Stanley Black & Decker, Inc. (SWK)

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Stanley Black & Decker (SWK)

Q4 2011 Earnings Call

January 26, 2012 10:00 am ET

Executives

James M. Loree - Chief Operating Officer and Executive Vice President

Donald Allan - Chief Financial Officer and Senior Vice President

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

Kathryn H. White Vanek - Vice President of Investor Relations

Analysts

Nicole DeBlase - Morgan Stanley, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Stephen Kim - Barclays Capital, Research Division

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Jason Feldman - UBS Investment Bank, Research Division

Sam Darkatsh - Raymond James & Associates, Inc., Research Division

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

David S. MacGregor - Longbow Research LLC

Presentation

Operator

Welcome to the Q4 and Full-Year 2011 Stanley Black & Decker Inc. Conference Call. My name is Monica, and I'll 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 Vice President of Investor Relations, Kate Vanek. Kate Vanek, you may begin.

Kathryn H. White Vanek

Thanks so much Monica, and good morning, everybody. Thanks for joining us for the Stanley Black & Decker fourth quarter and full-year 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'd 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, as well as our newly launched iPad app, which you can access through the App Store.

This morning, John, Jim and Don will review Stanley's fourth quarter and full-year results and various other topical matters followed by Q&A. There is some helpful information in the appendix of the slide deck as it relates to your model. If you have any questions, as always, feel free to contact me. A replay of the call will be available beginning at 2:00 p.m. today. Replay number and access code are in our press release.

And 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 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 in our most recent 34 act.

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

John F. Lundgren

Thanks, Kate, and good morning, everybody. Thanks for joining us. Just in terms of fourth quarter highlights and basically a summary of what we will talk about this morning, some points on the fourth quarter, some points on the year and a couple of points on 2012. All of which we'll get into in more detail.

Fourth quarter revenues per the press release, up 17% to $2.8 billion, organically up 6%. CDIY was up 8% organically, excluding Pfister. Good solid 7% organic growth in industrial. Security as a total segment up 1% with 4% organic growth in Convergent Security. And I'm going to give you some more granularity in that on the very next slide.

Fourth quarter diluted EPS of $1.36. That, of course, excludes the merger and acquisition-related charges. Fourth quarter diluted GAAP EPS of $1.05, also a significant increase.

Looking at the year in total, we saw revenues grow 12%, 4% organically from a $9.3 billion pro forma 2010 base. You'll recall the Black & Decker transaction officially closed in mid-March, 2010. So up 4% from the pro forma base.

Emerging markets now represent 14% of the company, that's a nice growth from the 11% of the company they represented at the time of closing and it continues to be an area of focus for us.

Diluted EPS for the year, $5.24, a 26% improvement. GAAP EPS of $4.06, free cash flow was slightly in excess of $1 billion and working capital turns reached 7.0, a 23% increase versus prior year and a 52% increase since the merger closed. That's clear evidence that the Stanley Fulfillment System's gaining traction and I think of significance. Those increases were across all businesses and across all regions, and Jim is going to give you some more detail on that a little bit later on this morning. Don's going go through guidance in detail. There was quite a bit in our press release, but we're guiding for 2012 of fully diluted EPS of $5.75 to $6. In order to get there and ensure we achieve it, we're also announcing a cost containment action with about $150 million of benefit in 2012. That benefit is separate from previously communicated and quantified integration-driven cost synergies, both from Black & Decker and Niscayah.

Simply said, since the last time we gave a preliminary look at 2012, the external environment is we've -- we've experienced a lot of headwinds with very little tailwind. Don will give you some of granularity but the euros and the reals have weakened significantly. The European economy is certainly weaker than it was 3 to 6 months ago. And there's some carryover inflation that thus far is unrecovered. We've -- that's what we've learned in the last 3 months, and we have 2 options, or had 2 options of accepting that and accepting higher risk and lower earnings or moving proactively as we did in 2008 to get ahead of what we feel get ahead of the curve where we're going to have more headwind than tailwind.

Given the choice, Stanley Black & Decker is always going to choose to move proactively to get ahead of the curve, and that's exactly what we're doing, and Don will give you some more detail on that as he outlines the guidance.

2012 cash flow, we think we'll approach or slightly exceed $1.2 billion. A lot of that is going to come from working capital, and you'll see the sources of that when Don and Jim walk you through a little more detail.

Moving on to the next slide, just in terms of where did the growth come from and how did it look by business. Primarily in the fourth quarter, as well as the year, continues to be driven by new products and emerging markets. More detail on geography in just a minute. But very encouraging organic growth.

Looking at the fourth quarter, 6% in total, most of which came from volume, 1% came from price, acquisitions out at 11%, adding to a total of 17% growth in the fourth quarter, 6% of which was organic.

For the year, volume was up 4%, pricing was flat, a little less than historical recovery of inflation for a total of 4% organic growth, acquisitions added 6%, you will recall Niscayah being the largest acquisition closed in the fall of 2011. And currency was favorable in 2011 of 2%, so for a total revenue growth of 12%.

I think that the box on the right will be helpful. It's a lot of granularity, but we've elected to provide it because I think it will help you business-by-business, think through where we were and as a consequence, where we're going.

In the fourth quarter, Professional Power Tools and Accessories grew 9%, nice strong finish to a very, very good year in which that product line grew 13% on the strength of 20 volt lithium-ion and some promotional activities supporting the nickel cadmium platform. More from Jim in a minute on that.

Industrial remains a bright spot across the company, 7% in the fourth quarter, 10% for the year. It's across all of our global platforms and just gaining tremendous traction since we've done a better job at managing some of those businesses as global platforms with regional focus as opposed to managing those businesses in silos as we'd -- as quite [indiscernible] we had done in the past.

Read the rest of this transcript for free on seekingalpha.com