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Stanley Black & Decker (SWK) Down 5.6% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Stanley Black & Decker, Inc. (SWK - Free Report) . Shares have lost about 5.56 % in the past month, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is SWK due for a breakout? 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 drivers.
Recent Earnings
Stanley Black & Decker reported impressive results for the fourth quarter of 2017, with both earnings and sales beating their respective estimates. The bottom line in the quarter was primarily driven by organic sales growth and benefits from acquired assets.
Earnings, excluding acquisition related charges and others, in the fourth quarter came in at $2.18 per share, surpassing the Zacks Consensus Estimate of $2.14 by 1.9%. The figure also exceeded the year-ago quarter tally of $1.71 by 27.5%.
For 2017, the company's earnings per share, excluding acquisition-related charges and others were $7.45, topping the Zacks Consensus Estimate of $7.40 by roughly 0.7%. On a year-over-year basis, the bottom line grew 14.4%.
Revenues Grow on Organic and Acquisition Gains
Net sales in the fourth quarter were $3,413.5 million, roughly 3.4% above the Zacks Consensus Estimate of $3.3 billion. Compared with the year-ago quarter, the top line grew 16.9%, primarily on the back of 9% volume gains, 3% positive currency impact and 9% gain from acquired assets, partially offset by 3% adverse impact from divested assets (Mechanical Security business in February 2017) and 1% from negative price impact.
Stanley Black & Decker reports revenues under three market segments. A brief discussion on the quarterly results is provided below:
Tools & Storage's revenues totaled $2,430.2 million, representing 71.2% of net revenues in the quarter. On a year-over-year basis, the segment's revenues grew 25.7% on the back of 12% gain from volume growth, 13% from acquired assets and 2% from currency movements. These positives were partially offset by 1% negative price impact.
Industrial generated revenues of $473.5 million, accounting for roughly 13.9% of net revenues in the quarter. Sales grew 4.3% year over year primarily driven 2% and 3% benefit from volume growth and favorable currency movements, respectively. These positives were partially offset by 1% adverse impact from divestitures.
Revenues from Security, roughly 14.9% of net revenues, decreased 4.3% year over year to $509.8 million. Favorable currency impact of 3%, volume gain of 2% and acquisition gains of 4% were more than offset by 13% negative impact of divestitures.
For 2017, the company's revenues were approximately $12,747.2 million, beating the Zacks Consensus Estimate of $12.6 billion by roughly 1.2%. Also, the top line grew 11.7% year over year.
Gross Margin Slips on Higher Costs
In the quarter, Stanley Black & Decker's cost of sales increased 17.2% year over year, accounting for 63.3% of quarter’s net sales versus 63.1% in the year-ago quarter. Gross margin slipped 20 basis points (bps) to 36.7% as divestiture impact and commodity inflation negated the positive impacts of volume growth and improved productivity.
Selling, general and administrative expenses increased 14.4% year over year while as a percentage of revenues, it decreased 50 bps to 22.9%.
Balance Sheet & Cash Flow
Exiting the fourth quarter, Stanley Black & Decker's cash and cash equivalents were $637.5 million, up from $483.3 million in the previous quarter. Long-term debt (net of current portions) decreased 25.5% sequentially to $2,843 million.
In the fourth quarter, the company generated net cash of $950.8 million from its operating activities, increasing 13.8% year over year. Capital spending totaled $164.5 million versus $125.3 million in the year-ago quarter. Free cash flow improved to $786.3 million compared with $709.9 million in the year-ago quarter.
During the quarter, the company paid cash dividends of approximately $95 million and repurchased shares worth $12.5 million.
Outlook
For 2018, Stanley Black & Decker anticipates gaining from strengthening foothold in emerging markets, efforts to innovate products and growing recognition for brands — Craftsman, Lenox, Irwin and DeWalt FlexVolt. Also, the acquisition of Nelson Fastener Systems' industrial business will be advantageous. This buyout, anticipated to be complete in the first half of 2018, will strengthen the company's Engineered Fastening business and will be accretive to earnings per share.
The company anticipates adjusted earnings per share in the year to be within the $8.30-$8.50 range. Organic sales growth will be roughly 5%, adding 50-60 cents to earnings per share.
Commodity inflation of approximately $150 million will be partially offset by favorable pricing. The net impact of these will reduce earnings by 25-30 cents. Also, acquired assets, benefits from cost-savings actions and productivity enhancements, net of adverse impact of rise in share count, will add 45-50 cents to earnings. Tax rate of 18% will benefit earnings by 20 cents.
On a segmental basis, organic revenues are projected to increase in the mid-single digit range for Tools & Storage segment and in low-single digits for Security segment. For Industrial segment, organic revenues are predicted to decline in low-single digit.
Free cash flow conversion is predicted to be roughly 100%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. While looking back an additional 30 days, we can see even more upward momentum.
