諾威品牌 (NWL) 2014 Q1 法說會逐字稿

Good morning, and welcome to Newell Rubbermaid's first-quarter 2014 earnings conference call.

(Operator Instructions)

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.

Good morning. Thank you for joining us for today's call.

With me this morning are Mike Polk, our President and Chief Executive Officer; and Doug Martin, Chief Financial Officer.

During today's call we will refer to certain non-GAAP financial measures, including but not limited to core sales, normalized operating margin, and normalized EPS. Please note that we have provided a reconciliation of the non-GAAP financial measures to the most directly comparable results prepared in accordance with GAAP. The reconciliation may be found in this morning's press release and in our filings with the SEC.

Please recognize also that we have provided risk factors regarding forward-looking statements in today's release, and in our latest Annual Report on Form 10-K. Any such forward-looking statements reflect our current views with respect to future events.

These statements are subject to risk, and actual results may differ materially. We do not undertake to update any such statements whether as a result of new information, future events or otherwise.

And now I would like to turn the call over to Mike Polk.

Thank you, Nancy. Good morning, everyone. Thanks for joining our call.

My goal today is to walk you through the underlying performance of business, and explain why we are feeling good about our prospects moving forward. There is a fair amount of noise in the Q1 numbers. So I will take the time to parse that out, so that you have a clear line of sight into our results, and a good understanding of the opportunities and challenges ahead.

There is no doubt that the start of year was not what we expected. You have already seen the announcement we made earlier this quarter about the harness buckle recall on baby, and in the US we were not alone in seeing an impact on retail sales from severe weather, which particularly affected our US-centric home solutions business.

The Q1 top line impact of either one of these events might have been a handled in stride, but both in the same quarter created the challenge called out in our early March press release. I see our team stepping up and into this challenge nicely, as we strengthen plans for the balance of the year. We have become a stronger and more agile Company, able to overcome these types of challenges, and I am confident that we will.

Importantly, we have a strong pipeline of new ideas coming to market starting in Q2, and significant investment fire power that will flow from our cost work. We will reignite growth, by pulling A&P bending forward from Q4 into Q2 and Q3. If at all possible, we will look to replenish Q4 spend by doubling down on generating savings.

Our ability to do this will, of course, depend on the growth yield we get from the step up in Q2 and Q3 investment versus prior year, and the margin expansion we generate between now and then. These revised plans are already in motion. While this will result in a different flow of growth and earnings than originally envisioned when we provided our outlook for the year in January, we are reaffirming our full-year guidance for core sales growth, normalized operating margin improvement, normalized EPS and operating cash flow.

As announced this morning, the Board has approved a 13% increase in the dividend to an annualized rate of $0.68 per share. This is the fourth dividend increase in the last three years, demonstrating the Board's continued confidence in Newell's strong cash generation ability, and in the promise of the growth game plan.

With that as a background, let me dive into our first quarter results. Core sales grew 0.7%. While we are certainly not content with this result, I want to unpack the numbers, so you understand the dynamics that underpin it. There were two key events during the quarter which disrupted our plans, and are not indicative of our underlying performance.

First, the baby harness buckle recall interrupted our two-year streak of nearly 10% global core growth. Baby core growth accelerated through 2013 to 15% in Q4, and strong momentum carried forward into January of this year.

This growth was disrupted by the recall, and the previously communicated European exits, with baby core sales down over 4% in the first quarter despite the very strong January. In Q1, that nearly 20 percentage point core growth swing versus the run rate on the business cost the Company as much as 200 basis points of global core growth in the quarter.

The second event was well-chronicled, the well-chronicled weather impact in the US, which most directly impacted our US-centric home solutions business. While there are other things happening in this business that contributed to the overall performance, there is no doubt that lost point-of-sale due to weather-related store closures in the US during the late January through February period impacted the flow of shipments into key mass, food and specialty retailers. The absence of these external events would have put Q1 core sales at the low end of the full-year guidance range of 3% to 4%, right in line with the suggestion we made for Q1 when we provide full-year guidance.

Importantly, an assessment of underlying performance should also consider the previously announced decision to exit roughly $25 million of business in Europe in 2014, and the prior-year pullforward of volume into Q1 related to the SAP conversion in Brazil. Combined, but netting out all double-counting potential variables, these factors represented another 60 basis points of underlying core growth in Q1. So core growth of 0.7% in Q1, but with reason to believe that Q1 core growth would have been well into our full-year guidance range of 3% to 4% absent these discrete events.

Normalized operating income margin Q1 was 11%, down 20 basis points to last year with good gross margin expansion of 60 basis points, offset by increased advertising and selling capability investments. Q1 progress on gross margin is important, as we are beginning to see pricing land and stick, and very good writing growth resulting in strengthened mix.

The costs associated with the baby recall is $11 million. This reflects costs incurred on the harness buckle recall on toddler car seats that we referred to in our first-quarter press release, and now our best estimate of costs associated with the potential additional recall of harness buckles used on some infant car seats.

Given the significance of the combined costs and their nonrepeating nature, we have normalized this $11 million, or over $0.02 out of our Q1 results. Importantly, Q1 normalized results do reflect the top line and operating income impact of lost toddler car seats sales, during the roughly five weeks we were not shipping the affected product, as well as the impact of product returns.

Normalized earnings per share was $0.35, and reported earnings per share was $0.19. Both were equal to prior-year period. Given the decision to now normalize out of the nonrepeating combined costs of the recall, our normalized earnings per share of $0.35 does not represent a $0.03 beat to consensus, given our prior communication.

Our Q1 growth was led by our writing and tools segment, partially offset by core sales declines in home solutions and baby. Writing core sales grew 8% despite the exit of certain product lines in Europe, driven by strong value and volume market share growth across the Americas, where our writing had the easy year ago comparator in Q1. We are pleased with these results, particularly in light of the continued contraction in retail real estate in the office super store channel in the US and Europe.

We have continued to advertise Papermate InkJoy through Q1, and are now on-air with a new very exciting Sharpie campaign. We have strong innovation, advertising and record merchandising plans set at back-to-school, and we will support our brands at levels well beyond historic highs in Q2 and Q3.

Home solutions core sales declined 4.5%. We saw some softness at point-of-sale, and consciously reduced merchandising on certain Rubbermaid consumer low-margin product lines. These effects were partially offset by increased distribution on Calphalon, and very good value and volume market share growth on Rubbermaid food storage and beverage.

We have taken some tough calls on portions of the home solutions portfolio on pricing and customer merchandising, with a goal of strengthening the mix within the segment, and driving profitable growth on portions of the portfolio where we can establish a sustainable brand and product point of difference. We have a strengthening innovation pipeline on Calphalon, Levolor, Goody and portions of the Rubbermaid portfolio, and we will advertise Calphalon for the first time in many years this coming holiday season.

Tools segment core sales increased 2.4%, driven by strong growth on Irwin in Latin America and building momentum on Lenox in North America and Irwin in Europe. Adjusting for the prior-year pullforward of sales due to the SAP Brazil conversion, tools global core sales increased 5.2% in quarter one. We have strong innovation and merchandising programs planned for the balance of the year in both South America and Latin America, and are beginning to make progress on gross margin through strengthened mix and pricing.

