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Stanley Black & Decker (SWK) Down 7.4% 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 7.4% in that time frame.
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 the most recent earnings report in order to get a better handle on the important drivers.
First-Quarter 2018 Earnings Highlights
Stanley Black & Decker reported results for the first quarter of 2018. It kept its earnings streak alive in the first quarter of 2018, pulling off a positive earnings surprise of 3%.
Earnings, excluding acquisition-related charges and other one-time impacts, were $1.39 per share, above the Zacks Consensus Estimate of $1.35. Also, the bottom line increased 6.9% from the year-ago quarter's tally of $1.30 on the back of healthy segmental results and synergistic gains. These positives offset the adverse impacts of commodity inflation.
Segmental Performance Drives Revenues
In the quarter, Stanley Black & Decker's net sales were $3,209.3 million, up 12.4% from the year-ago quarter. The improvement was primarily driven by 4% volume gains, 4% positive-currency impact and 6% gain from acquired assets, partially offset by 2% adverse impact from divested assets (Mechanical Security business in February 2017).
Also, the top line surpassed the Zacks Consensus Estimate of $3.1 billion by 3.5%.
Stanley Black & Decker reports revenues under three market segments. A brief discussion of the quarterly results is provided below:
Tools & Storage's revenues totaled $2,215.8 million, representing 69% of net revenues in the quarter. On a year-over-year basis, the segment's revenues grew 16.9%, on the back of 6% gain from volume growth, 8% from acquired assets and 3% from currency movements.
Industrial generated revenues of $504.2 million, accounting for roughly 15.7% of net revenues in the quarter. Sales grew 5.1% year over year, primarily driven by 6% benefit from favorable currency movements, partially offset by 1% adverse impact from divestitures.
Revenues from Security, roughly 15.2% of net revenues, increased 1.6% year over year to $489.3 million. Favorable currency impact of 5%, price gain of 1% and acquisition gains of 3% were partially offset by 5% negative impact of divestitures and 2% from lower volumes.
Margin Profile Weak on Higher Costs and Expenses
Stanley Black & Decker's cost of sales in the first quarter increased 14.5% year over year to $2,041.9 million. It was 63.6% of the quarter's net sales versus 62.4% in the year-ago quarter. Gross margin slipped 120 bps to 36.4% as commodity inflation of $50 million negated positive impacts of volume growth and improved productivity.
Selling, general and administrative expenses increased 13.2% year over year to $769.2 million. It represented 24% of net sales in the quarter versus 23.8% in the year-ago quarter. Operating margin declined 140 bps year over year to 12.4%. Tax rate in the quarter was 23%, down from 25% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the first quarter, Stanley Black & Decker had cash and cash equivalents of $405.6 million, lower than $637.5 million in the previous quarter. Long-term debt (net of current portions) edged down 0.5% sequentially to $2,827.6 million.
In the first quarter, the company used $349.4 million cash for its operating activities, roughly 11.2% higher than $314.1 million used in the year-ago quarter. Capital spending totaled $106.3 million versus $64.7 million in the year-ago quarter. Free cash outflow in the quarter was $455.7 million, higher than the outflow of $378.8 million in the year-ago quarter.
Shareholders-Friendly Initiatives
During the first quarter, Stanley Black & Decker paid cash dividends of approximately $94.9 million and repurchased shares worth $11.4 million.
Also, it secured the option to purchase roughly 3.2 million shares by March 2021 by executing a capped-call transaction.
Outlook
For 2018, Stanley Black & Decker projects gaining from growing recognition for its brands — Craftsman, Lenox, Irwin and DeWalt FlexVolt — and from strengthening foothold in emerging markets. Also, the buyout of Nelson Fastener Systems' industrial business (completed on April 2) will strengthen the company’s Engineered Fastening business.
The company reaffirmed adjusted earnings guidance for the year of $8.30-$8.50 per share, reflecting year-over-year growth of 11-14%. Organic sales growth will be roughly 5%.
Commodity inflation of $180 million is predicted to lower earnings by 15 cents. This forecast includes adverse impacts of the imposition of import tariffs on steel and aluminum. Earlier, the company predicted commodity cost inflation of $150 million. Also, benefits from cost-savings actions and productivity enhancements initiatives, favorable pricing and synergistic gains from the buyout of Nelson Fastener Systems will increase earnings by 15 cents per share.
Free cash flow conversion is predicted to be roughly 100%.
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.
Also, the company predicted that earnings in the second quarter will be approximately 24% of thje full year projection.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to eight lower.
At this time, SWK has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Following the exact same course, the stock was also 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value 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 7.4% 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 7.4% in that time frame.
