Revenues Up 10%; EPS $1.01, Up 12%; $100 Million Share Repurchase Completed
NEW BRITAIN, Conn., July 24 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that 2Q07 net income was $85 million, $1.01 per
fully- diluted share, up 12% over earnings of $75 million ($0.90 per
fully-diluted share) from continuing operations in 2006. Earnings per
fully-diluted share included 6 cents of restructuring related charges, as
compared with 5 cents of restructuring and acquisition inventory accounting
charges in 2006.
Net sales were $1,123 million, up 10% over last year. Excluding sales
from recent acquisitions - primarily HSM Electronic Protection Services,
Inc. ("HSM") - sales increased 5%, of which 2% was favorable currency.
Gross profit was $432 million, or 38.5% of sales, vs. $377 million or 37.0%
last year (37.4% exclusive of $3 million of non-cash inventory step-up
charges related to acquisitions in the prior year), thus a 110bp
improvement was achieved in comparable gross profit.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $268 million compared with $245 million last year. SG&A
expenses associated with acquired businesses accounted for approximately
$16 million of the increase. SG&A expense as a percent of sales was 23.9%
vs. 24.0% last year, a reduction of 10bps.
Operating margin was $164 million (14.6% of sales), up 24% over $132
million (13.0% of sales) last year, an improvement of 160bps in 2007.
Income tax expense was 26.5% of net income in both the current and prior
year. Other net expenses of $24 million included $10 million of non-cash
amortization expense related to acquired HSM service contracts.
Free cash flow was $85 million (100% of net income), compared with $93
million in 2006. In the first six months, cash from operations was $196
million and free cash flow was $152 million, slightly lower than prior year
levels and within target ranges for achievement of stated full-year
objectives.
The company also announced that, during the second quarter, it
repurchased 1.7 million of its common shares in the open market for $100
million, an average price per share of $59.88. Continued strong cash flow
performance facilitated this repurchase activity, as well as a 3.3% cash
dividend increase in July, while maintaining balance sheet disciplines
consistent with the stated objective of retaining upper-tier investment
grade debt ratings.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "We are
encouraged by the continued performance of our business portfolio, which is
benefiting from greater diversification and lessened dependence upon
building product end markets than several years ago.
"Weakness in U.S. retail and construction markets continued and
hindered growth in our Construction & DIY segment. However, much of the
remainder of the portfolio achieved solid organic sales growth, with
particular strength in industrial markets in North America and Europe and
the Mechanical Access Solutions element of our Security business. Our hand
tools business continued to gain share, on the strength of FatMax(R)
Xtreme(TM) tools in North America, increased merchandising support for the
FatMax(R) product line and, in particular, a new product program including
FatMax(R) XL(TM) in Europe."
Construction & DIY (CDIY) segment sales of $455 million increased 6%
over 2006, 2% of which was currency, with organic sales growth in Europe
and Asia and flat sales in the Americas despite weakness in the
construction and repair & remodel markets there. Segment profit was 14.9%
versus 15.0% last year, as the aforementioned increased volume combined
with profit improvement in the Bostitch business to offset an unfavorable
mix toward lower margin hand tool products.
Industrial segment sales increased 5% to $305 million, 3% of which was
currency, on strength across most of the segment. Industrial and Automotive
Repair Tools grew 4%, while Engineered Solutions grew 9%. Segment profit
was 15.2% vs. 11.8% last year; aside from the aforementioned non-cash
inventory step-up charges, prior year segment profit was 12.9%. Thus a
230bp improvement in comparable segment profit was achieved, which reflects
second year Facom synergies, in addition to price realization and
productivity gains more than offsetting cost inflation across the segment.
Security segment sales increased 22% to $363 million, due primarily to
the inclusion of HSM, acquired in early 2007. Sales excluding acquisitions
were up 3%, 1% of which was currency, with strength in Mechanical Access
Solutions offset by weakness in U.S. Systems Integration. Segment profit
was 18.6% vs. 16.9% last year. This 170bp improvement reflects the
inclusion of HSM and the favorable impact of a mix shift toward mechanical
access products and services, and price realization and productivity gains
more than offsetting cost inflation in the mechanical business, partially
offset by lower installation margins in the legacy U.S. systems integration
business.
Mr. Lundgren added: "Our focus on productivity and price/inflation
recovery continues to bring about profitable growth and we were able to
deliver solid earnings and cash flow despite challenging environments in
our U.S. CDIY served markets. At the same time, we are pleased with the
status of acquisition integrations and Bostitch is demonstrating good
progress toward better financial performance. We remain confident in our
prospects for this year and beyond."
Management updated estimates for 2007, tightening the range of current
year EPS expectations to $4.00-$4.05 per fully diluted share, an increase
of 15-17% over 2006 earnings from continuing operations. The outlook for
total sales growth remains unchanged at approximately 8% and for organic
growth at approximately 2%, based on anticipation of continued weak
conditions in housing-related markets. The earnings per share estimate
reflects the recent reduction of Chinese export VAT rebates of
approximately $0.05 per share in the second half of 2007. Free cash flow is
expected to be $400 - 450 million.
