Click here for printable PDF format
4Q Revenues Up 15%; 4Q EPS $1.11; 4Q and FY Cash Flows At Record Levels;
4.2 Million Shares Repurchased ($200 Million) During 4Q07 and Early 2008
NEW BRITAIN, Conn., Jan. 28 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced full year and fourth quarter 2007 financial results
today.
Full year 2007 highlights
-- Net sales were $4.5 billion, up 12% vs. prior year. The increase was
attributable to organic growth (2 pts.), currency (3 pts.) and
acquisitions (7 pts.). Strong double-digit growth in Industrial and
Security segments supplemented modest gains in CDIY segment.
-- Pretax income and operating margin were up 23% and 26%, respectively,
as price realization, operations productivity and acquisition mix more
than offset inflationary headwinds.
-- Income tax rate was 25% vs. 21% a year ago. The higher tax rate
impacted results by $0.25 per fully-diluted share in 2007.
-- Fully-diluted EPS from continuing operations was a record $4.00, up 15%
over 2006.
-- Working capital turns at year-end improved to a record 5.1 vs. 4.5 at
year-end 2006, attributable to continued realization of benefits
associated with the Stanley Fulfillment System.
-- Free cash flow was a record $457 million (136% of net income), an
increase of $99 million over 2006, fueled by higher cash earnings and
improved working capital turns.
Full year segment results
2007 Versus 2006
(millions) Segment Segment
Segment Profit Segment Profit
Sales Profit Rate Sales Profit Rate
CDIY $1,795 $270 15.0% +4% 0% -70bps
Industrial $1,256 $184 14.7% +10% +48% +380bps
Security $1,433 $242 16.9% +24% +41% +210bps
John F. Lundgren, Chairman and Chief Executive Officer, stated: "2007 was
a year in which our team excelled in the face of a challenging market
environment. Our performance was consistent with the company's long term
financial objectives and significant progress was made both strategically and
operationally."
Fourth quarter highlights
-- Net sales were $1.2 billion, up 15% vs. prior year. The increase was
attributable to organic growth (2 pts.), currency (5 pts.) and
acquisitions (8 pts.).
-- Fully-diluted EPS from continuing operations was $1.11, up 7% over
prior year.
-- Charges totaled $0.04 per share during the quarter for resolution of
previously unanticipated legal matters, the largest of which was an
unfavorable Bostitch-related litigation judgment.
-- Income tax rate was 21%, compared with 14% a year ago. The higher tax
rate impacted results by $0.10 per fully-diluted share in the fourth
quarter of 2007.
-- Pretax income and operating margin were up 16% and 20%, respectively.
-- Operating margin rate was 13.6%, a 60bp improvement. Gross margin rate
was 37.2% of sales, up 70 bps over the fourth quarter of 2006 and SG&A
expenses were 23.5% of sales, unchanged from the prior year.
-- Free cash flow was $186 million (202% of net income), up 89% over the
prior year.
Fourth quarter segment results
4Q07 Versus 4Q06
(millions) Segment Segment
Segment Profit Segment Profit
Sales Profit Rate Sales Profit Rate
CDIY $459 $63 13.7% +5% -8% -190bps
Industrial $340 $51 14.9% +15% +31% +180bps
Security $368 $60 16.3% +29% +44% +170bps
-- In CDIY, double-digit sales increases in Europe, Australia, Canada,
Latin America and Asia more than offset weakness in the U.S. New
product initiatives and currency were the primary drivers of these
increases. The segment profit rate was lower primarily due to product
mix and un-recovered cost inflation within the U.S.
-- Industrial segment sales benefited from 5% organic sales growth in
Industrial and Automotive Repair Tools (Facom, Proto and Mac) and 15%
organic growth in Engineered Solutions. The profit rate expanded as a
result of strong price realization and productivity.
-- In Security, acquisitions (primarily HSM, acquired in early 2007)
accounted for 25 pts. of the sales increase. Mechanical Access sales
were very strong, partially offset by weak legacy U.S. Systems
Integration (USSI) sales. Segment profit benefited from the inclusion
of HSM, as well as strong price realization and a mix shift between
Mechanical Access and legacy USSI.
Mr. Lundgren added: "2008 promises to be an equally, if not more,
challenging year from an end-market perspective. Fortunately, we are entering
the year with our portfolio in excellent shape and with the majority of our
businesses exhibiting strong momentum. We also are enjoying increasing
operational benefits from the Stanley Fulfillment System, which is rapidly
becoming a positive force within the company's culture."
Management reaffirmed its recent estimates for 2008
-- EPS of $4.20-$4.40 per fully diluted share, an increase of 5-10% over
2007 earnings. The 2008 tax rate is expected to be consistent with the
2007 rate.
