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Fourth Quarter Revenues Up 21%; EPS from Continuing Operations $1.04, Up 39%
NEW BRITAIN, Conn., Jan. 25 /PRNewswire-FirstCall/ -- The Stanley Works
(NYSE: SWK) announced that 4Q06 net income from continuing operations was
$87 million, $1.04 per fully-diluted share, up 39% over earnings of
$64 million ($0.75 per fully-diluted share) from continuing operations in
2005.
Net sales were $1,019 million, up 21% over last year. Excluding sales from
recent acquisitions -- primarily Facom Tools and National Hardware -- organic
sales were flat. Gross profit from continuing operations was $372 million, or
36.5% of sales, versus $289 million or 34.5% last year.
Selling, general and administrative ("SG&A") expenses from continuing
operations were $240 million compared with $185 million last year. SG&A
expenses associated with acquired businesses accounted for approximately
$44 million of the increase. Excluding acquisitions, comparable SG&A expenses
were 23.1% of sales vs. 22.0% last year, reflecting increased brand support
and stock option expenses.
Operating income was $132 million (13.0% of sales), up 27% over
$104 million (12.4% of sales) last year. Income tax expense was 14% of net
income as compared with 20% in the prior year, due to the settlement of
certain issues under audit.
Full year 2006 sales were $4,019 million, up 22% over 2005 on the strength
of acquisitions. Net income from continuing operations was $291 million ($3.47
per fully diluted share) vs. $272 million ($3.18 per fully diluted share) in
2005. Earnings per fully diluted share, excluding $0.17 of non-cash inventory
step-up charges related to acquisitions, increased 14%. Free cash flow (cash
from operations less capital expenditures) was $359 million (123% of net
income), up 22% over 2005.
John F. Lundgren, Chairman and Chief Executive Officer, stated: "We are
encouraged that, aside from a decline in Fastening Systems, the remainder of
our portfolio achieved 2% organic sales growth in the fourth quarter, despite
weakness in U.S. retail markets. With continuing diversification, our business
portfolio is now much less dependent on building product end markets than
several years ago. Our consumer tools business showed strength in all
geographies, as a second wave of FatMax(R) Xtreme(TM) hand tools in North
America, broad-based merchandising support for the FatMax(R) product line and
a successful launch of FatMax(R) XL(TM) in the increasingly important European
market led to share gains."
Consumer Products sales were $339 million, a 17% increase over 2005, due
primarily to the inclusion of acquired companies. Organic sales grew 3%, with
strength most evident in hand tools (+10%) attributed to the aforementioned
successes of the FatMax(R) Xtreme(TM), FatMax(R) and FatMax(R) XL(TM) product
offerings, offsetting softness in consumer storage. Operating margin was 17.2%
versus 15.6% last year.
Industrial Tools sales increased 35% to $457 million. Organic sales
decreased 4%, as a decline in Fastening Systems more than offset 3% organic
growth in the remainder of the segment. Operating margin was 9.5% vs. 9.1%
last year, as strong sales in Facom Tools, Mac Tools and Hydraulic Tools more
than compensated for the volume-related issues in Fastening Systems.
Security Solutions sales increased 6% to $224 million. Organic sales
growth was 2%, with strength in the automatic doors business and the
mechanical access business offset by weakness in the systems integration
business. Operating margin was 13.6%, up 20bps over 2005, as the favorable
impact of a mix shift toward the automatic doors and mechanical access
businesses, as well as the benefit of cost reduction programs implemented
earlier in the year, mitigated the adverse impact of commodity cost inflation
(net of pricing).
Mr. Lundgren added: "We continue to deliver record earnings and cash flows
despite a challenging market environment. In 2006, our company surpassed
$4 billion in sales and $3.60 in per share earnings (excluding inventory
step-up charges) -- records we are proud to have achieved -- and generated
over $350 million in free cash flow.
"As we enter 2007, we are focused on profitable growth across our Tools
and Security platforms, while executing our acquisition integrations and
strengthening our Fastening Systems business. The stage is set for solid
performance this year and beyond."
Management updated estimates for 2007, reaffirming previous earnings
estimates of $4.00-$4.10 per fully diluted share, an increase of 15-18% over
2006. Expectations include an outlook for total sales growth of approximately
8% and organic growth of approximately 2% (previously 2-3%), based on
anticipation of continued weak conditions in certain U.S. markets during the
first half of 2007. This estimate includes anticipated restructuring related
charges totaling $0.20 per fully-diluted share and a tax rate in the 25-27%
range vs. 21% in 2006. Free cash flow is expected to exceed $400 million.
