Revenues Up 10%; EPS $0.80, Up 78%
NEW BRITAIN, Conn., April 25 /PRNewswire-FirstCall/ -- The Stanley
Works (NYSE: SWK) announced that 1Q07 net income was $68 million, $0.80 per
fully- diluted share, up 78% over earnings of $38 million ($0.45 per
fully-diluted share) from continuing operations in 2006.
Earnings per fully-diluted share included 5 cents of restructuring
related charges, as compared with 25 cents of restructuring and acquisition
inventory accounting charges in 2006.
Net sales were $1,062 million, up 10% over last year. Excluding sales
from recent acquisitions -- primarily HSM Electronic Protection Services,
Inc. ("HSM") -- sales increased 4%, of which 2% was favorable currency.
Gross profit was $395 million, or 37.2% of sales, vs. $332 million or 34.3%
last year. Included in the prior year were $19 million of non-cash
inventory step- up charges related to acquisitions; aside from step-up
charges, gross profit from continuing operations was $350 million or 36.2%
of sales. Thus a 100bp improvement was achieved aside from step-up charges.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $259 million compared with $239 million last year. SG&A
expenses associated with acquired businesses accounted for approximately
$14 million of the increase. SG&A expense as a percent of sales was 24.4%
vs. 24.7% last year, a reduction of 30bps.
Operating margin was $136 million (12.8% of sales), up 46% over $93
million (9.6% of sales) last year. Aside from the aforementioned inventory
step-up charges, operating margin in 2006 was $112 million (11.5% of
sales), yielding an improvement of 130bps in 2007. Income tax expense was
27% of net income as compared with 24% in the prior year. Other net
expenses of $20 million included $6 million of non-cash amortization
expense related to acquired HSM service contracts.
Free cash flow was $68 million (100% of net income), compared with $71
million in 2006.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "We are
encouraged by the overall performance of our business portfolio, which is
more diversified and less dependent on building product end markets than
several years ago. Continued weakness in U.S. retail and construction
markets brought about an expected decline in Fastening Systems; however,
the remainder of the portfolio achieved solid organic sales growth, with
particular strength in industrial markets in North America and Europe. Our
hand tools business continued to gain share, fueled by a third wave of
FatMax(R) Xtreme(TM) tools in North America, increased merchandising
support for the FatMax(R) product line and a successful European new
product launch that included FatMax(R) XL(TM)."
Construction & DIY segment sales of $424 million increased 3% over 2006
with organic sales growth in Europe and Asia offsetting a decline in the
Americas attributable primarily to weakness in the Fastening Systems
business. Segment profit was 14.8% versus 14.1% last year, reflecting a
favorable mix toward higher margin new hand tool products.
Industrial segment sales increased 9% to $311 million, 4% of which was
currency, on strength across the segment. Industrial and automotive repair
tools growth was 9%, while engineered solutions grew 10%. Segment profit
was 14.6% vs. 7.9% last year; aside from the aforementioned non-cash
inventory step-up charges, prior year segment profit was 11.3%. Thus a
330bp improvement in comparable segment profit was achieved, which reflects
second year Facom synergies, price realization and leverage from higher
sales volumes.
Security segment sales increased 20% to $328 million, due primarily to
the inclusion of HSM, acquired in mid-January 2007. Sales excluding
acquisitions were up 1%, with strength in the mechanical access solutions
businesses offset by weakness in the U.S. systems integration business.
Segment profit was 13.9% vs. 10.2% last year. Aside from non-cash inventory
step-up charges, prior year segment profit was 13.4%. This 50bp improvement
in comparable segment profit reflects the inclusion of HSM, the favorable
impact of a mix shift toward mechanical access and the benefit of cost
reduction programs implemented in 2006, partially offset by lower
installation margins in the legacy U.S. systems integration business.
Mr. Lundgren added: "We continue to deliver solid earnings and cash
flow despite challenging environments in several served markets. Our focus
is on profitable growth through productivity and price/inflation recovery,
as well as executing acquisition integrations and improving Fastening
Systems financial performance. We remain confident in prospects for 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 earnings from continuing operations. The outlook for total sales
growth is approximately 8% and for organic growth of approximately 2% based
on anticipation of continued weak conditions in housing-related markets.
This estimate includes anticipated restructuring related charges totaling
$0.20 per fully-diluted share and a tax rate in the 26-28% range vs. 21% in
2006. Free cash flow is expected to be $400 - 450 million.
Second quarter total sales growth is projected at approximately 8%,
with organic sales growth of about 2%. Second quarter net earnings are
estimated at approximately $1.00 per fully diluted share, up 11% on
continuing operations, including $0.08 - $0.10 of restructuring related
charges and an income tax rate in the 26-28% range.
The company has scheduled a conference call with investors for 10:00am
Eastern time tomorrow, Thursday, April 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 5156943.
