Stanley Black (SWK) Beats Q2 Earnings & Sales, Ups '17 View

Industrial tool maker Stanley Black & Decker Inc. (NYSE:SWK) reported impressive results for second-quarter 2017, with positive earnings and sales surprises of 2.6% and 1.9%, respectively.

Earnings, excluding acquisition related charges and others, of $2.01 per share topped the Zacks Consensus Estimate of $1.96. It also surpassed the year-ago quarter tally of $1.84 by 9.2%.

The company’s organic sales grew roughly 6% as 8% gain from volume growth was partially offset by 1% negative price impact and 1% adverse impact of foreign currency translation. In addition to organic growth, acquisition gains were 7% while divestitures had negative 3% impact. Combining these impacts, net sales in the quarter jumped 10% year over year to $3.229 billion. Also, sales were above the Zacks Consensus Estimate of $3.17 billion.

Segmental Revenues

Stanley Black & Decker reports revenues under three market segments. A brief discussion on the segments’ quarterly results is provided below:

Tools & Storage generated revenues of $2,259.5 million, up 17% year over year and represented 70% of net revenue in the quarter. Volume growth added 9% to sales growth while acquisitions had a positive 11% impact. These were partially offset by negative impacts of 1% from foreign currency translation, 1% from price and 1% from divestitures.

Industrial segment’s revenues, accounting for roughly 15.4% of net revenue, came in at $496.3 million, up 7.2% year over year. The growth was triggered by volume gains of 9%, partially offset by adverse currency impact of 2%.

Revenues from Security, roughly 14.7% of net revenue, decreased 11.9% year over year to $473.7 million. Favorable price impact of 1%, acquisition gain of 2% and volume gain of 1% were more than offset by 2% negative impact of forex losses and 14% negative impact of divestitures.

Margins

In the quarter, Stanley Black & Decker’s cost of sales grew 10.4% year over year, accounting for 61.7% of quarter’s net sales versus 61.5% in the year-ago quarter. Gross margin declined 20 basis points (bps) to 38.3% as benefits from volume growth and improved productivity was offset by adverse impacts of price, commodity inflation and currency.

Selling, general and administrative expenses increased 9.5% year over year while as a percentage of revenues, it dipped 10 bps to 22.6%.

Balance Sheet & Cash Flow

Exiting the second quarter, Stanley Black & Decker had cash and cash equivalents of $539.5 million, above $378 million in the previous quarter. Long-term debt (net of current portions) was roughly flat at $3,817.4 million.

In the quarter, Stanley Black & Decker generated net cash of $256.5 million from its operating activities, decreasing 48.3% year over year. Capital spending totaled $122.2 million versus $78.7 million in the year-ago quarter. Free cash flow was $134.3 million compared with $417.7 million in the year-ago quarter.

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During the quarter, the company paid cash dividends of approximately $86.5 million and repurchased shares worth $2.1 million.

Outlook

For 2017, Stanley Black & Decker increased its earnings forecast to $7.18−$7.38 per share from the previous projection of $7.08−$7.28, primarily on the back of benefits accrued from higher organic revenue growth, operational excellence and acquired assets. Also, the revised guidance represents year-over-year growth of 10–13%.

Free cash flow conversion is predicted to be 100%.