Stanley Black & Decker Reports 1Q 2020 Results and Details $1 Billion Cost Reduction and Efficiency Program
- 1Q'20 Revenues Totaled
$3.1 Billion , Down 6% Versus Prior Year, With A 7% Organic Decline Primarily Related To Impacts From COVID-19 - 1Q'20 Diluted GAAP EPS Was
$0.88 ; Excluding Charges, 1Q'20 Diluted EPS Was$1.20 , Reflecting$60 Million In External Headwinds And Coronavirus Related Volume Declines Partially Offset By Margin Resiliency Actions - Recently Announced Cost Reduction Program Expected To Deliver
$1 Billion In Annualized Savings With$500 Million In 2020 - Continues Suspension Of Guidance But Currently Expects Second Quarter To Be The Trough For 2020 Revenue Decline
1Q'20
- Net sales for the quarter were
$3.1 billion , down 6% versus prior year, as acquisitions (+2%) and price (+1%) were more than offset by volume (-8%) and currency (-1%).
- Gross margin rate for the quarter was 32.7%. Excluding charges, the rate was 33.0%, down 40 basis points from prior year as price, margin resiliency and other cost controls in late March were more than offset by lower volumes, higher manufacturing costs related to the virus as well as currency and tariff headwinds. Higher manufacturing costs resulted from significant increases in PPE and freight costs.
- SG&A expenses were 23.9% of sales. Excluding charges, SG&A expenses were 23.0% of sales compared to 22.7% in 1Q'19, reflecting tight cost management and headcount reductions from 2019 actions partially offsetting the impact from lower volumes.
- The tax rate was 8.8%. Excluding charges, the tax rate was 12.5% versus 15.0% in 1Q'19.
- Working capital turns for the quarter were 6.0, up 0.2 turns from prior year.
"In the first quarter, as we navigated through the early stages of one of the more challenging global crises the world has experienced, our team demonstrated great agility and resiliency in tackling the supply chain and initial demand impacts from the global pandemic as well as the carry-over headwinds from tariffs and currency. We are making critical decisions around those priorities every day to protect the company, our employees and all of our stakeholders. We are proud of how quickly and effectively our employees have responded and are confident in our ability to maintain the vitality, strength and sustainability of our 177 year old company."
1Q'20 Segment Results
($ in M) |
||||||
Sales |
Profit |
Charges1 |
Profit |
Profit |
Profit Rate |
|
Tools & Storage |
|
|
$ 3.1 |
|
11.3% |
11.5% |
Industrial |
|
|
|
|
11.5% |
13.2% |
Security |
|
|
|
|
4.5% |
7.4% |
1 See Merger And Acquisition ("M&A") Related And Other Charges On Page 6 |
- Tools & Storage net sales declined 10% versus 1Q'19 from the impacts of lower volume (-9%) and currency (-2%) partially offset by price (+1%). Revenue across all regions declined due to the impact from the global pandemic with
North America -8%,Europe -7% and emerging markets -13%. TheNorth America organic decline was driven by the expected difficult comparison to the prior year's Craftsman rollout and the unexpected pandemic-related impacts that emerged during the quarter.Europe and emerging markets were impacted by customer closures and government restrictions beginning in late February which continued through the end of the quarter. Overall Tools & Storage segment profit rate, excluding charges, was 11.5%, down from the 1Q'19 rate of 12.1%, as the benefits from cost control, margin resiliency actions and price were slightly offset by lower volume, tariffs and currency.
- Industrial net sales increased 6% versus 1Q'19 as the IES Attachments and CAM acquisitions (+15%) were partially offset by volume (-8%) and currency (-1%). Engineered Fastening organic revenues were down 9% as share gains were more than offset by lower global automotive light vehicle and general industrial production. Infrastructure organic revenues were down 6% as modest growth in Oil & Gas was more than offset by lower North American Attachment Tools volumes.
Overall Industrial segment profit rate, excluding charges, was 13.2%, down from the 1Q'19 rate of 13.9%, as the negative virus-related volume impacts and currency were partially offset by cost control and margin resiliency initiatives.
- Security net sales declined 4% versus 1Q'19 due to divestitures (-2%) and currency (-2%).
