諾威品牌 (NWL) 2011 Q4 法說會逐字稿

Good morning and welcome to Newell Rubbermaid's fourth-quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. After a brief discussion by management, we will open up the call for questions.

As a reminder, today's conference is being recorded. A live webcast of this call is available at NewellRubbermaid.com on the Investor Relations home page under Events and Presentations. A slide presentation is also available for download.

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

Great, thank you. Welcome, everybody, to Newell Rubbermaid's fourth-quarter conference call. On the call with me today are Mike Polk, Newell Rubbermaid's President and CEO, and Juan Figuereo, Executive Vice President and CFO.

We have a couple of administrative items before we begin. First, during the call today we will refer to certain non-GAAP financial measures including, but not limited to, normalized results and outlook. We present this non-GAAP information for comparative purposes because management believes providing insights on these measures enables investors to better understand and analyze our ongoing results of operations.

For further information on reconciliations to comparable financial measures under GAAP, please see our earnings release on the Investor Relations area of our website as well as in our filings with the SEC.

Please recognize that today's discussion contains forward-looking statements. Actual results could differ materially from management's current expectations and plans. The Company undertakes no obligation to publicly update or revise any forward-looking statement. Please review the cautionary statements in the earnings release and our most recent 10-Q.

With that let me turn it over to Mike Polk for his comments.

Thank you, Nancy. Morning, everyone, and thanks for joining us. My objective today is twofold. First, I will review our fourth-quarter and full-year results and share some observations about our performance. Second, I will explain our thinking about 2012 and provide guidance for the year.

Let's get into the results. We posted a solid Q4, delivering 3.7% core sales growth. Q4 was the strongest quarter of the year, driving second-half core sales growth to 3.5% and full-year core growth to 1.8% versus our guidance range of 1% to 3%.

Reported sales in Q4 were also up 3.7%, resulting in full-year reported sales growth of 3.6%. Q4 normalized EPS was $0.40 resulting in a full year normalized EPS of $1.59, up 6% versus prior year and in the middle of our guidance range of $1.55 to $1.62.

While our effective tax rate was substantially higher than prior year in Q4, we did benefit from a better rate than expected. This benefit was driven by improved European profitability which enabled us to access more NOLs than we had anticipated.

In Q4, we delivered 150 basis points of operating margin expansion driven by tough discretionary cost discipline, the very early impact of project renewal, and favorable management incentive costs. We achieved this result despite gross margin being down 10 basis points versus prior year.

Importantly, we generated strong cash flow of $561 million in 2011 at the high end of our guidance range of $520 million to $560 million. Our solid cash flow enabled us to pay down $183 million of debt in 2011 and, as a result, our strengthened balance sheet has taken another step toward our target leverage ratios. We also used just over $46 million to buy back 3.4 million shares in 2011, a little more than 1% of our float, at an average price of $13.72.

In Q4, all three operating groups grew reported and core sales. Tools, Hardware & Commercial Products had another strong quarter with reported sales up 7.7% and core sales up 8.0%. Office Products delivered reported sales growth of 3.7% with core sales up 3.8%. Home & Family delivered reported sales growth of 1.2% with core sales up 0.9%.

In Q4, 10 of our 13 global business units grew core sales. Four of the 13 grew core sales greater than 5% and three grew core sales greater than 10%.

Baby & Parenting delivered core sales growth of 4.5% in Q4 and close to 2% in the second half of 2011 as a result of very strong growth of Aprica in Asia and progress towards stabilizing Graco in North America. While there is more work to be done here, this is a step in the right direction.

In 2011, our top 14 brands delivered 4.9% reported growth with the best absolute contributions coming from Irwin, Lenox, Rubbermaid Commercial, and Aprica. Together these four brands grew reported sales over 11%.

In the emerging markets, core sales grew over 10% in Q4 with double-digit core sales growth in most of the major emerging market countries. Our Q4 core sales growth was 2.5% in the developed world, with strong growth in Japan and solid results in North America partially offset by a decline in Western Europe.

Our key growth initiatives are yielding the results we expect. Industrial Products & Services achieved their eighth consecutive quarter of double-digit core growth behind strengthened selling capabilities in the emerging markets and the successful launch of our SPEED SLOT hole saw. Parker Ingenuity has been successfully launched into 11 countries now to positive critical acclaim and terrific sell-through, particularly in Asia and via e-tailers in North America.

Irwin delivered strong growth as a result of our new GrooveLock pliers and levels and measuring launches. Paper Mate InkJoy has been launched in virtually all countries where Paper Mate is sold with the bulk of the marketing support still to come.

Rubbermaid Medical increased revenues over 80% as we continue to scale this brand. Sharpie and Paper Mate were successfully launched in Brazil and are making good early progress. And as mentioned, Aprica had a terrific second-half in Asia as virtually every new item we have launched exceeded expectations. Aprica Asia had Q4 core sales growth of over 20%.

And Calphalon had an excellent year behind the expansion of Kitchen Electrics, the new bronze contemporary nonstick line, and the distribution win at JCPenney.

On the cost side, our efforts to unlock the trapped capacity for growth are also progressing well. Project Renewal is up and running. We have reset my top team, our new group and GBU architecture was announced in November and the North American restructuring is well underway. We are strengthening the US selling organization and our consumer facing businesses, deploying integrated, cross-functional customer and channel teams in the US.

And we have announced that we will close our Rubbermaid consumer factory in Greenville, Texas, and consolidate production in our Winfield, Kansas, and Mogadore, Ohio, factories. There have been many people impacted by these decisions and I would once again like to thank all of our employees for how professionally they are leading through change.

On the other side of the Atlantic, we are moving rapidly toward the April 2012 SAP and European principal company cutover. I spent time with the transition team two weeks ago in the UK outside of Newcastle and Sunderland. They have made a tremendous amount of progress, and while we have a lot of work still to do, the team is focused and energized by the challenge.

This is by far the most comprehensive systems project we have implemented, and while we have the finish line in sight, we need to crossover a series of testing hurdles before we throw the go-live switch. So far, so good but lots to do.

Importantly, despite a tougher year than planned, the change agenda associated with the SAP and EPC, EMEA delivered slightly better than 10% operating margin in 2011, about a year ahead of our targeted delivery date and 800 basis points above the 2009 baseline. So overall some solid results.

Before moving to 2012 guidance there are three subjects I would like to discuss that could impact our results going forward -- Western Europe, foreign exchange, and gross margin. First, Western Europe.

We generate roughly 10% of our total business in Western Europe where our core sales decline accelerated in Q4. This slowdown was fairly widespread with the weakest performance in Southern Europe and progressively poorer performance in the UK. Growth in the Russia, Eastern Europe, and Middle East businesses, which get consolidated in our EMEA region, remains healthy.

We expect the worsening Western European macro environment to carry forward into 2012 and affect our core sales growth rate. We have captured this in the 2012 guidance I will share with you in a moment.

The second subject I want to discuss is foreign exchange. Since our Q3 earnings call, foreign exchange has become more challenging. Through the first three quarters of 2011 we have benefited from about 250 basis points of positive ForEx in our reported growth. Since then ForEx has essentially done a full inversion.

