Toolmaker shares up by 6% on earnings

Black & Decker report exceeds 3Q expectations

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

Black & Decker Corp. shares rose nearly 6 percent yesterday after the company reported earnings that exceeded analysts' expectations.

The Towson-based toolmaker earned $55 million, or 68 cents a share, in the three months that ended Sept. 29, including a restructuring charge of $38 million. Excluding the charge -- which analysts do not take into account when estimating earnings -- the company earned $77 million, or 95 cents a share. Analysts, on average, had expected earnings of 83 cents for the quarter.

That compares with earnings per share of 65 cents in the year-ago quarter when the new rules of goodwill amortization are applied. The improved numbers were a result of productivity improvements, moving production to cheaper plants and lower material costs, officials said.

Sales in the quarter were $1.085 billion, up 4 percent from the $1.039 billion reported in the year-ago quarter. Shares closed up $2.58 yesterday at $47.

"I thought it was a very solid quarter," said James Lucas, an analyst at Janney Montgomery Scott LLC. "They had a good showing on the top line, a good showing on margin improvement, and on their balance sheet they had the normal seasonal inventory [buildup] but -- unlike in years past -- it was at a manageable level."

Lucas had been expecting earnings of 83 cents, in line with the guidance Black & Decker gave during its second-quarter earnings report when it said it would likely earn 80 cents to 85 cents in the third quarter. The company frequently gives earnings guidance that is significantly lower than results.

"That has more or less come to be expected," Lucas said.

The $38 million restructuring charge was related to the company's plan to move manufacturing out of its higher-cost plants in the United States and the United Kingdom and into lower-cost areas.

"During the fourth quarter we will continue to move production to Mexico, increase [production] in our new Czech [Republic] plant and close the Nashville and California facilities," Michael D. Mangan, chief financial officer, said in a conference call with analysts. The Nashville, Tenn., plant reconditions power tools, and the Pacoima, Calif., plant makes plumbing products.

Black & Decker expects the changes to save it $10 million this year, $60 million next year and $100 million annually by the end of 2004. The restructuring plan, announced in January, includes cutting about 450 positions -- more than a third of the work force -- at the Easton plant.

The company also said that, like many of its peers, its pension asset value has declined in the past two years because of a decline in the stock market and falling interest rates. Its pension plans are "becoming underfunded from an accounting perspective," Mangan said.

As a result, the company will take a $350 million noncash charge to stockholders' equity (the money left over after liabilities are deducted from assets). The charge will not affect earnings or cash flow this year, but Mangan said pension expenses could increase next year.

The company said it expects fourth-quarter earnings per share to be between 95 cents and $1.05 and full-year earnings between $3.13 and $3.23.

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