You know the economy is in a rough spot when a supposed defensive name like Newell Rubbermaid (NWL) can go down 25% in one day of trading. That’s what happens though when you drop a bomb on the Street as NWL did today.
This morning the company slashed its quarterly sales and profit forecast and the reaction was sharp and immediate in this shoot first and ask questions later market environment. Downbeat comments that suggest further pain is on the horizon don’t usually help the case either.
Even as shareholders rush to the exits, those who become intrigued by the discount should wait for the pain to be complete before stepping in to buy. It could be months before we see a rebound in this stock.
Numbers Don’t Lie
As for specifics, the maker of household and office products reduced its fourth-quarter earnings estimate, excluding one-time items, to between 6 and 10 cents per share, down from previous guidance of 29 to 34 cents. It also cut its full-year estimate for 2008 to $1.17 from $1.21 per share from $1.40 to $1.45.
Analysts were expecting earnings for the quarter of 32 cents for the quarter and $1.43 for the year. The company also said it expects to report a percentage decline in sales for the fourth quarter compared to a year ago that will be in the low teens.
Newell Rubbermaid President and CEO Mark Ketchum said, “We are seeing extraordinary volatility, weaker than expected demand, and customer inventory reductions across virtually all geographies and market segments, with trends worsening as we near the end of our fourth quarter.”
Challenging Times Ahead
An economic rebound won’t be coming any time soon, he said, and added that he expects a more challenging business environment in 2009 than any we’ve seen to date.
Obviously, analysts were more than a little surprised at today’s announcement. One commented that, “the magnitude of today’s revision was quite alarming,” even though market conditions have worsened since Newell last provided guidance back in October. Another analyst put her “outperform” rating and earnings estimates for the company under review.
How the analysts didn’t see this coming I’ll never know, especially as fellow consumer products giant Procter & Gamble said last week it was seeing retailers cut inventories.
The horse has left the barn and there’s no reason to close the door now.
To combat the slowdown Newell said it would cut 8 to 10 percent of its salaried jobs and cease pay increases beginning Jan. 1. It will also temporarily shutter some of its manufacturing facilities to reduce inventory. Further details will be announced when the company reports results on Jan. 29.
Patience is a Virtue
While it is tempting to look at the sell-off as a buy opportunity, investors need not be in any hurry to buy here. If it is true that stocks rally six months in advance of the end of a recession, then late Spring, early Summer will be the time to buy Newell.
I expect weakness in the economy through the end of 2009. As such expect to see more news like we see today with Newell.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