We entered 2012 with foreign exchange on many currencies virtually back to where we were in 2010. The recent strengthening of the US dollar has caused us to temper our outlook for reported growth in EPS for 2012.

Our 2012 guidance assumes a negative 200 basis point impact on full-year revenues. The 2012 top-line impact will peak in Q2 and Q3. Our 2012 guidance also assumes the combined translation and transaction ForEx effect on EPS will be about negative $0.04 to $0.05 versus 2011.

The third subject I want to discuss is margin. Gross margin was 37.2% in Q4. Our gross margin in most of our businesses landed right where we expected them to be. However, our Decor GBU had a tough quarter due to an operational issue in one of their factories that impacted both growth and gross margin on our custom blinds business.

The Q4 issue relates to our Q2 decision to close our Salt Lake City custom blinds factory and consolidate production in our costs Ogden, Utah, facility, roughly at the same time as our mid-Q3 SAP conversion. In retrospect, this was more change than this facility could handle at one time.

Our supply chain and business team has had all hands on deck, and while we have made sequential improvements through the fourth quarter, we may continue to feel pressure in sales and gross margin on Decor until sometime in Q2. So some positive momentum in our business as we exit 2011, partially offset by emerging external challenges with European macros, ForEx, and an execution issue in one GBU.

With that let's move to our 2012 guidance. I will start with top line.

We have guided 2012 core sales growth to between 2% and 3%, sequential improvement on our 2011 full-year results but below our second-half 2011 run rate. Underpinning this guidance, we expect our markets in the developed world to continue to experience slow to no grow and in the emerging markets to grow in line with GDP. We believe we will grow ahead of those markets and continue to build market share.

That said, we assume worsening European macros continue in 2012, dampening market growth relative to 2011 and negatively impacting our core sales. Separately, we will reduce our merchandising activity in the first half of the year as we migrate our European systems to SAP and our business practices to comply with the new European principal company framework. These two factors, worsening macros and lower merchandising activity in the first half of 2012, will drive weaker growth renewal in Europe than in 2011.

When coupled with the Decor factory issue, we believe our core sales will be in the lower half of our guidance range in the first half of 2012 and recover to the higher end of the range in the balance of the year.

On margins, our guidance is for normalized operating margin to expand in 2012 by up to 20 basis points. Inflation will have an over 150 basis point negative impact on gross margins, but we expect to cover this and more through pricing and productivity. As a result, we expect gross margin to increase in 2012.

We will continue to be really tight on discretionary SG&A costs; however, our SG&A ratio will increase slightly as we build new capabilities and strengthen our agenda. Project Renewal savings will build through the year, and we intend to reinvest the majority of those savings back into the business.

We will be tough on these investment choices, focusing them on capabilities and programming that create lasting value and sustainable growth. These investments will be back half-loaded largely with some investment made in the second quarter. By holding back the majority of the renewal reinvestment until the second half, we will gain visibility into our 2012 delivery before locking the Project Renewal investments into the P&L.

The combination of the core sales growth range, the ForEx impacts, and the normalized operating margin expansion result in the following guidance on EPS and cash flow. We expect normalized EPS to fall in a range of $1.63 to $1.69 and operating cash flow to fall in the range of $550 million to $600 million.

For those of you wondering how we get to the upside of the EPS guidance, we get there if we deliver better core growth as a result of either our growth initiatives delivering even greater impact than we have planned or the macro and consumer environment being better than we expect, or we experience less ForEx headwind than we built in, or we allow more of the Project Renewal savings to flow through to EPS rather than be invested in strengthened capabilities and programming.

We cannot control the macro conditions, the trends on ForEx in Europe are not positive, and I don't see any catalyst out there that could affect those dynamics in the near term. With respect to Project Renewal savings, I have consistently taken a strategic view of these monies. We intend to invest the majority of these funds back into the business.

How could we end on the low end of the range? The two most likely causes would be worse macros and/or further strengthening of the US dollar. I think our guidance range is well balanced. If I had to make a call today, I would call it in the middle of the range given that it's still very early in the year and our guidance reflects the most recent thinking.

With that the baton to Juan so he can add some detail to the numbers.

Thanks, Mike, and good morning, everyone. Starting with our Q4 results core sales grew 3.7%. In North America, net sales and core sales grew 3.8% led by the strength of our Tools, Hardware & Commercial Products and Office Products segment, both with high single-digit growth.

Sales outside North America grew 3.5% with FX having a neutral impact. Both Latin America and APAC delivered double-digit core growth of 11.2% and 10.6%, respectively, while EMEA core sales declined 3.2% mainly due to the tough macro environment in Western Europe.

Gross margin was 37.2%, essentially flat versus prior year but below our expectations for the quarter. Pricing and productivity offset the input cost inflation. Versus the prior year pricing contributed 130 basis points to margin improvement which was in line with expectations.

Raw material inflation at $23 million was a sequential improvement versus the previous two quarters and to better than expected. Versus expectations we were held back by operational issues mainly in our Ogden, Utah, facility where our Decor GBU makes custom blinds, which Mike described earlier in his remarks. I am confident we will get this business back on track and that we have the right plans in place to fix the issues, but we could be into the second quarter of 2012 before they are fully behind us.

Despite the gross margin pressure, we continue to invest in demand creation initiatives in focused growth areas. The Tools, Hardware, & Commercial Products segment, where we are showing the strongest growth trends, was one of those of focus areas. And support for the Paper Mate InkJoy launch and geographic expansion in the Office Products segment was another.

These investments were partly funded by a $9 million decrease in structural SG&A, which was driven by lower incentive comp and very early Project Renewal savings.

Operating margin on a normalized basis increased 150 basis points to 11.8%. Interest expense for the quarter was $21.2 million compared with $22.9 million in the previous year. This improvement was due to lower debt levels.

Our normalized tax rate in the fourth quarter was 23% compared with 20.8% in the prior-year quarter. The change in the normalized year-over-year tax rate was primarily driven by the geographic mix of earnings and the timing of certain discrete items recorded in the prior year.

Our effective tax rate was more favorable than expected in the quarter. We were able to use more foreign tax credits as well as more foreign tax operating losses than previously anticipated thanks in part to improved profitability in Europe and to our work in preparation for the 2012 go-live of SAP EPC. We are happy to see some of these benefits start to flow through the P&L earlier than anticipated.

Now let's take a look at the balance sheet.

During the quarter we generated $282 million in operating cash flow. We used $134 million to pay down debt and return $45 million to shareholders in the form of $23.3 million in dividends and $21.7 million paid for the repurchase of 1.5 million shares. The share repurchases during the quarter had less than $0.01 impact on normalized EPS.

We continue to make steady progress improving our working capital. Notably, we reduced inventory by 14 days from Q3 in accordance with our seasonal patterns and a little over one day from prior-year levels. This was a good outcome considering that we had to pre-build the inventory at year-end to support SAP EPC go-live in Europe and the Greenville plant shutdown in the US.

As we look back on the full year we made solid progress on a number of areas in 2011, especially in the face of very tough economic circumstances. First, we generated core sales growth of 1.8% led by our Tools, Hardware & Commercial Products segment with core growth of 6% and Office Products core sales that grew 1.5%. The Home & Family segment declined 0.8%.

