Stanley Beats Expectations; Outlook Strong

Apr.27.11 | About: Stanley Black (SWK)

Stanley Black & Decker (NYSE:SWK) reported its financial results for the first quarter of 2011, with earnings per share from continuing operations of $1.08, up from 70 cents in the year-ago comparable quarter. EPS also surpassed the Zacks Consensus Estimate of $1.00.

GAAP EPS, including one-time charges of approximately 16 cents, was 92 cents compared with a loss of $1.11 in the first quarter of 2010.


Net revenue for the first quarter jumped 89% year over year to $2.4 billion. The increase reflects a 71% growth from the Black and Decker acquisition, 7% from unit volume, and 9% from other acquisitions. Currency translation had a positive 2% on revenue growth.

On a pro forma basis, net revenue registered a 9% growth, of which organic growth accounted for an increase of 4%.

Revenue in the CDIY segment increased 120.5% year over year to $1,210.8 million, while the Security segment reported revenues of $557.4 million, reflecting a rise of 34.7%. Industrial segment sales increased 104.8% to $612.5 million.


In the first quarter of 2011, cost of sales, as a percentage of revenue soared to 62.7% from 60.6% in the year-ago quarter. Higher cost of sales led to a 2.1% year-over-year decline in gross margin, which settled at 37.3% in the first quarter.

Selling, general and administrative expenses registered an increase of 76.9% year over year, but as a percentage of revenue declined from 26.4% to 24.8%. Operating margin in the quarter was 12.5% versus 13.0% in the first quarter of 2010.

Balance Sheet

Exiting the first quarter, Stanley Black & Decker’s cash and cash equivalents increased 7.9% sequentially to $1,883.5 million compared with $1,745.4 million in the fourth quarter of 2010. Long-term debt, net of current portion was $3,008.5 million compared with $3,018.1 million in the fourth quarter of 2010.

Cash Flow

Net cash flow from operating activities was approximately $131.5 million compared with $59.3 million in the comparable quarter of 2010. Capital expenditure increased to $70.1 million versus $22.1 million in the year-ago comparable quarter.

Higher operating cash flow, slightly offset by higher capital expenditures led to a free cash flow of $61.4 million in the quarter versus $37.2 million in the comparable period last year.

The company plans to initiate a $250 million of share repurchase program in the second quarter of 2011.


Management revised its fiscal year 2011 EPS guidance range to $5.00-$5.25 from the prior range of $4.75–$5.00, excluding the charges related to mergers and acquisitions. GAAP EPS is likely to range from $4.35 to $4.60 versus the prior range of $4.29–$4.54. Tax rate is expected to be approximately 20%-21% (versus the prior expectation of 25%-26%).

Management increased its cost synergy expectation from the Black & Decker acquisition to $460 million entering 2013, up from its original expectation of $360 million.

Management also anticipates achieving revenue synergies of approximately $300-$400 million by the end of 2013 due to brand expansion, increased access to global markets through established distribution channels and cross-selling opportunities. Two-third synergies are expected in the CDIY segment while the remaining one-third in equal parts in the Security and Industrial segments.

Management antcipates a 100 basis point headwind from commodity inflation but hopes to recover 80% of anticipated commodity inflation in the second half of 2011 as pricing actions go into effect.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. Prime competitors of the company are Danaher Corp. (NYSE:DHR), Makita Corp. (OTCPK:MKTAY) andSnap-on Inc. (NYSE:SNA).