By David Gill
ATLANTA-- Newell Rubbermaid's planned turnaround went into high gear in the third quarter, as the company's net income rose by a whopping 56.9 percent to $170.2 million.
Third-quarter sales totaled nearly $1.7 billion, up 6.4 percent over the third quarter of 2006. The gain marked the eighth consecutive quarter of organic sales growth for Newell Rubbermaid, according to the company's president and chief executive officer, Mark Ketchum. The eight straight quarters of prosperity followed three years of flat or negative growth.
A statement that accompanied the company's quarterly figures attributed the rise to both a 35.6 percent increase in its gross margin and an 18 percent gain in operating income. In a Webcast to financial analysts after the report was released, Ketchum said Newell Rubbermaid has achieved this run of growth "despite a tough environment, including softness in the housing market and a sluggish retail economy."
Expanding on Ketchum's comment, Linda Bolton Weiser, an analyst with Oppenheimer & Co., said, "There is the downtrend in the housing market, plus the office-products retail channel is reducing inventories. Despite this, Newell Rubbermaid had pretty darn good organic sales growth in the quarter, considering the macro factors."
Weiser cited the company's home and family and cleaning, organization and home decor segments as two of the "good pieces" in Newell Rubbermaid's business in the quarter. Home and family posted 14 percent organic sales growth, and cleaning, organization and home decor posted 5 percent organic sales growth.
"The marketing approach that Ketchum has taken here has produced strong results," she said. "He has gone back to the basics to identify the characteristics of the company's brands and how consumers view these brands. He also believes in adding true value to each product, to make it a product that does what it says it will do and that can be differentiated."
Based on the third-quarter numbers, Ketchum told the analysts that the company would meet or beat its expectations for 2007. "We expect about 4 percent sales growth and 18 percent normalized earnings-per-share growth," he said. "We also expect to validate our turnaround efforts with strong results in 2008."
Weiser also noted that having established a good platform for top-line growth, Newell Rubbermaid is now concentrating on controlling its costs. "My impression is that they are reducing structural selling, general and administrative expenses, and they are doing so effectively," she said. "This means their margins will expand even more."
Ketchum said the good news shows the company's business model is working. "We can grow sustainably through even a tough economic environment," he said. "This [turnaround] is a marathon, not a sprint. It will take us several years to get there."
