It's been a volatile 2019 for Stanley Black & Decker (NYSE:SWK), and though the toolmaker's stock stands 23% higher than where it started the year at, over the last six months it's only gained 1%. And during that six-month period, Stanley shares have whipsawed back and forth as investors wonder whether its earnings gains can hold.

With the owner of well-known brands including Craftsman, Irwin, DeWalt, Porter-Cable, and Lenox scheduled to report third-quarter earnings on Thursday, Oct. 24, let's take a look at whether Stanley Black & Decker will be taking investors on another wild ride.

Man using a circular saw.

Image source: Craftsman.

Riding the economy roller coaster

Most of the obstacles the tool company has faced this year have been issues beyond its control. From currency fluctuations and swings in commodity prices to concerns about the manufacturing, housing, and auto markets, Stanley has been buffeted by strong winds.

Where it does have a say in the matter, Stanley has actually done quite well. Cost controls and pricing actions helped operating margin widen by 60 basis points in the second quarter along with 4% growth in adjusted earnings per share. 

It also launched a new program it calls "Margin Resiliency" to build on those gains, and it expects it to deliver $300 million to $500 million of annualized operating margin benefit over a number of years. Stanley also expects the benefits from the program to begin showing up in the back half of 2019 and build momentum in 2020 and beyond.

Growing sales despite headwinds

Stanley's tools and storage business is its biggest and most important segment, accounting for 70% of total revenue last year. The business continues to see strong growth, enjoying 5 percentage points of organic gains last quarter, even though it saw some softness elsewhere. Emerging markets, for example, were weaker than expected, and sales fell 2% while Argentina, Mexico, and Turkey more than offset the gain seen elsewhere.

The benefit of Stanley's broad base of brands, realized from a series of acquisitions over the years, has resulted in a strong global franchise. It has also diversified its business and is spread across tools, security, and industrial markets that have offered strong free cash flow generation. Over the last 12 months, Stanley Black & Decker has generated $1.02 billion in FCF, well ahead of the $770 million it made in 2018.

But against that backdrop, the toolmaker has to contend with broader macroeconomic conditions that lead to the volatility we see in its stock as investors ponder how the toolmaker will contend with the changing outlook.

Rock-solid foundation

Stanley relies heavily on retailers like Home Depot (NYSE:HD) and Lowe's (NYSE:LOW), the latter of which accounted for 12% of 2018 sales overall, but represented 17% of the tool and storage category revenue. Home Depot accounted for another 14% of segment revenue.

That's over $3 billion in sales, or looked at another way, $1 out of every $5 in total sales generated comes from these two do-it-yourself home centers. Their own outlooks are driven by macro concerns as well, meaning Stanley can get hit twice by these factors.

Fortunately, the toolmaker is a solid company with conservative financial policies. It also pays a dividend of $2.76 per share that yields a modest 1.9% annually. Remarkably, Stanley Black & Decker has paid a dividend for more than 140 consecutive years, which doesn't happen if you're not wise about your money.

Wall Street is expecting Stanley to post a 4% increase in revenue in the third quarter, generating earnings of $2.02 per share, a near-3% decline from the year-ago period. That's not necessarily unexpected, considering the headwinds it continues to encounter, but it means investors can probably expect more volatility in the weeks to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.