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Manufacturing company Stanley Black & Decker (NYSE:SWK) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 3.2% year on year to $4.02 billion. It made a non-GAAP profit of $1.09 per share, improving from its loss of $0.11 per share in the same quarter last year.
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Stanley Black & Decker (SWK) Q2 CY2024 Highlights:
- Revenue: $4.02 billion vs analyst estimates of $4.02 billion (small beat)
- EPS (non-GAAP): $1.09 vs analyst estimates of $0.84 (30.3% beat)
- Raised full year EPS (non-GAAP) to $4.10 at the midpoint (beat)
- Gross Margin (GAAP): 28.4%, up from 23.6% in the same quarter last year
- Free Cash Flow of $982.5 million is up from -$496.7 million in the previous quarter
- Organic Revenue rose 1% year on year (-3.9% in the same quarter last year)
- Market Capitalization: $14.84 billion
Based in Connecticut, Stanley Black and Decker (NYSE:SWK)
Professional Tools and EquipmentAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Over the last five years, Stanley Black & Decker grew its sales at a weak 1.8% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Stanley Black & Decker's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.4% annually. Stanley Black & Decker isn't alone in its struggles as the Professional Tools and Equipment industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Stanley Black & Decker's organic revenue averaged 3.7% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company's core operations (not M&A) drove most of its performance.
This quarter, Stanley Black & Decker reported a rather uninspiring 3.2% year-on-year revenue decline to $4.02 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
Operating Margin
Stanley Black & Decker has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 8.6%, higher than the broader industrials sector.
Looking at the trend in its profitability, Stanley Black & Decker's annual operating margin decreased by 6 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Stanley Black & Decker become more profitable in the future.
In Q2, Stanley Black & Decker generated an operating profit margin of 1.4%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Stanley Black & Decker, its EPS declined by 15.3% annually over the last five years while its revenue grew by 1.8%. This tells us the company became less profitable on a per-share basis as it expanded.
We can take a deeper look into Stanley Black & Decker's earnings to better understand the drivers of its performance. As we mentioned earlier, Stanley Black & Decker's operating margin was flat this quarter but declined by 6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Stanley Black & Decker, its two-year annual EPS declines of 34.6% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Stanley Black & Decker reported EPS at $1.09, up from negative $0.11 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Stanley Black & Decker to grow its earnings. Analysts are projecting its EPS of $3.62 in the last year to climb by 41% to $5.10.
Key Takeaways from Stanley Black & Decker's Q2 Results We were impressed by how significantly Stanley Black & Decker blew past analysts' EPS expectations this quarter. We were also glad its organic revenue topped Wall Street's estimates. Lastly, the company raised full year EPS guidance, which is icing on the cake. Overall, we think this was a really good quarter that should please shareholders. The stock traded up 2.6% to $99 immediately after reporting.
