諾威品牌 (NWL) 2014 Q4 法說會逐字稿

Good morning, and welcome to Newell Rubbermaid's fourth quarter 2014 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 the Nancy O'Donnell, Vice President of Investor Relations.

Ms. O'Donnell, you may begin.

Thank you, good morning, and welcome to Newell Rubbermaid's quarter end conference call.

I would like to remind you before we begin that today's discussion will include forward-looking statements. Such statements are based on assumptions of future events that may not prove to be accurate and actual results may differ materially from current expectations. An explanation of related risks and uncertainties is provided in our earnings release and in our most recent 10-Q report.

As required by regulation G, Newell would like to remind you that our call will also include references to certain Non-GAAP financial measures. Management believes these measures provide investors with helpful information on the underlying growth trends of our business. We provide a full reconciliation with the corresponding GAAP measures in our release and in the investor relations section of our website at investor relations section of our website at newellrubbermaid.com.

I'm joined this morning by Mike Polk, our President and CEO; and John Stipancich, our interim CFO.

At this point, I'll turn the call over to Mike.

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

Over the last four months, we've announced a series of strategic initiatives. First, on the heels of our acquisitions of the Contigo and bubba brands, we completed a third acquisition of one at leading marketers of premium baby strollers, Baby Jogger.

Baby Jogger and its City Mini and City Select platforms are the perfect premium complement to our industry leading like Graco brand and offer tremendous opportunity for Newell to participate in this fast-growing segment of the market. These three acquisitions are growth accretive, operating margin accretive, and EPS accretive.

We also announced our board's decisions to undertake the next phase of project renewal, the [whole for] sale our Calphalon Kitchen electrics and outlet stores and our Endicia online postage businesses, and to increase and extend our open market share repurchase authorization through 2017. These strategic choices are designed to strengthen our portfolio, accelerate our sales growth, and improve our operating margins, while ensuring our shareholders have been simultaneously rewarded with the return of capital through share repurchase and steady dividend increases.

So let's get into the results. In our discussion, the growth associated with our three acquisitions will be excluded from core sales until their respective first anniversaries with Newell.

In the fourth quarter, our Company again delivered a very solid set of results. Core sales grew 3.3%, or approximately 4% adjusting for SAP implementation timing and tools orders that were shifted into the fourth quarter as a result of our slow third quarter distribution center transition. Net sales grew 4.1%, despite a 320 basis point adverse impact from currency.

Normalize gross margin increased 70 basis points, driven by positive mix, pricing, and productivity, partially offset by inflation. This improvement funded a 60 basis point increase in advertising and promotion as percentage of sales. Despite the significant increase in brand support, normalized operating margin improved 120 basis points as a result of the accretive nature of our acquisitions and our continued progress on overheads related to project renewal.

Normalized EPS was $0.49, $0.01 ahead of consensus and 6.5% ahead of prior year. In delivering this normalized EPS outcome, we overcame a $0.04 adverse income tax impact due to the absence of prior-year discrete benefits in our tax rate, and the dilutive effect of businesses classified as discontinued operations. Operating cash flow was solid at $291 million, and we returned $147 million to shareholders through dividends and share repurchases.

Our fourth-quarter performance was geographically broad-based, with core sales growth in all four regions and stand out results in the US, UK, Australia/New Zealand, Mexico, Brazil, and China. We continue to deliver very strong growth on our Win Bigger businesses. Combined, our three Win Bigger businesses grew core sales 6.4%.

Our writing business grew core sales 5.7%, driven by increased market share in most geographies as a result of strong innovation, and increased marketing investment. Adjusted for the orders we pulled into the third quarter ahead of our SAP implementation, writing core sales grew 9.3%. Commercial products core sales increased 6.7% as a result of new innovation and strong sales execution in the US, Brazil, and China.

Tools grew 7.5%, driven by continued progress on Irwin in Europe, Latin America, and Asia Pacific, and very good growth on Lenox in North America. Adjusted for the distribution center transition related shift in sales from Q3 to Q4, tools core sales grew just about 5%.

Positive momentum in writing, commercial products, and tools has helped us absorb the impacts of our strategic choices to reposition the Rubbermaid consumer businesses for profitable growth, and to exit certain countries and product lines in Europe, primarily on baby and fine writing. Despite European exits, the global baby business grew core sales 0.7% in the fourth quarter, with growth outside of EMEA of over 3%.

As planned, home solutions core sales declined 1.8%. However, our newly acquired brands delivered terrific results, and enabled home solutions net sales growth of 10.8%.

For the full year, core sales increased 3%, despite over 40 basis points of product line and country exits in EMEA. Normalized gross margins increased 90 basis points, enabling a 70 basis point increase in advertising and promotion investment. Even with this increased investment, normalized operating margins expanded to 40 basis points to 13.8%.

Normalized EPS increased $0.18 to $2.00, despite having to overcome $0.17 adverse impacts from foreign currency. Operating cash flow increased to $634 million, giving us the flexibility to pass $546 million back to our shareholders in share repurchases and dividends. And most importantly, our Win Bigger businesses grew core sales 7.3%, with writing up 7.8%, tools up 6.3%, commercial products up 7.2%.

We are pleased with this 2014 performance and proud of the progress.

With that, let me hand the call over to John so go through a more detailed review of Q4, and then I'll return to provide some perspective on 2015 guidance.

Thanks, Mike, and good morning.

Fourth-quarter reported net sales were $1.53 billion, a 4.1% increase versus last year. They Contigo, bubba, and Baby Jogger acquisitions contributed 400 basis points to reported net sales. Core sales, which exclude the contribution from acquisitions and the 320 basis point negative impact of foreign currency, increased 3.3%. Strong volume growth in tools, commercial products, and writing, drove our core growth, partially offset by a decline in home solutions as we continue to reposition that segment for profitable growth.

Reported gross margin was 37.6%. Normalized gross margin was 37.7%, up 70 basis points over last year. This improvement was driven by productivity, favorable mix, and pricing, which more than offset input cost inflation and unfavorable currency.

Normalized SG&A expense was $371 million, or 24.3% of sales. Down 40 basis points versus prior year. We reduced overheads by 100 basis points, but also increased our investment in advertising and promotion by 60 basis points as a percentage of sales.

We invested in major campaigns for Rubbermaid Commercial's Brute and Hygiene Microfiber in North America, and support behind distribution gains in China and Brazil. Our tools segment also benefited from incremental advertising for Irwin Impact accessories and Vice Grip. And we also supported our successful Graco forever car seat and Modes stroller campaigns, as well as advertising for Levolor custom blinds and shades.

Normalized operating margin was 13.4%, up 120 basis points, reflecting the benefit of project renewal and other cost-saving initiatives, partially offset by a significant increase in strategic investment. Reported operating margin was 7.4%, down from 10.7% in the prior year due to non-cash charges relating to our previously disclosed voluntary lump sum offer for certain inactivate US pension plan participants. Excluding the pension charge, operating margin was 11.7% of sales, or 100 basis point year-over-year improvement.

Interest expense of $16.7 million increased $1.7 million year over year. During the fourth quarter, we issued $850 million in medium-term notes, the proceeds of which we used to provide permanent financing for our acquisitions, refinance debt, and extend our maturity profile.

Our normalized tax rate was 26.5%, compared with 19.1% a year ago due to the absence of prior-year discrete benefits. Our full-year normalized 2014 tax rate landed at 23.5%.

Normalized EPS, which excludes restructuring and restructuring related costs and certain other one-time costs was $0.49, a 6.5% increase to last year. On a reported basis, fourth-quarter EPS was $0.19, compared with $0.41 last year.

