Graco 2005 Annual Report Download - page 4

Since joining the company as President and CEO in
October 2005, I have developed a strong impression
of where Newell Rubbermaid stands as a company and
where it can go. There is a strong foundation to build
upon. This is a company with brands that are relevant
to consumers’ lives - brands that matter. We have
dedicated employees who continue to deliver on the
company’s financial commitments amidst adverse
economic conditions. We also have a clear roadmap
for achieving our goals and delivering value for our
shareholders. I am proud to have been entrusted by
the Board with the responsibility of leading this
company to achieving its full potential.
We successfully met many challenges in 2005. We
exceeded our earnings per share and free cash flow
commitments, overcame unprecedented raw material
inflation, reduced manufacturing overhead, increased
investment in strategic SG&A and strengthened the
portfolio. We delivered earnings per share of $1.54(4)
(+10%) and generated free cash flow of $550 million.
Our efforts in 2005 will play a key role in driving our
business momentum for 2006 and beyond.
Before discussing highlights from 2005, let me comment
on how we think about our portfolio. Most of our
businesses have sufficient operating margins and an
innovation pipeline worthy of driving organic growth.
We refer to these as “Invest” businesses. The strongest
of these have operating income margins above 15 percent,
differentiated products and strong brand equity with
their target consumers. We will invest disproportionately
in our strongest Invest businesses, including incremental
marketing support, geographic expansion and more new
products and product line extensions. The balance of
our portfolio is made up of businesses that are not
generating sufficient returns to our shareholders. We
have been successfully improving these “Fix” businesses
and, in 2005, moved more than 13 percent of our
revenue from the Fix to Invest category. We will start
2006 with 71 percent of our business categorized as
investment grade. Most notable among the 2005
turnarounds are the Graco®and Goody®brands, which
have been reinvigorated and already begun realizing
their tremendous growth potential. Our intention is
to have the entire portfolio be characterized by
differentiated products, strong brand equity and solid
operating margins, and we expect to drive further
substantial progress towards this goal in 2006.
Key Developments in 2005
Net sales in our Invest businesses grew 2 percent.
Our Office Products markers and highlighters, IRWIN®
branded tools, Lenox, BernzOmatic, Shur-Line and
Rubbermaid Commercial businesses all grew at least
5 percent. They illustrate the potential when we get the
investment profile and consumer driven innovation right.
This growth was offset by our strategic exit from $200
million of low-margin product lines, primarily in
Rubbermaid Home Products, allowing us to focus on
higher-margin, higher-potential opportunities.
The company expanded its gross margin as a percent of
net sales from 28.6 percent to 29.9 percent, despite the
record level of raw material inflation we experienced.
This expansion provides funding necessary for strategic
investment behind our brands. We expect to continue
increasing our gross margins through a combination of
productivity improvements, new product innovation and
managing the product mix.
In November, we acquired DYMO, a leading brand of
on-demand labeling solutions, to further strengthen our
leadership position in the global office products category.
DYMO has a strong track record of sales growth and
new product innovation, and we are excited about their
growth prospects and the potential for synergies across
our other brands and categories.
P. 3 / 2005 NEWELL RUBBERMAID ANNUAL REPORT
Dear Fellow Shareholders:
(4) Please refer to the Reconciliation of Non-GAAP Financial Measures, provided as part of this annual report, for a reconciliation to the most directly comparable GAAP financial measure.