Fourth Quarter Revenues Up 21%; EPS from Continuing Operations $1.04, Up
39%
NEW BRITAIN, Conn., Jan. 25 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that 4Q06 net income from continuing operations was
$87 million, $1.04 per fully-diluted share, up 39% over earnings of $64
million ($0.75 per fully-diluted share) from continuing operations in 2005.
Net sales were $1,019 million, up 21% over last year. Excluding sales
from recent acquisitions -- primarily Facom Tools and National Hardware --
organic sales were flat. Gross profit from continuing operations was $372
million, or 36.5% of sales, versus $289 million or 34.5% last year.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $240 million compared with $185 million last year. SG&A
expenses associated with acquired businesses accounted for approximately
$44 million of the increase. Excluding acquisitions, comparable SG&A
expenses were 23.1% of sales vs. 22.0% last year, reflecting increased
brand support and stock option expenses.
Operating income was $132 million (13.0% of sales), up 27% over $104
million (12.4% of sales) last year. Income tax expense was 14% of net
income as compared with 20% in the prior year, due to the settlement of
certain issues under audit.
Full year 2006 sales were $4,019 million, up 22% over 2005 on the
strength of acquisitions. Net income from continuing operations was $291
million ($3.47 per fully diluted share) vs. $272 million ($3.18 per fully
diluted share) in 2005. Earnings per fully diluted share, excluding $0.17
of non-cash inventory step-up charges related to acquisitions, increased
14%. Free cash flow (cash from operations less capital expenditures) was
$359 million (123% of net income), up 22% over 2005.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "We are
encouraged that, aside from a decline in Fastening Systems, the remainder
of our portfolio achieved 2% organic sales growth in the fourth quarter,
despite weakness in U.S. retail markets. With continuing diversification,
our business portfolio is now much less dependent on building product end
markets than several years ago. Our consumer tools business showed strength
in all geographies, as a second wave of FatMax(R) Xtreme(TM) hand tools in
North America, broad-based merchandising support for the FatMax(R) product
line and a successful launch of FatMax(R) XL(TM) in the increasingly
important European market led to share gains."
Consumer Products sales were $339 million, a 17% increase over 2005,
due primarily to the inclusion of acquired companies. Organic sales grew
3%, with strength most evident in hand tools (+10%) attributed to the
aforementioned successes of the FatMax(R) Xtreme(TM), FatMax(R) and
FatMax(R) XL(TM) product offerings, offsetting softness in consumer
storage. Operating margin was 17.2% versus 15.6% last year.
Industrial Tools sales increased 35% to $457 million. Organic sales
decreased 4%, as a decline in Fastening Systems more than offset 3% organic
growth in the remainder of the segment. Operating margin was 9.5% vs. 9.1%
last year, as strong sales in Facom Tools, Mac Tools and Hydraulic Tools
more than compensated for the volume-related issues in Fastening Systems.
Security Solutions sales increased 6% to $224 million. Organic sales
growth was 2%, with strength in the automatic doors business and the
mechanical access business offset by weakness in the systems integration
business. Operating margin was 13.6%, up 20bps over 2005, as the favorable
impact of a mix shift toward the automatic doors and mechanical access
businesses, as well as the benefit of cost reduction programs implemented
earlier in the year, mitigated the adverse impact of commodity cost
inflation (net of pricing).
Mr. Lundgren added: "We continue to deliver record earnings and cash
flows despite a challenging market environment. In 2006, our company
surpassed $4 billion in sales and $3.60 in per share earnings (excluding
inventory step-up charges) -- records we are proud to have achieved -- and
generated over $350 million in free cash flow.
"As we enter 2007, we are focused on profitable growth across our Tools
and Security platforms, while executing our acquisition integrations and
strengthening our Fastening Systems business. The stage is set for solid
performance this year and beyond."
Management updated estimates for 2007, reaffirming previous earnings
estimates of $4.00-$4.10 per fully diluted share, an increase of 15-18%
over 2006. Expectations include an outlook for total sales growth of
approximately 8% and organic growth of approximately 2% (previously 2-3%),
based on anticipation of continued weak conditions in certain U.S. markets
during the first half of 2007. This estimate includes anticipated
restructuring related charges totaling $0.20 per fully-diluted share and a
tax rate in the 25-27% range vs. 21% in 2006. Free cash flow is expected to
exceed $400 million.
First quarter total sales growth is projected at 7-8%, with organic
sales growth of 1-2%, reflecting continued slow growth in certain end
markets. First quarter net earnings are estimated at approximately $0.80
per fully diluted share, up 78% on continuing operations, including $0.06
of restructuring related charges for actions including integration and
operations improvement initiatives, $0.06 of non-cash amortization expenses
related to acquired HSM monitoring contracts and an income tax rate in the
26-28% range.
