StanleyBlack & Decker (SWK) reported its financial results for the third quarter of 2011 with earnings per share from continuing operations of $1.34, up from 97 cents reported in the year-ago comparable quarter. Earnings also surpassed the Zacks Consensus Estimate of $1.32.
GAAP EPS including 42 cents of merger related charges was 92 cents compared with 73 cents in the third quarter of 2010.
Net revenue for the third quarter jumped 11.3% year over year to $2.6 billion. The increase reflects a 4% growth from unit volume; 3% from currency translation and a 4% impact from acquisitions.
Revenue in the CDIY segment increased 5.6% year over year to $1,337.6 million, while the Security segment reported revenues of $656.4 million, reflecting a rise of 16.6%. Industrial segment sales increased 19.1% to $642.4 million.
In the third quarter of 2011, normalized cost of sales, as a percentage of revenue was 62.5% versus 63.1% in the year-ago quarter. Lower cost of sales led to higher gross margin in the quarter, which settled at 37.5% in the third quarter.
Selling, general and administrative expenses registered an increase of 8.4% year over year, but as a percentage of revenue declined from 24.3% to 23.6%. Operating margin in the quarter was 13.9% versus 12.6% in the year-ago comparable quarter.
Exiting the third quarter, Stanley Black & Decker’s cash and cash equivalents decreased drastically from $1,915.0 million in the previous quarter to $851.9 million. Long-term debt, net of current portion was $2,738.7 million, up from $2,729.0 million in the previous quarter.
Normalized net cash flow from operating activities was approximately $228.7 million compared with $279.8 million in the comparable quarter of 2010. Capital expenditure increased to $52.4 million versus $45.9 million in the year-ago third quarter. Free cash flow in the quarter was $176.3 million versus $233.9 million in the comparable period last year.
In the third quarter, the company expended approximately $69.1 million in paying dividends to shareholders and bought back shares worth $350 million.
Management anticipates fourth quarter earnings, excluding merger related charges, of roughly $1.30 per share. The quarter’s estimate implies full fiscal year earnings per share on roughly the lower end of the previous range of $5.15-$5.40.
GAAP EPS is likely to be in a range of $3.75-$3.98 versus the prior expectation of $4.50-$4.75. Normalized tax rate is expected to be roughly 24%, down from 25% to 26% expected earlier. The core tax rate is expected to be within the 17% to 18% range. Free cash flow for the fiscal year is expected to be roughly $1.1 billion.
Fiscal year 2011 organic sales growth is expected to be approximately 3%-5% versus 4%-5% range expected earlier. The lowered guidance reflects softness in Europe and retraction in unit volumes within US hand tools. Total revenue growth is likely to be roughly 12.5% while currency translation and acquisition impact is expected to be 9%.
Stanley Black & Decker manufactures tools and engineered security solutions across the globe. Prime competitors of the company are Danaher Corp. (DHR), Makita Corp. (MKTAY), and Snap-on Inc. (SNA).
We currently maintain a Neutral recommendation on the stock.
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