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- 1Q'09 Diluted EPS from Continuing Operations of $0.48, Inclusive of an
$0.08 Restructuring Charge
- Sales Unit Volumes Down 19% vs. Prior Year, However, Gross Margins
Improve to a Record 39.6%
- $100 Million Additional Cost Reduction Program Initiated - Expected to
Generate $45 million of Savings in 2009; $15 Million is Expected to be
Reinvested in Brand Development and Organic Growth Initiatives
- Working Capital Turns Improved to 4.8 Despite Volume Decline
- Security Segment Posts 12% Revenue Growth and 33% Profit Growth
NEW BRITAIN, Conn., April 24 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) today announced first quarter 2009 financial results. Highlights
are summarized below:
-- Net sales from continuing operations were $913 million, down 15% vs.
prior year as acquisition growth (+7%) and price (+3%) were offset by
unfavorable organic volume associated with weakness in global economic
conditions. Unit volume declined 19% and currency translation impacted
revenues unfavorably by 6%.
-- The 1Q'09 gross margin rate improved 170 bps versus 1Q'08 to 39.6%.
The increase was driven by pricing and acquisitions, as well as strong
performance in the Security segment. SG&A expenses were 27.7% of
sales, down $22 million vs. the prior year. Both gross margins and
SG&A expenses benefited from the company's proactive cost reduction
programs in 2008 and Q1'09.
-- The company had negative free cash flow of $18 million for the quarter
driven by lower net income and normal working capital seasonality.
Working capital turns improved slightly to 4.8 from 4.7 despite
significant unit volume declines as the Stanley Fulfillment System
continued to favorably impact results.
-- As previously communicated, a contingency cost reduction plan was
developed during the quarter to protect earnings and cash flow in the
event estimated full year 2009 volume declines were greater than
10-12%. Management elected to implement this plan as the quarter
progressed and it became apparent that full year unit volume declines
were more likely to be between 13-15%. The plan is expected to
generate annual savings of $100 million, $45 million of which will be
realized in 2009. Restructuring and related charges for this program
are expected to total approximately $35 million. In addition, the
company expects to reinvest approximately $15 million of the 2009
savings to fund investments in brand development and Security organic
growth initiatives.
-- The company also announced that Stanley Fastening Systems (Bostitch)
will be consolidated with the Stanley Consumer Tools & Storage
business under the leadership of Jeff Ansell. Both businesses have
significant channel and customer overlap and this combination will
allow Stanley to more fully and effectively leverage operations and
resources across both businesses.
John F. Lundgren, Chairman and Chief Executive Officer, commented, "We
took a number of strategic actions during the first quarter to reduce costs,
strengthen our brands and invest for future growth. We believe that strong
companies should find ways to grow market share and strengthen key franchises
throughout the business cycle. Today's economic conditions afford us a unique
opportunity to accelerate progress in these areas."
Segment Results:
1Q'09 Versus 1Q'08
($ millions) Segment Segment Segment Segment
Sales Profit Profit Rate Sales Profit Profit Rate
Security $374 $71 18.9% +12% +33% +290 bp
Industrial $236 $25 10.4% -29% -50% -420 bp
CDIY $303 $29 9.5% -25% -39% -210 bp
-- Security continued to post strong profits due to the stability of the
business as well as the benefits from acquisitions and well executed
integrations. Organic revenues for the segment declined 4%. For the
Convergent (Electronic) Security Solutions (CSS) business, organic
revenues were down mid-single digits as increased recurring monthly
revenue (RMR) and price partially offset lower installation revenues.
Mechanical Access Solutions (MAS) organic revenues decreased in-line
with the overall segment decline due to lower volume partially offset
by an increase in price.
-- Industrial revenues fell 29% versus prior year due to increased
weakness in Europe and the Americas where unit volume fell 29% and
25%, respectively. The impact of foreign exchange pushed European
revenues down a total of 38% versus prior year. The Industrial and
Automotive Tools businesses experienced significant customer inventory
corrections that accounted for approximately 1/3 of the unit volume
declines experienced in Europe and the U.S. Segment profit rate
decreased significantly due to sales volume declines combined with the
timing of European cost savings which require a longer time to
realize.