Operating margin is defined as sales less cost of sales less SG&A
(reconciliation). 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). 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 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 26-28%; (v) deliver free cash flow of
$400-$450 million in 2007; (vi) deliver second quarter total sales growth
of approximately 8% and organic sales growth of about 2%; (vii) deliver
second quarter net earnings of approximately $1.00 per fully diluted share;
(viii) limit second quarter restructuring related charges to 8 - 10 cents
per fully-diluted share; and (ix) limit the income tax rate applicable in
the second 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 HSM and other recent
acquisitions, as well as future acquisitions, while limiting associated
costs; (ii) the Company's ability to deliver cost reductions and 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 success of the Company's
efforts to manage freight costs, steel and other commodity costs; (xiii)
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; (xiv) the Company's ability to generate free cash flow
and maintain a strong debt to capital ratio; (xv) the Company's ability to
identify and effectively execute productivity improvements and cost
reductions while minimizing any associated restructuring charges; (xvi) the
Company's ability to obtain favorable settlement of routine tax audits;
(xvii) the ability of the Company to generate earnings sufficient to
realize future income tax benefits during periods when temporary
differences become deductible; (xviii) the continued ability of the Company
to access credit markets under satisfactory terms; and (xix) 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, including
inventory reductions and payment terms; (vi) 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 (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 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)
FIRST QUARTER
2007 2006
NET SALES $1,062.1 $968.7
COSTS AND EXPENSES
Cost of sales 666.8 636.8
Selling, general and administrative 259.0 238.8
Interest - net 20.2 15.6
Other - net 19.9 19.3
Restructuring charges 4.0 7.3
969.9 917.8
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 92.2 50.9
Income taxes 24.6 12.4
NET EARNINGS FROM CONTINUING OPERATIONS $67.6 $38.5
Loss from discontinued operations
(including loss on disposal of $1.5 million
in 2006) before income taxes - (1.0)
Income tax benefit on discontinued
operations - (0.2)
NET LOSS FROM DISCONTINUED OPERATIONS - (0.8)
NET EARNINGS $67.6 $37.7
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations $0.82 $0.46
Discontinued operations - (0.01)
Total basic earnings (loss) per
share of common stock $0.82 $0.46
DILUTED EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $0.80 $0.45
Discontinued operations - (0.01)
Total diluted earnings (loss)
per share of common stock $0.80 $0.45
DIVIDENDS PER SHARE $0.30 $0.29
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 82,851 82,892
Diluted 84,774 84,804
Gross Margin $395.3 $331.9
% of Net Sales 37.2% 34.3%
SG&A % of Net Sales 24.4% 24.7%
Operating Margin $136.3 $93.1
% of Net Sales 12.8% 9.6%
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
March 31, December 30,
2007 2006
ASSETS
Cash and cash equivalents $210.8 $176.6
Accounts and notes receivable 803.4 749.6
Inventories 615.7 598.9
Other current assets 83.3 85.2
Assets held for sale 28.4 28.2
Total current assets 1,741.6 1,638.5
Property, plant and equipment 568.2 559.4
Goodwill and other intangibles 2,188.5 1,621.5
Other assets 142.1 116.0
Total assets $4,640.4 $3,935.4
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $332.1 $320.0
Accounts payable 462.4 445.2
Accrued expenses 501.4 485.9
Total current liabilities 1,295.9 1,251.1
Long-term debt 1,209.2 679.2
Other long-term liabilities 569.1 453.1
Shareowners' equity 1,566.2 1,552.0
Total liabilities and equity $4,640.4 $3,935.4
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FIRST QUARTER
2007 2006
OPERATING ACTIVITIES
Net earnings $67.6 $37.7
Depreciation and amortization 37.2 30.3
Changes in working capital (18.7) 13.7
Other 7.7 3.5
Net cash provided by operating activities 93.8 85.2
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (26.2) (14.5)
Proceeds from sale of business - 0.9
Business acquisitions and asset disposals (541.4) (490.6)
Proceeds from long-term borrowings 529.7 -
Cash dividends on common stock (24.9) (23.8)
Other 3.2 (10.1)
Net cash used in investing and
financing activities (59.6) (538.1)
Increase (decrease) in Cash and Cash
Equivalents 34.2 (452.9)
Cash and Cash Equivalents, Beginning of Period 176.6 657.8
Cash and Cash Equivalents, End of Period $210.8 $204.9
Free Cash Flow Computation
Operating Cash Flow $93.8 $85.2
Less: capital and software expenditures (26.2) (14.5)
Free Cash Flow (before dividends) $67.6 $70.7
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, and of its sales
performance. 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
2007 2006
NET SALES
Construction & DIY $423.7 $410.6
Industrial 310.7 285.6
Security 327.7 272.5
Total $1,062.1 $968.7
SEGMENT PROFIT
Construction & DIY $62.5 $57.9
Industrial 45.5 22.6
Security 45.7 27.9
Segment Profit 153.7 108.4
Corporate Overhead (17.4) (15.3)
Total $136.3 $93.1
Segment Profit as a Percentage of Net Sales
Construction & DIY 14.8% 14.1%
Industrial 14.6% 7.9%
Security 13.9% 10.2%
Segment Profit 14.4% 11.2%
Corporate Overhead -1.6% -1.6%
Total 12.8% 9.6%
THE STANLEY WORKS AND SUBSIDIARIES
RECONCILIATION OF OPERATING MARGIN TO OPERATING INCOME
(Unaudited, Millions of Dollars)
FIRST QUARTER
2007 2006
NET SALES $1,062.1 $968.7
COSTS AND EXPENSES
Cost of sales 666.8 636.8
Selling, general and administrative 259.0 238.8
OPERATING MARGIN 136.3 93.1
Other - net 19.9 19.3
Restructuring charges 4.0 7.3
OPERATING INCOME $112.4 $66.5
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.
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, The
Stanley Works, +1-860-827-3833 or ggould@stanleyworks.com
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