Black & Decker Corp.'s (BDK) fourth-quarter profit fell 22% amid declining sales and merger-related costs, but the toolmaker's adjusted earnings rose and handily topped analysts' expectations.

Ahead of its purchase by Stanley Works (SWK), Black & Decker also provided a first-quarter and full-year revenue outlook for itself that exceeded Wall Street's forecasts.

"While we expect challenges in areas such as commercial construction, many of our end markets have largely stabilized," said Chairman and Chief Executive Nolan Archibald during a conference call to discuss results. Black & Decker also expects operating margins to improve and for new products to help it regain market share.

Shares of Black & Decker rose 5.2% to $72.34 in recent trading, while shares of Stanley Works rose 5.5% to $57.25.

Shareholders of both companies are expected to vote March 12 on the deal, which is worth about $4.12 billion, according to Tuesday's closing prices, and combines two household names in the market for tools. The transaction will give Black & Decker shareholders 1.275 shares of Stanley for each Black & Decker share. Black & Decker repeated Stanley's view that the deal would close in late first quarter or early second quarter. At current prices, the buyout values Black & Decker shares at $72.99.

Black & Decker reported a profit of $33.9 million, or 55 cents a share, down from $43.7 million, or 72 cents, a year earlier. Excluding items related to the merger and year-earlier restructuring costs, earnings rose to $1.24 from 96 cents. The company had forecast 68 cents to 78 cents.

Revenue dropped 5.6% to $1.3 billion.

Analysts polled by Thomson Reuters had most recently forecast $1.2 billion in revenue.

"Sales in the quarter exceeded our expectations in all three of our business segments," Archibald said.

Improved economic activity in Europe and in parts of Latin America and Asia Pacific contributed to the sales beat. Inventory restocking by Black & Decker's customers in some businesses also helped.

Sales in the company's power tools and accessories business--by far its largest by revenue--dropped 11%, but profit jumped 75%.

Gross margin in the fourth quarter rose to 36.4% from 31.6%. The company said better-than-expected sales internationally, margin improvements and lower tax expenses accounted for the fourth-quarter earnings outperformance relative to expectations.

Black & Decker has seen demand fall as the weak housing industry has cut into sales. Earlier efforts to cut costs generated savings of about $20 million in the fourth quarter and $60 million for the full year, the company said.

For 2010, the company said it expects a modest improvement in many of its markets, but it remains cautious due to ongoing pressure in some sectors, especially in U.S. commercial construction.

On a standalone basis, Black & Decker expects a mid single-digit sales increase in the first quarter compared with a year earlier, when sales were hurt by retailers cutting inventories. For the full year, Black & Decker expects a low single-digit growth rate. Both periods should benefit from favorable currency translation.

Analysts surveyed by Thomson Reuters, on average, expected a 1% decline in both first-quarter and full-year revenue.

Operating margin should improve at least 200 basis points year-on-year in the first quarter and by approximately 100 to 150 basis points for the full year, excluding merger-related expenses and restructuring charges, the company said. Much of the improvement is tied to better absorption of overhead costs as volume improves. Black & Decker said its operating margin in the year-ago first quarter was 3.5% excluding items--its lowest in many years.

Excluding new products, the company sees pricing flat to slightly negative, and it expects deflationary raw material prices through the first half of the year, followed by inflationary pressures in the second half, executives said.

Among upcoming products, executives said, are more cordless consumer tools, lower-end professional tools and outdoor string and hedge trimmers and lawn mowers.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

(Nathan Becker contributed to this story.)
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