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 the most recent earnings report in order to get a better handle on the important drivers.
First-Quarter 2018 Earnings Highlights
Stanley Black & Decker reported results for the first quarter of 2018. It kept its earnings streak alive in the first quarter of 2018, pulling off a positive earnings surprise of 3%.
Earnings, excluding acquisition-related charges and other one-time impacts, were $1.39 per share, above the Zacks Consensus Estimate of $1.35. Also, the bottom line increased 6.9% from the year-ago quarter's tally of $1.30 on the back of healthy segmental results and synergistic gains. These positives offset the adverse impacts of commodity inflation.
Segmental Performance Drives Revenues
In the quarter, Stanley Black & Decker's net sales were $3,209.3 million, up 12.4% from the year-ago quarter. The improvement was primarily driven by 4% volume gains, 4% positive-currency impact and 6% gain from acquired assets, partially offset by 2% adverse impact from divested assets (Mechanical Security business in February 2017).
Also, the top line surpassed the Zacks Consensus Estimate of $3.1 billion by 3.5%.
Stanley Black & Decker reports revenues under three market segments. A brief discussion of the quarterly results is provided below:
Tools & Storage's revenues totaled $2,215.8 million, representing 69% of net revenues in the quarter. On a year-over-year basis, the segment's revenues grew 16.9%, on the back of 6% gain from volume growth, 8% from acquired assets and 3% from currency movements.
Industrial generated revenues of $504.2 million, accounting for roughly 15.7% of net revenues in the quarter. Sales grew 5.1% year over year, primarily driven by 6% benefit from favorable currency movements, partially offset by 1% adverse impact from divestitures.
Revenues from Security, roughly 15.2% of net revenues, increased 1.6% year over year to $489.3 million. Favorable currency impact of 5%, price gain of 1% and acquisition gains of 3% were partially offset by 5% negative impact of divestitures and 2% from lower volumes.
Margin Profile Weak on Higher Costs and Expenses
Stanley Black & Decker's cost of sales in the first quarter increased 14.5% year over year to $2,041.9 million. It was 63.6% of the quarter's net sales versus 62.4% in the year-ago quarter. Gross margin slipped 120 bps to 36.4% as commodity inflation of $50 million negated positive impacts of volume growth and improved productivity.
Selling, general and administrative expenses increased 13.2% year over year to $769.2 million. It represented 24% of net sales in the quarter versus 23.8% in the year-ago quarter. Operating margin declined 140 bps year over year to 12.4%. Tax rate in the quarter was 23%, down from 25% in the year-ago quarter.
Balance Sheet & Cash Flow
Exiting the first quarter, Stanley Black & Decker had cash and cash equivalents of $405.6 million, lower than $637.5 million in the previous quarter. Long-term debt (net of current portions) edged down 0.5% sequentially to $2,827.6 million.
In the first quarter, the company used $349.4 million cash for its operating activities, roughly 11.2% higher than $314.1 million used in the year-ago quarter. Capital spending totaled $106.3 million versus $64.7 million in the year-ago quarter. Free cash outflow in the quarter was $455.7 million, higher than the outflow of $378.8 million in the year-ago quarter.
Shareholders-Friendly Initiatives
During the first quarter, Stanley Black & Decker paid cash dividends of approximately $94.9 million and repurchased shares worth $11.4 million.
Also, it secured the option to purchase roughly 3.2 million shares by March 2021 by executing a capped-call transaction.
Outlook
For 2018, Stanley Black & Decker projects gaining from growing recognition for its brands — Craftsman, Lenox, Irwin and DeWalt FlexVolt — and from strengthening foothold in emerging markets. Also, the buyout of Nelson Fastener Systems' industrial business (completed on April 2) will strengthen the company’s Engineered Fastening business.
The company reaffirmed adjusted earnings guidance for the year of $8.30-$8.50 per share, reflecting year-over-year growth of 11-14%. Organic sales growth will be roughly 5%.
Commodity inflation of $180 million is predicted to lower earnings by 15 cents. This forecast includes adverse impacts of the imposition of import tariffs on steel and aluminum. Earlier, the company predicted commodity cost inflation of $150 million. Also, benefits from cost-savings actions and productivity enhancements initiatives, favorable pricing and synergistic gains from the buyout of Nelson Fastener Systems will increase earnings by 15 cents per share.
Free cash flow conversion is predicted to be roughly 100%.
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.
Also, the company predicted that earnings in the second quarter will be approximately 24% of thje full year projection.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimate. There has been one revision higher for the current quarter compared to eight 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, SWK has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Following the exact same course, the stock was also 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value 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.