Revenues $845 Million Up 12%; Continuing Operations Earnings Per Share 90
Cents Up 25%
NEW BRITAIN, Conn., Oct. 25 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that third quarter 2005 net income from continuing
operations was $77 million (90 cents per fully-diluted share). These results
compare with earnings of $61 million (72 cents per fully-diluted share) from
continuing operations in 2004.
Net sales were $845 million, up 12% over last year. Organic revenue growth
was 7%, driven by Consumer Products which increased 15%. This segment
benefited from broad-based new product commercialization activities in North
America and strong end-user demand at its U.S.-based large retail customers.
Industrial Tools sales were up 3%. Security Solutions revenues increased 26%
as a result of recent acquisitions and 4% organic growth.
Gross profit from continuing operations was $305 million, or 36.1% of
sales, versus $278 million or 37.0% last year. The decline of 90bps was
primarily attributed to lower volume and mix-related margin pressures in
Fastening Systems. The Stanley Fulfillment System ("SFS") continued driving
the overall company 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
strong sales growth in our North American consumer businesses was clearly a
third quarter highlight, as new product and category introductions yielded
share gains that made a measurable difference.
"The rapid response to early-2005 margin issues by our Security Solutions
team was clearly another highlight. The improvement in Security Solutions'
operating margins from 13% in the first quarter to over 15% in the second
quarter and 18% in the third quarter is very encouraging. The team is
successfully integrating recent acquisitions, driving efficiency in its field
operations and leveraging volume growth."
Selling, general and administrative ("SG&A") expenses from continuing
operations were $180 million (21.3% of sales) compared with $173 million, or
23.0% of sales last year. Acquired businesses accounted for the $7 million
increase.
Operating income was 14.8%, an increase of 90bps over 13.9% from
continuing operations in the third quarter of 2004. The company's effective
income tax rate on continuing operations was 25%, consistent with the 25% rate
experienced through the first half of 2005.
Consumer Products sales were up 15% at $296 million, as hand tools,
mechanics tools and consumer storage sales in the Americas were exceptionally
strong. Sales of hardware in the Americas and tools in Europe were virtually
flat with the prior year. The increased sales were largely attributable to
unit volume gains, while favorable foreign currency and favorable price / mix
contributed nominally. Operating margin was 19.3% versus 16.2% last year, due
primarily to increased volume and operating leverage.
Industrial Tools sales increased 3% to $333 million, including $2 million
from acquisitions. Strong organic sales growth in industrial mechanics tools,
industrial tool storage, laser leveling tools and hydraulic tools more than
offset weakness in Mac Tools and Assembly Technologies. Operating margin was
8.9% vs. 10.4% in 2004, as unfavorable mix in Fastening Systems and negative
volume leverage in Mac Tools more than offset the positive effects of volume
leverage in higher-margin laser tools, mechanics tools, industrial storage and
hydraulic tools.
Security Solutions sales increased 26% to $217 million. Organic sales
growth was 4%, as a 7% increase in North America more than offset a decline in
Europe. Robust North American growth was broadly realized across the automatic
doors, mechanical access and electronic access components of the business.
Security Solutions' operating margin was 17.9% vs. 17.1% in 2004. This
represents a significant rebound from the 13.0% and 15.6% operating margins
reported, respectively, in the first and second quarters of 2005. The improved
Security Solutions margins were largely the result of the ongoing integration
of recently acquired businesses and the effective implementation of profit
improvement initiatives.
Operating cash flow was $75 million vs. $99 million in the prior year.
Free cash flow before dividends (cash from operations less capital
expenditures) was $58 million vs. $84 million last year, reflecting the strong
end-of-quarter business activity.
Third quarter results include the offsetting impact of two income tax-
related items, namely a $15 million benefit (17 cents per fully-diluted share)
from an audit settlement and a $15 million charge (17 cents per fully-diluted
share) associated with the anticipated cost of repatriating approximately $250
million of cash in connection with the American Jobs Creation Act.
The company also indicated that it recently completed two acquisitions:
* Pinnacle Electronic Systems, Inc., located in West Chester,
Pennsylvania, is a full-service electronic security integrator
specializing in correctional facilities and serving customers at the
federal, state and county level.
* ABZ (John Attenberger Co.), located in St. Wolfgang, Germany, is a
property marker manufacturer and a distributor of survey accessories,
including CST/Berger products.
Combined annual revenues from the Pinnacle Electronic Systems, Inc. and
ABZ acquisitions are expected to approximate $16 million. Total consideration
for the two acquisitions approximated $8 million.
Management updated earnings estimates for 2005, reaffirming its previous
estimates of 8-10% total sales growth and 4-6% organic sales growth. The
company estimates that full year 2005 earnings per fully diluted share will
approximate $3.30 - $3.32, an increase of approximately 16% over $2.85 earned
in 2004 from continuing operations.
