by Alyssa Oursler | October 17, 2012 11:30 am
It’s been a hard knock life for Stanley Black & Decker (NYSE:SWK) ever since Stanley and Black & Decker joined hands.
In 2010 — the first year of the their $4.5 billion marriage — the newly formed worldwide leader in power tools and security products saw earnings sawed by more than half thanks to charges from the merger.
Last year, things got better, with SWK posting year-over-year earnings growth (albeit against very low standards) in all four quarters.
This year, things have fallen back in the dumps.
After posting respective 22% and 19% earnings declines in the first and second quarters of 2012, Stanley Black & Decker on Wednesday reported a 25% plunge in its third quarter, and shares were subjected to a 5% drubbing in morning trading.
Stanley Black & Decker made $115.2 million (69 cents per share) in Q3, down from $154.6 million (92 cents) in the year-ago period. The company did see revenue growth of more than 6% for the quarter, but organic growth was flat, and overall sales were slower than expected.
Excluding one-time costs, earnings per share did grow from $1.33 last year to $1.40, but still fell short of analyst expectations. And as a result, Stanley lowered its full-year adjusted EPS estimate to $5.25, down from a previous range between $5.40 and $5.65.
Acquisition charges and integration costs helped to hold SWK back, but many of the woes the company faced were far too familiar.
To start, Stanley Black & Decker has been working to diversify its products and its reach. For instance, SWK is selling its hardware and home improvement group — which includes products branded under Kwikset, National and even the Stanley name — to Spectrum Brands Holdings (NYSE:SPB) for $1.4 billion. The HHI unit gets 90% of its revenue from North America and more than 50% of its revenue from U.S. home-improvement stores.
Meanwhile, the company announced this summer that it was buying Hong Kong-based fastener manufacturer Infastech for $850 million, and has made deals for a few smaller companies. In the end, those acquisitions will shift SWK’s revenue streams so that about 46% will come from the U.S., 27% from Europe and 16% from emerging markets.
In the short-term, though, the move toward a global presence has backfired somewhat, as Europe’s slowdown and a weakness in foreign exchange rates both weighed on the company’s shoulders.
Organic revenues in Europe fell 3% across the entire company, and played a role in the industrial segment’s 2%-plus sales decline. President and CEO John Lundgren specifically bemoaned contraction in its European industrial and automotive repair business.
However, there’s some good news to share. The company’s construction and do-it-yourself segment — its largest in terms of sales — reported a 2.9% gain in sales, while the security segment jumped 22%. Plus, the company maintains that it has “significant upside potential” on a housing market recovery because of its construction and do-it-yourself business — potential that could be met soon considering homebuilder confidence just hit a six-year high and housing starts reached a four-year high.
However, a 2.9% gain in sales for the segment is hardly anything to write home about — the company posted segment gains of 7%, 5% and 8% across the final three quarters of 2011.
Such lackluster growth, on top of the company’s dismal outlook, could be a sign that a so-called housing recovery — or at least its trickle-down effect on SWK — is further off than many think.
Not to mention, signs of weakness for a broader economic recovery could hold back a resurgent housing market, too. Consider recent warnings from big-name indicators like global shipping giant FedEx (NYSE:FDX), the world’s biggest maker of construction and mining equipment Caterpillar (NYSE:CAT) and railroad operator Norfolk Southern (NYSE:NSC).
SWK does have plans to save $50 million in merger-related costs by slashing jobs in the coming quarters, it will use proceeds from the HHI unit sale to buy back shares and reduce debt, and the company has halted all new acquisition activity — all prudent moves, to be sure, but not necessarily harbingers of growth.
Amid the myriad headwinds facing Stanley Black & Decker, the company does have one pillar of stability worth noting: its long-standing dividend. Stanley Works got its start back in 1843, began paying a dividend a mere 34 years later, and has been steadily shelling out cash to shareholders ever since. SWK currently pays out 49 cents per share — increased from 41 cents earlier this year — for a yield of roughly 2.9%, and Stanley’s history of consistently making and increasing its payout makes it a Dependable Dividend Stock.
However, while SWK has a respectable yield, the stock is almost flat for the year, and between the company’s lowered outlook and no definitive end in sight for its other macroeconomic issues, there’s little reason to think that performance will get better.
At least judging by Wednesday’s movement, Wall Street seems to agree.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2012/10/stanley-black-decker-is-becoming-dependably-disappointing/
Short URL: http://invstplc.com/1fv02qZ
Copyright ©2016 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.