Stanley Black & Decker, Inc. (SWK)
Q1 2010 Earnings Call
April 27, 2010 10:00 am ET
Kate White, Director of IR
John Lundgren, President and CEO
Jim Loree, Executive VP
Don Allen, Senior VP and CFO
Eric Bosshard - Cleveland Research
Jim Lucas - Janney Montgomery Scott
Dennis McGill - Zelman & Associates
Nicole DeBlase - Deutsche Bank
Dan Oppenhiem - Credit Suisse
Previous Statements by SWK
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Good morning my name is Louisa and I will be your conference operator today. At this time I would like to welcome everyone to the Stanley Black & Decker first 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. (Operator Instructions). Thank you, Ms. Kate White, Director of Investor Relations you may begin your conference.
Thanks Louisa, good morning everyone and thank you all for joining us for the Stanley Black & Decker first 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 Allen Senior Vice President and CFO.
I would like to point out that our first quarter earnings release which was issued at 7 am this morning and a supplemental presentation, which we will refer to during the call are available on the investor relations portion of our website and accessible on our home page of www.stanleyblackanddecker.com. This morning, John, Jim and Donald will review Stanley’s first quarter 2010 results and various other topical matters followed by a Q&A session.
Because of the complexity of this quarter and the large amount of content the entire call was expected to last approximately 1 hour and 15 minutes in order to provide adequate time for Q&A.
A replay of the call will be available beginning at 2 pm today. The replay number and access code are in our press release. As a reminder you can also download the earnings replay of the podcast from itunes and even set up the subscription for future replays of the calls we post. This should be posted within 24 hours.
I also wanted to call your attention to Stanley’s 2009 annual toured and annual review website and videos that we launched yesterday. We decided to go online this year with a lot of our normal annual report content and we invite you to check up the site and explore the videos which feature conversations with senior management as well as the interactive charts and informational resources throughout the site.
It’s a great way to become more familiar with the outstanding storey. You can access this through our home page. And as always please feel free to contact me with any follow-up questions you might have after today’s call. We will be making some forward looking statements during this call such statements are based on assumptions of future events that may not prove to be accurate and especially involves risk and uncertainty. It is therefore possible that actual results may differ materially from any forward looking statements that we might make today, and 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. Let me just start by saying this had the potential to be a confusing and very noisy quarterly release, due to the obvious fact that the Black & Decker transaction closed three weeks before the end of the quarter.
So I did want tot thank those of the legacy Black & Decker and Stanley finance teams first of all for closing three sets of books at least in a very short period of time and for extraordinary efforts in that regard as well as the finance and IR teams for pulling together what we think is a clear presentation. But as Kate said she will be available as when management is necessary. Later on in the day and later on in the week to clarify anything that’s still outstanding at the end of this call.
So lets get started, diluted EPS was $0.70 and that did include and $0.04 negative impact based on the acquisition, of ADT France which closed on March 9. It excludes one time charges. We did reference the ADT transaction in the press release, so we are not going to spend a lot of time on it this morning other than to say it is strategic and to fit extraordinarily well with its GDP, general protection our French Electronic Security business and as Don will discuss in his guidance, we still believe that this acquisition is going to be meaningfully accretive $0.07, $0.08 in your tree on the expanded share base.
So diluted EPS including the charges of $213 million was a loss of $1.9 and again Don’s going to give you more of a granularity on the charges and their composition in the quarter which we believe to be quite clear.
The gross margin rate excluding charges was 39.4% and excluding Black & Decker with the impact of Black & Decker for the three week stub period the rate improved 120 basis points versus the first quarter 09 to 40.8% and that is a first quarter record for our company. Free cash flow was positive $37 million excluding charges and payments related to the transaction.
Working capital was encouraging as well, reaching 7.3 turns excluding Black & Decker and 4.6 turns on a pro-forma basis including both companies in those results. CDIY segment, our largest segment profit improves to $83 million and that is up 189% excluding the charges. Industrial saw a nice rebound, profit rate improving 280 basis points to 13.2% again excluding the charges and as I had mentioned earlier ADT France closed on March 9. It’s going to be a great addition and complementary to our existing conversion securities solution platform in Europe.
The integration which I am sure everyone is curious about into how its progressing, we think very well and we are going to talk a little bit more about the synergy target and our estimates and Don is going to give you some detail on our 2010 guidance for the combined company which is now at $3.10 to $3.33 per share excluding the one time charges.
So moving to the first quarter results of the combined company very simple and straight forward a 46% increase excluding the charges as you can see to about $2.70 for one Q 2010 and the charge is related to $213 million or translated to $1.79 a share on the new share base reflecting the timing of the acquisition. So, on a GAAP basis, a loss of $1.9. The only thing that might look a little odd is the minus 1.4% tax rate.
Just very quickly it’s a one time event the charges had an impact of about 35.2% on the tax rate not all of those charges were tax deductible. There is also an ADT net operating loss impacting about 3.9% and the impact of the tax extender benefit impact which is about 2.6%. That gets you to a normalized rate of 27.3% which is why we have highlighted that and that’s what Don will talk to in the guidance in terms of that should be your expectation going forward.
Looking at margins on the next page we think it’s important to note pretty strong gross margin of 39.4% for the combined company, as noted in the press release on a legacy Stanley basis continued its positive trend about 40.8% on a standalone basis. So we remain encouraged with the margin performance and Jim’s going to talk about some of the drivers of that as he reviews the various segment results.