Investors Hammer Black & Decker Stock
Black & Decker Corp.’s stock was beaten black and blue by investors Tuesday after the maker of power tools and household appliances predicted lower-than-expected profit for the next two quarters.
Disappointing sales of its hand-held power tools and premium flashlights, competitive price cutting across several product lines and ongoing weakness in the European economy are taking their toll on sales and profit growth, Black & Decker said.
The Towson, Md.-based concern said the result will be fourth-quarter and full-year earnings that trail Wall Street’s expectations, and a first-quarter 1997 profit that will fall below its level of a year earlier.
The disclosure marks a sharp reversal for Black & Decker, which had been posting double-digit percentage gains in earnings in recent quarters, and it caught Wall Street by surprise.
In response, the company’s stock plummeted $6 a share, or 17%, to $31.625 in New York Stock Exchange composite trading, leaving the stock with a 10% loss for the year. Volume was heavy, with 5 million shares changing hands.
Black & Decker’s plunge underscores how investors, already nervous about the stock market’s rise to exceptionally lofty heights this year, have no patience for a company whose performance doesn’t keep pace with Wall Street’s expectations.
The problems also illustrate how even an innovator such as Black & Decker, which is known for introducing novel goods that often command premium prices, is struggling to overcome the fiercely competitive conditions in the consumer hardware market.
Those conditions are exacerbated by the growing influence of such giant do-it-yourself retailers as Home Depot and their constant demand for the lowest prices possible from manufacturers, analysts said.
In recent years, Black & Decker has had strong success by introducing its DeWalt power tools for consumers and professionals, its VersaPak battery system for powering cordless tools and its SnakeLight flexible flashlights.
Black & Decker also makes Dustbuster vacuums, Toast-R-Oven appliances, Kwikset locks and True Temper sports equipment. It also owns Pacoima-based Price Pfister, a maker of plumbing fixtures.
But the stiffening competition in some key markets, and overall softness in others, is squeezing Black & Decker’s growth, Chairman Nolan D. Archibald said in a statement. For example:
* Prices for power tools sold in North America have become more competitive, eroding the company’s sales and profit margins.
* North American sales and profit on household goods overall--tools, flashlights, vacuums, etc.--will drop in 1996 below those of the previous year, in part because of lower sales of SnakeLight flashlights.
* Demand for power tools and accessories has slowed in Europe because of economic weakness in the region, where Black & Decker is fighting a battle in the consumer market with industry leader Robert Bosch of Germany. Foreign sales account for nearly half of Black & Decker’s total sales.
The company has struggled in Europe for a while. In this year’s first quarter, it eliminated 1,100 jobs in a restructuring aimed mostly at its European operations, and the overhaul produced a one-time charge against earnings of $67 million.
But excluding that charge, Black & Decker’s profit from continuing operations for the first nine months of this year jumped to $135.6 million from $79.5 million a year earlier, on a 4% sales gain to $3.5 billion.
Archibald said Black & Decker is “optimistic that we can resolve these issues,” but analysts said there is no quick fix.
“They may have improvement next year, but I think it’s going to be slow improvement,” said Russell Leavitt of Salomon Bros.
Black & Decker still has its strengths. In a report last week, Oppenheimer & Co. analyst R. Scott Graham said the company plans to launch more products over the next 18 months--including new bench-top power tools and new models of SnakeLights--than in any comparable period in Black & Decker’s history.
Times wire services contributed to this report.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Drilled
Black & Decker’s shares fell sharply on news of lower-than-expected earnings. Weekly closes and latest:
$31.63
Source: Bloomberg Business News
