In what appears to be some profit-taking this morning, shares of hand and power tool manufacturer Stanley Black & Decker (SWK 141.15, -5.64) trade about 3.8% lower, erasing July-to-date gains, despite beating market expectations on Q2 earnings and raising FY17 earnings guidance.
In Q2, earnings per share came in ahead of market expectations at $2.01. Revenues expanded about 10% compared to a year ago to $3.23 billion as volume and acquisitions more than offset divestitures, price and currency fluctuations.
Breaking it down by segment, SWK reported strong growth across Tools & Storage, Security and Industrial. T&S saw sales grow 16.6% to about $2.26 billion as share gains in North America were aided by a healthy U.S. tool market, along with new products, including sales from the DEWALT FlexVolt system, and consistently strong commercial execution. Industrial channels within North America delivered high-single-digit growth reflecting improving market conditions and strength within MAC Tools. Segment profit rate was 18.1%, down compared to last year as benefits of volume leverage and productivity were more than offset by growth investments, price and commodity inflation.
In Security, sales declined about 12% in Q2 to $474 million as North American organic growth accelerated to 4% on higher installation volumes within the commercial electronic security and automatic doors businesses. Europe was flat organically as strength within the Nordics and UK was offset by anticipated and continued weakness in France. Overall Security segment profit rate, excluding charges, was 11.1%, down from 12.6% last year, reflecting an approximately 120 basis point decline related to the sale of the Mechanical Security business, as well as impacts of mix and funding growth investments.
Industrial sales were up about 7% to $496 million in Q2 as Engineered Fastening organic revenues increased 6% due to strong automotive system shipments supporting new customer platforms and volume growth within general industrial markets more than offset declines within electronics. Overall Industrial segment profit rate was 19.4%, as volume leverage, productivity gains and cost control resulted in a 240 basis point expansion versus the 2Q'16 rate.
Looking ahead, SWK now sees FY17 EPS in the range of $7.18-7.38 compared to the prior range of $7.08-7.28. The Company also reiterated its free cash flow conversion estimate of approximately 100%.
Taking a 30,000 foot view, it appears that all is well at SWK. Margins were mixed yet a “healthy” US tool market gives investors much to smile about at SWK. This, when paired with favorable guidance at Home Depot (HD 144.86, -1.79 -1.2%) and Lowe’s (LOW 74.00, +0.57 +0.8%) -- from May and March, respectively – point to a solid full year at SWK. Additionally, shares were up about 25% YTD into this morning’s print. Perhaps some bulls are stepping to the sidelines at this point as the stock takes a breather, but with increased full year guidance, they likely won’t be sitting on the sidelines for long.