Black & Decker earnings surge 37%

Better sales and margins add up to 81 cents a share, a surprise to analysts

July 24, 2002|By Kristine Henry | Kristine Henry,SUN STAFF

Higher-than-expected sales and better margins helped push Black & Decker Corp.'s second-quarter earnings well above analysts' expectations and last year's figures.

The Towson-based toolmaker's net income in the three months that ended June 30 was $66 million, or 81 cents a share, 37 percent more than in last year's quarter. Analysts, on average, had expected earnings of 64 cents a share.

In the second quarter of last year, net income was $48 million, or 59 cents a share, including the new accounting standard for goodwill amortization. Sales in the quarter rose 7 percent, to $1.125 billion from $1.05 billion.

"Any time a company beats you by 20 cents, you've got to be pleased with that," said James Lucas, an analyst at Janney Montgomery Scott LLC. "They had sales growth and margin and earnings growth, and not too many can say that right now."

Black & Decker shares rose nearly 10 percent to $40.34 yesterday.

The sales growth was fueled largely by rebate offers on power tools and heavy television advertising for the ScumBuster, a cordless scrubber. The bottom line was boosted in part by a 35 percent drop in interest expense.

"Record sales and strong margins in the North American power tools and accessories business were the key to this performance," Michael D. Mangan, chief financial officer, said in a conference call with analysts. He said the company is on track with its plans to transfer manufacturing out of its higher-cost U.S. factories to plants in Mexico, China and the Czech Republic.

"During the third quarter, we will continue to move at least one significant product line each month to Mexico and China, and the new Czech plant will ramp up production of outdoor products and consumer tools," Mangan said.

The plan is part of a restructuring announced in January, which includes cutting more than one-third of the work force - 450 positions - at the company's Easton plant.

During the second quarter, sales of power tools and accessories grew 8 percent to $802.5 million; the hardware and home improvement sector had sales growth of 4 percent to $195 million; and the fastening and assembly sector had sales of $130 million, up 5 percent.

Free cash flow increased from $45 million in the year-earlier period to $75 million. The toolmaker said it expects third-quarter earnings of 80 cents to 85 cents a share. Full-year earnings, Mangan said, should be $2.95 to $3.05, which would be a 17 percent to 21 percent improvement from recurring diluted earnings of $2.53 excluding goodwill amortization last year.

"I think they're addressing the core issues," said Franklin Morton, director of research at Ariel Capital Management inc., which owns about 3.5 million shares of Black & Decker. "And they are trying to build market share and cut costs."

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