A month has gone by since the last earnings report for Stanley Black & Decker (SWK Quick QuoteSWK - Free Report) . Shares have lost about 5.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Stanley Black Q4 Earnings Beat, Dip Y/Y on Supply Woes

Stanley Black reported mixed fourth-quarter 2021 results. The company’s earnings surpassed the Zacks Consensus Estimate by 3.88%, whereas sales lagged the same by 8.7%.

In the reported quarter, the company’s adjusted earnings were $2.14 per share, surpassing the Zacks Consensus Estimate of $2.06. The bottom line decreased 29.1% from the year-ago quarter’s figure of $3.02. Lower volumes, forex woes, supply-chain restrictions and cost inflation played spoilsports in the quarter.

In 2021, the company’s adjusted earnings were $10.48 per share, increasing from the previous year’s figure of $8.04. However, the bottom line lagged the Zacks Consensus estimate of $10.86.

Revenue Details

In the quarter under review, the company’s net sales were $4,068.3 million, reflecting year-over-year growth of 1.6%. The results benefited 6% from acquired assets and 5% from favorable pricing. Foreign-currency translation had an adverse impact of 1%, and lower volume impacted sales by 8% due to logistics issues and supply-chain restrictions.

The company’s top line lagged the Zacks Consensus Estimate of $4,454 million.

It reports net sales under two segments, namely Tools & Storage and Industrial. The segmental information is briefly discussed below:

Revenues from the Tools & Storage segment totaled $3,372.1 million, rising 3.5% year over year. Acquisitions (Excel and MTD) contributed 7% and pricing added 5% to sales growth, while foreign-currency translations lowered sales by 1%. Lower volumes had an adverse impact of 8%.

Revenues from the Industrial segment grossed $609.7 million, decreasing 7.3% year over year. The segment suffered 9% from lower volumes and 1% from forex woes. Effective pricing had positive impact of 3%.

It is worth noting here that Corporate Overhead & Other revenues were $86.5 million, down 0.8% year over year.

In 2021, the company’s revenues totaled $15.6 billion, reflecting an increase of 19.6% from the previous year. However, the top line lagged the Zacks Consensus Estimate of $17.2 billion.

Margin Profile

In the reported quarter, Stanley Black’s cost of sales (normalized) increased 11.5% year over year to $2,887.6 million. It represented 71% of the quarter’s net sales versus 64.7% in the year-ago quarter. The gross profit (normalized) decreased 16.5% to $1,180.7 million. The gross margin decreased 630 basis points (bps) to 29%. Lower volumes, supply-chain issues and commodity inflation more than offset the positive impact of effective pricing.

Selling, general and administrative expenses increased 11.9% year over year to $814.6 million. It represented 20% of net sales in the reported quarter versus 18.2% in the year-ago quarter. Operating profits (normalized) decreased 46.6% to $366.1 million, whereas the margin declined 820 bps to 9% due to the adverse impacts of supply-chain woes and cost inflation.

The adjusted tax rate in the reported quarter was (31.7%) compared with the year-ago quarter figure of 13.9%.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Stanley Black had cash and cash equivalents of $142.3 million, down 51.4% from $292.7 million at the end of the last reported quarter. The long-term debt balance increased 2.5% sequentially to $4,353.6 million.

Stanley Black generated net cash of $663.1 million from operating activities in 2021, reflecting a year-over-year decrease of 67.2%. Capital and software expenditures totaled $519.1 million compared with $348.1million in the previous year. Free cash flow in the year was $144 million, down 91.4% from the previous year.

During the year, Stanley Black spent $2,043.8 million net of cash acquired on business buyouts. It paid out dividends worth $474.8 million to its shareholders in 2021, up 10% from the previous year. Purchases of common stock for treasury totaled $34.3 million, up from $26.2 million in 2020.

Outlook

For 2022, Stanley Black anticipates adjusted earnings per share of $12.00-$12.50, suggesting year-over-year growth of 15-19%. Organic sales are expected to be up 7-8% year over year. Also, the company intends on repurchasing shares worth $4 billion in the year (including $2-$2.5 billion for the first quarter). Free cash flow is expected to be $2 billion.

It also noted that effective pricing, with a positive impact of 6-7%, will negate the effects of carryover headwinds. This is expected to boost earnings by $1.20-$1.30 per share. The net impact of growth investments and cost inflation is expected to hurt earnings by 20 cents. Acquisitive benefits are expected to boost earnings by 60 cents.

Share buybacks, net of multiple adjustments including tax rate, are anticipated to boost earnings by 10 cents.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -27.7% due to these changes.

VGM Scores

Currently, Stanley Black & Decker has an average Growth Score of C, however its Momentum Score is doing a bit better 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 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Stanley Black & Decker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.