they strengthened during the quarter? Thanks.

Let me start with the second. What we saw in the quarter, again, stripping out the SAP effect and the fact that some of our customers restocked their depleted inventories, we said what we saw that was attributable to increased consumer demand was about 2% to 3% lift. That's something that we didn't see a material change throughout the quarter. That was something that was fairly constant throughout the quarter.

And the other thing I'd tell you, John, is that that's fairly consistent with what we had anticipated in the second half of the year. So, really the way I think you ought to think about it is that we just saw it happen earlier in the year than we had previously anticipated. So, we thought we'd be kind of flattish in the first of the year in terms of consumer demand and maybe rising to those 2% to 3% core levels in the second half. We just saw it happen earlier and that's a good sign. So, that's what was behind us, taking our sales outlook up a little bit. It is the fact that we're getting a little of that consumer offtake a little sooner.

On the pricing question, frankly, on the Rubbermaid consumer business, our competitors have either followed or, in some cases, led that pricing. So that's why we're confident that that is going to stick. And believe that the investments that we've made, in both exiting commoditized categories and in innovating and differentiating in our products in the categories we remain in, give us confidence that those are price increases that can and will stick.

Great. Thanks.

Your next question comes from Michael Kelter with Goldman Sachs.

Hi, guys. I wanted to ask you about the earnings guidance because with the higher sales expectations and pretty good margin guidance, I'm having trouble footing to only a $0.03 increase in the guidance range. Is there some other cost we should be aware of or is that really just conservatism?

Let me take a stab at that, Mark. First, let me say that the guidance recognizes better than expected performance in Q1. We were already expecting modest sales growth and that came in slightly ahead of what we were expecting. It's still early in the year and we are still cautious about the economy. And finally, as we pointed out before, Mark and the management team may choose to invest more behind some of our strategic initiatives. So, we're optimistic and we think that was about the right amount of change in the guidance, given where we are and all of those other factors.

And then, on gross margin and commodities, you said you saw a lot of the head winds already. Can you maybe detail which particular commodities are most difficult right now for you guys and which ones maybe would be more of an impact later in the year?

Well, the single one that's, I think, most obvious is resin. And I think the -- here's the way I would look at the first quarter. We didn't have any positive impact from pricing because all of our pricing takes effect in the second quarter. That's going to cover for some of the increases in the resin. Yet, we were able to deliver a 100 basis point improvement in gross margin. And why we were able to do that and it's a combination of we had a strong mix effect. And that's indicative of the effectiveness of our innovation. So, as we introduce new products or replace existing products, we're able to do that at a better margin structure. And also, that result is indicative of the strong productivity plans that we have.

The way I think about covering for material cost input inflation, is that if it's what I'd call fairly modest or routine, because we're always seeing over a long period of time, you see inflationary pressures that drive those costs up. But I think we can cover that with productivity and mix. However, when those increases become more extraordinary, as they do from time to time, rapid run ups, then we will take pricing. And the fact that we've invested in differentiated products improves our ability to do so.

Thank you very much, guys.

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

Hi. I wasn't clear on exactly how much the price increase was. I know you said the two businesses but can you tell us what the actual percentage increase of the pricing was and on what percentage of your portfolio?

The price increases that have been announced have been in our Rubbermaid consumer business and our Rubbermaid commercial business. And it varies on different items. I'm not going to give you a total number but it varies on items, anywhere, from 3% to 9%.

Okay. And then, my second question, I know you don't like to comment on specific quarters. But between the pull forward of the sales from second into first quarter, and then with the pricing having just gone through. Is it fair to say that we could be looking at -- definitely down earnings, it sounds like, in the second quarter. But also negative sales growth and potentially down margins just in the second quarter alone?

This is, Juan. Let me see how we answer this one without talking about the quarter.

Well, I just think it would be helpful, so people kind of know what to expect. Obviously, a big negative surprise would not be a good thing.

