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SWK Q3 Beat Ests, Guidance Lowered

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Industrial tool maker Stanley Black & Decker (SWK - Free Report) reported earnings per share from continuing operations of $1.39 in the third quarter of 2013, up from $1.22 reported in the year-ago quarter and a cent above the Zacks Consensus Estimate of $1.38.
GAAP earnings per share in the quarter were $1.07. The earnings result outperformance can be attributed to healthy performance at Stanley Black & Decker’s three segments.


Stanley Black & Decker in the third quarter 2013 generated net revenues of $2,759.3 million, up 9.6% year over year. The increase can be attributed to roughly 5% volume gains and a 7% contribution from acquisitions, offset partially by 1% impact from unfavorable pricing and 1% negative currency translation impact.

Revenue in the CDIY segment (50.3% of third quarter 2013 revenue) rose 5.5% year over year to $1,387.5 million, while the Security segment (21.8%) reported revenues of $600.4 million, reflecting a year over year increase of 2.9%. Industrial segment (27.9%) sales soared 24.8% to $771.4 million.


In the third quarter 2013, Stanley Black & Decker’s normalized cost of sales, as a percentage of revenue came in at 64.0% versus 63.3% reported in the year-ago quarter. Gross margin was down 70 basis points to 36.0%, due primarily to higher cost of sales incurred in the quarter.

Selling, general and administrative expenses increased 11.8% year over year and as a percentage of revenue increased 40 basis points to 23.1%. Operating margin in the quarter was 12.9% versus 14.0% in the year-ago comparable quarter.

Balance Sheet

Cash and cash equivalents of Stanley Black & Decker exiting the third quarter 2013 were $469.1 million versus $561.74 million in the previous quarter. Long-term debt (net of current portions) was at $3,396.9 million, down compared with $3,428.9 million in the previous quarter.
Cash Flow

In the third quarter 2013, Stanley Black & Decker generated $152.3 million in normalized net cash flow from operating activities, down compared with $234.7 million generated in the year-ago quarter. Capital spending increased 23.6% year over year to $81.3 million. Free cash flow in the quarter was $71.0 million versus $168.9 million in the year-ago quarter.

The company expended approximately $77.5 million in paying dividends to shareholders in the third quarter 2013.


For 2013, management of Stanley Black & Decker revised down its earnings per share guidance to a range of $4.90-$5.00 from previous expected range of $5.40-$5.65. The revision was due primarily to lower margin rate recovery in Security segment and lower organic growth expectations from the CDIY and Industrial segments.    

Organic revenue growth is now expected to be roughly 3% compared with a range of 4%-5% expected earlier. Tax rate has also been revised down to 20% from 23% expected earlier.

GAAP EPS for 2013 is expected to be in the range of $3.75-$3.95 versus $4.46-$4.71 expected earlier. Free cash flow is now projected to be roughly $800 million versus $1.0 billion projected earlier.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The stock currently carries a Zacks Rank #2 (Buy).

Other companies to watch out for in the industry are Sandvik AB (SDVKY - Free Report) , Timken Co. (TKR - Free Report) and Toro Co. (TTC - Free Report) , each with a Zacks Rank #2 (Buy).

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