Revenues Up 22%; Continuing Operations EPS 45 cents, In Line With Guidance
NEW BRITAIN, Conn., April 25 /PRNewswire-FirstCall/ -- The Stanley
Works (NYSE: SWK) announced that first quarter 2006 net income from
continuing operations was $39 million (45 cents per fully-diluted share),
in line with the company's guidance of 40-45 cents. These results compare
with earnings of $66 million (77 cents per fully-diluted share) from
continuing operations in 2005.
Earnings per fully-diluted share from continuing operations included
the effect of 25 cents of charges for restructuring and acquisition
inventory accounting, 2 cents of stock option expenses recorded as required
by FAS 123R, 4 cents impact of a higher income tax rate and 1 cent benefit
from share repurchase activity during the first quarter.
Net sales were $969 million, up 22% over last year. Excluding the sales
of recent acquisitions -- primarily Facom Tools and National Hardware --
organic sales were flat (+1% in constant currency). These sales levels were
in line with guidance of 22-24% total sales growth and 0-2% aside from
recent acquisitions.
Gross profit from continuing operations was $332 million, or 34.3% of
sales, versus $287 million or 36.0% last year. Included were $19 million of
non-cash inventory step-up charges related to acquisitions; aside from such
step-up charges, gross profit from continuing operations of $350 million
was 36.2% of sales, up 20 basis points over the prior year due to the
positive impact of acquired companies more than offsetting lower margins in
Fastening Systems.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $239 million (24.7% of sales) compared with $184 million
(23.2% of sales) last year. Acquired businesses ($51 million), stock option
expenses and restructuring-related consulting charges accounted for the
increase. Aside from those items, comparable SG&A expenses were 23.3% of
sales vs. last year's 23.2%, as increased brand building expenses were
offset by reductions in administrative expenses elsewhere.
During the first quarter the company undertook previously-announced
cost reduction actions expected to deliver $40 million of benefit in 2006.
Associated costs of $13 million were incurred, principally severance,
included in the quarter's results as follow: $1 million in SG&A expenses as
noted above, $5 million in other net and $7 million reported on a separate
restructuring line in the consolidated statement of operations.
Other Net expenses were $19 million vs. $10 million in the first
quarter of 2005. The $9 million increase was principally due to the
aforementioned $5 million of charges and $3 million of increased
amortization due to recent acquisitions. The company's overall effective
income tax rate was 24%. Excluding recently acquired companies, the tax
rate was 29% compared with 23% in the prior year's first quarter, which
accounted for approximately 4 cents reduction in fully-diluted earnings per
share versus last year.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "Our
team executed in line with expectations in a quarter with many significant
activities taking place. As expected, our Consumer Products team managed
the conclusion of December-January retail inventory reductions, as well as
subsequent increased volumes, extremely well. At the same time, the team
initiated the introduction of FatMax(R) Xtreme(TM), an exciting new hand
tools product line. While in its early stages, it is thus far meeting or
exceeding our expectations."
Consumer Products sales were $310 million, a 20% increase over 2005,
due to the inclusion of National Hardware and 3% organic growth
ex-currency. Previously-cited inventory reduction programs by large home
center and mass merchant customers affected results through January and
orders returned to normal levels as expected in February and March.
Operating margin was 12.0% versus 15.9% last year, due primarily to the
inclusion of $9 million non-cash inventory step-up charges resulting from
acquisition accounting. Excluding such charges operating margin was 14.8%
versus 15.9% last year, a 110 basis point decline attributable to the
impact of including a recent acquisition.
Mr. Lundgren continued: "In our Industrial Tools segment, fastening
systems -- the largest business within the segment -- experienced an
expected sales decline due to retail customer inventory adjustments in
January and a difficult comparison with a strong first quarter of 2005 when
high galvanized nail backlogs were shipped. Uncharacteristic weakness was
also experienced in our construction, industrial and European fastening
channels. Certain of our other industrial tools businesses delivered strong
organic growth that partially offset the Fastening Systems volume issues.
Security Solutions delivered low-single digit organic growth in line with
our previously-guided expectations."
Industrial Tools sales increased 29% to $451 million. Organic sales
ex-currency declined 3% due primarily to the Fastening Systems weakness.