Commercial products core sales increased 0.2%, as good growth on Rubbermaid commercial products was largely offset by a significant step-back in our US healthcare business. The healthcare business was up against an extremely tough year-ago period in Q1, related to prior-year new distribution and pipeline fill. Having lapped the difficult Q1 comparator in healthcare, and with the benefit of a significant investment in selling expense on the balance of the portfolio, the overall commercial products segment should now return to steady solid core growth.

Baby and parenting core sales declined 4.4%, as a result of the exit of certain product lines in Europe and the US harness buckle recall. The lost momentum caused by the US recall was significant, as previously discussed. We have a very strong pipeline of innovation flowing to market through the balance of the year, and are quite confident that we will recapture momentum in the business.

Point-of-sale is recovering on toddler car seats, and we expect that to sequentially increase in Q2, and get back to solid mid-single-digit growth in the back half of the year. While we may not be able to recover the lost sales from Q1 associated with the roughly five week period where we were not shipping product and were off-shelf, we are comfortable that we can and will recover momentum through Q2 and into the second half of the year.

So core sales growth of 0.7% in Q1, but underlying core growth was well into our full-year guidance range, and future quarter core sales growth that will be considerably improved with the unexpected events of weather and recall largely behind us, and strong programming and innovation in front of us.

With that, let me pass the call over to Doug for a more detailed review of our Q1 financials. And then I will return to provide a deeper perspective on the full year, before opening the call for questions. Doug?

Thanks, Mike, and good morning, everyone.

As Mike noted, there were some real bright spots, as well as some challenges in the quarter. I will start with a discussion of our Q1 results, and then update you on operating cash, Venezuela, share repurchase programs, and the balance sheet.

Q1 reported net sales were $1.23 billion, a decline of 0.7%. Core sales, which exclude the impact of unfavorable FX, increased 0.7% versus the prior year. Strong pricing in the quarter was partially offset by product line exits, the impact of the harsh weather on our US-centric businesses, and baby harness buckle recall challenges.

Reported gross margin was 38.1%, and normalized gross margin was 38.8%, up 60 basis points over last year. Inflation and unfavorable currency were more than offset in the quarter by pricing and productivity.

Normalized SG&A expense was $342 million, or 28 -- 27.8% of sales, up 80 basis points versus the prior year, as we continue to invest behind brands and capabilities, despite the short-term sales challenges during the quarter. The composition of our SG&A spend continues change as well, as we increased advertising and promotion expense by about 10% in the quarter, primarily to fund our InkJoy TV ad campaign in the US, Mexico and Asia.

Normalized operating margin was 11%, down 20 basis points, reflecting positive gross margin expansion, offset by continued investment behind our brands and capabilities. Reported operating margin was 8.5%, compared with 7.9% in the prior year.

Interest expense was $14.4 million, essentially flat year over year, and our normalized tax rate was 18.4%, compared with 16.5% a year ago, as the Company recognized a lower amount of discrete tax benefits in the current quarter. Normalized earnings per share, which excludes restructuring and restructuring-related costs, costs associated with the harness buckle recall, and the impact of the Venezuelan monetary asset devaluation were $0.35, flat compared to year ago results, with the benefit from a lower share count resulting from the accelerated share buyback plan offsetting a less favorable tax rate. First quarter reported earnings per share were $0.19, equal to last year.

We used operating cash of $92.1 million during the quarter, a $31 million improvement of the use of $123 million in the prior year. The change was driven primarily by the absence of an incremental pension plan contribution in the current year, offset by larger year-over-year annual customer program and restructuring payments.

We returned $87.3 million to shareholders during the quarter, including $42.9 million in dividends and $44.4 million for the repurchase of shares. The low number of shares outstanding contributed about $0.01 to EPS, as we are now back to active status under our recently authorized $300 million open-market plan, and we have $256 million left available under that authorization as of the end of the quarter.

I will now move on to segment results. Starting with writing, reported net sales grew 6.1% to $361.3 million. Core sales increased 8%.

Our Latin America writing business continued to deliver strong growth, over 20% this quarter fueled by pricing and the benefit of our InkJoy ad campaign in Mexico, Columbia and the Caribbean. North America had strong double-digit core growth against a relatively easy comp last year, and behind InkJoy advertising. EMEA sales were down high-single digits, largely as a result of planned exits.

The Q1 normalized operating margin in our writing segment was 21.3%, a 270 basis point improvement over year ago results, driven by pricing, productivity, and project renewal related cost savings in Europe, partially offset by the increased advertising spend behind InkJoy. The home solutions segment first quarter net sales declined 5.2% to $321.2 million. Core sales declined 4.5%, due in large part to weather-related POS softness, and the deemphasizing of some low margin businesses within Rubbermaid consumer.

Calphalon had another strong quarter, driven by recent distribution gains. Home solutions normalized operating margin was 8.2%, a 190 basis point decline versus the prior year, reflecting deleveraging -- the deleveraging impact of lower sales volume and inflation.

The tool segment delivered net sales of $187.8 million for a decline of 0.4%. Core sales growth was 2.4%. You will recall that we implemented SAP in Brazil in Q2 2013, and we called out a pullforward impact in this segment of approximately $5 million last year due to this timing shift.

Adjusting for this SAP timing-related shift, our underlying Q1 core sales were 5.2%. This trend is largely attributable to our success in Brazil with our expanded tools offering in the back half of last year, which has driven both share and distribution gains. We are also seeing strength in the Lennox business in North America.

Operating margin in the tool segment was 11.4% versus last year's 9.9%. This improvement was driven by gross margin expansion behind pricing and improved mix.

Reported net sales in the commercial products segment declined 0.3% to $182.6 million, and core sales increased 0.2%. Favorable pricing in North America and Latin America was offset by weather-related softness in the US, and a difficult comparison against strong healthcare results in the prior year. Commercial products operating margin was 7.6%, down compared with last year's 11.8% due to input cost inflation, mix, and capability investments, primarily in Latin America.

Our baby segment reported $179.3 million in net sales, a decline of 5.4%. Core sales were down 4.4%, due to the lost sales volumes and returns related to the harness buckle recall, lower sales in Asia, and planned product line exits in Europe. We anticipate a return to healthier sales volume trend in the balance of the year, and we expect baby full-year core sales growth of mid-single digits.

Q1 normalized operating margin, which excludes direct costs associated with the recall, but does not adjust for returns or lost sales, was 9.1%, down 350 basis points to last year, largely due to FX and input cost inflation partially offset by pricing.

Looking at Q1 sales, core sales by geography, North America grew 0.9%, with strong results from writing and tools and declines at baby, commercial and home solutions. In EMEA, core sales declined 5.1%, driven largely by planned product line exits of $6.3 million, primarily in writing and baby.

If adjusted for the impact of these exits, EMEA's underlying growth rate was a negative 1.3%, which is a little better than our 2013 trend in our EMEA businesses. Despite the top line pressure from exits, the normalized operating margin in EMEA increased nicely year over year, as a result of the project renewal European simplification actions that were taken to improve profitability, all thanks to the great efforts of the EMEA team.

