1Q Revenues Up 3%; Diluted EPS $0.85, Up 6%
NEW BRITAIN, Conn., April 24 /PRNewswire-FirstCall/ -- The Stanley
Works (NYSE: SWK) announced first quarter 2008 financial results today.
Highlights are summarized below:
-- Net sales were $1.10 billion, up 3% vs. the prior year. The increase
was attributable to currency (4 pts.) and acquisitions (2 pts.),
partially offset by lower organic volume, which was down 3%.
-- The gross margin rate improved 60 bp to 37.8%. Productivity and
pricing more than offset inflation, while business mix and acquisitions
also contributed. SG&A expenses were 25.5% of sales, 110 bp higher
than the prior year, primarily due to reduced unit volumes. Operating
margin was flat with prior year, and the rate was 12.4%.
-- Diluted EPS was $0.85, a 6% increase over the prior year, attributable
primarily to lower shares outstanding and lower interest expense.
-- Free cash flow was $83 million (121% of net income), up 22%. Working
capital turns improved from 4.4 to 4.6 driven by improvements in
inventory and payables related to the Stanley Fulfillment System.
Segment Results
Segment results are summarized below:
1Q08 Versus 1Q07
(millions) Segment Segment
Segment Profit Segment Rate
Sales Profit Rate Sales Profit Profit
CDIY $423 $51 12.0% 0% -19% -280 bp
Industrial $336 $49 14.6% +8% +8% 0 bp
Security $338 $53 15.8% +3% +17% +190 bp
-- CDIY sales levels were equivalent to the prior year despite depressed
U.S. market conditions, as favorable currency and pricing were offset
by lower unit volume. The segment profit rate was negatively impacted
by inflation, lower absorption of fixed costs, and continued spending
on market development.
-- Industrial segment sales increased 8%, the majority of which was
related to currency. Organic growth in Europe and Engineered Solutions
was offset by softness in North American automotive repair tools. The
segment profit rate was flat to prior year.
-- Within Security, sales increased 3% and profit expanded a robust 17% as
productivity and price more than offset inflation. Excluding hardware,
which was adversely impacted by the previously disclosed loss of its
major customer, Security sales increased 9%, attributable to currency
(2 pts.), organic growth (3 pts.), and acquisitions (4 pts.).
Convergent Security organic growth and profitability benefited from
continued success of the HSM reverse integration efforts. Mechanical
access organic growth was 4% excluding hardware.
John F. Lundgren, Chairman and Chief Executive Officer, stated:
"Despite continued contraction of several key U.S. markets we were able to
deliver earnings improvement and solid cash flow results due to strength in
Security, Industrial Europe, and Engineered Solutions. We continue to focus
on portfolio diversification and profitable growth initiatives to
successfully achieve our short-term and long-term financial objectives."
Management noted that, although 1Q organic growth of -3% was somewhat
lower than expected, its first quarter diluted EPS and cash performance
were consistent with its previously communicated full year guidance range.
U.S. market conditions going into 2Q continue to be indicative of a
recessionary environment, especially in U.S. CDIY. The company's 2008
guidance, as communicated in January, assumed two quarters of organic
revenue contraction, of which 1Q was the first. Therefore, in order to
ensure diluted EPS performance of $4.20 - $4.40 per share consistent with
its January guidance, market conditions will need to stabilize in 2H '08.
In the event that weak demand levels persist beyond mid-'08, management has
developed contingency plans primarily involving cost reductions which will
be implemented in 2Q/3Q as appropriate. These actions should ensure
achievement of full year diluted EPS at some level greater than the prior
year. In addition, the company continues to be confident that its full year
free cash flow estimate of approximately $500 million will be achieved.
Mr. Lundgren added, "As anticipated, the early 2008 operating
environment is one of the most difficult in recollection. Our solid balance
sheet and strong cash flow, coupled with our ongoing portfolio
diversification strategy, has positioned us well for success. We view 2008
as an opportunity to further advance the company's strategy as well as a
year which will demonstrate the inherent strength of our franchise."
The company will host a conference call with investors at 11:00am EDT,
Thursday, April 24, 2008 to discuss quarterly results. 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 using the conference identification number
42633122.
