STANLEY BLACK & DECKER INC. $62(New York symbol SWK; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 170.9 million; Market cap: $10.6 billion; Price-to-sales ratio: 1.0; Dividend yield: 2.6%; TSINetwork Rating: Average; www.stanleyblackanddecker.com) is one of the world’s largest makers of hand and power tools for consumers. Its top-selling brands include Stanley, Black & Decker, FatMax and Powerlock. This business supplied 51% of Stanley’s 2011 sales and 46% of its earnings.
The company’s building-security division makes locks, automatic doors and gates. It also monitors properties for its clients, typically through closed-circuit audio and TV systems. This division accounts for 25% of Stanley’s sales and 27% of its earnings.
The remaining 24% of sales and 27% of earnings comes from selling specialized tools to industrial users, such as auto mechanics and construction firms.
Purchases helped turn results around
Stanley’s sales fell 16.7%, from $4.5 billion in 2007 to $3.7 billion in 2009, as falling housing prices and the recession cut demand for home-improvement products. However, sales soared to $8.4 billion in 2010, after the company bought rival toolmaker Black & Decker Corp. for about $4.5 billion in stock.
In 2011, Stanley paid $984.5 million for Sweden’s Niscayah Group AB, which designs and installs security systems. That helped push up its sales to $10.4 billion during the year.
Earnings fell from $4.00 a share (or a total of $336.6 million) in 2007 to $2.72 a share (or $218.8 million) in 2009. Excluding the Black & Decker merger costs, earnings jumped 183.1%, to $619.3 million, in 2010. Due to the extra shares outstanding, earnings per share rose 51.5%, to $4.12. In 2011, earnings climbed to $5.24 a share (or $890.9 million).
International expansion a plus
Expanding by acquisition adds risk. However, these purchases helped cut Stanley’s reliance on the U.S.; it now gets 49% of its sales from overseas.
Stanley is now considering selling some of the more cyclical businesses it acquired from Black & Decker, such as door knobs and bath fixtures. The company could receive $1.5 billion for these operations.
As well, Stanley continues to do a good job of integrating the companies it buys. It should easily reach its goal of cutting Black & Decker’s annual costs by $485 million by the end of 2012. It also aims to cut Niscayah’s yearly costs by $80 million by the end of 2013.
These savings should help Stanley pay down its long-term debt of $2.9 billion, which is a moderate 27% of its market cap. The company also holds cash of $883.6 million, or $5.02 a share.
Long history of rising dividends
Stanley will probably earn $5.83 a share in 2012. The stock trades at 10.6 times that estimate. That’s a reasonable p/e ratio in light of its strong brands and expanding global reach. Stanley has paid dividends continuously for 135 years, and has raised the rate in each of the past 44 years. The current annual rate of $1.64 a share yields 2.6%.
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