Why Stanley Black & Decker is Today's Top S&P 500 Stock

Dow Jones01:24

Stanley Black & Decker, one of the world's largest tools and storage companies, was the top performer in the S&P 500 on Wednesday after its latest quarterly earnings revealed strong demand for its products.

Shares of the industrial manufacturer jumped 16% to $121.33 Wednesday and were heading for their largest single-day percentage gain since March 24, 2020, according to Dow Jones Market Data. Including Wednesday's action, the stock has surged about 63% this year. The S&P 500, meanwhile, gained 1.8%.

There were likely two headline drivers fueling the stock surge Wednesday: a profitability boost from a one-time tariff refund during the fiscal third quarter, and an announcement that it was buying back $1 billion of stock.

Management said it used $250 million of excess cash in the third quarter to buy back company shares. The company also said it received approval from its board for a new $1 billion for future buybacks, a sign of confidence in the company's financial stability.

Profitability surged significantly as operating income soared 262% to $415.1 million in the fiscal third quarter while its adjusted gross margin grew to 39.4%, up from 31.6% from the same quarter a year ago.

A big chunk of Stanley's profit jump came from a one-time government refund on past import tariffs, which temporarily pumped up margins by 4.3% and added $0.67 per share.

Those headline drivers, however, weren't the whole story. Stanley Black & Decker's core business still improved on its own through better factory efficiency and resilient demand.

Sales for the company's tools and outdoor segment, its primary revenue driver, reached $3.34 billion, with organic sales rising 4%. Demand for power tools in North America was particularly strong, management noted.

In the fiscal third quarter, reported sales for Stanley Black & Decker's engineered fastening division, which specializes in precision-engineered industrial fastening and assembly systems, dropped 21% to $396 million due to the sale of its aerospace fastener unit. Underlying organic revenue, however, rose 2% from a year ago. Demand for this segment was mixed: While general factory and industrial customers bought more products, automakers purchased less than expected, which kept the overall growth modest.

Revenue fell 1% to $3.7 billion during the fiscal third quarter, slightly missing analysts' consensus estimate of $3.74 billion. Management said the drop was caused by selling off parts of its business, rather than weak demand. Organic revenue during the period, however, grew 4%.

Adjusted earnings of $2.31 a share topped Wall Street's calls for $1.55 in the fiscal third quarter.

 

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