Third quarter total sales growth is estimated at 8%, with organic sales
growth of about 2%. Third quarter net earnings are estimated at
approximately $1.10 per fully diluted share, up 1%, including an income tax
rate of 26%-28% vs. 20% in 2006 yielding a difference approximating $0.09 -
$0.12 per share in the quarter.
The company also announced that it recently completed several small but
strategic acquisitions that advance the ongoing positioning of its business
portfolio toward growth markets:
-- InnerSpace Corporation - a leading make-to-order, direct-to-customer
custom healthcare storage solutions business based in Grand Rapids,
Michigan. This acquisition adds high-value, premium priced storage
solutions for the profitable healthcare market to Stanley's Vidmar
Storage Solutions business (within the Industrial segment).
InnerSpace's storage solutions can be found in hospitals and other
healthcare institutions throughout North America, in areas where
organization and security are most important including cardio-
catheterization labs, operating rooms and interventional radiology
labs.
-- Bed-Check Corporation - a technological leader in the field of non-
restrictive patient fall-monitoring systems for bed, chair and bathroom
related falls based in Tulsa, Oklahoma. This business expands the reach
of Stanley's existing Lincoln, Nebraska based Senior Technologies
personal security business (within the Mechanical Access Solutions
portion of the Security segment).
-- Automatic Entrances, Inc. (AEI) - sells, installs and services
automatic door products in Indiana, enabling the company's Mechanical
Access Solutions (Security segment) business to expand its presence in
that key market.
Combined annual revenues from these three acquisitions are expected to
approximate $42 million and no significant impact on 2007 earnings is
anticipated. Combined consideration approximated $75 million, an average of
about 1.8 times sales and 6.9 times EBITDA (earnings before interest,
taxes, depreciation and amortization).
The company has scheduled a conference call with investors for 10:00
a.m. Eastern time this morning, Tuesday, July 24, 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 6773100.
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 -
$4.05 per fully diluted share; (ii) deliver 2007 total sales growth of
approximately 8% and organic growth of approximately 2%; (iii) limit 2007
taxes to a rate of 26-28%; (iv) limit the impact of the recent elimination
Chinese Value Added Tax ("VAT") rebates to $.05 per share in the second
half of 2007; (v) deliver free cash flow of $400-$450 million in 2007; (vi)
deliver third quarter total sales growth of 8% and organic sales growth of
about 2%; (vii) deliver third quarter net earnings of approximately $1.10
per fully diluted share; and (viii) limit the income tax rate applicable in
the third 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 success of the Company's effort to build a growth platform and market
leadership in Security Solutions; (vii) the Company's ability to expand the
branded tools and hardware platform; (viii) the Company's success at new
product development and introduction and identifying and developing new
markets; (ix) the success of the Company's efforts to manage freight costs,
steel and other commodity costs; (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 commodity costs and other inflation increases; (xi) 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
mitigate the impact of an increase in the VAT rate applicable to products
the Company makes or purchases in China; (xii) the Company's ability to
generate free cash flow and maintain a strong debt to capital ratio; (xiii)
the Company's ability to identify and effectively execute productivity
improvements and cost reductions while minimizing any associated
restructuring charges; (xiv) the Company's ability to obtain favorable
settlement of routine tax audits; (xv) the ability of the Company to
generate earnings sufficient to realize future income tax benefits during
periods when temporary differences become deductible; (xvi) the continued
ability of the Company to access credit markets under satisfactory terms;
and (xvii) 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; 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)
SECOND QUARTER YEAR TO DATE
2007 2006 2007 2006
NET SALES $1,123.0 $1,017.9 $2,185.1 $1,986.6
COSTS AND EXPENSES
Cost of sales 690.9 641.2 1,357.7 1,278.0
Selling, general and
administrative 268.2 244.6 527.2 483.4
Interest - net 20.2 17.4 40.4 33.0
Other - net 24.1 10.9 44.0 30.2
Restructuring charges 3.6 1.8 7.6 9.1
