As someone new to homeownership and home repair, I hadn't given the Black & Decker (NYSE:BDK) company much thought until this year. But now I think of it often -- every time I stroll the aisles of Home Depot (NYSE:HD) or Lowe's (NYSE:LOW) or admire some fellow homeowner's tools. That got me thinking. wouldn't it be nice to invest in this company? Of course, there's more to investing than daydreaming, so I set out to do a little research.
Meet the company
If you think Black & Decker is just a company that makes a few power tools for home improvement fanatics, you're mistaken. A visit to the company website revealed that it is a manufacturer with power tools and hardware and home improvement products in more than 100 countries and manufacturing operations in 11 countries.
More enticing to Fools is a list highlighting the company's 2003 achievements:
- Record earnings per share (EPS)
- Seven consecutive quarters of 19%-plus growth in EPS
- Record free cash flow; more than $800 million over the past two years
- Three consecutive years of working capital improvement
- Strategic acquisition of Baldwin Hardware and Weiser lock businesses
- Net debt to capital down from 55% to 42%; lowest net debt in a decade
- Repurchase of 2 million shares and 75% increase in dividend
By touting seven consecutive quarters of growth, the company admits that in past years its performance hasn't been on a completely smooth, upward path.
Business segments
Black & Decker has three main business segments. Its Power Tools and Accessories division makes and sells products for consumers under the Black & Decker name and high-performance products for professionals and consumers under the DeWalt name. Products include power tools, electric lawn and garden tools, electric cleaning and lighting products, industrial equipment, laser products, and air compressors. This segment earned more than $3 billion in sales in 2003, roughly two-thirds of the firm's revenues.
The Hardware and Home Improvement division makes and sells security items, such as locks branded with the Kwikset, Baldwin, and Weiser names. It also makes general and decorative hardware under the Baldwin brand and plumbing products under the Price Pfister brand. It generated more than $700 million in sales in 2003.
The Fastening and Assembly Systems division, also called Emhart Teknologies, has customers in the global automotive and industrial arenas. Its brands include POP blind rivets, Parker-Kalon screws, Gripco locknuts, HeliCoil wire inserts, Dodge inserts, Tucker stud welding equipment, and Warren plastic and metal fasteners. In 2003, it earned more than $500 million in sales.
There are numerous brand names under the Black & Decker umbrella, such as Firestorm, Pivot Driver, 360°, Dustbuster, and SnakeLight, just to name a fraction.
A news review
A quick search on Google pulled up an interesting tidbit on a Black & Decker shareholder's proposal. The United Brotherhood of Carpenters and Joiners of America (UBCJA), a union for the building trades, proposed to limit executives' total compensation to $1 million each, or at least have the company explain why it won't cap it. (Last year, Black & Decker's CEO raked in almost $12 million.) The UBCJA's shareholder resolution didn't pass, but the union vows to revisit the issue.
The upside
So what's so good about this company? The firm is turning itself around. It spent some $170 million recently cutting costs and expects to reap about $150 million annually from that. Its stock price reflects that to some degree, having appreciated some 50% over the past year. Its industry is attractive. Homebuilding has been on a tear for several years now and shows little sign of letting up. Homeowners, meanwhile, are more interested than ever in spiffing up their residences. Many have refinanced their mortgages and taken out cash for home improvements -- no doubt inspired by one of several home improvement TV shows.
The company has been innovative, willing to branch out into some new areas. It currently offers pest control products, for example. In the last few years, it has introduced many successful new products, such as its Bullseye combination stud finder and laser level.
Roughly a third of the company's revenues come from international sales. A solid number, it shows that Black & Decker is finding success selling outside our nation's borders, but that it still has a lot of room for improvement. There remains much international growth to be realized, by securing additional customers abroad, selling more, and perhaps expanding into additional countries.
Shares outstanding have been falling over the past few years, boosting the value of remaining shares. This is generally a good thing (unless the firm is buying back shares at high prices and wasting its money). The price is interesting at current levels, and if it falls significantly, it would be even more appealing. The company's current P/E ratio is around 13, and over the past five years, has ranged from 8 to 35. So the P/E is near the low end of its general price range.
The downside
Morningstar.com cited concerns about overly generous employee options grants in 2000, which have decreased in recent years. Also, bigwig executives hold many stock options, with bonuses tied to growth in earnings per share -- hardly a manipulation-free measure.
Black & Decker's competitors in the tool industry include Danaher (NYSE:DHR), Makita (NASDAQ:MKTAY), and The Stanley Works (NYSE:SWK). But the biggest threat is profitability pressure from Home Depot, Lowe's, and Wal-Mart (NYSE:WMT). These retailers are so large that when it comes to negotiating prices and terms, they hold more power than manufacturers like Black & Decker. Even if Black & Decker crushes its peers, achieving sky-high market share, it could still be at the mercy of the giant retailers -- a major drawback.
The bottom line
So have I rushed out to snap up shares of Black & Decker? Certainly not. (I have, however, seriously considered purchasing the company's Sandstorm sander.) My research into Black & Decker remains preliminary, but it was enough to convince me that this is not one of the most attractive investment opportunities out there -- and why would I want to plunk my money into anything but a very compelling opportunity? Still, the company is interesting, and at a lower price, could be even more attractive. Perhaps I'll add it to my watch list. Perhaps you might want to, also.
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Fool contributor Selena Maranjian produces the Fool's syndicated newspaper feature - check it out . She owns no shares of the companies mentioned above. For more about Selena, view her bio and profile . She has co-written The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is investors writing for investors.
