Stanley Black & Decker: Earnings Preivew

| About: Stanley Black (SWK)
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Stanley Black & Decker (NYSE:SWK) is slated to release its third-quarter 2011 results on Monday, October 17, after the market closes. The current Zacks Consensus Estimate for third-quarter earnings per share (EPS) is $1.33, representing an annualized growth of 37.37%.

With respect to earnings surprises, Stanley Black & Decker out performed the Zacks Consensus Estimate in the trailing three quarters while underperformed in one. The average earnings surprise was a positive 6.01%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Highlights

Stanley Black & Decker’s second-quarter earnings from continuing operations were $1.18 per share, up 14.6% from $1.03 in the comparable quarter of 2010. The quarter’s EPS was however below the Zacks Consensus Estimate of $1.27.

Net revenue in the second quarter increased 10.9% year over year to $2.6 billion. The increase reflects a 3% growth from unit volume, 5% from currency translation and 3% impact from acquisitions. Pricing in the quarter was flat.

Agreement/Magnitude of Estimate Revisions

In the last 30 days, there were no positive revisions in the company’s earnings per share estimates by the brokerage firms. However, out of 8 analysts, two lowered their estimates for the fiscal year 2011 while one lowered for fiscal year 2012.

Estimates for the third quarter of 2011, over the last 30 days, estimate moved from $1.36 to $1.33, representing a year-over-year growth of 37.37%. Estimate for the fiscal year 2011 plummeted from $5.28 to $5.23 while that for the year 2012 went down by a cent to $5.99. The fiscal year estimates represent annualized growth of 27.0% and 14.39%, respectively.

Our Take

We believe Stanley Black & Decker is well positioned for another quarter of good financial results, benefiting primarily from the company’s acquisitive nature, recovering global demand, inventory restocking and new product introductions.

The belief is backed by management’s expectations of higher cost synergies from the Black & Decker acquisition and upwardly revised earnings guidance. Acquisition of Niscayah is expected to strengthen Stanley’s existing security product offerings and expand the company’s footprint in the international market.

Moreover, confidence on recovery of 80% of the expected 100 basis point headwind from commodity inflation in the second half of 2011 is encouraging.

However, positive momentum gets a setback from management’s lowered organic revenue growth forecast for fiscal year 2011. The revision was primarily due to weather related headwinds to outdoor product sales and weakness in CDIY sales in Europe.

We currently maintain a Neutral recommendation on the stock, which is supported by the Zacks #3 (Hold) Rank.