NEW BRITAIN, Conn., July 21 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced second quarter 2008 financial results today.
Highlights are summarized in the following paragraphs:
Net sales from continuing operations were $1.15 billion, up 5%, driven
by currency (+4%) and acquisitions (+1%). Fully diluted earnings per share
from continuing operations was $0.95. Excluding (1) the dilutive effect of
operations discontinued during the quarter and (2) a $0.07 closure charge
associated with the planned exit of the consumer metal storage business
(all of which was contemplated in the company's June 11, 2008 press
release), fully diluted earnings per share was $1.05, up 4%. The $1.05
earnings per share reflects the basis under which the company's previous
2008 annual guidance was established.
2Q and year-to-date free cash flow totaled $55 million and $138
million, respectively. These results were reduced by $17 million relating
to the company's 2Q termination of its receivable securitization facility.
Excluding the impact of this action, year-to-date free cash flow is $3
million greater than the prior year. Working capital turns increased to 4.8
from 4.5 as the Stanley Fulfillment System continued to provide cash flow
benefits.
Segment Results
Segment results are summarized below:
2Q08 Versus 2Q07
(millions) Segment Segment Segment Segment
Sales Profit Profit Rate Sales Profit Profit Rate
CDIY $452 $66 14.6% +4% +4% 0 bp
Industrial $338 $44 13.0% +12% -4% -220 bp
Security $364 $66 18.1% +1% -2% -60 bp
-- CDIY sales increased 4%, driven by strength in Europe, which grew
20% in total (7% organically), with pervasive world-wide pricing actions to
mitigate inflation more than offsetting the adverse impact of lower U.S.
unit volumes due to continued weakness in the relevant North American end
user markets. Segment profit as a percent of sales remained flat at a
healthy 14.6% despite significant pressures relating to inflation and lower
absorption of fixed costs, as price realization and productivity
initiatives provided offsetting benefits.
-- Industrial segment sales increased 12% as a result of currency (8
pts.), acquisitions (2 pts.) and organic growth (2 pts.); the latter driven
primarily by Engineered Solutions and Facom. Engineered Solutions posted a
strong quarter, with revenues up 20% reflecting the Innerspace acquisition
as well as double-digit organic growth in engineered storage. Within
Industrial & Automotive Repair Tools, Facom revenues grew 20% in total and
4% organically. Revenues within North American automotive repair tools
continue to be adversely impacted by the U.S. economy. Segment profit as a
percent of sales declined 220bp versus the prior year driven by inflation,
unfavorable product mix and strategic investments in emerging markets and
Stanley Fulfillment System initiatives.
-- Excluding hardware, which has been adversely impacted in 2008 by the
previously disclosed loss of a major customer, the Security segment
performed well. On that basis, sales increased 7% attributable to organic
growth (4 pts.), acquisitions (2 pts.) and currency (1 pt.). Convergent
Security organic growth (5 pts.) and profitability continued to benefit
from the highly successful reverse integration of HSM. Mechanical access
organic growth was 2% excluding hardware. The segment profit rate
(ex-hardware) was a strong 18.7%, consistent with the prior year. The
hardware issues related to the loss of its major customer anniversary in
the middle of 4Q 2008, at which time it is expected that a more typical
organic growth rate will resume.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "As
expected, U.S. market conditions remained challenging during the second
quarter. The proactive cost containment actions implemented by our
operating teams, complemented by our strong price realization processes and
the benefits of a more diversified revenue base have positioned the company
to protect its earnings base and cash flows despite a highly inflationary
environment and weakened U.S. economy."
Management noted that it now fully expects the recessionary conditions
experienced in the first half of 2008 to continue into the second half of
the year and possibly into 2009. Therefore, the company implemented
contingency plans (as referenced in its 1Q earnings release and investor
call) during the quarter and in July with pre-tax benefits totaling
approximately $20 million in 2008 (net of $15 million in related severance
charges, of which $8 million was recorded during 2Q and the balance to be
recorded in 3Q) and $60 million annually. In addition, during the last
30-45 days, the company has experienced a marked acceleration in inflation,
especially related to steel. As a result, the full year estimate of total
cost inflation has increased from $100 million as discussed during the
company's April investor call to a current view of $150 million. Due to
rapid deployment of related price increases throughout the company, it is
still expected that approximately 90% of this $150 million impact will be
recovered in 2008. As a result of these timely actions, management expects
to preserve its 2008 fully diluted earnings per share from continuing
operations at a level approximately equal to the prior year. Free cash flow
is expected to be at or slightly below $500 million.