-- Revenues for the CDIY segment dropped 25% versus prior year as volume
in both the Americas and Europe was down approximately 23%. Foreign
exchange had a 7% negative impact on the business, which was partially
offset by a 4% increase in price versus 1Q'08. As with the Industrial
segment, the softness in Europe had a notable negative impact as
organic revenues from the region fell 23%. The positive impacts of
price and productivity on the segment profit rate were more than
offset by sales volume declines combined with the longer time frame
for the implementation of the cost reduction actions in Europe.
James M. Loree, Executive Vice President and Chief Operating Officer
stated, "We anticipated that 2009 was going to start on a difficult note, but
we experienced even greater volume pressure in both our Industrial and CDIY
businesses. Our Security businesses held up well in weak economic conditions
and our large recurring revenue base, strong market positions and the benefits
from recent acquisitions allowed Security to post double-digit top line growth
and to achieve robust operating profit margins."
The Company now believes there is sufficient visibility into various end
markets and other factors to provide 2009 earnings and free cash flow
guidance. Anticipating that current sales volume weakness will continue
through the remainder of the year with smaller volume declines in the back
half as comparisons become easier, management expects full year 2009 EPS to be
in the range of $2.00 - $2.50 and free cash flow of greater than $300 million
based on the following assumptions:
-- Unit volume shipments in 2009 will be down 13% -15% versus 2008,
resulting in a volume-related EPS decrease of $2.40 - $2.90. The steep
volume declines experienced in 1Q are expected to continue at or near
the same levels into 2Q and then begin to ease in the second half.
-- With the dollar at present exchange levels, assumed in the guidance is
a $0.50 negative impact to EPS and a 4% decline in revenue versus
prior year due to currency, most of which will be realized by
mid-year.
-- At present commodity cost levels, the company anticipates minimal, if
any, inflation for 2009. Due to the lagging nature of price increases,
the company will experience some favorable price carryover in the
first half of 2009, however the net impact of price recovery versus
inflation for the year is expected to be only modestly positive.
-- The per share benefit from the cost reduction program announced in
2008 is expected to be $1.75 in 2009. The per share benefit from the
cost reduction program announced today, net of new growth and brand
investments, is expected to total $0.28 in 2009. Total restructuring
and related charges for 2009 are expected to be $45 million. This
includes $10 million of restructuring from the program initiated in
December 2008 and $35 million from the program announced today. The
majority of the remaining charges will be recorded in 2Q and 3Q. All
of these amounts have been factored into the 2009 guidance. For 2010,
the per share benefit of both programs is expected to be $0.75 ($0.24
from 4Q'08 and $0.51 from 1Q'09), which will be partially offset by a
number of factors, such as increased share count and cost pressures.
-- EPS accretion from acquisitions completed in 2008, and included in the
guidance, is expected to total approximately $0.10 per share in 2009.
Donald Allan Jr., Vice President and Chief Financial Officer, commented,
"Negative volume trends and the headwinds of unfavorable currency movements
will impact our earnings potential this year, however, we have aligned the
company's cost structure with the current economic environment and have
positioned Stanley for growth as conditions improve. A major priority is to
continue to build on the momentum we have created with the Stanley Fulfillment
System to drive further improvements in working capital and to generate solid
free cash flow."
The company will host a conference call with investors at 10:00am EDT,
Friday, April 24th, 2009 to discuss quarterly results. The slides that will
accompany the conference call are available at this time on
www.stanleyworks.com. The call will be accessible by telephone at (877)
242-3653 and from outside the U.S. at (763) 416-6917 with the conference
identification number 93231069; also, via the Internet at www.stanleyworks.com
by selecting "Events and Webcasts" from the "Investors" section of the web
site. To listen, please go to the web site at least fifteen minutes early to
register, download and install any necessary audio software. A replay will
also be available two hours after the call and can be accessed at (800)
642-1687 or (706) 645-9291 by entering the conference identification number
93231069.
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) generate full year 2009 EPS in the
range of $2.00 - 2.50 per fully diluted share; (ii) generate free cash flow of
greater than $300 million; (iii) reinvest approximately $15 million in brand
development and organic growth initiatives and (iv) realize a per share
benefit from the cost reduction program announced in this press release of
$0.51 in 2010 (the "Results"); are "forward looking statements" and subject to
risk and uncertainty.
