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SWK’s 2Q Surpasses Zacks Estimate
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Stanley Black & Decker (SWK - Analyst Report) has reported financial results for the second quarter of 2010. Earnings per share from continuing operations were $1.24, up 39.3% compared with 89 cents in the comparable quarter of 2009. EPS surpassed the Zacks Consensus Estimate of 77 cents.
Net income from continuing operations soared 191.1% year over year to $206.1 million, compared with $70.8 million in the second quarter of 2009. The increase in net income was due primarily to growth in revenue that more than offset higher expenses.
Consolidated results of the company included full one quarter results of Black & Decker Corporation, which was acquired in the first quarter of 2010.
Revenue
Net revenue in the second quarter 2010 increased 157.4% year over year to $2,365.6 million, compared with $919.2 million in the second quarter of 2009. Growth in net revenue was primarily due to the addition of revenues earned by Black & Decker, higher unit volumes due to supply chain restocking and improving demand, and revenue contribution from other acquisitions, offset partially by negative currency translation impact.
Revenue in the CDIY segment increased 307.9% year over year to $1,322.3 million, while the Security segment reported revenues of $571.4 million, reflecting an increase of 46.3% year over year. Revenue in the Industrial segment was $471.9 million, up 130.9% year over year.
Margins
Cost of sales, as a percentage of revenue soared to 62.3% versus 60.1% in the year-ago quarter. Higher commodity costs offset strong volume growth and led to a 2.2% year over year decline in gross margin to 37.7% in the second quarter of 2010.
Selling, general and administrative expenses registered an increase of 122.7% year over year, but as a percentage of revenue declined from 27.8% to 24.0%. Operating margin in the quarter was 13.7% versus 12.1% in the second quarter of 2009.
Balance Sheet
Exiting the second quarter, Stanley Black & Decker’s cash and cash equivalents increased 6.2% sequentially to approximately $1,598.4 million, compared with $1,505.4 million in the first quarter of 2010. Long-term debt, net of current portion was $2,318.7 million, down 15.5% from $2,743.4 million in the first quarter of 2010.
Cash Flow
Net cash flow from operating activities was approximately $248.2 million compared with $68.1 million in the second quarter of 2009. Capital expenditure increased to $35.1 million versus $25.1 million in the second quarter of 2009. Higher operating cash flow, slightly offset by higher capital expenditures led to free cash flow of $213.1 million in the quarter, versus $43.0 million in the comparable quarter a year-ago.
Outlook
Management believes that the merger will support the continued expansion of its global business platform. Thus, the company revised its 2010 outlook and expects EPS to fall within the range of $3.35-$3.55 versus its prior expectation of $3.10 - $3.30.
The revised guidance is based on net organic growth assumption of 4%-5% from 2009 and gross margin expectation of 37%-38% for the second half of 2010. Also, slower pace of customer restocking and higher commodity inflation will influence results in the second half of 2010.
Free cash in 2010 is expected to exceed $600 million, versus prior forecast of roughly $600 million.
From the recently acquired Black & Decker, the company anticipates annual cost synergies of $350.0 million over three years of acquisition, with roughly $90 million to be realized in 2010. Also, from the ADT France acquisition, synergistic benefits are anticipated in 2011.
Stanley Black & Decker manufactures tools and engineered security solutions across the globe. Prime competitors of the company are Danaher Corp. (DHR - Analyst Report), Makita Corp. (MKTAY) and Snap-on Inc. (SNA - Analyst Report). We currently maintain our Neutral recommendation on the stock, supported by Zacks #3 (Hold) Rank.
Net income from continuing operations soared 191.1% year over year to $206.1 million, compared with $70.8 million in the second quarter of 2009. The increase in net income was due primarily to growth in revenue that more than offset higher expenses.
Consolidated results of the company included full one quarter results of Black & Decker Corporation, which was acquired in the first quarter of 2010.
Revenue
Net revenue in the second quarter 2010 increased 157.4% year over year to $2,365.6 million, compared with $919.2 million in the second quarter of 2009. Growth in net revenue was primarily due to the addition of revenues earned by Black & Decker, higher unit volumes due to supply chain restocking and improving demand, and revenue contribution from other acquisitions, offset partially by negative currency translation impact.
Revenue in the CDIY segment increased 307.9% year over year to $1,322.3 million, while the Security segment reported revenues of $571.4 million, reflecting an increase of 46.3% year over year. Revenue in the Industrial segment was $471.9 million, up 130.9% year over year.
Margins
Cost of sales, as a percentage of revenue soared to 62.3% versus 60.1% in the year-ago quarter. Higher commodity costs offset strong volume growth and led to a 2.2% year over year decline in gross margin to 37.7% in the second quarter of 2010.
Selling, general and administrative expenses registered an increase of 122.7% year over year, but as a percentage of revenue declined from 27.8% to 24.0%. Operating margin in the quarter was 13.7% versus 12.1% in the second quarter of 2009.
Balance Sheet
Exiting the second quarter, Stanley Black & Decker’s cash and cash equivalents increased 6.2% sequentially to approximately $1,598.4 million, compared with $1,505.4 million in the first quarter of 2010. Long-term debt, net of current portion was $2,318.7 million, down 15.5% from $2,743.4 million in the first quarter of 2010.
Cash Flow
Net cash flow from operating activities was approximately $248.2 million compared with $68.1 million in the second quarter of 2009. Capital expenditure increased to $35.1 million versus $25.1 million in the second quarter of 2009. Higher operating cash flow, slightly offset by higher capital expenditures led to free cash flow of $213.1 million in the quarter, versus $43.0 million in the comparable quarter a year-ago.
Outlook
Management believes that the merger will support the continued expansion of its global business platform. Thus, the company revised its 2010 outlook and expects EPS to fall within the range of $3.35-$3.55 versus its prior expectation of $3.10 - $3.30.
The revised guidance is based on net organic growth assumption of 4%-5% from 2009 and gross margin expectation of 37%-38% for the second half of 2010. Also, slower pace of customer restocking and higher commodity inflation will influence results in the second half of 2010.
Free cash in 2010 is expected to exceed $600 million, versus prior forecast of roughly $600 million.
From the recently acquired Black & Decker, the company anticipates annual cost synergies of $350.0 million over three years of acquisition, with roughly $90 million to be realized in 2010. Also, from the ADT France acquisition, synergistic benefits are anticipated in 2011.
Stanley Black & Decker manufactures tools and engineered security solutions across the globe. Prime competitors of the company are Danaher Corp. (DHR - Analyst Report), Makita Corp. (MKTAY) and Snap-on Inc. (SNA - Analyst Report). We currently maintain our Neutral recommendation on the stock, supported by Zacks #3 (Hold) Rank.
Read the full analyst report on SWK
Read the full analyst report on DHR
Read the full analyst report on MKTAY
Read the full analyst report on SNA
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