Stanley Black & Decker, Inc. (
Q3 2010 Earnings Call Transcript
October 20, 2010 10:00 am ET
Kate White – Director, IR
John Lundgren – President and CEO
Jim Loree – EVP and COO
Don Allan – SVP and CFO
Dennis McGill – Zelman & Associates
Michael Rehaut – J.P. Morgan
Ken Zener – KeyBanc Capital Markets
Jim Lucas – Janney Montgomery Scott LLC
Eric Bosshard – Cleveland Research Company
Dan Oppenheim – Credit Suisse
Sam Darkatsh – Raymond James & Associates
Nicole DeBlase – Deutsche Bank
Josh Chan – Robert W. Baird
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Good morning. My name is Stephanie, and I will be your conference operator today. At this time I would like to welcome everyone to the Stanley Black & Decker third quarter 2010 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you.
Kate White, you may begin your conference.
Thank you, Stephanie. Good morning, everyone, and thank you all for joining us on the Stanley Black & Decker’s third quarter 2010 conference call. On the call in addition to myself is John Lundgren, President and CEO; Jim Loree, Executive Vice President and COO; and Don Allan, Senior Vice President and CFO.
I would like to point out that our third quarter earnings release, which was issued this morning, and a supplemental presentation, which we will refer to during the call are available on the Investor Relations’ portion of our Web site, www.stanleyblackanddecker.com.
This morning Jim, John and Don will review Stanley’s third quarter’s 2010 results and various other topical matters followed by a Q&A session. The entire call is expected to last approximately one hour.
Replay of the call will be available today beginning at 2 pm. The replay number and the access code are in our press release. As a reminder, you can download the earnings replay as a podcast from iTunes, and even setup a subscription.
As always, please feel free to contact me with any follow-up questions after today’s call. We will ask during the Q&A portion that we stick to one question and one follow-up question due to the amount of questions and the time that we do have allotted for the call.
As usual, we will be making some forward-looking statements during the call. Such statements are based on assumptions of future events that may not prove to be accurate and as such they involve risk and uncertainty.
It is therefore possible that actual results might differ materially from any forward-looking statements that we might make today. We direct you to the cautionary statements in the Form 8-K, which we filed with today’s press release and in our most recent 34 Act.
With that, I will now turn the call over to our CEO, John Lundgren.
Thanks, Kate, and good morning, everybody. As Kate said, our press release was up this morning and the headlines or highlights that you should have taken away are that some good solid organic growth is resumed and our integration process is exceeding quite well and perhaps ahead of expectations.
We reported pro forma revenues of increase of 11% to $2.4 billion. Organic revenues up 8% as the legacy Stanley and legacy Black & Decker businesses grew 7% and 9% respectively. $0.97 diluted EPS excluding the charges or $0.73 GAAP earnings including the charges, strong free cash flow, $234 million that excludes one-time payments of the $81 million as outlined in our press release.
The CDIY segment grew, organic revenues were up 7%, and there was quite a lot of successful new product activity that Jim Loree is going to highlight for you in a few minutes. We saw top line growth in Convergent albeit a modest 1%. Order trends are increasing and our French security business, SSDS, Stanley Solutions de Sècuritè, formerly the ADT France business turned profitable during the quarter.
That is extremely noteworthy that six months to nine months earlier than our projections and remember this is a business that was losing up to $15 million a year for the last two years. Bernard Richerme and his team in France and in Europe is doing a really good job putting those two businesses together and turning them profitable well ahead of schedule.
The customer restocking moderated within the Industrial segment, and end user demand did remain strong. Our full year guidance, excluding one-time charges, we increased our range to $381 million to $391 million, and it’s $360 million to $370 million if we exclude the $0.21 second quarter 2010 tax related benefit that we achieved. Strong free cash flow has led us to increase our free cash flow guidance for the year.
Now we expect to exceed $700 million, where previously we thought that $600 million or slightly above $600 million was a more appropriate target, and last but not least, our cost synergy estimate for 2010 has increased to $125 million as the integration progress remains ahead of plan.
Now, you’re going to see the impact of the increase from $90 million to $125 million in Don’s outlook in a few minutes, but essentially we’ve taken the third quarter performance, which was driven by improved volume and synergy achievement, and rolled it into the annual guidance in conjunction with a slight improvement in fourth quarter outlook driven primarily by the improved synergy realization and we’ve rolled that into our annual guidance as well.
Looking quickly around the globe, we saw organic revenue growth in every geographic market. If we look at our large two established markets middle left the U.S. which represents 56% of our total, and Europe which represents 24% of our total, mid to high single-digit growth in both of those markets.
Looking at our smaller established markets, specifically Canada and Australia, they showed reasonable growth as well, 8% in Australia and 11% in Canada. While the emerging markets really, really began to gain or keep the further traction.
Latin America grew an extraordinary 27% off a high $500 million base, and we saw strong growth in Asia as well albeit off a lower base to 23% organic growth across Asia.
Looking to our results, the earnings increased 26% as stated excluding the one-time costs. The $0.97 excluded $58 million or $0.24 a share, and we provided significant detail in the press release on page four of the make-up of those charges including both the cash and non-cash elements.
Importantly the 3Q ‘09 excludes any impact of Black & Decker as that transaction did not close as you well know until the middle of March 2010. I think the other point worthy of note on the chart as it relates to margins and tax rate, 27% tax rate which Don will explain is more in line with what we anticipate the ongoing tax rate to be.
We achieved the $0.97 with the 27% tax rate, if you compare that to year ago the 22.1% tax rate included a large audit settlement that we were able to book in the third quarter of 2009. So aided by $45 million of realized synergies that hit the P&L in the third quarter, we got to $0.97.
Looking at sources of growth as mentioned previously 8% organic growth on a pro forma basis, so across the board with the exception of legacy Stanley mechanical security, we grew in every business and that was quite encouraging.