Yes, well, if you look at our guidance for the full year, right? And we are saying, we're estimating $30 million to $35 million is about the pull forward. So we expect then that our core sales improvement, what we anticipate for the year, is going to come in more in the back half but after the over delivery in the first quarter, a little better than we anticipated in the first half. So, we wouldn't be expecting any quarter, really, to be negative this year.

Okay. All right. That sounds good. Let's hope. Then, my last question is just in terms of your kind of appetite for acquisitions. I know, Mark, you had said last year that while the macro was still so tough, that was kind off the plate. But where are you now with your sort of higher confidence and your cash flow and all that? Is it time to open the doors and look at new things or where do you stand?

No, I think it's still a little premature to do that. We still want to continue paying down our debt and re-establishing our solid BBB credit rating. And we've got to do a little debt paydown in order to do that. So, I think what I said before stands.

Okay. Great. Thank you.

Your next question comes from Connie Maneaty with BMO Capital.

Good morning. Just a couple of questions on some of the items that you talked about. The pre-buying of $30 million to $35 million, in which particular segments did that occur because I forget? And is it limited to the second quarter or might there be a little spillover into the third? And secondly, of the $40 million to $50 million in incremental spending planned for the first half, I think you said you spent a little less than you expected in the first quarter. So what did you spend in incremental spending in Q1 and how much goes into Q2?

Okay. First, on the pre-buy, this was Rubbermaid consumer products and Rubbermaid commercial products, as Mark indicated earlier. And it was in anticipation of the SAP go-live that was early in April. So, you would expect that to impact only Q2. Generally, people will not pre-buy beyond the quarter. And the third part of the question, which was the overall investment, there's some investment that just shifts. Some customer programs and stuff like that just shifts between quarters. And we anticipate that the level of investment is not really going to change. It's still on the first half. It's still the same, just a shift between quarters.

So specifically that first quarter was up $14 million year-over-year and so, the balance of that $40 million to $50 million would be in the second quarter.

Okay, great. If I could ask a follow-up to Wendy's question. If you're not active -- the question is on the M&A environment in general. I think you had a few assets that you were considering divesting. Has the -- are you seeing any more activity for those products? Is there more interest now than there was, say, a year ago?

There is more interest. And yet, I wouldn't tell you that it's a prime opportunity. So, I think that the prices are still depressed. And so, holding those businesses may be better than trying to divest them at this point in time.

Great. Thank you.

Your next question comes from Bill Schmitz with Deutsche Bank.

Good morning.

Good morning, Bill.

I have a handful of questions, so cut me off when you get bored. The first one is, was there any impact from Venezuela in the quarter?

The answer is, yes. Venezuela reduced revenue by about $12 million and operating profit by $4 million. It was an impact of about $0.01 per share. We had told you before that we thought Venezuela was going to hit us about $0.04 to $0.05. And that's still unchanged, 0.04 to $0.05. We took a $0.01 hit this quarter.

Okay, so it will be $0.04 to $0.05 for the full year?

Yes.

Okay and then, just in terms of SG&A, is that 25% ratio going to be fairly constant throughout the year? I know you said there's going to be a big step up in spending in the second quarter but isn't the higher too because of the sort of pre-sell on the back-to-school stuff?

Yes, you'll see some variability on that. Our third quarter and fourth quarters are typically our heaviest investments in strategic SG&A. Third quarter behind the exploitation of our back-to-school. And fourth quarter because some of our products are seasonal and holiday gift-giving kind of related.

Okay, that's fair. And then, in terms of the inventory restocking, do you know if it was one quarter event? Are your retail partners, are they pretty good with their inventory levels now or do you think there will be some more restocking going on?

We don't anticipate any additional significant restocking. As you know, this is an inexact science but some of our customers have stated they're not going to restock inventories, if they think they're about right. We, obviously, can compare what they have in inventory and what their POS looks like. And based on that, our estimation is this was a one-time event. It was a good thing because it says that they're more confident that their consumption is coming back. But probably not a lot more benefit from restocking going forward.