I'll now move on to our segment results. Starting with writing, reported Q4 net sales of $418.2 million were essentially flat to last year, though core sales increased 5.7%. Our North American writing business delivered good volume growth, fueled by strong innovation, marketing, and merchandising.

In Latin America, writing core sales declined low single digits due to the SAP related pull forward of about $15 million of core sales from Q4 into Q3. Adjusted for the SAP shift, writing core sales in Latin America increased double digit, driven by pricing in the continued success of InkJoy.

Q4 normalized operating margin in our writing segment was 24.7%. A 260 basis point increase over prior year, due to strong productivity, cost management, and lower A&P spend as compared to last year's heavy InkJoy advertising campaign.

Net sales in our home solutions segment increased 10.8% to $458.6 million, with acquisitions contributing $55.5 million. Core sales decreased 1.8%, driven primarily by the exit of some low margin Rubbermaid consumer business, and our decision to pull back on less profitable, non-strategic promotional activity.

Partially offsetting the decline was good growth in Rubbermaid food storage and into core, driven by increased advertising and promotion. Home solution's normalized operating margin was 13.2%, a 70 basis point decrease reflecting increased advertising, input cost inflation, and negative FX, partially offset by better mix and pricing.

Our tools segment delivered net sales of $227.3 million, a 3% increase. Core sales grew 7.5%. Tools delivered double-digit growth in Latin America, reflecting the continuing success of our expanded offerings in Brazil. North America and Asia-Pacific grew high single digits, fueled largely by our Lenox bandsaw and tools business.

And as anticipated, Irwin North America returned to growth as it rebounded nicely from the Q3 disruption related to our distribution center transition. Approximately $5.6 million of Q4 shipments represented the backlog from our Q3 transition issues. Adjusted for this timing shift, Q4 core sales growth was 4.9%.

Normalized operating margin in the tools segment was 9.5%, a 90 basis point improvement versus last year. This increase was driven by a significant reduction in overhead costs, partially offset by increased advertising and promotion.

Reported net sales in our commercial products segment increased 5% to $213 million. Core sales increased 6.7%, driven by pricing and strong volume growth in North America, as well as expanded distribution in emerging markets such as Brazil and China. Commercial products normalized operating margin was 11.4%. A 380 basis point increase to last year thanks to pricing, productivity and favorable channel mix, partially offset by higher A&P.

Our baby segment reported $208.9 million in net sales, a 20 basis point decrease. Baby Jogger contributed $4.4 million in net sales for the two week period after the close date. Core sales grew 0.7%.

Graco North America grew low-single digits as strong innovation and increased advertising and promotion delivered sequential improvement at point-of-sale. Our baby business in Asia-Pacific returned to growth in Q4 as a result of gains in China. Aprica Japan saw modest recovery in POS, driven by new product introductions and promotional activity. Baby's Q4 normalized operating margin was a 8.3%, down 110 basis points to last year, largely due to increased A&P spend to reignite growth in the segment.

Looking at Q4 core sales by geography, North America core sales grew 2.7%, with strong results from tools, commercial products, and writing.

In EMEA, we're very pleased with the progress we've made in repositioning the region for profitable growth. Core sales in Q4 grew 3.2%, driven by strong performance of writing, partially offset by planned product line and country exits of about $7 million. Our normalized operating margin in EMEA has also improved significantly to an all-time high, as we are realizing the benefits of our extensive transformation initiatives in the region.

In Latin America, core sales grew 3.5%, reflecting pricing and volume gains in tools and writing, partially offset by the $15 million negative impact of the SAP related timing shift from Q4 into Q3. We adjust for this timing shift, Latin America core sales growth was 16.5%. And finally, Asia-Pacific core sales grew 8.2%, with solid growth from writing, baby, and commercial products.

Moving on to cash and our balance sheet. Operating cash flow was $290.8 million in Q4, compared with $304.2 million in the prior year. For the full year of 2014, operating cash flow came in at $634.1 million, compared to $605.2 million last year.

We returned $147 million to shareholders in Q4, including $46.4 million in dividends and $100.6 million to repurchase 2.8 million shares. For the full year of 2014, we paid $182.5 million in dividends, and $363.2 million to buy back 11.4 million of our shares.

In the fourth quarter, we also announced an expansion of our share repurchase program to buy back up to $500 million in outstanding shares through the end of 2017. As of the end of Q4, we have $437 million available under our authorized open market repurchase plan.

For the full year 2015, we are now modeling an annualized average share count of about 272 million shares. We expect interest expense to increase to around $70 million to $75 million, and our tax rate should continue around 24%.

And finally, our balance sheet remains very healthy. We have about $200 million in cash on hand, and about $770 million in liquidity. Even with the increase in debt to finance our recent acquisitions, our debt-to-equity, EBITDA multiple, and interest coverage ratios continue to be strong, giving us continued financial flexibility for acquisitions or further share repurchases when we choose to pursue these options.

And with that, I'll turn the call back over to Mike.

Thanks, John.

So now, let's turn to 2015 guidance. This morning, we revised our initial 2015 guidance to reflect the underlying positive momentum in our business, the acquisition of Baby Gate Baby Jogger, and our latest view of foreign exchange.

In that context, we are raising our 2015 full-year core sales growth guidance to 3.5% to 4.5%. This new higher guidance reflects our increased confidence in the sustained momentum of our Win Bigger businesses, the return to growth in baby, and the early signs of stabilization in our home solutions business.

Regarding normalized EPS guidance, the unprecedented strengthening of the US dollar over the last few months against most currency has created pressure on our financials. Our business more susceptible than you might think to the strengthening of the US dollar because of the dollar denominated profile of both our self manufactured and sourced finished goods.

Unlike some other [comp] competitors, the resulting negative transaction ForEx impact is actually larger than our translation impact when the US dollar strengthens. The current view of the total year-over-year negative foreign exchange impact to operating income is about $110 million, and will result in a translation in transaction ForEx impact on normalized EPS of just over $0.30. About $0.16 worse than the impact assumed in the initial 2015 guidance we provided.

We've taken action to cover as much of the new currency impact as possible, reflecting the most recent commodity cost benefits and lower energy costs to cost of goods, and through incremental pricing in markets where transaction ForEx pressure is most acute and competitive conditions allow. We've also now incorporated the accretive impact of the Baby Jogger acquisition in our numbers, which helps close some of the gap.

Additionally, our strong win bigger performance and building POS growth across the balance of the portfolio has given us confidence to raise our core growth outlook, which flows through to earnings. We've considered but rejected the option to pull back on the 2015 incremental marketing investments.

Our conviction to step up brand support again in 2015 has been strengthened, based on the 2014 growth acceleration we experienced in our Win Bigger businesses, as a result of stronger innovation, better marketing, and additional investment.

Our new outlook assumes we increase advertising and promotion investment in 2015 by about 20%. So in this context, we're revising our 2015 full-year guidance range for normalized EPS down by about 2% to $2.10 to $2.18. The $2.14 mid-point of the range represents normalized EPS growth of 7% versus 2014. Adjusting for the year-over-year impact of currency translation only, the midpoint of the new 2015 guidance range represents nearly a 14% increase in normalized EPS versus 2014 on a currency neutral basis.

Our revised 2015 full-year guidance assumes we sustain mid-single digit core growth in our Win Bigger businesses of writing, tools, and commercial products. That we recover growth momentum in our baby business, with real acceleration in the second half of the year behind new innovation and brand support. That we stabilize core sales in home solutions as continued repositioning of the Rubbermaid consumer business in the first half of 2015 is offset by sustained momentum on food storage, and the inclusion of Contigo and bubba in core sales after their first anniversary with Newell.

