B&D cuts outlook again

Toolmaker's shares fall nearly 10% after 3rd revision since July

December 16, 2006|By Allison Connolly | Allison Connolly,Sun reporter

Black & Decker Corp. executives acknowledged yesterday that the housing slowdown is having more impact on sales than they previously thought, and that earnings will be affected into 2007.

While officials of the Towson company have insisted that less than 20 percent of sales are tied to home building, chief executive Nolan D. Archibald said yesterday that economic conditions have caused key retailers to order fewer power tools and accessories.

"We expected an organic sales decline, but not the magnitude that we've experienced," Archibald told analysts during a conference call yesterday.

And so, for the third time since July, officials reduced the earnings outlook for the rest of the year. Wall Street responded swiftly, sending shares down nearly 10 percent, or $8.66, to $78.26 a share.

Expected earnings per share for the fourth quarter were lowered to $1.30-$1.35, from the range of $1.85-$1.90 given Oct. 26. For the year, officials said earnings would be $6.50 per diluted share, compared with earlier guidance of $7.01 to $7.05.

Analysts polled by Thomson Financial expect earnings of $1.86 per share for the fourth quarter and $7.01 for the year.

R. Bentley Offutt, principal of Offutt Securities Inc., a Cockeysville institutional research brokerage that does not own Black & Decker stock, said the forecast was much lower than he and other analysts anticipated.

"We have felt for some time that the severity of the downturn in the housing market will affect earnings for the fourth quarter and into 2007," he said. "The housing market will not snap back."

Archibald said he anticipates a 20 percent drop in organic sales in the U.S. power tools and accessories business, which includes Black & Decker's DeWalt professional brand. Organic sales refer to products owned by the company for at least a year, as opposed to those obtained through a recent acquisition.

Archibald attributed much of the decline to inventory reductions at key retailers and aggressive pricing and promotions by competitors.

At the same time, the company's costs are being squeezed by a rise in the prices of zinc, copper and other raw materials used in manufacturing, which will eat up about $95 million of the year's profit.

To offset the spike in manufacturing costs, the company raised prices on some products and cut costs. In October, the company dismissed the head of manufacturing at its industrial products group, which makes consumer and professional power tools, and laid off 70 salaried workers, mostly at its Towson headquarters.

Archibald said during yesterday's call that the company isn't planning any other sales promotions this quarter, believing its prices - which are typically higher than competitors - will hold. He said new products such as the DeWalt 36-volt line of cordless power tools and the Simple Start Battery Booster, which allows drivers to recharge their batteries from inside the car, "should bear fruit when demand recovers."

But he also expects the first quarter of 2007 to be challenging, compounded by a tough year-over-year comparison with a strong first quarter in 2006.

"We expect the housing market and weaker demand for discretionary goods will put pressure on our sales into 2007," Archibald said.

Despite the "dark quarter," Archibald said the company is in much better shape facing this downturn than it was a few years ago, when it was forced to embark on a major restructuring with worldwide layoffs and plant closures, including one on the Eastern Shore.

Unlike last time, Black & Decker has strong cash flow, Archibald said, and the company will be "aggressive" in repurchasing shares and pursuing acquisitions that make sense.

The board of directors has authorized the company to buy back nearly 5 million shares, which could happen as early as next week, said Chief Financial Officer Michael D. Mangan.

allison.connolly@baltsun.com

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