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Stanley Black (SWK) Beats Q4 Earnings, '17 View Impressive

Industrial tool maker Stanley Black & Decker, Inc.SWK reported better-than-expected results for fourth-quarter 2016. The company's earnings from continuing operations came in at $1.71 per share. The results were above the Zacks Consensus Estimate of $1.68. However, the bottom line came in below the year-ago tally of $1.78.

The year-over-year decline was due to higher restructuring expenses, forex woes and financial burden as growth investments more than offset positives from operational efficiency and lower tax rate.

For 2016, the company's earnings from continuing operations were $6.51 per share, above $5.92 generated in the previous year. The figure also surpassed the Zacks Consensus Estimate of $6.49.

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Revenues

In the quarter, Stanley Black & Decker generated revenues of $2.920.4 billion, below the Zacks Consensus Estimate of $2.94 billion. However, the top line grew 3% year over year on the back of 3% and 1% positive impacts of volume and pricing, respectively, partially offset by 1% adverse impact of unfavorable currency movements.

Stanley Black & Decker reports revenues under three market segments. A brief discussion on the segments' quarterly results is provided below:

Tools & Storage generated revenues of $1,933.8 million, up 5.6% year over year and represented 66.2% of net revenues in the quarter. Organic revenue grew 7%, while forex losses had a 1% negative impact.

Industrial segment's revenues, accounting for roughly 15.5% of net revenue, came in at $453.8 million, down 4.8% year over year. The fall was triggered by volume decline of 3%, 1% negative price impact and adverse currency impact of 1%.

Revenues from Security, roughly 18.2% of net revenue, decreased 1% year over year to $532.8 million. Favorable price impact of 1% and acquisition gain of 1% were more than offset by 2% negative impact of forex losses and 1% negative impact of lower volumes.

For 2016, the company's revenues totaled $11.406 billion, lower than the Zacks Consensus Estimate of $11.42 billion, but up 2.1% year over year.

Margins

In the quarter, Stanley Black & Decker's margin profile improved on the back of 2.6% growth in revenues, partially offset by 0.7% increase in cost of sales. Gross margin increased 130 basis points (bps) to 36.9%. Selling, general and administrative expenses grew 12% year over year while, as a percentage of revenues, it inched up 190 bps to 23.4%.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Stanley Black & Decker had cash and cash equivalents of $1,131.8 million, up from $420.8 million in the previous quarter. Long-term debt (net of current portions) was roughly flat at $3,815.3 million.

In the quarter, Stanley Black & Decker generated net cash of $835.2 million from its operating activities, compared with $828.2 million generated in the year-ago quarter. Capital spending declined 4.6% year over year to $125.3 million. Free cash flow was $709.9 million compared with $696.9 million recorded in the year-ago quarter.

During the quarter, the company paid cash dividends of approximately $87 million, and repurchased shares worth $11.4 million.

Outlook: For 2017, Stanley Black & Decker anticipates generating earnings of $6.85−$7.05 per share, up roughly 7% year over year at mid-point. Organic revenue growth is predicted to be above-market at approximately 4% (to likely add 45−55 cents per share to earnings).

The company predicts commodity inflation in the range of $50−$55 million and forex headwinds to be $50 million (both resulting in a negative impact of 50−55 cents per share). Benefits from cost and productivity actions offset by higher share count will likely result in 45−50 cents per share of earnings accretion. Also, restructuring charges and tax rate are likely to remain flat year over year.

Free cash flow conversion is predicted to be 100%.

Also, the company believes that the deals signed to acquire Newell Tools (completion expected in first-quarter 2017) and Craftsman brand (during 2017) as well as dispose a majority portion of the Mechanical Security businesses (first-quarter 2017) will work in its favor in the quarters ahead.

Stanley Black & Decker, Inc. Price and Consensus

Stanley Black & Decker, Inc. Price and Consensus | Stanley Black & Decker, Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $18.7 billion, Stanley Black & Decker currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the machinery industry include Actuant Corporation ATU , Kennametal Inc. KMT and Sandvik AB SDVKY . While Actuant Corporation sports a Zacks Rank #1 (Strong Buy), both Kennametal Inc. and Sandvik AB carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Actuant Corporation's earnings estimates for fiscal 2017 and fiscal 2018 have been revised upward in the last 60 days. Also, the company has an average positive earnings surprise of 11.47% for the last four quarters.

Kennametal Inc. has an average positive earnings surprise of 11.47% for the last four quarters. Also, earnings expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.

Sandvik AB' earnings estimates for 2017 represent year-over-year growth of 2.73%.

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Stanley Black & Decker, Inc. (SWK): Free Stock Analysis Report

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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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