The Company's ability to deliver the results as described above 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 implement the cost savings measures discussed in its
December 11, 2008 press release and those announced in this press release
within anticipated time frames and to limit associated costs; (ii) the
Company's ability to limit restructuring charges in 2009 to $45 million; (iii)
the Company's ability to limit unit volume declines to 13-15% relative to 2008
sales while maintaining or improving the existing product mix and geographic
distribution; (iv) the Company's ability to successfully integrate recent
acquisitions (including Sonitrol, Xmark, Scan Modul and GdP), as well as any
future acquisitions, while limiting associated costs; (v) the success of the
Company's efforts to expand its tools and security businesses; (vi) the
success of the Company's efforts to build a growth platform and market
leadership in Convergent Securities Solutions; (vii) the Company's success in
developing and introducing new products, growing sales in existing markets and
identifying and developing new markets for its products; (viii) the continued
acceptance of technologies used in the Company's products, including
Convergent Security Solutions products; (ix) the Company's ability to manage
existing Sonitrol franchisee and Mac Tools distributor relationships; (x) the
Company's ability to minimize costs associated with any sale or discontinuance
of a business or product line, including any severance, restructuring, legal
or other costs; (xi) the proceeds realized with respect to any business or
product line disposals; (xii) the extent of any asset impairments with respect
to any businesses or product lines that are sold or discontinued; (xiii) the
success of the Company's efforts to manage freight costs, steel and other
commodity costs; (xiv) the Company's ability 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 any inflation
increases; (xv) the Company's ability to generate free cash flow and maintain
a strong debt to capital ratio; (xvi) the Company's ability to identify and
effectively execute productivity improvements and cost reductions, while
minimizing any associated restructuring charges; (xvii) the Company's ability
to obtain favorable settlement of routine tax audits; (xviii) the ability of
the Company to generate earnings sufficient to realize future income tax
benefits during periods when temporary differences become deductible; (xix)
the continued ability of the Company to access credit markets under
satisfactory terms; and (xx) the Company's ability to negotiate satisfactory
payment terms under which the Company buys and sells goods, services,
materials and products.
The Company's ability to deliver the Results is also dependent upon: (i)
the success of the Company's marketing and sales efforts; (ii) 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; (iii) the Company's ability to
continue improvements in working capital; (iv) the ability to continue
successfully managing and defending claims and litigation; (v) the success of
the Company's efforts to mitigate any cost increases generated by, for
example, increases in the cost of energy or significant Chinese Renminbi or
other currency appreciation; and (vi) 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; the impact the tightened credit markets may have on the
Company or its customers or suppliers; the extent to which the Company has to
write off accounts receivable or assets or experiences supply chain
disruptions in connection with bankruptcy filings by customers or suppliers;
increasing competition; changes in laws, regulations and policies that affect
the Company, including, but not limited to trade, monetary, tax and fiscal
policies and laws; the timing and extent of any inflation or deflation in
2009; 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. and European economies; the
extent to which world-wide markets associated with homebuilding and remodeling
continue to deteriorate; the impact of events that cause or may cause
disruption in the Company's manufacturing, distribution and sales networks
such as war, terrorist activities, and political unrest; and recessionary or
expansive trends in the economies of the world in which the Company operates,
including, but not limited to, the extent and duration of the current
recession in the US economy.
