This summary is based on the third quarter fiscal 2007 earnings call conducted by Black & Decker (BDK: chart) on October 25, 2007.

Chief Financial Officer: Mike Mangan
Investor Relations: Mark Rothleitner

Key Investors Issues

- The earnings dropped to $1.59 per share from $1.74 per share in prior year.
- Revenue rose 1% to $1.6 billion, with foreign currency having positive impact of 2%.
- The company expects a diluted share count of around 63.5 million for Q4 and 66 million for fiscal 2007.
- The firm does not expect near-term improvement in the US housing industry or a particularly robust holiday season.

Third Quarter Fiscal 2007 Financial Highlights

The earnings per share of $1.59 for the third quarter were above the guidance of $1.40 to $1.45.

Sales were also better than the forecast, which drove most of the EPS out-performance. As anticipated, margins were down primarily due to raw material and inflation. Therefore, EPS was 9% below the record $1.74 per share in the third quarter of 2006.

Sales increased 1% to $1.6 billion for the quarter, ahead of the firm’s projection.

Organic volume was down 1%, price was flat and foreign exchange contributed 2%. The outstanding international sales growth mitigated weakness related to the U.S. housing industry. This quarter, the firm also posted sales gains in two of its segments, Hardware and Home Improvement and Fastening and Assembly Systems.

Operating margin for the third quarter was 10.1%, slightly ahead of expectations.

Commodity inflation remains the biggest challenge to the margins. The company had roughly $40 million of year-on-year pressure this quarter, which it could not fully offset with productivity gains. The SG&A percentage also increased, largely due to lower sales volumes in the North American Power Tools and Accessories business.

The company generated $113 million of free cash flow in the third quarter bringing the year-to-date total to $413 million.

Adjusting for a one-time tax payment related to HACA in early 2006, free cash flow increased by more than $50 million year-to-date. The firm continues to hold capital spending below depreciation and working capital remains favorable to 2006 year-to-date. Each quarter, this year inventory has been below the prior year level, excluding currency.

The firm used its cash to repurchase 4.3 million shares during the quarter.

This brings the total 5.4 million year-to-date and 7 million over the last four quarters. As a result, the outstanding and average diluted shares are 8% lower than a year ago. Share repurchase activity contributed approximately 2 cents to EPS versus the prior guidance. The average purchase price this quarter was approximately $85 below the average closing price for the quarter and year-to-date. Last week, the firm’s board added 4 million shares to its authorization bringing repurchase capacity to nearly 5 billion shares. The firm will continue to repurchase its stock opportunistically and pursue acquisitions.

Performance Analysis of Segments

Worldwide Power Tools and Accessories Segment

Sales in the Worldwide Power Tools and Accessories segment decreased 3% in the quarter. Sales outside of North America remained extremely strong; however, these results could not fully offset the North American decline.

In the U.S. Industrial Products Group, sales decreased mid single-digits. Considering the dramatic decline in housing and the high single-digit sales decrease in the second quarter, the firm considers this as a respectable performance. The year-on-year change was driven by a double-digit decline in the independent channel. Many of the customers in this channel served the residential construction market and their orders declined across all categories.

In the Home Center channel, sales were down in low single-digits and the sellthrough trends continued to stabilize. In addition, the Cordless business faced a tough comparison. Last year XRP launched late in the second quarter where as the firm’s new nano 18-volt line is launching in the fourth quarter this year. The Accessories category was a bright spot for the Industrial business, as successful promotions and new products helped the firm to grow sales in a tough environment.