Gross margin at 37.6% contracted 40 basis points as the input cost inflation was more than double what we originally anticipated coming into the year and operational issues created additional pressure. The good news is that our ability to price to offset inflation helped to keep our margins in line or better than our competitive sets.

Normalized earnings per share of 159 represented a 6% improvement over the prior year. Operating cash flow of $561 million was strong as we continue to make steady progress reducing our working capital. We spent $223 million in CapEx in 2011, which was higher than our guidance, as our strong cash flow enabled us to accelerate certain investments in productivity and capacity.

We successfully completed our capital structure optimization plan during the first quarter. Largely as a result of this initiative, our year-over-year interest expense decreased by $32.2 million. We increased our dividend 60% to $0.08 per share and returned an additional $46 million to our shareholders in the form of 3.4 million shares repurchased during the second half of the year. Clearly a year of solid progress on many fronts.

Turning now to our 2012 outlook. As Mike covered earlier, we expect full-year core sales growth of 2% to 3%. We expect foreign currency translation will have a negative 200 basis point impact on sales for the year. This assumes average exchange rates for 2012 remain around recent spot rates.

There are a couple of items worthy of note that will impact top-line comparisons in 2012.

First, as we prepare for the April go-live of SAP and EPC in Europe, we are slowing down merchandising activities and asking some of our larger customers to pull forward orders from Q2 into Q1 so we can reduce the risk profile during the go-live period. Our preliminary estimates for pull-forward range from $15 million to $30 million.

Second, our Decor GBU will be lapping the pipeline fill associated with the Q1 2011 placement of our size and store machines which was around $15 million in sales. We anticipate normalized operating margin to expand by up to 20 basis points. This guidance reflects our expectation that we will generate gross margin improvement as productivity, improved product mix, and pricing more than offset inflation.

We will also increase SG&A spend to drive accelerated growth, funded largely by gross margin expansion and reduction in structural SG&A from Project Renewal. Based on that, our total SG&A as a percent of sales in 2012 is likely to increase modestly. We expect interest expense for 2012 to be slightly down as debt reduction will occur in the second half of the year.

Our effective tax rate for 2012 is projected to be essentially flat. This expectation includes benefits from the European Transformation Plan beginning after the planned April go-live. However, the year-on-year comparison will be impacted by some of the benefits realized in Q4 2011 related in part to the work performed in preparation for this project which are not expected to recur in 2012.

We expect normalized earnings per diluted share between $1.63 and $1.69 in 2012, or about 3% to 6% growth. This estimate assumes a $0.04 to $0.05 drag on earnings related to adverse ForEx. The facing of the impact is weighted heaviest in the second quarter and into the third as we compare against the weaker dollar in 2011.

We expect the EPS increase will be somewhat back half-weighted. This EPS guidance excludes between $110 million and $130 million of planned restructuring and restructuring-related costs associated with the European Transformation Plan and Project Renewal.

Operating cash flow is expected to be between $550 million and $600 million for the full year, including $110 million to $120 million in restructuring and restructuring-related cash payments. Capital expenditures are projected at between $200 million to $225 million.

We have $250 million in debt maturities in March of 2012 which we intend to bridge with short-term line and pay from operating cash flow in the second half of the year. We believe our balance sheet will continue to get stronger and towards the second half of 2012 we should be coming close to our desired comfort range of 2.5 times adjusted leverage ratio.

We plan to continue to repurchase shares opportunistically over the course of the three-year share repurchase plan period. The Board gave management discretion to be more opportunistic or more conservative, depending upon the attractiveness of share repurchase versus other competing options. Those other options include investing back into the business to fuel organic growth, dividend payment, further debt payment, and potential small bolt-on acquisitions.

In conclusion, as we enter 2012 we anticipate headwinds from continued economic uncertainty in Europe, gross margin pressure in the beginning of the year as we work through our Decor operational issues, and headwinds from volatile currency markets. On the other hand, our businesses are gaining momentum and we feel comfortable with our ability to manage through the challenges and opportunities ahead of us.

We are excited about our growth plans for 2012 and are looking forward to creating an even stronger company for our employees and shareholders.

With that I will turn it back over to Mike. Mike?

Thanks, Juan. As most of you know, and I have had a chance to meet many of you over the last six months, I am very excited by the opportunities I see ahead for Newell Rubbermaid. The organization is responding to our new agenda for the business; the team is leading change while getting back into a rhythm of doing what we say we are going to do.

As I have communicated in various forms, the next chapter of the Newell Rubbermaid story will be written in three stages. First, the delivery stage. We are in the midst of rebuilding our cadence of delivery and the credibility that comes with this.

The second stage is the strategic stage, effectively our path forward, which Project Renewal is in part designed to enable. I will lay out the strategic roadmap for the business on February 22 at CAGNY. I plan to use that venue to discuss our long-term vision for the Company, our strategy for growth, and do a deeper dive on the specific areas where we will invest to strengthen performance.

We will spend much of 2012 into 2013 re-allocating both financial and human capital to those choices and capabilities we believe are most important to our growth agenda. We expect the payoff to come in the final stage, the acceleration stage, where we see a step change in performance.

We have got a lot of work to do. We are making progress and there will no doubt be some bumps along the way, but our team sees a clear path to building Newell Rubbermaid into a bigger, faster growing, more profitable, more global company. And we are committed to getting us there.

With that let's open it up for Q&A.

(Operator Instructions) Dara Mohsenian, Morgan Stanley.

Good morning, guys. I was hoping to get a more exact sense for the percent of savings under Project Renewal that you expect to reinvest behind the business in 2012. Is it effectively all of it, the vast majority of it, or is there a chunk of it which drops to the bottom line?

And then, more importantly, what gives you the confidence that you are going to be able to earn a solid return on those investment, particularly in a difficult macro environment? Last, just given you have such different set of businesses and a diverse set of businesses, some of which are more responsive to investment than others, how do you approach allocating spending across the various segments?

Sure. It's a great question and it's at the heart of what we will talk about when we get together at -- when we have the opportunity to speak at CAGNY. I am going to start with the end of your question first.

The thing that will drive where we allocate our investments will be the strategic choices we make with respect to portfolio roles for our different businesses. As I have said in other forums, we have two jobs to be done. We have one job to be done, which is to get more growth where we are.

And the second job to be done is to systematically, in a disciplined way deploy the portions of our portfolio that are relevant into the faster growing emerging markets. As we think about Project Renewal and the funds that get generated and any other savings that we can identify, and there is other pots of savings out there to be tapped into that don't fall under Project Renewal, as we think about how to reinvest that money, we look at it through the lens of portfolio rules, where we want to play.

The portions of the portfolio that we think offer the most strategic potential for growth and offer the best return and offer the best option for creating value against those two jobs to be done that I have discussed. There are different levers to be pulled in different businesses, there are different growth levers to be pulled in different businesses, and so the investment that we will make back into this business will happen sort of at a line item level, activity-based level.

The filter we will apply is that matrix I have just described, the two jobs to be done against the portfolio rules, and we will be selective about how to deploy the money back in. The timing of how that money flows back in is in part a function of me gaining visibility into our delivery in the first part of the year. So I have been quite specific with my team and I think clear in the comments I just made that the vast majority of the money won't be allocated until the second half of the year, although some spending will start in Q2.