Got you. And then, in the SG&A guidance, you come in way ahead of plans. So, how about in terms of incentive compensation accruals, are you going to kind of revisit that as the year goes on or you think you're pretty well accrued right now?

We accrue on the basis of the results versus plans or whatever the results reflect. You can assume that there will be the proportionate amount of incentive accrual related to that.

Okay. And then, last one, I promise. The product line exits are done now. Right?

The what?

The product line exits?

Yes.

Okay, good. So it's going to be clean from now on. So the organic and the core should be the same number, effectively. Right?

Well, no. When you say "they're done," they're done, meaning that we're out of the categories we want. There's still a hangover effect, Bill, in that in the second quarter of last year and in the third quarter of last year, we were still selling some of the product lines that we're now no longer selling. So, there still is a hangover effect for a couple more quarters.

Okay, got you. So, then, I'm incorrect. So, the organic number ex-currency will be different than the core sales number that you --?

That's correct, yes. When I say they're done, we're out of the things that we're going to get out of. We don't have any more new things to get out of but the year-over-year metrics will still show some effect.

Okay, great. Thanks very much.

Your next question comes from Lauren Lieberman with Barclays Capital.

Thanks a lot. I just wanted to follow up on the tools, hardware & commercial business because it sounds like you said most of the strength was international. So, can you just remind me what the split at that group, US versus international? And then secondly, I am assuming, based on your comments, that it was mostly US where there was restocking, that was all really customer demand driven. Is that correct?

Let me try and take them sequentially. On the first question -- your first question was what portion of the tools, hardware & commercial business is international?

That's right.

It's a little less than 50% but it's still one of our larger businesses. So, it's one the largest businesses in terms of its percentage. It's above the Company's average.

And then, in that business, that was all customer demand driven or was there restocking?

Well that's where -- it's one to have businesses. So the two businesses that we referenced that we said we saw customer restocking in was tools, hardware & commercial and office products. And we also, I think told you, if not, I'll tell you now. That directionally, that restocking was in our commercial and industrial channels. So, it had more of an impact on those businesses.

And that, restocking was in the international portion of the business?

I'm sorry, say again.

That that restocking was in the international portion of the business, so --?

Well again, most of the restocking was in developed markets, so that would be western Europe and North America. So, what we saw is kind of a combination of two things driving that business. We saw some strong organic growth, a faster rebound. We saw that, I referenced the China Lenox business that we saw really strong results on. I think I referenced in my remarks, the Latin America tools, hardware & commercial products business, that was up substantially. So, those weren't related to restocking but we did get restocking help in North America and Europe in that business. So you have two drivers. In developing markets, it's a faster return of consumption. And in developed markets, it's some of that but a bigger positive effect from restocking.

Okay, great. I was trying to get at -- I'm thinking through -- go a couple quarters down the road when you start to see some resumed demand in developed markets, what that would look like? And just to confirm that there was no restocking internationally? Okay.

There was some restocking in western (multiple speakers)

And the other thing -- go ahead, Mark. Sorry.

Yes, so I said there was some restocking internationally. That would be in western Europe.

Okay. And the final thing was just, the $30 million to $35 million pre-buys, is there any chance you could split out for us how this fell between what was made commercial versus consumer?

We could but we won't. (Laughing)

So that means, no. Okay. Thanks very much.

Your next question comes from Joe Altobello with Oppenheimer and Company.

Good morning.

Good morning, Joe.

First question, I just want to go back to the restock. And certainly, don't want to get too far in the reach here but I interpret that as your sell-in in the first quarter exceeded sell-through by about 2 to 3 points. Right?

Yes.

Okay, so if we go back last year, there was a destock going on. So, even though the -- quote/unquote -- restock impact is a one quarter phenomenon, you guys will still benefit in the next, call it, two quarters or so because you're lapping periods where there was a destock going on?

