- The Washington Times - Monday, July 28, 2003

Shares of Black & Decker Corp. fell to their lowest level in more than a month after the company said it increased profits by 15 percent in the second quarter, but would see flat or declining sales through the rest of this year.

The Towson, Md.-based maker of power tools said Thursday that the economy is forcing many of its retailers to slash inventories. But cost cutting and restructuring have helped Black & Decker prevent a decline in net income.

Shares fell 51 cents yesterday to close at $41.49 on the New York Stock Exchange, the lowest price since June 23.

Black & Decker earned $75.7 million, or 97 cents a share during the second quarter this year, compared with $66.1 million, or 81 cents per share during the comparable quarter of 2002. Sales fell less than 1 percent, to $1.12 billion during the quarter. The company said, if not for the relative weakness of the dollar to other currencies, revenue could have fallen by as much as 5 percent.

Company executives said a slow economy could mean a “single-digit decline” in sales for the year, but they were optimistic about the company’s long-term financial state.

“We remain concerned about the economy for the third quarter as unemployment and industrial output have yet to show signs of improvement,” said Michael Mangan, the company’s chief financial officer, in a conference call Thursday. “Black and Decker had another strong quarter despite a weak economy, and is well positioned for an eventual economic recovery.”

While sales in Black & Decker’s business units either fell or were flat during the quarter, operating margins and profits rose. The company said it saved money by shifting much of its production to Mexico, the Czech Republic and other countries to take advantage of favorable exchange rates and cheaper labor.

“Low-cost manufacturing is vital to this improvement,” said Lehman Brothers analyst Steven Fockens.

Black & Decker closed plants in Maryland and Georgia, moves the company says saved $12 million during the second quarter. It expects $100 million in total savings by 2004.

The company had about $101 million in free cash flow during the quarter, allowing it to pay down debt and finalize the purchase of Baldwin Hardware and Weiser Lock from Masco Corporation.

“The company is generating healthy [free cash flow],” Merrill Lynch analyst Joseph Sroka said in a research note.

Mr. Sroka said the Baldwin and Weiser acquisition was a good use of the cash, but recommended that the company increase its dividend or offer shareholders the opportunity to repurchase some shares.

Analysts said Black & Decker’s management has done a good job of cutting costs and improving margins, and many said earnings were far better than what they had estimated.

But others said the company can’t continue to blame the slow economy for its decline in sales. Many Black & Decker competitors including Danaher Corp. and Masco Corp. have seen both increased earnings and higher sales this year.


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