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Is everything rosy for Stanley Black & Decker (SWK)?

 By Chris Johnson

NEW YORK (SmartStops) — Stanley Black & Decker (SWK) reported earnings last night that at first glance beat Wall Street estimates. If you dig a little deeper, though, everything isn’t so rosy — or in this case, the company didn’t “nail it.”

Stanley Black & Decker reported earnings of $1.08 per share on revenue of $2.4 billion, compared to Wall Street estimates of $1.01 per share on $2.38 billion in revenue. But a much lower tax rate in the first quarter helped earnings by 12 cents per share, so in reality, the company missed estimates.

The company also announced a $250 million-share buyback program, but this only amounts to about 2% of the company, so the cash probably could have been used better elsewhere.

After the merger last spring with Black & Decker, the combined company was continually generating strong free cash flow, raising dividends, and enjoying strong moves on earnings beats.

Margins fell year-over-year due to inflation (20 basis points) to 37.1% from 37.3%, and the company didn’t raise the amount of cost synergies from the Black & Decker merger, which I was hoping for. It said it still sees $460 million in cost synergies, which was the same as it said last quarter. The company did generate around $60 million in free cash flow this quarter, which was a positive, but overall, there wasn’t much to like about the quarter, and the fundamentals appear to be changing very quickly here.

Stanley Black & Decker’s president and CEO, John F. Lundgren, commented:

“We remain enthusiastic about the prospects that 2011 holds for Stanley Black & Decker and feel confident we started the year in good stead. March 12th marked the one year anniversary of the Stanley Black & Decker combination. We are pleased with how the integration has progressed so far and are reiterating that the continuation of this success remains our top priority. As previously stated, our cost synergies are forecasted to be at an annualized rate of $460 million as we enter 2013, up from our original forecast of $350 million. Our plans to achieve $300 – $400 million in revenue synergies by 2013 remain on track and there was some compelling evidence of these opportunities in the first quarter, particularly in Latin America. Lastly, we were able to raise our dividend by 21% in February, expressing confidence in our future cash flows while providing evidence of our ongoing commitment to increasing shareholder value.”

Price action during tomorrow’s conference call will tell you how the fundamentals are being perceived.

Trend Analysis: Stanley Black & Decker has been in an uptrend for a little over two months, gaining about 8% since March 16.

Risk Analysis: To help mitigate risk, the use of an exit strategy is important. Such a strategy for SWK can be found at

Written by Chris Johnson in New York

At the time of writing, author had no positions in stocks mentioned.

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