Yes, the way that would work, Joe, is we would have to be making a call on the economy. Right? To the extent that retailers feel comfortable now where they are in terms of their stock levels, they would only increase them if there is an increase in their outlook for demand in the balance of the year. And our assumption now is still what it was in terms of the economy, kind of a slow recovery.

Okay. But the growth numbers you're going to report in the next two quarters or so are still going to benefit from a lower base period because of that destock?

Yes, absolutely.

And I don't think we ought to try and overanalyze the stocking and restocking effects. And why I say that, Joe, is because the restocking that went on last year, at virtually every one of our channels and customers, was in response to a couple of things. One, is obviously in response to lower consumer demand. It was also response to capital conservation on their part, just like we were doing, as well. And I think what many of them learned is they can operate effectively. They put in systems and just put horsepower behind being able to operate with lower inventories. And so, I think you're going to see some of that inventory never come back into the system. And so, trying to calculate the inventory take-outs last year and put a relationship to that inventory rebuild this year, I don't think you can do.

Okay.

All right, now, what we saw in the first quarter is, it's certainly a net positive for our business. It's a one-time help and that's good. And as I told you, I also think it's a good indicator of the increased confidence that some of our customers have that they're going to see a return to consumption. And in that regard, that maybe that is a positive indicator. So, when you talk about benefiting going forward, the benefit, if any, is the -- if those customers who are restocking are right, they're betting on a higher rate of consumption and obviously, that would be beneficial to us.

Got it. Okay and then, in terms of the pickup in underlying consumer demand, it sounded like Mark, you said earlier that that was pretty consistent throughout the quarter. You did not see that accelerate into March and April.

No, not really. And I think again, our systems for doing that, we don't -- in virtually none of our categories do we have measured markets that we can get from Nielsen or IRI or those kinds of services. And so, our sophistication to be able to understand that wouldn't be that good on a month to month basis anyway.

Got you. Okay and just one last one. Any impact from the health care bill on retiree health benefits? Were there any charges in the quarter?

There was a small impact, it was immaterial, Joe.

Perfect. Okay. Thanks, guys.

Your next question comes from Budd Bugatch with Raymond James.

Good morning. It's good morning Mark, Juan and Nancy. Nice to see some positive core sales growth and earnings growth too. As you look through the flow through of operating income, we don't know the project acceleration parsing by segment but it looks like office products had about a 48% incremental margin, and tools and hardware had just under a 20% incremental margin. Can you help us think about how we should look at that going forward?

I sorry, I'm not sure. You are asking us to project what we think in terms of margin by segment or --?

Well, I'm trying to get you to help us figure out what's happening incremental margin-wise, the fixed costs, variable cost equation, so that as you look at it segment by segment.

Yes, well, we haven't given guidance segment by segment. But what I would suggest is that you look at the overall guidance that we gave and we did say SG&A 25% or less. And we did say, we expect gross margins 75 to 100 basis points. That should give you kind of a broad indication, overall, about what the P&L should look like for the year.

Well, let me try to get it this way, Juan. Office products looks like it had a much higher flow through to the op line than did tools and hardware. Would that be a wrong way to read that or did that -- because what we don't know is how you parsed the restructuring or the project acceleration charges segment by segment.

Yes, well, there's annualization impact but I would tell you that when you look at kind of relative operating margin, in relative terms, the tools and hardware group was actually stronger because they tend to have much lower margins in the first quarter. And project acceleration, the annualization of that will impact the margins quarter by quarter in each segment. And frankly, I don't think we're prepared to talk to that level of detail.

Okay. Looking at the business geographically, I think last year in the first quarter, Europe lost $7 million after translation. How are you looking at it geographically or do we need to wait for the Q to see that?

The press release includes the geographic information.

At the operating line?

No, we have sales.

Right, I understand the sales. I'm looking at the operating income line.

