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Why Davidson Kempner initiates new position in Newell Rubbermaid

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Davidson Kempner and Newell Rubbermaid

Davidson Kempner Capital added new positions in Ally Financial Inc. (ALLY), WL Ross Holding (WLRH), Newell Rubbermaid (NWL), and B/E Aerospace (or BEAV). It exited positions in Equity Commonwealth (or EQC), Omnicom (OMC), and JPMorgan Chase & Co. (JPM).

Davidson Kempner initiated a new position in Newell Rubbermaid (NWL) that accounted for 1.22% of the fund’s 2Q14 portfolio.

Overview of Newell Rubbermaid

Newell Rubbermaid is a global marketer of consumer and commercial products. The products include writing instruments, consumer products for home, tools like hand tools, and power tool accessories.

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Newell is in the process of executing its strategy “Growth Game Plan” into action. It’s simplifying its structure by making sharper portfolio choices. It’s investing in new marketing and innovation to accelerate performance. In 2011, Newell launched “Project Renewal.” It’s a program designed to reduce complexity in the organization. It increases investment in the most significant growth platforms within the business. The project is expected to be fully implemented by mid-2015. It will generate annualized savings of $270–$325 million.

The company has five business segments:

  1. The Writing segment – designs, manufactures, or sources and distributes writing instruments and office technology solutions. The products are mainly used in businesses and homes. The segment’s product offerings include markers, highlighters, and fine writing instruments and accessories. Key brands include Sharpie, Paper Mate, Expo, Parker, Waterman, Dymo Office, and Endicia.
  2. The Home Solutions segment – designs, manufactures, or sources and distributes a wide range of consumer products under multiple brand names such as Rubbermaid, Calphalon, Levolor, and Goody. Products include food storage and home storage; gourmet cookware, bakeware, and cutlery; and drapery hardware and window treatments.
  3. The Tools segment – designs, manufactures, or sources and distributes hand tools and power tool accessories, industrial bandsaw blades, tools, and industrial labeling solutions. Brands include Irwin, Lenox, Hilmor, and Dymo Industrial.
  4. The Commercial Products segment – designs, manufactures, or sources and distributes cleaning and refuse products, hygiene systems, material handling solutions, and medical and computer carts.
  5. The Baby & Parenting segment – designs and distributes infant and juvenile products like car seats, strollers, swings, highchairs, and playards. The segment mainly sells its products under the trademarks Graco, Aprica, and Teutonia.

Newell posts earnings and revenue growth

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Newell’s recent 2Q14 results beat estimates. Reported net income was $150.6 million—compared to $109.8 million in the same quarter last year. The diluted earnings per share (or EPS) was $0.54—compared to $0.37 per diluted share last year. The company said the improvement was driven by increased sales, lower restructuring costs, a lower tax rate, and the positive impact from a lower share count.

Sales in Home Solutions and Baby & Parenting fall

Net sales in the second quarter grew 3.1% to $1.52 billion—from $1.47 billion in the same quarter last year. Core sales grew 4.6%. The sales were driven by writing, tools, and commercial products. Core sales in Home Solutions fell 1.8%. This was driven by declines in Rubbermaid Consumer due to certain low margin products and soft point-of-sale results. It was also driven by a decline in Decor. Decor increased sales of sizeable window treatments last year.

Core sales for Baby & Parenting decreased 6.7%. The decrease was the result of the product line exiting Europe. Also, competitive pressures in Japan more than offset growth in North America.

In July, Newell agreed to acquire Ignite Holdings. Ignite Holdings designs and markets on-the-go beverage containers under the Contigo and Avex brands. The purchase price was $308 million. The acquired brands will be incorporated into Newell’s Home Solutions segment.

In the next part of this series, we’ll discuss Davidson Kempner’s new position in B/E Aerospace (or BEAV).

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