The company also announced today that, in an effort to better align
communications with longer-term performance and business trends, it will
discontinue providing quarterly sales and earnings guidance after 2007.
Accordingly, the company will provide quarterly and full year guidance in
its earnings releases for the four quarters of 2007 and, thereafter, will
provide only full year estimates for 2008 and beyond.
Given the recent Facom Tools, National Hardware, Besco Pneumatic Tools
and HSM Electronic Protection Services acquisitions, the company has
completed a review and determined that a re-segmentation would better
clarify communication of its portfolio and growth strategies while
simultaneously aligning its segments with relevant peers. The company
announced today that, beginning with the first quarter of 2007, it will
report results in the following three business segments:
* Construction & DIY Segment -- approximately 40% of consolidated sales --
will include fastening systems (Bostitch), consumer tools and mechanics
tools (Stanley(R), FatMax(TM), etc.), consumer tool storage (ZAG) and
laser leveling / measuring tools (CST/berger). These businesses serve
U.S. and international customers whose primary market driver is
residential construction, repair and remodeling activity.
* Industrial Segment -- approximately 25% of consolidated sales -- will
include industrial and automotive repair tools (Proto(R), Facom(R) & Mac
Tools(R)), industrial tool storage (Vidmar(R)) and other engineered
solutions (hydraulic, assembly and specialty tools). These businesses
serve U.S. and international customers whose primary market drivers are
automotive repair and industrial production.
* Security Segment -- approximately 35% of consolidated sales -- will
include Mechanical Access Solutions (Stanley(R) automatic doors, Best(R)
locks, S&G(R) locks, Stanley(R) hardware, National(R) hardware and
Precision(R) hardware) and Convergent Security Solutions (electronic
security solutions and integration and HSM(R) security monitoring).
These businesses serve commercial customers in the education, health
care, retail, government and financial services markets, among others.
The company expects to provide historical financial information for
each of these new segments during the first quarter, as well as additional
details regarding the segment components, profitability and business
drivers.
The company has scheduled a conference call with investors for 10:00am
Eastern time tomorrow, Friday, January 26, 2007 to discuss information in
this release. The call is accessible by telephone at (800) 267-8424
(domestic) and (706) 634-0695 (international) and via the Internet at
http://www.stanleyworks.com by selecting "Investor Relations". A slide
presentation to accompany the call will be available at
http://www.stanleyworks.com and will remain available after the call. A
replay will also be available two hours after the call and can be accessed
at (800) 642-1687 by entering the conference identification number 5958473.
Free cash flow is defined as cash flow from operations less capital
expenditures (reconciliation). Organic sales growth is defined as total
sales growth less sales of companies acquired in the past twelve months and
less foreign currency impacts. The company believes these are important
measures of its liquidity, of its ability to fund future growth and to
provide a return to the shareowners, and of its sales performance.
The Stanley Works, an S&P 500 company, is a worldwide supplier of
consumer products, industrial tools and security solutions for
professional, industrial and consumer use. More information about The
Stanley Works can be found at http://www.stanleyworks.com.
The Stanley Works corporate press releases are available on the
company's Internet web site at http://www.stanleyworks.com.
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
Statements in this press release, including but not limited to those
regarding the Company's ability to: (i) deliver 2007 earnings of $4.00 -
$4.10 per fully diluted share; (ii) deliver 2007 total sales growth of
approximately 8% and organic growth of approximately 2%; (iii) limit
restructuring-related charges in 2007 to 20 cents per fully diluted share;
(iv) limit 2007 taxes to a rate of 25-27% (v) deliver free cash flow in
excess of $400 million in 2007; (vi) deliver first quarter total sales
growth of 7-8% and organic sales growth of 1-2%; (vii) deliver first
quarter net earnings of approximately 80 cents per fully diluted share;
(viii) limit first quarter restructuring related charges to 6 cents per
fully-diluted share; (ix) limit first quarter non-cash amortization expense
related to acquired HSM monitoring contracts to 6 cents per fully-diluted
share; and (x) limit the income tax rate applicable in the first quarter to
26-28% are "forward looking statements" and subject to risk and
uncertainty.
The Company's ability to deliver the results as described above (the
"Results") is based on current expectations and involves inherent risks and
uncertainties, including factors listed below and other factors that could
delay, divert, or change any of them, and could cause actual outcomes and
results to differ materially from current expectations. In addition to the
risks, uncertainties and other factors discussed in this press release, the
risks, uncertainties and other factors that could cause or contribute to
actual results differing materially from those expressed or implied in the
forward looking statements include, without limitation, those set forth
under Item 1A Risk Factors of the Company's Annual Report on Form 10-K and
any material changes thereto set forth in any subsequent Quarterly Reports
on Form 10-Q, those contained in the Company's other filings with the
Securities and Exchange Commission, and those set forth below.
