Industrial tool maker, Stanley Black & Decker (SWK) reported impressive results for fourth-quarter 2014. Earnings from continuing operations came in at $1.56 per share, up 16.4% from $1.34 per share earned in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of $1.53 per share.
GAAP earnings, including 19 cents per share of merger and acquisitions-related charges, were $1.37 per share versus 44 cents earned in the year-ago quarter.
For 2014, the company’s earnings from continuing operations were $5.67 per share, up from $4.98 per share recorded in 2013 and above the Zacks Consensus Estimate of $5.61.
Revenues
Stanley Black & Decker’s net revenue came in at $2,982.5 million, reflecting an increase of 3.5% over the year-ago tally. Also, the top line surpassed the Zacks Consensus Estimate of $2,961 million.
The year-over-year improvement can be attributed to volume gains of 6% and positive price impact of 1%, partially offset by a 4% negative impact from foreign currency translation.
Stanley Black & Decker reports its revenues under three heads, a brief discussion of which is provided below:
The Construction & Do-It-Yourself segment generated revenues of $1,496.4 million, increasing 7.1% year over year and representing 50.2% of net revenue in the quarter. The Industrial segment’s revenues, roughly 29.9% of net revenues, came in at $891.4 million, up 1.1% year over year. Revenues from the Security segment inched down 1.2% year over year to $594.7 million.
For 2014, the company generated net revenue of $11,338.6 million, up 4.1% year over year and above the Zacks Consensus Estimate of $11,319 million.
Margins
Stanley Black & Decker’s normalized cost of sales, as a percentage of revenue, was 64.7% versus 64.2% recorded in the year-ago quarter. Gross margin decreased 50 basis points (bps) to 35.3%. Selling, general and administrative expenses declined 1.1% year over year, while, as a percentage of revenues, it decreased 100 bps to 21.6%. Operating margin was up 50 bps to 13.7%.
Balance Sheet
Exiting fourth-quarter 2014, Stanley Black & Decker had cash and cash equivalents of $496.6 million, slightly below $486.8 million recorded in the preceding quarter. Long-term debt (net of current portions) edged down 0.4% sequentially to $3,839.8 million.
Cash Flow
In the fourth quarter, Stanley Black & Decker generated net cash of $747.3 million from its operating activities, up 2.1% year over year. Capital and software expenditures totaled $111.6 million, up compared with $95 million spent in the year-ago quarter. Normalized free cash flow was $671.8 million versus $706.1 million recorded in the year-ago quarter.
In 2014, Stanley Black & Decker paid cash dividends of approximately $321.3 million.
Outlook
Stanley Black & Decker anticipates global economic conditions to remain challenging in 2015. However, the company expects its business strategies and operational improvements to drive organic revenue growth in the range of 3−4%.
On a Generally Accepted Accounting Principles (“GAAP”) basis, earnings are forecasted within $5.65−$5.85 per share range. This includes restructuring charges of 25 cents per share. On the other hand, foreign currency movements are predicted to negatively impact earnings in the range of 70−75 cents per share.
Free cash flow is projected at approximately $1 billion. Also, Stanley Black & Decker intends to reward its shareholders through dividend payments, debt reduction and share buybacks.
With a market capitalization of $14.2 billion, Stanley Black & Decker currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the machinery industry include Graham Corporation (GHM), Pioneer Power Solutions, Inc. (PPSI) and Kadant Inc. (KAI). While Graham Corporation sports a Zacks Rank #1 (Strong Buy), both Pioneer Power Solutions and Kadant carry a Zacks Rank #2 (Buy).
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