In Latin America, core sales grew 10%, despite the headwinds of $6 million of SAP timing-related pull in 2013. Adjusted for that pullforward, Latin America would have generated core sales growth of approximately 17%.

And lastly, Asia core sales showed a slight decline of 0.3%. We saw modest growth in fine writing, as we reached stabilization of the business this quarter, and a peak of sales declines coming off two years of very strong growth.

Now I would like to take a minute to talk about Venezuela, and FX in general. As we have said in the past, Venezuela represents about 1% of total [Newell] sales, and 3% to 4% of operating profit, mainly in the writing business.

Based on recent changes to the Venezuela currency exchange rate mechanisms, we have moved the rate we use to translate our Venezuela financial results into US dollars, effective March 31 to SICAD 1. This resulted in a monetary asset devaluation of $38.7 million at the close of the quarter, which is reflected in the other expense line in the as-reported income statement, and as exchange rate effect on cash and cash equivalents in the cash flow statement.

The impact of the one-time monetary asset devaluation has been excluded from normalized earnings. Subsequent to the first quarter, we will be using the exchange rate determined by periodic auctions for US dollars conducted under Venezuela SICAD 1, which was VEF10.7 to the US dollar at the end of the first quarter, compared to the official exchange rate of VEF6.3.

We expect the impact of changes in global currencies including the Bolivar, to have an unfavorable impact on operating income. Based on current spot rates, we estimate the negative impact of translational FX to be between $0.04 and $0.05 per share for the remainder of 2014.

The total negative impact of both transactional and translational FX is expected to be between $0.10 and $0.12 this year over last year, given overall currency volatility versus the US dollar. This is incremental to a negative $0.06 impact on the prior year.

Additionally, the Venezuela government has issued a new law on fair pricing, establishing the maximum profit a business can earn when in Venezuela. However, there is not yet clarity from the government on how profitability will be measured. We are continuing to evaluate the impact the new law may have on our 2014 operating results, and have not yet concluded any further actions in our guidance.

I will now switch topics, and give you an update on our share repurchase programs and the balance sheet. We completed the $350 million accelerated share repurchase plan in the quarter, taking delivery of the final 2 million shares in mid March, and purchased approximately 1.5 million shares in the quarter under the open market repurchase plan. From a share count perspective, we are modeling an annualized average share count of approximately 282 million shares.

And finally, our balance sheet remains very healthy, after having returned $87 million to shareholders in the quarter, and approximately equal amounts of dividends and share repurchases. We have $137 million of cash on hand, over $800 million in liquidity, and no long-term debt maturities until mid-2015. Our debt-to-equity, EBITDA multiple, and interest coverage ratios continue to be strong.

With that, I will turn the call back to Mike.

Thanks, Doug.

The progress we have made a driving the growth game plan into action, has made us a stronger and more agile company. We have a robust plans for the balance of the year, and we will increase brand investments significantly to reignite growth. We are well on our way to delivering the project renewal savings, and we are strengthening our drive for further savings, by scaling our sourcing activities, optimizing distribution and transportation, and by value engineering our packs and products.

Our pipeline of new ideas and new products are the strongest we have had in recent years, particularly on writing, tools and baby, where we will launch over 10 new products or platforms starting in Q2 through the end of the year. We are, or have already created new stronger advertising on Sharpie, Graco, Irwin and Calphalon that will complement our very effective Papermate InkJoy advertising.

And all of these campaigns will air over the balance of the year, with record levels of media support. In this context, we have reaffirmed the full-year guidance for 2014, core sales growth in the range of 3% to 4%, normalized operating income margin expansion of up to 40 basis points, normalized EPS of $1.94 to $2.00 or 6% to 9% growth, and operating cash flow of $600 million to $650 million.

There are two key factors that could influence delivery in the year. The first is our ability to reignite growth. We are well-positioned with a strong pipeline of new products, new advertising and new selling capabilities that will be supported with a significant increase in spending.

Our abilities support our brands at the rate we plan will also -- while also delivering the margin expansion and EPS growth we are committed to deliver, will be a function of tight overhead management and gross margin development through the year. Project renewal savings and very tight discretionary spending will enable the delivery of the overhead objectives.

We are working gross margin from multiple angles of cost, price and mix, with the ambition to create a deep pipeline of ideas that sustain gross margin increases through 2014 and beyond. Our 60 basis point increase in gross margin in Q1 is encouraging, and slightly ahead of our original expectations, so we are off to a good start.

Our work to establish Newell as a lean and efficient operations will be the critical enabler to increase brand support and growth acceleration, not just this year but over the balance of the growth game plan. Given the challenge of Q1, reigniting growth will be the big focus for both our development and delivery organizations.

Delivering core growth at the high end of the full-year guidance range would require 4.9% growth for the balance of the year. Delivering growth at the low end of the core guidance range, would require 3.6% growth for the balance of the year. In the second half of 2013, we grew core sales nearly 4%.

This gives us a line of sight and confidence, that with significantly increased investments and stronger brand plans, we can deliver in the full-year core sales guidance range, despite the tough start to the year. Importantly, our core sales guidance assumes that a potential additional harness buckle recall related to certain infant car seats, does not result in a significant retail disruption like the one experienced in quarter one on toddler car seats.

This assumption is consistent with our best estimate of the most likely of all outcomes. There is the possibility that we could reach a different resolution with NHTSA, and that reflected in our core sales guidance.

The second factor that could influence our full-year results is foreign exchange. This factor is pretty straightforward. Our reaffirmation of guidance assumes we cover $0.04 to $0.05 of further negative currency, largely related to our decision to take the Venezuelan Bolivar to the SICAD 1 rate. We believe this to be the right assumption, given what we know today.

While we don't provide quarterly guidance, there are two factors that could influence the flow of core sales and EPS over the balance of the year. The first factor is the quarterly profile of our brand investment.

As mentioned, we will focus the significant step-up in brand support versus prior year in Q2 and Q3 to reignite growth. This flow of spending will influence the delivery of EPS for the balance of the year.

The second factor is the shifting of shipments at quarter end, between Q2, Q3 and Q4 related to two unique events. With the timing of July 4 on a Friday this year, we could experience a shift of quarter two back-to-school writing shipments, from the last week of June into early quarter three, as retailers will be more reluctant to take inventory into the system before their forestock of July 4 merchandising is cleared.

Additionally, on October 1, 2014, we will go live on SAP across the balance of Latin America. This will result in a pullforward of volume out of Q4 into Q3, to ensure a smooth SAP transition.

These two factors will drive a different profile of results to last year, with solid core sales growth in Q2, and a further step-up in growth rate in Q3. In Q4, core sales growth will be more modest, with the full value of second-half launches partially offset by the loss of volume due to the SAP pullforward into Q3, and the step-down in brand spending related to our focused surge of investment in Q2 and Q3.

We believe the core growth in new spending flows could result in normalized EPS growth rates in the middle of our full-year guidance range of 6% to 9% in Q2 and Q3, with a step-up in Q4 to slightly above the high end of the range.

So a different start to the year than we anticipated as a result of two unplanned events; the recall, and to lesser degree, weather. In the context of these challenges, we delivered a solid set of underlying results, with very good growth on tools and writing, strong delivery of savings, and encouraging progress on gross margin.

