- Revenues, Up 21%, Exceed $1 Billion
- EPS From Continuing Operations $1.09, Exceeds Guidance
NEW BRITAIN, Conn., Oct. 24 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that third quarter 2006 net income from continuing
operations was $90 million ($1.09 per fully-diluted share), exceeding the
company's guidance of $1.03-$1.07. These results compare with earnings of
$76 million ($0.89 per fully-diluted share) from continuing operations in
2005.
Net sales were $1,013 million, up 21% over last year. Excluding sales
from recent acquisitions -- primarily Facom Tools and National Hardware --
organic sales were up 1% in constant currency. Gross profit from continuing
operations was $378 million, or 37.3% of sales, versus $304 million or
36.4% last year.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $232 million (22.9% of sales) compared with $179 million
(21.5% of sales) last year. SG&A expenses associated with acquired
businesses accounted for approximately $47 million of the increase. Aside
from acquisitions, comparable SG&A expenses were 21.7% of sales, virtually
unchanged from the prior year, as increased brand support and stock option
expensing were offset by reductions in other expenses.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "Many
of our businesses executed well in a quarter filled with significant
market-related challenges. A number of our industrial businesses delivered
strong growth and margin expansion. Additionally, our Consumer Products
team excelled in managing the introduction of a second wave of new
FatMax(R) Xtreme(TM) hand tools, exciting new products and merchandising in
the FatMax(R) product line and the launch of the FatMax(R) XL(TM) product
line in Europe.
"Strong sales of automatic doors and mechanical access products led to
5% organic growth in Security Solutions. These encouraging performances,
combined with on-track integrations of the Facom Tools and National
Hardware businesses, led to sales and profit growth despite slowing U.S.
retail and residential construction markets and continuing issues in
Fastening Systems."
Consumer Products sales were $348 million, a 20% increase over 2005,
due to the inclusion of acquired companies. Organic sales grew 1%, with
strength most evident in hand tools (+7%) attributed to the aforementioned
successes of the FatMax(R) Xtreme(TM) and FatMax(R) product offerings,
offsetting softness in consumer storage, consumer mechanics tools and
hardware. Operating margin was 18.4% versus 19.7% last year, due primarily
to the inclusion of recently-acquired National Hardware.
Industrial Tools sales increased 30% to $433 million. Organic sales
were flat, as a decline in Fastening Systems offset 6% organic growth in
the remainder of the segment. Operating margin was 9.6% vs. 9.0% last year.
Fastening Systems operating margin remained at depressed levels, reflecting
lower volumes, price erosion and commodity cost inflation issues. Aside
from Fastening Systems, operating margin was approximately 13% vs. 11% last
year, due mainly to profit improvement in laser measuring and leveling
tools, Mac Tools and Hydraulic Tools.
Security Solutions sales increased 9% to $232 million. Organic sales
increased 5%, with strength in the automatic doors business and the
mechanical access business. Operating margin was 17.4% versus 18.1% in the
prior year, as commodity cost inflation (net of pricing) more than offset
the favorable impacts of a mix shift toward the more profitable automatic
doors and mechanical access elements of the business and the benefits of
cost reduction programs implemented during the first quarter.
Mr. Lundgren continued: "Growth rates in the U.S. end markets for our
hand tools, fastening systems, hardware and laser leveling and measuring
tools slowed as the third quarter progressed. Some of our key U.S. retail
customers have also indicated overall moderating growth rates. However, the
ongoing positive momentum of our FatMax(R) Xtreme(TM) and FatMax(R) hand
tools product lines, the increased geographic diversification of our
company and the transition of our portfolio toward industrial, automotive
repair and security markets, position us to perform well despite market
weakness."
Income tax expense was 20% of net income as compared with 25% in the
prior year, reflecting the favorable settlement of certain issues under
audit and the realization of credits against U.S. taxes in the quarter.
Operating cash flow was $117 million vs. $75 million last year, a $43
million improvement. Free cash flow before dividends was $96 million versus
$58 million last year. For the first nine months of 2006, free cash flow
before dividends was $260 million vs. $168 million last year. Higher free
cash flows in 2006 reflect higher cash earnings and improved working
capital management.