That we deliver strong year over year growth on our newly acquired brands of Contigo, bubba, and Baby Jogger, and that we partially offset the negative impact on normalized gross margin of transaction ForEx, and mix associated with baby and home solutions growth with positive pricing, commodity benefits, and productivity. And finally, that we deliver strong progress on overheads through project renewal, which when coupled with growth, enables us to increase brand support.

There are two factors that could influence where we fall in our 2015 full-year guidance ranges. The first factor is the planned recovery of growth on our baby business. We were pleased with return to growth of baby in Q4 despite continued European exits.

In 2015, we expect to deliver good growth in North America behind strong innovation and marketing support and in Japan, we expect to return to growth from the second quarter forward. We've invested significant marketing support behind baby in the second half of 2014, and will sustain increased investment in the innovation and advertising in 2015, accepting operating income margin compression in order to reignite growth.

The second factor that could influence where we land is foreign exchange. Our team has done an excellent job dynamically managing our business in the context of sustained currency headwinds. Last year overcoming $0.17 per share of negative currency impact to deliver a new all-time record normalized EPS result. While nearly 2/3 of our revenue and profit is generated in the US where macro conditions are improving, we have large and profitable businesses in Canada, Japan, and after years of work, Europe.

These profit pools are exposed to the currency volatility we are currently experiencing. Our teams have taken action to cover over 80% of the negative currency exposure, and we'll be working through the year to try and cover more through accelerated savings and increased pricing.

Our new guidance assumes the major currencies are at current market rates and the Venezuelan Bolivar is at the SICAD1 rate, 12 Bolivar per dollar. While the evaluation of the Bolivar seems likely at some point in the future, we have access to SICAD1 options in the fourth quarter, and we will hold our current position on currency in Venezuela until market conditions or the currency framework changes. Obviously, the environment remains dynamic, and we will continue to adapt our plants to what will likely be continued changing conditions.

While we do not provide quarterly guidance, let me make a few comments regarding the phasing of this year sales and earnings. With regard to core sales, we expect core sales to be near the low end of the range in the first half of 2015, and near the high end of the range in the second half of 2015.

The highest score growth rate quarter should be Q4, when Contigo and bubba growth will start to be recognized in our core sales. The lowest core growth rate quarter should be Q2 related to the shift of some back-to-school shipments on writing from Q2 back to Q3. Our core growth in Q2 could be below the bottom of our full-year guidance range.

The phasing of normalized EPS growth should also skew towards the back half of the year, driven by two factors. First, nearly 2/3 of the adverse foreign currency impact is expected to occur in the first half of the year. With the most significant impact in Q1.

Second, we plan to increase advertising and promotion in 2015 with the majority of the incremental investment occurring in the first six months of the year. In this context, we expect the first half of 2015 normalized EPS growth rate to be lower than the growth rate in the second half of 2015. And consistent with previous communications, we're likely to deliver only flat year-over-year EPS growth in Q1 2015 as we invest in brand support ahead of year-ago levels despite the adverse foreign currency pressure.

So let me close now. I'm proud of our teams' delivery in 2014 after a turbulent start to the year, we grew core sales by 3%, despite over 40 basis points of product line exits and country exits in Europe. We were steadfast in protecting about $50 million of incremental brand investment, despite having to overcome $0.17 per share of adverse foreign currency impact.

We achieved that and increase normalized operating margins 40s basis points, and normalized EPS nearly 10% to $2.00 per share, an all-time high for Newell. These are strong competitive results, and we've delivered them while simultaneously driving change.

We are in the thick of the strategic phase of the growth game plan, investing behind the core activity systems critical to our business success, establishing an operating Company that releases the full potential of our $6 billion business, rather than simply our individual brands or operating units.

We're unlocking the trapped capacity for growth through project renewal, and are now deploying cash back into the business, investing in new capabilities and our brands for accelerated growth, while simultaneously increasing operating margin. We've strengthened our portfolio by exiting or divesting nearly $400 million of less attractive businesses, and now acquiring nearly $300 million of growth, operating margin, and EPS accretive businesses that are focused within the core of our portfolio.

We've also put cash to work, repurchasing nearly $1 billion of our own shares over the last 3.5 years, while increasing the annualized dividend from $0.20 in early 2011 to $0.68 per-share today.

We're proud of the progress, but more importantly, we're excited by the future. There's a much bigger value creation story still to be written, and we are convinced that we're on track to both strengthen the Company and create that upside.

With that, let me pass the line back for Q&A.

(Operator Instructions)

Chris Ferrara, Wells Fargo.

Mike, can we talk about pricing a little bit? In light of the pretty big FX transaction drag, I'm just wondering how reliant is the new FY15 guidance on getting pricing, and how much did you get?

Because it strikes me that with pricing in (inaudible) is one thing, but Canada may be a little bit of a different issue, right? And do you believe your competitors' cost structures are similar to yours?

It's a great question, and this is the thing we will have to be very sensitive to. It depends on where people are sourcing their business from.

We've got some local competitors that will make a pricing difficult. That's true in Europe on some of the tools product lines.

Canada, I think it'll be a tough discussion with customers. We've already initiated that. We'll get some pricing to land there.

Latin America will be easier to land pricing, typically. So it's not a simple process to land pricing. It's very important in the context of solving for the transaction issues.

In most cases, we have a competitive framework that will allow us to get that pricing landed, but your observation's right Chris. It's a market by market, product line by product line dynamic that we have to wrestle with. And you really can't let your pricing your relative pricing versus competition get out of line or you'll pay a huge volume penalty.

So it's a really gritty, kind of nuts and bolts type of conversation. It's not a broad conversation. You have to deal with it country by country, product line by product line.

So we'll get pricing landed in most places across most product lines, and where it makes sense not to do that we wont do it. Because our long-term agenda is about building our market share position. And we've successfully struck that balance in 2014 where we faced similar issues, but not quite to the degree we now do.

The tough markets will be Japan and Canada, largely. Although in Japan, our competitors are sourcing from China, like us, and so effectively they're dollar denominated finished goods. But it's still a tough market. When there's flat GDP growth, it's tough to convince customers to go.

But we successfully done it. It's actually over the last couple of years. And we're going to do it again this year.

The 14% growth rate in 2015 that's implied on just an FX transaction basis alone -- or Ex-Translation transaction would be even worse. It's now the second year running that you're facing these sort of headwinds, right?

So, why not take the number lower? Why are you going to stress your organization to deliver 14% kind of constant currency? And I appreciate your keeping advertising number, but for a business where you've managed expectations on growth pretty well, why are you willing to stretch to 14% for the year?

I think we've got what we believe is a balanced forecast now. We've replanned the year three times from October to now as currency -- as the dollar has strengthened. I think we've got a balanced and appropriately stretched plan, and a balanced and appropriately stretched commitment externally.

Remember, we've got tremendous progress coming in on the cost side through project renewal. You see us getting leverage now in the overhead line through the P&L in Q4. From that, and also from the accretive nature of our acquisitions.

So, the acquisitions clearly help. We've been more aggressive on the repurchase line, which works for the denominator.

And so I don't feel -- of course this is a stretching plant, but I don't think at all that this is an irresponsible plan. And I think we want to keep that pressure, operationally, in the organization. So we're not comprising on anything strategic by kind of pushing down this path.

