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Stanley Black (SWK) Beats Q2 Earnings and Sales Estimates

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Stanley Black & Decker Inc. (SWK - Free Report) has reported impressive results for second-quarter 2020, with earnings surpassing estimates by 26%. This marked the company’s sixth consecutive quarter of impressive results. Also, sales in the quarter exceeded estimates by 3.8%.

Earnings, excluding acquisition-related charges and other one-time impacts, were $1.60 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.27. However, earnings decreased 39.8% from the year-ago quarter’s $2.66 per share due to a sales decline and weak margins.

Revenue Details

In the quarter under review, the company’s net sales were $3,147.4 million, reflecting a 16.3% year-over-year decline. The pandemic-related adversities led to disruptions in the end markets served by the company.

The results suffered from a 17% decline in volume and a 2% adverse impact of movements in foreign currencies, partially offset by 2% gain from acquisitions and a 1% positive impact of pricing.

However, the company’s top line surpassed the Zacks Consensus Estimate of $3,033 million.

Stanley Black reports revenues under three segments. A brief discussion on the quarterly results is provided below:

Tools & Storage’s revenues totaled $2,197.2 million, representing 69.8% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 16.3% due to a 16% decline in volumes and 1% impact of forex woes, partially offset by 1% gain from positive pricing.

The Industrial segment generated revenues of $517.5 million, accounting for 16.4% of net revenues in the reported quarter. Revenues decreased 20.4% year over year, primarily driven by 10% gain from the CAM buyout, partially offset by a 29% negative impact of volume decline and a 1% decline from forex woes.

The Security segment’s revenues, representing 13.8% of net revenues, decreased 10.9% year over year to $432.7 million. Forex woes and divestitures had adverse impacts of 2% and 1%, respectively. Volume decreased 9%.

Margin Profile

In the reported quarter, Stanley Black’s cost of sales (normalized) decreased 14.6% year over year to $2,092.1 million. It represented 66.5% of the quarter’s net sales versus 65.2% in the year-ago quarter. Gross profit (normalized) decreased 19.5% year over year to $1,055.3 million. Gross margin slipped 130 basis points (bps) to 33.5% due to the adverse impacts of tariff and forex woes as well as lower volumes. However, cost control, positive price and productivity partially offset the adverse impacts.

Selling, general and administrative expenses declined 13.6% year over year to $652.8 million. It represented 20.7% of net sales in the reported quarter versus 20.1% in the year-ago quarter. Operating profits (normalized) declined 27.5% year over year to $402.5 million, while margin fell 200 bps to 12.8%.

The company noted that operating margin in the quarter gained from price realized and cost-control measures.

Adjusted tax rate in the reported quarter was 15% compared with the year-ago quarter figure of 11.6%.

Balance Sheet & Cash Flow

Exiting the second quarter of 2020, Stanley Black had cash and cash equivalents of $859.8 million, declining 12.9% from $987.1 million recorded in the last reported quarter. Long-term debt (net of current portions) was down 0.1% sequentially to $4,658.7 million.

In the second quarter, it generated net cash of $328.2 million from operating activities, reflecting a decline of 34.5% from the year-ago quarter. Capital spending totaled $64.5 million versus $97.2 million in the year-ago quarter. Free cash flow in the quarter was $263.7 million, down 34.7% year over year.

During the quarter, Stanley Black paid out cash dividends of $105.8 million, up 8.3% from the year-ago quarter.

Outlook

For 2020, the company kept its projections suspended due to the uncertainties related to the coronavirus outbreak.

Also, it noted that the safety of its supply-chain partners and workers along with the continuity of businesses remains the top priority. Also, it is progressing well on its cost-reduction program of $1 billion (announced in April 2020). Savings of $500 million — including $175 million already achieved in the second quarter — is expected to be realized from this program in 2020.

In the second half of 2020, the company anticipates making investments to leverage gain from growth opportunities in the Security, and Tools & Storage segments.

Stanley Black Decker, Inc. Price, Consensus and EPS Surprise

 

Stanley Black  Decker, Inc. Price, Consensus and EPS Surprise

Stanley Black Decker, Inc. price-consensus-eps-surprise-chart | Stanley Black Decker, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $23.5 billion, Stanley Black currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Lincoln Electric Holdings, Inc. (LECO - Free Report) . While both Altra Industrial Motion and Chart Industries sport a Zacks Rank #1 (Strong Buy), Lincoln Electric carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies improved for the current year. Further, earnings surprise for the last reported quarter was 76.47% for Altra Industrial, 46.51% for Chart Industries and 135.29% for Lincoln Electric.

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