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SWK Beats 4Q Est by a Cent

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Industrial tool maker Stanley Black & Decker (SWK - Free Report) reported earnings per share from continuing operations of $1.37 in the fourth quarter of 2012, up from $1.22 reported in the year-ago quarter and a cent above the Zacks Consensus Estimate of $1.36.
Earnings per share for 2012 increased 1.3% to $4.67 but fell behind the Zacks Consensus Estimate of $4.92 per share.

GAAP EPS, including 58 cents and $1.97 of one-time charges, was 79 cents for the fourth quarter and $2.70 for 2012.

Stanley Black & Decker, in Dec 2012, divested its Hardware & Home Improvement business (HHI), which majorly belonged to the company’s Security segment; only a part of it was included in the CDIY segment. Since divested, the results from this business have been recorded as discontinued operations.


Net revenue in the fourth quarter increased 4.0% year over year to $2,668.5 million. The increase can be attributed to a 3% contribution from acquisitions and 4% from volume growth. The impact was partially offset by a 1% negative impact from foreign currency translation.

Revenue in the CDIY segment (51.4% of fourth quarter 2012 revenue) increased 8.3% year over year to $1,371.7 million, while the Security segment (24.2%) reported revenues of $646.5 million, reflecting a year over year decline of 1.7%. Industrial segment (24.4%) sales increased 1.5% to $650.3 million.

For 2012, net revenues came in at $10,190.5 million, up 8.0% year over year.


In the fourth quarter 2012, normalized cost of sales, as a percentage of revenue was 64.0% versus 64.3% reported in the year-ago quarter. Gross margin improved 30 basis points to 36.0% being benefited from cost synergies and margin improvement initiatives of the company.

Selling, general and administrative expenses registered a year-over-year increase of 1.2% and as a percentage of revenue declined 60 basis points to 22.6%. Operating margin in the quarter was 13.3% versus 12.5% in the year-ago comparable quarter.

Balance Sheet

Exiting the fourth quarter, Stanley Black & Decker’s cash and cash equivalents stood at $716.0 million, down roughly 7.0% from $769.5 million in the previous quarter. Long-term debt (net of current portions) rose 29.2% sequentially to $3,526.5 million.
Cash Flow

Normalized net cash flow from operating activities was $692.4 million in the fourth quarter, up 14% year over year. Capital spending increased a whopping 78.6% to $96.1 million. Higher cash flow and increased capital spending resulted in a 7.7% increase in free cash flow that settled at $596.3 million.

The company expended approximately $82.7 million in paying dividends to shareholders in the fourth quarter.

For 2012, cash flow from operating activities settled at $1,322.7 million while capital spending approximated $263.6 million, resulting in free cash flow of $1,059.1 million.


For 2013, management anticipates earnings per share, excluding one-time charges, to be within the $5.40-$5.65 range. Organic net sales are expected to grow 2%-3% from the 2012 level.

Cost synergies of approximately $85 million, including the final amount of $50 million from the Black & Decker and $35 million from the Niscayah acquisitions are expected to be realized in 2013.

GAAP EPS for the year is expected to be in the range of $4.62-$4.87 for 2013. Free cash flow is projected to be roughly $1.0 billion.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The stock currently carries a Zacks Rank #4 (Sell). Other companies to watch out for earnings are Lincoln Electric Holdings Inc. (LECO - Free Report) —expected to report on Feb 11, 2013; Danaher Corp. (DHR - Free Report) —expected to report on Jan 29, 2013; and Hardinge Inc. —expected to release on Feb 11, 2013.

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