Amid the prolonged housing downturn and subprime mortgage crisis, Black & Decker Corp. surprised many investors yesterday by reporting third-quarter profit that topped its own forecast and that of analysts.
While profit fell 16 percent, the Towson manufacturer of power tools and home improvement products was buoyed by the results and boosted its outlook for the year. Black & Decker's stock shot up more than 8 percent, or $6.74, to close at $89.74.
"As we have described all year, outstanding international sales growth mitigated weakness related to the U.S. housing industry," said Chief Financial Officer Michael D. Mangan in a conference call with analysts.
The company offset lower sales of power tools in the U.S. with double-digit growth in Asia, Europe and Latin America. Sales grew in Black & Decker's two other segments - hardware-home improvement and fastening and assembly systems.
The company continued to be pinched by higher prices for raw materials, primarily for nickel, copper and zinc, but benefited from the weak dollar in foreign markets.
As a result, third-quarter profit fell to $104.6 million, or $1.59 per diluted share, from $125.1 million, or $1.74 per share, for the quarter last year. Sales were up 1 percent to $1.63 billion, but would have declined slightly if not for the effects of the weak dollar.
Analysts polled by Thomson Financial expected earnings of $1.44 per share on revenue of $1.59 billion. The company had forecast earnings of $1.40 to $1.45 per share.
Sales of power tools and accessories fell 3 percent, largely due to a double-digit decline in U.S. consumer sales.
The hardware and home improvement sector, which includes Kwikset locks and Price Pfister faucets, saw sales climb 6 percent despite the housing slowdown. And sales in the fastening and assembly systems business notched a 7 percent increase due to strong demand from the auto industry.
The company generated $113 million in cash for the quarter ending Sept. 30, for a year-to-date total of $413 million.
Mangan said a "possible" acquisition is on the drawing board, while Black & Decker's board has authorized the company to buy back 4.9 million shares.
Analyst John Kearney of Morningstar Inc. said Black & Decker management had warned analysts and shareholders earlier in the year that the weak housing market and high raw materials costs would likely persist.
"It's better to underperform and overdeliver than vice versa," Kearney said.
While he does not expect a robust holiday season or a near-term turnaround in the housing market, Mangan said 2008 would be "above average," with new products such as the DeWalt 18-volt lithium ion line of power tools shipping this month.
For the fourth quarter, Black & Decker expects earnings per share of $1.55 to $1.65. Mangan said the company would benefit from a favorable comparison to fourth-quarter 2006, when key customers ordered less than expected.
For 2007, the company is forecasting earnings of $6.50 to $6.60 per share.