Yes, hang on a second. Europe was up. I'm trying to look up the number here. Hang on a second. Europe was up significantly. I can't find this, sorry. But Europe was up significantly on operating income margin year-over-year.

Okay. Well, last year was a loss of -- was in the information in the Q. So, this year was profitable?

It was. While we address other questions, I'll look it up.

Okay. And my last question is, Mark, you talked about the technical side of office products doing very well, the Dymo, Endicia and Mimio. Can we get a feel for now what percentage of office products those technical products are today?

No, again, that's not detail that we're going to be giving out, Budd.

Okay, thank you. I'll look forward to the answer if Juan on (technical difficulty) on the other issue. And thank you very much. Good luck on the rest of the year.

Your next question comes from Mark Rupe with Longbow Research.

Good morning, everyone. On the tools, hardware & commercial segment, just following up on Budd's question, that you had cited that it's seasonally weaker in the first quarter. Could you just remind us of that? Because it looks like, given the sales level in prior quarters, I would have thought maybe that margin would have been a little bit higher in this quarter?

I'm not sure I follow your question, Mark. Try again.

Yes, Juan had mentioned that in the first quarter, the tools, hardware & commercial segment margin tends to be a little bit weaker than the other quarters. And number one, I was just curious to see why? And historically, it's always been kind of a weaker sales mix, seasonally, for that segment. But in this particular quarter, it seems like the sales level was at levels that would have suggested a higher contribution margin.

Well again, remember, the sales levels were impacted in that segment by both the combination of the SAP pre-buy and the customer restocking. So, they had a larger than -- and we talked about 2% to 3% for the Company for both of those factors but obviously, for that segment, it would have been significantly more than that.

Okay. On the Rubbermaid commercial, pull forward, was that strictly North America or was that globally?

No, that would have been just North America.

Okay, perfect, thank you.

Let me go back to Budd's question. Budd, I looked it up. Europe and this is on a normalized basis, keep that in mind, that may be different from what you see in the Q later. But on a normalized basis, Europe's operating margin was 3.7%, which is a big improvement from the negative in the prior year.

Your next question comes from Jason Gere with RBC Capital Markets.

Good morning. I just have two questions. One, can we just talk about the home & family trends that we saw in the first quarter? Was there anything -- you went over earlier just parceling out the offsets. I think it was baby was weak in Japan. But can you just kind of go through, was there any type of slowdown there on some of the customer spending, where if you think about 2009, this was one of the areas where you didn't see as much of an impact as some of your more discretionary areas?

Well, I think that's a good starting point, Jason. We didn't see as much of a negative impact and therefore, we're comping against relatively more stable numbers from a year ago. That said, we had two drags on the quarter. The one was in baby & parenting, which is primarily because of the Japanese business. The Aprica business, which is a business that really operates in the luxury segment of the market, has been very hard hit and has not yet come back in Japan. And the other piece was beauty & style, where the timing of a major customer reset is effecting. It's going to move business out of the first quarter and into the second and third quarters. So sequentially, I think what you ought to expect is that those businesses are going to get much healthier going forward, especially in the second half of the year.

Okay. And then, just on that, just with the Graco line, which is the line that I can afford a bit more, but is there anything to look into on the R&D side? I know there's been a lot of recalls, stroller, car seat and now a thing on the cribs. Is there anything just to read into that? It's just something I've been seeing a lot over the last couple of months.

Now, honestly, the only thing I think you can read into that is there is a kind of shift in the focus of the CPSC. And so, I think you're going to continue to see a higher level of recall kind of activity. That's a shift in their governance. The fact that we are the number one brand in North America means that we'll be involved in many of those. Let me just use the most recent. On the drop-side cribs, this is an example where all drop-side cribs are affected because the legislation and the regulations are going to phase out drop-side cribs entirely. There aren't any new ones being manufactured. But it's not surprising. I think you would conclude that us being number one in share in North America, that if there's any recalls on things like that, we're going to be a part of it.

