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Stanley Black & Decker Q2 Earnings Beat Est.

Zacks Equity Research

Industrial tool maker, Stanley Black & Decker (SWK) reported earnings per share from continuing operations of $1.21 in the second quarter of 2013, up from $1.13 reported in the year-ago quarter and above the Zacks Consensus Estimate of $1.19.
GAAP earnings per share in the quarter were $1.23. The earnings result outperformance can be attributed to healthy performance at the company’s three segments.


Stanley Black & Decker generated net revenues of $2,869.3 million, up 11.8% year over year and above the Zacks Consensus Estimate of $2,813 million. The increase can be attributed to roughly 6% volume gains and a 7% contribution from acquisitions, offset partially by 1% impact from unfavorable pricing. Currency translation had a neutral impact on results this quarter.

Revenue in the CDIY segment (50.4% of second quarter 2013 revenue) rose 8.6% year over year to $1,445.8 million, while the Security segment (21.3%) reported revenues of $610.7 million, reflecting a year over year increase of 1.6%. Industrial segment (28.3%) sales soared 28.1% to $812.8 million.


In the second quarter 2013, Stanley Black & Decker’s normalized cost of sales, as a percentage of revenue came in at 64.6% versus 63.6% reported in the year-ago quarter. Gross margin was down 100 basis points to 35.4%, due primarily to higher cost of sales incurred in the quarter.

Selling, general and administrative expenses registered a year-over-year increase of 11.1% and as a percentage of revenue declined 20 basis points to 22.9%. Operating margin in the quarter was 12.4% versus 13.3% in the year-ago comparable quarter.

Balance Sheet

Cash and cash equivalents of Stanley Black & Decker exiting the second quarter 2013 were $561.74 million, up 0.8% from $557.5 million in the previous quarter. Long-term debt (net of current portions) was down 1.9% to $3,428.9 million as compared with $3,494.1 million in the previous quarter.
Cash Flow

Normalized net cash flow from operating activities was $271.7 million in the second quarter 2013 versus $366.4 million in the year-ago quarter. Capital spending declined 15.7% year over year to $53.8 million. Free cash flow in the quarter was $217.9 million versus $302.6 million in the year-ago quarter.

The company expended approximately $78.4 million in paying dividends to shareholders in the second quarter 2013.


For 2013, management reiterated its earnings guidance provided earlier. Earnings per share, excluding one-time charges, are expected to be within the $5.40-$5.65 range. Organic revenue growth expectation has, however, been increased from 2%-3% to 4%-5% range.

GAAP EPS for 2013 is expected to be in the range of $4.46-$4.71, same as predicted earlier. Free cash flow is projected to be roughly $1.0 billion.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The stock currently carries a Zacks Rank #4 (Sell).

The companies that closely compete with Stanley Black & Decker are Kennametal Inc. (KMT) — reported adjusted earnings of 76 cents per share, down from $1.06 earned in the year-earlier quarter but ahead of the Zacks Consensus Estimate of 73 cents, Lincoln Electric Holdings Inc. (LECO) — expected to release on Jul 29, 2013, and Hardinge Inc. (HDNG) — expected to release on Aug 8, 2013.

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Read the Full Research Report on HDNG

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