This summary is based on the first quarter fiscal 2008 earnings call conducted by The Black & Decker Corporation (BA: chart) on April 24, 2008.

Management:

Vice President, Investor Relations and Treasurer: Mark M. Rothleitner
Chief Financial Officer, Senior Vice President: Michael D. Mangan

Key Investors Issues

- EPS were $1.09 per share compared to $1.61 per share a year ago.
- Net earnings fell to $67.4 million from $108.1 million a year earlier.
- Sales declined 5% to $1.5 billion.

First Quarter Highlights

Black & Decker announced earnings per share of $1.09, or $1.29 before a restructuring charge of 20 cents per share.

- Excluding this charge, EPS was above guidance of $1.10 to $1.20 but below the strong $1.61 per share in the first quarter of 2007.
- Sales decreased 5% to $1.5 billion. This was in line with projections due to a better-than-expected 4% contribution from foreign exchange.
- Organic volume was down 9% and price was.

U.S. housing downturn and related credit tightening have lowered demand for tools, locksets, and faucets.

- In addition, retailers continue to order cautiously in contrast to heavy restocking for some categories which took place in early 2007. While growth in Latin America and Asia was strong, the company has begun to see some slowing in parts of Europe.
- Operating margin before restructuring decreased 260 basis points to 8.2%. As a percentage of sales, SG&A increased 160 basis points, reflecting lower volume. Excluding currency, SG&A spending decreased 3%, driven by reductions in power tools and favorable corporate items.
- Gross margin decreased 100 basis points, primarily due to $55 million of component inflation across the segments. Inflation was partially offset by productivity, as well as favorable adjustments to certain reserves, including XRP recall costs. Effective tax rate of 23.5% is lower than last year in guidance. This reflects the tax benefit associated with the restructuring charge, as well as the favorable settlement of certain tax audits. FIN-48 will result in more quarterly tax rate volatility than in the past.

The company repurchased 2 million shares and 6.3 million over the past year.

- As a result, average shares are 8% lower than a year ago. In addition, net interest expense came in below forecast due to favorable rates.

- Free cash flow was negative $111 million versus a positive $137 million last year. This was in line with forecast. Free cash flow is often negative in the first quarter as it is the smallest sales quarter and the company makes payments on items accrued in the prior year. Free cash flow was strong throughout 2007, due in part to the timing of payments. Therefore the company did not expect this to repeat in the first quarter of 2008. The company continues to expect to covert approximately 100% of net earnings to free cash flow for the year.

In response to weakening demand, the company is implementing additional actions to reduce costs across the company.

As a result, it recorded an $18 million pretax restructuring charge in the first quarter. In power tools and accessories segment, the company is reorganizing the industrial and consumer businesses along functional lines rather than SBs based on product categories. This structure will reduce overhead and promote efficient customer relationship management. In addition, the consumer business will shrink its operational footprint by closing a pressure washer plant and the Vector office in Florida. In the hardware and home improvement segment, the company took steps to reduce SG&A in 2007. Therefore, incremental restructuring actions in this segment are focused on manufacturing. In both tools and HHI, the company will reduce direct labor and production levels to reflect lower demand and bring inventory down. The fastening business has been proactive in cutting overhead and the company will take additional actions on SG&A. In addition to the restructuring actions, many parts of the company are cutting discretionary expenses, delaying merit increases, and looking for new ways to reduce spending. In total, the new restructuring program should result in 700 fewer positions, including 450 of direct labor. The company expects the elimination of 250 indirect positions, which will generate more than $10 million of savings in 2008 and an incremental $15 million in 2009.

Sales in worldwide power tools and accessories segment decreased 10%.

- Weak demand in the U.S. was compounded by a difficult comparison to early 2007 when key customers replenished their inventories from unusually low levels. In the U.S. industrial products group, sales decreased double-digits. Due to the housing downturn, orders fell at all key categories and channels. Lower sales of compressors and nailers, which are used heavily in new construction, accounted for roughly one-third of the group’s sales decrease.
- The impact of the XRP recall announced in late 2007 is now largely behind and reorders helped cordless business perform better than other portfolios. The decrease was less sever in the independent channel than in the home centers, which continued to manage inventory levels carefully. The sell-through trend at the home centers deteriorated but not as sharply as order rates.

In the U.S. consumer products group, sales decreased more than 25%.

- The company came into the quarter expecting a large decrease. First, the company knew the high single digit growth rate in the first quarter of 2007 was a difficult comparison. In contrast to the inventory build a year ago, the home centers responded to weak demand by reducing consumer tool inventories this quarter. This gap between sell-in and sell-through was more pronounced than in the industrial business. The second factor was a loss of several low-end pressure washer listings at a key customer. This category accounted for over half of the group’s sales decline this quarter. One positive in the U.S. consumer group was outdoor products, where new listings at a key retailer drove a strong sales increase.
- The consumer group’s first quarter results were also affected by the draw-down of Firestorm products at Lowe’s. Firestorm is being replaced by new lineup of 21 Porter-Cable tools to address the high-end, do-it-yourself, and light contractor market.

In Europe, sales fell short of expectations, declining mid single digits year-on-year.