NEW YORK -(Dow Jones)- Stanley Black & Decker Inc.'s (SWK) fourth-quarter earnings surged, and the tool giant offered a rosy outlook for the coming year as benefits from its recent blockbuster merger exceeded its expectations.
The company, formed in March when Stanley Works bought Black & Decker for $4.5 billion worth of stock, has seen revenue and profit soar because of the combination, and expects additional benefits from a rebound in construction, industrial and security products. Executives said the company is seeing merger-related increases in revenue and cost savings both faster and larger than it originally expected, and it hinted a dividend boost is coming in the near term.
Donald Allan Jr., chief financial officer, said the benefits, along with a stronger outlook and cash-flow picture, means that "management will be reviewing the timing and magnitude of the company's dividend increase at its upcoming February board meeting, two quarters earlier in the year than normal."
On a conference call to discuss results, management said the current dividend yield, which has shrunk below 2% thanks in large part to stock appreciation, lags the historic yield of roughly 2.5%, and the company is mindful of what its investors have historically wanted when owning its stock. It makes re-evaluating the dividend the "number-one cash deployment issue," and it said it will continue to be opportunistic when it comes to buying back its stock.
Executives noted that virtually all the cash on its balance sheet is held overseas and can't be tapped for repurchases or dividends unless it is repatriated, something it isn't likely to do "anytime soon" because of the hit that cash would take under current tax policy. Many companies, across many sectors, face a similar problem of carrying a substantial chunk of their most-liquid assets on foreign shores and in foreign currencies, and most are reticent to lose so much of it to taxes.
The U.S. government has in the past enacted tax holidays to encourage repatriation, and if tax policy changes, Wall Street might see Stanley Black & Decker return significantly more to shareholders with dividends and buybacks, it said.
For now, the company said it will focus on smaller acquisitions and investing on the growth it's enjoying overseas. "We are actively looking for international acquisitions like many multinational companies."
Stanley Black & Decker reported a profit of $137.8 million, up from $74.3 million a year earlier, on revenue that more than doubled to $2.41 billion year over year. Per-share profit fell to 81 cents from 91 cents, as the number of shares outstanding grew more than twofold due to the merger. Excluding items such as costs relating to the merger, earnings were $1.05 in the most recent quarter.
Analysts polled by Thomson Reuters had most recently forecast earnings of 92 cents on $2.38 billion in revenue.
While the quarter and outlook were strong overall, gross margin did fall slightly, both quarter over quarter and year over year, but the company said synergies from the merger made the third-quarter to fourth-quarter decline smaller than it historically has been. The effects of foreign currency crimped revenue by 1% during the quarter, but for the full year overall, the effect on the top line was flat, and it said "foreign exchange should not have a significant impact" on its 2011 projections.
The company saw revenue growth across the U.S. and all of its international regions except for Canada and Australia, where sales declined slightly. International growth was paced by big increases in Latin America, a region that's expected to continue to lead its international growth and provides a growing part of its total revenue.
Stanley Black & Decker sees even more room for growth in its emerging markets, which now account for about 11% of its sales. It said emerging markets represent more like 20% of business at comparable "diversified industrial" companies.
Management said on the call that inflation of steel and copper prices will offset the cost synergies it had expected by around 100 basis points, but there will still be "very healthy" improvement.
Stanley Black & Decker forecast current-year earnings of $4.75 to $5 a share, 2 cents to 27 cents better than the consensus estimate.
Shares of Stanley Black & Decker rose 8.7% to $72.80 in recent Thursday trading and are up nearly 39% over the past year.
--Nathan Becker contributed to this article.
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