We are fortunate to have made the choices we've made along the way on share repurchases, on the restructuring work we've done, getting that overhead leverage, getting the overhead ratios down. And the acquisitions certainly help.

Now's not the time in our transformation to take the pressure out of the system. In fact, we want to continue to build the muscle memory with respect to operating excellence and discipline in the Company. We can't let the external dynamics shift our focus away from the strategic agenda we've got.

So, I feel like it's in balance and we would've been able to spend more clearly had we not, and perhaps driven growth even faster than what we've committed to had we not had these headwinds. But, they are what they are, and you can't control the things you don't control and so you have to adapt to them, and I feel like we've struck the right balance.

Joe Altobello, Raymond James

Just want to shift gears a little bit to commodities. Obviously you've seen oil come down, and you guys are fairly levered there. Just curious when you expect commodities to turn into a tailwind in 2015?

They are starting to. Remember a good chunk -- we're getting some commodity benefits in resins now flowing through the P&L. We're also getting energy benefits through our distribution transportation areas, the cost of running factories.

So there's some good positive stuff flowing through to the P&L, which has helped us cover some of the FX issues we've got. However, remember a good chunk of our revenue is sourced finished goods. So we still have inflation in the P&L that's coming at us as a result of labor rate increases in many countries around the world. So it's not all positive.

We'll have net inflation in our business this year. It will not be a positive year with respect to the overall inflation curve.

So, I don't know whether that we will see as we move into 2016, whether we get more tailwinds on costs? It really is going to depend on whether energy stays low, and also whether the planned increases in resin capacity in the US come online at the end of 2015, as we expect they will.

That may depend on the economics of for these companies based on the current energy input costs. So, that remains to be seen. If that happens, 2016 we should get some further benefit on resin than we're getting this year.

Secondly, in terms of the new growth to net optimization model you guys are introducing in the US, what's been a response from customers and your own sales force to that?

Well, look. We went live on one-one. When you change a go to market program like this, you have to be really cautious at the points you flip the switch. You want to be able to invoice, all those things, it's like an SAP implementation.

And I'm really pleased to say that that went well. Team did an excellent job of getting us through that transition. And this is an empowering approach to going to market for our selling organization, so people are excited about it.

I think we'll see some really interesting benefits over time because it's a much simpler approach from a backroom perspective as we get more comfortable with the way we will fund the checkbooks and draw money out of these checkbooks. This will simplify the transactions that we've got behind in the back office.

And so, I think we're just beginning to feel the energy that will come from this since the organization will be positive from -- and empowering from a sales force perspective, and it should simplify transactions. Our customers end up having skin in the game because of the way the program is designed. And, this is not a break through program. This is what happens in fast-moving consumer goods.

Because of the way the program is designed, the money will flow to the growing customers. And so, unlike fixed fund-based approaches to trade promotion, this is a live accrual-based program. So as customers perform better for us, they earn more money.

And that causes our gross to net money to flow to growing customers, and also reach consumers effectively where they shop, as opposed to where they've historically shopped. So that should yield some really interesting benefits for us over time.

That's still to be proven because we just went live a few weeks back. So far, I'm encouraged by the transition and the energy that our teams are playing back to me with respect to the empowerment that comes with this type of design.

John Faucher, JPMorgan.

Mike, I know you're obviously getting a lot of your core sales growth from Latin America, and you've obviously made an aggressive push the recently in terms of new product launches, what have you. This quarter was negatively impacted by some of the timing shifts.

But I do get a question about sort of overt reliance on Latin America, or Venezuela in particular. As we look at the growth year-over-year in core sales.

So, can you talk about what we should think about for Latin America in 2015? Venezuela, generally? What's the contribution to growth going to look like for this year?

Venezuela has been an important contributor to growth in Latin America the last two years. Next year, it actually will not contribute as much to our overall growth performance.

It's important to note that Ex-Venezuela, Latin America is up very strong double digits, so Venezuela is not driving our Latin numbers exclusively. But next year, you should recognize that the contribution to growth in Latin America from Venezuela will go down pretty materially, like over 25% decline, because of the dynamics of the new margin cap laws and how we can price.

Our growth will be less a function of pricing in Venezuela. We've got really good volume momentum across the whole patch, because as you recall, we are deploying more aggressively our writing portfolio across Latin America. We are investing more in A&P in Latin America, and we're getting great traction in the market share results.

I think Mark showed some of those things at the analyst day. Some of the progress on market share in those geographies.

And in tools, we deployed whole new portfolio into Brazil. So, we've had very good growth and fundamental growth in Latin America.

And, while pricing has certainly been a factor, and will continue to be a factor next year as we deal with devaluations across the patch connected to the stronger dollar, Venezuela's contribution to our overall performance will be probably 25% less next year. And we still expect to deliver very solid double-digit growth in 2015 in Latin America.

One separate question. There's been some discussion, lower gas prices, the consumer generally helping more discretionary items. Can you talk a little bit about whether you're seeing any impact in the US from that?

I'm hopeful. I'm hopeful we finally kind of turn -- this is sort of the last domino that gets us to finally turn the corner. I think you'll be able to read this more when you see some of the retailers report after, when you can net out the effect of the holidays. From what I can see, some of those numbers were a little blurred by holiday transition.

So look, we have very good POS momentum in our business in the US. One of the reasons we're confident in taking up our guidance on core sales is because we had very strong POS, really across the patch, across the whole portfolio in Q4. We had some inventory shifting going on there that didn't have it all play through to revenue growth, but we see good momentum.

Because of these categories and the quality of syndicated data, it's very difficult to tease out the market growth effect. But, I know we're doing a lot of things and our shares are building, but I have -- we have seen strengthening in our POS in the US over the last four months or so. And that's encouraging.

Is it foot traffic related? Tied to lower energy costs? I don't know. We'll all get a better read when we start to watch what the retailers say.

Olivia Tong, Bank of America Merrill Lynch

Question on the exits. You mentioned this year that you saw 40 basis points -- you had to absorb 40 basis points of hit from exits. In terms of your portfolio, how do you think about that for 2015? Do you think that there might be more exits needed? How often do you evaluate your portfolio?

I'll let John handle that one, Olivia.

Good morning, Olivia.

With respect to the 40 basis points, all in Europe, we're pretty much done with those and those are behind us now. We have a little bit to tease out in the first quarter, here.

With respect to Rubbermaid consumers, we continue to reposition that business. There will still be some continuing exits of less profitable product lines for us, so that we can focus more on the more important ones like food storage and so forth for us that are more strategic.

So we'll continue to look at it. But in that net, I would say will have some decline, overall in terms of product exits in 2015, but certainly not to the same scale that we had in 2014.

And how often do you guys evaluate the portfolio, in terms of thinking about any potential new exits that you might be thinking of for 2015 that aren't necessarily in the existing core sales outlook for 2015?

I think it's probably fair to say that we're looking at it more and more all the time, now. Because at the end of the day what we want to focus on is not growth, but profitable growth.

So again, we're holding ourselves accountable to making more difficult decisions in terms of jettisoning things that just aren't attractive to us on an overall basis. So I would say it's probably a more continuing process now than it ever has been before.

Are you factoring in any potential -- how does that factor into your 2015 outlook?

We've taken that into account right now. What we anticipate with our exits and so forth. So nothing that we do will material change, it's all baked into what we've guided to today.

Olivia, just with respect to the broader portfolio question, we've actioned the choices we think we need to action for the time being, with respect to our portfolio, with the choices to try and sell our Endicia business and the broader group that we've taken to discontinued operations. This years portfolio is the one we're going to sweat.