The money will flow to things that create lasting value, so I am not going to deploy that investment into tactical things. We will put it into things that can get us on to our strategic agenda. So an example of that might be investment in selling capabilities in Latin America. Another example of that might be the development of digital capabilities and e-commerce capabilities for a number of our businesses around the world.

And so the types of investments we are going to make are ones that are positioned to create essentially an annuity for us and allow us to get on to delivering against our strategic ambition, which again I will layout at CAGNY. I think that is how I would answer the question you have got.

Again, I want to pulse the money in and I don't want to lock it into the P&L until I get visibility into gross margin delivery and we get the Decor issue in Ogden resolved and we get a little bit more visibility into our first-half performance. It would be wrong to put the money in and then have to pull it out depending on where we are from an earnings perspective.

The question you asked about how much of it flows to EPS versus capabilities programming; well, it's not all going into capabilities programming but I have said the vast majority of it will. The ability to stay true to those words will be a function of us doing what we say we are going to do in our core business plans and time will tell.

I look at it every day and my folks know we are all kind of watching it as it unfolds. I think I wrote an e-mail this weekend saying we are about 4.5% through the year here on January 20 and are we 4.5% of the way to our ambition.

You have to manage the business as an everyday thing. Vince Lombardi said that winning is an everyday thing and he is right. You have to have your eye on the outcome virtually every day.

Until I have greater certainty about that and greater clarity, I am not going to pulse the money in. But I am certainly we will and we have modeled it obviously, otherwise we wouldn't be laying it out as explicitly as we have. So I have confidence that the vast majority of it will be able to flow back.

Does that answer your question?

It does. That is very helpful. And then if I could slip one other one in. The momentum in Tools, Hardware & Commercial Products is very strong this year. Can you just break down at a more granular level what is really driving that and your thoughts on how sustainable the different drivers are as we look to 2012?

Look, I got to tell you some of my favorite businesses are Bill's businesses -- the CT&A group, the IP&S group, our Rubbermaid Commercial businesses. These are great businesses where we have differentiated propositions and differentiated capabilities. And they are businesses that are relevant for us around the world.

I mean if you look at the emerging markets and the move from rural living to urban living and all the infrastructure build that is going on around those macro trends, these are businesses that can draft on the back of these trends. So they are strategically very important to us and so you see us investing behind them. As a result, they have got good margins.

They have got upside trajectory because they have got better macro trends in the emerging markets. And so we are placing sets here. And so that is why you see the growth sustained.

Importantly, we are delivering decent growth in a tough environment even in the developed world, which tells you that we have got great brands in Irwin and Lennox and Rubbermaid Commercial, and Rubbermaid Medical, and great products that are differentiated versus competition otherwise you wouldn't have that kind of traction. And as a result, they are doing well.

Okay, thanks.

Lauren Lieberman, Barclays Capital.

Great, thanks. Good morning. First, I just wanted to follow up on baby, so Baby & Family. So obviously great news that you saw some acceleration and the benefits in Asia, but what about the traction of some of the launch activity in Graco in the US? Is it too soon to tell; does it have any impact on category growth or is it still a little bit more of a share benefit that you are seeing?

So great question. I wouldn't get overly excited about our performance in the second half of the year and I am not. I think we have a lot of work to do here and [Christy] has got her arms all over this now. And we are making all kinds of changes to our leadership teams all around the world.

I think the most sustainable news I shared with you is the news on Aprica. We have just a really terrific piece of momentum going on there and it's driven by the fundamentals. It's great innovation; it's the power of a strong brand in that part of the world and also very good leadership.

The guy who is leading that business, a guy named Tom Brown, is actually now moving -- has moved back to the US and Christy has actually drafted him into really tackling one of her hotspots, which is Europe. So Tom is going to move from Asia to Europe to really get his arms around that business.

But I want to be clear about where we are. Now we have a lot of work to do. We have got -- the innovations that have gone into the market in the US are doing okay and they are supported by a much stronger merchandising program, which was very important to us.

Would I say to you that we have got real sustainable traction there yet? No. I think we need to do more in North America and clearly more in Europe before we let the confetti fall from the ceiling. I think it's going to take us six to nine months to really get strategic traction in that part of the world.

So we will bridge that time period with stronger tactics and better execution. We are having very open dialogs with our sourcing partner, which I think is encouraging and is going to lead to better impact in the marketplace. And we have appointed a new lead on our side in R&D, really talented young guy that I think is going to drive a more strategic approach in partnership with our supply partner into our Graco business.

But, Lauren, just to be quite clear we are going to muscle our way through the first half of the year. We have got easier comparisons on that business so the optics will look maybe a little stronger than the fundamentals. I will just be crystal clear with you guys as we go and let you know where we stand.

Importantly, as we go to the new segment reporting that ties to our structure, you will have better visibility into the P&L and you will be able to track it a little bit more clearly than you are today. But irrespective of that, just like I exposed our challenge on Decor to you in some detail, I will bring you along as we make progress.

Great, thank you. Then if I dare ask one more. Just Rubbermaid Consumer, last quarter you guys had said the pricing is coming in but just given the nature of how the product kind of moved through retail it was too early to have much gauge on volume impact. So just any update now that it's three more quarters in. Three more months, excuse me.

Jeff Hohler, who runs that business for us, is doing a great job. He is actually picking up the Beauty & Style business and the Decor business as part of his new GBU, which we call Home [Org] & Style, and that is where the Rubbermaid consumer business will be consolidated.

Q4 was a good quarter for Rubbermaid consumer. We don't give GBU core sales numbers, but I was pleased with the progress. We made sequential progress from Q3. This is a tough business, but Jeff and his team did a really nice job and we got core growth ahead of the market in Q4.

Great. Thank you so much.

Bill Chappell, SunTrust.

Good morning. And just trying to reconcile a couple of things on the SG&A line. I think you said you were going to reinvest most of it, or most of the savings in the back half, but at the same point you were expecting full-year SG&A to be up on a year-over-year basis. And also said you were expecting earnings to be more backend loaded.

So I am trying to figure out -- it would seem like a big benefit in terms of lower SG&A in the first half, as you get these savings from the workforce reduction, you don't reinvest it in the back half. So I am trying to understand what the offsets and how I get there.

So there is a number of moving parts within SG&A. One of the most significant ones is this year, because we fell well short of our targets, our management incentive payouts are going to be quite low. And so when we build our business plans for 2012 we have got to replenish those back to par so that is going to be an inflow of cost into SG&A.

There is also another dynamic in the 2011 numbers that you need to remember. Remember in Q3 2011 we did a true-up of those incentives so you have got a one-time low number in Q3 that we have got to lap. So those are some sort of ins and outs that just have to do with the curiosities of one year versus another year.

Look, we expect to spend the renewal money, and it will largely flow back into SG&A, starting in the second quarter, although the vast majority of it flowing back into the second half.

Our EPS flow, I think the way to look at our EPS flow -- knowing that the way to look at our EPS flow is to follow our core sales growth. So I told you that I thought core sales was going to be in the lower end of our guidance range in the first half of the year and strengthening through the back half as a function of us pulling back on merchandising in Europe as we make the SAP EPC conversion. And also because the effect of European macros is most pronounced in the first half of this year, because this trend began in late Q3 into Q4 as the tightening in the UK -- government's tightening in the UK happened and the economy slowed down there.

