B&D profit increases by 27 percent in 2nd quarter

Demand for power tools, success in cost-cutting viewed as major factors

July 27, 2005|By Paul Adams | Paul Adams,SUN STAFF

Black & Decker Corp.'s cost-cutting prowess, combined with a construction boom that has fueled demand for power tools, contributed to a 27 percent increase in second-quarter profit for the nation's biggest tool- maker, the Towson-based company reported yesterday.

The results beat analysts' expectations and prompted the company to increase its earnings forecast for the year.

Net income for the second quarter was $154 million, or $1.88 a share, compared with $121.8 million, or $1.50 a share, for the year-earlier period. Sales climbed 31 percent to a record $1.7 billion, led by a 35 percent increase in sales of power tools and accessories.

Analysts polled by Thomson Financial had forecast earnings per share of $1.77. Still, the company's shares fell $1.53, less than 2 percent, to $90.27 yesterday on a day when Wall Street was deflated by rising oil prices and a reported dip in consumer confidence levels.

"This is a company that has posted, really, better-than-expected results for the past year and a half," said Eric Bosshard, an analyst with FTN Midwest Research. The firm does not own Black & Decker shares or have a financial interest in the company.

A small increase in interest rates hasn't stood in the way of continued growth in home construction nationally. The company has said in the past that up to 20 percent of its business is tied to the housing industry. Sales of cordless tools, band saws, grinders, hammers and just about everything else in a builder's toolbox remain strong.

"Residential construction, commercial construction and remodeling all remain strong with solid sales forecasts into 2006," Michael D. Mangan, chief financial officer, said in a conference call with analysts yesterday.

Company officials are forecasting double-digit earnings growth for the foreseeable future. The latest results represent the 13th consecutive quarter of earnings growth of 18 percent or more. The company's latest forecast is for third-quarter earnings per share of $1.62 to $1.67 and full-year earnings of $6.70 to $6.80 a share. Analysts had forecast full-year earnings of $6.64.

The story behind the recent profitability can be partially traced to a cost-cutting program launched a few years ago. The company moved some jobs overseas and closed a plant in Easton as part of restructuring.

Black & Decker also has been implementing lean manufacturing practices at its various plants, wringing savings out of operations here and abroad. Analysts have been impressed by the company's ability to cut costs at plants it has acquired, most notably the former Pentair Inc. Tools Group. The 2004 purchase contributed 20 percent to sales for the quarter, the company said. Operating margin for the power tools and accessories segment grew 14.4 percent in the second quarter.

"They're getting a lot of cost out of their business and their acquired businesses - not only just overhead, but manufacturing expenses," said Lawrence J. Horan, an analyst with Janney Montgomery Scott in Pittsburgh. His firm doesn't own shares in the company, but he manages an account for a family member that includes a small number of Black & Decker shares.

The company expects to generate $500 million in free cash flow for the year. That will leave plenty of money for more acquisitions and to buy back shares.

"We continue to be active," Mangan said.

He said the company is looking at acquisition opportunities but has nothing to announce.

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