Stanley Black & Decker (SWK) Q2 Earnings: What's in Store?

Stanley Black & Decker, Inc.SWK is scheduled to report second-quarter 2018 results on Jul 20, before the market opens.

The company pulled off an average positive earnings surprise of 2.92% in the trailing four quarters, beating estimates in each. Notably, in the last reported quarter, Stanley Black & Decker's adjusted earnings of $1.39 per share surpassed the Zacks Consensus Estimate of $1.35 by 2.96%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Stanley Black & Decker is likely to benefit from its strategy of shifting the business portfolio toward favored growth markets through organic and inorganic means. For Tools & Storage segment, the company anticipates organic revenues to increase in the mid-single digit range in 2018. Also, for the Security segment, organic revenues are projected to increase in the low-single digits in the same time frame. Moreover, apart from a favorable operating environment, we believe that Stanley Black & Decker is poised to benefit from its strengthening end markets and growing brand recognition.

Moreover,the Zacks Consensus Estimate for net revenues from the Tools & Storage segment for the to-be-reported quarter is currently pegged at $2,480 million, reflecting growth of 9.7% year over year. Net revenues from Industrial segment are also anticipated to be strong, with the consensus estimate standing at $513 million compared with reported revenues of $496 million a year ago. Further, revenues from the Security segment are anticipated to rise 3.2% year over year to $489 million.

Further, the company's major investments including the Newell Tools buyout has strengthened its tools business through deeper penetration into markets worldwide and addition of prime tool brands. Further, other acquisitions including Craftsman and industrial business of Nelson Fastener Systems are anticipated to prove conductive to its top-line growth in the upcoming quarters.

However, rising cost of sales and operating expenses have been a major concern for the company over the past several years. For instance, in the first quarter of 2018, its cost of sales increased 14.5% year over year while selling, general and administrative expenses jumped 13.2%. We believe, if unchecked, rising costs and expenses can hurt the company's margins in the quarters ahead.

This apart, for 2018, the company anticipates commodity inflation to be approximately $180 million, higher than $150 million predicted earlier. Also, tariff imposition on imports of steel and aluminum is predicted to have adverse impact of less than $3 million annually. These two aspects are predicted to affect its earnings in the upcoming quarters.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Stanley Black & Decker in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Stanley Black & Decker has an Earnings ESP of -0.74% as the Most Accurate estimate is pegged at $2.02, lower than the Zacks Consensus Estimate of $2.04. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stanley Black & Decker, Inc. Price and EPS Surprise

Stanley Black & Decker, Inc. Price and EPS Surprise | Stanley Black & Decker, Inc. Quote

Zacks Rank: Stanley Black & Decker carries a Zacks Rank #3, which increases the predictive power of the ESP. However, the company's negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Manitowoc Company, Inc. MTW has an Earnings ESP of +14.36% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Eaton Corporation, PLC ETN has an Earnings ESP of +2.44% and a Zacks Rank of 2.

Emerson Electric Co. EMR has an Earnings ESP of +0.73% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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