Slumping sales forcing Black and Decker to lay off 700

Black & Decker Corp. is planning to lay off around 700 employees after getting nailed in the first quarter by the housing market slump.

The Towson-based power tool maker earned $67 million, or $1.09 per share, in the first quarter. On average, analysts surveyed by Thomson Financial expected Black & Decker (NYSE: BDK) to earn $1.14 per share. In the same period a year ago, Black & Decker earned $108 million, or $1.61 per share.

The quarter included a $12 million after-tax restructuring charge. Without that move, Black & Decker would have earned $1.29 per share.

Content Continues Below

Sales fell by 5 percent from a year ago to $1.5 billion, even after factoring in the positive effects of foreign exchange rates.

Black & Decker attributed the weak quarter to the continued housing market downturn and rising commodity costs. During the 2007 quarter, many retailers were stocking up on inventory, but this year they have curtailed buying, CFO Michael Mangan said on a conference call with analysts Thursday morning.

"Since January, the U.S. economic outlook has deteriorated both overall and for the construction and automotive sectors," Mangan said. Black & Decker's fastening and assembly systems division includes automotive customers.

Sales in the power tools and accessories group fell by 10 percent, with a 25 percent decline in the U.S. consumer business, where homeowners buy tools at outlets like Home Depot (NYSE: HD). Hardware and home improvement sales fell by 14 percent. Only the fastening and assembly systems segment saw a gain, posting a 4 percent sales increase for the quarter. But while it faced weakness at home, Black & Decker is still growing in developing countries. Outside North America and Europe, sales grew more than 20 percent, primarily stemming from growth in Latin America and Asia.

Of the planned 700 job cuts, 250 of those are in management and 450 are plant workers. Black & Decker has very little manufacturing in Greater Baltimore, but has a heavy management concentration at its Towson headquarters. Spokesman Roger Young declined to say how many of the 250 management job cuts would come in Towson. Many of the managers who are losing their jobs have already been notified, he said. The restructuring includes the closing of a pressure washer plant in Arkansas and an office in Florida that was part of Vector Products, which Black & Decker acquired in 2006. The company has more than 25,000 employees worldwide.

The company also plans to reorganize the management structure in its power tools and accessories division. Managers who are now grouped by product lines will be grouped by job functions, said spokesman Young. The power tool division will continue to report to John Schiech.

"We don't like to have to do this," Young said of the layoffs. "It's just a matter of a very difficult business environment."

But even those cost-cutting moves won't fully offset the pain of higher commodity prices and sales declines, Black & Decker said. The company lowered its earnings forecast for the year to between $5.25 and $5.65 per share, excluding restructuring charges. Organic sales are expected to decline at a mid-to-high single digit rate. Previously, Black & Decker had predicted 2008 earnings of $5.40 per share to $5.90 per share.

For the second quarter, Black & Decker expects to earn $1.40 per share to $1.50 per share.