Although the company does not provide quarterly earnings guidance as a
matter of policy, it is advising analysts and investors that in the process
of setting their 3Q EPS expectations that, among other factors, they should
consider both the impact of (1) higher severance (as noted above) and (2)
lag time in recovering the most recent wave of inflation, which is
estimated to be approximately $0.15 per share versus the prior year when
taken together.
Mr. Lundgren added, "As demonstrated by our first half results, the
company continues to gain share in markets within its CDIY segment, as well
as pursue growth within its Industrial and Security platforms. Despite the
challenges associated with a strained U.S. economy, with solid free cash
flow and strong performance in non-U.S. markets, Stanley continues to be
well positioned to sustain its earnings base and achieve its long-term
financial objectives."
The company will host a conference call with investors at 10:00am EDT,
Tuesday, July 22, 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
45127121.
The following is a reconciliation of diluted earnings per share from
continuing operations for the second quarter of 2008 to the same measure on
a pro-forma basis comparable to previously provided earnings guidance:
Diluted earnings per share from continuing operations $0.95
Add:
Effect of operations discontinued during the quarter 0.03
Closure charge arising from the planned exit of
the consumer metal storage business 0.07(1)
Pro-forma diluted earnings per share from continuing operations $1.05
(1) These charges are reflected in continuing operations until the
related business closure has occurred at which time all results of this
entity will be reclassified to discontinued operations.
Management believes the pro-forma diluted earnings per share from
continuing operations is useful in assessing the company's actual results
on a basis consistent with the full year earnings guidance of $4.20 - $4.40
per share first provided on January 7, 2008.
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. 9). 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 organic growth in its
hardware business at a more typical growth rate beginning in the middle of
the fourth quarter of 2008; (ii) deliver pre-tax benefits from contingency
plans totaling approximately $20 million in 2008 (net of $15 million in
related severance charges) and $60 million annually; (iii) limit total cost
inflation incurred in 2008 to $150 million; (iv) recover approximately 90%
of the cost inflation impact through price increases; (v) preserve fully
diluted earnings per share from continuing operations at a level
approximately equal to the prior year; (vi) deliver free cash flow at or
slightly below $500 million; and (vii) limit the earnings per share impact
of higher severance and cost inflation to $.15 per fully diluted share in
the third quarter 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 sell, or if appropriate discontinue certain product
lines, including the consumer metal storage business during 2008; (ii) the
Company's ability to successfully integrate recent acquisitions (including
Sonitrol and Xmark acquired on July 18, 2008), 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, including the contingency plans mentioned above, 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, services, 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)
SECOND QUARTER YEAR TO DATE
2008 2007 2008 2007
NET SALES $1,154.2 $1,095.7 $2,227.9 $2,133.8
COSTS AND EXPENSES
Cost of sales 712.3 673.3 1,380.0 1,325.2
Gross margin 441.9 422.4 847.9 808.6
% to Net sales 38.3% 38.6% 38.1% 37.9%
Selling, general and
administrative 283.2 263.4 558.3 517.7
% to Net sales 24.5% 24.0% 25.1% 24.3%
Operating margin 158.7 159.0 289.6 290.9
% to Net sales 13.7% 14.5% 13.0% 13.6%
Other - net 21.1 23.5 41.4 42.5
Restructuring charges 17.0 3.6 20.2 7.6
