“With the significant transformational milestones we achieved in 2012 - divesting HHI and announcing the acquisition of Infastech - we have taken an important step forward towards our mid-decade goals. Including Infastech, 16% of our revenues will be generated in the emerging markets. The emerging markets represent a powerful opportunity for us in 2013 and beyond, as 70% of the tool and security industry growth over the next 20 years will come from these regions. We have plans to double our CDIY, IAR and Security businesses in the emerging markets by 2015, which will be supported by the addition of approximately 1,000 revenue producing employees, all in-region. We expect both growth and operating margin rates from the emerging markets to be well above line average for the foreseeable future.”
Full Year 2012 Key Points & Segment Results:
- Revenues were $10.2 billion, up 8% versus prior year due to unit volume (+1.5%) and acquisitions (+8.5%). Price was up close to one-half of a point and currency was down approximately 2.5%.
- CDIY grew 5% organically for the year largely due to successful new products and market share gains under the DEWalt and Black & Decker brands as well as mid-teens organic growth in the emerging markets.
- The Industrial segment grew 1% organically as 9% organic growth in the Engineered Fastening business was muted by market-driven headwinds within the IAR Europe and Infrastructure businesses.
- The Security segment declined 4% organically. This is attributable to declines within the legacy CSS Europe business, soft U.S. retrofit as well as national account customers within MAS and sizeable top line pressures to the Healthcare business due to soft customer cap ex and delayed spending ahead of the anticipated 1H’13 release of a new product generation.
- Excluding charges, diluted EPS was $4.67, up slightly vs. prior year and up 12% if normalized for tax. Diluted GAAP EPS was $2.70 per share in 2012.
- Operating margin rate for the Company for 2012 was 11.6% of sales. Excluding charges the operating margin rate was 13.3%, up 50 bps versus 2011 as volume leverage in the CDIY and Engineered Fastening businesses as well as cost synergies more than offset currency and mix headwinds.
- Working capital turns were 7.5. Free cash flow was $1.06 billion before the effect of $479 million in charges and payments. Due to the mid-December divestiture of HHI, there was approximately $30 million of lost free cash flow experienced versus the company’s original guidance.
FY’12 Segment Results
|($ in M)||FY' 12 Segment Results|
YOY Sales Growth
Profit Rate Ex-Charges 1
1 Charges primarily pertaining to synergy attainment & facility closures
2013 OutlookDonald Allan Jr., Senior Vice President and CFO commented, “Attaining 4-6% organic growth and operating margins greater than 15% are two of our key long-term financial objectives and we feel confident that the organic growth initiatives we commenced in the fourth quarter will help us accomplish these goals. After working with our team of executives leading the charge over the past 3 months, we have determined that the year one investment needed to successfully implement our plans will not be completely offset by the year one incremental profit and thus the initiatives will be slightly dilutive in 2013. However, we remain firm in our belief that by 2015 they will yield an incremental and ongoing $200 million of operating profit.” The Company expects full year 2013 EPS to be in the range of $5.40 - $5.65, excluding charges, based on the following assumptions:
- Organic net sales to increase 2-3% from 2012 driving $0.00 - $0.15 of EPS accretion
- The core business is expected to grow 1-2% ($0.15 - $0.30)
- The organic growth initiatives are expected to yield 1 point of revenue growth but will be approximately $0.15 dilutive to EPS
- The Company expects to realize the final $50 million in cost synergies related to the Black & Decker merger and $35 million due to the Niscayah acquisition in 2013, which together should drive ~$0.40 of EPS.
- The Infastech acquisition, which was announced in July of 2012, is on track to close in the near term and is expected to add $0.20 of EPS accretion. If the transaction does not close by February 1 st the Company will revisit the expected 2013 EPS impact.
- Cost containment actions taken in 2012 will have a positive carryover impact of $30 million, or ~$0.15 of EPS.
- The share repurchases enacted with $850 million of the HHI proceeds should yield an incremental $0.37 of EPS. An accelerated share repurchase (ASR) was executed in December which resulted in the retirement of 9.3 million shares representing 80% notional value equivalent in shares. The final delivery of shares related to the ASR is expected to be completed by the end of the second quarter. The average share count for 2013 is expected to be 155.9 million as a result.
- The combination of any currency impact (at current rates), price/inflation, the negative carryover business mix impact and the small acquisitions completed in 2012 will have a neutral impact.
- The tax rate will be approximately 23-24%, creating a $0.20 - $0.30 headwind when compared to the 2012 rate of 19.8%.
- Interest/Other net to be slightly higher than 2012 levels, largely due to the announced acquisition of Infastech, creating a headwind of approximately $0.10. Interest expense to approximate $145 million. Other-net to approximate $265 million ($225 million of which is intangible amortization including the $35 million from Infastech).
- It is important to note that historically EPS in the first quarter of the year is between 18-19% of full year EPS due to seasonality and that added to the impact of front-end loaded investments in the corporate growth initiatives, 1Q’13 EPS will be approximately 17.5% of full year EPS.