- 1Q'09 Diluted EPS from Continuing Operations of $0.48, Inclusive of an $0.08 Restructuring Charge

- Sales Unit Volumes Down 19% vs. Prior Year, However, Gross Margins Improve to a Record 39.6%

- $100 Million Additional Cost Reduction Program Initiated - Expected to Generate $45 million of Savings in 2009; $15 Million is Expected to be Reinvested in Brand Development and Organic Growth Initiatives

- Working Capital Turns Improved to 4.8 Despite Volume Decline

- Security Segment Posts 12% Revenue Growth and 33% Profit Growth

NEW BRITAIN, Conn., April 24 /PRNewswire-FirstCall/ -- The Stanley Works (NYSE: SWK) today announced first quarter 2009 financial results. Highlights are summarized below:

• Net sales from continuing operations were $913 million, down 15% vs. prior year as acquisition growth (+7%) and price (+3%) were offset by unfavorable organic volume associated with weakness in global economic conditions. Unit volume declined 19% and currency translation impacted revenues unfavorably by 6%.

• The 1Q'09 gross margin rate improved 170 bps versus 1Q'08 to 39.6%. The increase was driven by pricing and acquisitions, as well as strong performance in the Security segment. SG&A expenses were 27.7% of sales, down $22 million vs. the prior year. Both gross margins and SG&A expenses benefited from the company's proactive cost reduction programs in 2008 and Q1'09.

• The company had negative free cash flow of $18 million for the quarter driven by lower net income and normal working capital seasonality. Working capital turns improved slightly to 4.8 from 4.7 despite significant unit volume declines as the Stanley Fulfillment System continued to favorably impact results.

• As previously communicated, a contingency cost reduction plan was developed during the quarter to protect earnings and cash flow in the event estimated full year 2009 volume declines were greater than 10-12%. Management elected to implement this plan as the quarter progressed and it became apparent that full year unit volume declines were more likely to be between 13-15%. The plan is expected to generate annual savings of $100 million, $45 million of which will be realized in 2009. Restructuring and related charges for this program are expected to total approximately $35 million. In addition, the company expects to reinvest approximately $15 million of the 2009 savings to fund investments in brand development and Security organic growth initiatives.

• The company also announced that Stanley Fastening Systems (Bostitch) will be consolidated with the Stanley Consumer Tools & Storage business under the leadership of Jeff Ansell. Both businesses have significant channel and customer overlap and this combination will allow Stanley to more fully and effectively leverage operations and resources across both businesses.

John F. Lundgren, Chairman and Chief Executive Officer, commented, 'We took a number of strategic actions during the first quarter to reduce costs, strengthen our brands and invest for future growth. We believe that strong companies should find ways to grow market share and strengthen key franchises throughout the business cycle. Today's economic conditions afford us a unique opportunity to accelerate progress in these areas.'

Segment Results:

                            1Q'09                       Versus 1Q'08
    ($ millions)            Segment    Segment            Segment    Segment
                  Sales     Profit  Profit Rate   Sales   Profit   Profit Rate
    Security      $374        $71      18.9%       +12%    +33%     +290 bp
    Industrial    $236        $25      10.4%       -29%    -50%     -420 bp
    CDIY          $303        $29       9.5%       -25%    -39%     -210 bp

• Security continued to post strong profits due to the stability of the business as well as the benefits from acquisitions and well executed integrations. Organic revenues for the segment declined 4%. For the Convergent (Electronic) Security Solutions (CSS) business, organic revenues were down mid-single digits as increased recurring monthly revenue (RMR) and price partially offset lower installation revenues. Mechanical Access Solutions (MAS) organic revenues decreased in-line with the overall segment decline due to lower volume partially offset by an increase in price.

• Industrial revenues fell 29% versus prior year due to increased weakness in Europe and the Americas where unit volume fell 29% and 25%, respectively. The impact of foreign exchange pushed European revenues down a total of 38% versus prior year. The Industrial and Automotive Tools businesses experienced significant customer inventory corrections that accounted for approximately 1/3 of the unit volume declines experienced in Europe and the U.S. Segment profit rate decreased significantly due to sales volume declines combined with the timing of European cost savings which require a longer time to realize.

• Revenues for the CDIY segment dropped 25% versus prior year as volume in both the Americas and Europe was down approximately 23%. Foreign exchange had a 7% negative impact on the business, which was partially offset by a 4% increase in price versus 1Q'08. As with the Industrial segment, the softness in Europe had a notable negative impact as organic revenues from the region fell 23%. The positive impacts of price and productivity on the segment profit rate were more than offset by sales volume declines combined with the longer time frame for the implementation of the cost reduction actions in Europe.

James M. Loree, Executive Vice President and Chief Operating Officer stated, 'We anticipated that 2009 was going to start on a difficult note, but we experienced even greater volume pressure in both our Industrial and CDIY businesses. Our Security businesses held up well in weak economic conditions and our large recurring revenue base, strong market positions and the benefits from recent acquisitions allowed Security to post double-digit top line growth and to achieve robust operating profit margins.'

The Company now believes there is sufficient visibility into various end markets and other factors to provide 2009 earnings and free cash flow guidance. Anticipating that current sales volume weakness will continue through the remainder of the year with smaller volume declines in the back half as comparisons become easier, management expects full year 2009 EPS to be in the range of $2.00 - $2.50 and free cash flow of greater than $300 million based on the following assumptions:

• Unit volume shipments in 2009 will be down 13% -15% versus 2008, resulting in a volume-related EPS decrease of $2.40 - $2.90. The steep volume declines experienced in 1Q are expected to continue at or near the same levels into 2Q and then begin to ease in the second half.
• With the dollar at present exchange levels, assumed in the guidance is a $0.50 negative impact to EPS and a 4% decline in revenue versus prior year due to currency, most of which will be realized by mid-year.
• At present commodity cost levels, the company anticipates minimal, if any, inflation for 2009. Due to the lagging nature of price increases, the company will experience some favorable price carryover in the first half of 2009, however the net impact of price recovery versus inflation for the year is expected to be only modestly positive.
• The per share benefit from the cost reduction program announced in 2008 is expected to be $1.75 in 2009. The per share benefit from the cost reduction program announced today, net of new growth and brand investments, is expected to total $0.28 in 2009. Total restructuring and related charges for 2009 are expected to be $45 million. This includes $10 million of restructuring from the program initiated in December 2008 and $35 million from the program announced today. The majority of the remaining charges will be recorded in 2Q and 3Q. All of these amounts have been factored into the 2009 guidance. For 2010, the per share benefit of both programs is expected to be $0.75 ($0.24 from 4Q'08 and $0.51 from 1Q'09), which will be partially offset by a number of factors, such as increased share count and cost pressures.