* Revenues, Up 25%, Exceed $1 Billion For The First Time
* EPS From Continuing Operations 90 cents, Exceeds Guidance
NEW BRITAIN, Conn., July 25 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that second quarter 2006 net income from continuing
operations was $75 million (90 cents per fully-diluted share), exceeding
the company's guidance of 80-85 cents. These results compare with earnings
of $65 million (77 cents per fully-diluted share) from continuing
operations in 2005.
Net sales were $1,018 million, up 25% over last year. Excluding sales
from recent acquisitions -- primarily Facom Tools and National Hardware --
organic sales were up 3% in constant currency.
Gross profit from continuing operations was $377 million, or 37.0% of
sales, versus $301 million or 36.9% last year. Included were $3 million of
non-cash inventory step-up charges related to acquisitions; aside from such
step-up charges, gross profit from continuing operations of $380 million
was 37.4% of sales, up 50 basis points over the prior year due to the
positive impact of acquired companies.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $245 million (24.0% of sales) compared with $188 million
(23.1% of sales) last year. SG&A expenses associated with acquired
businesses accounted for approximately $50 million of the increase. Aside
from acquisitions, comparable SG&A expenses were 23.1% of sales, unchanged
from the prior year, as increased advertising and the adoption of stock
option expensing were offset by reductions in other expenses.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "We
executed well in a quarter filled with many significant activities. In
particular, our Consumer Products team excelled in managing the
introduction of the exciting new FatMax(R) Xtreme(TM) hand tools product
line and in merchandising the FatMax(R) line for success in the mass
merchant channel. Thus far both are exceeding our expectations."
Consumer Products sales were $332 million, a 27% increase over 2005,
due to the inclusion of National Hardware and 5% organic sales growth.
Strength was most evident in U.S. hand tools and is attributed to the
aforementioned successes of the FatMax(R) Xtreme(TM) and FatMax(R) product
offerings. Operating margin was 15.3% versus 16.1% last year, due primarily
to the timing of commodity cost inflation in relation to pricing
initiatives.
Industrial Tools sales increased 33% to $463 million. Organic sales
declined 1%, as continued strong demand in industrial mechanics tools and
industrial tool storage was offset by declines in Fastening Systems.
Operating margin was 9.8% versus 10.9% last year, due largely to the
inclusion of $3 million of non-cash inventory step-up charges resulting
from acquisition accounting. Excluding such charges operating margin was
10.5% versus 10.9% last year, a 40 basis point decline due principally to
price erosion and commodity cost inflation issues in Fastening Systems,
partially offset by the favorable impact of including acquisitions as well
as profit improvement in Mac Tools and Hydraulic Tools.
Security Solutions sales increased 9% to $224 million. Organic sales
increased 4%, with strength in the automatic doors business and high
single- digit growth in the North American systems integration business.
Orders were strong and backlog grew across the segment. Operating margin
was 16.1% versus 15.7% in the prior year, as the benefits of cost reduction
programs implemented during the first quarter more than offset the
unfavorable impact of a mix shift into less profitable systems integration.
Mr. Lundgren added: "The Facom Tools and National Hardware integrations
continue to progress well. Positive momentum is also evident in Consumer,
Industrial Tools and Storage, Mac Tools and Security Solutions. In
addition, the Fastening Systems business has stabilized and, under new
leadership, is refocusing on profitable growth as a key objective.
"In general, we feel that our portfolio of businesses is well
positioned to manage cost inflation pressures and achieve pricing to
counter some of them, while simultaneously increasing productivity. We
enter the third quarter with anticipation of another strong new product
launch in Consumer Products, sequential profit improvement in Fastening
Systems and the continuation of organic sales growth."
Operating cash flow was $117 million vs. $77 million in the prior year,
a $40 million improvement. Free cash flow before dividends (cash from
operations less capital expenditures) was $93 million versus $61 million
last year. Operating cash flow and, therefore, free cash flow included $41
million from the sale of receivables in connection with customer financing
programs.
In the first six months of 2006, free cash flow before dividends (cash
from operations less capital expenditures) was $164 million versus $111
million last year. Inflows from receivables sales were comparable at $44
million and $43 million in the first halves of 2006 and 2005, respectively.
Higher free cash flows in 2006 have resulted from higher earnings (aside
from non-cash inventory step-up and intangibles amortization associated
with acquisitions) and improved working capital management.
During the second quarter the company repurchased 0.5 million of its
common shares at total cost of $24 million. Combined with 3.5 million
shares repurchased in the first quarter for $176 million, nearly 5% of
outstanding shares have been repurchased in 2006.
Management updated earnings estimates for 2006, reaffirming its
previous total sales growth estimate of 24-26% and organic sales growth of
3-5%. The company also narrowed its range of estimates for the full year
earnings to approximate $3.55 per fully diluted share, an increase of 12%
over $3.18 earned in 2005 from continuing operations. The company expects
that free cash flow for the full year 2006 will equal or exceed its
previous $350 million estimate.
Third quarter organic sales growth is projected at 4-6%. Earnings are
estimated at $1.03 - $1.07 per fully diluted share, including 3 cents of
restructuring related charges and 2 cents of stock option expenses.
Considered in conjunction with reported first half results, the
aforementioned full year and third quarter estimates imply fourth quarter
organic revenue growth of 5-7% and earnings per fully-diluted share in the
range of $1.13 - $1.17.
The company has scheduled a conference call with investors for 10:00am
Eastern time tomorrow morning, Wednesday, July 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 2803627.
