With debt downgraded, Newell focuses on profitability

A day after Moody’s Investors Service downgraded Newell Rubbermaid’s debt rating, the Sandy Springs-based consumer products giant said Friday it remains focused on getting back to profitability and maintaining cash flow.

While Newell remains at investment grade status, Costas Chrysostomou, Moody’s senior credit officer, downgraded its commercial paper rating to “prime-3” from “prime-2” and senior unsecured notes to “Baa3” from “Baa2” with a negative outlook.

“We’re pleased to retain our investment grade rating, which is a very high priority for the company,” said David Doolittle, a company spokesman. “It ensures that we have access to the public markets at a reasonable rate.”

The ratings are the lowest in the investment grade category and put Newell’s $2.8 billion debt securities close to junk status. In December, Standard and Poor’s reported it placed Newell on “credit watch with negative implications meaning that we could lower or affirm the ratings on completion of our review.”

Companies that have their debt ratings cut could wind up paying more to finance their debts and obtain credit.

Newell swung to a $256.7 million loss, or 93 cents per share, in the fourth quarter largely because the global economic slowdown led to falling sales. The company is cutting its quarterly dividend in half, to a dime per share.

“Protecting earnings and operating cash flow levels are our No. 1 priority for the year,” Doolittle said. “And we plan to continue to communicate closely with the ratings agencies about the progress we’re making.”

Besides the dividend cut, Newell, maker of Sharpie pens, Goody hair care products and Irwin tools has left unprofitable business lines and plans to cut professional staff by 800 to 1,000 employees worldwide.

“Yes, it’s an economically challenging environment; we’re managing our costs so we can protect our earnings and cash flow,” Doolittle said.

But Moody’s Chrysostomou said those measures may not be enough given the current economic climate.

“Despite the recent dividend cut and significant ongoing efforts to reduce costs and exit or divest non-core businesses, the retail landscape is deteriorating and could give rise to top-line pressures beyond current expectations,” Chrysostomou wrote. “Many of Newell’s retail products are both discretionary in nature and subject to competition from private label products or lower priced competitors.”

He added the down economy will make it difficult to raise prices to make up for volume declines and Newell’s commercial products will be under pressure as businesses cut spending.