4Q Revenues Up 15%; 4Q EPS $1.11; 4Q and FY Cash Flows At Record Levels;
4.2 Million Shares Repurchased ($200 Million) During 4Q07 and Early 2008
NEW BRITAIN, Conn., Jan. 28 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced full year and fourth quarter 2007 financial results
today.
Full year 2007 highlights
-- Net sales were $4.5 billion, up 12% vs. prior year. The increase was
attributable to organic growth (2 pts.), currency (3 pts.) and
acquisitions (7 pts.). Strong double-digit growth in Industrial and
Security segments supplemented modest gains in CDIY segment.
-- Pretax income and operating margin were up 23% and 26%, respectively,
as price realization, operations productivity and acquisition mix more
than offset inflationary headwinds.
-- Income tax rate was 25% vs. 21% a year ago. The higher tax rate
impacted results by $0.25 per fully-diluted share in 2007.
-- Fully-diluted EPS from continuing operations was a record $4.00, up 15%
over 2006.
-- Working capital turns at year-end improved to a record 5.1 vs. 4.5 at
year-end 2006, attributable to continued realization of benefits
associated with the Stanley Fulfillment System.
-- Free cash flow was a record $457 million (136% of net income), an
increase of $99 million over 2006, fueled by higher cash earnings and
improved working capital turns.
Full year segment results
2007 Versus 2006
(millions) Segment Segment
Segment Profit Segment Profit
Sales Profit Rate Sales Profit Rate
CDIY $1,795 $270 15.0% +4% 0% -70bps
Industrial $1,256 $184 14.7% +10% +48% +380bps
Security $1,433 $242 16.9% +24% +41% +210bps
John F. Lundgren, Chairman and Chief Executive Officer, stated: "2007
was a year in which our team excelled in the face of a challenging market
environment. Our performance was consistent with the company's long term
financial objectives and significant progress was made both strategically
and operationally."
Fourth quarter highlights
-- Net sales were $1.2 billion, up 15% vs. prior year. The increase was
attributable to organic growth (2 pts.), currency (5 pts.) and
acquisitions (8 pts.).
-- Fully-diluted EPS from continuing operations was $1.11, up 7% over
prior year.
-- Charges totaled $0.04 per share during the quarter for resolution of
previously unanticipated legal matters, the largest of which was an
unfavorable Bostitch-related litigation judgment.
-- Income tax rate was 21%, compared with 14% a year ago. The higher tax
rate impacted results by $0.10 per fully-diluted share in the fourth
quarter of 2007.
-- Pretax income and operating margin were up 16% and 20%, respectively.
-- Operating margin rate was 13.6%, a 60bp improvement. Gross margin rate
was 37.2% of sales, up 70 bps over the fourth quarter of 2006 and SG&A
expenses were 23.5% of sales, unchanged from the prior year.
-- Free cash flow was $186 million (202% of net income), up 89% over the
prior year.
Fourth quarter segment results
4Q07 Versus 4Q06
(millions) Segment Segment
Segment Profit Segment Profit
Sales Profit Rate Sales Profit Rate
CDIY $459 $63 13.7% +5% -8% -190bps
Industrial $340 $51 14.9% +15% +31% +180bps
Security $368 $60 16.3% +29% +44% +170bps
-- In CDIY, double-digit sales increases in Europe, Australia, Canada,
Latin America and Asia more than offset weakness in the U.S. New
product initiatives and currency were the primary drivers of these
increases. The segment profit rate was lower primarily due to product
mix and un-recovered cost inflation within the U.S.
-- Industrial segment sales benefited from 5% organic sales growth in
Industrial and Automotive Repair Tools (Facom, Proto and Mac) and 15%
organic growth in Engineered Solutions. The profit rate expanded as a
result of strong price realization and productivity.
-- In Security, acquisitions (primarily HSM, acquired in early 2007)
accounted for 25 pts. of the sales increase. Mechanical Access sales
were very strong, partially offset by weak legacy U.S. Systems
Integration (USSI) sales. Segment profit benefited from the inclusion
of HSM, as well as strong price realization and a mix shift between
Mechanical Access and legacy USSI.
Mr. Lundgren added: "2008 promises to be an equally, if not more,
challenging year from an end-market perspective. Fortunately, we are
entering the year with our portfolio in excellent shape and with the
majority of our businesses exhibiting strong momentum. We also are enjoying
increasing operational benefits from the Stanley Fulfillment System, which
is rapidly becoming a positive force within the company's culture."
Management reaffirmed its recent estimates for 2008
-- EPS of $4.20-$4.40 per fully diluted share, an increase of 5-10% over
2007 earnings. The 2008 tax rate is expected to be consistent with the
2007 rate.
-- Organic sales growth (ex currency) of 0-1%, based on a subdued 2008
economic environment, including a possible mild and short-lived U.S.
recession, as well as continued deterioration of North American markets
associated with homebuilding and remodeling (about 25% of consolidated
revenues). Such growth is estimated to be marginally negative in the
CDIY segment, marginally positive in the Industrial segment and up 2-3%
in the Security segment.