Mr. Lundgren added: "Our confidence is reinforced by the continued
successful rollout of the new hand tool lines in North America and Europe,
strong performances integrating the Facom Tools and National Hardware
acquisitions and a more stable, growing Security Solutions business. In
addition, our Fastening Systems management team has taken steps to focus on
profitable growth. Overall, we are delivering record earnings and cash flow
despite a challenging market environment. We are focused on maximizing
performance in our consumer, industrial and security businesses while
addressing our Fastening Systems manufacturing footprint and business model
issues in a logical, methodical manner."
The company recently reported that its European Competitiveness Plan
("ECP"), initiated May 10, 2006, has been approved by the requisite
parties, representing an important milestone in the Facom integration
process. Approval of this plan allows the company to proceed with the
execution of programs to improve the competitiveness of its Facom and
previously existing European tool and storage businesses. As a consequence,
the company is well-positioned to realize the synergies anticipated in
connection with the Facom acquisition. In this regard, the Facom Tools
plant in Nevers, France and distribution center in Cannock, UK were
successfully closed in September and a second plant in Ezy, France is
scheduled to close in the fourth quarter.
In addition, the company is announcing a comprehensive cost reduction
initiative in Fastening Systems with the objective of returning this unit
to acceptable profitability over a two year period. The initiative
encompasses the migration of high volume pneumatic tool manufacturing
activities to low cost countries, the refocusing of the company's East
Greenwich, RI plant on fasteners and high end pneumatic tool manufacturing
and the reshaping of Fastening Systems' manufacturing footprint to reduce
it by 15-25% from its current square footage.
Management also updated estimates for 2006, lowering expectations for
total sales growth to 22-23% (previously was 24-26%) and organic sales
growth to 2-3% (previously was 3-5%).
The company also adjusted its estimate for the full year earnings to
approximately $3.45 per fully diluted share, an increase of 8% over $3.18
earned in 2005 from continuing operations. The company continues to expect
that free cash flow for the full year 2006 will equal or exceed its
previous $350 million estimate.
Fourth quarter organic sales growth is projected at 2-3%, reflecting
aforementioned slowing growth in certain end markets. Fourth quarter net
earnings are estimated at approximately $1.00 per fully diluted share, up
33% on continuing operations, including 5¢ of restructuring related charges
for actions including the Fastening initiative, 2¢ of stock option expenses
and an income tax rate similar to that in the third quarter.
For 2007, the company estimated earnings of $4.00-$4.10 per fully
diluted share, an increase of 16-19% over forecasted 2006. Such
expectations include a moderated outlook for organic growth (2 to 3%
ex-currency) based on anticipation of weaker conditions in certain U.S.
markets. The updated earnings estimate also includes anticipated Fastening
Systems and European restructuring charges totaling 12¢ per fully-diluted
share and a tax rate in the 26-28% range. Free cash flow is expected to be
in the range of $380-$410 million.
The company has scheduled a conference call with investors for 11:00am
Eastern time tomorrow morning, Wednesday, October 25, 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 8716378.
Free cash flow is defined as cash flow from operations less capital
expenditures. 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 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 22-23% and organic
sales growth of 2-3% in 2006; (ii) deliver full year earnings from
continuing operations approximating $3.45 per fully diluted share; (iii)
deliver free cash flow for the full year 2006 equal to or exceeding $350
million; (iv) deliver fourth quarter organic sales growth of 2-3%; (v)
deliver fourth quarter net earnings of approximately $1.00 per fully
diluted share; (vi) limit the fourth quarter impact of stock option expense
to 2 cents and restructuring charges to 5 cents per fully diluted share;
(vii) achieve a fourth quarter income tax rate similar to that in the third
quarter; (viii) deliver 2007 earnings of $4.00 - $4.10 per fully diluted
share; (ix) deliver 2007 organic growth of 2-3% ex- currency; (x) limit
Fastening Systems and European restructuring charges in 2007 to 12 cents
per fully diluted share; (xi) limit 2007 taxes to a rate of 26-28% (xii)
