Our mission remains to continue to invest in building world-class franchises with sustainable strategic characteristics that create exceptional shareholder value, a model that has proven highly successful for us over the course of the last decade.
In 2013 Stanley Black & Decker faced a number of challenges, testing our ability to generate financial returns at our historical levels. The success of our organic growth initiatives, solid growth across our core CDIY and IAR tools businesses, strong performance within Stanley Engineered Fastening and Oil & Gas, and excellent progress integrating Infastech were overshadowed by weak operating performance within our Security segment and significant emerging markets currency headwinds. As a result, we have adopted a series of actions designed to address these challenges head-on, and enter 2014 with a clear set of priorities to increase operating efficiencies, drive profitable organic growth, improve our cash flow return on investment (CFROI) and increase value for shareholders through an enhanced capital return program. Longer-term, our mission remains to continue to invest in building world-class franchises with sustainable strategic characteristics that create exceptional shareholder value, a model that has proven highly successful for us over the course of the last decade.
2013 Summary of Results
- Total revenues increased 8% to $11.0 billion, with organic growth of 3%
- Earnings per share was $4.98* compared to $4.76* in 2012
- Free cash flow totaled $854* million and the dividend was increased during the year
- Working capital turns increased to 8.0 from 7.6, as the impact of the Stanley Fulfillment System continued to drive gains in operating efficiencies
- During the year we invested approximately $900 million in acquisitions most notably relating to Infastech and GQ
- Our Security segment underperformed against both our expectations in 2013 and the business’ potential; improving our Security segment is one of our key near-term operational priorities as we move into 2014 and beyond
*Excluding charges and payments
Lessons Learned – Security
As we pride ourselves on continuous improvement, we looked at the challenges faced in 2013 as an opportunity to better prepare the Company for the future. The performance of our Security segment fell significantly below our expectations in both Europe and North America in 2013. It has been and will continue to be a priority for us to learn from what went wrong and lay a new foundation for sustainable, long-term success in Security.
In Europe, we were impacted by the operational underperformance of the legacy Niscayah business, compounded by a weak macro-economic backdrop. We worked diligently to implement important remedies during the year which centered on three primary areas:
1. Centralized Operating Model—we are restructuring the operating model of the legacy Niscayah business so that we have full operational control of branch activity at the country level and can focus efforts on driving productivity, field efficiency, and margin improvement actions.
2. Talent—we upgraded under-performing management in several key positions at both the headquarters and country levels.
3. Sales Orientation—“Hunters” versus “Farmers”—the Niscayah organization was overly dependent on “farming” referrals from their former owner, which necessitated a culture change as well as the replacement and upgrade of the majority of the sales force during the past two years.
In North America, the majority of the 2013 operational performance issues centered around taking on too many changes at once, primarily in our electronics and commercial locks units. The changes we implemented in these businesses resulted in a temporary setback to the overall performance of North American Security. However, we firmly believe that our North American Security management team is on top of the issues, as evidenced by the steady increase in operating margins from 14% in the first half of 2013 to 16% in the second half of the year. We fully expect operating margins in our North American Security business to continue to trend towards their more historical high-teens levels as we move through 2014.
We are bringing all the necessary resources to bear to improve the Security business and are confident in our ability to succeed. Stanley Security has one of the best global footprints in the world, is the only integrator with scale in both mechanical and electronic security, and carries a high margin recurring revenue model with low capital intensity. We believe that Security is a valuable part of our portfolio which will generate returns to shareholders consistent with our long-term financial objectives, ultimately delivering organic growth and above line average operating margins.