-- Acquisitions are expected to supplement organic growth although the
effects of potential future acquisitions are not included in the
estimate.
-- Free cash flow of approximately $500 million.
As previously announced, during the fourth quarter the company
repurchased 2.0 million of its common shares in the open market for $100
million, an average price per share of $50.77. For the full year 2007, the
company repurchased 3.7 million shares for $200 million. Further, today the
company announced that, during January 2008, it repurchased an additional
2.2 million shares in the open market at an average price of $46.23 per
share.
Mr. Lundgren added: "Our portfolio transformation strategy and our
commitment to upper-tier credit ratings remain intact. In addition,
periodic share repurchases and consistent dividend increases are important
elements of the total return we deliver to shareholders. Our strong cash
flows have afforded us the opportunity to repurchase nearly 6 million
shares of our common stock in the past nine months. Our recent 10 million
share repurchase authorization provides flexibility to buy additional
shares in the future."
The company will host a conference call with investors at 10:00am EST
today, Monday, January 28, 2008 to discuss quarterly results. The call is
accessible by telephone at (800) 267-8424 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 using the conference identification number
30996408.
Operating margin is defined as sales less cost of sales less SG&A.
Management uses operating margin and its percentage of net sales as key
measures to assess the performance of the company as a whole, as well as
the related measures at the segment level.
Free cash flow is defined as cash flow from operations less capital and
capitalized software expenditures (reconciliation on pg. 8). Free cash flow
does not reflect, among other things, deductions for mandatory debt
service, other borrowing activity, discretionary dividends on the company's
common stock and acquisitions. 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 diversified worldwide
supplier of tools and engineered solutions for professional, industrial,
construction and do-it-yourself use, and security solutions for commercial
applications. 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 2008 earnings of $4.20 -
$4.40 per fully diluted share; (ii) deliver free cash flow of approximately
$500 million in 2008; (iii) deliver organic sales growth (excluding
currency) of flat to 1% in 2008; and (iv) to supplement organic growth
through acquisitions during 2008 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 identify appropriate acquisition opportunities and to
complete such acquisitions; (ii) the Company's ability to successfully
integrate HSM and other recent acquisitions, as well as future
acquisitions, while limiting associated costs; (iii) the Company's ability
to continue to deliver cost reductions and profit improvement in its
Fastening Systems business; (iv) the Company's ability to minimize the
costs to relocate equipment and inventory; (v) the Company's ability to
complete the Fastening reorganization within the anticipated time frame;
(vi) the success of the Company's efforts to expand its tools and security
businesses; (vii) the Company's success at new product development and
introduction, and identifying and developing new markets; (viii) the
success of the Company's efforts to manage freight costs, steel and other
commodity costs; (ix) 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 commodity
costs and other inflation increases; (x) the Company's ability to reduce
its costs, increase its prices, change the manufacturing location or find
alternate sources for products made in China in order to (a) mitigate the
impact of an increase in the VAT rate applicable to products the Company
makes or purchases in China and (b) mitigate the impact of an anti-dumping
tariff recently imposed on certain nails imported from China; (xi) the
Company's ability to generate free cash flow and maintain a strong debt to
capital ratio; (xii) the Company's ability to identify and effectively
execute productivity improvements and cost reductions while minimizing any
associated restructuring charges; (xiii) the Company's ability to obtain
favorable settlement of routine tax audits; (xiv) the ability of the
Company to generate earnings sufficient to realize future income tax
benefits during periods when temporary differences become deductible; (xv)
the continued ability of the Company to access credit markets under
satisfactory terms; and (xvi) 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;
(ii) the success of recruiting programs and other efforts to maintain or
expand overall Mac Tools truck count versus prior years; (iii) 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; (iv) the ability to
continue successfully managing and defending claims and litigation; (v) the
Company's ability to continue improvements in working capital; (vi) the
success of the Company's efforts to mitigate any cost increases generated
by, for example, continued increases in the cost of energy or significant