Okay. (multiple speakers)

The last thing I'd tell you is that we treat this very seriously. So, while I also said that there is kind of a shift in the regulatory environment to driving more recalls, we're fully supportive of having very safe products in our consumers' hands. And making sure that they have an expectation and a confidence in that safety. So, when we do a recall, we handle it very aggressively -- willingly aggressively, I guess you'd say. And we get good marks from our consumers, good feedback from them saying, "We're happy with the way that you're handling this recall."

And on that I've got to assume that the cost is immaterial but there's probably a little bit more support spending to your moms out there, just in terms of kind of making sure they're at ease with the products?

Correct and we've got either the proper reserves or the proper assumptions in our forecast for what we're seeing. What we're seeing is not, from a cost impact standpoint, it's not extraordinary, meaning, it's not materially different than most years for us.

Okay, great. And then just a last question. You're talking about some of the marketing spending. And with last year not spending as much because there wasn't really much of an audience, how do you think about the spending this year? Doing things a little differently, a little bit more efficiently, coming out of the recession, the discretionary nature of a lot of your products? And getting customers to come back to buying, where they haven't shopped in maybe some time? Did you change that mindset a little bit or is this kind of sticking to what worked a few years ago and kind of going along those lines?

No, I think our mix is constantly shifting. And you wouldn't have seen Paper Mate TV advertising a couple years ago but it's partly because we didn't have a lot to advertise in terms of new products. We have new products now. We advertise those. I referenced what we did, the advertising that we did behind the Olympics. And we also used that as an opportunity to do a controlled test, where we had regions with the marketing and regions without that marketing. And as I said, the regions where we did the advertising, point of sale was up 10%. And so, we're doing things that we haven't done before. And the other thing is that we're doing a lot better job both measuring and testing the upside. So, I think going forward, I'm very confident that we'll be spending on the things that work, spending on the things that resonate with consumers.

Okay. And just, actually, this is the last question. You were talking about some of the distribution gains out there. Can you put a percentage out it? What percentage incremental shelf space, maybe, that you got or new points of distribution? Do you have a context you can put it in so we can frame it?

I think it would be hard to put in a broad term that you'd be able to relate back to an entire category but they are significant. So, there might be 10% and 20% distribution gains with any given customer. And so, there are big distribution gains but I don't want to come back and give you an average. And it would be inappropriate to talk about the customer specifics until they've actually shown up in the marketplace.

And that's net against -- I'm sure there might be one or two losses out there, too, right?

We'll get a lot more wins than losses.

Good. Okay, thanks a lot guys.

Your last question comes from Bill Chappell with SunTrust.

Thanks for taking my call.

Sure, Bill.

Just a little more color on the SAP implementation. I've heard, in the past, customers buying in front of a price increase but I don't think I've heard it as extensive in front of an SAP implementation. And this is certainly not your first one. Was there a forewarning to clients that things might be off kilter?

No, not at all. And I'd say a couple things. Number one, this is the fourth big cutover that we've done to SAP in our businesses and all of them have been extremely successful, with no customer blips. However, that's not the case with other vendors, other customers who have -- other manufacturers who have implemented SAP. There have been and even recently, other companies that do these cutovers and they don't all go well. And they can't ship for a few days or the orders aren't correct and things like that. And so, some customers just continue to worry, even though we've had a successful track record of doing this three times prior to the Rubbermaid conversions that we just went through. But no, nothing to worry. They went very smoothly. So, in hindsight, those customers can now look and say, "We didn't need to do that." But they do it regardless because they've had some bad experiences with others.

So, it sounds like it was just a handful of customers, not widespread?

Correct.

Perfect, thank you.

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 newellrubbermaid.com and on digital replay at 888-203-1112 or 719-457-0820 for international callers, with a conference code of 2949893. Starting two hours following the conclusion of today's call and ending May 14. This concludes today's conference. You may now disconnect.