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Stanley Black & Decker Beats Q1 Earnings, Ups Outlook

Zacks Equity Research

Industrial tool maker Stanley Black & Decker (SWK), reported earnings per share from continuing operations of $1.07 in first-quarter 2014, up 2.9% year over year, breezing past the Zacks Consensus Estimate of 97 cents. The improvement was driven by healthy organic revenue growth and gains from acquisitions.

GAAP earnings per share in the quarter were $1.05 that included about 2 cents of merger and acquisitions-related charges.

Revenues

In first-quarter 2014, Stanley Black & Decker generated net revenues of $2,640.8 million, reflecting an increase of 6.6% year over year. The top-line result also surpassed the Zacks Consensus Estimate of $2,600 million.

The year-over-year improvement can be attributed to roughly 4% of volume gains and a 4% contribution from acquisitions, offset partially by a 1% negative currency translation impact. Price was flat in the quarter.

Stanley Black & Decker reports its revenues under three heads, a brief of which is provided below:

Revenues generated from the Construction & Do-It-Yourself segment (46.1% of first-quarter 2014 revenues) were $1,216.1 million, up 5.7% year over year. The Security segment (21.7%) reported revenues of $572.7 million, down 3.3% year over year. The Industrial segment’s (32.2%) sales soared 16.1% to $852.0 million.

Margins

Stanley Black & Decker’s normalized cost of sales, as a percentage of revenue, was at 63.6% versus 62.8% reported in the year-ago quarter. Gross margin was down 80 basis points to 36.4% due primarily to higher cost of sales incurred in the quarter.

Selling, general and administrative expenses increased 1.7% year over year, while as a percentage of revenue, it decreased 120 basis points to 24.3%. Operating margin was up 30 basis points to 12.1%.

Balance Sheet

Exiting first-quarter 2014, Stanley Black & Decker had cash and cash equivalents of $432.6 million, down from $496.2 million in the previous quarter. Long-term debt (net of current portions) increased 0.8% sequentially to $3,831.1 million.

Cash Flow

Stanley Black & Decker used $152.0 million of cash for its operating activities versus $147.5 million used in the year-ago quarter. Capital spending went down 24.5% year over year to $57.8 million. Normalized free cash outflow in the quarter was $158.0 million versus $129.6 million in the year-ago quarter. The company paid approximately $80.7 million in dividends in the quarter.

Outlook

Stanley Black & Decker revised its 2014 guidance. Earnings per share, excluding one-time charges, are predicted in the $5.35−$5.50 range as against the previous range of $5.30−$5.50. The revision can be attributed to expectations of a strong performance in the Industrial segment and strict cost controls. These positives will weigh over the negative impact of the weak Security business in Europe. Security margin is expected to be relatively flat year over year.

Organic revenue growth is expected to be roughly 4%.

GAAP earnings for 2014 are expected in the range of $5.23−$5.38 versus $5.18−$5.38 per share expected earlier. Free cash flow is projected to be approximately $675 million.

For the Construction & Do-It-Yourself segment, Stanley Black & Decker anticipates a mid-single-digit organic revenue growth in 2014. The company expects the Security segment to record a flat-to-modest decline in organic revenue growth while for the Industrial segment, it anticipates organic revenue growth in the mid-single-digit range.

Stanley Black & Decker also intends to reward shareholders through dividend payments, debt reduction and share buybacks.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The company currently has a market capitalization of $12.8 billion and carries a Zacks Rank #3 (Hold).

Companies to watch out for in the machinery industry are NN Inc. (NNBR), AVT, Inc. (AVTC) and Plug Power Inc. (PLUG). While NN Inc holds a Zacks Rank #1 (Strong Buy), AVT and Plug Power carry a Zacks Rank #2 (Buy).

Read the Full Research Report on SWK
Read the Full Research Report on AVTC
Read the Full Research Report on PLUG
Read the Full Research Report on NNBR


Zacks Investment Research