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Listening To Consumers Pays Off For Hardware Giant Black & Decker Corp. Snaps Back From Brush With Disaster In 1992

SUNDAY, JAN. 15, 1995

During a sudden Christmas Eve blackout, Penny and Brian Boulden of Wayne, Pa., whipped out their new Black & Decker SnakeLight, a flashlight with a flexible 2-foot handle, hung it around Penny Boulden’s neck and continued assembling a pedal-powered race car for their three-year-old son, Jay.

“It saved our Christmas and maybe even our marriage,” jokes Mr. Boulden.

More meaningful for Black & Decker Corp., the $30 SnakeLight was sold out in many parts of the country by midDecember.

But Black & Decker has more than just a hot new product. After five years of uneven performance, the 84-year-old company is poised to report its fourth straight quarter of strong earnings growth; and operating margins - never impressive - have been swelling.

Part of the reason is that Black & Decker, based in Towson, Md., is improving on what it has always done well: listening to what consumers want. Nearly two decades ago, after a lot of such listening, it came up with the hugely successful Dustbuster. The SnakeLight grew out of research by Black & Decker engineers who found people want both hands free 75 percent of the time they use a flashlight.

But Black & Decker also is seeing the benefits of an effort to sell off non-core businesses, revamp its factories, expand the product lines of its better-known brands and push into promising foreign markets in Asia and Latin America.

Heading the turnaround is Nolan Archibald, chairman and chief executive, who analysts say also was responsible for a badly timed acquisition. Archibald, who is 51 years old and has been chairman since 1986, made his misstep in 1989 by buying the diversified Emhart Corp. for $2.7 billion. While some of Emhart’s businesses fit well with Black & Decker’s line of home-improvement and professional construction products, the bulk didn’t. He planned quickly to divest Emhart of assets such as PRC Inc., a McLean, Va., information-services company.

Instead, Archibald says, Black & Decker ran into “very difficult economic conditions, the worst housing market since the Great Depression and a weak capital market, which slowed our divestiture program.” In 1992, the company had a loss of $333.6 million, and its stock price - which had been as high as $25.30 - fell as low as $8. Plans for an initial public offering for PRC fizzled.

Gradually, the company sold off 10 non-core businesses, shuttered factories in Germany, Singapore and Seneca, S.C., and raised $465 million in new equity. In 1993, Black & Decker took advantage of low interest rates to refinance debt, ending a harrowing period in which quarterly interest payments were eating up most of the company’s earnings.

Analysts still say there are factors such as higher interest rates that could upset the company’s new earnings momentum. Moreover, they say Archibald needs to sell off businesses like PRC that don’t fit with Black & Decker’s traditional thrust and to improve the profitability of the company’s household-products division, which faces price competition from rival brands.

Archibald has sought to reinvent the way Black & Decker makes and distributes its products by recruiting help from outside. He replaced eight manufacturing executives, four of whom were succeeded by executives from General Electric Co. In 1993, to get his new team of manufacturing executives revved up, he tied executive pay to specific cash-flow and margin-growth goals.

The impact of the new focus on manufacturing efficiency began to appear in the second quarter of 1994. Operating margins, which historically had averaged 7 percent to 8 percent, rose to 8.6 percent. Moreover, they stayed high in the third quarter, a period where they usually dip because of seasonal trends.

“For the past 20 years, there has been a gap between what Black & Decker should earn and what it earned,” says Morgan Stanley & Co. analyst Jennifer Pokrzywinski. “What they’ve done isn’t rocket science. It’s just basic blocking and tackling. But there has been a significant improvement.”

In the past three years, the company has made significant inroads into the professional construction market with its DeWalt tool line and its Price Pfister plumbing products. The company was also helped by the fact that during the difficult times, Archibald didn’t neglect Black & Decker’s traditional strengths in marketing and new-product development.

Black & Decker has long been known for putting a new spin on old-fashioned products like staplers and saws. But analysts say the company in the past two years both broadened the scope of products it is trying to bring to market and cut the time it takes to get them there. The company took only 18 months to get the SnakeLight onto store shelves, a full year and a half less than past comparable product launches.

Black & Decker was also quick to see that home-improvement centers would supplant neighborhood hardware and lumber stores and moved quickly to cement close ties with industry giants such as Home Depot Inc. and Lowe’s Cos., says Scott Graham, an analyst at Oppenheimer & Co.

“When Black & Decker executives come to our stores, it’s not a coat-and-tie thing,” says Denny Ryan, a senior vice president of Home Depot in Atlanta. “It’s like they have an orange apron on, same as our associates; they really work the aisles.”

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