STANLEY BLACK & DECKER INC. $114

STANLEY BLACK & DECKER INC. $114 (New York symbol SWK; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 150.1 million; Market cap: $17.1 billion; Price-to-sales ratio: 1.5; Dividend yield: 1.9%; TSINetwork Rating: Average; www.stanleyblack anddecker.com) is one of the world’s largest makers of hand and power tools for consumers. This business supplies 64% of its sales. Stanley also makes building-security products, such as locks and gates (19% of sales), and specialized tools for auto mechanics and industrial workers (17%). Stanley makes acquisitions work In the past few years, Stanley has fueled its growth with acquisitions. Since 2002, the company has spent $6.2 billion to buy related companies. That excludes its $4.5-billion all-stock acquisition of rival toolmaker Black & Decker in March 2010. Stanley’s sales fell 1.8%, from $10.4 billion in 2011 to $10.2 billion in 2012 after it sold some smaller businesses. Sales then rose to $11.0 billion in 2013, and to $11.3 billion in 2014. Foreign markets supply half of its sales, and the stronger U.S. dollar cut its sales to $11.2 billion in 2015. The company’s earnings fell 12.6%, from $890.9 million in 2011 to $778.7 million in 2012. Stanley is an aggressive buyer of its own shares, so earnings per share declined at a slower pace of 10.9%, from $5.24 to $4.67. Earnings then rebounded to $4.98 a share (or a total of $791.0 million) in 2013, and rose to $5.92 a share (or $903.8 million) in 2015. A big part of Stanley’s growth comes from a multi-year restructuring plan, which includes cutting 3% of its workforce and streamlining its manufacturing operations. The company expects these moves will boost its operating profit margin (operating earnings divided by sales) from 14.4% in 2015 to 16.0% in 2018. 48 years of rising dividends Stanley’s improving profitability will free up more cash for dividends; the current annual rate of $2.20 a share yields 1.9%. The company has paid dividends for the past 139 years, and has raised the annual rate each year for the past 48 years. In addition to lower costs, Stanley aims to spur its overseas sales. It’s particularly interested in emerging markets where more people are buying their homes instead of renting. That should push up tool demand in these countries. Stanley aims to increase its sales from emerging markets to 20% by 2018 from 16% in 2015. Stanley’s strong balance sheet will let it continue to expand. As of April 2, 2016, its long-term debt was $3.8 billion. That’s a moderate 22% of its market cap. It also held cash of $352.2 million. Stanley to focus on its main businesses The company is now looking at spinning off its building-securities products division as a separate firm. That would let Stanley focus on its main power and hand tool businesses. It expects to make a final decision in the second half of 2016. Stanley recently increased its 2016 earnings forecast, to $6.30 a share from $6.10. The stock trades at a reasonable 18.1 times the new estimate. Stanley Black & Decker is a buy.