You saw the numbers this week. In Q4 the UK was in -- had negative GDP growth and there is many out there saying that they think Europe is in recession. I heard one this morning sort of go so far as to lead that discussion. I don't know if that is true or not; it's almost irrelevant. But the majority of that impact is first half.

And so with our Decor issue to resolve, with the fact that we are going to have less merchandising in the first half of the year, with the fact that the European macro impact is more severe in the first half of the year our growth will be skewed -- still within the range, but skewed to the lower end in the first half and strengthening in the second. And that is why the EPS sort of slows that way.

Okay, about helps.

It's not that material, Bill. To be honest with you.

And just a quick follow-up. On the office market, from your vantage point we have seen it bounce along the bottom for now a couple of years. Are you seeing any room for optimism, especially as we move through into the back half of 2012?

On the market itself?

On the developed market, office market.

Europe is going to be troubling in all categories so I think the Office -- our Office Product categories in Europe I am not particularly optimistic about. The good news is we have good ideas flowing into Europe, so I am confident, whether it's in our labeling business or whether it's in our writing business. And so I am confident we will continue to build share and grow those businesses as best we can in a very, very tough and worsening macro environment.

In North America I am optimistic that if we get our Paper Mate brand going in the right direction, given its share position in North America, that we can contribute, between Paper Mate and Sharpie, to market development or market growth.

Do I want to predict that we are able to get market growth going in the right direction in 2012? Bill, not yet. But do I think we have great ideas with InkJoy and with the Sharpie platform coming into this market, and do we have the kind of partnerships building?

I spent the day with Staples in Boston. And I think the relationships we are building in those interfaces -- we can build more strategic partnerships there that help develop the market and we can bring insights to that. And increasingly you should expect us to be doing that; that should over time help unlock the market dynamic.

But there is a lot of structural issues out there, so I wouldn't be too bullish about that in 2012. But our strategic objective with our leadership position ought to be to build markets, not just to drive share shifting between our competition and us. We want to build real, strategic partnerships with our customers. We need to commit to be able to do that.

Do I think we have got all the capabilities in place to deliver against that promise today? No. Is that the type of thing that Project Renewal might fund? Yes.

When we talk about building integrated customer and channel teams in our US selling organization, what does that mean? Well, it means doing what I just described. When will we get the benefit of that? Look, I think the reality is we probably won't get the full benefit of those choices and those investments until 2013.

So, again, I would be cautious on any commitments or thoughts I might leave out there about our ability to drive the market today, but I would hope over time that that is one of the things that we become more famous for with our retail partners.

Perfect. Thanks.

Budd Bugatch, Raymond James.

Good morning. Just a question on basically the structural SG&A versus the brand building SG&A percentages. I think you have given it to us in the past. What do you see that? How did it wind up this year and what is it going to be next year? What do you see?

So, Budd, good to talk to you. As we have said through the Q3 call and we are inferring here, we haven't been that explicit, we saw a shift this year between structural SG&A -- from structural SG&A to strategic SG&A and brand building. And we would expect that dynamic to play forward into 2012.

The caveat to that, Budd, is that when I talked about replenishing our management incentive bonuses to par versus significantly below par in 2011 that will result in some inflow into structural SG&A because structural SG&A are people.

Can you put some numbers to that, Mike? That is kind of what I am trying to get to. I know (multiple speakers)

I haven't gotten --

-- is hard to get to in the calculator.

No, I got it. We haven't guided at that level of granularity, Budd, but it's a decent amount of money that is going to flow back. And maybe I can have Nancy connect with you and help you understand all the moving parts so that you can make a judgment about that.

But it's not a huge shift; but I think even structural SG&A may be up as a percentage of revenue in 2012. We will see. I am pushing really hard on this because I want to pull the money out of there.

How you do that is you pull people out and you also pull discretionary costs out, because the money needs -- we have talked about the fact that we want to get our brand building investment up to over 8%. I think we ended Q4 just a little bit ahead of our run rate Q3 year-to-date so our historical, we said 150 basis points is what we needed. We did a little better than our run rate. Q4, despite SG&A being down I think we did 670 basis points on brand building.

So we are moving in the right direction in terms of the investment there, but next year is going to be an odd one because there is a little bit of money that has to flow back because you want to provide the right level of engagement for the folks that are in that structural bucket. But the principle that we have to look at over time is to make sure we work those costs down over the years so that we can get brand building investment back to that 8% threshold that we think is sort of the starting line for brand building investment.

Okay, just one quick other one. In Tools Hardware, I think Juan said that you made some additional investments and I think you said those businesses are among your favorite businesses. And yet you had great sales growth and no basically earnings growth.

I think, if I did the numbers right, probably should have posted maybe another $6 million worth of [OpInc]. Is that the amount that you reinvested in brand building and strategic development for that business? Is that approximately the right way to think about it?

Look, Budd, I won't give you a specific answer to the amount, but I will tell you where the money is flowing to in Bill's group. It's flowing to selling capabilities.

So when you think about Bill's trajectory in Asia and his trajectory in Latin America and the fact that we are able to deliver decent results in a very tough macro environment, Bill's business is not advertising and consumer promotion driven. Bill's business is really driven through the customer interfaces we have and building strategic partnerships and providing insights that help the Home Depots and the Lowes of the world build their categories.

And obviously we do it through our brands, so we benefit from that. So the investments are going into that space.

I other thing that we have done, and I mentioned Rubbermaid Medical Solutions delivering 80% top-line growth. That clearly has been another place where we have put some markers down, because we have got great products that are differentiated. We have a really powerful selling proposition positioned against both the choosers, the administrators in the hospital, and the users, the nurses of our products.

So we are working to improve the capacity of nurses to care at the same time as optimizing workflow in a hospital environment and creating productive value for the chooser. And so that model is really yielding results, but you have to invest in the selling structures to do it. We invested both in selling structures in Asia on IP&S, which is a great source of traction, a great, beautiful margin business. The operating margin in that business is amongst the highest in my total portfolio.

And also, the capital investment. We have put increased capacity in that business to be able to supply demand. Some of the CapEx step up that you see that went to support investment in our East Longmeadow facility to enable us to be able to service the demand we are generating with the selling expense. So this is a source of funds business for us and it will continue to be in the context of the strategy we will layout over the coming weeks and months.

So basically, just to make sure I understand it, you are basically saying the additional investment is people and people means salaries and salaries continue?

Correct.

Thank you. Thank you very much.

Linda Bolton Weiser, Caris.

I was wondering just, now that you have been at the Company a little bit longer, if you could share any other insights or impressions that you have. You have alluded to capabilities in some areas, still needing to have capabilities.

I remember under previous management there was a marketing executive who had provided a score sheet on marketing capabilities and sort of scoring the firm's capabilities in certain areas. Is that an idea that you embrace and how is that score sheet coming along? Maybe you could just talk about some of those things.

You know I think, Linda, the principle behind what you just mentioned is important; what you don't measure you don't improve. Let me just talk to the capabilities of it and then I will come back to where I think we are.