First quarter total sales growth is projected at 7-8%, with organic sales
growth of 1-2%, reflecting continued slow growth in certain end markets. First
quarter net earnings are estimated at approximately $0.80 per fully diluted
share, up 78% on continuing operations, including $0.06 of restructuring
related charges for actions including integration and operations improvement
initiatives, $0.06 of non-cash amortization expenses related to acquired HSM
monitoring contracts and an income tax rate in the 26-28% range.
The company also announced today that, in an effort to better align
communications with longer-term performance and business trends, it will
discontinue providing quarterly sales and earnings guidance after 2007.
Accordingly, the company will provide quarterly and full year guidance in its
earnings releases for the four quarters of 2007 and, thereafter, will provide
only full year estimates for 2008 and beyond.
Given the recent Facom Tools, National Hardware, Besco Pneumatic Tools and
HSM Electronic Protection Services acquisitions, the company has completed a
review and determined that a re-segmentation would better clarify
communication of its portfolio and growth strategies while simultaneously
aligning its segments with relevant peers. The company announced today that,
beginning with the first quarter of 2007, it will report results in the
following three business segments:
* Construction & DIY Segment -- approximately 40% of consolidated sales --
will include fastening systems (Bostitch), consumer tools and mechanics
tools (Stanley(R), FatMax(TM), etc.), consumer tool storage (ZAG) and
laser leveling / measuring tools (CST/berger). These businesses serve
U.S. and international customers whose primary market driver is
residential construction, repair and remodeling activity.
* Industrial Segment -- approximately 25% of consolidated sales -- will
include industrial and automotive repair tools (Proto(R), Facom(R) & Mac
Tools(R)), industrial tool storage (Vidmar(R)) and other engineered
solutions (hydraulic, assembly and specialty tools). These businesses
serve U.S. and international customers whose primary market drivers are
automotive repair and industrial production.
* Security Segment -- approximately 35% of consolidated sales -- will
include Mechanical Access Solutions (Stanley(R) automatic doors, Best(R)
locks, S&G(R) locks, Stanley(R) hardware, National(R) hardware and
Precision(R) hardware) and Convergent Security Solutions (electronic
security solutions and integration and HSM(R) security monitoring).
These businesses serve commercial customers in the education, health
care, retail, government and financial services markets, among others.
The company expects to provide historical financial information for each
of these new segments during the first quarter, as well as additional details
regarding the segment components, profitability and business drivers.
The company has scheduled a conference call with investors for 10:00am
Eastern time tomorrow, Friday, January 26, 2007 to discuss 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 5958473.
Free cash flow is defined as cash flow from operations less capital
expenditures (reconciliation). 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 this press release, including but not limited to those
regarding the Company's ability to: (i) deliver 2007 earnings of $4.00 - $4.10
per fully diluted share; (ii) deliver 2007 total sales growth of approximately
8% and organic growth of approximately 2%; (iii) limit restructuring-related
charges in 2007 to 20 cents per fully diluted share; (iv) limit 2007 taxes to
a rate of 25-27% (v) deliver free cash flow in excess of $400 million in 2007;
(vi) deliver first quarter total sales growth of 7-8% and organic sales growth
of 1-2%; (vii) deliver first quarter net earnings of approximately 80 cents
per fully diluted share; (viii) limit first quarter restructuring related
charges to 6 cents per fully-diluted share; (ix) limit first quarter non-cash
amortization expense related to acquired HSM monitoring contracts to 6 cents
per fully-diluted share; and (x) limit the income tax rate applicable in the
first quarter to 26-28% 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, HSM and other
recent acquisitions, as well as future acquisitions, while limiting associated
costs; (ii) the Company's ability to deliver 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 success of the
Company's efforts to identify and develop new markets for Security Solutions;
(x) the Company's ability to expand the branded tools and hardware platform;
(xi) the Company's success at new product development and introduction and
