Stanley Works on Growing

On the heels of the impressive results from competitor Snap-on (NYSE:SNA), Stanley Works (NYSE:SWK) followed with an equally impressive first quarter of its own.

Stanley's earnings jumped 78% to $68 million, or $0.80 per diluted share. Of course, if you factor in charges from each quarter, the increase drops to 33% (still not bad). Sales were up 10% to $1.1 billion. Unfortunately, there's another "but." Excluding sales from recent acquisitions, sales were up just 4%. If you also exclude favorable currency, sales grew a mere 2%.

I really shouldn't be so tough on the company, pointing out such details and diminishing its strong quarter. After all, in addition to generating sales and earnings gains in each segment, Stanley improved margins and maintains free cash flow of $68 million. The company reported its biggest sales growth in its security segment, primarily resulting from its acquisition of HSM, which provides security alarm monitoring services and access control systems to commercial customers. See, I'm not always so tough; I didn't even mention that sales in its security segment would have been just 1% without the acquisition, which happened in January.

Looking to the second quarter, Stanley projects earnings of $1 per share, which would be an increase of 11% over the year-ago period. It reiterated its estimate of $4 to $4.10 per share for the full year, which would represent growth of 15.3% to 18.2%. Thus far, Stanley has been able to counter the weakness in the U.S. retail and construction markets by making gains in its industrial segment and, of course, with the HSM acquisition. Unfortunately, it can't continue to count on acquiring companies to boost sales.

Luckily, based on its price and projected earnings, Stanley has a reasonable forward P/E of about 15, which is in line with Black & Decker (NYSE:BDK) and downright cheap compared with Snap-on at about 21. It will continue to battle the dismal U.S. housing market, but if it can continue to perform well globally and in its other segments, Stanley should reward patient investors who should be held over by the 2% dividend yield.

For more on what's building in the tool business, check out:

• Will Snap-on Ever Slow Down?
• Black & Decker's Sales in Disrepair
• Stanley Needs to Get Back to Work

Snap-on is an Income Investor recommendation. Want to get paid to invest? Analyst James Early and other investors like you can show you how with a free trial to Income Investor.

Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article. The Fool has a sturdy disclosure policy.