UPDATE 4-Newell sees grim sales; shares fall

Wed Oct 28, 2009 3:20pm EDT

* Q3 EPS ex-items 38 cents beats Street by 3 cents

* Sales fall 17.7 pct to $1.45 bln, below Street view

* Raises FY profit view

* Sees 2009 net sales drop at the steeper end of forecast

* Shares fall nearly 7 percent (Adds CEO, analyst comments)

By Dhanya Skariachan

NEW YORK, Oct 28 (Reuters) - Newell Rubbermaid Inc (NWL.N) posted a bigger-than-expected drop in quarterly revenue, stung by weak demand for home goods and office products, and said a full-year sales decline would be at the steeper end of its forecast.

Shares of the maker of Sharpie pens and Rubbermaid containers fell nearly 7 percent on Wednesday. The company had earlier forecast a 10 percent to 15 percent drop in full-year sales, and has struggled as U.S. consumers curb or delay purchases of nonessential items.

"The retail consumer is still very cautious and commercial demand is constrained," Chief Executive Mark Ketchum said on a call with analysts.

Ketchum said it was likely that consumer spending and commercial demand would start to rebound next year but probably not until the second half.

He added it was reasonable to expect low single-digit core sales growth in 2010 as he sees the consumer returning slowly to stores and Newell gaining market share.

"We have found a bottom ... given that we had four quarters consecutively of 8 to 10 percent core sales decline," CEO Ketchum said in an interview with Reuters.

Newell, whose other products include Graco strollers, Calphalon cookware and Paper Mate pens, expects a recovery in the commercial market to kick in later than in retail.

Net sales fell 17.7 percent to $1.45 billion in the third quarter, missing analysts' average estimate of $1.47 billion.

The sales decline was driven by weakness in the housing and office products markets segments and a slowdown in its home and family segment due to product exits, SunTrust Robinson Humphrey's William Chappell said.

But he noted the company's efforts to boost margins. Newell has benefited from lower material costs and an exit from more commoditized product categories like plastic storage boxes, shelving and wooden pencils.

Newell's third-quarter gross margin was 37.4 percent, up 480 basis points from last year, helped by the lower material costs and product exits.

While Chappell lauded Newell for achieving the highest gross margin level in at least six years, he said the cost savings allowed the company to plow back more resources into brand investment, which he thinks will help Newell increase market share.

But Oppenheimer's Joseph Altobello questioned how the company would sustain margins as commodities prices tick higher and sales remains weak. Altobello maintained his "perform" rating on Newell, adding its stock "has bounced nicely off the bottom while fundamentals remain notably weak."

Newell's third-quarter net income rose to $85.5 million, or 28 cents a share, from $55 million, or 20 cents a share, a year earlier.

Excluding items, the company earned 38 cents a share, beating the analysts' average forecast of 35 cents, according to Thomson Reuters I/B/E/S.

For 2009, Newell raised its earnings forecast to a range of $1.27 to $1.32 a share before one-time items. It had earlier forecast $1.15 to $1.30 per share.

Newell shares were down $1 at $13.82 on the New York Stock Exchange. (Reporting by Dhanya Skariachan, editing by Dave Zimmerman and Steve Orlofsky)

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