1,007.0 915.9 1,976.9 1,833.7
EARNINGS FROM CONTINUING
OPERATIONS
BEFORE INCOME TAXES 116.0 102.0 208.2 152.9
Income taxes 30.7 27.0 55.3 39.4
NET EARNINGS FROM CONTINUING
OPERATIONS $85.3 $75.0 $152.9 $113.5
Loss from discontinued
operations (including loss on
disposal of $1.5 million in
2006) before income taxes - (0.5) - (1.5)
Income tax benefit on
discontinued operations - (0.2) - (0.4)
NET LOSS FROM DISCONTINUED
OPERATIONS - (0.3) - (1.1)
NET EARNINGS $85.3 $74.7 $152.9 $112.4
BASIC EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $1.03 $0.92 $1.85 $1.38
Discontinued operations - - - (0.01)
Total basic earnings per
share of common stock $1.03 $0.92 $1.85 $1.37
DILUTED EARNINGS (LOSS) PER SHARE
OF COMMON STOCK
Continuing operations $1.01 $0.90 $1.81 $1.35
Discontinued operations - - - (0.01)
Total diluted earnings per
share of common stock $1.01 $0.90 $1.81 $1.34
DIVIDENDS PER SHARE $0.30 $0.29 $0.60 $0.58
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 82,810 81,132 82,752 82,114
Diluted 84,542 82,978 84,605 83,991
Gross Margin $432.1 $376.7 $827.4 $708.6
% of Net Sales 38.5% 37.0% 37.9% 35.7%
SG&A % of Net Sales 23.9% 24.0% 24.1% 24.3%
Operating Margin $163.9 $132.1 $300.2 $225.2
% of Net Sales 14.6% 13.0% 13.7% 11.3%
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
June 30, 2007 December 30, 2006
ASSETS
Cash and cash equivalents $225.7 $176.6
Accounts and notes receivable 854.4 749.6
Inventories 604.4 598.9
Other current assets 76.6 85.2
Assets held for sale 16.5 28.2
Total current assets 1,777.6 1,638.5
Property, plant and equipment 562.6 559.4
Goodwill and other intangibles 2,185.8 1,621.5
Other assets 131.0 116.0
Total assets $4,657.0 $3,935.4
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $382.1 $320.0
Accounts payable 471.2 445.2
Accrued expenses 476.1 485.9
Total current liabilities 1,329.4 1,251.1
Long-term debt 1,211.1 679.2
Other long-term liabilities 535.6 453.1
Shareowners' equity 1,580.9 1,552.0
Total liabilities and equity $4,657.0 $3,935.4
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
SECOND QUARTER YEAR TO DATE
2007 2006 2007 2006
OPERATING ACTIVITIES
Net earnings $85.3 $74.7 $152.9 $112.4
Depreciation and amortization 40.7 31.0 77.9 61.3
Changes in working capital (13.4) (2.0) (32.1) 11.7
Other (10.5) 13.6 (2.8) 17.1
Net cash provided by operating
activities 102.1 117.3 195.9 202.5
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (17.3) (24.1) (43.5) (38.6)
Proceeds from sale of business - - - 0.9
Business acquisitions and asset
disposals (21.8) (25.2) (563.2) (515.8)
Proceeds from long-term
borrowings 0.1 - 529.8 -
Cash dividends on common stock (24.6) (23.5) (49.5) (47.3)
Other (23.6) (42.3) (20.4) (52.4)
Net cash used in investing and
financing activities (87.2) (115.1) (146.8) (653.2)
Increase (Decrease) in Cash and
Cash Equivalents 14.9 2.2 49.1 (450.7)
Cash and Cash Equivalents,
Beginning of Period 210.8 204.9 176.6 657.8
Cash and Cash Equivalents, End of
Period $225.7 $207.1 $225.7 $207.1
Free Cash Flow Computation
Operating cash flow $102.1 $117.3 $195.9 $202.5
Less: capital and software
expenditures (17.3) (24.1) (43.5) (38.6)
Free cash flow (before dividends) $84.8 $93.2 $152.4 $163.9
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
2007 2006 2007 2006
NET SALES
Construction & DIY $455.1 $430.4 $878.8 $841.0
Industrial 304.5 289.7 615.2 575.3
Security 363.4 297.8 691.1 570.3
Total $1,123.0 $1,017.9 $2,185.1 $1,986.6
SEGMENT PROFIT
Construction & DIY $67.7 $64.6 $130.2 $122.5
Industrial 46.2 34.2 91.7 56.8
Security 67.6 50.4 113.3 78.3
Segment Profit 181.5 149.2 335.2 257.6
Corporate Overhead (17.6) (17.1) (35.0) (32.4)
Total $163.9 $132.1 $300.2 $225.2
Segment Profit as a Percentage
of Net Sales
Construction & DIY 14.9% 15.0% 14.8% 14.6%
Industrial 15.2% 11.8% 14.9% 9.9%
Security 18.6% 16.9% 16.4% 13.7%
Segment Profit 16.2% 14.7% 15.3% 13.0%
Corporate Overhead -1.6% -1.7% -1.6% -1.7%
Total 14.6% 13.0% 13.7% 11.3%
THE STANLEY WORKS AND SUBSIDIARIES
RECONCILIATION OF OPERATING MARGIN TO OPERATING INCOME
(Unaudited, Millions of Dollars)
SECOND QUARTER YEAR TO DATE
2007 2006 2007 2006
NET SALES $1,123.0 $1,017.9 $2,185.1 $1,986.6
COSTS AND EXPENSES
Cost of sales 690.9 641.2 1,357.7 1,278.0
Selling, general and
administrative 268.2 244.6 527.2 483.4
OPERATING MARGIN 163.9 132.1 300.2 225.2
Other - net 24.1 10.9 44.0 30.2
Restructuring charges 3.6 1.8 7.6 9.1
OPERATING INCOME $136.2 $119.4 $248.6 $185.9
Operating margin is defined as sales less cost of sales less selling
general and administrative "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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