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)
FIRST QUARTER
-------------
2009 2008
---- ----
NET SALES $913.0 $1,071.0
COSTS AND EXPENSES
Cost of sales 551.9 665.1
Gross margin 361.1 405.9
% to Net sales 39.6% 37.9%
Selling, general and administrative 252.7 274.6
% to Net sales 27.7% 25.6%
Operating margin 108.4 131.3
% to Net sales 11.9% 12.3%
Other - net 30.3 20.1
Restructuring charges and
asset impairments 9.1 3.2
--- ---
Income from operations 69.0 108.0
Interest - net 16.3 20.9
---- ----
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 52.7 87.1
Income taxes 13.7 22.8
---- ----
NET EARNINGS FROM CONTINUING OPERATIONS 39.0 64.3
---- ----
Less: net earnings attributable to
noncontrolling interests 0.7 0.2
--- ---
NET EARNINGS FROM CONTINUING OPERATIONS
ATTRIBUTABLE TO COMMON SHAREOWNERS 38.3 64.1
---- ----
Net (loss) earnings from discontinued
operations before income taxes (1.1) 3.8
Income taxes (benefit) on
discontinued operations (0.5) 1.4
---- ---
NET (LOSS) EARNINGS FROM DISCONTINUED
OPERATIONS (0.6) 2.4
---- ---
NET EARNINGS ATTRIBUTABLE TO
COMMON SHAREOWNERS $37.7 $66.5
===== =====
BASIC EARNINGS PER SHARE OF COMMON STOCK
Continuing operations $0.48 $0.81
Discontinued operations (0.01) 0.03
----- ----
Total basic earnings per
share of common stock $0.48 $0.84
----- -----
DILUTED EARNINGS PER SHARE OF COMMON STOCK
Continuing operations $0.48 $0.80
Discontinued operations (0.01) 0.03
----- ----
Total diluted earnings per
share of common stock $0.47 $0.83
----- -----
DIVIDENDS PER SHARE $0.32 $0.31
===== =====
AVERAGE SHARES OUTSTANDING (in thousands)
Basic 79,209 79,176
====== ======
Diluted 79,471 80,404
====== ======
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
April 4, January 3,
2009 2009
---- ----
ASSETS
Cash and cash equivalents $128.0 $211.6
Accounts and notes receivable 659.1 677.7
Inventories 503.7 514.7
Other current assets 100.3 90.1
----- ----
Total current assets 1,391.1 1,494.1
------- -------
Property, plant and equipment, net 566.1 579.8
Goodwill and other intangibles, net 2,570.1 2,596.0
Other assets 196.4 195.6
----- -----
Total assets $4,723.7 $4,865.5
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $215.1 $227.6
Accounts payable 400.8 461.5
Accrued expenses 482.2 507.9
----- -----
Total current liabilities 1,098.1 1,197.0
------- -------
Long-term debt 1,385.4 1,383.8
Other long-term liabilities 534.4 560.3
The Stanley Works' shareowners'
equity 1,687.0 1,706.3
Noncontrolling interests equity 18.8 18.1
---- ----
Total liabilities and
equity $4,723.7 $4,865.5
======== ========
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FIRST QUARTER
2009 2008
---- ----
OPERATING ACTIVITIES
Net earnings attributable to common
shareowners $37.7 $66.5
Depreciation and amortization 48.0 40.8
Changes in working capital (45.3) (8.1)
Other (36.8) 8.5
----- ---
Net cash provided by operating activities 3.6 107.7
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (21.7) (25.1)
Business acquisitions and asset disposals (6.0) (0.5)
Cash dividends on common stock (25.3) (24.3)
Other (34.2) 26.6
----- ----
Net cash used in investing and
financing activities (87.2) (23.3)
Increase (decrease) in Cash and Cash
Equivalents (83.6) 84.4
Cash and Cash Equivalents, Beginning of
Period 211.6 240.4
----- -----
Cash and Cash Equivalents, End of Period $128.0 $324.8
====== ======
Free Cash Flow Computation
--------------------------
Operating Cash Flow $3.6 $107.7
Less: capital and software expenditures (21.7) (25.1)
----- -----
Free Cash Flow (before dividends) $(18.1) $82.6
====== =====
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 accounts receivable,
inventory and accounts payable.
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FIRST QUARTER
-------------
2009 2008
---- ----
NET SALES
Security $373.7 $332.5
Industrial 236.0 332.7
Construction & DIY 303.3 405.8
----- -----
Total $913.0 $1,071.0
====== ========
SEGMENT PROFIT
Security $70.6 $53.3
Industrial 24.5 48.7
Construction & DIY 28.8 47.0
---- ----
Segment Profit 123.9 149.0
Corporate Overhead (15.5) (17.7)
----- -----
Total $108.4 $131.3
====== ======
Segment Profit as a Percentage of Net Sales
Security 18.9% 16.0%
Industrial 10.4% 14.6%
Construction & DIY 9.5% 11.6%
--- ----
Segment Profit 13.6% 13.9%
Corporate Overhead -1.7% -1.6%
---- ----
Total 11.9% 12.3%
==== ====
SOURCE The Stanley Works
CONTACT: Corbin Walburger, Vice President of Business Development,
+1-860 827-3937, cwalburger@stanleyworks.com, or Kate White, Director of
Investor Relations, +1-860-827-3833, kwhite@stanleyworks.com, both of The
Stanley Works/
/Web Site: http://www.StanleyWorks.com /
(SWK)