Currently, SWK has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SWK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Stanley Black & Decker (SWK) Down 5.6% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Stanley Black & Decker, Inc. (SWK - Free Report) . Shares have lost about 5.56 % in the past month, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is SWK due for a breakout? 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 drivers.
Recent Earnings
Stanley Black & Decker reported impressive results for the fourth quarter of 2017, with both earnings and sales beating their respective estimates. The bottom line in the quarter was primarily driven by organic sales growth and benefits from acquired assets.
Earnings, excluding acquisition related charges and others, in the fourth quarter came in at $2.18 per share, surpassing the Zacks Consensus Estimate of $2.14 by 1.9%. The figure also exceeded the year-ago quarter tally of $1.71 by 27.5%.
For 2017, the company's earnings per share, excluding acquisition-related charges and others were $7.45, topping the Zacks Consensus Estimate of $7.40 by roughly 0.7%. On a year-over-year basis, the bottom line grew 14.4%.
Revenues Grow on Organic and Acquisition Gains
Net sales in the fourth quarter were $3,413.5 million, roughly 3.4% above the Zacks Consensus Estimate of $3.3 billion. Compared with the year-ago quarter, the top line grew 16.9%, primarily on the back of 9% volume gains, 3% positive currency impact and 9% gain from acquired assets, partially offset by 3% adverse impact from divested assets (Mechanical Security business in February 2017) and 1% from negative price impact.
Stanley Black & Decker reports revenues under three market segments. A brief discussion on the quarterly results is provided below:
Tools & Storage's revenues totaled $2,430.2 million, representing 71.2% of net revenues in the quarter. On a year-over-year basis, the segment's revenues grew 25.7% on the back of 12% gain from volume growth, 13% from acquired assets and 2% from currency movements. These positives were partially offset by 1% negative price impact.
Industrial generated revenues of $473.5 million, accounting for roughly 13.9% of net revenues in the quarter. Sales grew 4.3% year over year primarily driven 2% and 3% benefit from volume growth and favorable currency movements, respectively. These positives were partially offset by 1% adverse impact from divestitures.
Revenues from Security, roughly 14.9% of net revenues, decreased 4.3% year over year to $509.8 million. Favorable currency impact of 3%, volume gain of 2% and acquisition gains of 4% were more than offset by 13% negative impact of divestitures.
For 2017, the company's revenues were approximately $12,747.2 million, beating the Zacks Consensus Estimate of $12.6 billion by roughly 1.2%. Also, the top line grew 11.7% year over year.
Gross Margin Slips on Higher Costs
In the quarter, Stanley Black & Decker's cost of sales increased 17.2% year over year, accounting for 63.3% of quarter’s net sales versus 63.1% in the year-ago quarter. Gross margin slipped 20 basis points (bps) to 36.7% as divestiture impact and commodity inflation negated the positive impacts of volume growth and improved productivity.
Selling, general and administrative expenses increased 14.4% year over year while as a percentage of revenues, it decreased 50 bps to 22.9%.
Balance Sheet & Cash Flow
Exiting the fourth quarter, Stanley Black & Decker's cash and cash equivalents were $637.5 million, up from $483.3 million in the previous quarter. Long-term debt (net of current portions) decreased 25.5% sequentially to $2,843 million.
In the fourth quarter, the company generated net cash of $950.8 million from its operating activities, increasing 13.8% year over year. Capital spending totaled $164.5 million versus $125.3 million in the year-ago quarter. Free cash flow improved to $786.3 million compared with $709.9 million in the year-ago quarter.
During the quarter, the company paid cash dividends of approximately $95 million and repurchased shares worth $12.5 million.
Outlook
For 2018, Stanley Black & Decker anticipates gaining from strengthening foothold in emerging markets, efforts to innovate products and growing recognition for brands — Craftsman, Lenox, Irwin and DeWalt FlexVolt. Also, the acquisition of Nelson Fastener Systems' industrial business will be advantageous. This buyout, anticipated to be complete in the first half of 2018, will strengthen the company's Engineered Fastening business and will be accretive to earnings per share.
The company anticipates adjusted earnings per share in the year to be within the $8.30-$8.50 range. Organic sales growth will be roughly 5%, adding 50-60 cents to earnings per share.
Commodity inflation of approximately $150 million will be partially offset by favorable pricing. The net impact of these will reduce earnings by 25-30 cents. Also, acquired assets, benefits from cost-savings actions and productivity enhancements, net of adverse impact of rise in share count, will add 45-50 cents to earnings. Tax rate of 18% will benefit earnings by 20 cents.
On a segmental basis, organic revenues are projected to increase in the mid-single digit range for Tools & Storage segment and in low-single digits for Security segment. For Industrial segment, organic revenues are predicted to decline in low-single digit.
Free cash flow conversion is predicted to be roughly 100%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. While looking back an additional 30 days, we can see even more upward momentum.
Stanley Black & Decker, Inc. Price and Consensus
Stanley Black & Decker, Inc. Price and Consensus | Stanley Black & Decker, Inc. Quote
VGM Scores
Currently, SWK has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SWK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.