Shares of construction equipment maker Stanley Black & Decker (NYSE:SWK) fell as much as 16% in trading Tuesday after reporting fourth-quarter earnings and 2019 guidance. At 3:50 p.m. EST, shares were still down 13.3% on the day.
Quarterly revenue was up 5% to $3.6 billion on a 5% increase in volume. Price and acquisitions drove another 3% increase in revenue, but that was offset by a 3% decline in revenue from currency changes. Net loss was $66.7 million, or $0.45 per share, although adjusted earnings per share were $2.11. Both revenue and earnings per share were slightly ahead of expectations.
What really disappointed investors was Stanley Black & Decker's guidance for 2019. The company said it expects adjusted earnings of $8.45 to $8.65 per share, which was notable lower than analysts' estimate of $8.79 per share.
Stocks are often priced based on estimates of future growth, and analyst estimates are usually a good benchmark for what investors are expecting. That's why guidance below estimates can lead to a decline in shares like we saw today. Stanley Black & Decker is still highly profitable and trades at just 14 times the midpoint of guidance, a decent price for a solidly run company. The dividend yield of 2% is also a nice benefit for investors. Long term, I think the company will continue to grow slowly, but the reset of expectations today is a shocker for investors.