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NEW BRITAIN, Connecticut, October 10, 2002 -- The Stanley
Works (NYSE: SWK) announced today that third quarter earnings would
be in the range of 61-63 cents per fully-diluted share versus the current
First Call consensus of 72 cents. This reduction is attributable primarily
to the sales and earnings impacts of issues in the company's Mechanics
Tools business, aside from which the company was on track to meet consensus.
Overall revenues were down approximately 1%, only slightly below expectations,
net of cooperative advertising expenses as required by EITF 00-25.
Gross margin rates were down versus expectations primarily
due to severe production problems in the Mechanics Tools business associated
with the consolidation of two domestic manufacturing plants and other
restructuring-related changes. The impact of these problems was partially
offset by a non-recurring income tax benefit of approximately 6 cents
per share. Strength in the company's retail sales channels partially
offset the lost industrial sales, although this had a negative mix effect
on gross margins.
Measures to restore Mechanics Tools operations to normal
shipment and profit levels have been taken and, under the control of
a new team, the production issues are gradually subsiding. However,
the financial effect will carry over into the fourth quarter, albeit
not as severely. Recovery of the gross margin rates to first-half 2002
levels will most likely be delayed until the first quarter of 2003.
In light of the above, the company tempered its outlook
for the fourth quarter. It now expects both sales and earnings per fully-diluted
share to approximate prior year fourth quarter levels. In setting this
expectation, the company presumes a timely end to the current work stoppage
on the west coast docks and no net sales or earnings impact in the quarter.
Including earnings accretion expected as a result of the acquisition
described below, management expressed confidence that 2003 earnings
per fully diluted share would grow by a solid double-digit percentage
over expected 2002 earnings.
John M. Trani, Chairman and Chief Executive Officer, commented:
"The issues encountered with Mechanics Tools are unfortunate, but
it is important to note that the remainder of our portfolio performed
in line with expectations. The problems are well understood, and fixes
are firmly in place. Our ability to manage costs and generate productivity
remains intact, and there is further opportunity ahead."
The Stanley Works Announces Acquisition of Best Access Systems
The company also announced that it has entered into a definitive
agreement to purchase Best Lock Corporation dba Best Access Systems,
a global provider of security access control systems with $250 million
in sales. Its products include mechanical access hardware and electronic
access controls that are used in government offices, military facilities,
entertainment venues, office buildings and educational facilities worldwide.
Mr. Trani commented: "The addition of Best Access
Systems to the Stanley family is a significant step in building our
service and technology infrastructures in the very large security and
safety market. By combining our current automatic door systems and service
with Best Access' mechanical and electronic locking systems, service
and systems integration, we will have a $400 million platform in this
market. Importantly, the Best Access sales and service network including
its internal architectural specification group yields additional sales
representation for Stanley commercial hardware. We expect to build upon
this platform both organically and through acquisitions."
Closing is subject to certain governmental approvals,
third-party consents and customary conditions, and is expected to occur
late in the fourth quarter. Stanley, which will finance the $310 million
cash purchase using term debt financing, expects the transaction to
be solidly accretive to earnings in 2003.
Merrill Lynch & Co. advised the company on this transaction.
The company's regularly scheduled quarterly conference
call with its financial analysts will be held at 2:00pm EDT on Wednesday,
October 16. At that time management will discuss the matters detailed
above in further detail.
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