North America organic growth was up 2% as higher volume in automatic doors and healthcare were partially offset by lower installation and service revenue in commercial electronic security.Europe was down 1% organically as a decline due to customer restrictions inFrance and theUK was partially offset by growth inSweden . Although the commercial electronic security organic growth in both regions were impacted by customer and government restrictions, the installation orders and backlog (+20% versus prior year) remain in a healthy position. The overall Security segment profit rate, excluding charges, was 7.4%, which was down from the 1Q'19 rate of 10.3%, as price and cost control were more than offset by lower volume in electronic security, investments to support growth and the impact from theSargent & Greenleaf divestiture.
The Company's cost reduction program, announced on
The program's primary focus is to:
- Adjust the Company's supply chain and manufacturing labor base to match the current demand environment
- Substantially reduce indirect spending (currently
~$1.7B annualized) - Reduce staffing, compensation & benefits in a manner that ensures the Company is prepared for a demand recovery at the appropriate time
- Capture the significant raw material deflation opportunity
Given the unusual breadth of potential forward demand scenarios which may unfold in the coming months, the program has been carefully and thoughtfully designed to preserve the Company's financial strength and execution capability while providing flexibility to modulate costs up or down based on depth and duration of the crisis and the associated demand development.
Liquidity & 2020 Outlook
- Maintains strong investment grade credit ratings
- Possesses approximately
$1B of cash on-hand as of quarter end - Manages a robust and highly rated commercial paper program (
$3B program with$1.7B outstanding as of quarter end). - Carries
$3 billion of revolving credit facilities backed by a well-capitalized, diversified bank group - Has the ability to generate additional cash proceeds of
$750 million in the second quarter upon the successful remarketing of its Series C Convertible Preferred Stock, pursuant to its 2017 Equity Units Transaction
In addition, the Company plans to reduce capital expenditures and temporarily suspend acquisition-related activity and share repurchases until the demand outlook is clearer. The near term priority for capital deployment will be focused on deleveraging in line with our strong, investment grade credit ratings. From a portfolio perspective, the Company is deferring the Security strategic review until after the environment stabilizes.
On
Merger And Acquisition ("M&A") Related And Other Charges
Total pre-tax M&A related and other charges in 1Q'20 were
Share of net earnings of equity method investment included
The Company will host a conference call with investors today,
The call will be accessible by telephone within the
Investor Contacts:
Vice President, Investor Relations
dennis.lange@sbdinc.com
(860) 827-3833
Director, Investor Relations
cort.kaufman@sbdinc.com
(860) 515-2741
Media Contacts:
Vice President, Communications & Public Relations
shannon.lapierre@sbdinc.com
(860) 827-3575
Organic sales growth is defined as total sales growth less the sales of companies acquired and divested in the past twelve months and any foreign currency impacts. Operating margin is defined as sales less cost of sales and selling, general and administrative expenses. 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 software expenditures. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and to provide a return to the shareowners. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and business acquisitions, among other items. Free cash flow conversion is defined as free cash flow divided by net income. The normalized statement of operations and business segment information, as reconciled to GAAP on pages 12 and 13, is considered relevant to aid analysis of the Company's margin and earnings results aside from the material impact of the M&A related and other charges.
CAUTIONARY STATEMENTS
Under the Private Securities Litigation Reform Act of 1995
This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including any projections or guidance of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among other, the words "may," "will," "estimate," "intend," "continue," "believe," "expect," "anticipate" or any other similar words.
Although the Company believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of its forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in the Company's filings with the
Important factors that could cause the Company's actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in its forward-looking statements include, among others, the following: (i) successfully developing, marketing and achieving sales from new products and services and the continued acceptance of current products and services; (ii) macroeconomic factors, including global and regional business conditions (such as Brexit), commodity prices, inflation, and currency exchange rates; (iii) laws, regulations and governmental policies affecting the Company's activities in the countries where it does business, including those related to tariffs, taxation, and trade controls; (iv) the economic environment of emerging markets, particularly
Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in the Annual Report on Form 10-K and in the Quarterly Report on Form 10-Q, including under the heading "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Consolidated Financial Statements and the related Notes.