Nearly one year after the restructuring of our marketing and R&D teams, our development organization is starting to hit its stride, with stronger innovation in advertising flowing through the funnel to the market. Their work, along with the strengthened capability in selling, puts us in a good position to handle this year's challenges.

Our business has come a long way in the last three years, and I am very proud of the work that we have done, and I am especially proud of our people for their commitment and drive to strengthen our Company. The challenge of Q1 raises the bar on leadership, driving us to act fast, to focus sharply on the things that matter, and to manage our resources even more dynamically, all great tests of the new operating model and a terrific opportunity to demonstrate what the new Newell is capable of delivering.

We know that a sustainable acceleration in performance will come from Newell bringing the best we have to offer to our consumers, our customers and our people. I see a new type of collaboration occurring across the enterprise, as our new organization matures with increasing energy to execute winning ideas really well.

We are beginning to see in writing, what is possible when we set the right ambition and build aggressive plans, just as we have done in baby over the last two years. Next week, we will bring all of our sales and marketing teams together to work on a much stronger set of 2015 plans, in our second annual global planning summit; 500 people from around the world and across our organization collaborating for 2015 growth.

That's the growth game plan in action. That's our new operating model coming to speed.

And with, that I would like to open up the line for questions.

Thank you.

(Operator Instructions)

We will go to our first question from Wendy Nicholson with Citi Research.

Hello, Wendy.

Hello, good morning. My first question has to do with the recall that you have gone through for Graco, and how confident you are that there aren't lingering issues associated with the brand equity or stuff like that? Or do you think that even once you get past whatever you need to do to fix the harnesses, do you have to enter into a prolonged period of higher promotional spending to support the brand or anything like that?

That's a great question. Wendy, since the moment of the recall, we have been measuring consumer feedback on the brand. This, of course, these brands are our greatest asset, so this is of a great concern. We have done, and we continue to do research to understand how particularly the media coverage impacted people's brand perceptions, and also how the disappointment in the quality issue we have on the buckle has influenced their perception of the brand. And this is an incredibly strong brand and a very resilient brand.

I am very pleased that we haven't seen a step back. I think part of that has to do, with the way our marketing teams and our selling organization is engaged on the issue. It was incredibly disruptive. But our consumer services and customer services teams, along with our marketing and selling organizations have done a great job over-communicating with consumers.

This is a different kind of recall than any we have experienced before because of the nature of it in terms of breadth, and also the timing between decision and implementation, and that caused us to have some challenges, with respect to getting replacement part to consumers. And the group did just an extraordinary job of managing that dynamic. And I am pleased that we can say that there hasn't been any noticeable change in equity or attribute ratings on the brand.

And can you tell us what percentage of the Graco brand is car seats?

We haven't really communicated that, Wendy, before but it's well into sort of 20%, 30% range. I would give you sort of a bracket there.

Got it. That's helpful. And then, my second question is going back to what you said at the very end about the planning meeting that you are about to have, which sounds great. I assume most of that is innovation-related and brand building-related. But are the conversations about either further product line exits also take place there? I am wondering specifically the $25 million of revenue that you are exiting Europe, is there a chance that number goes up? Are those the kinds of things that you entertained as well, or are we kind of -- is the portfolio set and the SKU assortment kind of set at this point?

Well, everything is on the table at those meetings. This is where our integrated marketing plans, our global plans, our development team are building brand plans out for 2015 for the brands they work on, and for the relevant countries for those brands. And the way this process works, is that integrated marketing plan is translated into a national merchandising plan, and then translated into joint customer business plans. That three-step process in building an annual plan for the Company is what is initiated at these discussions.

So everything is on the table. It is media spending. We have got a framework for what we intend to do in 2015, each brand does, that has been vetted through the marketing organization now. And now it's time to socialize that agenda, and also to talk about the more executional side of the business, core brand distribution, what the optimal distribution footprint looks like by brand, by channel, by customer. And so, those are the types of conversations that are happening. We are talking about price increases for next year at that time.

We are talking about merchandising price points, merchandising frequency. All the display material that we will use next year is being communicated, the frequency of off-shelf displays, back-to-school planning for 2015 will be initiated at this call. So it's everything that you could imagine, you would want to talk about along the dimensions I have just described, from global brand plan to natural merchandising plan, to individual joint customer business plans. So it's a very, very important meeting. It's a week-long, and it is -- these are full-on working sessions for 4, 4.5 days. We will talk about, as I said, we will talk about everything there.

The Europe -- your specific question on product line exits in Europe, we initiated those exits to be able to initiate the complexity reduction in our infrastructure. John Stipancich and his team led that work, and its yielding great margin improvement in Europe. And now we are on the verge of getting our European business back to growth, ex-those exits.

There are constantly conversations happening around the mix within brands and product lines. Certain portions of our business have very high variable contribution margins, and other portions of our business, in some cases have very low variable contribution margins. We need to think through all of those dynamics, and how we set targets and how we pull portions of the portfolio for growth.

Those are constant, ongoing conversations. For example, we have never talked about this in 2013, but we exited Goody electrics a year ago. If it is a substantial exit, we will talk about it, $25 million is a big number. If it's a less substantial exit, we will manage it within our numbers. But we are going to do the right things in terms of strengthening the portfolio, while delivering against our ambition to accelerate growth as a Company.

Terrific. Thank you very much.

We will take our next question from Chris Ferrara with Wells Fargo.

Good morning, Chris.

I guess, when you have adversity, obviously you have decisions to make, where you have to the balance delivering in the near-term with the long-term health of the business. So I guess, what I was hoping for was some color and context around the decisions you are making this year. Right?

So you are accelerating advertising and marketing, pulling it into Q2, Q3 to jumpstart top line growth. You are also absorbing another sort of nugget on Venezuela. I guess, talk through if you can, the decision process around not lowering guidance on Venezuela, accelerating the marketing, like what is the trade-off of accelerating that marketing if any, and how you're thinking about that stuff?

Yes. Well, I think it's really important. The first filter, with all these -- in situations like this from my perspective, the first filter, that we have a responsibility to apply is whether any choice we are making is consistent with the strategic agenda we have laid out for the business. And that's the first full filter that has been applied in this replan.

So if this replan was going to result in us having to cut the step up in A&P support that we had built into 2014 as part of the strategic phase of the growth game plan, we would have just taken our lumps, and gone to the market and dealt with that conversation with you guys on EPS. Because we are not going to mortgage the strategic agenda in the business. That's what we are accountable for delivering, and we believe it's the best path to value creation for our investors.

So -- and we have confidence, and we built confidence through last year, that when we invest behind these brands we can get a real growth yield. And if we are smart about how we manage how we deploy A&P, we can get a mix benefit as well which you are beginning to see through the writing momentum that we have got in Q1.

So we were not about to mortgage that agenda item. That said, we, when you look at the growth game plan, you look at the five ways to win, there are two things that we talk about, and we have organized the Company around these two things. We believe we can do both of them really, really well, which is making our brands really matter, which is what the development organization has accountability for, and building out an executional powerhouse. Which is what the delivery organization has accountability for.