We'll see whether there are any other things we're interested in from an M&A perspective that we might bolt on, but we've got three great assets that we're that adding to the portfolio, and we're very busy integrating or broadening their growth agenda depending on the business you're referring to of the three. So, we pretty pleased with the way we've actively managed the portfolio over the last 18 months. This was an important part of the strategic phase of the growth game plan, was to confront some of these things and get them behind us before we get to the acceleration phase in 2016.

If I could just follow up on the Win Bigger businesses. Those clearly are still growing quite a bit faster than the remaining part of the portfolio. But you did see some deceleration growth in Q4 versus a full-year rate.

So can you talk about your expectations for growth in 2015? Are they similar to 2014? Or would you expect them to contribute even more relative to the rest of the portfolio?

Olivia, we didn't adjust the Win Bigger business numbers for the timing shifts for SAP. We did when we talked to you about writing, and we also did when we talked to you about tools and the shift between Q3, Q4.

If you want to get to the underlying Win Bigger numbers, you have to add probably about $10 million, $11 million back to the top line in Q4 to get to a timing adjusted performance. That would be a better underlying reference point.

So I don't think -- while the numbers suggest what you say, the actual underlying numbers are better than what we've quoted. But I'm really reluctant to do the withs and withouts on these timing shifts so I didn't adjust the Win Bigger number we quoted for Q4. But that would have been $11 million stronger.

In terms of the contribution to 2015, the growth rate in 2015 relative to 2014 for your Win Bigger businesses, would you expect that to be fairly similar?

We've said mid-single digits across all three. Hopefully, we can beat that. We'll see how that plays out as the year unfolds. As we layer the A&P in, the measure for whether we're getting a return on investment is the growth rate in the places that we're laying that A&P into. Those two things go hand in hand.

We need to get a good growth yields on those investments or they're not smart investments. We'll watch both of those variables. We've built a plan that assumes mid-single digit performance, a recovery of momentum on baby, stabilization of home solutions, and we'll see whether we can do better than that.

Jason Gere, KeyBanc Capital Markets.

First question, if I think about the FX that you have to make up with the revised guidance, so the $0.16 change, two thirds of that is price and cost savings. So really, we've talked a little bit about the price savings.

So, let's talk about the cost savings. The bucket that you have coming through this year, is there any that's being pulled forward from out years, is the first question?

And then a second question is, with round three of project renewal that is out there. As you see the next year or two or even three play out, do you see more of the cost savings flowing to the bottom line as it is now, rather than getting reinvested?

So I was just wondering if you could maybe talk a little bit more conceptually about the cost savings. What's coming through this year? And then, how that's going to contribute to the earnings growth in the out years?

We're clearly looking at whether we can pull renewal three savings into 2015. We're going to want to have that as insurance policies, whether we can pull that off or not. The teams are fully immersed in that as we speak.

We've formed a transformation office that is diving on a number of different work streams to see whether there's paths to pull forward 2016 savings into 2015. It's too early to know whether we will be able to do that, but clearly that's something that's top-of-mind for John, for myself, for the whole executive leadership team.

We have a lot of room to go at cost. That's why when I say there's more -- a bigger value creation story to be created in front of us. We're making great progress on our overheads ratios.

As we exit the year, we are lower than we've been, and I probably have to go back to the early 2000 to find a ratio that compares to this. But we've got a lot further to go. We still have probably 200 basis points of opportunity in overheads.

And so we're working on that. And we've got to do it in a disciplined way. It's got to be tied to efforts we made to simplify to the way we work, complexity production, but all of these costs will eventually flow to a pool of money that can be either used to put back into the business or can the flow to margin expansion.

We're on that. I think we won't put money into the business unless we have something strategic to spend it on. As we think forward to 2016 and 2017, remember we said our deployment strategy for our portfolio is to first focus South and then East.

Well we've been focusing South, delivered 20% plus percent sales growth last year, 2013 20% plus percent core growth in Latin America; 2014, 20% percent core growth again. And, so we are seeing the yield on those investments, but the next horizon is Southeast Asia and China for us and that will come with costs.

We're not going to just throw money at it. We have to validate that these brands can work, that we can build brands in those markets. We're looking for efficient routes to market in those geographies, but those will be use -- the money will flow there. There will be uses of funds connected to those choices. What I do not want to do, in the near-term, is a mortgage our home markets in order to pay for that.

Establishing our foothold in Southeast Asia and China will require incremental investment and we'll do that in a disciplined way. We've always said that we want to deliver operating income margin expansion at the same time as we're pulsing those investments in. So, we'll strike a balance.

When we get our advertising promotion ratios to somewhere between -- somewhere around 7%, I think we've got our work done. We've gotten that ratio to where it needs to be, to be able to support our business, and grow our business, and build market share in our home markets, and extend the footprint to the business.

We're not there yet. But we are a couple of years away from reaching that milestone, I think.

That's the algorithm. That's the financial algorithm for the Company. Get the gross margins to 40%, get the A&P to 6% to 7%, get your overheads as low as they possibly can be and let the balance flow through to operating income margin.

That's what we're trying to do with the growth game plan.

Thanks for all that color. Just a follow-up on one of the earlier questions about the portfolio. Obviously you were busy this past year with three nice tuck in acquisitions.

As you do look at the portfolio, are there some glaring -- I wouldn't call them holes, but areas that you feel there's an opportunity to really strengthen a core Win Bigger category at this point? Are there assets out there that fit that bill?

So I'm wondering, how aggressive you are looking right now as opposed to the blocking and tackling that you are doing in the core business as we think about 2015?

I think our principles for what we are going to do haven't changed at all from what I've said before, that we start with the strategic rationale. We're focused in the core of our business. We want to scale all five of our categories. We want to scale the Company in general.

That's sort of the opportunity in front of us. So, scale those five categories through bolt-ons and grow the Company as a whole.

Our energy is focused in the core right now. There are clearly some interesting assets out there, but the challenge is extracting them from the current owners, and getting alignment and convergence on those opportunities. That's not easy.

So, we will be on the hunt again in 2015. You should expect us to be active. Whether we convert anything or not is completely a question mark.

In the very short term, the next few months, we are focused on it really getting the value from the choices we've made already. We're -- our confidence, we're ready organizationally. Our confidence is increased in our core agenda.

We are starting to get the kind of traction that proves the model is working. And that gives us more latitude and room to complement that with M&A.

We'll see you down in Florida in a few weeks.

Great. Thanks.

Connie Maneaty, BMO Capital.

I don't know if you touched on this, but could you help us understand the influences on the gross margin? Because, there are the accretive acquisitions, and I think they're going to be at least partially offset by the transaction costs from FX. So how does that -- how do those factors and anything else that -- positive, raw materials, how do they combined for an outlook for the gross margin this year?

Connie, we've said that our acquisitions are accretive at operating margin level, not gross margin levels. They are accretive to home solutions, but they're not accretive to the total Company. So there is a mixed negative the comes as those filter in; a mix positive to Home Solutions, a mix negative for the Company.

The other thing that's going to happen to us this year is baby recovery, home solutions recovery, those will work against us, as will ForEx. I think it's going to be a difficult year on gross margins, this was a brilliant year on gross margin for us.

We'll continue to press aggressively on our Win Bigger businesses, which are almost all accretive. The key things that are of interest within those portfolios.

So I don't know how it will play out. This will be a much different year than last year with respect to the aggregate affect at gross margin.

