Black & Decker revs up profits

November 06, 1994|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

After a day of watching the company stock rise on the strength of a recent strong earnings report, the head of Black & Decker Corp. is pumped up about the future of the giant power tool and appliance company.

"It's payoff time, OK," exulted Nolan D. Archibald, chairman and chief executive officer. "I think they have just seen the tip of the iceberg about what this company can do as far as profitability and cash flow."

What has Mr. Archibald so excited is a solid third quarter that saw net income soar 50.3 percent -- results promising enough to raise Wall Street's expectations that this time Black & Decker will finally deliver on the potential of its worldwide franchise.

After all, the Towson-based conglomerate holds one of the world's best known brand names. It's No. 1 worldwide in power tools and accessories, in electric outdoor products, in door locks, in specialty mechanical fasteners, in glassmaking machinery, even in golf club shafts. Its sales last year were nearly $5 billion. It employs 36,000 people worldwide, including 2,900 at its three Maryland facilities -- Towson, Easton and Hampstead.

But investors who plunked down $23 a decade ago for a share of stock have ridden a roller coaster and today are less than $2 ahead -- and that's without factoring in inflation or lost opportunity. On top of that, dividends were chopped in 1986 and and have been flat since then. Profits topped out in 1988 as the costly 1989 acquisition of Emhart Corp. and the global recession took their toll. Last year earnings did not quite match their 1984 level.

Now some analysts are confidently predicting that Black & Decker's share price could move beyond $30 a share in the next year as its debt load becomes more manageable and worldwide demand for its DustBusters, Spacemaker appliances and cordless drills picks up.

Mean earnings estimates compiled by the Institutional Brokers Earnings System look for 29 percent annual increases, to $1.29 a share this year and $1.66 next.

For its part, Black & Decker has set a goal of increasing its earnings per share 20 percent annually while improving manufacturing efficiency by 5 percent every year. In addition, it is in the midst of a $100 million cost-cutting campaign.

"You're going to have this company firing on all cylinders in '95 and '96 for the first time since probably, pre-Emhart," said Clifford F. Ransom III, director of special situation research for Raymond James & Associates Inc. in St. Petersburg, Fla.

"And I think there is a lot of earnings power," he said. "They own wonderful companies, with wonderful consumer and industrial brand names and chises."

With the possibility of earnings per share reaching $2.50 by 1996, Mr. Ransom said, stock prices may reach the mid to high $30s in the next 15 to 18 months.

Analysts also have been impressed by the company's renewed interest in manufacturing processes in the last few years. That has led to a complete change in the officers in charge of Black & Decker's 52 plants around the world, many recruited from General Electric Co., renowned for its cost-busting.

But other analysts are skeptical, saying much of the optimism is based on projections for 1996, which could be knocked in the head by a downturn in the housing or do-it-yourself market. Also, they warn, the stock price might fall victim to a general market downturn.

"That is too far out from here to buy," said Lawrence J. Horan, senior building analyst for Prudential Securities Research.

The current uptick in the company's performance is only natural since it is a cyclical company now in its up cycle, Mr. Horan said. Black & Decker's cost-cutting efforts will also bump up against increases in plastic and steel prices, he said.

Mr. Horan also points to the possibility of a downturn in the economy, which would hurt a company as dependent on consumer demand as Black & Decker. "My bet is we have a two-out-of-three chance in 1996 of a growth recession," Mr. Horan said.

Twice in the last decade, expectations for the company have been raised, only to be --ed by a combination of company actions and economic conditions. Those events were the acquisition of Emhart in 1989 and a stock offering in 1992.

Five years ago, Black & Decker was on a roll, having racked up record profits of $97.1 million in 1988 and on its way to another all-time high in 1989.

Mr. Archibald, who took over as chairman and CEO in 1986, had transformed the moribund company into a dynamo, with a program of "cut and build," reducing employees by 3,000 to 20,000 while beefing up the sales and marketing efforts.

Then, in a bid to broaden its earnings base, Black & Decker bought Emhart, a giant Connecticut-based conglomerate with businesses ranging from defense consulting to Kwikset locksets and Price Pfister faucets.

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