Free cash flow is defined as cash flow from operations less capital
investments (see reconciliation on page 8). Organic sales growth is defined
as total sales growth less the 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 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% in 2006; (ii) deliver full year earnings from
continuing operations approximating $3.55 per fully diluted share; (iii)
deliver free cash flow for the full year 2006 equal to or exceeding $350
million; (iv) deliver third quarter organic sales growth of 4-6%; (v)
deliver third quarter earnings from continuing operations of $1.03 - $1.07
per fully diluted share; (vi) limit the third quarter impact of stock
option expense to 2 cents and restructuring charges to 3 cents per fully
diluted share; (vii) deliver fourth quarter organic revenue growth of 5-7%;
and (viii) deliver fourth quarter earnings per fully diluted share from
continuing operations in the range of $1.13 - $1.17 per share, 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 the Facom, National and other
recent acquisitions, as well as future acquisitions, while limiting
associated costs; (ii) the Company's ability to deliver sequential profit
improvement in its fastening systems business; (iii) the Company's ability
to continue making strategic acquisitions; (iv) the Company's ability to
reduce large customer concentrations; (v) the success of the Company's
effort to build a growth platform and market leadership in Security
Solutions; (vi) the Company's ability to expand the branded tools and
hardware platform; (vii) the Company's success at new product development
and introduction 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; (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 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
2006 2005 2006 2005
NET SALES $1,017.9 $814.7 $1,986.6 $1,611.0
COSTS AND EXPENSES
Cost of sales 641.2 514.0 1,278.0 1,023.3
Selling, general and administrative 244.6 188.4 483.4 372.8
Interest - net 17.4 8.2 33.0 15.8
Other - net 10.9 12.0 30.2 21.5
Restructuring charges 1.8 1.6 9.1 1.6
915.9 724.2 1,833.7 1,435.0
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 102.0 90.5 152.9 176.0
Income taxes 27.0 25.2 39.4 44.9
NET EARNINGS FROM CONTINUING
OPERATIONS 75.0 65.3 113.5 131.1
Earnings (loss) from discontinued
operations (including loss on
disposal of $1.5 million in 2006)
before income taxes (0.5) 1.3 (1.5) 2.2
Income taxes (tax benefit) on
discontinued operations (0.2) 0.7 (0.4) 0.8
NET EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS (0.3) 0.6 (1.1) 1.4
NET EARNINGS $74.7 $65.9 $112.4 $132.5
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $0.92 $0.79 $1.38 $1.58
Discontinued operations - 0.01 (0.01) 0.02
Total basic earnings per share
of common stock $0.92 $0.79 $1.37 $1.60
DILUTED EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $0.90 $0.77 $1.35 $1.54
Discontinued operations - 0.01 (0.01) 0.02
Total diluted earnings per
share of common stock $0.90 $0.78 $1.34 $1.56
DIVIDENDS PER SHARE $0.29 $0.28 $0.58 $0.56
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 81,132 83,020 82,114 82,919
Diluted 82,978 84,983 83,991 85,076
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
July 1, 2006 December 31, 2005
ASSETS
Cash and cash equivalents $207.1 $657.8
Accounts and notes receivable 751.2 609.6
Inventories 571.6 460.7
Other current assets 80.5 84.2
Assets held for sale 2.9 13.3
Total current assets 1,613.3 1,825.6
Property, plant and equipment 493.5 467.1
Goodwill and other intangibles 1,517.1 1,060.4
Other assets 221.4 192.0
Total assets $3,845.3 $3,545.1
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $345.1 $170.2
Accounts payable 420.1 327.7
Accrued expenses 433.9 374.3
Liabilities held for sale - 3.1
Total current liabilities 1,199.1 875.3
Long-term debt 821.0 895.3
Other long-term liabilities 418.2 329.6
Shareowners' equity 1,407.0 1,444.9
Total liabilities and equity $3,845.3 $3,545.1
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
SECOND QUARTER YEAR TO DATE
2006 2005 2006 2005
OPERATING ACTIVITIES
Net earnings $74.7 $65.9 $112.4 $132.5
Depreciation and amortization 31.0 23.9 61.3 47.3
Changes in working capital (8.1) (4.2) 1.5 (25.4)
Other 19.7 (8.5) 27.3 (16.7)
Net cash provided by operating
activities 117.3 77.1 202.5 137.7
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (24.1) (16.5) (38.6) (27.0)
Proceeds (taxes paid) from sale of
business - (8.1) 0.9 (18.7)
Business acquisitions and asset
disposals (25.2) (46.4) (515.8) (106.1)
Cash dividends on common stock (23.5) (23.2) (47.3) (46.4)
Other (42.3) 32.2 (52.4) 136.1
Net cash used in investing and
financing activities (115.1) (62.0) (653.2) (62.1)
Increase (Decrease) in Cash and Cash
Equivalents 2.2 15.1 (450.7) 75.6
Cash and Cash Equivalents, Beginning
of Period 204.9 310.5 657.8 250.0
Cash and Cash Equivalents, End of
Period $207.1 $325.6 $207.1 $325.6
Free Cash Flow Computation
Operating Cash Flow $117.3 $77.1 $202.5 $137.7
Less: capital and software
expenditures (24.1) (16.5) (38.6) (27.0)
Free Cash Flow (before dividends) $93.2 $60.6 $163.9 $110.7
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)
SECOND QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES
Consumer Products $331.7 $261.3 $641.5 $518.5
Industrial Tools 462.6 348.1 913.6 697.4
Security Solutions 223.6 205.3 431.5 395.1
Total $1,017.9 $814.7 $1,986.6 $1,611.0
OPERATING PROFIT
Consumer Products $50.7 $42.0 $88.0 $83.0
Industrial Tools 45.3 38.0 74.0 74.8
Security Solutions 36.1 32.3 63.2 57.1
Total $132.1 $112.3 $225.2 $214.9
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, ggould@stanleyworks.com
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