It's too early in the year, given what we know and given our rigorous set of analytics that we have applied, it is too early in the year to mortgage the second pillar for the sake of the strategic agenda. And as I have laid out to you, it's plausible for us to get right in the middle of the range, everything would have to go well. We couldn't have another misstep executionally, or we couldn't have another event hit us, a material event hit us. But it's just -- it's month three. So I have never in my career ever pulled back on delivery in that context.

But to be very, very clear, strategic priorities and strategic agenda for the Company first. And then if we are comfortable that we are not mortgaging that, then by all means, there is no way we are pulling off our ambition to deliver the commitments we have made.

If it comes to some point later in the year where that probability is not high enough, we will let you know. But at this point, I am comfortable as I have laid out in the material today, that we can pull this off. I think it's a great test of the new operating model, and it's a great test of our leadership team, and whether we succeed or whether we don't succeed doesn't matter, we will all grow through this experience and we will move onto 2015.

Great. Thanks. I guess, one other on M&A, obviously you have been talking about it a lot more at CAGNY. You indicated that you have vetted a number of deals. Can you talk a little bit about what you're thinking about there? Has your thought process changed at all, or have you become more interested, less interested in doing deals, and what do you see out there in the environment?

Yes. So we are -- this is a really interesting opportunity for us as we sort of turn the corner through the midpoint of the year, and we really get the operating model up to speed, and our capabilities start to gain traction. We then have the opportunity to complement all the organic capability and growth acceleration -- capability deployment and growth acceleration that will come through the growth game plan with external development. And we will certainly have the cash flexibility to do that. We have the borrowing capacity to do that. And as a result, you -- in my narrative I am sure you have noticed over the last 6 to 9 to 12 months, you have seen M&A sort of start to feature a little bit more prominently in the dialogue.

We are out vetting targets. I don't -- think it's really important given our track record and history in this space, to make sure that whatever we do, we do really, really well. And it creates a lot of value, and it's not dilutive at all to any of the metrics if we can avoid it across the P&L, and also to -- from a value -- from an EPS perspective. And perhaps more importantly, that it fulfills a strategic need that we have got in the business.

Remember, we said we have five anchor categories, two of which are scaled, home solutions and writing, and three of which are subscaled, and subscale to us means less than $1 billion. So our ambition is to try to scale five of those anchor categories.

So our filters are strategic, but we also have the ambition to do things that are accretive, and enhance if we can growth in margin when we do them. And that come with a package of synergies, either cost or revenue synergies that are very attractive to us. So when you start to apply all those filters, your ability to find the right targets becomes narrower and narrower.

And I, again, I don't think it's right -- I take a long view on the agenda we have here. So I am not in a rush to do anything. That said, we have a bunch of conversations going on. Mark Tarchetti and Jason Mullins lead that work for us, and when I say conversations they are internal conversations going on. And I am hopeful we can find a path over the coming quarters and into next year to demonstrate our capacity in this area to execute acquisitions as brilliantly as we hope to be able to demonstrate on our core agenda.

Thanks a lot.

We will go to our next question from Bill Chappell with SunTrust.

Hello, Bill.

Good morning. I just kind of want to go back to the shift in the A&P spend. And so with the understanding of your businesses are all a little bit different, some of them are seasonal. And so, you certainly had a reason why you had the A&P spend kind of weighted towards the fourth quarter. How easy is it to shift it, so that -- how do you move it if it was planned for certain categories to other? Can you help me understand how you move it back, and then manage the business at the same time?

Well, in the past that would have been nearly impossible. It would have been like pulling teeth, because of the way we were organized. You had a holding company structure, with 43 different bonus pools, and pulling resources and managing resources dynamically like what we just done, would have been really difficult from an executional standpoint within the design of the Company we had.

We are a different company today. We are an operating company, all the voices sit at that top table. So we needed to make the choice that we were going to jump-start, and we have used this language reignite growth. And we had increases in Q2, Q3 built into our first plan as you know, based on our earlier conversations, and we had an increased built on top of an increased year ago in Q4 in A&P support.

And so, what we have done is we have pulled -- to be very specific, we have pulled some writing support out of Q4, and made sure it's really sitting right on top of our writing initiatives. And we have got a very, very strong plan on writing in Q2 Q3. Most of the investment that we have pulled forward is media behind the new campaigns that we are working on.

We also made the decision on Graco that we need to make sure that in the context of the disruption in Q1 that we had strategic plans to build a new campaign out for Graco. We haven't advertised Graco, in gosh knows how long. We made the decision a year ago that we were going to work on advertising. Well, we are fortunate to have made that decision because now we want to deploy that media behind the brand, despite the fact that the P&L has taken a knock in Q1. And we are going to protect that investment and pull it forward a little bit, so that we can get on with reigniting growth there.

What has been mortgaged? So there was some support in Q4 on those businesses and some others. We pull back pulled back a little bit on commercial products support. We pulled back a little bit on tools. But we protected the Calphalon spend in Q4, which is when we should be advertising Calphalon around the holidays, and again, a brand that hasn't been advertised in a very, very long time. But we are working on that communication as we speak.

So it's that sort of logic. It is enabled by our structure, the fact that we are an operating company. It is enabled by the new operating model, which really Doug, Mark Tarchetti built, [Burke] and myself in a room, and we can decide what we need to do in moments like this. And that's effectively what we have done.

Got it. And then, just a follow-up on the baby -- just kind of understanding the dynamics behind that of, when you were out of the market for four or five weeks, what did the retailers do? I mean, did they put in private label, did they put in other brands? And so, is it as simple as, like coming back and saying, thanks for holding our spot, we will take that space back? Or -- I mean, how quickly are you able to get back in and re-establish yourself?

Well, we are back in already. Those spots don't sit there empty. They're savvy, they flow inventory into them temporarily. We obviously talk to them about putting some of our other items that weren't recalled into those slots, but they don't hand them off to somebody else. I think they understand these situations.

This was a different one than we have had in a long, long time, because of the fact that we were -- there was so much inventory in their system of this product. We learned a lot of things through this experience, about how sophisticated some of the systems are out there, how well they segregate inventory through their systems, traceability, all sorts of things that we will learn and adapt our programming around, that would enable us to do it more efficiently. You would think that, first-in, first-out would apply on inventory through a retailer system, but not always we have learned. And so you have got all those dynamics.

And then you have got the dynamic that a retailer will not want the exposure of selling anything that is being recalled. And so, you have to make sure that there is not going to be a circumstance where your [UPC] will flow through their system after you think you have got it cleaned up, into their retail environment. Because then there are -- they won't be able to check the consumer out through the cash register. If it's a recalled UPC and they are very reluctant once they have stopped sale on an item, flip a switch and turn that sale back on. So you have to really spend a lot of time going through their entire warehouse, their inventory systems, and making sure you have caught everything. And that's the process that we went through.

We are the leader in this market by far, globally and in the US. We quoted you global growth rates at 15%. Our core growth rate -- in largely a flat to slightly increasing market was well over 20% all of last year in North America, and right into January. So we are the one driving -- we are capturing immense amount of market share right now in this business, and we are the one driving the category.