What we are building is a company that has two towering capabilities of equal stature. One that Mark Ketchum really led and started, which is the marketing capabilities and embedding a brand-led strategy into the Company, building an innovation agenda that is managed in a disciplined way across the 13 different GBUs that we have had up until this conversion we are making. And so that is one of the towering capabilities.

The towering capability of equal stature I think is an opportunity for us, and that is the selling capabilities and building affectively a powerhouse executional company. If you have got great ideas and great concepts coming through your marketing capabilities and you build an operational powerhouse on your selling and supply chain side, you get a very potent combination.

Today I would say our strength is in the marketing side. We have pockets of brilliance in the selling side, but we don't have an even capability there. And I think there is opportunity to strengthen that; not only in the emerging markets where we are nascent, but as importantly in the developed world.

So as you think about us and as I lay out our agenda for the Company you should hear more evidence of that than maybe you have up until this point.

In terms of scorecarding where we are, I think our marketing capability is stronger than our capabilities -- our strategic selling capabilities. That is why we are building and deploying cross-functionally integrated, customer and channel development teams as part of Project Renewal in the US. But do I think our marketing capabilities are where they need to be for the long term? No, I think there is opportunity there.

Ted Woehrle has done a fantastic job, but I think if he were on the phone today he would tell you it's a work in progress. And from my perspective that is great, because that is upside potential as we develop those capabilities.

Thank you.

Bill Schmitz, Deutsche Bank.

Can you just tell us like what percentage you are complete with Project Renewal? I know the GBUs have already been flattened, but in terms of personnel decisions and things like that.

We are moving quickly, but I want to make sure we move thoroughly, and so we have got the architecture and the GBUs in place at the top of those GBUs. We are in the midst of the selling redesign work that I alluded to in the US.

We have announced the closure of our Rubbermaid consumer factory but we haven't implemented that. We have announced a couple of DC closures, again, but we haven't implemented that. These things take some time to execute and you have to manage them in the right way, so there is still a ways to go in terms of the follow-through around that.

On the people side and headquarters, most of that is behind us. So if I were going to rough it, I would say probably -- I would 25% of the -- 30% of the choices have been made. The money will start flowing in in a differentiated way from that, but it flows in an increasing way Q1, Q2, Q3. And some of it hit in Q4 because some of the big choices we made, the more expensive people choices we made, were executed in Q4.

But I think that is the way to think about it, because the closure of that factory is a pretty big ticket item. The operational stuff we said was probably about 30% of the overall program and that comes late in 2012. All the people-related choices come -- probably get done towards the month of July of 2012.

Okay, great. That is really helpful. And then just back to Europe. So SAP in April, what percentage of the total business will be on SAP and running when that is done?

All of the European business will be on SAP once it's up and running.

How about the total company?

We will have Latin America and APAC to go, so that will be close to 80% of the Company.

Okay. And then when do you get rid of the legacy systems? Because if I am not mistaken, there is a lot of sort of overlapping costs between keep the legacy up and then putting SAP on. So when do you kind of get that step change cut over?

That is probably going to be after 2013, because after Europe we still have APAC and Latin America to do.

Okay. And then just to get a -- I am sorry about all these questions. But the tax rate for the year; I know obviously when you go to the EPC that should be sort of the step change in the tax rate as well. Have you given guidance on the full-year tax rate and how much that is impacted by the EPC?

Yes, we said, Bill, that the tax rate is going to be about flat for the year, which is a good thing if you take into account that we had some benefits in Q4. Some of those benefits driven by the improved profitability in Europe. So it's good news that we have more profit so some of those benefits that were locked in the balance sheet we are now being able to access. But they relate to the structuring for EPC, not the ongoing benefits of EPC.

So once EPC goes live in April of next year we begin to capture the benefits, let's say, beginning in May and those become structurally lower rate. So basically flat to this year, but taking into account that this year was, particularly because of the Q4, was helped by some of the prep work for EPC.

Okay, great. And then two more quick ones, I promise. The health of the European distributors; I know last time in the 2008 downturn there was an issue because a lot of the distributors were overlevered and they raced to get rid of inventory. So the market is what the market is, but how would you describe the health of your distribution partners?

The business that I think we see that first in is our Tools & Hardware business. So far, so good despite a very difficult environment, but I think we have to plan for a worse environment and hope for something better. But that is the one that -- that is sort of the lead indicator that we will watch, those categories.

Got you. And then the last one, I promise, is just -- I know Wal-Mart specifically or we can say your largest customer, the comps are obviously really easy in the front half of the year and we saw some big year-over-year swings as Wal-Mart's percentage of sales in the front half of last year. I mean does that seem like that relationship is largely repaired?

I think our -- I am very optimistic about our relationship with Wal-Mart. I think the thing that drove the front half challenges in 2011 was actually their philosophy with respect to their merchandising approach. On the full year we ended up at around 11% despite that slow start, so they represented about 11% of our total revenue.

So the relationship was never an issue. That was a strategic choice that impacted the activity. We have good relationships with these guys. They are people we have known for a long time -- I have known for a long time in a whole variety of different ways.

We have the type of dialogue with them; if they are not happy with us or we are not happy with them it's shared transparently. And we have the kind of relationships where we can get to a constructive solution. But our numbers look -- are looking fine with them and our Q4 numbers with them were back to sort of historical levels. And, as I mentioned, the full year at 11%.

Great. Thanks for humoring me. I appreciate it.

No problem.

Christopher Ferrara, Bank of America Merrill Lynch.

Thanks. Good morning, guys. So just quickly on the dividend. I know we ask about it every quarter, but is raising the dividend still contingent upon an S&P upgrade? Because it sounds like you may have more discretion from the Board to make that decision.

And I guess is 30% to 35% payout ratio still how you are thinking about?

Look, that is how we are thinking about it. We want to get back to that level of dividend payout ratio. We believe we are going to have the flexibility to get back there. Of course, it is the Board's discretion.

Our capital priorities we have been pretty clear about. We are going to opportunistically leverage the share repurchase program, but job one is to put the money into the business. We need to to get on with our strategic agenda.

But I think we are going to have the flexibility to provide value back to shareholders in a variety of different ways, through top-line growth and margin improvement, through continuing to work on working capital such that we free up cash to be able to have more flexibility. So I think we are going to -- this is a very cash generative business and that is with still plenty of opportunities left in working capital.

I can't give you a specific moment in time when we will be able to get in there. We increased the dividend by 60% in 2011 and I hope we can find a path to being able to do the same sometime soon.

But are you guys waiting for that S&P upgrade to do it?

It's not contingent upon that, that is not how we think about it. I think we will get -- we are going to be able to get everything done we want to get done and one of our priorities is to get the dividend payout ratio to more competitive levels and, of course, we want to get our leverage ratios to where we think the optimal capital structure is. And I think we can do both in a very reasonable amount of time.

Yes, I would agree with that. We had been prioritizing debt repayments because of the leverage ratio. I think we are making really good progress.

We are going to be where we want to be in the second half of next year. The Board has expressed a desire to get to 30% to 35% so that would imply kind of consistent increases in the dividend, and I don't see anything that will keep us from doing that.