If you think about it on a pro forma basis, we are definitely going to increase gross margins this year. So, if you were to layer all the acquisitions into the year ago numbers, we are focused on 30 to 50 basis points of gross margin improvement on a pro forma basis. And that's probably the right way for us to think about it going forward.

Operating income margin, because of incredibly -- the great fixed cost leverage we get from those, assets they're clearly accretive. But I do want to make sure I clarify that.

So we're focused on pricing, obviously project renewal is really important, not just on overheads, but obviously the flow through of some of the more interesting projects that are in there to gross margin. Simplification of our supply chain organization structure flows through to gross margin and so there's a lot of levers we'll be pulling to try to maximize the impact. But the way we're thinking about gross margin this year, given the acquisitions, is that we will grow our gross margins on a pro forma basis.

But that doesn't change our strategic view, we'll continue to build towards that 40% number, and we'll see whether we become build them in aggregate. That will be one of those stretching goals we'll set for everybody.

On an actual basis or what we're going to see reported, not pro forma?

Yes. It will be tough to see growth on gross margin percentage this year.

That's helpful. Another question on the transaction impact of FX. We can all pretty much calculate the translation impact, but on the transaction side of it, which segments and which geographies are going to be most effected by transaction FX?

We source our baby business in many ways from China. So you have a dollar denominated transaction platform there. So we're -- anywhere outside of the US that we have a baby business, there's going to be a challenge. So unless those currencies are connected to the dollar, which most of them aren't, you have an issue of pressure in those areas.

The transaction impact, it will be euro denominated. It'll be Canadian dollar is a big issue for us, because we source out of the US into Canada. So I'd say it's Euro, and it's Canadian dollar.

We have our European principal company is based in Switzerland. So we have a Swiss franc driven cost up charge that we've got to deal with. I'd say the balance will be -- it's the Yen, it's the Euro, it's the Canadian dollar.

We have some stuff in Latin America but it's a lot easier for us to -- obviously Brazil and Mexico and Venezuela are issues, but we can price more easily in those markets to cover. The transaction issues that you should think about, largely Canada, Japan, and Europe. It has to do with where we source from.

And if I could just ask one last question on the composition of the 16.5% core sales increase in Latin America, could you break that down between volume and price?

We don't typically break it down because it's difficult for us to actually have visibility to it, but I'd say it's probably more than 50% price this past year. And that will shift the other direction next year.

Nik Modi, RBC Capital Markets.

Two quick questions. CFO, if you could just give us an update on how that's progressing in terms of the search. And in the second question is -- it looks like the Writing business is really starting to react and respond to a lot of the spending. How is the fine writing business doing in some of the key geographies that you have presence in.

First of all, on the CFO search, we have our board meeting the week after next, and coming out of that we should have the search resolved, and I appreciate everything that John's done for us over the last five months now. We'll bring that to a close at that point in time. I'm excited by the choice we will make.

I've got the recommendation into the Board, we'll just tie that off with them in a couple of weeks. On Writing, it's been very exciting to watch the responsiveness of this business to investment. It's been terrific. I think the underlying growth in Q4 is really pretty extraordinary at 9.3% when you adjust for SAP timing.

So this is a very responsive business to investment. The innovation funnel's stronger than it's been in long time. We've got great advertising now, and so we are very well-positioned.

We were in London last week for the opening of a museum dedicated to Parker that's in one of our facilities, and we've relaunched the Parker -- we're in the midst of re-launching Parker brand, we re-launched Waterman last year, we re-launched Rotring last year. We saw very good growth, particularly in Q4 on fine writing in Asia. And as we finish up the exits in Europe, we should see that business start to get some good traction.

I love this business. I'm particularly intrigued about Parker, and Rotring, and what we could do with those two brands. We have not focused our investment dollars within writing on that business yet. We focused them on Sharpie, on Paper Mate, on Expo, Mr. Sketch, and also on DYMO.

One of the next opportunities we have is to place some meaningful money behind those businesses. This is a very high gross margin business, but also a very high SG&A business. One of the challenges in this businesses is it's less profitable than the balance of the Writing portfolio.

So we have to be thoughtful about how we go to market and whether we can figure out how to shift the monies that are in SG&A that are focused on fixtures and furniture to more dedicated brand support and we're working through that. With the brand work that's happened over the last 18 months and with some of the thinking that's going on in this area that I just mentioned, think we're getting ourselves into a position where a little bit more investment may be warranted.

But our priorities clearly within writing are on Paper Mate, on Sharpie, on Expo, on the kid art business, on Prisma Color, on DYMO before we would make a big bet in fine writing given the margin differences and the potential for deployment on the balance of the writing portfolio.

Lauren Lieberman, Barclays.

Just a couple questions on baby. First, just the mention of China in the release surprised me, because I thought, like you said, the Southeast Asia and China expansion plans were sort of a more end of 2015 into 2016 plan, so curious on that?

And then secondly was, talk a little bit about Baby Jogger. Why the acquisition?

What your plans are there for it? If it's distribution, if it's synergy opportunity, et cetera? Because it strikes me as a pretty well distributed brand that may be geographically biased.

It's actually got a pretty good -- broad footprint. It actually opens up Australia to us. We didn't have a baby business in Australia, so Baby Jogger opens up Australia with a sizable presence there. It's got a presence in Europe.

So we are pleased with the anchors it creates for us to work from. And more importantly though, we're playing in a completely different space that Graco plays. Graco obviously a world leading brand, strong positions in many markets around the world. Mainstream brand, with opportunity for [premiazation], and we're playing a story out and that's part of why in 2012, 2013 you saw double digit growth.

You've seen great margin development since we've started, we've doubled the operating income margin coming into 2014, and now we're putting real money behind it, so we're stepping back. So you've seen a great story in the core of this business, and you'll see really nice momentum building back here in 2015 after the disruption in the first part of 2014.

The beauty of Baby Jogger is it plays in a completely different space. First of all, Graco is a suburban positioned brand. Baby Jogger is an urban positioned brand, and it's a super premium brand. So some of these joggers go for $600, $700, $800 per Jogger. Graco tops out around $400.

So, it plays in a completely different part of what we call the need state map. So it's going to be largely incremental to our core baby business, which is why we were interested in it. Remember, when we do M&A, we're looking for either brands that can play where our current brands don't from a market development perspective, or technologies or geographic deployment opportunities. And this one checked two boxes.

It had a broader footprint, which opens up a couple of new markets for baby, and it plays in a different part of the map. So we're very excited.

On China, we had a great quarter in China. We are the leader in the Chinese gear market with Graco. We source from China. I wouldn't read it as a big strategic thrust, and if that's how it came off in the press release, that's certainly not the intent.

We have a nice business in China. We are the leader. The market is small, as I mentioned before. And until car seat legislation is broadly enforced in China, the market will stay small.

We want to be positioned to play in China and baby when that moment happens. There's lots of cars, and there's lots of babies. So that sets up well for the baby gear business. But until there is a regulatory framework being enforced, the market won't develop as quickly as it has in other developed world markets. So it's an anomaly of a quarter, I guess is way I would describe it, as opposed to a reflection of a strategic thrust.

One other thing if I may. On the emerging markets, any broad commentary you can offer again on why your growth seems this disconnected from macro slowdowns? You are seeing slow down in construction in big cities, but there's an impact on the tools business or commercial products. So, any commentary you could offer would be great.

It is from where we start, Loren. We're building and deploying a portfolio. Although we're seeing terrific growth in sellthrough. We know where on the right track here.

But we start from a low bar, we're not starting with this big established business. We've got more than $100 million worth of business in Brazil and that's great. But we have so much more opportunity in front of us.

