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Stanley Black & Decker (SWK) Q2 Earnings: What's in Store?

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Industrial tool maker Stanley Black & Decker, Inc. (SWK - Free Report) is slated to report second-quarter 2017 results on Jul 24, before the market opens.

Over the last four quarters, the company reported better-than-expected results on all occasions, pulling off an average positive earnings surprise of 5.38%. Notably, in the last quarter, the company’s earnings of $1.29 per share surpassed the Zacks Consensus Estimate by 8.40%. We believe that sound financial performance and growth prospects have lifted investor sentiments for the company. In the last three months, the company’s shares have yielded 7.44% return, outperforming the gain of 5.36% recorded by the Zacks categorized Machine Tools & Related Products industry.

Let us see whether Stanley Black & Decker will be able to maintain its earnings streak this quarter.

Why a Likely Positive Surprise?

Our proven model shows that Stanley Black & Decker is likely to pull off a surprise this quarter. That is because the stock has the combination of two key ingredients for a possible earnings beat – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Stanley Black & Decker has an ESP of +1.53%, with the Most Accurate estimate of $1.99 exceeding the Zacks Consensus Estimate of $1.96.

Zacks Rank: Stanley Black & Decker’s Zacks Rank #3 increases the predictive power of ESP. Moreover, its positive ESP makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

What is Driving the Better-than-Expected Earnings?

We believe that Stanley Black & Decker is poised to benefit from constant innovation of new products and development of existing ones within the Industrial, Security and Tools & Storage segments in the quarter. Improved demand for products like FLEXVOLT might be advantageous for the Tools & Storage segment. Also, the company’s restructuring activities in the past few months, including acquisitions of Newell Brands and Craftsman tool brand, and disposal of a majority portion of its Mechanical Security businesses, might positively influence the quarter’s results.

In addition, we believe that operating conditions in the industry have been favorable for toll makers like Stanley Black & Decker in the quarter. Industrial production – a measure of the level of output of manufacturing, mining and utilities sectors in a country – grew at an annual rate of 4.7% in the second quarter, driven by impressive growth in mining and utilities. New orders for U.S.-manufactured machinery increased 4.6% in the first five months of 2017. Also, the government’s policies encouraging better trade relations, increase in infrastructural investments, job creation and high consumer-end demand will support growth of machinery companies.

On a separate note, we believe that the company’s shareholder-friendly policies will work in its favor in the quarters ahead. Recently, it declared a 5 cents increase in its quarterly dividend rate, which now stands at 63 cents per share.     

However, Stanley Black & Decker’s exposure to headwinds including uncertain global economic conditions, unfavorable foreign currency movements, commodity inflation, industry rivalry and high debt levels remain major causes of concern.

Other Stocks to Consider

Here are some other companies in the machinery industry you may want to consider, as they have the right combination of elements to post an earnings beat this quarter, according to our model.

Dover Corporation (DOV - Free Report) , with an Earnings ESP of +4.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. (CAT - Free Report) , with an Earnings ESP of +4.92% and a Zacks Rank #2.

Terex Corporation (TEX - Free Report) , with an Earnings ESP of +2.38% and a Zacks Rank #2.  

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