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 full year earnings per
share consistent with guidance provided in January 2008 ($4.20 - $4.40 per
fully diluted share) provided markets stabilize in the second half of 2008;
(ii) achieve full year diluted EPS at some level greater than the prior
year in the event weak demand levels persist beyond mid-2008; and (iii)
deliver full year free cash flow of approximately $500 million; 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 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 a
reorganization of its Fastening Systems business 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, including, but
not limited to, the extent and duration of current recessionary trends in
the US economy.
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)
FIRST QUARTER
2008 2007
NET SALES $1,096.9 $1,062.1
COSTS AND EXPENSES
Cost of sales 681.9 666.8
Gross Margin 415.0 395.3
% to Net Sales 37.8% 37.2%
Selling, general and administrative 279.5 259.0
% to Net Sales 25.5% 24.4%
Operating Margin 135.5 136.3
% to Net Sales 12.4% 12.8%
Other - net 20.7 19.9
Restructuring charges 3.3 4.0
Income from Operations 111.5 112.4
Interest - net 18.4 20.2
EARNINGS BEFORE INCOME TAXES 93.1 92.2
Income taxes 25.1 24.6
NET EARNINGS $68.0 $67.6
BASIC EARNINGS PER SHARE OF COMMON STOCK $0.86 $0.82
DILUTED EARNINGS PER SHARE OF COMMON STOCK $0.85 $0.80
DIVIDENDS PER SHARE $0.31 $0.30
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 79,025 82,851
Diluted 80,274 84,774
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.
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
March 29, December 29,
2008 2007
ASSETS
Cash and cash equivalents $324.8 $240.4
Accounts and notes receivable 891.0 848.4
Inventories 591.6 567.3
Other current assets 91.8 88.0
Assets held for sale - 24.3
Total current assets 1,899.2 1,768.4
Property, plant and equipment 579.5 569.3
Goodwill and other intangibles 2,274.8 2,252.6
Other assets 201.2 189.6
Total assets $4,954.7 $4,779.9
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $417.9 $292.8
Accounts payable 532.0 508.6
Accrued expenses 479.6 476.1
Total current liabilities 1,429.5 1,277.5
Long-term debt 1,204.0 1,212.1
Other long-term liabilities 604.6 561.8
Shareowners' equity 1,716.6 1,728.5
Total liabilities and equity $4,954.7 $4,779.9
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FIRST QUARTER
2008 2007
OPERATING ACTIVITIES
Net earnings $68.0 $67.6
Depreciation and amortization 40.8 37.2
Changes in working capital (8.1) (18.7)
Other 7.0 7.7
Net cash provided by operating activities 107.7 93.8
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (25.1) (26.2)
Business acquisitions and asset disposals (0.5) (541.4)
Proceeds from long-term borrowings - 529.7
Cash dividends on common stock (24.3) (24.9)
Other 26.6 3.2
Net cash used in investing and
financing activities (23.3) (59.6)
Increase in Cash and Cash Equivalents 84.4 34.2
Cash and Cash Equivalents, Beginning
of Period 240.4 176.6
Cash and Cash Equivalents, End of Period $324.8 $210.8
Free Cash Flow Computation
Operating Cash Flow $107.7 $93.8
Less: capital and software expenditures (25.1) (26.2)
Free Cash Flow (before dividends) $82.6 $67.6
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 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.
The change in working capital is comprised of accounts receivable,
inventory and accounts payable.
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FIRST QUARTER
2008 2007
NET SALES
Construction & DIY $423.2 $423.7
Industrial 335.7 310.7
Security 338.0 327.7
Total $1,096.9 $1,062.1
SEGMENT PROFIT
Construction & DIY $50.8 $62.5
Industrial 49.1 45.5
Security 53.3 45.7
Segment Profit 153.2 153.7
Corporate Overhead (17.7) (17.4)
Total $135.5 $136.3
Segment Profit as a Percentage of Net Sales
Construction & DIY 12.0% 14.8%
Industrial 14.6% 14.6%
Security 15.8% 13.9%
Segment Profit 14.0% 14.4%
Corporate Overhead -1.6% -1.6%
Total 12.4% 12.8%
SOURCE The Stanley Works
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Related links:
http://www.StanleyWorks.com/
http://www.prnewswire.com/comp/874363.html /
CONTACT:
Greg Waybright, Interim VP Investor
Relations, +1-860-827-3544, gwaybright@stanleyworks.com
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