Our businesses tend to be less connected to GDP in the emerging markets, and are more a function of what we do.

Wendy Nicholson, Citi research.

Just a follow-up on some of the comments you made earlier on the Writing business. That business just continues to kind of astound me in terms of its relative profitability.

And I wonder first of all, when you think about that business over the next 2 to 3 to 4 years in the context of what you've said about how that business responds to advertising, do you think net, net margins in writing have still room to expand further? And a specific to that, I think you talked at the analyst day a little bit about maybe expanding Writing on into Asia in -- if it's not late 2015 then into 2016. How much margin dilution could that represent for the overall Writing segment? Or is that, you'd take it so slow it will be [diminimous]?

We'd have to look at that really carefully, and we will. It probably results in some step back in the percentages. We are not focused on growing the operating income margin on writing. We're focused on revenue generation.

This business and baby, believe it or not, are the highest return on net asset businesses we've got. So, there's a huge value creation story to be had, even though baby dilutes margins for us. There's a really strong value creation story to be had by growing these businesses.

I think we will we have tremendous opportunity still within the Writing business to confront the complexity of that portfolio. To confront complexity in our manufacturing footprint and the movement of componentry around the world, and there is going to be a lot of costs that will come out as a result of project renewal in 2016 into 2017, connected to really improving the manufacturing footprint of that business and simplifying the portfolio.

In the question will be, do we have a use for those monies within writing, which could be related to deployment into Southeast Asia and into China? Or do we have another business that will tap those monies that are a higher priority for us?

Now, it's hard to imagine what that would be, given writing's margins and given writing's ability to draft on the back economic developments that's happening in the emerging markets. With economic development comes social development, access to education.

Our writing business sits right in the middle of that mega-trend that is unstoppable in the emerging markets, irrespective of what's happening with economic development, on a rate basis. You just got the power of numbers in those geography, people. People are moving out of poverty into the middle class, and we want to be there in those education systems if we can be.

I think if we're able to unlock more cost and margin in that business, we'll probably put it back into that business to enable the geographic deployment into Southeast Asia and China. So don't look for a flow-through of savings to percentage margin improvement in writing. We're already well north of 20% operating margins in that business. So if we grow it disproportionately, we get this great, sort of virtuous benefit as a Company in total.

To the extent of that is one of the businesses that lends itself to online better than some of your other segments. What are the revenues like, or the margins like when you sell something on Amazon versus at Staples? Are you margin agnostic, if you will?

We sell our products at parity costs to all of our customers if they meet certain criteria. So, how they price our products to the end consumer is a call they make. And so, different retailers take different margins, and as a result, you see different price points at retail.

The interesting thing about -- I think there's tremendous opportunity across the total landscape. You're seeing this major shift going on in this market in the US as some of the traditional writing retailers shift their business model to become more broad commercial-facing businesses with their professional portions of their model and I think that's where they see the growth long-term.

But our pricing is common across the landscape and so you wont see pricing differential. From a margin perspective, obviously there's a higher cost -- there are different layers of cost, depending on which retailer you're talking about, and traditional retailers are going to have a higher SG&A cost because of your selling cost to cover that retail landscape physical space, but then there's distribution costs associated with [E-tailers] that tend to be a little bit higher of your fulfilling out of your facilities.

All the way down to operating income margin. I think you're always more profitable where you have growth, and that's how I like to think about the differences across the retail landscape. So you want to reach consumers where they shop, and you want to grow with growing customers, and that drives sort of our choices.

Perfect. Thanks so much.

Bill Schmitz, Deutsche Bank

The receivables balance for the second quarter in a row had a big year-over-year tick up. Was there a big difference in the timing of orders through the quarter? Is there something else going on there? I think it was up on our math like 8 days, year-over-year.

Remember, you've got the acquisitions coming into the receivables balances. So be careful in how you calculate your days numbers. In fact working capital metrics look different now with those guys in.

One second on that, because I think the cash flow statement is excluding the effects of acquisitions and investments, on your one.

Okay, I'm not sure what numbers in your referring to. But I'm pretty sure the receivable balances I was looking at had -- we'll come back to you on the specifics, Bill.

But on your point, though, your point is right. Our orders in the fourth quarter came later than we would have liked. So, we have some receivables that are hung up, that are reverse in the first quarter as a positive. But, you're right, they came later than we would have liked.

Maybe it's not a fair question because I'm not sure you have the data handy, but could you just tell us what your fixed overhead is now? Dollars or percentages? And then how you kind of bring these acquisitions in.

So, when you buy these companies are you taking just the brands and a few people? Are you bringing the infrastructure, also? And as part of that, can you just give us an EPS number or an accretion number that you're assuming for 2015 on the deals?

We haven't quite a specific number, Bill, but let me give you the overhead ratio that you're looking for. As we exit the year, we're just below 20% in terms of our overhead ratio, which gives you the size of the effort. It allows you to see the opportunity. All three deals were accretive to operating income and to EPS.

And I've seen a bunch of different notes about it about them, and in general they're pretty accurate. So, I don't know how to get more specific than that without telling you what the numbers are. They all -- they're different approaches with the three different businesses.

Clearly Baby Jogger, we're buying a brand, we're buying some people that have built that brand. That's clearly being integrated into the baby business that will be run out of Atlanta.

Our beverage acquisitions -- they are really two different approaches. Our beverage acquisitions will be run out of the Contigo Ignite office by the Ignite team.

Our Bubba acquisition, we integrated into our Chicago operations, led by the Ignite team. Rather than have that business come into this building here in Atlanta, our priority was to sustain the growth momentum that these businesses have. And while Bubba, the smaller of the two beverage businesses, clearly it's a great brand. Different positioning from Contigo and from Avex, and real opportunity for the leadership team of Contigo that's built this beautiful business that keeps on growing to take hold of that asset and take hold of Rubbermaid and build an integrative beverage strategy for us.

So there's less cost synergies in the Contigo deal, the Ignite deal. There's more in Bubba, and there's a fair amount in Baby Jogger.

How patient should we be on the home products turnaround, especially Rubbermaid and Home? I know you've got new management there and there's still some line exits to happen, and I also know and I agree with you that the equity is massively under monetize relative to the awareness. What do you think the runway is for that?

Right now if I had another dollar to spent on a brand, I'd put it against Sharpie or Paper Mate, given the responsiveness. We have work to do still on Rubbermaid to clean it up and get it ready for growth. We're doing that.

We're putting nice money behind Rubbermaid food storage, to build that business and behind Calphalon within that portfolio. And so those are where the bets would go, but we've got to be disciplined in terms of our priorities across the portfolio.

It's a little early for us to be pulsing money against Home Solutions if there's an opportunity still to be had on commercial products, tools, or writing. I'm patient on that. It's always been modeled in the growth game plan. The way we're seeing it.

We took a choice in 2014 to pull back the hard on the throttle on some of the portions of the portfolio that were less attractive so that we could create space within our manufacturing footprint for the things we wanted to emphasize. They use the same technology for the most part. And so, we're pivoting that business. I think the first half, you'll see some continued challenges.

There really interesting thing, and John and I were talking about this the other day, we could deliver nice core growth on Rubbermaid consumer if we wanted to lean into some of these higher volume, low-margin businesses like we have in the past. We're just not going to do it, though.

I think we're quite patient with Home Solutions. We should see decent growth this year on Calphalon, given the investments we are putting behind the innovations that are coming.

