Stanley Also Reiterates FY08 Earnings Guidance
NEW BRITAIN, Conn., Feb. 21 /PRNewswire-FirstCall/ -- At an update
meeting in New York City today, John F. Lundgren, Chairman and Chief
Executive Officer, and selected members of the corporate management team of
The Stanley Works (NYSE: SWK) updated investors and analysts on the
company's growth strategies and key initiatives. Among the points
emphasized were the following:
-- The company's recent portfolio transition has yielded a diversified
portfolio of primarily industrial and commercial businesses that is
much less dependent upon large U.S. retailers than just five years ago.
2007 aggregate sales to U.S. home centers and mass merchants were 17%
of consolidated sales versus 40% just five years ago.
-- The company's 2007 performance, which differentiated it from historical
building product company peers, was the direct result of such portfolio
transition and included:
- 12% growth in revenues
- 26% increase in operating margin
- 15% growth in EPS
- 25% increase in EBITDA (earnings before interest, taxes,
depreciation and amortization)
- 27% increase in free cash flow
- improvement in annual working capital turns from 4.5X to 5.1X
-- The company's capital allocation priorities include the continuation of
its 131-year history of paying cash dividends, the maintenance of
upper-tier investment grade debt ratings and the utilization of free
cash flow after dividends for strategic acquisitions and opportunistic
repurchases of Stanley shares.
-- Management reported that major initiatives including brand support,
emerging markets, development of strong value propositions, advancement
of the Stanley Fulfillment System and global cost competitiveness are
progressing well and facilitating growth.
Mr. Lundgren commented: "Today we updated Wall Street analysts and
investors on the exciting growth, cost reduction and asset efficiency
initiatives that represent the heart of our day-to-day efforts. We
highlighted the Stanley Fulfillment System whose benefits began to show in
the form of considerable inventory reductions and cash flow growth in 2007.
Along with a solid long-term strategy, brand and new product vitality and
continued execution, we are confident in the prospects for continued growth
in the coming years."
The company also reaffirmed full year 2008 earnings guidance provided
on January 28, 2008:
-- Organic sales growth ex-currency of approximately 0-1%.
-- Earnings of $4.20-$4.40 per diluted share, an increase of 5-10% over
$4.00 earned in 2007.
-- A tax rate approximating 25%.
-- Free cash flow of approximately $500 million, up 10% over 2007.
Management also reiterated its long-term objectives: 3-5% organic
annual sales growth, approximately 10% total annual sales growth, mid-teens
percentage annual EPS growth, free cash flow greater than or equal to net
income and return on capital employed (ROCE) in the 12-15% range.
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"EBITDA" (earnings before interest, taxes, depreciation and
amortization) is a non-GAAP measurement. Management believes it is
important to the ability to determine the earnings power of the company and
to properly value the company, due to current high levels of non-cash
expenses related to recent acquisitions. A full reconciliation with the
relevant GAAP measurement, net earnings, follows:
($ millions) 2007 2006
Net earnings from continuing operations $337 $291
Interest, net 80 65
Income tax expense 115 76
Depreciation & amortization 162 121
EBITDA $694 $553
Free cash flow is defined as cash flow from operations less capital
investments; the company believes this is an important measure of its
liquidity, as well as 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. A
reconciliation of free cash flow with the relevant GAAP measurement, net
cash provided by operating activities, follows:
2007 2006
Net cash provided by operating activities $544 $439
Less: capital expenditures (66) (60)
Less: capitalized software (21) (20)
Free cash flow $457 $359
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. A full reconciliation with the
related GAAP measurement, income from operations, is below:
2007 2006
Operating margin $634 $503
Less: Other - net 90 57
Less: Restructuring charges 13 14
Income from operations $531 $432
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 organic sales growth
(excluding currency) of flat to 1% in 2008; (ii) deliver 2008 earnings of
$4.20 - $4.40 per fully diluted share; (iii) maintain a tax rate
approximating the 25% range for 2008; (iv) deliver free cash flow of
approximately $500 million in 2008; and (v) over the long term, to deliver
(a) 3-5% organic annual sales growth, (b) approximately 10% total annual
sales growth, (c) mid-teens percentage annual EPS, (d) free cash flow
greater than or equal to net income, and (e) return on capital employed in
the 12-15% range 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 successfully convert UK and Canadian operations to the HSM model; (iv)
the Company's ability to continue to deliver cost reductions and profit
improvement in its Fastening Systems business; (v) the Company's ability to
minimize the costs to relocate equipment and inventory; (vi) the Company's
ability to complete the Fastening reorganization within the anticipated
time frame; (vii) the success of the Company's efforts to expand its tools
and security businesses; (viii) the Company's success at new product
development and introduction; (ix) the success of the Company's efforts to
identify and develop new markets, including various countries in Asia; (x)
the success of the Company's efforts to manage freight costs, steel and
other commodity costs; (xi) 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; (xii) the Company's ability to reduce
its costs, increase its prices, change the manufacturing location of or
find alternate sources for products made in China in order to mitigate the
impacts of, among other things, (a) increases in the VAT rates applicable
to products the Company makes or purchases in China, (b) an anti-dumping
tariff recently imposed on certain nails imported from China, and (c)
increases in labor costs in China; (xiii) the Company's ability to generate
free cash flow and maintain a strong debt to capital ratio; (xiv) the
Company's ability to identify and effectively execute productivity
improvements and cost reductions while minimizing any associated
restructuring charges; (xv) the Company's ability to obtain favorable
settlement of routine tax audits; (xvi) the ability of the Company to
generate earnings sufficient to realize future income tax benefits during
periods when temporary differences become deductible; (xvii) the continued
ability of the Company to access credit markets under satisfactory terms;
and (xviii) 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 success
of efforts to expand dealer and distributor networks in China and India;
(iv) 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; (v) the
ability to continue successfully managing risk and managing and defending
claims and litigation; (vi) the Company's ability to continue improvements
in working capital; (vii) 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 (viii) 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 housing and general construction continue to
deteriorate; down turns in European or Asian housing and construction
markets; further tightening of credit markets; 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.
SOURCE The 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
The Stanley Works, +1-860-827-3833, ggould@stanleyworks.com
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