Revenues $824 Million Up 9%; Continuing Operations EPS 78 cents Up 11%
NEW BRITAIN, Conn., July 26 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that second quarter 2005 net income from continuing
operations was $66 million (78 cents per fully-diluted share), surpassing the
company's guidance of 72-76 cents. These results compare with earnings of
$59 million (70 cents per fully-diluted share) from continuing operations in
2004.
Net sales were $824 million, up 9% over last year. Excluding the sales of
recent acquisitions -- including Security Group, ISR Solutions and several
small acquisitions detailed below -- organic sales growth was 5%.
Industrial Tools sales were up 8% as strong industrial tool demand
continued, aided by solid execution and stable market conditions. Double-digit
organic sales growth in industrial mechanics tools, industrial tool storage,
laser leveling tools and hydraulic tools, along with continued strength in
fastening systems, brought about the improvement. Security Solutions revenues
increased 20% as a result of recent acquisitions. Consumer Products sales
increased 4%, driven by very strong hand tool sales to large home center and
mass merchant customers in North America.
Gross profit from continuing operations was $302 million, or 36.7% of
sales, versus $273 million or 36.2% last year. The improvement of 50bps was
primarily attributed to increased volume and higher Security Solutions
margins. In addition, the Stanley Fulfillment System ("SFS") continued driving
the business toward ever-higher quality, service excellence, cost leadership
and world class environmental health & safety ("EH&S") standards.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "The rapid
response to early-2005 margin issues by our Security Solutions team is one of
the highlights of our second quarter. There remains much work to be done, but
the early returns are very encouraging. Growth in the lower-margin electronic
security section of the business continued and put some expected mix-related
pressure on margins. However, the team attended to the integration of recent
acquisitions, efficiency in the field operations and close management of
costs."
Selling, general and administrative ("SG&A") expenses from continuing
operations were $189 million (22.9% of sales) compared with $171 million, or
22.7% of sales last year. Acquired businesses accounted for $6 million of the
$18 million increase, while higher advertising costs were $3 million and
acquisition integration expenses associated with Security Solutions operating
improvements represented $2 million of the increase.
The company's effective income tax rate on continuing operations was 28%,
compared with 23% in the first quarter and 29% in the second quarter of 2004.
Industrial Tools sales increased 8% to $348 million, including $2 million
from an acquisition. Operating margin was 10.9% vs. 11.0% in 2004.
Consumer Products sales were up 4% at $267 million, as hand tools sales in
the Americas were strong and more than offset a modest decline in the consumer
storage category. Favorable foreign currency, increased unit volumes and
favorable price / mix contributed to the increase. Operating margin was 16.0%
versus 15.3% last year, due primarily to increased volume and favorable price
/ mix in excess of commodity cost inflation.
Security Solutions sales increased 20% to $209 million. Organic sales were
up 1% to $176 million, as a significant automatic doors contract implemented
with a single customer in the second quarter of 2004 generated $9 million of
revenue that was not repeated in 2005. Aside from this impact, Security
Solutions revenues increased 6% organically. Strength in the longer-cycle U.S.
electronic access business, whose backlog had previously been building, was
evident as organic revenue increased by a mid single digit percentage. A
low-single digit percentage organic sales increase was also realized in the
U.S. mechanical access (locking) business while weakness continued in the U.K.
markets.
Security Solutions' operating margin, including approximately 100bps
dilution related to acquisition integration costs expected and incurred in the
second quarter, was 15.6% vs. 15.4% in 2004. This represents a significant
rebound from 13.0% operating margin reported in the first quarter of 2005 and
exceeded the company's second quarter estimates of 14% operating margin for
the Security Solutions segment inclusive of the integration costs. The
improved Security Solutions margins were largely the result of the ongoing
integration of recently acquired lower-margin businesses and the effective
implementation of profit improvement initiatives.
Operating cash flows were $77 million vs. $91 million in the prior year.
Free cash flow before dividends (cash from operations less capital
expenditures) was $61 million vs. $78 million last year.
The company also indicated that it recently completed three acquisitions:
-- Precision Hardware, Inc., located in Romulus, Michigan, is a leading
manufacturer and supplier of exit devices and closers for commercial
door openings. This small but important bolt-on acquisition fills out
the product line in Stanley Security Solutions' mechanical access
business.
-- Sielox Security Systems Pty, Ltd., located in Sydney, Australia,
specializes in the installation and servicing of high-end electronic
security systems for commercial customers, utilizing a direct-to-end
user business model. This acquisition expands the company's global
Security Solutions service capability into Australia.
