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Why Is Stanley Black & Decker (SWK) Down 2.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Stanley Black & Decker (SWK - Free Report) . Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stanley Black & Decker 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.

Stanley Black Beats on Q4 Earnings, Gives Solid View

Stanley Black & Decker has reported better-than-expected results for fourth-quarter 2020, with earnings surpassing estimates by 10.4%.

Earnings, excluding acquisition-related charges and other one-time impacts, were $3.29 per share in the quarter, surpassing the Zacks Consensus Estimate of $2.98.     Also, earnings increased 50.9% from the year-ago quarter’s $2.18 per share on the back of improved sales performance, improved margins and lower taxes.

For 2020, the company’s earnings, excluding acquisition-related charges and other one-time impacts, were $9.04 per share, increasing 7.6% from the previous year. Also, the bottom line surpassed the Zacks Consensus Estimate of $8.71 by 3.8%.

Revenue Details

In the quarter under review, the company’s net sales were $4,407.6 million, reflecting an 18.7% increase from the year-ago quarter. The results benefitted 15% from volume increase, gains from acquired assets added 2% and price contribution was 1%. Foreign currency translation too had a positive impact of 1%.

Also, the company’s top line surpassed the Zacks Consensus Estimate of $4,122 million.

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

Tools & Storage’s revenues totaled $3,257.6 million, representing 73.9% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 24.8%, driven by a 23% gain from volume and 2% growth from favorable pricing.

The Industrial segment generated revenues of $657.9 million, accounting for 14.9% of net revenues in the reported quarter. Revenues grew 10.2% year over year as the CAM buyout contributed 11% to sales growth and foreign currency movements had a positive impact of 2%. However, divestitures and lower volume had adverse impacts of 1% and 2%, respectively.

The Security segment’s revenues, representing 11.2% of net revenues, decreased 3% year over year to $492.1 million. Favorable impacts of 3% from foreign currency movements, 1% from acquisitions and 1% from price realization were more than offset by a 5% negative impact from a volume decline and 3% from divestitures.

For 2020, the company’s net sales totaled $14.5 billion, reflecting a 0.6% increase from the previous year. Also, the top line surpassed the Zacks Consensus Estimate of $14.2 billion.

Margin Profile

In the reported quarter, Stanley Black & Decker’s cost of sales (normalized) increased 11.9% year over year to $2,839.3 million. It represented 64.4% of the quarter’s net sales versus 68.3% in the year-ago quarter. Gross profit (normalized) increased 33.1% year over year to $1,568.3 million. Gross margin grew 390 basis points (bps) to 35.6%, driven by favorable impacts of productivity, cost-actions, price and volume. However, the pandemic-related costs were spoilsports.

Selling, general and administrative expenses increased 25% year over year to $839.1 million. It represented 19% of net sales in the reported quarter versus 18.1% in the year-ago quarter. Operating profits (normalized) increased 43.9% year over year to $729.2 million, while margin increased 290 bps to 16.5%.

Adjusted tax rate in the reported quarter was 13.6% compared with the year-ago quarter figure of 15.8%.

Balance Sheet & Cash Flow

Exiting the fourth quarter of 2020, Stanley Black & Decker had cash and cash equivalents of $1,381 million, increasing from $683 million recorded in the last reported quarter. Long-term debt (net of current portions) of $4,245.4 million decreased 8.9% sequentially.

During the fourth quarter of 2020, the company repaid $1,154.3 million of long-term debts, while proceeds from debt issuance (after the settlement of related fees) amounted to $739.9 million.

In 2020, it generated net cash of $2,022.1 million from operating activities, reflecting an increase of 34.3% from the previous year. Capital spending totaled $348.1 million versus $424.7 million in 2020. Free cash flow in the year was $1,674 million, increasing 54.9% from the previous year.

During the year, Stanley Black & Decker paid out cash dividends of $431.8 million, up 7.4% from the previous year. Also, it invested $26.2 million for purchasing common stock for treasury.

Outlook

In the quarters ahead, Stanley Black & Decker anticipates benefiting from improving market conditions, cost actions and margin resiliency program.

In 2021, the company anticipates adjusted earnings to be $9.70-$10.30 per share, up compared with $9.04 in 2020. Free cash is likely to match net income (GAAP).

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 44.35% due to these changes.

VGM Scores

At this time, Stanley Black & Decker has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Stanley Black & Decker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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