Stanley Black & Decker (SWK) Tops Q3 EPS by 21c, Revenues Miss

Stanley Black & Decker (NYSE: SWK) reported Q3 EPS of $2.89, $0.21 better than the analyst estimate of $2.68. Revenue for the quarter came in at $3.85 billion versus the consensus estimate of $3.99 billion.

third quarter 2020 financial results.

• 3Q'20 Revenues Totaled $3.9 Billion, Up 6% Versus Prior Year Led By 11% Organic Growth In Tools & Storage
• The Gross Margin Rate Was 35.7%; Excluding Charges, The Gross Margin Rate Was 35.9% Up 160 Basis Points Versus Prior Year
• The Operating Margin Rate Was 16.6%; Excluding Charges, The Operating Margin Rate Was A Record 17.7%, Up 320 Basis Points Versus Prior Year, Aided By Cost Control, The Margin Resiliency Initiatives, Volume Leverage And Price Realization
• 3Q'20 Diluted GAAP EPS Was $2.44; Excluding Charges, 3Q'20 Diluted EPS Was A Record $2.89, Up 36% Versus 3Q'19
• Free Cash Flow In the Quarter Was $615 Million Bringing The Year To Date Total To $391 Million, Up $412 Million Versus Prior Year
• The Company Expects Continued Strong Operating Results In 4Q'20 And Will Share Its Scenario Planning Framework On Today's Earnings Call

3Q'20 Key Points:

• Net sales for the quarter were $3.9 billion, up 6% versus prior year, with volume (+3%), acquisitions (+2%) and price (+1%) contributing to the growth. Approximately $100-$125M of promotional shipments in Tools & Storage shifted into October from September, impacting the segment for the quarter vs 3Q'20 revenue planning assumptions communicated in late August by 4-5pts.
• The gross margin rate for the quarter was 35.7%. Excluding charges, the rate was 35.9%, up 160 basis points versus prior year as volume, productivity, cost management and price more than offset higher currency and operating costs related to the pandemic.
• SG&A expenses were 19.2% of sales. Excluding charges, SG&A expenses were 18.3% of sales compared to 19.8% in 3Q'19, reflecting the benefits of previously announced cost management programs.
• The tax rate was 16.7%. Excluding charges, the tax rate was 17.8% versus 21.5% in 3Q'19.
• Working capital turns for the quarter were 7.0, up 1.1 turns from prior year.

"Our critical priorities to guide our decision making since the onset of the pandemic remain unchanged: (1) ensuring the health and safety of our employees and supply chain partners; (2) maintaining business continuity and financial strength and stability; (3) serving our customers as they provide essential products and services to the world; and (4) doing our part to mitigate the impact of the virus across the globe. It's critical for us to sustain this focus which has helped us ensure strong financial performance during this challenging period as we continue to face uncertainty associated with COVID-19. In that regard, we will retain discipline on costs and the cost savings programs put in place earlier this year, while we simultaneously make investments in key growth areas associated with society's nesting and reconnecting with the home and outdoors, e-Commerce and health and safety."

2020 Outlook

The Company withdrew its full year guidance in April as a result of the uncertain macro environment and will continue to refrain from providing such guidance at this time. Management will discuss its 2020 scenario planning assumptions on today's earnings call.

The cost reduction program announced on April 2 is expected to deliver $500 million in cost savings in 2020. During the third quarter, $175 million of savings were realized, bringing the year-to-date total to $350 million. Currently, the carryover benefit into 2021 is $125 million.

Donald Allan Jr., Executive Vice President and CFO, commented, "The effort and execution by the organization in the third quarter resulted in a historically strong financial performance, considering the operating environment. Our Security and Industrial businesses are on track to preserve a significant amount of earnings potential during the downturn and Tools & Storage is now set up to reset margin rates to new higher levels.

"As we close out this year and prepare for 2021, we are preserving operational flexibility to serve the strengthening demand in many of our businesses while executing on our cost reduction and margin resiliency programs. While the demand environment remains uncertain, our visibility is improving, and we are investing in growth and efficiency programs to position our businesses to capitalize on improved markets, deliver share gain and support margin expansion. We remain focused on maintaining a strong operational foundation and balance sheet and we are confident in our ability to generate significant future shareholder value."

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