Chinese Renminbi or other currency appreciation; and (vii) 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; the extent to which North American
markets associated with homebuilding and remodeling continue to
deteriorate; 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
2007 2006 2007 2006
NET SALES $1,167.4 $1,019.3 $4,483.8 $4,018.6
COSTS AND EXPENSES
Cost of sales 733.7 647.2 2,791.6 2,560.1
Gross Margin 433.7 372.1 1,692.2 1,458.5
% to Net Sales 37.2% 36.5% 37.7% 36.3%
Selling, general and
administrative 274.7 239.9 1,058.4 955.2
% to Net Sales 23.5% 23.5% 23.6% 23.8%
Operating Margin 159.0 132.2 633.8 503.3
% to Net Sales 13.6% 13.0% 14.1% 12.5%
Other - net 19.8 11.9 89.7 57.5
Restructuring charges 2.3 3.8 12.8 13.8
Income from Operations 136.9 116.5 531.3 432.0
Interest - net 19.6 15.4 80.2 64.9
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 117.3 101.1 451.1 367.1
Income taxes 25.0 14.1 114.5 76.4
NET EARNINGS FROM CONTINUING
OPERATIONS 92.3 87.0 336.6 290.7
Loss from discontinued
operations (including loss on
disposal of $1.5 million in
2006) before income taxes - (0.5) - (1.5)
Income tax benefit on
discontinued operations - (0.1) - (0.3)
NET LOSS FROM DISCONTINUED
OPERATIONS - (0.4) - (1.2)
NET EARNINGS $92.3 $86.6 $336.6 $289.5
BASIC EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $1.13 $1.06 $4.09 $3.55
Discontinued operations - (0.01) - (0.01)
Total basic earnings per
share of common stock $1.13 $1.06 $4.09 $3.54
DILUTED EARNINGS (LOSS) PER SHARE
OF COMMON STOCK
Continuing operations $1.11 $1.04 $4.00 $3.47
Discontinued operations - (0.01) - (0.01)
Total diluted earnings per
share of common stock $1.11 $1.03 $4.00 $3.46
DIVIDENDS PER SHARE $0.31 $0.30 $1.22 $1.18
AVERAGE SHARES OUTSTANDING
(in thousands)
Basic 81,556 81,796 82,313 81,866
Diluted 83,089 83,691 84,046 83,704
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
December 29, December 30,
2007 2006
ASSETS
Cash and cash equivalents $240.4 $176.6
Accounts and notes receivable 848.4 749.6
Inventories 567.3 598.9
Other current assets 88.0 85.2
Assets held for sale 24.3 28.2
Total current assets 1,768.4 1,638.5
Property, plant and equipment 569.3 559.4
Goodwill and other intangibles 2,252.6 1,621.5
Other assets 189.6 116.0
Total assets $4,779.9 $3,935.4
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $292.8 $320.0
Accounts payable 508.6 445.2
Accrued expenses 476.1 485.9
Total current liabilities 1,277.5 1,251.1
Long-term debt 1,212.1 679.2
Other long-term liabilities 561.8 453.1
Shareowners' equity 1,728.5 1,552.0
Total liabilities and equity $4,779.9 $3,935.4
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2007 2006 2007 2006
OPERATING ACTIVITIES
Net earnings $92.3 $86.6 $336.6 $289.5
Depreciation and amortization 42.1 29.9 162.2 121.2
Changes in working capital 106.1 55.2 51.7 28.7
Other (22.6) (52.4) (6.4) (0.3)
Net cash provided by operating
activities 217.9 119.3 544.1 439.1
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (31.9) (20.7) (86.9) (80.5)
Business acquisitions and asset
disposals (5.8) 0.3 (624.9) (539.9)
Proceeds from long-term
borrowings 0.1 - 529.9 -
Cash dividends on common stock (24.9) (24.5) (99.8) (96.1)
Other (195.6) (139.1) (198.6) (203.8)
Net cash used in investing and
financing activities (258.1) (184.0) (480.3) (920.3)
Increase (Decrease) in Cash and
Cash Equivalents (40.2) (64.7) 63.8 (481.2)
Cash and Cash Equivalents,
Beginning of Period 280.6 241.3 176.6 657.8
Cash and Cash Equivalents, End of
Period $240.4 $176.6 $240.4 $176.6
Free Cash Flow Computation
Operating cash flow $217.9 $119.3 $544.1 $439.1
Less: capital and software
expenditures (31.9) (20.7) (86.9) (80.5)
Free cash flow (before dividends) $186.0 $98.6 $457.2 $358.6
Free cash flow is defined as cash flow from operations less capital and
capitalized software expenditures. The company believes this is an
important measure of its liquidity, of its ability to fund future growth
and to provide a return to the shareowners. Free cash flow does not
reflect, among other things, deductions for mandatory debt service, other
borrowing activity, discretionary dividends on the Company's common stock
and acquisitions.
The change in working capital is comprised of current accounts
receivable, inventory and accounts payable.
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2007 2006 2007 2006
NET SALES
Construction & DIY $458.8 $437.1 $1,795.0 $1,723.9
Industrial 340.4 296.3 1,255.9 1,137.7
Security 368.2 285.9 1,432.9 1,157.0
Total $1,167.4 $1,019.3 $4,483.8 $4,018.6
SEGMENT PROFIT
Construction & DIY $62.8 $68.0 $270.0 $271.1
Industrial 50.6 38.6 184.0 124.0
Security 60.0 41.8 242.1 171.5
Segment Profit 173.4 148.4 696.1 566.6
Corporate Overhead (14.4) (16.2) (62.3) (63.3)
Total $159.0 $132.2 $633.8 $503.3
Segment Profit as a Percentage
of Net Sales
Construction & DIY 13.7% 15.6% 15.0% 15.7%
Industrial 14.9% 13.0% 14.7% 10.9%
Security 16.3% 14.6% 16.9% 14.8%
Segment Profit 14.8% 14.6% 15.5% 14.1%
Corporate Overhead -1.2% -1.6% -1.4% -1.6%
Total 13.6% 13.0% 14.1% 12.5%
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, The
Stanley Works, +1-860-827-3833, ggould@stanleyworks.com
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