Graco 2008 Annual Report Download - page 4

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A SEA CHANGE IN
MACROECONOMIC
CONDITIONS
Though we had anticipated a softening
economy in 2008, no one could have
predicted the series of events that
unfolded in the third quarter. As we
all now know, a convergence of
economic forces, beginning with the
collapse of the financial services sector
in the U.S., sparked an economic melt-
down that spread rapidly around the
world. In the aftermath, credit markets
tightened and consumer spending
plummeted. At Newell Rubbermaid,
we moved swiftly to manage through
these worsening conditions.
In the third quarter, we announced a
restructuring of our product portfolio
to further reduce the Company’s expo-
sure to volatile commodity markets
by exiting product categories that
represented approximately $500 million
in sales. The businesses we chose to
exit are characterized by high material
costs, low margins and a consumer
unwillingness to pay for innovation.
We expect these category exits to be
substantially completed in 2009.
Elsewhere in the Company, we
implemented more aggressive pricing
to offset inflationary costs in many
product categories. We also sharply
reduced selling, general and adminis-
trative expenses, predominantly in
nonmarket-facing areas of our busi-
ness. Despite these decisive actions,
our 2008 financial results were mark-
edly below our expectations at the
outset of the year.
STRATEGIES MORE
CRITICAL THAN EVER
As we begin 2009, market conditions
remain tough – the toughest that I
have seen in my 37-year career –
with no turnaround yet in sight. Yet,
these conditions do not make our
strategy any less relevant or our aspira-
tions any less ambitious. The strategic
initiatives that have been driving
success in a good economy are even
more critical in a bad economy. As
the market size contracts, consumers
and retailers alike are even more
interested in brands that offer superior
performance and value. Our strategies –
strengthening the portfolio, changing
the business model to build brands
that are responsive to consumer needs,
and driving best cost and efficiency
across the enterprise – are right for
today’s tough times. We continue to
make progress on all three.
TAILOR-MADE
ACQUISITIONS
In 2008, we strengthened our portfolio
through two acquisitions that fit our
business criteria nicely. Aprica® is a
leading Japanese brand of premium
strollers, car seats and related juvenile
products that has joined our Baby &
Parenting Global Business Unit (GBU).
Technical Concepts, which was added
to our Rubbermaid Commercial
Products GBU, is a leading global
provider of innovative touch-free and
automated restroom hygiene systems
in the $2.5-billion, away-from-home
washroom market.
During the past five years, we have dramatically reduced the percentage of
our portfolio exhibiting a high degree of commoditization, while enhancing
existing businesses or acquiring new ones that offer greater opportunities
for market growth, product innovation and premium margins.
An Evolving Portfolio
2