-- Organic sales growth (ex currency) of 0-1%, based on a subdued 2008
economic environment, including a possible mild and short-lived U.S.
recession, as well as continued deterioration of North American markets
associated with homebuilding and remodeling (about 25% of consolidated
revenues). Such growth is estimated to be marginally negative in the
CDIY segment, marginally positive in the Industrial segment and up 2-3%
in the Security segment.
-- Acquisitions are expected to supplement organic growth although the
effects of potential future acquisitions are not included in the
estimate.
-- Free cash flow of approximately $500 million.
As previously announced, during the fourth quarter the company repurchased
2.0 million of its common shares in the open market for $100 million, an
average price per share of $50.77. For the full year 2007, the company
repurchased 3.7 million shares for $200 million. Further, today the company
announced that, during January 2008, it repurchased an additional 2.2 million
shares in the open market at an average price of $46.23 per share.
Mr. Lundgren added: "Our portfolio transformation strategy and our
commitment to upper-tier credit ratings remain intact. In addition, periodic
share repurchases and consistent dividend increases are important elements of
the total return we deliver to shareholders. Our strong cash flows have
afforded us the opportunity to repurchase nearly 6 million shares of our
common stock in the past nine months. Our recent 10 million share repurchase
authorization provides flexibility to buy additional shares in the future."
The company will host a conference call with investors at 10:00am EST
today, Monday, January 28, 2008 to discuss quarterly results. The call is
accessible by telephone at (800) 267-8424 and (706) 634-0695 (international)
and via the Internet at www.stanleyworks.com by selecting "Investor
Relations". A slide presentation to accompany the call will be available at
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 using the conference identification number
30996408.
Operating margin is defined as sales less cost of sales less SG&A.
Management uses operating margin and its percentage of net sales as key
measures to assess the performance of the company as a whole, as well as the
related measures at the segment level.
Free cash flow is defined as cash flow from operations less capital and
capitalized software expenditures (reconciliation on pg. 8). 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. 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 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) deliver 2008 earnings of $4.20 - $4.40
per fully diluted share; (ii) deliver free cash flow of approximately $500
million in 2008; (iii) deliver organic sales growth (excluding currency) of
flat to 1% in 2008; and (iv) to supplement organic growth through acquisitions
during 2008 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 identify appropriate acquisition opportunities and to
complete such acquisitions; (ii) the Company's ability to successfully
integrate HSM and other recent acquisitions, as well as future acquisitions,
while limiting associated costs; (iii) the Company's ability to continue to
deliver cost reductions and profit improvement in its Fastening Systems
business; (iv) the Company's ability to minimize the costs to relocate
equipment and inventory; (v) the Company's ability to complete the Fastening
reorganization within the anticipated time frame; (vi) the success of the
Company's efforts to expand its tools and security businesses; (vii) the
Company's success at new product development and introduction, and identifying
and developing new markets; (viii) the success of the Company's efforts to
manage freight costs, steel and other commodity costs; (ix) 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 commodity costs and other inflation increases; (x) the
Company's ability to reduce its costs, increase its prices, change the
manufacturing location or find alternate sources for products made in China in
order to (a) mitigate the impact of an increase in the VAT rate applicable to
products the Company makes or purchases in China and (b) mitigate the impact
of an anti-dumping tariff recently imposed on certain nails imported from
China; (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; (ii) the
success of recruiting programs and other efforts to maintain or expand overall
Mac Tools truck count versus prior years; (iii) 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; (iv) the ability to continue
successfully managing and defending claims and litigation; (v) the Company's
ability to continue improvements in working capital; (vi) the success of the
Company's efforts to mitigate any cost increases generated by, for example,
continued increases in the cost of energy or significant Chinese Renminbi or