We should see very good growth on Rubbermaid food storage and in the beverage segments. And there's some opportunity on Goody to see some growth as well. I think the balance of the portfolio you should expect not to be growing, and until we sort the brand out, I think Rubbermaid investment will be opportunistic and focused in food storage.

If I could add, we still have some work to do, too, as part of renewal three on the Rubbermaid consumer business in terms of getting the gross margin back to a place where it's more attractive for us to invest in, as Mike mentioned. So, that's something else we plan to tackle as part of our third leg of renewal.

Thanks so much, and sorry I interrupted you on the first question.

I didn't feel like you interrupted me. What was the first question?

It was about the receivables.

We will get back to you on the receivables question. I think you are right on the receivables.

Orders came late. The receivables numbers I look at include the acquisition balances, so you're looking at a different statement. I'll have Nancy give you a call and work through the numbers with you.

Thank you.

Dara Mohsenian, with Morgan Stanley

I wanted to follow-up on your comments on M&A earlier in the call, given the acquisitions recently. Can you just revisit your view on returning cash to shareholders, versus the allure of acquisitions and potential to increase your dividend payout ratio over time?

We've set three priorities in our capital allocation. If we could find bolt-ons that are accretive that are strategically interesting, we would do them. You've seen the types of assets that we're talking about.

We continue with our line of sight to savings. We continue to think the Company is undervalued, and clearly we've been active in terms of passing capital back to shareholders through our share repurchase program. And given our line of sight on renewal, we'll continue to -- and the growth potential in this business, we'll continue to do that.

I don't think the market quite appreciates the story, in part because of the choices we are making strategically to exit businesses in Europe, which costs 40 basis points in the core growth, and because of the work we did on Rubbermaid consumer which cost us another chunk of core sales growth in 2014 and will in the first half of 2015. So, I don't think the market yet sees the full value of what we are doing.

Which is fine. Gives us the opportunity to take more shares off the table. So we'll continue to focus in that way.

Our principal right now is our payout ratio needs to be 30% to 35%, and if we didn't believe that we had good growth opportunities in front of us, we might take a different point of view on that. Obviously, the fast moving consumer goods guys look to be slower growth at this point, had 40% to 50% payout ratios.

If we didn't believe in what I was just saying before, you would shift your philosophy or you would work with the Board to see where they're comfortable shifting their philosophy. We're not there right now, and it doesn't say that in the future we wouldn't change the point of view.

And in your 2015 earnings guidance, can you tell us what level of oil you're budgeting? And are you assuming any improvement in US macros, rebounding US consumer spending in the revised top line guidance for 2015?

We haven't assumed any recovery, so it's more of the same. So if that were to happen, that would be fun and exciting. I haven't seen that since I've been here. That would be terrific to get a little tailwind.

We've assumed current market on resin. We really don't focus on oil too much. So we are looking at the markets.

The biggest commodity drive for us isn't really the primary commodity, it's the derivatives. So it's the resin costs. We've assumed that the market adjusts down for the primary commodity, which it has and it is in the midst of doing, although the resin guides are little sticky in terms of passing through the energy benefits.

And then, we've got this dynamic at the end of the year, as I described. That relates to capacity, and whether more capacity is going to come online as our suppliers suggest it will.

Whether that algorithm economically for them still makes sense in today's energy environment is something that remains to be seen. But our assumptions are really kind of tied to the resin costs, as opposed to oil.

Rupesh Parikh, Oppenheimer.

I want to switch topics to advertising. Clearly, it seems like the writing category did see some benefits from some of your advertising investments. Any more color updates you can provide in terms of what you're seeing from increased advertising?

We talked of this a little bit at the end of September at analyst day and will update it again in a couple weeks at CAGNY for the latest data we have. Obviously, writing is very responsive. The baby gear business was really responsive to advertising around innovation. The point-of-sale around the forever car seat was really quite strong, and it was a combination of the innovation and the message, and the merchandising, and the customer support that we got.

It's not just the advertising. It's the synergistic effect of advertising, merchandising, placement, pricing, all those things coming together. That said, we've seen a more responsiveness than I ever envisioned us getting to be honest with you. It's not been true everywhere.

When we tie the message to innovation, we get the best growth yield. That obviously makes some intuitive sense, but that lesson's been confirmed through the work we're doing, which is why you'll see some of our communication -- more of our communication shifting in that direction. We'll report out in a couple of weeks at CAGNY how that story played out.

It's a pretty broad-based story across multiple categories, and I think part of this, and we have to be careful is that these categories have not been advertised for a long -- these businesses have not been advertised for a long time. So, putting the brand out there like that obviously has got some traction. Whether the second year of doing it will get the same traction for the same dollars is a question mark.

And we have to be thoughtful about whether the incrementality -- you get to a point of diminishing returns on the incrementality of the growth yield. That's something we'll be watching as we go through 2015.

On balance, the story's very positive across the whole patch and we'll decide whether we want to continue what were doing exactly as we have, or we'll take some lessons learned on some of the things that haven't worked.

Just a clarification question. On your thoughts for operating margins this year, did I hear correctly that you expect operating margins to be down this year?

No, we expect operating margins to be up. We expect gross margin to be down a little bit. And we're going to try to do everything we can to get it back to where we'd like it to be which is flat or up.

You've got a significant mix-effected gross margin. But at operating margin we're going to get leverage through revenue growth. We're going to get leverage through project renewal, and the sustained focus we've got overheads, and even within that algorithm of gross margin being flattish as reported, but up on a pro forma basis, we'll get the flexibility to spend more in A&P.

And we watch it quite closely, and we believe that that outlook is one we can deliver.

Steph Wissink, Piper Jaffray

this is Travis on for Steph. In the baby business, can you talk about how you are investing in digital assets to connect with the millennial mom?

So, obviously the baby business -- 70% of the baby gear category is done amongst first-time expected moms. So you have to be connected with that younger constituent. A good chunk of the decision-making happens through the connections that those moms have with each other, or with their sisters, or with their neighbors, or with their friends.

We are very active in participating in those conversations. Many of them happen online. Many of them happen through registry platforms.

And so this is -- our baby business spends a chunk of money building the brands and the innovations and awareness through television and the vast majority of the money beyond that is spent in digital. We are very actively curating our own platforms and working with customers to curate theirs, in order to make sure that we're participating in those dialogues. That's part of how this brand has been built over time.

This is probably the most aggressive, digitally connected team that I've got, and obviously the consumer is the most digitally engaged because 70% of the gear market is done amongst first-time expectant moms, which tend to be 23 to 27-year-old women.

Can you talk a little bit about the innovation pipeline, and what opportunities or brands you'll be emphasizing in 2015?

Our pipeline is stronger than it's been over the last four years. Mark profiled this at analyst day. Gave you some of the key metrics there.

I wouldn't share any new news with respect to the strengthening and lengthening of the funnel. The increase in project size. And the more disruptive nature of the funnel in general.

We're in-market now with a number of innovations from Calphalon to writing to our tools business. And I wouldn't want to put anything out there in this forum that would disclose too much of the forward-looking view to our competitors.

But, rest assured our funnel is stronger than it was last year, and last year's was stronger than the year before. And critical enabler to us, effectively taking our growth guidance up for core sales to the acceleration phase metric we committed to back in 2012, one year earlier than they otherwise -- than we otherwise expected to be able to do.

Thank you, and I am looking forward to 2015.

I think that is it. I am talking to myself, probably at this point.

We want to thank you all for your support, for the questions. We appreciate all the feedback.

A replay of today's call will be available later today on our website, newellrubbermaid.com. This concludes our conference. You may now disconnect.