B&D's profits increase 14% Earnings exceeded expectations for power tool giant

Earnings

October 15, 1998|By William Patalon III | William Patalon III,SUN STAFF

Black & Decker Corp., the world's largest maker of power tools, reported third-quarter profits yesterday that beat estimates, as cost-cutting and new product introductions offset a big dip in sales.

The Towson company said it earned $66.6 million for the quarter that ended Sept. 30, a 14 percent increase from the $58.4 million it earned for the same three months in 1997. Net earnings per share rose 20 percent, to 72 cents, this year, from 60 cents for the same period a year ago.

Operating profits -- the figure analysts keyed upon because some one-time gains and charges muddied the bottom-line numbers -- were 70 cents per share. That beat the consensus estimate of 68 cents per share, according to a survey of nine analysts conducted by Zacks Investment Research.

Sales for the quarter were $1.11 billion, 10 percent less than the $1.225 billion reported in 1997. However, the company attributed most of the drop to businesses that were peripheral to its core plumbing, fastener, security hardware and power tool businesses.

Most of these so-called "noncore" businesses have been sold, leaving a much stronger and better focused Black & Decker, one analyst said.

"We're looking to upgrade" the stock, said Prudential Securities analyst Nicholas P. Heymann, who rates Black & Decker shares an "accumulate."

"This is one great story, a company that will be able to deliver 15 percent earnings growthquarter in and quarter out, year in and year out," he said.

Black & Decker shares rose $1.125 each yesterday to close at $46.625. That's still down about 29 percent from their July 14 high of $65.50.

But Heymann said he thinks the stock can hit $61 in 12 months. One reason: After selling superfluous businesses, such as one that made glass-making machinery and another that made golf club shafts, Black & Decker can redirect money into businesses -- such as power tools -- where it has a great brand name and an appreciable technology lead on rivals.

"They're now able financially to put their money where they have a real value-added lever and can pull that lever all day long," Heymann said.

The company intends to increase its emphasis on new-product development in these core businesses, hoping to replicate such successes as its line of cordless VersaPak tools that feature interchangeable and rechargeable battery packs, or its Dewalt line of professional power tools. Dewalt, a nascent business with no sales in 1992, now boasts annual revenue of about $1 billion, the company and analysts say.

"We are [now] a new-products machine," said Barbara B. Lucas, a company spokeswoman.

For the first nine months of the year, the company reported a net loss of $846.4 million, or $9.06 per share, compared with a profit of $130.2 million, or $1.35 per diluted share, for the first three quarters of 1997.

However, the big loss was due to a first-quarter restructuring charge of $154 million and a $900 million goodwill write-off. Without those one-time items, Black & Decker said it would have earned $147.9 million, or $1.55 per share, for the first nine months of 1998. The restructuring is expected to save the company about $100 million a year. Sales for the first three quarters totaled $3.29 billion, a 4 percent decline from the $3.42 billion recorded during the first nine months of 1997.

The company also said that, as of Sept. 30, it had bought back 8.1 million shares of its stock. The buyback was part of a program, announced in January, with a goal of repurchasing up to 10 percent of the company's stock outstanding -- or about 9.5 million shares -- over two years. "We are pleased with our rate of progress in strategically repositioning Black & Decker," Nolan D. Archibald, chairman and chief executive, said in a statement.

"Global restructuring is on track to deliver $100 million in annualized savings; we have completed the divestiture of nonstrategic and underperforming businesses for higher-than-expected proceeds; and we are well ahead of schedule in our share repurchase program."

Pub Date: 10/15/98

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