That is really helpful. On the same kind of cash topic, so CapEx at $200 million to $225 million. That is the highest number I guess in nine years and I know you have definitely telegraphed a need for investment, but I guess can you just talk a little bit about what the bigger items are that may be driving that for next year?

I talk to -- I think, Chris, the most strategic piece of this, obviously, is SAP but the other strategic piece is investing in capacity in IP&S. So being able to service the demand that we are creating there is an important priority for us. In 2011 we put a fair amount of investment into our East Longmeadow, Massachusetts, facility in order to be able to step up our growth, and it's playing out beautifully.

I mean [Rich Woehrle] and the team have done a fantastic job there, and I think there is -- we want to make sure we have got the capacity to be able to service all the demand we intend to create. We are strengthening our selling systems in Southeast Asia and in China.

I was actually in a metal-cutting shop outside of Shenzhen at the beginning in December with Rich and his team. We are making good progress there, but there is a lot of growth to be had. So we are going to continue to make those types of investments to be able to capitalize on the potential of our businesses.

Obviously we need to get the systems infrastructure in place to be able to have greater clarity and transparency into the costs within our business and the working capital in our business. And that is what SAP is going to enable for us.

Just let me just add a couple of data points. The operating groups, the CapEx as a percentage of net sales was about 2.4%. That is higher than their ongoing rate because of the investments that Mike alluded to. There is almost close to $40 million in investments either in capacity, selling systems, or in the case of the core, the size-and-store machines. The rest is related to SAP and the work in SAP EPC in Europe.

Great, that is really helpful. I guess just one last one.

Mike, getting back to phase one of what you were talking about around delivering what you say you will, 2012 is your first set of guidance as CEO here and you have definitely spent a lot of time talking about rebuilding that credibility. So I guess the context you gave around earnings is that -- Europe is a drag, FX is a drag. You seem like you are holding back some of the restructuring reinvestment till the back half to make sure the range is okay.

So I guess the question is do you feel comfortable that you guided conservatively enough, understanding that the portfolio kind of has had the ability in the past to have things sneak up on you a little bit? I guess you feel comfortable there.

Look, I feel comfortable but that is not to say that we are where we want to be from an operational perspective. I mean the Decor example is just another point of evidence.

Now every business has issues that crop up. I have made a commitment to you guys to be very transparent about them, so what we have them we talk about them so that you have greater visibility into the business.

But do I think we are where we want to be with respect to our performance relative to our ambition? Not yet. I think that is something that is still in front of us.

We talk as a leadership team about building an operational powerhouse that is a complementary capability to our strategic development thinking on our brands and in our categories. We don't -- that is an aspiration, that is not where we are today. So I think we have more to do.

Do I feel like we have called the guidance in a way that can deal with the sort of error band that inherently in this business around the midpoint? Yes, absolutely. Now I am at six months in now and, unfortunately for everybody, I look at every number.

And I am feeling like we have called it in the right place, right in the middle of the range as I said. I think it's a balanced range given what we know today -- given the volatility in the markets today that is where I would call it -- and we are on to kind of focusing on delivery here.

I think the first stage of the strategic agenda and the last phase of the delivery agenda they overlap with each other. I think it's going to take us a while to build back our credibility. I think we have got an entire year, at least, of doing what we say we are going to do. That will be six quarters. If we can string together six quarters then we can maybe take a breath.

But of course any quarter you step back and you miss you might as well go back to go. It's like Monopoly, you go to jail. So I don't want to land, I don't want to roll the dice and land in that little cell and end up back in jail and not collect $200 at the start. So it's an everyday thing like I said.

I don't think I will ever declare success, quite frankly, Chris, on the delivery stage because I think it's the wrong message to send into the business. Because there is always things you can do better. I think as we go along we will have more of our time freed up as we get more confidence and more capacity to do exactly what we say we are going to do to spend on unlocking the future.

And that is -- I hope to shift the balance of our energy towards that, to find more balance in our time towards that as we go through 2012. And I know that is a very vague, abstract answer to your question but that is the best I can do at this point.

No, that is really helpful. I appreciate all the color.

Connie Maneaty, BMO Capital.

Morning. Could you tell us what you think the real opportunity in working capital improvement is? How much you believe you can improve cash conversion? And what metrics you are targeting?

Well, I think the opportunity is more than my guys are forecasting, so that is a message for my team. They are forecasting improvement this year, but I think there is more to be had.

But, Juan, why don't you tackle that one?

We have internal targets, Connie, which we would rather keep aspirational and private for now, but we are committing to consistent improvement. You saw that we took two days out of receivables. We took one day out of inventories and that is in a year when we are having to build some buffer stock for a plant shutdown and the Europe [collage] that will put pressure on the inventory.

We gave back a day in payables so we will get that back. And the thing is that we are putting in place the process improvement that will deliver consistent improvement in working capital. So we decreased it a little bit this year in a year where the pressure was going the opposite way and we feel confident that this should continue.

Connie, I think SAP in Europe will help. When I look at our working capital in Europe I am not -- I think that is a big opportunity. Getting through that window of conversion and then being able to put a front end on the system so that we can see all the costs in our business model in Europe, both in P&L and also in working capital. That is going to be an enabler.

I think there is more work to be done in the US. We need to make it very visible every day, like all the other metrics in the P&L are. I hesitate to give you a number, but it's something that is on my personal priority list and Juan's personal priority list to work on in 2012 and make meaningful progress on.

Okay. A follow up again on the tax rate. I mean the tax rate in 2011 was down about 250 basis points, 270 from 2010, with most of the improvement in the fourth quarter, although the rates were better in the first three quarters. This just can't all be Europe or is it? And if it's not what else is going on?

And then also why does the fourth-quarter tax rate tend to be lower than the rest of the year?

Most of the improvement in the fourth quarter is related to Europe, Connie, and there are two sources who -- I will put them in two buckets. One are the unlocking of the tax operating losses from the improved profitability in Europe, because we are making more money and now we can benefit losses that we were unable to benefit in the past. And you don't really know that until you basically close the books and look at it legal entity by legal entity.

The other bucket is, as we prepare for EPC and we make changes in the legal entities structure, there are tax planning opportunities that present themselves. And our tax team was aggressive to take full advantage of them. Those are non-recurring because they are related to the structure itself, not the ongoing profitability, but they are real money. So they are real, they came through. So that answers that part.

The other about the tax rate, the tax rate will fluctuate quarter to quarter because there are always discrete items and it's hard to predict when those come. Last year there was a big one that was the R&D credit, which would have benefited Q1, and that law was retroactively passed by Congress in Q4. So all of that that would have been recognized in the first three quarters was recognized in one quarter. So those kinds of things cause the variability in the tax rate.

And one final question, if I could, on the quarterly flow. Just from the comments you have made it seems to me that second-quarter earnings are likely to decline if sales shift in Europe from Q2 to Q1, if the merchandising is pulled while SAP is going in.

Well, there is that dynamic so -- and I think the best way to look at our help as a company is to look at the first half as a whole, because you are going to have that Q1/Q2 flip which is unfortunate and we will have to be talking about it for a whole other year. But it is what it is and we need to do that to protect the business in April. It's a big and complicated transition we are leading.

Is it going to be negative in Q2? Could be. I hope not. I don't want to capitulate yet, but that is the type of thing that we are going to arm wrestle our way through with the business teams. But your observation is right on.