So we had those as assets, and I think those helped us move through the issue with the retailer, because these things are unfortunate for them as well. They lose -- it's not just us that loses the revenue, they do. And our buyers lose their ability to reach their bonus targets. So it's really a tough situation, when you get into a place like we were in and have been in. But I think that's largely behind us.

We have the possibility probability of another dynamic unfolding on infant, which we hope to get resolved in Q2. Although our best view of that situation is that it would be far less dramatic at retail. But of course, there is -- as we called out in the script, there is a risk that we may not end up exactly where we think our discussions with NHTSA will end up. But we have made our best call on that, our best call does not presume a major retail disruption associated with the potential exposure on infant.

Got it. Thanks for the color.

Yes.

Your next question will be from John Faucher with JPMorgan.

Hello, John.

Good morning. I apologize for continuing to follow-up on the baby piece, but my understanding of the situation is that this is due to, or at least this is involving a co-packer that you used. And so, your view on baby has gotten more positive over the past couple of years as the revenue trends have accelerated.

Is there any thought to changing the business model here, where you say, this is something we are we need to bring this in-house? That way you could potentially capture the margin opportunities, you get more control obviously at the expense of capital. Is there a thought in terms of potentially changing the business model on baby as a result of this?

Just to be clear, the issue that we are dealing with is a buckle issue, not a co-packing issue. And there is a company that we have procured these buckles from. Our supply partner uses the componentry that we procure or define. So that the relationship we have with our partner has in no way contributed to the situation we are in.

I think if we looked in the mirror and went back six or seven years and looked at our choice to use the primary buckle that is at the heart of this, in the context of the growth game plan you wouldn't have made that choice. So we own that decision. And thankfully, there are no safety incidents for us, or for anybody else in industry who has used the same buckle.

But in the context of building great brands with superior performance, that is a buckle you wouldn't want to have on a product in a brand like Graco. But we have got to live with the legacy of things decided, whenever they were decided within our Company, and we are cleaning that up.

But to be clear it had nothing to do with our supply partner. We have rekindled a very, very strong relationship with those guys, and they are -- they deserve a lot of the credit for the impact we are having in the marketplace over the last two years, and they are great partners and we are lucky to have them.

With respect to -- whether we want to vertically integrate or reintegrate, we have got a very high return on net assets on this business. We create a lot of value on this business if we can grow, even though it has dilutive gross margins to the fleet average. So I don't think this issue really warrants a reevaluation of that. I think there is going to be other ways that we can apply capital just to create value for our investors, that are going to be much more attractive than that one might be. Not to say we wouldn't ever do it, but it has to be really thought through. And where it would fit on a list of opportunities, it would probably be further down the list than other things we envision doing with our cash.

Okay. And then a separate question on writing, you talked about the pricing in the press release there. Can you talk about is the brand investment driving your ability to take price, because a lot of companies that we cover just simply aren't seeing that type of pricing here. So what's driving that? How sustainable is that as you look at over the next couple of years? Thanks.

Yes, John, this is Doug. I think our brands are strong enough to -- many of our brands are strong enough to take and sustain price. And investing behind the brand is helpful. In the case of writing specifically, we have advertised -- begun advertising the InkJoy brand, as you know in Latin America, and that's where a lot of our pricing is coming from in this business right now. So it's a combination of brand support and pricing and driving really nice volume.

Okay. So is that more mix than or sort of straight price?

It's straight price.

In Latin America. Right.

Okay. Great. Thank you very much.

Your next question is from Bill Schmitz with Deutsche Bank.

Hello, good morning.

Hello, Bill.

Doug, just a quick one on the tax rate. I think I might have missed it, but what do you think the normalized tax rate is going to be for the year?

It hasn't changed, Bill. It's still between 24% and 25%. As you know, the thing that we have difficulty judging is when discrete items might hit throughout the year. They traditionally hit for us in Q1 and Q3, but it is difficult to tell in our rate, and those are items you can't actually build into a flat rate for the year. So they pop up. But I think 24% to 25% is still good range.

Okay, great. And the advertising ratio for the year, did you ever say what you expect the ratio to sales to increase, and how that has changed versus your previous guidance? And then you look broadly across the industry, and obviously it's horrible for the brand. But there is tons of money that's moving from advertising to promotion, and so are you tempted to take that path, or have you taken that path a little bit? Any color would be appreciated.

So we did move down that path last year, Bill. So as we built out scale events that our merchandising teams pivot around, that was an investment we did make in 2013. Actually, this year our -- we are pulling back a little bit. We have some shifting between consumer promotion and merchandising devices, but the real step-up in A&P is almost all advertising related in 2014.

And we haven't communicated an advertising ratio externally, but this is a very material step-up in advertising investment in Q2 and Q3, well into double-digit increases, and the bps impact is quite significant. I would prefer not to give a specific number out for competitive reasons. But we last year spent at a much higher rate than our competitors, and this year you will see us spend even more significantly than our competitors.

It is our responsibility as the leaders in these markets to build the categories. Of course, we are going to do it through our branded assets. So we are going to capture share as we are in our key strategic businesses, whether it's, whether it's baby, whether it's our writing portfolio, whether it's our food storage, food, beverage portfolio within Rubbermaid. Where we are making these bets, we are winning. And so, we are encouraged by the responsiveness of the business to the investment.

And because of the way we are managing the Company, we are taking the power of a $6 billion company and applying it against competitive interfaces that are at the interface between a category in a country, against smaller competitors, we can flood those competitive interfaces with resources, if we are -- if we manage the resources dynamically, and we don't let that get trapped in businesses. And that's exactly what we are doing. And that is why we see the share yield in the places where we have applied it.

Our ambition is to obviously do that in more places, and that's why the cost work is so important. Because getting the cost out enables us to cover more geography, more category country sales, with that type of resourcing model. And that's why when we talk about our cost agenda, we talk about it as unlocking the trapped capacity for growth.

Our drive to make Newell lean and efficient is inextricably linked to our ability to accelerate growth. And our growth acceleration is a function of taking those cost savings, and deploying them against strategic investments either in capabilities or in brand support. That is the algorithm we are trying to implement.

And it's early days, but in Q4 was a good indicator. I think Q1, when you really do the math on the underlying performance -- yes, we are -- nobody is happy with Q1. But if you look at the underlying performance in the business, you feel okay about those growth rates given the spending level. And that's why we can be optimistic about the impact we will have in Q2, Q3, but time will tell. But it is a significant -- your question was very straightforward. My answer is always long.

I know -- it's a good answer. (Multiple Speakers). And then lastly, what's the home solutions solution, especially Rubbermaid home? You -- the team has done an amazing job broadly across the portfolio, but it seems like Rubbermaid home is your kind of kryptonite.

So is there anything there, a code you can crack, resin prices are at a three-year high, they are up 12% year-over-year. So that's not going to help the cause much in that business. But is there a point in time, where you say you know what, screw it. It's not worth it, let's just move on?

No. It's a great brand. We are going to figure this one out. This is my life mission. So I love the brand. It's a power brand, and it's like any other brand -- I have worked on some tough, tough brands before. Coffee business, Maxwell House, not an easy brand. There are plenty -- in margarine, not easy brands. This is just another not easy brand.