Forward-looking statements in this press release speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
|
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||
(Unaudited, Millions of Dollars Except Per Share Amounts) |
|||||||
FIRST QUARTER |
|||||||
2020 |
2019 |
||||||
|
$ 3,129.4 |
$ 3,333.6 |
|||||
COSTS AND EXPENSES |
|||||||
Cost of sales |
2,106.3 |
2,228.0 |
|||||
Gross margin |
1,023.1 |
1,105.6 |
|||||
% of |
32.7% |
33.2% |
|||||
Selling, general and administrative |
748.5 |
778.9 |
|||||
% of |
23.9% |
23.4% |
|||||
Operating margin |
274.6 |
326.7 |
|||||
% of |
8.8% |
9.8% |
|||||
Other - net |
74.9 |
65.4 |
|||||
Restructuring charges |
3.9 |
8.7 |
|||||
Income from operations |
195.8 |
252.6 |
|||||
Interest - net |
49.6 |
57.8 |
|||||
EARNINGS BEFORE INCOME TAXES AND EQUITY INTEREST |
146.2 |
194.8 |
|||||
Income taxes |
12.9 |
24.7 |
|||||
NET EARNINGS BEFORE EQUITY INTEREST |
133.3 |
170.1 |
|||||
Share of net (losses) earnings of equity method investment |
(0.2) |
0.3 |
|||||
NET EARNINGS |
133.1 |
170.4 |
|||||
Less: net (losses) earnings attributable to non-controlling interests |
(0.1) |
0.5 |
|||||
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS |
$ 133.2 |
$ 169.9 |
|||||
EARNINGS PER SHARE OF COMMON STOCK |
|||||||
Basic |
$ 0.89 |
$ 1.15 |
|||||
Diluted |
$ 0.88 |
$ 1.13 |
|||||
DIVIDENDS PER SHARE |
$ 0.69 |
$ 0.66 |
|||||
WEIGHTED-AVERAGE SHARES OUTSTANDING (in thousands) |
|||||||
Basic |
150,330 |
147,863 |
|||||
Diluted |
151,903 |
149,908 |
|
|||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||
(Unaudited, Millions of Dollars) |
|||||
|
|
||||
2020 |
2019 |
||||
ASSETS |
|||||
Cash and cash equivalents |
$ 987.1 |
$ 297.7 |
|||
Accounts and notes receivable, net |
1,681.5 |
1,454.6 |
|||
Inventories, net |
2,532.4 |
2,255.0 |
|||
Other current assets |
491.9 |
449.3 |
|||
Total current assets |
5,692.9 |
4,456.6 |
|||
Property, plant and equipment, net |
2,036.7 |
1,959.5 |
|||
|
13,877.4 |
12,859.5 |
|||
Other assets |
1,298.0 |
1,321.0 |
|||
Total assets |
$ 22,905.0 |
$ 20,596.6 |
|||
LIABILITIES AND SHAREOWNERS' EQUITY |
|||||
Short-term borrowings |
$ 1,674.0 |
$ 337.3 |
|||
Current maturities of long-term debt |
3.1 |
3.1 |
|||
Accounts payable |
2,029.2 |
2,087.8 |
|||
Accrued expenses |
1,664.0 |
1,977.5 |
|||
Total current liabilities |
5,370.3 |
4,405.7 |
|||
Long-term debt |
4,662.6 |
3,176.4 |
|||
Other long-term liabilities |
3,912.9 |
3,872.3 |
|||
|
8,953.4 |
9,136.3 |
|||
Non-controlling interests' equity |
5.8 |
5.9 |
|||
Total liabilities and shareowners' equity |
$ 22,905.0 |
$ 20,596.6 |
|
|||||||||
SUMMARY OF CASH FLOW ACTIVITY |
|||||||||
(Unaudited, Millions of Dollars) |
|||||||||
FIRST QUARTER |
|||||||||
2020 |
2019 |
||||||||
OPERATING ACTIVITIES |
|||||||||
Net earnings |
$ 133.1 |
$ 170.4 |
|||||||
Depreciation and amortization |
141.1 |
137.8 |
|||||||
Share of net losses (earnings) of equity method investment |
0.2 |
(0.3) |
|||||||
Changes in working capital1 |
(512.7) |
(616.8) |
|||||||
Other |
(166.9) |
(122.4) |
|||||||
Net cash used in operating activities |
(405.2) |
(431.3) |
|||||||
INVESTING AND FINANCING ACTIVITIES |
|||||||||
Capital and software expenditures |
(82.9) |
(89.6) |
|||||||
Business acquisitions, net of cash acquired |
(1,302.4) |
(676.2) |
|||||||
Purchases of investments |
(6.5) |
(245.4) |
|||||||
Payments on long-term debt |
- |
(400.0) |
|||||||
