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Stanley Black (SWK) Exhibits Strong Prospects Despite Headwinds

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Stanley Black & Decker, Inc. (SWK - Free Report) is expected to benefit from its global cost-reduction program. The program comprises a series of initiatives designed to generate cost savings by resizing the organization and reducing inventory to drive long-term growth. In the first three months of 2024, Stanley Black generated pre-tax run rate savings of $145 million from the global cost-reduction program. The company expects to generate run rate savings of $1.5 billion by the end of 2024. By 2025, it envisions run rate savings of $2 billion.

Stanley Black has been divesting non-core operations to drive growth. In April 2024, it divested its STANLEY Infrastructure (Infrastructure) business to Epiroc AB for a cash amount of $760 million. The divestment will help focus on its core businesses while supporting its capital-allocation priorities. The company expects to use the cash proceeds of the transaction, net of modest taxes, to reduce debt.

In July 2022, Stanley Black sold its Security Business to Securitas AB for $3.2 billion cash. The company funded its debt reduction from the net proceeds of this sale. In the same month, it divested its Automatic Doors business to Allegion for $900 million in cash. The divestitures reinforce the company’s strategic focus on its core businesses.

SWK remains committed to rewarding its shareholders through dividend payments and share buybacks. In the first three months of 2024, the company paid dividends of $121.8, up 1.7% year over year. It also bought back shares worth $6.3 million in the same period. In July 2023, the company hiked its dividend by a penny to 81 cents per share (annually: $3.24 per share).

However, softness in the Tools & Outdoor and Industrial segments is concerning for Stanley Black. The Tools & Outdoor segment has been witnessing weakness owing to the slowdown in the industrial sector. In April 2024, the Institute for Supply Management’s manufacturing index registered 49.2%, indicating a contraction in U.S. manufacturing activity. The impact of this slowdown is reflected in softness in the DIY market, owing to lower demand for hand tools.

The Industrial segment has been experiencing weakness due to lower volumes in the infrastructure business. Also, softness in general industrial fastener markets, owing to rising metal prices and increasing use of plastic fasteners, automotive tapes and adhesives, is another setback for the segment.

Stanley Black is dealing with escalating expenses. During the first quarter, the company witnessed a 3.2% year-over-year increase in selling, general and administrative expenses to $852 million. This can be attributed to higher investments in innovation and growth initiatives. The impact of these expenditures is evident in the rise of selling, general and administrative expenses as a percentage of total revenues, which climbed 110 basis points to reach 22%. High costs pose a threat to the bottom line. We expect selling, general and administrative expenses to increase 6.1% year over year in 2024.

In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 9.7% compared with the industry’s 9.4% growth.

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Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below:

Applied Industrial Technologies, Inc. (AIT - Free Report) presently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter average earnings surprise of 8.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has improved 2.1% in the past 60 days. The stock has risen 45.5% in the past year.

Belden Inc. (BDC - Free Report) presently carries a Zacks Rank of 2 and has a trailing four-quarter earnings surprise of 14.7%, on average.

The consensus estimate for BDC’s 2024 earnings has increased 8.3% in the past 60 days. Shares of Belden have gained 8% in the past year.

Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.

The Zacks Consensus Estimate for CR’s 2024 earnings has increased 4% in the past 60 days. Its shares have gained 94.3% in the past year.

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