Newell Rubbermaid Inc. today announced plans to restructure its product portfolio and initiate aggressive pricing mechanisms to reduce exposure to volatile commodity markets. According to a release, input cost inflation in resinsthe largest component of the company's cost of goodshas accelerated dramatically in recent weeks and president and CEO Mark Ketchum said he doesn't see the situation reversing course.
"In categories where resin is a high percentage of cost of goods sold and the consumer's willingness to pay for innovation is low, the economics are no longer viable," said Ketchum. "In the face of these radically changed market conditions, we are taking a number of proactive steps to reduce our exposure to volatile commodity markets, protect our margins and profitability, and strengthen our portfolio."
The company plans to divest, downsize or exit approximately $500 million in sales of selected consumer product categories. While details have not been finalized, a significant percentage will be focused on the company's most resin-intensive product categories. In areas most impacted by cost inflation, more aggressive pricing also will be implemented in the second half of 2008, with increases in some product categories as high as 22%.
It is also initiating a new quarterly price adjustment mechanism within the company's resin-intensive businesses in North America, effective January 1, 2009. This quarterly adjustment will be based on independent industry raw material indices as well as actual changes in raw material, processing and transportation costs.
"In light of the raw material hyperinflation we are experiencing, it is imperative we move rapidly to address additional product categories that cannot be differentiated sufficiently through strategic brand building to fit our business model," said Ketchum. "Our objective is to make resin inflation an ordinary issue to manage rather than the extraordinary issue it has been at various times in our history, especially recently."
Restructuring costs associated with these actions, including asset impairments, are expected to fall within a range of between $80 million and $100 million and are expected to be completed within 12 months. Cumulative costs are now expected to fall within a range between $475 million and $500 million, with annual savings projected between $175 million and $200 million once the project is fully implemented by 2010.
Ketchum explained that the initiatives represent difficult decisions, but that the company is committed to taking a thoughtful, deliberate approach in executing the plansone that is sensitive to the needs of affected employees, customers and suppliers.
"We strongly believe that these steps are critical to Newell Rubbermaid's long-term health and prosperity," Ketchum added. "Our shareholders have sent us a clear signal that additional change is needed. Today, we are responding with actions that, when completed, will position us as a less volatile and more profitable company."