And so, we are going to figure this out. I have got a really good team on Rubbermaid, both on the delivery side and on the development side, and we are encouraged by the ideas that are coming through the innovation funnel. We have got some of our best thinkers on this business. This is where Chuck's design capability will be able to really create value. By the way, we just opened that design center a few weeks ago. So we are going to crack this code.

Now just remember, Rubbermaid is seven or eight different businesses under one brand. We go up, from everywhere from big storage totes to food storage, to food beverage containers, to durable water bottles, to water coolers, to outdoor sheds, to outdoor decor, to closet organization, to garage organization. So this is a big sprawling brand. Not all of the product lines within this brand are interesting to us. But many of them are really interesting to us, and are on trend.

And so, this is going to take us a while. This will be our toughest brand challenge, I think of all the stuff we have got going on. We are not ready yet put real money behind it, but I think this is one of the most interesting businesses we have got, and we are going to figure it out. It may take us another year to get it right, but we are going to give you evidence that even this brand can be cracked.

Thanks so much.

We will got to our next question from Connie Maneaty, BMO Capital Markets.

Good morning. I also have a follow-up on home solutions, the business. What percentage of the home solutions products are the ones that either you can't take pricing on, or low margins or that caused you the trouble in the first quarter?

I will just tell you the line -- I am not going to give you a percentage, Connie, but it's the big home organization totes business which is the toughest business we have got. It's also, it is the most competitive business that we have got, and it's the place where it's not easy to create a product based point of difference that enables you to command a premium price. And that is the one, that's the portion of that portfolio that will be trouble for us. We may not get to all the other portions of the business that are right up front in terms of renovating their design and their configuration, but this is probably the biggest challenge within the business.

And of course you can't just pull back the throttle on something that's sizable like those big totes are, as a percentage of your revenue stream, because you get into a fixed cost absorption issue in your factories. So we are going through the process of understanding the variable contribution margin of every one of our product lines by factory. We are looking at hours produced within those factories.

We are figuring out how to reconfigure our demand, and create the demand that enables us to absorb the right amount of -- absorb the fixed costs in these factories, but on the businesses with the higher variable contribution margin. So we are not going to live the old way that we have historically lived, where the big volume producing items with the low variable contribution margins absorb the fixed costs, and we rationalize our gross margin percentage on the back of the assertion that they absorb the infrastructure costs.

We believe we can grow the other portions of our business quite substantially. And so, the mechanism by which you get this thing fixed is you invest in the product and the brand in those other areas such that your volume grows. You absorb the infrastructure costs, and it gives you the ability to pull back on the portions that have lower variable contribution margin.

You could argue, why don't you just strip assets out et cetera? We have done a lot of that. So we have got to get this -- we are in the process of unpacking this thing. It's really interesting, it is like a puzzle, which is great.

So if you -- a message to my people, if you work on this business, it's my favorite business even though it is the most difficult one. Because it's complicated, and you got to -- you work on so many different levels and dimensions to be able to unlock an answer here.

But so the question was asked before, I think there is an answer in an algorithm to be found, and we are really -- we are getting close. But the most unattractive portion of the business are the big totes, just the most competitive. And we are just not going to fall into the -- or step in the pothole that we have historically stepped in, where in tough moments for growth, we lean into that. I am not doing that anymore.

So if that forces me to have a difficult conversation with you at some point in the future, so be it on top line. But we are not going to do that. Because we are not -- by doing that, we mask the underlying issue and we don't confront it. So we are working on it. It is going to take is a while.

Okay. Thanks. And I also have a follow-up on Venezuela. My understanding was that you need to report the rate at which you are actually getting access to dollars. And I also thought you were getting access at the 6.3 rate. So I am wondering why you went to SICAD I, if you were invited in.

And also, if you made that -- if that was your choice, why didn't you also -- did you think about going to SICAD II, and just sort of getting rid of the risk over the long-term? Because we have seen two companies now go to SICAD II, so I am wondering what your thought process was?

Yes, Connie, this is Doug. I will take that. We actually are in a profession, and the industry needs to record at the rate at which you expect to repatriate earnings and/or royalty streams, as opposed to what you are daily transacting business at. And for us, the most likely rate that, that will be is SICAD I.

Now to be clear, we continue to get approvals for under the old regime at 6.3 to get payment to vendors on an everyday basis. While we get approvals, we are not getting cash. So there still remains a tremendous amount of uncertainty as when we can actually monetize those in US dollars on our side.

And then from a SICAD perspective, when we look at the different classifications between SICAD I and SICAD II for our products. And remember, our products in country are mostly in the writing business. They are mostly educational tools, and we believe that they will most likely fall into SICAD I. We haven't been invited to participate in either SICAD I or SICAD II at this point, but SICAD I is where we expect to go.

Okay. Great. Thanks.

Your next question comes from Joe Altobello with Oppenheimer.

Good morning, Mike, good morning, Doug.

Hello, Joe.

I just want to go back to gross margin for a second, and the expansion you saw this quarter. Obviously, it surprised us, and it sounds like it surprised you to the upside as well. I want to see how sustainable that was? You mentioned that you were looking for a step-down in promo spending this year.

So were there any one-time items in that number, or is that really a sustainable expansion number going forward? And if you could tease out how much of that was from pricing and how much from promotion? Thanks.

Yes. So we got good price realization. Remember, we started to take pricing in Q4. We got a good price realization in the quarter, so that is a positive. How sustainable that will be, that will be a question over time? And we have a set of principles that we need to embrace, which are relative -- which are competitively driven.

So we have price gaps that we are looking to maintain relative to our competition, and that's the principle that will drive us, because that is within the brand's interest. So there may be some movement, and maybe some movement back on some of that pricing, but we will see. It depends what our competitors do. But to be clear, if our competitors match, then there won't be any reason to have to pull off of that number.

That said, we think we are going to have a positive price impact to gross margin on the full year, a significant one. In part because of the inflation that Bill was talking about on the resin-based businesses. But in part, because we can begin to price as we build these brands and build equity in these brands -- we are changing the value proposition in these brands. And we can capture more pricing and be less merchandising dependent. That said, we still plan to spend a huge amount of money between gross price and net price. So don't think we are pulling back hard on the throttle. We are just taking a series of steps here.

Mix is certainly a variable in Q2 -- in Q1. Remember, home solutions was down lower gross margin, baby was down lower gross margin. So that is a variable in the gross margin increase. Had the Graco recall not happened, we wouldn't have gotten as strong a gross margin outcome, because Graco would have been stronger on the volume side, would have mixed the business down a little bit. That said, we still think we would have gotten margin increase.

And so, the differential versus prior year and our expectations, because we had expectations of gross margin increases in Q1, relates largely to that. We have got a significant amount of inflation that is figuring into gross margins, well over 100 basis points in gross margin, which is what Bill was mentioning.

And so, the long-term algorithm for gross margin improvement for us, is going to be fundamental cost, productivity cost management, sourcing savings in product -- in productivity through value engineering our packs and products, efficiency work in factories, hard looks at distribution networks, and distribution costs as a percent of revenue, transportation costs as a percent of revenue, and mix. And maximizing the mix. Those are going to be the things that drive gross margin increases for us going forward.