-- Rolatape, located in Spokane, Washington, is a designer and
manufacturer of measuring wheels for distribution through professional
survey, construction and industrial channels. It is highly
complementary to Stanley's CST / Berger laser tool business which was
acquired in 2004.
Combined revenues from the Precision Hardware, Inc., Sielox, Ltd. and
Rolatape acquisitions are expected to total approximately $37 million and be
nominally accretive to 2005 earnings. The two security acquisitions --
Precision Hardware, Inc. and Sielox, Ltd. increase Stanley Security Solutions'
total revenue base by about 4%. Total consideration for the three acquisitions
approximated $54 million, an average of about 1.5 times sales and 6.4 times
EBITDA (earnings before interest, taxes, depreciation and amortization).
Management updated earnings estimates for 2005, reaffirming its previous
total sales growth estimate of 8-10% and organic sales growth of 4-6%. The
company maintained prior estimates that full year earnings per fully diluted
share will approximate $3.20 - $3.30, an increase of 12-16% over $2.85 earned
in 2004 from continuing operations.
Third quarter organic sales growth is expected to approximate 3-5%, with
total sales growth in the 8-10% range. Earnings are estimated at 81-83 cents
per fully diluted share, excluding 3 cents per fully-diluted share of
severance associated with profit improvement initiatives expected to be
incurred in the third quarter. Accordingly, the company expects to report
earnings of 78-80 cents per fully-diluted share in the third quarter. Earnings
were 72 cents per fully-diluted share from continuing operations in the third
quarter of 2004.
The company continues to indicate that free cash flow for the full year
2005 should approximate $300 million.
A conference call with investors has been scheduled for 11:00 am Eastern
time tomorrow, Wednesday, July 27, 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 of the call will also be available two hours after the completion of
the conference call and will remain available for one week and can be accessed
at (800) 642-1687 (domestic) or (706) 645-9291 (international) by entering the
conference identification number 7901230.
Earnings guidance per fully diluted share for the third quarter of 2005 is
provided both with and without an estimated 3 cent severance impact associated
with profit improvement initiatives, as this information is considered useful
for understanding the underlying business performance. Free cash flow is
defined as cash flow from operations less capital investments; 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 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 releases attached to this Current Report
on Form 8-K including but not limited to those regarding the company's ability
to: (i) realize combined revenues from the Precision Hardware, Inc., Sielox,
Ltd. And Rolatape acquisitions of approximately $37 million and thereby making
the same (a) nominally accretive to 2005 earnings and (b) in the case of the
Precision Hardware, Inc. and Sielox, Ltd. acquisitions, increase Stanley
Security Solutions' total revenue base by about 4%; (ii) achieve 2005 total
sales growth of 8-10% and organic sales growth of 4-6%; (iii) achieve 2005
earnings per fully diluted share of approximately $3.20-$3.30 per fully
diluted share, an increase of 12-16% over $2.85 earned in 2004 from continuing
operations; (iv) achieve third quarter organic sales growth of approximately
3-5% with total sales growth in the 8-10% range; (v) achieve third quarter
earnings of approximately 81-83 cents per fully diluted share, excluding 3
cents per fully diluted share of severance associated with profit improvement
initiatives expected to be incurred in the third quarter; (vi) report earnings
of 78-80 cents per fully-diluted share in the third quarter; and (vii) achieve
$300 million of free cash flow for the full year 2005 are forward looking and
inherently 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.
The company's ability to deliver the results is dependent upon: (i) the
success of the company in closing its previously disclosed proposed Facom
Tools acquisition and integrating its recent (as well as future) acquisitions;
(ii) the success of the company's efforts to raise prices in order to, among
other things, offset the impact of steel and other commodity and material
price inflation; (iii) the need to respond to significant changes in product
demand due to economic and other changes; (iv) continued improvements in
productivity and cost reductions; (v) the final geographic distribution of
future earnings; (vi) the identification of overhead cost reduction
opportunities and effective execution of the same; (vii) the company's
favorable settlement of routine tax audits; (viii) the company's ability to
successfully limit the costs incurred in order to repatriate certain cash
pursuant to the American Jobs Creation Act of 2004 and the result of new
legislative guidance that may be issued with respect to the same; and (ix)
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 fulfill increasing demand
for its 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.