Continued strong demand in industrial mechanics tools and industrial tool
storage partially offset the decline in fastening systems sales. Operating
margin was 6.4% versus 10.5% last year, due largely to the inclusion of $10
million of non-cash inventory step-up charges resulting from acquisition
accounting. Excluding such charges operating margin was 8.5% versus 10.5%
last year, a 200 basis point decline due principally to aforementioned
lower volumes, related cost absorption issues and unfavorable product mix
in Fastening Systems, partially offset by the favorable impact of including
higher-margin acquired companies.
Security Solutions sales increased 10% to $208 million. Organic sales,
excluding acquisitions and foreign currency impacts, increased 3%, with
strength in the automatic doors business. Orders were strong and backlogs
grew across the Security Solutions portfolio. Operating margin was 13.0% in
the first quarters of 2006 and 2005, as the benefits of cost reduction
programs implemented during the quarter offset the unfavorable impact of a
mix shift to lower-margin electronic access revenues.
Mr. Lundgren added: "The Facom Tools and National Hardware teams joined
our company at the outset of the quarter and the integrations of these two
businesses are progressing effectively thus far. We enter the second
quarter with a very strong consumer outlook, good prospects for a Fastening
Systems sales rebound and our two significant new acquisitions performing
well."
Operating cash flows were $85 million vs. $61 million in the prior
year, a $24 million improvement despite the absence in 2006 of $43 million
from the liquidation of U.K. lease portfolio assets which occurred in 2005.
Free cash flow before dividends (cash from operations less capital
expenditures) was $71 million versus $50 million last year, reflecting
ongoing management of all working capital elements.
During the first quarter the company repurchased in excess of 3.5
million of its common shares at an average cost of $49.82 and a total cost
of $176 million. The company expects to continue its previously-announced
share repurchase program into the second quarter.
The company also indicated that it recently completed two small
acquisitions and a small divestiture:
* Automatic Entrances of Colorado, Inc., a security systems distributor
based in Denver, Colorado, sells, installs and services commercial
automatic door equipment in several western states. This small bolt-on
acquisition provides geographic strength to Security Solutions'
automatic door business in the growing western region.
* Allan Brothers is a leading South African manufacturer of nails and
staples. A bolt on to the Fastening Systems business, this acquisition
provides access to the growing South African fastening market.
* The company completed its previously-announced divestiture of its UK
paint decorator tool business.
Combined revenues from the Automatic Entrances of Colorado and Allan
Brothers acquisitions are expected to total approximately $12 million and
to have no significant impact on 2006 earnings. Consideration for the two
acquisitions approximated $9.5 million, an average of about .8 times sales.
Management updated earnings estimates for 2006, reaffirming its
previous total sales growth estimate of 24-26% and organic sales growth of
3-5%, or 4- 6% ex-currency. The company also reaffirmed previous estimates
for full year earnings of $3.45-$3.65 per fully diluted share, an increase
of 8-15% over $3.18 earned in 2005 from continuing operations. The company
expects that free cash flow for the full year 2006 will approximate $350
million as previously indicated.
Second quarter total sales growth is projected at about 30%, including
growth ex-currency of 5-7%, led by organic growth in the Consumer Products
segment. Earnings are estimated at 80-85 cents per fully diluted share,
including the following items on a fully-diluted per share basis: 2-3 cents
of remaining inventory step-up charges, 2 cents of stock option expenses,
3-4 cents of higher income taxes than in the second quarter of 2005 and 2-3
cents of restructuring charges related to cost reduction programs.
The company has scheduled a conference call with investors for 2:30
p.m. Eastern time tomorrow afternoon, Wednesday, April 26, 2006 to discuss
the 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 8061581.
Free cash flow is defined as cash flow from operations less capital
investments. Organic sales growth is defined as total sales growth less the
sales of companies acquired in the past twelve months and less foreign
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 the Company's press release attached to this Current
Report on Form 8-K, including but not limited to those regarding the
Company's ability to: (i) deliver total sales growth of 24-26% and organic
sales growth of 3-5% (4-6% ex-currency) in 2006; (ii) deliver full year
earnings of $3.45 - $3.65 per fully diluted share; (iii) deliver free cash
flow for the full year 2006 of approximately $350 million; (iv) deliver
second quarter organic sales growth of 5-7% and total sales growth of
approximately 30%; (v) deliver second quarter earnings of 80-85 cents per
fully diluted share and (vi) limit the second quarter impact of the
following items on a diluted per share basis: inventory step up charges in
purchase accounting to 2-3 cents, stock option expense to 2 cents, income
taxes to 3-4 cents and restructuring charges to 2 - 3 cents, 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,
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 and other
recent acquisitions, as well as future acquisitions, while limiting
associated costs; (ii) the Company's ability to continue making strategic
acquisitions; (iii) the Company's ability to reduce large customer
concentrations; (iv) the success of the Company's effort to build a growth
platform and market leadership in Security Solutions; (v) the Company's
ability to expand the branded tools and hardware platform; (vi) the
Company's ability to complete its share repurchase program; (vii) the
Company's success at new product development and identifying and developing
new markets; (viii) the Company's success in continuing to increase brand
support and roll out of the Stanley Fulfillment System; (ix) the success of
the Company's efforts to hold freight costs, steel and other commodity
costs down; (x) 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; (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,
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; and
(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; and (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.