Proceeds from debt issuances, net of fees |
1,486.4 |
496.9 |
|||||||
Stock purchase contract fees |
(20.1) |
(10.1) |
|||||||
Net short-term borrowings |
1,351.9 |
1,419.9 |
|||||||
Proceeds from issuances of common stock |
44.6 |
10.2 |
|||||||
Craftsman deferred purchase price |
(250.0) |
- |
|||||||
Cash dividends on common stock |
(105.6) |
(97.6) |
|||||||
Effect of exchange rate changes on cash |
(22.6) |
4.8 |
|||||||
Other |
(3.9) |
(7.2) |
|||||||
Net cash provided by investing and financing activities |
1,088.9 |
405.7 |
|||||||
Increase (decrease) in cash, cash equivalents and restricted cash |
683.7 |
(25.6) |
|||||||
Cash, cash equivalents and restricted cash, beginning of period |
314.6 |
311.4 |
|||||||
Cash, cash equivalents and restricted cash, end of period |
$ 998.3 |
$ 285.8 |
|||||||
Free Cash Flow Computation2 |
|||||||||
Operating cash flow |
$ (405.2) |
$ (431.3) |
|||||||
Less: capital and software expenditures |
(82.9) |
(89.6) |
|||||||
Free cash flow (before dividends) |
$ (488.1) |
$ (520.9) |
|||||||
Reconciliation of Cash, Cash Equivalents and Restricted Cash |
|||||||||
|
|
||||||||
Cash and cash equivalents |
$ 987.1 |
$ 297.7 |
|||||||
Restricted cash included in Other current assets |
11.2 |
16.9 |
|||||||
Cash, cash equivalents and restricted cash |
$ 998.3 |
$ 314.6 |
|||||||
1 |
Working capital is comprised of accounts receivable, inventory, accounts payable and deferred revenue. |
||||||||
2 |
Free cash flow is defined as cash flow from operations less capital and software expenditures. Management considers free cash flow an important measure of its liquidity, as well as its ability to fund future growth and to provide a return to the shareowners. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and business acquisitions, among other items. |
|
|||||
BUSINESS SEGMENT INFORMATION |
|||||
(Unaudited, Millions of Dollars) |
|||||
FIRST QUARTER |
|||||
2020 |
2019 |
||||
|
|||||
Tools & Storage |
$ 2,070.8 |
$ 2,292.3 |
|||
Industrial |
590.7 |
555.0 |
|||
Security |
467.9 |
486.3 |
|||
Total |
$ 3,129.4 |
$ 3,333.6 |
|||
SEGMENT PROFIT |
|||||
Tools & Storage |
$ 234.8 |
$ 265.8 |
|||
Industrial |
67.8 |
71.0 |
|||
Security |
20.9 |
39.5 |
|||
Segment Profit |
323.5 |
376.3 |
|||
Corporate Overhead |
(48.9) |
(49.6) |
|||
Total |
$ 274.6 |
$ 326.7 |
|||
Segment Profit as a Percentage of |
|||||
Tools & Storage |
11.3% |
11.6% |
|||
Industrial |
11.5% |
12.8% |
|||
Security |
4.5% |
8.1% |
|||
Segment Profit |
10.3% |
11.3% |
|||
Corporate Overhead |
(1.6%) |
(1.5%) |
|||
Total |
8.8% |
9.8% |
|||
|
||||||||
RECONCILIATION OF GAAP EARNINGS FINANCIAL MEASURES TO CORRESPONDING |
||||||||
NON-GAAP FINANCIAL MEASURES |
||||||||
(Unaudited, Millions of Dollars Except Per Share Amounts) |
||||||||
FIRST QUARTER 2020 |
||||||||
Reported |
Acquisition- |
Normalized3 |
||||||
Gross margin |
$ 1,023.1 |
$ 9.1 |
$ 1,032.2 |
|||||
% of |
32.7% |
33.0% |
||||||
Selling, general and administrative |
748.5 |
$ (29.8) |
718.7 |
|||||
% of |
23.9% |
23.0% |
||||||
Operating margin |
274.6 |
38.9 |
313.5 |
|||||
% of |
8.8% |
10.0% |
||||||
Earnings before income taxes and equity interest |
146.2 |
61.7 |
207.9 |
|||||
Income taxes |
12.9 |
13.1 |
26.0 |
|||||
Share of net (losses) earnings of equity method investment |
(0.2) |
1.0 |
0.8 |
|||||
Net earnings attributable to common shareowners |
133.2 |
49.6 |
182.8 |
|||||
Diluted earnings per share of common stock |
