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Stanley Black (SWK) Q1 Earnings Surpass Estimates, Fall Y/Y

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Stanley Black & Decker Inc. (SWK - Free Report) has reported better-than-expected earnings results for the first quarter of 2020, with a beat of 6.2%. This marked the company’s fifth consecutive quarter of impressive results. However, the quarter’s sales lagged estimates by 4.6%.

Earnings, excluding acquisition-related charges and other one-time impacts, were $1.20 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.13. However, earnings decreased 15.5% from the year-ago quarter’s $1.42 per share due to a sales decline and weak margins.

Revenue Details

In the quarter under review, the company’s net sales were $3,129.4 million, reflecting a 6.1% year-over-year decline. The results suffered from an 8% decline in volume and 1% adverse impact of movements in foreign currencies, partially offset by 2% gain from acquisitions and 1% positive impact of pricing.

Also, the company’s top line lagged the Zacks Consensus Estimate of $3,280 million.

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

Tools & Storage’s revenues totaled $2,070.8 million, representing 66.1% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 9.7% due to a 9% decline in volumes and 2% impact of forex woes, partially offset by 1% gain from positive pricing.

The Industrial segment generated revenues of $590.7 million, accounting for 18.9% of net revenues in the reported quarter. Sales grew 6.4% year over year, primarily driven by 15% gain from acquired assets, partially offset by 8% negative impact of volume decline and a 1% decline from forex woes.

The Security segment’s revenues, representing 15% of net revenues, decreased 3.8% year over year to $467.9 million. Forex woes and divestitures had adverse impacts of 2% each.

Margin Profile

In the reported quarter, Stanley Black’s cost of sales (normalized) decreased 5.6% year over year to $2,097.2 million. It represented 67% of the quarter’s net sales versus 66.6% in the year-ago quarter. Gross profit (normalized) decreased 7.2% year over year to $1,032.2 million. Gross margin slipped 40 basis points (bps) to 33% due to the adverse impacts of forex and tariff woes, lower volumes, and the pandemic-related increase in manufacturing costs. However, cost control, positive price and margin resiliency partially offset the adverse impacts.

Selling, general and administrative expenses declined 4.9% year over year to $718.7 million. It represented 23% of net sales in the reported quarter versus 22.7% in the year-ago quarter. Operating profits (normalized) declined 12% year over year to $313.5 million, while margin fell 70 bps to 10%.

Adjusted tax rate in the reported quarter was 12.5% compared with the year-ago quarter figure of 15%.

Balance Sheet & Cash Flow

Exiting the first quarter of 2020, Stanley Black had cash and cash equivalents of $987.1 million, surging 231.6% from $297.7 million recorded in the last reported quarter. Long-term debt (net of current portions) was up 46.8% sequentially to $4,662.6 million.

In the first quarter, it used net cash of $405.2 million for operating activities, reflecting a decline of 6.1% from the year-ago quarter. Capital spending totaled $82.9 million versus $89.6 million in the year-ago quarter. Free cash flow in the quarter was $488.1 million, down 6.3% year over year.

During the quarter, Stanley Black paid out cash dividends of $105.6 million, up 8.2% from the year-ago quarter.

Important Events

On Apr 2, 2020, the company announced its cost-reduction program that is likely to yield annualized savings in costs of $1 billion. The program is also predicted to result in $160 million of pre-tax charges in the second quarter of 2020.

Also, the company noted that the safety of its supply-chain partners and workers along with the continuity of businesses remains the top priority. In the current demand environment, adjustments will be done for manufacturing labor, supply chain and non-essential staffing. Also, the company intends on working toward lowering indirect spending and gaining from lower raw material price environment.

Outlook

For 2020, the company has suspended its projections (on Apr 2) due to the adverse impact of the coronavirus outbreak. Share buyback activities and acquisition for now have been stopped, while actions are being considered to lower capital expenditure. Also, the review of Security has been postponed.

In addition, deleveraging remains a priority for the company. It noted that its solid liquidity position — $1 billion of cash on hand, impressive credit rating (investment grade), $1.7 billion outstanding commercial paper program, $3 billion of revolving credit facilities, and cash generation capability from convertible preferred stock — will help it tide over the difficult environment effectively.

It noted that revenues have declined so far in the second quarter of 2020.

Stanley Black & Decker, Inc. Price, Consensus and EPS Surprise

 

Stanley Black & Decker, Inc. Price, Consensus and EPS Surprise

Stanley Black & Decker, Inc. price-consensus-eps-surprise-chart | Stanley Black & Decker, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $18.2 billion, Stanley Black currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Industrial Products sector are Silgan Holdings Inc. (SLGN - Free Report) , Superior Uniform Group, Inc. (SGC - Free Report) and CECO Environmental Corp. (CECE - Free Report) . While Silgan currently sports a Zacks Rank #1 (Strong Buy), both Superior Uniform and CECO Environmental carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, earnings estimates for Silgan improved for the current year, while have been unchanged for Superior Uniform and CECO Environmental. Further, earnings surprise for the last reported quarter was 16.33% for Silgan Holdings, 33.33% for Superior Uniform and 92.86% for CECO Environmental.

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