With the economy in recession, investors are cutting back on all these projects resulting in decreased sales for both of these companies. Black and Decker this morning announced a 13% drop in sales in their Power Tools and Accessories segment for the 4th quarter ended Dec 31 and forecast a double digit rate of sales decline for the majority of 2009. As a result, they are forecasting an approximately 2/3 drop in earnings for 2009. To deal with the slowdown, they laid off about 1,200 employees during the 4th quarter (read BDK Earnings Release).
But what I’m focusing on is the fact that we’re moving along in the process of adjustment. Everybody now knows that the economy is in the tank. Companies have already taken and are continuing to take steps to realign their operations with the current environment.
Turning to the stock market, Black & Decker earned $5.47 a share in 2008 and is forecasting $2 a share for 2009. At $32, that’s not all that cheap on next year’s earning but if normalized earnings are $3 or more, the stock is pretty cheap already and so the stock market itself is now discounting the tough business environment.
It now just becomes a matter of time, of reallocating labor and capital to fit the new environment which has to take place in the real world. But as far as perception and understanding, the stock market and most businesses seem to fully understand the current environment and what’s ahead. That means we’re well on our way to equilibrium and, absent any unforeseen shocks, the stock market is more likely to be range bound than dramatically lower in 2009.
