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Mixed Quarter at Black & Decker

The bottom line is strong, the top line light and the outlook soft.
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Black & Decker


beat fourth-quarter estimates but guided lower for the first quarter and the rest of 2006.

The Towson, Md., tools giant made $102 million, or $1.28 a share, in the quarter ended Dec. 31, down from $134 million, or $1.60 a share, a year earlier. But excluding $51.2 million of incremental tax expense to repatriate foreign earnings under the American Jobs Creation Act of 2004, net earnings from continuing operations were $1.93 per diluted share, up 21% from a year ago and 3 cents ahead of the Thomson First Call analyst consensus estimate.

Sales from continuing operations increased slightly for the quarter to a record $1.7 billion, including a 1% negative impact of foreign currency translation. Analysts were looking for $1.8 billion.

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"Black & Decker increased earnings per share from continuing operations more than 23% for the fourth straight year in 2005," said CEO Nolan Archibald. "We extended our record of outstanding performance through excellent organic sales growth, aggressive cost reduction efforts, and effective use of our strong free cash flow. Despite raw material inflation, challenging comparisons to prior-year results and an uneven global economic environment, in the fourth quarter we delivered 16% operating income growth and earnings above our guidance."

The company said sales in the power tools and accessories segment increased 2% for the quarter. The U.S. industrial products group grew sales at a mid-single-digit rate, driven by a double-digit growth rate for Dewalt tools and accessories. Dewalt construction tools, including cordless products and the new line of miter saws, sold particularly well. Sales in the U.S. Black & Decker consumer business decreased slightly, due to order patterns that drove a double-digit rate of increase in the third quarter. European sales decreased at a mid single-digit rate and fell short of our expectations due to a weaker economic environment in the U.K. Operating margin for the Power Tools and Accessories segment increased 50 basis points to 13.2% this quarter. Our U.S. businesses led the improvement, through continued integration cost savings and favorable mix.

Sales in the hardware and home improvement segment decreased 4% for the quarter. Sales in the lockset business decreased at a mid-single-digit rate, reflecting flat sales at Kwikset and decreases for Baldwin and Weiser against difficult comparisons to prior-year sales. Price Pfister grew sales at a low single-digit rate, as increases at a key retailer were partly offset by a decline in the wholesale channel. Operating margin was flat to the prior year at 13.4%, as cost savings from the manufacturing rationalization roughly offset raw material inflation.

"Looking ahead, we expect another strong year in 2006," Archibald said. "We are especially encouraged by the initial market reaction to Dewalt's 36-volt line of lithium- ion cordless tools, which will be available in the second quarter of 2006. We are confident that our lithium-ion technology is superior to our competition's, and that we will remain the leader in cordless power tools. After averaging 7% organic sales increases over the last two years, however, and facing a particularly difficult comparison in the first half of 2006, we expect sales growth will moderate to a low single-digit rate. Our cost saving initiatives should drive operating margin improvement despite raw material inflation and higher pension costs."

The company said it expects to make $1.35 to $1.40 a share for the first quarter and $7.20 to $7.40 for the year, before 15 cents' worth of compensation expense. Analysts were looking for $1.52 for the quarter and $7.53 for the year.