identifying and developing new markets; (xii) the Company's success in
continuing to increase brand support and roll out of the Stanley Fulfillment
System; (xiii) the success of the Company's efforts to manage freight costs,
steel and other commodity costs; (xiv) 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; (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, 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)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES $1,019.3 $839.4 $4,018.6 $3,285.3
COSTS AND EXPENSES
Cost of sales 647.2 550.1 2,560.1 2,104.0
Selling, general and administrative 239.9 184.9 955.2 736.8
Interest - net 15.4 9.9 64.9 33.8
Other - net 11.9 13.8 57.5 47.9
Restructuring charges 3.8 0.7 13.8 4.6
918.2 759.4 3,651.5 2,927.1
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 101.1 80.0 367.1 358.2
Income taxes 14.1 15.8 76.4 86.5
NET EARNINGS FROM CONTINUING
OPERATIONS 87.0 64.2 290.7 271.7
Loss from discontinued operations
(including loss on
disposal of $1.5 million in 2006)
before income taxes (0.5) (3.8) (1.5) (1.2)
Income taxes (tax benefit) on
discontinued operations (0.1) 0.2 (0.3) 0.9
NET LOSS FROM DISCONTINUED OPERATIONS (0.4) (4.0) (1.2) (2.1)
NET EARNINGS $86.6 $60.2 $289.5 $269.6
BASIC EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.06 $0.76 $3.55 $3.26
Discontinued operations (0.01) (0.05) (0.01) (0.03)
Total basic earnings per share
of common stock $1.06 $0.72 $3.54 $3.23
DILUTED EARNINGS PER SHARE OF COMMON
STOCK
Continuing operations $1.04 $0.75 $3.47 $3.18
Discontinued operations (0.01) (0.05) (0.01) (0.02)
Total diluted earnings per
share of common stock $1.03 $0.70 $3.46 $3.16
DIVIDENDS PER SHARE $0.30 $0.29 $1.18 $1.14
AVERAGE SHARES OUTSTANDING (in
thousands)
Basic 81,796 83,915 81,866 83,347
Diluted 83,691 85,856 83,704 85,406
AGM $372.1 $289.3 $1,458.5 $1,181.3
% of Net Sales 36.5% 34.5% 36.3% 36.0%
SG&A % of Net Sales 23.5% 22.0% 23.8% 22.4%
THE STANLEY WORKS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, Millions of Dollars)
December 30, 2006 December 31, 2005
ASSETS
Cash and cash equivalents $176.6 $657.8
Accounts and notes receivable 749.6 609.6
Inventories 598.9 460.7
Other current assets 81.1 84.2
Assets held for sale 28.4 13.3
Total current assets 1,634.6 1,825.6
Property, plant and equipment 555.2 467.1
Goodwill and other intangibles 1,629.5 1,060.4
Other assets 131.0 192.0
Total assets $3,950.3 $3,545.1
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term borrowings $320.0 $170.2
Accounts payable 445.2 327.7
Accrued expenses 486.9 374.3
Liabilities held for sale - 3.1
Total current liabilities 1,252.1 875.3
Long-term debt 679.2 895.3
Other long-term liabilities 472.3 329.6
Shareowners' equity 1,546.7 1,444.9
Total liabilities and equity $3,950.3 $3,545.1
THE STANLEY WORKS AND SUBSIDIARIES
SUMMARY OF CASH FLOW ACTIVITY
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
OPERATING ACTIVITIES
Net earnings $86.6 $60.2 $289.5 $269.6
Depreciation and amortization 29.9 25.8 121.2 96.5
Changes in working capital 55.2 82.6 28.7 1.2
Other (52.4) (18.6) (0.3) (5.0)
Net cash provided by operating
activities 119.3 150.0 439.1 362.3
INVESTING AND FINANCING ACTIVITIES
Capital and software expenditures (20.7) (24.4) (80.5) (68.4)
Proceeds (taxes paid) from sale of
business - - 0.9 (20.6)
Business acquisitions and asset
disposals 0.3 (174.5) (539.9) (282.9)
Cash dividends on common stock (24.5) (24.3) (96.1) (94.9)
Other (139.1) 392.9 (204.7) 512.3
Net cash used in investing and
financing activities (184.0) 169.7 (920.3) 45.5
Increase (Decrease) in Cash and Cash
Equivalents (64.7) 319.7 (481.2) 407.8
Cash and Cash Equivalents, Beginning
of Period 241.3 338.1 657.8 250.0
Cash and Cash Equivalents, End of
Period $176.6 $657.8 $176.6 $657.8
Free Cash Flow Computation
Operating Cash Flow $119.3 $150.0 $439.1 $362.3
Less: capital and software
expenditures (20.7) (24.4) (80.5) (68.4)
Free Cash Flow (before dividends) $98.6 $125.6 $358.6 $293.9
THE STANLEY WORKS AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(Unaudited, Millions of Dollars)
FOURTH QUARTER YEAR TO DATE
2006 2005 2006 2005
NET SALES
Consumer Products $339.1 $289.5 $1,328.5 $1,097.8
Industrial Tools 456.5 339.4 1,802.9 1,369.5
Security Solutions 223.7 210.5 887.2 818.0
Total $1,019.3 $839.4 $4,018.6 $3,285.3
OPERATING PROFIT
Consumer Products $58.3 $45.2 $210.3 $185.2
Industrial Tools 43.5 30.9 159.1 135.5
Security Solutions 30.4 28.3 133.9 123.8
Total $132.2 $104.4 $503.3 $444.5
Operating Profit % of Net Sales
Consumer Products 17.2% 15.6% 15.8% 16.9%
Industrial Tools 9.5% 9.1% 8.8% 9.9%
Security Solutions 13.6% 13.4% 15.1% 15.1%
Total 13.0% 12.4% 12.5% 13.5%
SOURCE Stanley Works
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