Rising costs pinch Rubbermaid plastics

By The Wall Street Journal

For Newell Rubbermaid (NWL, news, msgs), the future of the plastic storage bin is looking more malleable.

The Atlanta maker of Rubbermaid storage containers, Sharpie markers and Goody hair accessories said this week that it will shed several products and sharply raise prices on some brands as it grapples with energy prices that have swollen the cost of plastic, one of the most economical of materials.

Newell Rubbermaid also cut its profit outlook for the year and said it would lay off an undetermined number of employees as it tries to bring costs under control.

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The company plans to divest or exit from product lines amounting to about $500 million in annual sales, or about 8% of its 2007 revenue of approximately $6.4 billion.

A "significant percentage" are plastic, or "resin intensive," products that the company doesn't consider economically viable because "the consumer's willingness to pay for innovation is low," Mark Ketchum, Rubbermaid's president and chief executive officer, said in a statement.

Such goods include low-end Rubbermaid items like outdoor trash cans and certain inexpensive storage bins, as well as non-Rubbermaid products like plastic mats that slide under office chairs, the company said.

Rubbermaid's moves underscore the extent to which energy prices are affecting a material that helped create the modern way of life. Rubbermaid helped usher in an era of convenience and affordability in households in 1956, when, as Wooster Rubber, it introduced its first plastic product: the dishpan.

But as oil and natural-gas prices have risen, so has the price of resin that Newell Rubbermaid needs for its plastic products.

Pat Robinson, the company's chief financial officer, said resin costs have increased 60% in the past year. Newell Rubbermaid uses about 700 million pounds of resin a year, which the company expects will cost about $600 million this year, he said.

Robinson says the company is also facing price spikes for commodities like steel, copper and brass.

Still, Newell Rubbermaid plans to invest more heavily in research and advertising for more-innovative products. Such items include Rubbermaid containers for produce with vented lids to keep food fresher for longer periods and a product line that enables consumers to easily organize rails, hooks and cabinets inside garages.

"We're developing more innovative solutions that are more value-added to the consumer," said Steve Pawl, vice president of marketing for Rubbermaid.

To help offset the rising costs of resin and other materials, the company said it plans to raise prices as much as 22% on some products and will introduce a quarterly "price adjustment mechanism" next year in its resin-intensive businesses.

The portfolio changes come as Newell Rubbermaid's shares have slipped nearly 40% this year and are part of a larger ongoing effort to whittle down product lines to focus on those the company says can be differentiated through innovation and brand-building.

Newell Rubbermaid is the latest consumer-products company to cut its profit outlook as the costs of raw materials rise and consumers increasingly guard their wallets.

While the company is sticking with its second-quarter forecast for earnings per share of 47 cents to 50 cents, it now expects to earn $1.40 to $1.60 a share in 2008, down from an April projection that full-year profit would fall in a range of $1.80 to $1.90 a share.

This article was reported and written by Stephanie Chen for The Wall Street Journal.