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Tool Maker Raises Guidance

The stock of this holding remains attractive and I'll look to buy on weakness.
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Stanley Black and Decker (SWK) reported earnings last night and will host a conference call this morning. Earnings beat by 6 cents at $1.08 on better-than-expected revenue of $2.4 billion and a lower tax rate. Revenue beat on better-than-expected CDIY at $1.21 billion versus the $1.15 billion estimate and Industrial results also bettered Wall Street at $613 million versus the $600 million estimate. Security was essentially in line at $557 million.

Surprisingly, operating margins fell 50 basis points year over year to 12.5% due to weakness in Security and CDIY but was offset by a 360 basis points improvement in Industrial results. The company indicated that 80% of the cost inflation pressures will be offset in the second half of 2011 (given the cost synergy offsets from BDK and higher price increases) but that it will pressure second-quarter earnings more than expected.

Earnings guidance was raised to $5-$5.25 largely due to a lower tax rate and share repurchases (3 million vs. 1 million) but I want to hear more on the call about its assumptions today.

With limited detail, shares were off in the aftermarket so I will listen to the call and circle back with more information today. Shares remain attractive for the long run at 12x forward estimates below its historical average and its peer group and the company continues to dominate the industry. I'll look to buy on weakness.

Regards,

Jim Cramer, Stephanie Link, and the Research Team

DISCLOSURE: At the time of publication, Cramer was long Stabley Black and Decker.

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James J. Cramer is a Markets Commentator for TheStreet.com and CNBC, as well as Chairman of the Board and co-founder of TheStreet.com. TheStreet.com is a publisher. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. After receiving his J.D. in 1984 from Harvard Law School, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Cramer helped start Smart Money for Dow Jones and then, in 1996, he founded TheStreet.com.

Stephanie Link is the director of research & vice president of strategy for TheStreet.com. She is the co-portfolio manager for Action Alerts PLUS and works daily on the strategy and stock picks chosen for the portfolio. Stephanie is also responsible for recruiting talent for the paid sites including options, technicians and fundamental contributors. Prior to joining TheStreet.com, Link worked on Wall Street for 16 years. She spent nine years at the Prudential Equity Group as a managing director in U.S. institutional sales and as the New York sales manager covering top national accounts. She was the managing director of equity research in her final year at the firm. Prior to that position, she worked at Dean Witter as an institutional sales person for six years. Link's investment specialties include large-cap core stocks as well as value ideas.