deliver free cash flow in the range of $380 - $410 million in 2007; and
(xiii) return Fastening Systems to acceptable profitability within two
years 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 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 Company's ability to expand the
branded tools and hardware platform; (x) the Company's success at new
product development and introduction and identifying and developing new
markets; (xi) the Company's success in continuing to increase brand support
and roll out of the Stanley Fulfillment System; (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,
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; (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; and (x) 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)
THIRD QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES $1,012.7 $834.9 $2,999.3 $2,445.9
COSTS AND EXPENSES
Cost of sales 634.9 530.6 1,912.9 1,553.9
Selling, general and
administrative 231.9 179.1 715.3 551.9
Interest - net 16.5 8.1 49.5 23.9
Other - net 15.4 12.6 45.6 34.1
Restructuring charges 0.9 2.3 10.0 3.9
899.6 732.7 2,733.3 2,167.7
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 113.1 102.2 266.0 278.2
Income taxes 22.9 25.8 62.3 70.7
NET EARNINGS FROM CONTINUING
OPERATIONS 90.2 76.4 203.7 207.5
Earnings (loss) from discontinued
operations (including loss on
disposal of $1.5 million in 2006)
before income taxes 0.5 0.4 (1.0) 2.6
Income taxes (tax benefit) on
discontinued operations 0.2 (0.1) (0.2) 0.7
NET EARNINGS (LOSS) FROM
DISCONTINUED OPERATIONS 0.3 0.5 (0.8) 1.9
NET EARNINGS $90.5 $76.9 $202.9 $209.4
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.11 $0.92 $2.49 $2.50
Discontinued operations - - (0.01) 0.02
Total basic earnings per share
of common stock $1.11 $0.92 $2.48 $2.52
DILUTED EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.09 $0.89 $2.43 $2.43
Discontinued operations - - (0.01) 0.02
Total diluted earnings per
share of common stock $1.09 $0.90 $2.43 $2.46
DIVIDENDS PER SHARE $0.30 $0.29 $0.88 $0.85
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 81,206 83,566 81,853 83,160
Diluted 82,867 85,483 83,669 85,242
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
September 30, December 31,
2006 2005
ASSETS
Cash and cash equivalents $241.3 $657.8
Accounts and notes receivable 763.8 609.6
Inventories 619.2 460.7
Other current assets 98.7 84.2
Assets held for sale 2.5 13.3
Total current assets 1,725.5 1,825.6
Property, plant and equipment 498.0 467.1
Goodwill and other intangibles 1,612.2 1,060.4
Other assets 202.2 192.0
Total assets $4,037.9 $3,545.1
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $322.4 $170.2
Accounts payable 434.8 327.7
Accrued expenses 507.8 374.3
Liabilities held for sale - 3.1
Total current
liabilities 1,265.0 875.3
Long-term debt 823.3 895.3
Other long-term liabilities 426.5 329.6
Shareowners' equity 1,523.1 1,444.9
Total liabilities and
equity $4,037.9 $3,545.1
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
THIRD QUARTER YEAR TO DATE
2006 2005 2006 2005
OPERATING ACTIVITIES
Net earnings $90.5 $76.9 $202.9 $209.4
Depreciation and amortization 30.0 23.4 91.3 70.7
Changes in working capital (43.5) (45.2) (42.0) (70.6)
Other 40.3 19.5 67.6 2.8
Net cash provided by operating
activities 117.3 74.6 319.8 212.3
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (21.2) (17.0) (59.8) (44.0)
Proceeds (taxes paid) from sale of
business - (1.9) 0.9 (20.6)
Business acquisitions and asset
disposals (24.4) (2.3) (540.2) (108.4)
Cash dividends on common stock (24.3) (24.2) (71.6) (70.6)
Other (13.2) (16.7) (65.6) 119.4
Net cash used in investing and
financing activities (83.1) (62.1) (736.3) (124.2)
Increase (Decrease) in Cash and Cash
Equivalents 34.2 12.5 (416.5) 88.1
Cash and Cash Equivalents, Beginning
of Period 207.1 325.6 657.8 250.0
Cash and Cash Equivalents, End of
Period $241.3 $338.1 $241.3 $338.1
Free Cash Flow Computation
Operating Cash Flow $117.3 $74.6 $319.8 $212.3
Less: capital and software
expenditures (21.2) (17.0) (59.8) (44.0)
Free Cash Flow (before dividends) $96.1 $57.6 $260.0 $168.3
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
THIRD QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES
Consumer Products $347.9 $289.8 $989.4 $808.3
Industrial Tools 432.8 332.7 1,346.4 1,030.1
Security Solutions 232.0 212.4 663.5 607.5
Total $1,012.7 $834.9 $2,999.3 $2,445.9
OPERATING PROFIT
Consumer Products $64.0 $57.0 $152.0 $140.0
Industrial Tools 41.6 29.8 115.6 104.6
Security Solutions 40.3 38.4 103.5 95.5
Total $145.9 $125.2 $371.1 $340.1
SOURCE The Stanley Works
 back to top
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
|
