Black & Decker Corp. said yesterday that it will lay off 700 employees and close a U.S. plant and office after its first-quarter earnings were hammered by the prolonged housing slump and subprime mortgage crisis.
The Towson-based manufacturer of power tools and hardware said earnings plummeted 38 percent and that it only expected conditions to worsen, prompting it to lower its forecast for the year.
Until now, the company has managed to largely ride out the housing downturn by offsetting lower U.S. sales with double-digit growth in Asia, Europe and Latin America. It has also been helped by effects of positive exchange rates.
But those factors weren't enough to help earnings for the three months that ended March 31.
First-quarter profit fell to $67.4 million, or $1.09 per share, compared with $108.1 million, or $1.61 a share a year ago. Sales fell by 5 percent from a year ago, to $1.5 billion.
The quarter included a $12.2 million after-tax restructuring charge. Otherwise, the company would have earned $79.6 million, or $1.29 per share. That was better than the $1.14 per share analysts had expected, according to Thomson Financial.
Shares of Black & Decker rose $1.07 to close yesterday at $67.89.
"The U.S. housing downturn and related credit tightening have sharply lowered demand for tools, locksets and faucets," Chief Financial Officer Michael D. Mangan said during a conference call with analysts. "In addition, retailers continued to order relatively cautiously in contrast to heavy restocking for some categories which took place in early 2007."
Black & Decker was also hurt by rising commodity costs.
The company reported that while sales in Latin America and Asia were still strong, there was some softening in Europe, most notably in Italy and Spain.
Mangan said Black & Decker was taking various cost-saving initiatives, including "cutting discretionary expenses, delaying merit raises and looking for new ways to reduce spending."
It has begun sending out notices to some of the 700 employees whose jobs it is eliminating. Of those workers, 250 are administrative jobs and 450 are plant workers. The cuts should be completed by the end of the second quarter.
Spokesman Roger Young said in an interview after the conference call that the company would not disclose how many workers at the Towson headquarters would be affected. That office is where a large part of the company's administrative functions are performed.
The company is closing its pressure washer plant in Decatur, Ark. It is also closing an office it inherited in 2006 when it acquired Vector Products, which makes jump starters, power inverters and other automotive tools.
Analysts said the company probably had no choice but to make cuts.
"Their costs continue to go up and they haven't really been able to pass that on," said John Kearney, a Chicago-based equity analyst with Morningstar Inc. "It's just a tough environment. You have to cut costs if you're not generating the revenue."
Sales for power tools fell 10 percent in the first quarter, with sales in the U.S. consumer products group plunging a steep 25 percent. More than half of the decline was in the pressure washer business, the company said. Sales in the hardware and home improvement segment decreased 14 percent.
Black & Decker also cut its forecast for the year. Mangan said the company now expects sales to decline at a mid-to-high single-digit rate in the second quarter and full year. It reduced its earnings per share guidance for the year to $5.25 to $5.65. It previously expected to earn $5.40 to $5.90 a share.
The company now expects earnings per share in the second quarter to be in the range of $1.40 to $1.50.