Stanley Black & Decker, Inc. (SWK)

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Stanley Black & Decker (SWK)

Q1 2011 Earnings Call

April 27, 2011 10:00 am ET

Executives

Donald Allan - Chief Financial Officer and Senior Vice President

James Loree - Chief Operating Officer and Executive Vice President

Kate White Vanek -

John Lundgren - Chief Executive Officer, President, Director and Chairman of Executive Committee

Analysts

William Wong - JP Morgan Chase & Co

Daniel Oppenheim - Crédit Suisse AG

James Lucas - Janney Montgomery Scott LLC

Peter Lisnic - Robert W. Baird & Co. Incorporated

Eric Bosshard - Cleveland Research Company

Jason Feldman - UBS Investment Bank

Michael Kim - Imperial Capital, LLC

Nicole DeBlase - Deutsche Bank AG

Joshua Wilson

Dennis McGill - Zelman & Associates

Presentation

Operator

Welcome to the Q1 2011 Stanley Black & Decker, Inc. Earnings Conference Call. My name is Teresa, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Kate White Vanek. Ms. Vanek, you may begin.

Kate White Vanek

Thank you, Teresa. Good morning, everyone, and thank you all for joining us on the Stanley Black & Decker First Quarter 2011 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 earnings release, which was issued after yesterday's close and a supplemental presentation, which we will refer to during the call, are available on the Investor Relations portion of our website, www.stanleyblackanddecker.com. This morning, John, Jim and Don will review Stanley's first quarter results and various other topical matters followed by a Q&A session.

A replay of the call will be available beginning at 2 p.m. The replay number and access code are in our press release. As a reminder, you can download the earnings replay as a podcast from iTunes and even set up a subscription for all future replays of the calls that we post. They should be ready this afternoon. [Operator Instructions] As always, if you have any additional questions, please feel free to contact me with anything after this 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 as such, they involve risks and uncertainties. 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 8-K, which we filed with the press release, and on our most recent '34 Act.

With that, I will now turn the call over to our CEO, John Lundgren.

John Lundgren

Thanks, Kate. Good morning, everybody. If you will take a look at the presentation posted to the website, I'd like to first summarize some of the first quarter highlights that we experienced. Then I will say, as Kate has pointed out, this is the last quarter where we'll provide -- feel the need to provide as much pro forma data from the second quarter forward. Everything will be quite clean. As a reminder, the transaction with Black & Decker closed on March 12, 2010, so there are a couple weeks of Black & Decker performance included in the GAAP measures. And from second quarter onwards, it'll be clean. It'll be more clear. But we think the pro forma comparisons are most helpful to you in understanding our business.

Revenues increased 9% on a pro forma basis to -- up 9%; on a pro forma basis, $2.4 billion; organically, up 4%. Strong growth in emerging markets, particularly Latin America. We had some great share gains. New products are doing well. Jim Loree is going to talk about that in the segment breakdown. And certainly, from successful implementations of the first signs of some positive growth from our revenue synergy plans.

Diluted EPS was $1.08 reflecting a significantly favorable tax rate. Diluted GAAP EPS was $0.92. Per the press release, the tax rate contributed about $0.12 to earnings relative to our planned rate. I'll come on to that again in just a sec. Free cash flow of $61 million was up $24 million versus the prior year. That excludes the $37 million of merger-related payments.

As a reminder, we increased our dividend 21% in February, and we've announced a $250 million share repurchase program that will begin in the second quarter. That $250 million program, when completed, will consume less than half of the $7.8 million authorization that's still outstanding. And I think it's important at this stage, Don will spend more time on it, but to be clear, the purpose is simply to avoid creep. Our stock is up 16% year-to-date, almost 30% on a 6-month basis and 80% since we announced the merger. The guidance we provided in our plans were for average share count during 2011 of approximately 170 million shares. As options have been exercised, that creep would drive us up to above 175 million shares. So with the repurchase, our current best estimate would be about 172 million shares as our share count, which is 2 million shares higher, even including the repurchase program, than was assumed and provided when Don provided our initial guidance for the 2011 year. That's hopefully will be helpful to you in your modeling.

Commodity inflation headwinds continue to persist. We think they'll peak in the second quarter based on everything we know, and we'll recover 80% of that or more, be it pricing, in the second half as many of the price increases that we've already negotiated will take effect late in the second quarter and early in the third quarter. 2011 guidance, as a consequence, has increased to the range of $5 to $5.25 due to the tax rate favorability that I discussed.

So far so good on the integration. And if we could flip to Page 5, I think it is important because the integration remains our top priority. So I think an update on where we stand is relevant for this morning's call.

Our Steering Committee and our major footprint review group continued to meet regularly. We're looking at $165 million of realized synergies this year in calendar 2011. And in the first half of '11, we completed the end of a refresh process including all new opportunities, some of that we discussed on our analyst day, but we constantly monitor and update it formally on a monthly basis.

In the first half of '11, several major footprint-related projects will have been either launched or completed. We obviously don't talk about them in advance to the -- publicly or make no disclosure until Works Councils, if it's in Europe, or employees, if it's in the U.S., have been notified and consulted. Some of those programs are underway, for instance, our Rock Falls distribution center consolidation, and some are behind us in Jackson, Tennessee. The others, we'll update you as appropriate, but no public disclosure on exactly which facilities are involved as is our policy and that just makes good business sense.

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