other currency appreciation; and (vii) 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; the extent to which North American markets associated with
homebuilding and remodeling continue to deteriorate; 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)
FOURTH QUARTER YEAR TO DATE
2007 2006 2007 2006
NET SALES $1,167.4 $1,019.3 $4,483.8 $4,018.6
COSTS AND EXPENSES
Cost of sales 733.7 647.2 2,791.6 2,560.1
Gross Margin 433.7 372.1 1,692.2 1,458.5
% to Net Sales 37.2% 36.5% 37.7% 36.3%
Selling, general and
administrative 274.7 239.9 1,058.4 955.2
% to Net Sales 23.5% 23.5% 23.6% 23.8%
Operating Margin 159.0 132.2 633.8 503.3
% to Net Sales 13.6% 13.0% 14.1% 12.5%
Other - net 19.8 11.9 89.7 57.5
Restructuring charges 2.3 3.8 12.8 13.8
Income from Operations 136.9 116.5 531.3 432.0
Interest - net 19.6 15.4 80.2 64.9
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 117.3 101.1 451.1 367.1
Income taxes 25.0 14.1 114.5 76.4
NET EARNINGS FROM CONTINUING
OPERATIONS 92.3 87.0 336.6 290.7
Loss from discontinued
operations (including loss on
disposal of $1.5 million in
2006) before income taxes - (0.5) - (1.5)
Income tax benefit on
discontinued operations - (0.1) - (0.3)
NET LOSS FROM DISCONTINUED
OPERATIONS - (0.4) - (1.2)
NET EARNINGS $92.3 $86.6 $336.6 $289.5
BASIC EARNINGS (LOSS) PER SHARE OF
COMMON STOCK
Continuing operations $1.13 $1.06 $4.09 $3.55
Discontinued operations - (0.01) - (0.01)
Total basic earnings per
share of common stock $1.13 $1.06 $4.09 $3.54
DILUTED EARNINGS (LOSS) PER SHARE
OF COMMON STOCK
Continuing operations $1.11 $1.04 $4.00 $3.47
Discontinued operations - (0.01) - (0.01)
Total diluted earnings per
share of common stock $1.11 $1.03 $4.00 $3.46
DIVIDENDS PER SHARE $0.31 $0.30 $1.22 $1.18
AVERAGE SHARES OUTSTANDING
(in thousands)
Basic 81,556 81,796 82,313 81,866
Diluted 83,089 83,691 84,046 83,704
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
December 29, December 30,
2007 2006
ASSETS
Cash and cash equivalents $240.4 $176.6
Accounts and notes receivable 848.4 749.6
Inventories 567.3 598.9
Other current assets 88.0 85.2
Assets held for sale 24.3 28.2
Total current assets 1,768.4 1,638.5
Property, plant and equipment 569.3 559.4
Goodwill and other intangibles 2,252.6 1,621.5
Other assets 189.6 116.0
Total assets $4,779.9 $3,935.4
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $292.8 $320.0
Accounts payable 508.6 445.2
Accrued expenses 476.1 485.9
Total current liabilities 1,277.5 1,251.1
Long-term debt 1,212.1 679.2
Other long-term liabilities 561.8 453.1
Shareowners' equity 1,728.5 1,552.0
Total liabilities and equity $4,779.9 $3,935.4
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2007 2006 2007 2006
OPERATING ACTIVITIES
Net earnings $92.3 $86.6 $336.6 $289.5
Depreciation and amortization 42.1 29.9 162.2 121.2
Changes in working capital 106.1 55.2 51.7 28.7
Other (22.6) (52.4) (6.4) (0.3)
Net cash provided by operating
activities 217.9 119.3 544.1 439.1
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (31.9) (20.7) (86.9) (80.5)
Business acquisitions and asset
disposals (5.8) 0.3 (624.9) (539.9)
Proceeds from long-term
borrowings 0.1 - 529.9 -
Cash dividends on common stock (24.9) (24.5) (99.8) (96.1)
Other (195.6) (139.1) (198.6) (203.8)
Net cash used in investing and
financing activities (258.1) (184.0) (480.3) (920.3)
Increase (Decrease) in Cash and
Cash Equivalents (40.2) (64.7) 63.8 (481.2)
Cash and Cash Equivalents,
Beginning of Period 280.6 241.3 176.6 657.8
Cash and Cash Equivalents, End of
Period $240.4 $176.6 $240.4 $176.6
Free Cash Flow Computation
Operating cash flow $217.9 $119.3 $544.1 $439.1
Less: capital and software
expenditures (31.9) (20.7) (86.9) (80.5)
Free cash flow (before dividends) $186.0 $98.6 $457.2 $358.6
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 current accounts
receivable, inventory and accounts payable.
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2007 2006 2007 2006
NET SALES
Construction & DIY $458.8 $437.1 $1,795.0 $1,723.9
Industrial 340.4 296.3 1,255.9 1,137.7
Security 368.2 285.9 1,432.9 1,157.0
Total $1,167.4 $1,019.3 $4,483.8 $4,018.6
SEGMENT PROFIT
Construction & DIY $62.8 $68.0 $270.0 $271.1
Industrial 50.6 38.6 184.0 124.0
Security 60.0 41.8 242.1 171.5
Segment Profit 173.4 148.4 696.1 566.6
Corporate Overhead (14.4) (16.2) (62.3) (63.3)
Total $159.0 $132.2 $633.8 $503.3
Segment Profit as a Percentage
of Net Sales
Construction & DIY 13.7% 15.6% 15.0% 15.7%
Industrial 14.9% 13.0% 14.7% 10.9%
Security 16.3% 14.6% 16.9% 14.8%
Segment Profit 14.8% 14.6% 15.5% 14.1%
Corporate Overhead -1.2% -1.6% -1.4% -1.6%
Total 13.6% 13.0% 14.1% 12.5%
SOURCE Stanley Works
CONTACT: Gerry Gould, V. P. - Investor Relations, The Stanley Works,
+1-860-827-3833, ggould@stanleyworks.com/
/Company News On-Call: http://www.prnewswire.com/comp/874363.html/
/Web site: http://www.StanleyWorks.com/
(SWK)