Income from operations 120.6 131.9 228.0 240.8
Interest - net 17.8 20.3 36.2 40.4
EARNINGS FROM CONTINUING
OPERATIONS
BEFORE INCOME TAXES 102.8 111.6 191.8 200.4
Income taxes 27.1 29.0 50.7 52.3
NET EARNINGS FROM CONTINUING
OPERATIONS 75.7 82.6 141.1 148.1
Earnings from discontinued
operations before income taxes 4.7 4.4 8.8 7.8
Income taxes on discontinued
operations 0.8 1.7 2.3 3.0
NET EARNINGS FROM DISCONTINUED
OPERATIONS 3.9 2.7 6.5 4.8
NET EARNINGS $79.6 $85.3 $147.6 $152.9
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $0.96 $1.00 $1.79 $1.79
Discontinued operations 0.05 0.03 0.08 0.06
Total basic earnings per
share of common stock $1.01 $1.03 $1.87 $1.85
DILUTED EARNINGS PER SHARE OF
COMMON STOCK
Continuing operations $0.95 $0.98 $1.76 $1.75
Discontinued operations 0.05 0.03 0.08 0.06
Total diluted earnings per
share of common stock $1.00 $1.01 $1.84 $1.81
DIVIDENDS PER SHARE $0.31 $0.30 $0.62 $0.60
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 78,650 82,810 78,878 82,752
Diluted 79,827 84,542 80,096 84,605
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
June 30, 2008 December 29, 2007
ASSETS
Cash and cash equivalents $384.2 $240.4
Accounts and notes receivable 928.1 831.1
Inventories 563.3 556.4
Other current assets 177.2 192.0
Total current assets 2,052.8 1,819.9
Property, plant and equipment 572.5 564.9
Goodwill and other intangibles 2,233.9 2,206.7
Other assets 207.3 188.4
Total assets $5,066.5 $4,779.9
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $464.7 $292.8
Accounts payable 529.6 499.6
Other current liabilities 491.4 486.0
Total current liabilities 1,485.7 1,278.4
Long-term debt 1,197.8 1,212.1
Other long-term liabilities 591.7 560.9
Shareowners' equity 1,791.3 1,728.5
Total liabilities and equity $5,066.5 $4,779.9
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
SECOND QUARTER YEAR TO DATE
2008 2007 2008 2007
OPERATING ACTIVITIES
Net earnings $79.6 $85.3 $147.6 $152.9
Depreciation and amortization 40.5 40.7 81.3 77.9
Changes in working capital (24.6) (13.4) (32.7) (32.1)
Other (12.0) (10.5) (5.0) (2.8)
Net cash provided by operating
activities 83.5 102.1 191.2 195.9
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (28.5) (17.3) (53.6) (43.5)
Proceeds from sale of business 3.3 - 3.3 -
Business acquisitions and asset
disposals (26.5) (21.8) (27.0) (563.2)
Proceeds from long-term
borrowings - 0.1 - 529.8
Cash dividends on common stock (24.3) (24.6) (48.6) (49.5)
Other 51.9 (23.6) 78.5 (20.4)
Net cash used in investing and
financing activities (24.1) (87.2) (47.4) (146.8)
Increase (Decrease) in Cash and
Cash Equivalents 59.4 14.9 143.8 49.1
Cash and Cash Equivalents,
Beginning of Period 324.8 210.8 240.4 176.6
Cash and Cash Equivalents, End of
Period $384.2 $225.7 $384.2 $225.7
Free Cash Flow Computation
Operating cash flow $83.5 $102.1 $191.2 $195.9
Less: capital and software
expenditures (28.5) (17.3) (53.6) (43.5)
Free cash flow (before dividends) $55.0 $84.8 $137.6 $152.4
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)
SECOND QUARTER YEAR TO DATE
2008 2007 2008 2007
NET SALES
Construction & DIY $451.8 $432.6 $857.6 $836.9
Industrial 338.2 302.2 670.9 610.3
Security 364.2 360.9 699.4 686.6
Total $1,154.2 $1,095.7 $2,227.9 $2,133.8
SEGMENT PROFIT
Construction & DIY $65.8 $63.3 $112.8 $121.8
Industrial 44.1 45.9 92.8 91.1
Security 66.0 67.4 118.9 113.0
Segment Profit 175.9 176.6 324.5 325.9
Corporate Overhead (17.2) (17.6) (34.9) (35.0)
Total $158.7 $159.0 $289.6 $290.9
Segment Profit as a Percentage
of Net Sales
Construction & DIY 14.6% 14.6% 13.2% 14.6%
Industrial 13.0% 15.2% 13.8% 14.9%
Security 18.1% 18.7% 17.0% 16.5%
Segment Profit 15.2% 16.1% 14.6% 15.3%
Corporate Overhead -1.5% -1.6% -1.6% -1.7%
Total 13.7% 14.5% 13.0% 13.6%
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, The Stanley Works, +1-860-827-3544, or
gwaybright@stanleyworks.com
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