Stanley Black & Decker, Inc. (NYSE: SWK) has reported better-than-expected earnings for the first quarter of 2022, surpassing the consensus estimate by 23.5%. However, revenues in the quarter missed the consensus estimate by 4.3%.
Meanwhile, weak earnings projections for 2022 seem to have hurt investors’ sentiments. Shares of the $21.1-billion company declined 8.6% to close at $127.13 on Thursday.
The company is a specialist in making industrial tools, including hand tools, outdoor power equipment, storage products & accessories, and power tools. It is headquartered in New Britain, CT.
Financial Highlights
Stanley Black reported adjusted earnings of $2.10 per share in the quarter, up from the consensus estimate of $1.70 per share. Compared with the year-ago quarter, the bottom line decreased 26.3% as the positive impacts of sales growth were more than offset by supply-chain woes, lower volumes, and inflation in commodity costs.
Revenues in the quarter totaled $4.45 billion, down from the consensus estimate of $4.65 billion. However, the top line expanded 19.5% from the year-ago tally driven by a 23% contribution from outdoor power equipment buyouts and a 5% impact from effective pricing. However, currency woes of 2% and a low volume impact of 6% played spoilsports.
The Tools & Outdoor segment’s revenues were $3.8 billion in the quarter, 24.1% higher than the year-ago quarter. Meanwhile, revenues of the Industrial segment decreased 1.7% to $0.65 billion.
Costs of sales in the quarter grew 34.7% year-over-year to $3.14 billion. Adjusted gross profit in the quarter inched up 0.1% year-over-year to $1.39 billion while gross margin decreased 610 basis points (bps) to 31.3%. Adjusted operating profit was at $0.51 billion, down 25.5% year-over-year, and operating margin at 11.5% reflected a 700 bps fall from the year-ago tally.
Balance Sheet and Cash Flows
Exiting the first quarter, Stanley Black’s cash and cash equivalents increased 16.7% sequentially to $0.17 billion. Long-term debts were at $5.36 billion, up 23% from the end of the fourth quarter of 2021.
Net cash used for operations activities was $1.24 billion in the first quarter, higher compared with the $0.16 billion used in the year-ago quarter. Capital and software expenditures increased 58.3% to $0.14 billion. Free cash outflow in the quarter was $1.38 billion.
Projections
For 2022, Stanley Black anticipates revenue growth to be in the mid-twenties range. Adjusted earnings are expected between $9.50 and $10.50 per share, down from the previous projection of $12.00 and $12.50 per share.
The company communicated that the impacts of first-quarter performance, effective pricing, and other tailwinds are anticipated to boost earnings by $1.70 per share.
However, headwinds of $0.30 per share are expected from the divestment of Access Technologies, $0.15 per share from the exit of Russian operations, and $3.50 per share from a $600 million increase in transit and commodity cost inflation.
Official Comment
Stanley Black’s CEO, Jim Loree, said, “We continue to invest in leading edge product innovation, strategic growth initiatives and capacity expansions to better serve our customers to enable a multi-year runway for growth, margin expansion and long-term shareholder value creation.”
Capital Deployment
During the first quarter, Stanley Black used $36.5 million for business acquisitions (net of cash acquired) and $2.31 billion for repurchasing treasury shares. It also rewarded shareholders with dividends of $116.3 million.
Other Important Events
Last week, Stanley Black announced that its board of directors approved the payment of a quarterly cash dividend of $0.79 per share. All shareholders in the company’s record as of June 7 will be eligible for the dividends. The disbursement will be made on June 21.
Also, Stanley Black agreed to a deal with Allegion plc (NYSE: ALLE) to divest Access Technologies for $900 million. Access Technologies is Stanley Black’s automatic doors business. It generated revenues of $340 million in 2021.
The transaction is expected to conclude in mid-2022.
Stock Rating
A few days ago, Timothy Wojs of Robert W. Baird reiterated a Buy rating on SWK with a price target of $188 (47.88% upside potential).
Another analyst, Michael Rehaut of J.P. Morgan maintained a Hold rating on Stanley Black while lowering the price target to $159 (25.07% upside potential) from $170.
Overall, Stanley Black has a Moderate Buy consensus rating based on eight Buys, two Holds, and two Sells. Stanley Black’s price forecast of $176.25 suggests upside potential of 38.64% from current levels.
Over the past year, shares of Stanley Black have declined 39.3%.
Risks
According to the TipRanks Risk Factors tool, SWK’s main risk category is Finance & Corporate, which contributes 10 risks to the total 33 risks identified for the company.
Conclusion
Stanley Black is poised to leverage solid product offerings in the Tools & Outdoor segment, synergies from acquisitions, and an effective pricing strategy. Divestment will prove advantageous but at the cost of near-term headwinds. Cost inflation and supply-chain issues are headwinds for the company.
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