Accordingly, fourth quarter organic sales growth is expected to
approximate 1-2%, with total sales growth in the 5-6% range, over a very
robust 2004 fourth quarter in which organic growth was 7% in a 13-week quarter
vs. a 14 week quarter a year earlier. Earnings are estimated at 84-86 cents
per fully-diluted share in the fourth quarter. Earnings were 77 cents per
fully-diluted share from continuing operations in the fourth quarter of 2004.
Considering that the recently-announced Facom Tools and National Hardware
acquisitions should have a significant bearing on the company's future
earnings power, management intends to discuss its 2006-2008 outlook at its
analyst meeting tomorrow in New York City. Accordingly, such outlook is
provided in this press release on page 10 and entitled "2005-2008 Outlook".
A conference call with investors has been scheduled for 2:00 pm Eastern
time today, Tuesday, October 25, 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 1223471.
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) limit the charge associated with the cost of repatriating
approximately $250 million in cash in connection with the American Jobs
Creation Act of 2004 to $15 million; (ii) realize an expected $16 million in
combined annual revenues associated with the Pinnacle and ABZ acquisitions;
and (iii) realize the other results set forth on the attached chart entitled
"The Stanley Works and Subsidiaries 2005-2008 Outlook" 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.
The company's ability to deliver the results is dependent upon: (i) the
company's ability to achieve 3-4% organic sales growth during the 2006 - 2008
period; (ii) the receipt of all necessary approvals for and the satisfaction
of all required conditions for the successful closing of the announced Facom
Tools and National Hardware acquisitions; (iii) the company's ability to
identify and close additional acquisitions, namely approximately $100 million
per year of Security Solutions acquisitions; (iv) the company's ability to
successfully integrate announced and future acquisitions; (v) 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; (vi) the
need to respond to significant changes in product demand due to economic and
other changes; (vii) continued improvements in productivity and cost
reductions; (viii) the final geographic distribution of future earnings; (ix)
the identification of overhead cost reduction opportunities and effective
execution of the same; (x) the company's favorable settlement of routine tax
audits; (xi) 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 (xii) 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)
THIRD QUARTER YEAR TO DATE
2005 2004 2005 2004
NET SALES $844.8 $751.8 $2,475.1 $2,240.5
COSTS AND EXPENSES
Cost of sales 539.7 474.0 1,578.9 1,421.7
Selling, general and administrative 179.8 173.2 554.1 511.2
Interest - net 8.2 8.3 23.9 24.6
Other - net 12.2 10.3 33.7 34.7
Restructuring charges 2.3 - 3.9 -
742.2 665.8 2,194.5 1,992.2
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 102.6 86.0 280.6 248.3
Income taxes 25.7 24.8 71.0 73.3
NET EARNINGS FROM CONTINUING
OPERATIONS $76.9 $61.2 $209.6 $175.0
Earnings from discontinued
operations (including gain
on disposal of $142.7 million)
before income taxes - 3.8 0.1 155.3
Income taxes on discontinued
operations - 1.1 0.3 51.5
NET EARNINGS FROM DISCONTINUED
OPERATIONS - 2.7 (0.2) 103.8
NET EARNINGS $76.9 $63.9 $209.4 $278.8
BASIC EARNINGS PER SHARE OF COMMON STOCK
Continuing operations $0.92 $0.74 $2.52 $2.14
Discontinued operations - 0.03 - 1.27
Total basic earnings per share of
common stock $0.92 $0.78 $2.52 $3.40
DILUTED EARNINGS PER SHARE OF COMMON STOCK
Continuing operations $0.90 $0.72 $2.46 $2.08
Discontinued operations - 0.03 - 1.24
Total diluted earnings per share
of common stock $0.90 $0.76 $2.46 $3.32
DIVIDENDS PER SHARE $0.29 $0.28 $0.85 $0.80
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 83,566 82,173 83,160 81,904
Diluted 85,483 84,384 85,242 83,945
