Thursday, August 14, 2008

Brand Product Company: Newell Rubbermaid

In our new "Brand Product Company" series, we investigate companies with good brand recognition products and search for current value plays.

Newell Rubbermaid (NYSE: NWL) is a manufacturer and marketer of quite an assortment of consumer brand name products (check them out!). The company works on a growth by acquisition strategy and they have acquired some impressive brands to date. Some of the brand name products you might recognize from this company include Rubbermaid, Waterman, Sharpie, Rolodex and Irwin, to name a just a few.

The company has been struggling to improve sales significantly since 2002. The growth rate of sales has actually slightly declined during that period. However, the company has been able to increase gross margins during the same period from 28.4% of sales to 34% of sales in the recent quarter (as we discussed here, you can find the reasons for the gross margin increase in management's discussion and analysis). The operating margins improved largely as a result of the improved gross margins. The company is free cash flow positive and currently pays a 4.4% dividend yield.

One thing I am not keen about with Newell Rubbermaid is that the return on invested capital does not surpass its weighted average cost of capital. With this strong brand name company, I would have expected them to be earning better returns on their invested capital. You can also get a clue about this by looking at the returns on assets which ranged from just over 5% to 7.4% in the past several years. In addition, the earnings power value is less than its net asset value of the company (as per my calculations) and both are less than the current market price of $18.90. For the time being, I don't consider Newell Rubbermaid to be a value play.

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