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 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)
FIRST QUARTER
2006 2005
NET SALES $968.7 $796.3
COSTS AND EXPENSES
Cost of sales 636.8 509.3
Selling, general and administrative 238.8 184.4
Interest - net 15.6 7.6
Other - net 19.3 9.5
Restructuring charges 7.3 -
917.8 710.8
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 50.9 85.5
Income taxes 12.4 19.7
NET EARNINGS FROM CONTINUING
OPERATIONS $38.5 $65.8
Earnings (loss) from discontinued
operations (including loss on
disposal of $1.5 million in 2006)
before income taxes (1.0) 0.9
Income taxes (benefit) on
discontinued operations (0.2) 0.1
NET EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS (0.8) 0.8
NET EARNINGS $37.7 $66.6
BASIC EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $0.46 $0.79
Discontinued operations (0.01) 0.01
Total basic earnings (loss) per
share of common stock $0.46 $0.80
DILUTED EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $0.45 $0.77
Discontinued operations (0.01) 0.01
Total diluted earnings (loss)
per share of common stock $0.45 $0.78
DIVIDENDS PER SHARE $0.29 $0.28
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 82,892 82,822
Diluted 84,804 85,156
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
April 1, December 31,
2006 2005
ASSETS
Cash and cash equivalents $204.9 $657.8
Accounts and notes receivable 782.4 609.6
Inventories 548.5 460.7
Other current assets 90.5 84.2
Assets held for sale 3.4 13.3
Total current assets 1,629.7 1,825.6
Property, plant and equipment 491.4 467.1
Goodwill and other intangibles 1,482.0 1,060.4
Other assets 184.5 192.0
Total assets $3,787.6 $3,545.1
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $400.7 $170.2
Accounts payable 411.0 327.7
Accrued expenses 464.5 374.3
Liabilities held for sale - 3.1
Total current liabilities 1,276.2 875.3
Long-term debt 821.3 895.3
Other long-term liabilities 363.1 329.6
Shareowners' equity 1,327.0 1,444.9
Total liabilities and equity $3,787.6 $3,545.1
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FIRST QUARTER
2006 2005
OPERATING ACTIVITIES
Net earnings $37.7 $66.6
Depreciation and amortization 30.3 23.4
Changes in working capital 9.6 (21.2)
Other 7.6 (8.2)
Net cash provided by operating activities 85.2 60.6
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (14.5) (10.5)
Proceeds (taxes paid) from sale
of business 0.9 (10.6)
Business acquisitions and asset
disposals (490.6) (59.7)
Cash dividends on common stock (23.8) (23.2)
Other (10.1) 103.9
Net cash used in investing and
financing activities (538.1) (0.1)
Increase (decrease) in Cash and Cash
Equivalents (452.9) 60.5
Cash and Cash Equivalents, Beginning
of Period 657.8 250.0
Cash and Cash Equivalents, End of
Period $204.9 $310.5
Free Cash Flow Computation
Operating Cash Flow $85.2 $60.6
Less: capital and software
expenditures (14.5) (10.5)
Free Cash Flow (before dividends) $70.7 $50.1
Free cash flow is defined as cash flow from operations less capital
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.
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
2006 2005
NET SALES
Consumer Products $309.8 $257.2
Industrial Tools 451.0 349.3
Security Solutions 207.9 189.8
Total $968.7 $796.3
OPERATING PROFIT
Consumer Products $37.3 $41.0
Industrial Tools 28.7 36.8
Security Solutions 27.1 24.8
Total $93.1 $102.6
SOURCE The Stanley Works
 back to top
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
|
