Stanley Black (SWK) Beats Q3 Earnings, '16 View Revised

Industrial tool maker Stanley Black & Decker Inc. (NYSE:SWK) reported better-than-expected results for third-quarter 2016. The company’s earnings from continuing operations came in at $1.68 per share or $1.73 per share excluding the adverse impact of restructuring charges. The results came in above the Zacks Consensus Estimate of $1.61. Also, the bottom line exceeded the year-ago tally of $1.55.

The year-over-year increase was driven by operational efficiency and lower share count, more than offsetting the adverse impact of currency headwinds.

Stanley Black & Decker’s revenues in the quarter totaled $2.882 billion, almost in line with the Zacks Consensus Estimate. Also, the top line grew 1.9% year over year on the back of 2% and 1% positive impacts of volume and pricing, respectively, partially offset by 1% adverse impact of unfavorable currency movements.

Segmental Detail

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

Tools & Storage generated revenues of $1,896.9 million, up 3.2% year over year and represented 65.8% of net revenue in the quarter. Organic revenue grew 5%, while forex losses had a 2% negative impact.

Industrial segment’s revenues, accounting for roughly 16% of net revenue, came in at $463.1 million, down 3.5% year over year. The fall was triggered by volume decline of 3% and adverse price impact of 1%.

Revenues from Security, roughly 18.1% of net revenue, increased 2.1% year over year to $522.7 million. Favorable price impact of 1%, volume gain of 1% and acquisition gains of 1% were partially offset by 1% negative impact of forex losses.

Margins

In the quarter, Stanley Black & Decker’s margin profile improved as revenue growth of 1.9% was complimented by roughly 0.3% fall in cost of sales. Gross margin increased 130 basis points (bps) to 37.6%. Selling, general and administrative expenses grew 6.1% year over year while, as a percentage of revenues, it inched up 90 bps to 22.4%.

Balance Sheet & Cash Flow

Exiting the third quarter, Stanley Black & Decker had cash and cash equivalents of $420.8 million, down from $568.2 million in the preceding quarter. Long-term debt (net of current portions) was roughly flat at $3,815.1 million.

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In the quarter, Stanley Black & Decker generated net cash of $246.7 million from its operating activities, compared with $239.0 million generated in the year-ago quarter. Capital spending grew 14% year over year to $78.1 million. Free cash flow was $168.6 million compared with $170.5 million recorded in the year-ago quarter.

During the quarter, Stanley Black & Decker paid cash dividends of approximately $84.5 million, and repurchased shares worth $0.6 million.

Outlook: For 2016, Stanley Black & Decker revised its earnings per share guidance to $6.40−$6.50 from $6.30−$6.50 projected earlier. The mid-point of the new guidance is at $6.45 versus the previous mid-point of $6.40.

Free cash flow conversion is predicted to be 100%.