Earnings Beat at Stanley Black & Decker - Analyst Blog

Industrial tool maker Stanley Black & Decker (SWK) reported earnings per share from continuing operations of $1.32 in the fourth quarter of 2013, down 6.4% from $1.41 reported in the year-ago quarter but a couple of cents above the Zacks Consensus Estimate.
 
GAAP earnings per share in the quarter were 41 cents that included roughly 91 cents of merger and acquisitions-related charges.

In 2013, earnings per share from continuing operations were $4.98, up from $4.76 earned in 2012 and 3 cents above the Zacks Consensus Estimate.  

Revenue

Stanley Black & Decker reported revenue of $2,906.0 million in the fourth quarter 2013, up 9.3% year over year and above the Zacks Consensus Estimate of $2,860 million. The increase can be attributed to roughly 4% of volume gains and a 6% contribution from acquisitions, offset partially by a 1% negative currency translation impact. Price was flat in the quarter.

Revenues in the Construction & Do-It-Yourself segment (50.1% of fourth quarter 2013 revenue) were $1,455.4 million, up 6.2% year over year. The Security segment (21.5%) reported revenues of $626.2 million, reflecting a year-over-year decrease of 2.2%. Industrial segment (28.4%) sales soared 27.1% to $824.4 million.

In 2013, Stanley Black & Decker generated roughly $11.0 billion of revenues, up 8.4% year over year and slightly above the Zacks Consensus Estimate of $10,978 million.

Margins

In the fourth quarter 2013, Stanley Black & Decker's normalized cost of sales, as a percentage of revenue, came in at 64.4% versus 64.0% reported in the year-ago quarter. Gross margin was down 40 basis points to 35.6% due primarily to higher cost of sales incurred in the quarter.

Selling, general and administrative expenses increased 9.9% year over year and, as a percentage of revenue, increased 10 basis points to 22.6%. Operating margin was down 50 basis points to 13.0%.

Balance Sheet

Exiting the fourth quarter of 2013, Stanley Black & Decker's cash and cash equivalents increased slightly from $469.1 million in the previous quarter to $496.2 million. Long-term debt (net of current portions) decreased 11.8% sequentially to $3,799.4 million due to the repayment of roughly $300 million in the quarter.

Cash Flow

In the fourth quarter 2013, Stanley Black & Decker generated $788.0 million in normalized net cash flow from operating activities, up from $692.4 million in the year-ago quarter. Capital spending went down 5.9% year over year to $90.4 million. Free cash flow in the quarter was $697.6 million versus $596.3 million in the year-ago quarter.

Stanley Black & Decker paid approximately $77.7 million in dividends in the fourth quarter of 2013 while roughly $312.7 million was paid in 2013.

Outlook

Stanley Black & Decker reiterated its 2014 guidance provided in Dec 2013. Earnings per share, excluding one-time charges, are forecast in the $5.30–$5.50 range. Organic revenue growth is expected to be roughly 4% (contributing roughly 50–60 cents to earnings per share). Security margin is expected to improve 150 basis points (adding 15 cents to earnings per share).

GAAP earnings for 2014 are expected in the range of $5.18–$5.38. Free cash flow is projected to be roughly $675 million.

For the Construction & Do-It-Yourself segment, management anticipates a mid single-digit organic revenue growth in 2014. Stanley Black & Decker expects the Security segment to generate roughly $2.5 billion in revenues, roughly 60% from North America and emerging markets and 60% from Europe, and 13.0% operating margin in 2014. Organic revenue growth is expected to remain flat. For the Industrial segment, organic revenue growth is likely to be in the mid single-digit range.

Stanley Black & Decker also intends to reward shareholders through dividend payments, $1.5–$2.0 billion of debt reduction and $1 billion of share buybacks in the next two years.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The company currently has a market capitalization of $12.5 billion and carries a Zacks Rank #3 (Hold).

Companies to watch out for in the machinery tools and related products industry are Flow International Corp. (FLOW), Kennametal Inc. (KMT) and MRC Global Inc. (MRC). All these companies hold a Zacks Rank #2 (Buy).