And we are just beginning quite frankly, to do that well. Mary and her team have -- we reorganized supply chain in the middle of last year, big changes. But just like in every other aspect of our business, the folks, the new functional capabilities we are building are just beginning to get to speed, and to have the impacts we hope they will have over time.

So this will be become one of the key enablers going forward. We expect and we need, gross margin increases on the full year. And our ability to increase spend is in part dependent on that, as I mentioned in the factors that could influence delivery, and it also dependent on continued progress on overheads.

Okay. That's helpful. And in interest of time, I will leave it at one question.

Thanks, Joe.

We will take our next question from Olivia Tong with Bank of America Merrill Lynch.

Great. Thank you, appreciate it. Just on the outlook on sales, can you talk about some of the puts and takes with sales outlook that get it back to plus 3 to 4? Because obviously, baby is a little bit lower, and it will take some time to get back a steady-state. But it sounds like you also have a delay in some of the office consolidation, which is probably giving you some cover. So can you walk through some of those puts and takes, please?

Yes. So obviously, the ODO and OMX merger, Office Depot, OfficeMax merger, and the -- what we anticipated in Q1, with respect to store closures and consolidation of networks et cetera, that hasn't happened in the cadence we thought it would. And that certainly contributed in some ways to our writing success.

We are -- we have been very engaged with Office Depot, and we have a good plan in place, good joint customer business plan. a better one than we had last year set now for the new entity. And we expect to have, and are hopeful that we will, if we execute well have a very, very good back-to-school merchandising drive period, across the total company. But in particular the change in our conversations with Depot/Max, versus our conversations last year should strengthen our overall performance there.

So that's encouraging, and that's a positive with respect to guidance relative to what we thought we would have when we first laid out our plans. So kudos to the team for finding a path to a better discussion, and we are hopeful that in execution it actually yields an outcome.

We are more bullish on writing overall, as a result of the brand work that is going on, and we are relaunching Mr. Sketch. We are launching Clearpoint highlighters, on a new really innovative item on Sharpie. We have got momentum really building now on InkJoy, from a share and from a geographic perspective. We have got Finepoint Expo going to market. We have got a lot of stuff going on in writing, that six months ago I wouldn't have been confident talking to you about.

The new Sharpie advertising tested extremely strong, three times the US national average of all ads ever tested in all industries. Three times as effective, along the metric that we look at to measure effectiveness -- amongst our testing partners, inventory of all testing ever done. And this is one of these testing partners that does big company testing.

So we are -- our confidence in the impact of the work that development is doing is increasing, and that work is focused on our most strategic businesses at this point. So writing, I am encouraged. It's too early to high-five, because Q1 was an easy comp, but we will see. So that is one of the reasons to believe.

The other reason to believe is the responsiveness of the Graco business. So we are back in distribution now, we have seen a nice step-up. We won't see April results for another day or so. But based on the acceleration of results through the month of March once we got issues behind us, I -- and the point-of-sale data, I am hopeful that we can rekindle growth faster than maybe what our core assumption and our forecast looks like. So there's some opportunity there.

I think the step-back that we experienced on home solutions, and to a lesser degree at home centers on our Rubbermaid commercial products, we will get a bounce back effect on some of the weather effects in Q2, as most of the home center guys have communicated externally. So there is reason to believe. And the step-up in advertising support Q2, Q3 is really quite profound.

So if it doesn't work, we won't do it again, I guess is the headline. But I am really going to be interested to see what kind of POS lift we get as a result of that kind of investment.

Great. Thanks, Mike. Appreciate it.

Your final question comes from Jason Gere with KeyBanc.

Good, I made it. Thanks for squeezing me in. I guess, just more of a bigger picture. I want to talk a little bit about Asia. I mean, if we think about the plan longer-term, Latin America is obviously hitting it's stride, your Europe efforts to stabilize are working. So when we think about the long-term organic sales or core sales in that 3% to 5% range, Asia seems to be the missing ingredient.

So I was just wondering if you can maybe talk a little bit about the selling capabilities, the infrastructure that is in plan, to really focus on when top line acceleration will come in? And whether some of the issues that are going on in some of the other businesses of the geographies are kind of slowing down the plans to get Asia up and running in 2015? Thanks.

So Jason, our strategic thinking around this, as you will recall when we talked about the growth game plan at the very beginning, was that we were going to increase the margin in the developed world as a mechanism for having the investment fire power to drive growth through two different means: one is market share growth in our home markets, and secondly, the deployment of our portfolio into -- a select portion of the portfolio into the faster growing emerging markets in a disciplined way. First, south to Latin America, and next east to Asia. So that is the narrative that we put out there, and that is the plan we are executing right now, with a real intense focus on scaling Latin America.

But the next horizon is not just China, it is Southeast Asia and China. We have a huge opportunity. We don't sell anything in Indonesia. We don't sell anything in Vietnam. We have a limited portfolio available in the Philippines. We have a good business in Thailand and Malaysia in writing, but we don't have the rest of the portfolio there. So there's a huge opportunity for the Company.

I think it is fair to say that the next chapter of the Company, the next five-year plan will have Asia right in the center of it. That said, we are going to begin the move East here over the coming years, I think with a real focus in 2016, but the start of that agenda in late 2015, with a real interest in our win bigger categories in the baby business, particularly in China for the baby business. And so, I think that's the way you should think about it.

We are in the planning stages now. We got a lot of work to do, on route to market as you say, on sourcing, and on the brand. We are focused in that work, on the inside work on writing today in China. We are thinking about Southeast Asia on tools and commercial products.

We have made progress on route to market under Curt Rahilly's leadership on commercial products. But I do not think you should build into your models a big step-up in Asia performance. I think the window to think about that is 2016, 2017, because we don't want to enter these markets in a way that's not sustainable and is not focused on building brands. In the past, we have sometimes been a little bit too opportunistic in pursuing revenue in some of these moves, and we don't want to do that. We want to build a business that is going to be in those countries 30 years from now, not a business that's going to be there for 18 months and give us a nice pop of growth.

Okay. Great. That sounds like everything's on plan there. So I'll leave it at one question as well, in the interest of time.

Thanks, Jason.

That concludes our question and answer session. I will now turn the call back to Mr. Polk for closing remarks.

My closing remarks I think, will be really focused, which as I really appreciate all the challenging, and the support through what's been a tough first quarter, and through your questions, your commitment to stay connected to what it is we are doing. It is very helpful to us as a management team, as we try to chart the path forward.

So we are optimistic about what we are going to be able to deliver on the year, despite the disruption we have had in Q1. And it's going to take my team fully embracing the challenge, and from what I have seen, folks have really immersed themselves in this area, and some may even relish the challenge. So with that, I will close the call, and I appreciate all the feedback and the challenge and the support. Talk to you soon.

And that concludes today's conference call. Thank you for your participation. Today's call will be available on the web at Newellrubbermaid.com, and on digital replay at 888-203-1112 domestically, and 719-457-0820 internationally, with an access code of 6886528 starting at 12.00 PM Eastern Time today. This concludes our conference. You may now disconnect.