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
October 1, 2005 January 1, 2005
ASSETS
Cash and cash equivalents $338.1 $250.0
Accounts and notes receivable 652.9 582.0
Inventories 447.0 413.4
Other current assets 74.5 82.2
Assets held for sale 0.6 44.3
Total current assets 1,513.1 1,371.9
Property, plant and equipment 402.0 398.9
Goodwill and other intangibles 986.9 928.2
Other assets 151.4 151.6
Total assets $3,053.4 $2,850.6
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $211.6 $102.5
Accounts payable 319.0 300.4
Accrued expenses 362.8 415.9
Total current liabilities 893.4 818.8
Long-term debt 467.1 481.8
Other long-term liabilities 314.7 328.7
Shareowners' equity 1,378.2 1,221.3
Total liabilities and equity $3,053.4 $2,850.6
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
THIRD QUARTER YEAR TO DATE
2005 2004 2005 2004
OPERATING ACTIVITIES
Net earnings $76.9 $63.9 $209.4 $278.8
Depreciation and amortization 23.4 23.2 70.7 70.3
Reclassify taxes paid (proceeds)
from sale of business to
investing activities 1.9 10.5 20.6 (129.5)
Changes in working capital (45.2) (34.0) (114.0) (47.0)
Other 17.6 35.4 25.6 69.4
Net cash provided by operating
activities 74.6 99.0 212.3 242.0
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (17.0) (15.3) (44.0) (36.4)
Proceeds (taxes paid) from sale of
business (1.9) (10.5) (20.6) 129.5
Business acquisitions and asset
disposals (2.3) (3.2) (108.4) (257.5)
Cash dividends on common stock (24.2) (23.0) (70.6) (65.4)
Other (16.7) (26.4) 119.4 39.7
Net cash used in investing and
financing activities (62.1) (78.4) (124.2) (190.1)
Increase in Cash and Cash
Equivalents 12.5 20.6 88.1 51.9
Cash and Cash Equivalents, Beginning
of Period 325.6 235.7 250.0 204.4
Cash and Cash Equivalents, End of
Period $338.1 $256.3 $338.1 $256.3
Free Cash Flow Computation
Operating Cash Flow $74.6 $99.0 $212.3 $242.0
Less: capital and software
expenditures (17.0) (15.3) (44.0) (36.4)
Free Cash Flow (before dividends) $57.6 $83.7 $168.3 $205.6
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)
THIRD QUARTER YEAR TO DATE
2005 2004 2005 2004
NET SALES
Consumer Products $295.5 $256.9 $825.8 $776.9
Industrial Tools 332.7 323.4 1,030.2 960.8
Security Solutions 216.6 171.5 619.1 502.8
Total $844.8 $751.8 $2,475.1 $2,240.5
OPERATING PROFIT
Consumer Products $57.0 $41.6 $141.4 $126.0
Industrial Tools 29.6 33.7 104.3 97.8
Security Solutions 38.7 29.3 96.4 83.8
Total $125.3 $104.6 $342.1 $307.6
THE STANLEY WORKS AND SUBSIDIARIES
2005 - 2008 OUTLOOK
(Unaudited, Millions of Dollars Except Per Share Amounts)
2005 Earnings Outlook:
4Q2005 2005
Sales Growth:
Organic 1-2% 4-6%
Acquisitions 4% 4%
5-6% 8-10%
EPS:
Operating $0.85 - $0.87 $3.34 - $3.36
Restructuring (0.01) (0.04)
$0.84 - $0.86 $3.30 - $3.32
Growth 8-11% 16%
Free Cash Flow: ~ $300M
2006 Earnings Outlook:
2006 Q1 Q2 Q3 Q4
Sales Growth:
Organic 4-6% 5% 5% 3% 4%
Facom Tools $450M 27% 25% 22% 26%
National Hardware $185M 24% 27% 25% 24%
Other Acquisitions $100M 25% 25% 25% 25%
26-27%
EPS:
Operating $3.65 - $3.70
Facom Tools $0.10
National Hardware $0.01
Other Acquisitions $0.03
Sub-total (EPS up
14-16%) $3.79 - $3.84
2006 Tax Rate Effect $(0.14 - 0.18)
Sub-total (EPS up
9-11%) $3.61-$3.70
FAS 123R Stock Option $(0.06)
$3.55 - $3.64
EPS Growth: 7-9%
2005 - 2008 Earnings Outlook:
2005 2006 2007 2008
Sales (billions) $3.3 $4.2 $4.4 $4.7
Sales Growth Rate 8-10% 26-27% 5-6% 5-6%
EPS $3.30 - $3.32 $3.55 - $3.64 $4.19 - $4.37 $4.78 - $5.07
EPS Growth Rate 16% 7-9% 18-20% 14-16%
Major Assumptions:
- 3-4% organic growth
- Close Facom Tools acquisition 1/1/06
- Close National Hardware acquisition 1/1/06
- $100M/year Security acquisitions '06-'08
- Major Security acquisitions possible, but not assumed
- SWK share repurchase activity possible, but not assumed
SOURCE The Stanley Works
 back to top
Related links:
http://www.StanleyWorks.com
Company News On-Call:
http://www.prnewswire.com/comp/874363.html
CONTACT:
Gerry Gould, V. P. - Investor Relations,
+1-860-827-3833, ggould@stanleyworks.com
|
