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Why Is Stanley Black (SWK) Up 2.9% Since the Last Earnings Report?

A month has gone by since the last earnings report for Stanley Black & Decker, Inc. SWK. Shares have added about 2.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

First-Quarter 2017 Earnings Highlights

Stanley Black & Decker kept its earnings streak alive in first-quarter 2017, with positive earnings and sales surprises of 8.4% and 2%, respectively. Earnings from continuing operations came in at $1.29 per share, surpassing the Zacks Consensus Estimate of $1.19 and marginally above the year-ago tally of $1.28.

The company's net sales totaled $2.806 billion, above the Zacks Consensus Estimate of $2.75 billion. Also, the top line grew 5% year over year on the back of 5% and 3% positive impact of volume and acquisitions, respectively, partially offset by 1% adverse impact of unfavorable currency movements and 2% from divestitures.

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 $1,854.5 million, up 9% year over year and represented 66.1% of net revenue in the quarter. Organic revenues grew 6% while acquisitions had a positive 4% impact. These were partially offset by 1% negative forex impact.

Industrial segment's revenues accounting for roughly 16.8% of net revenue, came in at $472.6 million, up 3% year over year. The growth was triggered by volume gains of 5%, partially offset by 1% negative price impact and adverse currency impact of 1%.

Revenues from Security, roughly 17.1% of net revenue, decreased 5% year over year to $478.5 million. Favorable price impact of 1% and acquisition gain of 1% were more than offset by 1% negative impact of forex losses and 6% negative impact of divestitures.

Margins: In the quarter, Stanley Black & Decker's margin profile improved on the back of 2% growth in revenues, partially offset by 2.7% increase in cost of sales. Gross margin increased 160 basis points (bps) to 38.2%. Selling, general and administrative expenses grew 7.4% year over year while as a percentage of revenues, it inched up 50 bps to 24%.

Balance Sheet & Cash Flow: Exiting the first quarter, Stanley Black & Decker had cash and cash equivalents of $378 million, considerably below $1,131.8 million in the previous quarter. Long-term debt (net of current portions) was roughly flat at $3,815.6 million.

In the quarter, Stanley Black & Decker's net cash usage on operating activities increased 56.4% to $145.6 million. Capital spending totaled $64.7 million versus $64.9 million in the year-ago quarter. Free cash outflow was $210.3 million compared with $158 million outflow recorded in the year-ago quarter.

During the quarter, the company paid cash dividends of approximately $86.7 million and repurchased shares worth $17.3 million.

Outlook: For 2017, Stanley Black & Decker increased its earnings forecast to $7.08-$7.28 per share from the previous projection of $6.98-$7.18. The revised guidance includes anticipated earnings accretion from Newell Tools (roughly $0.24 per share) and Craftsman Brand (roughly $0.08 per share) acquisitions and earnings dilution from disposition of Mechanical Security businesses as well as improved industrial businesses.

Compared with its previous guidance of earnings accretion in the range of $0.45-$0.55 per share, incremental organic revenue growth is likely to contribute additional $0.08 per share to earnings.

Incremental cost and productivity actions will result in $0.10 per share rise over the previous expectation of $0.45-$0.50. Higher environmental charges will dilute earnings by $0.08 per share. In addition, the company reaffirmed projections of commodity inflation in the range of $50-$55 million and forex headwinds of $50 million (both resulting in a negative impact of $0.50-$0.55 per share).

Free cash flow conversion is predicted to be 100%.

On a segmental basis, organic revenues are projected to increase in mid-single digit range for Tools & Storage segment and in low-single digits for Security segment. For the Industrial segment, organic revenue is predicted to be relatively flat year over year.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.

Stanley Black & Decker, Inc. Price and Consensus

 

Stanley Black & Decker, Inc. Price and Consensus | Stanley Black & Decker, Inc. Quote

VGM Scores

At this time, Stanley Black's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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