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One analyst and top management from nine sector firms examine the Household Products & Cosmetics sector in this 37 - page Household Products & Cosmetics Issue from The Wall Street Transcript available at (212/952-7433) or http://www.twst.com/info/info625.htm

TWST: What has gone on in the household products/personal care segment over the past year or so?

Ms. Bolton Weiser: We’ve had a continuation of good performance by many companies in the group that are going through turnarounds and refocusing on their core brands. Foreign currency translation is just starting to become more favorable for some companies in the group, specifically those exposed most to the euro and Japanese yen. My broad universe of stocks has declined only 2% this year to date, compared with the S&P 500’s 27% decline. Restructuring and cost-cutting measures have enabled many companies to accelerate new product development, increase promotional spending and increase advertising.

TWST: You mentioned the refocus. What has gone on to cause people to rethink what they’re doing?

Ms. Bolton Weiser: A few years ago a number of companies in the group had problems continuing to grow both their sales and earnings, and you had a number of senior management changes in the group. Now, several companies are undergoing turnarounds with new CEOs. I think that companies in this phase of their life cycle can experience a multi-year period of stock outperformance. Companies in the midst of turnarounds include Gillette (G), Procter & Gamble (PG), Avon (AVP), Newell Rubbermaid (NYSE:NWL), Dial (DL), Mattel (MAT), and Perrigo (PRGO). There are new managements in place that have a different perspective on the business and are bringing about some rather substantial changes in the way the companies operate.

TWST: Have they avoided some of the nasty surprises we’ve seen in so many areas?

Ms. Bolton Weiser: Yes, for the most part. Kimberly-Clark (KMB) had some earnings disappointments last year but is meeting or beating expectations this year. Estée Lauder is the only company in the group that has been consistently reporting earnings disappointments. Many of the companies in the group, such as Procter & Gamble and Newell Rubbermaid, have been reporting upside earnings surprises this year.

TWST: What do you like today? What are you recommending?

Ms. Bolton Weiser: I have buy ratings on Avon Products, Newell Rubbermaid, Alberto-Culver, Mattel, and Perrigo. Those are my favorite names.

TWST: What is the attraction of Newell Rubbermaid?

Ms. Bolton Weiser: Newell Rubbermaid is a turnaround story. It’s a company that had grown through acquisition for many years but didn’t have much internal growth because it didn’t have good marketing skills, like Procter & Gamble or Colgate-Palmolive. It has a new CEO who is a very good marketer. Joe Galli was the number two executive at Black & Decker, responsible for the growth of the Dewalt brand of power tools. He has been aggressive in taking actions to change the way Newell Rubbermaid operates. The company has a number of unexploited brands, including Rubbermaid, Levolor, and Calphalon. There’s also a lot of margin expansion opportunity. The operating margin bottomed last year at 9.5%, and it has the potential to reach 15% in the next few years.

TWST: Have we begun to see the benefits of all the changes yet?

Ms. Bolton Weiser: On the margin side, restructuring actions have benefited the gross margin, but Galli has chosen to reinvest the cost savings in advertising and marketing programs, so the operating margin did not expand in the first half of 2002, excluding the elimination of goodwill amortization expense. In one of the new marketing programs, called Phoenix, recent college graduates are recruited, trained and placed in marketing positions right at the store level. They work directly with store managers at Lowe’s, Home Depot and Wal-Mart to improve the way in which Newell Rubbermaid products are merchandised. The new marketing initiatives have already positively affected sales growth. Internal sales growth was negative through the first quarter of 2002, and then it turned positive in the second quarter. Growth was very strong at 5.3%, beating our estimate and the company’s own expectations.

Household Products, Personal Care & Cosmetics - In an in-depth (4,000 words) Analyst interview, Linda Bolton Weiser, a Vice President at Fahnestock & Co., examines the outlook for the sector and shares specific stock recommendations.

CEO interviews (average 2,500 words). Top management of eight - sector firms examine the outlook for their firm and the sector.