Stanley Black & Decker (SWK) is in the midst of a business transformation while it also has to fight inflationary pressures. This Zacks Rank #5 (Strong Sell) is expected to see an earnings decline of 47% this year.

Stanley Black & Decker is the world's largest tool company with nearly 50 manufacturing facilities in the United States and more than 100 worldwide.

It produces power tools, hand tools, storage, digital tool solutions, lifestyle products, outdoor products, engineered fasteners and other industrial equipment. It's iconic brands include DEWALT, BLACK+DECKER, CRAFTSMAN, STANLEY, CUB CADET, HUSTLER AND TROY-BILT.

First Earnings Miss in 5 Years in the Second Quarter

On July 28, 2022, Stanley Black & Decker reported its second quarter earnings and saw its first earnings miss in 5 years.

Earnings were $1.77 versus the Zacks Consensus of $2.12, or a miss of $0.35.

Image Source: Zacks Investment Research

Revenue was actually up 16% year-over-year to $4.4 billion, driven by strategic outdoor power equipment acquisitions, which were up 24%, and price realization, which added 7%. This was partially offset by lower volume, which fell 13%, and currency, which was down 2%.

Tools and Outdoor demand softened during the last portion of the quarter which caused the company to spring into action. It's expecting demand to normalize closer to 2019 in the back half of 2022. As a result, it's reducing inventory and cutting costs.  

In addition to dealing with inflationary pressures and softening demand, Stanley Black & Decker is also in a transition with its business. It sold Stanley Security and Access Technologies in July 2022. It also reached an agreement to sell its Oil & Gas business.

The company has repurchased $2.3 billion in shares in 2022 with proceeds from the divestitures and is sitting on a bunch of cash.

Raised Its Dividend

On July 20, 2022, Stanley Black & Decker approved a $0.01 increase of its quarterly cash dividend to $0.80 per share for the third quarter.

This was the 55th consecutive annual dividend increase for the company. The dividend is currently yielding a juicy 4.1%.

Earnings Estimates Slashed

After the talk of reducing inventories in July, the analysts turned bearish. 3 estimates were slashed for both 2022 and 2023 in the last 60 days.

The 2022 Zacks Consensus Estimate has fallen to $5.53 from $6.71 in the last 2 months. That's an earnings decline of 47.2% as the company made $10.48 last year.

2023 is expected to bounce back by 24%, to $6.85, but even 2023 has come down from just a few months ago.

You can see what it looks like on the chart. Earnings are expected to fall off a cliff.

(Click on image to enlarge)

Image Source: Zacks Investment Research

Are Shares Cheap?

It shouldn't be a surprise that Stanley Black & Decker shares have taken a hit this year. Shares are down 59% year-to-date.

But they're also near 5-year lows and are down 51% during that time, when the S&P 500 is up 41% for the same period.

Is the stock cheap?

Stanley Black & Decker trades with a forward P/E of 14, even after the earnings were cut. That's cheap but it's not dirt cheap.

The company is expected to report third quarter earnings on Oct 27, 2022. Investors interested in this tool maker might want to stay on the sidelines until there is more clarity on what is happening in the business.

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