Despite earlier market qualms about its earnings momentum, Black & Decker Corp. yesterday announced a 51.3 percent increase in second-quarter earnings as the Towson-based company continued to increase sales and cut costs.
Yet, some analysts warned that an apparent downturn in the construction and do-it-yourself market will put the company's product innovation and productivity to the test.
Net income for the Fortune 500 power tool and appliance company jumped to $34.8 million, or 37 cents per share, compared with $23 million, or 24 cents per share for the previous second quarter.
Sales rose 8.8 percent to $1.1 billion, helped by a favorable foreign exchange rate that added about 3 percent to revenues. Excluding the currency gain and the loss of income from the sale of its PRC Realty Systems Inc., revenues increased by 7 percent.
The company also announced a quarterly dividend of 10 cents per share, unchanged from the previous quarter.
The company's stock price, which has been rising in recent weeks in anticipation of the earnings report, gained 50 cents a share to $32.25 a share.
The stock had dropped precipitously a month ago, falling from $32.50 a share on June 13 to $28.25 -- a 13.1 percent decrease. The slide was sparked by comments by Sunbeam Corp. and Stanley Works that sales were slowing for their consumer products. But Black & Decker's price recovered in the following weeks.
While Black & Decker experienced a drop in sales of its consumer power tools during the quarter, that was more than offset by gains in professional tool sales, including the popular DeWalt line. The drop in consumer tool sales was caused primarily by retailers putting off restocking until a new line of consumer tools is introduced in the fall, according to Barbara B. Lucas, a spokeswoman for the company.
Black & Decker will be under pressure in coming months because of the sluggish consumer sales, according to Michael L. Mead, an analyst for Legg Mason Inc., a Baltimore brokerage firm.
"They certainly have a slower economic environment, but they also have a lot of new consumer power tool products that they're going to introduce in the fall," he said. "So it's difficult to say." He increased his estimate for Black & Decker's annual earnings per share from $1.80 to $1.90 based on yesterday's report.
But Clifford F. Ransom, director of special situation research for Raymond James & Associates Inc. in St. Petersburg, Fla., doesn't see a slowdown in the do-it-yourself market and expects Black & Decker's continuing cost-cutting efforts to boost profits for two to three more years.
"That will provide very significant earnings leverage at Black & Decker," he said.
The company said plumbing products division sales and profits declined due to poor weather-related building conditions in the western United States. But security hardware sales were up and industrial businesses continue to have a strong year, it said.
As part of its cost-cutting effort, the company said yesterday that it was closing a power tool plant in Delemont, Switzerland, later this year and laying off 150 workers.