Stanley B&D to Offer Preferred Units - Analyst Blog

Stanley Black & Decker Inc. (SWK) will be issuing 5.50 million of Convertible Preferred Units due in 2018 at $100 per unit. The units will also carry a purchase contract to obtain convertible preferred stock on November 17, 2015.

Settlement of the purchase contract, earlier than the stated time will entitle only 0.85 shares of convertible preferred stock for each contract.

Stanley Black & Decker intends to use the proceeds for the redemption of its 5.902% fixed and floating rate junior subordinated debt securities, due in 2045. Besides, it will fund its pension plans, pay short-term debt and use for general corporate purposes.

Stanley Black & Decker manufactures tools and engineered security solutions across the globe. The company's recently announced third quarter 2010 results were impressive as EPS of 97 cents surpassed the Zacks Consensus Estimate of 89 cents and were also above the 77 cents per share from the comparable quarter of 2009.

Exiting the third quarter, the company's long-term debt, net of current portion, was up 17.3% to $2,719.2 million versus $2,318.7 million in the second quarter of 2010.

Outlook for the fiscal year 2010 was encouraging as management revised its full year EPS guidance to $3.60-$3.70 versus its prior guidance of $3.35-$3.55. The revised guidance is based on a net organic revenue growth assumption of 5% in the second half of 2010 from 2009. This implies positive growth in the fourth quarter.

Gross margin, due to lower absorption and currency, is expected to decrease by 50-80 basis points sequentially. It is expected that free cash, excluding one-time charges, would exceed $600 million as projected earlier, and go up to $700 million.

From the recently acquired Black & Decker, the company expects annual cost synergies of $350.0 million over three years of acquisition, with roughly $125 million (versus its prior expectation of $90 million) to be realized in 2010. Also, from the ADT France acquisition, synergistic benefits are likely in 2011.

The company is hopeful about surpassing the $350 million cost synergy target and intends to provide an updated estimate in January 2011, along with the fourth quarter results.

We currently maintain a Neutral recommendation on the stock, supported by Zacks #3 Rank (Hold).