$ 0.88 |
$ 0.32 |
$ 1.20 |
|||||
1 |
Acquisition-related charges and other relates primarily to inventory step-up, deal costs, Security business transformation and margin resiliency initiatives. |
|||||||
FIRST QUARTER 2019 |
||||||||
Reported |
Acquisition- |
Normalized3 |
||||||
Gross margin |
$ 1,105.6 |
$ 6.4 |
$ 1,112.0 |
|||||
% of |
33.2% |
33.4% |
||||||
Selling, general and administrative |
778.9 |
(23.0) |
755.9 |
|||||
% of |
23.4% |
22.7% |
||||||
Operating margin |
326.7 |
29.4 |
356.1 |
|||||
% of |
9.8% |
10.7% |
||||||
Earnings before income taxes and equity interest |
194.8 |
52.6 |
247.4 |
|||||
Income taxes |
24.7 |
12.4 |
37.1 |
|||||
Share of net earnings of equity method investment |
0.3 |
3.4 |
3.7 |
|||||
Net earnings attributable to common shareowners |
169.9 |
43.6 |
213.5 |
|||||
Diluted earnings per share of common stock |
$ 1.13 |
$ 0.29 |
$ 1.42 |
|||||
2 |
Acquisition-related charges and other relates primarily to restructuring, deal and integration costs, Security business transformation and |
|||||||
3 |
The normalized 2020 and 2019 information, as reconciled to GAAP above, is considered relevant to aid analysis of the Company's margin and earnings results aside from the material impact of the acquisition-related and other charges. |
|
|||||||||
RECONCILIATION OF GAAP SEGMENT PROFIT FINANCIAL MEASURES TO CORRESPONDING |
|||||||||
NON-GAAP FINANCIAL MEASURES |
|||||||||
(Unaudited, Millions of Dollars) |
|||||||||
FIRST QUARTER 2020 |
|||||||||
Reported |
Acquisition- |
Normalized3 |
|||||||
SEGMENT PROFIT |
|||||||||
Tools & Storage |
$ 234.8 |
$ 3.1 |
$ 237.9 |
||||||
Industrial |
67.8 |
10.4 |
78.2 |
||||||
Security |
20.9 |
13.9 |
34.8 |
||||||
Segment Profit |
323.5 |
27.4 |
350.9 |
||||||
Corporate Overhead |
(48.9) |
11.5 |
(37.4) |
||||||
Total |
$ 274.6 |
$ 38.9 |
$ 313.5 |
||||||
Segment Profit as a Percentage of |
|||||||||
Tools & Storage |
11.3% |
11.5% |
|||||||
Industrial |
11.5% |
13.2% |
|||||||
Security |
4.5% |
7.4% |
|||||||
Segment Profit |
10.3% |
11.2% |
|||||||
Corporate Overhead |
(1.6%) |
(1.2%) |
|||||||
Total |
8.8% |
10.0% |
|||||||
1 |
Acquisition-related and other charges relate primarily to inventory step-up, Security business transformation and margin resiliency initiatives. |
||||||||
FIRST QUARTER 2019 |
|||||||||
Reported |
Acquisition- |
Normalized3 |
|||||||
SEGMENT PROFIT |
|||||||||
Tools & Storage |
$ 265.8 |
$ 12.6 |
$ 278.4 |
||||||
Industrial |
71.0 |
6.0 |
77.0 |
||||||
Security |
39.5 |
10.8 |
50.3 |
||||||
Segment Profit |
376.3 |
29.4 |
405.7 |
||||||
Corporate Overhead |
(49.6) |
- |
(49.6) |
||||||
Total |
$ 326.7 |
$ 29.4 |
$ 356.1 |
||||||
Segment Profit as a Percentage of |
|||||||||
Tools & Storage |
11.6% |
12.1% |
|||||||
Industrial |
12.8% |
13.9% |
|||||||
Security |
8.1% |
10.3% |
|||||||
Segment Profit |
11.3% |
12.2% |
|||||||
Corporate Overhead |
(1.5%) |
(1.5%) |
|||||||
Total |
9.8% |
10.7% |
|||||||
2 |
Acquisition-related and other charges relate primarily to inventory step-up, integration costs, and Security business transformation and margin resiliency initiatives. |
||||||||
3 |
The normalized 2020 and 2019 business segment information, as reconciled to GAAP above, is considered relevant to aid analysis of the Company's segment profit results aside from the material impact of the acquisition-related and other charges. |
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