The Black & Decker Corp. is revising its earnings guidance for the fourth quarter and full year 2007 due to three developments.
The company expects to recall certain Dewalt XRP cordless drills manufactured during the past 18 months and incur a pre-tax charge of approximately US$25 million in the fourth quarter of 2007. The amount includes estimates of the costs to repair products and the impact of sales returns from distribution channels, but excludes any potential recovery from a component supplier.
In addition, it said that business conditions in North America have been worse than the company anticipated. As a result of this change and the anticipated recall, the company now expects to report a low single-digit rate of sales decrease, excluding positive foreign currency translation, in the fourth quarter of 2007. Black & Decker's previous guidance was for modest organic sales growth. The change in the operating environment is expected to have a significant negative impact on operating income, compared to previous guidance.
Finally, Black & Decker and the U.S. government reached a settlement agreement on outstanding income tax litigation. As previously disclosed, if the IRS had prevailed in the case, it would have resulted in a cash outflow of approximately $180 million. Black & Decker expects to make cash payments of approximately $50 million during 2008 related to the settlement and that the tax settlement will increase net earnings by approximately $150 million.
Black & Decker now expects to report net earnings per diluted share of approximately $3.39 for the fourth quarter of 2007 and $8.27 for the full year and diluted EPS of approximately $1.03 for the fourth quarter and $6.00 for the full year.