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The Stanley Works (NYSE: SWK)
1000 Stanley Drive New Britain 06053
Chairman and CEO: John M. Trani
Revenues (FYE 1/2/99): $2.729 billion
Net income (FYE 1/2/99): $137.8 million
Employees: 18,000 worldwide
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Business New Haven
2/22/1999
By: BNH
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Since its founding in 1843, the Stanley Works has survived world wars, civil war, depression and generations of historic economic change. By 1998 the company had built its net annual sales to $2.7 billion. What did Stanley have to offer a young and growing nation? Tools to build.
After 156 years, the company today offers several lines of tools reflecting the needs of the professional or hobbyist tradesman. Among its 50,000 products, Stanley manufactures familiar simple hand tools such as planes, hammers, screwdrivers and saws for consumer use.
In addition, the company sells industrial tools including electronic diagnostic tools and engineered tools such as fasteners and hydraulic tools, plus a line of hardware and specialty hardware including specialty doors.
But Stanley needs more than an expanding line of tools to remain competitive in a fast-paced global economy. Stanley undertook an examination of every aspect of its business in 1997. The excavation discovered a dinosaur: The company had too many plants; per-plant sales did not measure up to those in the company's peer group; and spending in new product development was below industry average. The company had become too costly to operate.
To repair the situation requires major renovation. Stanley is regrouping into a single entity with three geographic regions (U.S., Europe, other) and three product segments (tools, hardware and specialty hardware). The company is shaving operations with will reduce the number of manufacturing facilities to 45 from 83, and distribution centers from 40 to 25.
Stanley is also redirecting spending away from inefficient operations and redirecting it into product development, new ventures and price reductions. Implementation of all these measures is expected to be complete some time by the end of the calendar year.
Stanley has pledged to develop itself into what it calls a “great brand” by means of a three-pronged plan, including positioning itself in the right markets, growing itself with new and complimentary products, and increasing competitiveness. In 1997 it added to its tool chest a line of electronic tools, known as IntelliTool, and recently signed an agreement with Magla Products Inc. by which Magla will market work gloves under the Stanley name.
The 1997 restructuring cut sharply into the bottom line, with charges of $238.5 million for severance, writedown of assets and plant closings. This resulted in a net loss of $41.9 million (47 cents per share diluted) for the year ended January 3, 1998, on net sales of $2.669 billion.
Performance in the following fiscal year ended January 2, 1999 reflected both the improvements accomplished along with those problems that still need to be completely addressed. Stanley experienced a weak rate of orders in the fourth quarter, resulting in a three-percent reduction in net sales to $675.8 million versus $698.8 million from the prior year's fourth quarter.
Production inefficiencies added more than $50 million to costs in providing improved customer service. Additional costs of $28 million were incurred as a result of the company's resource allocation, moving, consulting and other transition costs.
Reported net income for the most recent fourth quarter was $25.8 million, or 29 cents per diluted share, compared to the prior year's fourth quarter net income of $26.5 million (29 cents per diluted share).
Core earnings for the quarter, excluding restructuring and one-time charges, were still down at $44.5 million, or 50 cents per diluted share, compared to the prior year's fourth quarter core earnings of $50.1 million (55 cents per diluted share). Stanley's reported results for the fiscal year just ended look somewhat better. Net sales for the year were up two percent to $2.729 billion, compared to the $2.669 billion the year before. Net earnings for the year were $137.8 million ($1.53 per diluted share) compared to the prior year's net loss of $41.9 million or (47 cents per share diluted).
Core earnings for the year, excluding restructuring and other one-time charges reflected a two-percent improvement to $193 million, or $2.14 per diluted share, over the prior year's core earnings of $188 million ($2.08 per diluted share). A year ago the stock was trading in the $40-$50 range. Today it is in the $25-$30 range closing February 8 at 25 5/8.
Looking on the positive side, the company reports that fill rates have shown improvement and Stanley is working to increase orders in its hardware product group. The company expects double-digit growth in the MacDirect business (an endeavor to staff employees in its MacTools trucks) and Zag operations (a plastic storage product company acquired in 1998). The company is continuing efforts to improve efficiencies in its manufacturing operations.
Beyond the pluses and minuses of the past year or two, Stanley is striving to open the door to a “great brand” name. In an industry with sales of $14 billion for woodworking supplies and materials, there appears to be ample opportunity for Stanley. Perhaps its reorganization and regrouping efforts will provide the tools for the company to climb the ladder to renewed success.
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