A month has gone by since the last earnings report for Stanley Black & Decker (SWK). Shares have added about 7.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Stanley Black & Decker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Stanley Black Beats Q2 Earnings and Sales Estimates
Stanley Black & Decker has reported impressive results for second-quarter 2020, with earnings surpassing estimates by 26%. This marked the company’s sixth consecutive quarter of impressive results. Also, sales in the quarter exceeded estimates by 3.8%.
Earnings, excluding acquisition-related charges and other one-time impacts, were $1.60 per share in the quarter, surpassing the Zacks Consensus Estimate of $1.27. However, earnings decreased 39.8% from the year-ago quarter’s $2.66 per share due to a sales decline and weak margins.
In the quarter under review, the company’s net sales were $3,147.4 million, reflecting a 16.3% year-over-year decline. The pandemic-related adversities led to disruptions in the end markets served by the company.
The results suffered from a 17% decline in volume and a 2% adverse impact of movements in foreign currencies, partially offset by 2% gain from acquisitions and a 1% positive impact of pricing.
However, the company’s top line surpassed the Zacks Consensus Estimate of $3,033 million.
Stanley Black reports revenues under three segments. A brief discussion on the quarterly results is provided below:
Tools & Storage’s revenues totaled $2,197.2 million, representing 69.8% of net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues decreased 16.3% due to a 16% decline in volumes and 1% impact of forex woes, partially offset by 1% gain from positive pricing.
The Industrial segment generated revenues of $517.5 million, accounting for 16.4% of net revenues in the reported quarter. Revenues decreased 20.4% year over year, primarily driven by 10% gain from the CAM buyout, partially offset by a 29% negative impact of volume decline and a 1% decline from forex woes.
The Security segment’s revenues, representing 13.8% of net revenues, decreased 10.9% year over year to $432.7 million. Forex woes and divestitures had adverse impacts of 2% and 1%, respectively. Volume decreased 9%.
In the reported quarter, Stanley Black’s cost of sales (normalized) decreased 14.6% year over year to $2,092.1 million. It represented 66.5% of the quarter’s net sales versus 65.2% in the year-ago quarter. Gross profit (normalized) decreased 19.5% year over year to $1,055.3 million. Gross margin slipped 130 basis points (bps) to 33.5% due to the adverse impacts of tariff and forex woes as well as lower volumes. However, cost control, positive price and productivity partially offset the adverse impacts.
Selling, general and administrative expenses declined 13.6% year over year to $652.8 million. It represented 20.7% of net sales in the reported quarter versus 20.1% in the year-ago quarter. Operating profits (normalized) declined 27.5% year over year to $402.5 million, while margin fell 200 bps to 12.8%.
The company noted that operating margin in the quarter gained from price realized and cost-control measures.
Adjusted tax rate in the reported quarter was 15% compared with the year-ago quarter figure of 11.6%.
Balance Sheet & Cash Flow
Exiting the second quarter of 2020, Stanley Black had cash and cash equivalents of $859.8 million, declining 12.9% from $987.1 million recorded in the last reported quarter. Long-term debt (net of current portions) was down 0.1% sequentially to $4,658.7 million.
In the second quarter, it generated net cash of $328.2 million from operating activities, reflecting a decline of 34.5% from the year-ago quarter. Capital spending totaled $64.5 million versus $97.2 million in the year-ago quarter. Free cash flow in the quarter was $263.7 million, down 34.7% year over year.
During the quarter, Stanley Black paid out cash dividends of $105.8 million, up 8.3% from the year-ago quarter.
For 2020, the company kept its projections suspended due to the uncertainties related to the coronavirus outbreak.
Also, it noted that the safety of its supply-chain partners and workers along with the continuity of businesses remains the top priority. Also, it is progressing well on its cost-reduction program of $1 billion (announced in April 2020). Savings of $500 million — including $175 million already achieved in the second quarter — is expected to be realized from this program in 2020.
In the second half of 2020, the company anticipates making investments to leverage gain from growth opportunities in the Security, and Tools & Storage segments.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 16.16% due to these changes.
Currently, Stanley Black & Decker has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Stanley Black & Decker has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.