The Company's ability to deliver the Results is dependent upon: (i) the
Company's ability to successfully integrate the Facom, National, HSM and
other recent acquisitions, as well as future acquisitions, while limiting
associated costs; (ii) the Company's ability to deliver profit improvement
in its Fastening Systems business; (iii) the success of the Company's
efforts to negotiate severance arrangements and lease terminations related
to its European reorganization within established parameters; (iv) the
Company's ability to minimize the costs to relocate equipment and
inventory; (v) the Company's ability to complete the Fastening and European
reorganizations within anticipated time frames; (vi) the Company's ability
to continue making strategic acquisitions; (vii) the Company's ability to
reduce large customer concentrations; (viii) the success of the Company's
effort to build a growth platform and market leadership in Security
Solutions; (ix) the success of the Company's efforts to identify and
develop new markets for Security Solutions; (x) the Company's ability to
expand the branded tools and hardware platform; (xi) the Company's success
at new product development and introduction and identifying and developing
new markets; (xii) the Company's success in continuing to increase brand
support and roll out of the Stanley Fulfillment System; (xiii) the success
of the Company's efforts to manage freight costs, steel and other commodity
costs; (xiv) the success of the Company's efforts to sustain or increase
prices in order to, among other things, offset or mitigate the impact of
steel, freight, energy, non-ferrous commodity and other commodities costs
and other inflation increases; (xv) the Company's ability to generate free
cash flow and maintain a strong debt to capital ratio; (xvi) the Company's
ability to identify and effectively execute productivity improvements and
cost reductions while minimizing any associated restructuring charges;
(xvii) the Company's ability to obtain favorable settlement of routine tax
audits; (xviii) the ability of the Company to generate earnings sufficient
to realize future income tax benefits during periods when temporary
differences become deductible; (xix) the continued ability of the Company
to access credit markets under satisfactory terms; and (xx) the Company's
ability to negotiate satisfactory payment terms under which the Company
buys and sells goods, materials and products.
The Company's ability to deliver the results is also dependent upon:
(i) the continued success of the Company's marketing and sales efforts,
including the Company's ability to recruit and retain an adequate sales
force; (ii) the continued success of The Home Depot, Lowe's and Wal-Mart
sales initiatives as well as other programs to stimulate demand for Company
products; (iii) the success of recruiting programs and other efforts to
maintain or expand overall Mac Tools truck count versus prior years; (iv)
the ability of the sales force to adapt to changes made in the sales
organization and achieve adequate customer coverage; (v) the ability of the
Company to maintain or improve production rates in the Company's
manufacturing facilities, respond to significant changes in product demand
and fulfill demand for new and existing products; (vi) the ability to
continue successfully managing and defending claims and litigation; (vii)
the absence or mitigation of increased pricing pressures from customers and
competitors and the ability to defend market share in the face of price
competition; (viii) the Company's ability to continue improvements in
working capital, including inventory reductions and payment terms; (ix) the
success of the Company's efforts to mitigate any cost increases generated
by, for example, continued increase in the cost of energy or significant
Chinese Renminbi or other currency appreciation; and (x) the geographic
distribution of the Company's earnings.
The Company's ability to achieve the results will also be affected by
external factors. These external factors include pricing pressure and other
changes within competitive markets, the continued consolidation of
customers particularly in consumer channels, inventory management pressures
on the Company's customers, increasing competition, changes in trade,
monetary, tax and fiscal policies and laws, inflation, currency exchange
fluctuations, the impact of dollar/foreign currency exchange and interest
rates on the competitiveness of products and the Company's debt program,
the strength of the U.S. economy and the impact of events that cause or may
cause disruption in the Company's manufacturing, distribution and sales
networks such as war, terrorist activities, political unrest and
recessionary or expansive trends in the economies of the world in which the
Company operates.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may
arise after the date hereof.
