SWK Q3 2015

EARNINGS
REPORT
October 22nd, 2015
STANLEY BLACK & DECKER, INC. (NYSE: SWK)

GUIDANCE:
Management has revised its
2015 full year EPS Guidance

Current Price: $105.47

Target Price: $112.49

Return to Date: 27.70%

range from $5.70-$5.90 to

$5.80-$5.95, suggesting 8%11% EPS growth by year-end.

KEY POINTS
Stanley reported $1.55 in Diluted EPS, beating analysts estimates of $1.45
Revenue was $2.83 billion, slightly above estimates, but down 1.72% QoQ
Total price and volume increase of 6% was offset by 8% currency headwinds
Operating Margin hit 14.8% and Gross Margin remained nearly flat at 36.3%
Total profit declined 3.38% QoQ and grew 0.5% YoY
Stanley grew its quarterly dividend from $0.52 to $0.55, a 2.09% total yield

succeeded its 2015 organic

growth estimates of 3-4%,

posting growth of 6% or greater

IMPACT ON INVESTMENT THESIS

The companys earnings growth

will be realized due to
continually strong operating
performance. Stanley has

for the fifth consecutive quarter.

Also, operating margins have
increased 0.7% QoQ and 0.9%
YoY to a post merger high of
14.8%. Through price and
volume growth as well as cost
control, Stanley will offset $220
million of currency headwinds
from a strong US dollar and
decreased demand from slowing
growth in China. Also, FCF will
reach $1 billion by year-end due
to commodity deflation.

Surprise
EPS

6.9%

Revenue

0.7%

Price

6.95%

Stanleys earnings report shows that its catalysts are continuing to drive the
stock to fair value. The company has surpassed organic growth expectations,
decreased restructuring charges, and seen the benefits of increased construction
spending. Also, Stanley has continued to enhance growth of its European
Security segment after divesting its Spain and Itlay operations in 4Q 2014.
Continued Strong Organic Growth
Stanley grew Volumes by 5% and Price by 1% QoQ, leading to 6% organic
growth. The Tools & Storage segment (65% of revenue) saw 9% organic growth
with a 1% price increase and an 8% volume increase. The Industrial segment
(17%) remained flat, as volume decreased by 1% while price increased by 1%.
The Security segment (18%) decreased by 1% an improvement from a 7%
decrease in Q3 2014 with 1% higher prices being offset by 2% lower volumes.
Reduction of Restructuring Charges
Management has reaffirmed its expectation that restructuring costs will reach
$50 million by year-end, reducing estimated EPS by $0.25 to current guidance.
In 2014, restructuring charges were $19 million, $6 million less than estimated.
Despite this increase in costs by $31 million YoY, these estimates also represent
a sharp fall from $174 million in FY 2013. Due to a drop in one time
restructuring fees, these costs have decreased substantially since coverage was
initiated, enabling Stanley to increase its working capital investments.

Housing Market Rebound

Stanleys Tools & Storage segment has performed very well due to the housing market rebound. Revenue has grown 2%,
profit has grown 8%, and profit margin has increased by 1% QoQ. Total Construction Spending reached $1.1 trillion in
August, its highest level since May 2008. This increase has beeen brought about partially by an increase in Total
Residential Construction Spending of 16.39% over the past year, contributing largely to the success of Tools & Storage.
The upward trend in Construction Spending is expected to continue, and with it, the sales and profits of Tools & Storage.
European Security Segment Turnaround
The European Security Segment realized organic growth of 4% this quarter, due to higher installation revenues and broadbased growth across all major markets. Stanley reports order rates to be up double digits in the quarter, while customer
churn rates did not exceed the estimated range of 10%-12%. The segment is following its turaround schedule, as it saw -7%
organic growth in Q3 2014. Organic growth is projected to increased in European security due to volume leverage, cost
actions, and continued operational enhancements.