B&D stock plunges 16% on forecast Towson firm says slow sales growth will hurt earnings

Restructuring not enough

Profit gain for year still expected

U.S., Europe revenue lags

December 11, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

Black & Decker Corp. shares plunged 16 percent yesterday after the company said sluggish growth in power-tool sales would hurt earnings in the fourth quarter and the first quarter next year.

The Towson-based company said it would not meet analysts' earnings estimate of $1 per share for the fourth quarter and $2.40 for the year. Black & Decker's first-quarter earnings in 1997 will be down from first-quarter earnings this year of 35 cents per share, the company said.

Black & Decker's chairman and chief executive, Nolan D. Archibald, said earnings for 1996 would still exceed last year's total of $2.01 per share. He also said last year's fourth-quarter earnings of 90 cents per share included about 10 cents per share from PRC Inc., a business that has since been sold.

The company said it was facing tough competition in the United States and a weak European economy. Sales growth will likely be in "the 2 percent to 3 percent range in the fourth quarter, rather than the 5 percent to 6 percent range that we had projected previously," Archibald said in a statement.

Black & Decker earned $85.9 million in the fourth quarter of last year, on sales of $1.44 billion. It earned $189.9 million in all of 1995, on sales of $4.77 billion. The company earned $34.6 million in the first quarter of 1996, on sales of $1.06 billion.

The announcement, made before the start of the trading day, sent Black & Decker's shares tumbling $6 -- from $37.625 to $31.625. Black & Decker's high for the year was $44.25, on May 23.

"We think it's a $30 to $35 stock over the next couple of quarters as investors get this news," said Susan Gallagher, a NatWest Securities analyst who downgraded the stock from "buy" to "hold." "Then it will be a 'show-me' type situation."

Russell Leavitt, an Salomon Brothers analyst, who also downgraded Black & Decker shares, now expects Black and Decker to earn 90 cents per share this quarter and $2.30 for the year.

"With this uncertainty, I think it's going to be a challenge for the stock to rebound quickly." he said. "I think in the near term, for the next six months, the stock is going to remain in the lower part of the 30s."

Archibald said a restructuring that cut 1,300 jobs -- most of them in Europe -- was not enough to offset a weak European economy for power tools and accessories. Consequently, the company failed to get "as much sales growth as we had hoped."

In North America, Black and Decker faces an environment that makes it difficult to match the double-digit sales increase in last hTC year's fourth quarter. "Consumer power-tool pricing in the United States has become more competitive and will affect both sales and margins," Archibald said.

He said that sales of the high-margin DeWalt line of professional tools remained strong, but that they wouldn't offset low growth in the sales of consumer tools.

Black & Decker's power tools were also hurt by manufacturing "start-up" problems in Latin America, where it is moving from an old facility in Brazil to a new one. Power-tool sales in the Far East have "been hampered by a tough business climate in which we are just starting to build a presence," Archibald said.

Black & Decker's household products in North America will report lower earnings and sales this year than last year, partly because of a strong performance last year, especially by the SnakeLight flexible flashlight.

"The success of new products, such as the VersaPak-powered FloorBuster vacuum and ScumBuster tub and tile scrubber, has not been sufficient to offset lower sales volume and margins for SnakeLight and lower sales in other product lines," Archibald said.

Several other divisions, including the company's Kwikset lock sets and Price Pfister faucets, will post sales and earnings gains for the year.

R. Bentley Offutt, an analyst with Offutt Securities, said Home Depot, Hechinger and other do-it-yourself stores were pressuring Black & Decker to keep prices low -- pressures that were likely to continue as retail outlets consolidate. "It's very difficult to get any price increases in place," he said.

Gallagher, the NatWest analyst, said Black & Decker was also facing price pressure from rivals on its corded consumer products, such as drills, saws and sanders. "That happened in Europe and now it's spilling over to the U.S.," she said.

She also said Black & Decker suffered in the Far East because it didn't carry a full line of professional power tools. As a result, rivals were able to persuade retailers not to carry them.

Pub Date: 12/11/96

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