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, Millions of Dollars Except Per Share Amounts)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES $1,019.3 $839.4 $4,018.6 $3,285.3
COSTS AND EXPENSES
Cost of sales 647.2 550.1 2,560.1 2,104.0
Selling, general and administrative 239.9 184.9 955.2 736.8
Interest - net 15.4 9.9 64.9 33.8
Other - net 11.9 13.8 57.5 47.9
Restructuring charges 3.8 0.7 13.8 4.6
918.2 759.4 3,651.5 2,927.1
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 101.1 80.0 367.1 358.2
Income taxes 14.1 15.8 76.4 86.5
NET EARNINGS FROM CONTINUING
OPERATIONS 87.0 64.2 290.7 271.7
Loss from discontinued operations
(including loss on
disposal of $1.5 million in 2006)
before income taxes (0.5) (3.8) (1.5) (1.2)
Income taxes (tax benefit) on
discontinued operations (0.1) 0.2 (0.3) 0.9
NET LOSS FROM DISCONTINUED OPERATIONS (0.4) (4.0) (1.2) (2.1)
NET EARNINGS $86.6 $60.2 $289.5 $269.6
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.06 $0.76 $3.55 $3.26
Discontinued operations (0.01) (0.05) (0.01) (0.03)
Total basic earnings per share
of common stock $1.06 $0.72 $3.54 $3.23
DILUTED EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.04 $0.75 $3.47 $3.18
Discontinued operations (0.01) (0.05) (0.01) (0.02)
Total diluted earnings per
share of common stock $1.03 $0.70 $3.46 $3.16
DIVIDENDS PER SHARE $0.30 $0.29 $1.18 $1.14
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 81,796 83,915 81,866 83,347
Diluted 83,691 85,856 83,704 85,406
AGM $372.1 $289.3 $1,458.5 $1,181.3
% of Net Sales 36.5% 34.5% 36.3% 36.0%
SG&A % of Net Sales 23.5% 22.0% 23.8% 22.4%
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
December 30, 2006 December 31, 2005
ASSETS
Cash and cash equivalents $176.6 $657.8
Accounts and notes receivable 749.6 609.6
Inventories 598.9 460.7
Other current assets 81.1 84.2
Assets held for sale 28.4 13.3
Total current assets 1,634.6 1,825.6
Property, plant and equipment 555.2 467.1
Goodwill and other intangibles 1,629.5 1,060.4
Other assets 131.0 192.0
Total assets $3,950.3 $3,545.1
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $320.0 $170.2
Accounts payable 445.2 327.7
Accrued expenses 486.9 374.3
Liabilities held for sale - 3.1
Total current liabilities 1,252.1 875.3
Long-term debt 679.2 895.3
Other long-term liabilities 472.3 329.6
Shareowners' equity 1,546.7 1,444.9
Total liabilities and equity $3,950.3 $3,545.1
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
OPERATING ACTIVITIES
Net earnings $86.6 $60.2 $289.5 $269.6
Depreciation and amortization 29.9 25.8 121.2 96.5
Changes in working capital 55.2 82.6 28.7 1.2
Other (52.4) (18.6) (0.3) (5.0)
Net cash provided by operating
activities 119.3 150.0 439.1 362.3
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (20.7) (24.4) (80.5) (68.4)
Proceeds (taxes paid) from sale of
business - - 0.9 (20.6)
Business acquisitions and asset
disposals 0.3 (174.5) (539.9) (282.9)
Cash dividends on common stock (24.5) (24.3) (96.1) (94.9)
Other (139.1) 392.9 (204.7) 512.3
Net cash used in investing and
financing activities (184.0) 169.7 (920.3) 45.5
Increase (Decrease) in Cash and Cash
Equivalents (64.7) 319.7 (481.2) 407.8
Cash and Cash Equivalents, Beginning
of Period 241.3 338.1 657.8 250.0
Cash and Cash Equivalents, End of
Period $176.6 $657.8 $176.6 $657.8
Free Cash Flow Computation
Operating Cash Flow $119.3 $150.0 $439.1 $362.3
Less: capital and software
expenditures (20.7) (24.4) (80.5) (68.4)
Free Cash Flow (before dividends) $98.6 $125.6 $358.6 $293.9
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES
Consumer Products $339.1 $289.5 $1,328.5 $1,097.8
Industrial Tools 456.5 339.4 1,802.9 1,369.5
Security Solutions 223.7 210.5 887.2 818.0
Total $1,019.3 $839.4 $4,018.6 $3,285.3
OPERATING PROFIT
Consumer Products $58.3 $45.2 $210.3 $185.2
Industrial Tools 43.5 30.9 159.1 135.5
Security Solutions 30.4 28.3 133.9 123.8
Total $132.2 $104.4 $503.3 $444.5
Operating Profit % of Net Sales
Consumer Products 17.2% 15.6% 15.8% 16.9%
Industrial Tools 9.5% 9.1% 8.8% 9.9%
Security Solutions 13.6% 13.4% 15.1% 15.1%
Total 13.0% 12.4% 12.5% 13.5%
SOURCE Stanley Works
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Related links:
http://www.StanleyWorks.com
http://www.prnewswire.com/comp/874363.html /
CONTACT:
Gerry Gould, V. P. - Investor Relations of
Stanley Works, +1-860-827-3833, ggould@stanleyworks.com
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