Shares of Newell Rubbermaid
What really catches my eye in the company's second-quarter report is how well it has been able to pass along the increased cost of raw materials and expand gross margins by 170 basis points (1.7%). GE
Part of the benefit in gross margins came from Newell Rubbermaid's restructuring of its product line, including removing low-margin products. This can be alarming to investors who just glance at the income statement, because revenues are decreasing. But the truth of the matter is that Newell's revenues are becoming higher-quality as the company focuses on expanding the parts of its business that deliver the most value. Normally it's an ongoing process, but Newell has had some catching up to do the last couple of years.
My guess, though, is that the Street is most impressed with $0.38 a share of earnings instead of the expected $0.32. True, those earnings are nothing to scoff at, but the benefits of Newell's restructuring and ongoing projects to remove non-performing products should continue to bear fruit. I find that aspect more impressive, and a more important point for investors to ponder as they look at Newell's future.
We've had our eye on Newell Rubbermaid, a Motley Fool Income Investor selection, for about six months now. Before today's announcement, Income Investor lead analyst Mathew Emmert had pegged the company's value slightly higher than current prices. Newell's payout ratio should sit at about 40% to 45% of free cash flow at the end of the year, which income investors should find just as appealing as price appreciation. With the debt load continuing to shrink, it looks as though the company could easily fund increases of the 3.2% dividend yield.
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