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)
SECOND QUARTER YEAR TO DATE
2005 2004 2005 2004
NET SALES $824.0 $753.9 $1,630.3 $1,488.7
COSTS AND EXPENSES
Cost of sales 521.8 480.8 1,039.2 947.7
Selling, general and administrative 189.1 171.3 374.3 338.0
Interest - net 8.1 8.4 15.7 16.3
Other - net 12.0 10.5 21.5 24.4
Restructuring charges 1.6 - 1.6 -
732.6 671.0 1,452.3 1,326.4
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 91.4 82.9 178.0 162.3
Income taxes 25.4 24.1 45.3 48.5
NET EARNINGS FROM CONTINUING
OPERATIONS $66.0 $58.8 $132.7 $113.8
Earnings from discontinued
operations (including gain
on disposal of $142.7 million in
2004) before income taxes 0.2 3.6 0.1 151.5
Income taxes on discontinued
operations 0.3 1.0 0.3 50.4
NET EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS (0.1) 2.6 (0.2) 101.1
NET EARNINGS $65.9 $61.4 $132.5 $214.9
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $0.79 $0.72 $1.60 $1.39
Discontinued operations - 0.03 - 1.24
Total basic earnings per share of
common stock $0.79 $0.75 $1.60 $2.63
DILUTED EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $0.78 $0.70 $1.56 $1.36
Discontinued operations - 0.03 - 1.21
Total diluted earnings per share
of common stock $0.78 $0.73 $1.56 $2.57
DIVIDENDS PER SHARE $0.28 $0.26 $0.56 $0.52
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 83,020 81,940 82,919 81,777
Diluted 84,983 84,112 85,076 83,763
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
July 2, 2005 January 1, 2005
ASSETS
Cash and cash equivalents $325.6 $250.0
Accounts receivable 622.3 582.0
Inventories 443.0 413.4
Other current assets 75.7 82.2
Assets held for sale 0.7 44.3
Total current assets 1,467.3 1,371.9
Property, plant and equipment 394.6 398.9
Goodwill and other intangibles 989.3 928.2
Other assets 152.4 151.6
Total assets $3,003.6 $2,850.6
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $246.2 $102.5
Accounts payable 308.4 300.4
Accrued expenses 378.2 415.9
Total current liabilities 932.8 818.8
Long-term debt 468.1 481.8
Other long-term liabilities 310.2 328.7
Shareowners' equity 1,292.5 1,221.3
Total liabilities and equity $3,003.6 $2,850.6
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
SECOND QUARTER YEAR TO DATE
2005 2004 2005 2004
OPERATING ACTIVITIES
Net earnings $65.9 $61.4 $132.5 $214.9
Depreciation and amortization 23.9 22.7 47.3 47.1
Reclassify taxes paid (proceeds)
from sale of businesses
to investing activities 8.1 21.9 18.7 (140.0)
Changes in working capital (4.2) 2.9 (68.8) (13.0)
Other (16.6) (18.0) 8.0 34.0
Net cash provided by operating
activities 77.1 90.9 137.7 143.0
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (16.5) (12.9) (27.0) (21.1)
Proceeds (taxes paid) from sale
of business (8.1) (21.9) (18.7) 140.0
Business acquisitions and asset
disposals (46.4) (4.2) (106.1) (254.3)
Cash dividends on common stock (23.2) (21.2) (46.4) (42.4)
Other 32.2 12.5 136.1 66.1
Net cash used in investing and
financing activities (62.0) (47.7) (62.1) (111.7)
Increase in Cash and Cash
Equivalents 15.1 43.2 75.6 31.3
Cash and Cash Equivalents,
Beginning of Period 310.5 192.5 250.0 204.4
Cash and Cash Equivalents, End of
Period $325.6 $235.7 $325.6 $235.7
Free Cash Flow Computation
Operating cash flow $77.1 $90.9 $137.7 $143.0
Less: capital and software
expenditures (16.5) (12.9) (27.0) (21.1)
Free cash flow (before dividends) $60.6 $78.0 $110.7 $121.9
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
2005 2004 2005 2004
NET SALES
Consumer Products $266.9 $257.7 $530.3 $520.0
Industrial Tools 348.2 321.4 697.5 637.4
Security Solutions 208.9 174.8 402.5 331.3
Total $824.0 $753.9 $1,630.3 $1,488.7
OPERATING PROFIT
Consumer Products $42.6 $39.4 $84.4 $84.4
Industrial Tools 38.0 35.5 74.7 64.1
Security Solutions 32.5 26.9 57.7 54.5
Total $113.1 $101.8 $216.8 $203.0
SOURCE The Stanley Works
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Related links:
http://www.StanleyWorks.com
Company News On-Call:
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
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