Okay, that is great. Thanks very much.

Jason Gere, RBC Capital Markets.

Good morning. I guess I just have couple of questions. One, I guess I wanted to just go back to Europe and think about -- I know that the long-term target has always been the 10% margin. So as we think about Europe weakening sales, and hopefully it's only one year and maybe by 2013 we can start seeing improvement.

But you do have some of the European restructuring savings coming through. I was just wondering how you think about managing that business next year and maybe put some color around the context of getting back to that goal of 10% margin.

Look, I think the thing that is going to determine how well we do is getting back to growth in Europe. But growth not at any cost, profitable growth. When we talk at CAGNY we will talk about the portions of our portfolio that are most leverageable in those geographies.

Any portfolio strategy is the intersection of geography and category. We are looking to build strong [cells], geographic and category [cells]. So you're talking about Europe as a whole is probably not the right way for us to talk about our agenda going forward.

But in broad terms the thing that is going to really stabilize Europe and get us on to sustainable improvement in the business there will be getting back to growth. And that is going to be very, very difficult in the macro environment next year, but again I am not willing to capitulate at this point. But the plan doesn't assume -- in fact, the plan assumes a worsening growth performance there.

What is the endgame? What is the operating -- normalized operating margin endgame for EMEA? Don't know. I wouldn't be happy if we stayed where we are. So I think in a better macro environment we ought to be -- and in general in the developed world, we ought to be able to fuel some of the investment we want to make in broadening our geographic footprint on the back of our developed world markets to include Western Europe.

Next year that is unlikely to be possible, but strategically should we expect that out of our European business, to be able to grow ahead of markets and make progress year in, year out and delivering normalized operating margin increases? Yes. Do we have all the plans lined out to achieve that yet? No. But that the mile marker that I hold out for that business? Yes.

And we think that is the right aspiration to have because again, with increased profitability in Europe on the OI level and a tax advantage structure around it, the flow-through of that business will have increased considerably from what it was just a year or so ago.

Okay, that is a good answer. Just second, I guess thinking about the [2%] to [3%] core sales for the year, how do you look at it in terms of where you need sell-through in categories as opposed to where you are getting incremental distribution? In 2011 we saw some good points of incremental distribution that you have talked about, whether it's the JCPenney business, etc.

So when you think about that [2% to 3%] from that perspective can you kind of just add a little color to that?

I think -- look, when we think about the emerging markets I think you should think about it as expanding our footprint and trying to lock down some of the initial wins that we have got. So Sharpie and Paper Mate in Brazil, for example, it's going to be a combination of both.

If you look at our business in that geography on those brands, we have got the first big step forward, which is landing all the big direct buying accounts. But if you look at the northern part of Brazil there are fewer of those -- the penetration of those accounts into that part of the country is less and so you have to sort of work it street by street, distributor by distributor. In a place like Brazil, product category like writing and creative expression we will get a combination of both.

I expect to get increased sell-through in the initial distribution that we got in Brazil and we are going to continue to broaden distribution through the distributors into the smaller retailers the northeast and the northern part of Brazil as we build the business case for our brands to those distributors. So that is an example of what can happen in real world.

We have a blend of those opportunities all over the world, even in the US, so I continue to believe that our Goody brand has plenty of opportunity to broaden distribution not just sell-through. I walk into many stores and I see our competitor with a better distribution footprint than us.

So I think we continue to have both types of opportunities. Our marketing programming and our brand-building activity in a place like the US is focused primarily on driving increased consumption on the distribution we have got and then our selling activities are focused on broadening the distribution footprint. So I don't think there is one answer. I think it's a blend by geography, different by business, and we have to approach it that way and at that granular a level.

Did you calculate what the impact, I guess, of the change in -- to you in Western Europe? And also some of the challenges with Decor, what that would be to total year sales?

Well, they are in our guidance so we have -- that is how we -- I said to you guys that our full-year guidance is below our second-half run rate. And those are the two drivers of that core sales step down.

So there is the macros in Europe, there is the Decor issue, and then there is also just the reality of what we have to do to manage the transition in Europe with less merchandising in our European business in the first half of the year. Those are the key things and then the recovery on Decor. And that is how we end up in the range we are.

So it has been modeled pretty well I think. It's as best you can do with the volatility in the markets.

No, that is fair. Just one last question and then I will jump off.

Just where you have taken pricing or where pricing is going in for 2012, I think one of the things that people are talking about now is who is taking pricing and who is following. So I was just wondering if you could talk maybe about that type of dynamic and the price gaps that are out there and how comfortable you feel with you versus your competition on the shelf right now. Maybe -- really focus more, obviously, on developed markets.

Sure. Look, I think this is a category-by-category answer as well, but let me just start at a macro level.

We did achieve the pricing we had built into our gross margin objectives. Our issues on gross margin in Q4 were not pricing related. They were cost of failure related and a little bit of mix.

And we have pricing built into 2012 as well. In our gross margin assumptions we have the rollover effect of pricing actions we took in 2011, and we have some new pricing as well in 2012.

In many categories I don't think it's going to be an issue to land that pricing. In part because we go through this process of line reviews every year and most of that is behind us.

There are some businesses where the pricing everyday is a critical issue. Rubbermaid Consumer is a great example of that in the US business, particularly in the container segment and in the food and bev segment. And so that is where Jeff has to manage that dynamic every day. He has got a set of pricing principles relative to competition that he is managing to.

Those are the guardrails on his business. He knows what kind of premium he can afford to have without losing consumers. He manages to that and he is empowered to manage to that. So I am not sitting there waiting for him to send me a note to approve a price increase or a price decrease; he has got to manage that every day and maintain competitiveness in that category.

That category is an example of a more intense category with respect to pricing, and there are a couple of them like that. Everyday writing and some of the segments of everyday writing we have that same dynamic.

Ben Gadbois, who runs that business, that is his call. He needs to make those real time. Of course, he has got margin objectives as well so every one of those choices comes with a trade-off somewhere else, either more productivity or him playing the mix differently because he has got to deliver his margin numbers as well.

But there are certain portions of our portfolio where relative pricing to competition is essential, and there is other portions of portfolio where it's less of a key driver. Each one of our leaders understands the different levers to pull for the outcomes we are seeking and they are empowered to pursued them. I am looking at their delivery and at the numbers and challenging that, but the decision points deeper in the organization.

Thank you.

John Faucher, JPMorgan.

I apologize I thought I had pulled out of the queue already; there has been enough questions this week. I will let you guys finish up here. Thanks.

Thanks, John. Look, thank you for the questions; I think they are really helpful.

As I said at the beginning of the call, we view Q4 as a solid quarter. It's another step in the progression we believe we need to make. So progress, much more to do, lots of excitement within the business, lots of change within the business, but building confidence that we can be the kind of company you can count on to do what we say we are going to do. And also that we can build Newell Rubbermaid into a bigger, faster growing, more profitable, more global company.

So thanks so much and I look forward to seeing many of you at CAGNY. Bye now.

Today's call will be available on the web at NewellRubbermaid.com and on digital replay at 404-537-3406 with an access code of 41968616 starting two hours following the end of today's call. This concludes our conference. You may now disconnect.