Sunday, September 13, 2009

Spotlight On: Major Appliances and Tools

Spotlight On: Major Appliances and Tools

The global economic recession during 2008 and 2009 caused the major appliance and tool sectors to experience significant macroeconomic challenges including instability in the financial markets. These challenges have impacted the global economy, the capital markets, operating costs throughout the sector and global demand for products. The results of these challenges include higher material and oil-related costs, liquidity strains on the supply chain, decreased consumer confidence and reduced consumer discretionary spending. We expect these conditions to continue in the foreseeable future. key factors include:

  • The impact of the global economic recession is forecast to cause global shipments to fall by 12.2% in 2009 as compared to 2008.
  • Europe is projected to see the steepest declines in appliance shipments while Latin America, Africa and some parts of Asia are forecast to outperform the global average.
  • Despite the downtown, manufactures continue to turn out innovations in an effort to differentiate themselves from the competition.

In the US, demand for hand and power tools is expected to increase through 2012. If the US construction industry recovers by 2012, creating demand from the professional end of the market. While we wait for the recovery, the DIY market and remodeling efforts maintain a base level of support for this sector.

We limited our analysis in this sector to companies with a market capitalization of at least $500 million. This provided a short list of nine companies including market leaders Whirlpool (WHR), Helen of Troy (HELE), Snap-On Inc.(SNA), Black & Decker (BDK) and Stanley Works (SWK).

We particularly like Black & Decker. From Reuters:

"The Black and Decker Corporation, incorporated in 1910, is a global
manufacturer and marketer of power tools and accessories, hardware and
home improvement products, and technology-based fastening systems. The
Company is a global supplier of engineered fastening and assembly
systems. The Company operates in three operating segments: power tools
and accessories, including consumer and industrial power tools and
accessories, lawn and garden products, electric cleaning, automotive,
lighting, and household products, and product service; hardware and
home improvement, including security hardware and plumbing products;
and fastening and assembly systems."




Key Financial Ratios and Statistics

FYE:
12/31























Profitability
2008
Leverage
2008
Net Inc/Comm Equity6.63Total Liab/Total Assets0.78
Net Inc/Total Assets0.06Total Liab/Inv Cap1.12
Net Inc/Inv Cap0.08Total Liab/Comm Equity91.61
Pretax Inc/Net Sales0.06Interest Coverage Ratio4.62
Net Inc/Net Sales0.05Curr Debt/Equity0.07
Cash Flow/Net Sales0.07LTD/Equity1.28
SG&A/NetSales0.25Total Debt/Equity1.36
Asset Utilization

  Liquidity  
Net Receivables Turnover5.98Quick Ratio1.06
Inventory Turnover3.77Current Ratio1.75
Inventory Day Sales0.01Net Rec/Curr Assets0.36
Net Sales/Work Cap5.44Inv/Curr Assets0.39
Net Sales/PP&E11.53  

As we can see from the table shown above, BDK compares well with its industry peers in the areas of profitability and liquidity. On the other hand, the company performs poorly in the areas of leverage and asset utilization when compared with industry peers.

Earnings per share projections for FYE 2009 range from $1.52 - $2.00 and average $1.786. For FYE 2010, EPS ranges from $1.75 - $2.60 and average $2.282. EPS for the trailing twelve months is $2.91. Though earnings are forecast to be down for the current year and next, analyst projects have been badly off the mark.











Quarterly Earnings Surprise History



























































Fiscal
Quarter End

Date
Reported

Earnings
Per Share*

Consensus
EPS* Forecast

%
Surprise

Jun 2009 07/24/2009 0.63 0.368 71.20
Mar 2009 04/23/2009 0.22 0.081 171.60
Dec 2008 01/29/2009 0.97 0.671 44.56
Sep 2008 10/23/2008 1.63 1.291 26.26








We have a target value for BDK at $52.00.

Disclaimer: Author has no position in BDK, WHR, SNA, HELE or SWK.














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