Today before the market open, The Stanley Works (SWK) reported results for the third quarter of 2009.

During the quarter, net income was $60.4 million, or 75 cents per share, down 63% from $163 million, or $2.04 per share, in the third quarter of 2008. The 2008 quarter included profit of $1.08 per share from discontinued operations. This beat the Zacks Consensus Estimate of 60 cents.

Net sales from continuing operations were $936 million, down 16% versus the prior year as growth due to a 20% decline in unit volume. Currency translation also impacted revenues unfavorably by 2%.

Stanley Works’ security segment, electronic and mechanical security products, software and other equipment, posted an increase in profit, by 13%, to $84 million. The industrial tool segment posted a profit of $19 million, down 53% from the year-ago period based on weak demand for industrial tools and storage and continued inventory liquidation. Construction and do-it-yourself segment posted a third-quarter profit of $48 million, down 11% from the year-ago period.

The gross margin rate improved 270 bps versus third quarter of 2008. The increase is attributable to continued execution of productivity projects, price carryover and improved mix due to relatively stable performance in the Security segment. Lower commodity costs more than offset cost under-absorption associated with lower volume.

Based on the ongoing success in its end markets management has raised its 2009 EPS guidance and expects full year EPS to be in the range of $2.84 – $2.94 from a prior forecast of $2.34 to $2.84 per share.

Management also expects its free cash flow to exceed $300 million for the full year, based on expected continued working capital turn progress and improved earnings.

Gross margins are now expected to be approximately 40% for the full year due to strong performance and improving trends on this key measure. This updated assumption is the major driver behind the increase in annual guidance.
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