A month has gone by since the last earnings report for Stanley Black & Decker (SWK Quick QuoteSWK - Free Report) . Shares have lost about 0.6% 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 Q2 Earnings, Hikes '21 View

Stanley Black has delivered better-than-expected results for second-quarter 2021. Its earnings surpassed estimates by 6.6%, whereas sales exceeded the same by 2.3%.

Earnings, excluding acquisition-related charges and other one-time impacts, were $3.08 per share in the quarter, surpassing the Zacks Consensus Estimate of $2.89. Earnings increased 92.5% from the year-ago quarter’s $1.60 per share on the back of improved sales performance and margins.

Revenue Details

In the quarter under review, the company’s net sales were $4,300.9 million, reflecting a 36.6% increase from the year-ago quarter. The results benefitted 31% from volume increase and 2% from favorable pricing. Foreign-currency translation too had a positive impact of 5%. Divestitures had an adverse impact of 1%.

The company’s top line surpassed the Zacks Consensus Estimate of $4,203 million.

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

Tools & Storage’s revenues totaled $3,196.5 million, representing 74.3% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 45.5%, driven by a 38% gain from volume, 3% growth from favorable pricing and a 5% favorable impact from foreign currency translation.

The Industrial segment generated revenues of $602.2 million, accounting for 14% of the net revenues in the reported quarter. Revenues grew 16.4% year over year as volume contributed 13% to sales growth and foreign-currency movements had a positive impact of 3%. Favorable pricing had a positive impact of 1%, while divestitures of the oil & gas product line had an adverse impact of 1%.

The Security segment’s revenues, representing 11.7% of net revenues, increased 16.1% year over year to $502.2 million. Favorable impacts of 6% from foreign-currency movements, 1% from acquisitions, 13% from volume and 1% from price realization were partially offset by a 5% negative impact from divestitures.

Margin Profile

In the reported quarter, Stanley Black’s cost of sales (normalized) increased 31.7% year over year to $2,755.2 million. It represented 64.1% of the quarter’s net sales versus 66.5% in the year-ago quarter. Gross profit (normalized) increased 46.5% year over year to $1,545.7 million. Gross margin grew 240 basis points (bps) to 35.9%.

Selling, general and administrative expenses increased 34.5% year over year to $878 million. It represented 20.4% of net sales in the reported quarter versus 20.7% in the year-ago quarter. Operating profits (normalized) increased 65.9% year over year to $667.7 million, whereas margin increased 270 bps to 15.5%, driven by innovation, price, volume and margin resiliency.

Adjusted tax rate in the reported quarter was 14.8% compared with the year-ago quarter figure of 15%.

Balance Sheet & Cash Flow

Exiting the second quarter of 2021, Stanley Black had cash and cash equivalents of $440.4 million, decreasing 53.6% from $949.2 million recorded in the last reported quarter. Long-term debt (net of current portions) of $4,246.2 million was flat on a sequential basis.

In the quarter under review, the company generated net cash of $444.4 million from its operating activities against $328.2 million used in the year-ago quarter. Capital spending totaled $105.1 million versus $64.5 million in the second quarter of 2020. Free cash flow in the quarter was $339.3 million as compared with $263.7 million in the year-ago quarter.

In the reported quarter, Stanley Black paid out cash dividends of $111.6 million, up 5.5% from the previous year’s quarter. It invested $2.4 million for purchasing a common stock for treasury, representing an increase from $0.3 million in the year-ago quarter.

Outlook

In the quarters ahead, Stanley Black anticipates benefiting from improving market conditions, focus on innovation, margin resiliency program and capacity investment. Growing preferences for healthy and safety, electrification, and home and garden products are likely tailwinds. A surge in the business from the e-commerce platform is proving advantageous.

The company has hiked its financial projections for 2021. It now anticipates adjusted earnings per share of $11.35-$11.65, higher than $10.70-$11.00 per share. The improved projection suggests gains from organic growth (16-18% on a year-over-year basis) and incremental pricing, partially offset by commodity inflation and higher transit costs. Free cash flow is expected to be in line with the net income.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.24% due to these changes.

VGM Scores

At this time, Stanley Black & Decker has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly 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.