Tuesday, consumer and commercial products maker Newell Rubbermaid Inc. (NWL) reaffirmed earnings forecast for first quarter, while reducing its quarterly dividend. Alongside, the company said it would offer $250 million convertible senior notes due 2014 in a registered underwritten public offering.
The Atlanta, Georgia-based company reiterated its first-quarter guidance for normalized earnings of $0.07 - $0.12 per share, although its business continues to be adversely impacted by the global economic slowdown. However, first-quarter sales are now projected to decline in the mid to high teens compared with the company's previous guidance of a decline in the low to mid teens.
Analysts polled by Thomson Reuters expects the company to report earnings of $0.08 per share, on revenues of $1.22 billion, for the quarter. Analysts' estimates typically exclude special items.
The company further expects lower input costs and disciplined cost management to offset the anticipated first-quarter sales softness. Newell estimates first-quarter operating cash usage to be about half of last year's $123 million.
Newell Rubbermaid said its board has authorized a reduction in the quarterly common stock dividend to $0.05 per share from $0.105 per share. The company believes that the reduced payout level demonstrates a strong commitment to maintaining its current investment grade rating while still providing a competitive and appropriate dividend yield.
In addition, the company plans to offer $250 million aggregate principal amount of convertible senior notes due 2014 in a registered underwritten public offering. Newell Rubbermaid intends to grant an option to the underwriters to purchase up to an additional $37.5 million aggregate principal amount of such convertible notes to cover over-allotments, if any.
The company has retained Banc of America Securities LLC and J.P. Morgan Securities Inc. to arrange a replacement 364-day trade receivables financing facility in an initially proposed maximum amount of up to $250 million, coincident with the expiration of the company's existing $450 million receivables facility.
The convertible note offering and the receivables facility are intended to permit the repayment of a portion of the about $750 million in debt that matures in the second half of 2009, Newell added.
The company reported cash on hand of $275 million as of December 31, 2008, and anticipates operating cash flow of more than $400 million in 2009. It has additional funds available under its $690 million revolver agreement.
Newell Rubbermaid believes the receivables financing facility and the convertible notes offering will improve financial flexibility, and combined with cash on hand and the revolver agreement would enable the company to meet all near-term obligations and withstand the recession, while continuing to invest in consumer-driven innovation and brand building to drive long-term growth and create shareholder value.
Apropos the offering, Newell Rubbermaid also expects to enter into convertible note hedge transactions with counter parties that are affiliates of the representatives of the underwriters of the notes.
The counter parties or their respective affiliates expect to enter into various derivative transactions with respect to Newell Rubbermaid's common stock concurrently with or shortly after the pricing of the notes. This activity could increase or avoid a decrease in the market price of Newell Rubbermaid's common stock or the notes at that time.
Newell Rubbermaid estimates that the proceeds from this offering would be about $243.1 million, after deducting fees and before estimated expenses. Newell Rubbermaid expects to use a portion of the net proceeds for the cost of the convertible note hedge transactions after such cost is offset by the proceeds of the warrant transactions and the remaining proceeds for general corporate purposes, including repayment of 2009 debt maturities.
If the option granted to the underwriters to purchase additional notes is exercised, Newell would use a portion of the net proceeds from the sale of additional notes to increase the size of the convertible note hedge transactions. Newell Rubbermaid will also sell additional warrants, which would result in additional proceeds. The company expects to use the remaining proceeds, together with the proceeds from the sale of additional warrants, for general corporate purposes.
Merrill Lynch & Co. and J.P. Morgan Securities will act as the joint book-running managers of the offering and Friedman, Billings, Ramsey & Co. will act as co-manager of the offering.
NWL shares, which have been trading between $4.51 and $24.08 in the past 52 weeks, closed Monday's trading session at $7.25.
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