Industrial tool maker Stanley Black & DeckerSWK reported an impressive first-quarter 2016 results with both the top and bottom-line surpassing their respective Zacks Consensus Estimates.
Earnings from continuing operations were $1.28 per share or $1.32 per share excluding restructuring charges. The results came in above the Zacks Consensus Estimate of $1.19 per share and the year-ago tally of $1.07. The year-over-year increase was driven by operational efficiency, lower share count and lower restructuring expenses, more than offsetting the adverse impact of currency headwinds.
Talking of the top-line, Stanley Black & Decker's net sales increased 1.6% year over year to $2,672.1 million. Also, the result surpassed the Zacks Consensus Estimate of $2,551 million. As revealed, organic revenues grew 5% as a result of favorable pricing and volume gains, offset by unfavorable currency translation impact of 3%.
Stanley Black & Decker reports revenue under three market segments. A brief discussion on the segment's quarterly results is provided below:
The Tools & Storage segment generated revenues of $1,707 million, up 4% year over year and represented 64% of net revenue in the quarter. Organic revenue grew 8%, while forex losses had a 4% negative impact.
Industrial segment's revenues, accounting for roughly 17% of net revenue, came in at $461 million, down 5% year over year. The fall was triggered by volume decline of 3% and currency impact of 2%.
Revenues from the Security segment, roughly 19% of net revenue, decreased 1% year over year to $504 million. Favorable price impact of 1% was more than offset by 2% negative impact of forex losses.
In the quarter, Stanley Black & Decker's cost of sales increased 2.3% year over year, representing 63.4% of net sales versus 63% in the year-ago quarter. Gross margin fell 40 basis points (bps) to 36.6%. Selling, general and administrative expenses inched up 0.8% year over year; while, as a percentage of revenues, it decreased 20 bps to 23.5%. Operating margin was down 20 bps to 13.1%.
Balance Sheet & Cash Flow
Exiting first-quarter 2016, Stanley Black & Decker's cash and cash equivalents were $352.2 million versus $465.4 million in the preceding quarter. Long-term debt (net of current portions) decreased 0.5% sequentially to $3,817.2 million.
In the quarter, Stanley Black & Decker used $93.1 million cash for its operating activities, compared with $197.5 million used in the year-ago quarter. Capital spending grew 41% year over year to $64.9 million. Normalized free cash flow was $158 million compared with $243.4 million recorded in the year-ago quarter.
During the quarter, Stanley Black & Decker paid cash dividends of approximately $79.6 million, and repurchased shares worth $361.4 million.
For 2016, Stanley Black & Decker increased its earnings per share guidance to $6.20−$6.40 per share from $6.00−$6.20 projected earlier.
Organic revenue growth is expected to be within 3−4% range as compared with 3% anticipated earlier. The revised forecast is driven by improved Tools & Storage business as well as approximately $40 million lower currency headwinds.
Free cash flow conversion is predicted to be 100%.
With a market capitalization of $16.2 billion, Stanley Black & Decker currently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include Pioneer Power Solutions, Inc. PPSI , Kennametal Inc. KMT and Sandvik AB SDVKY . While Pioneer Power Solutions sports a Zacks Rank #1 (Strong Buy), both Kennametal and Sandvik AB carries a Zacks Rank #2 (Buy).