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Stanley Black & Decker Q3 Conference Call with Analysts: Q3 revenue fell 4.1% to $3.95 billion, primarily due to lower Outdoor and DIY revenue. Demand for Pro Tools remained very healthy. Q3 revenue for Tools and Outdoors fell 5% to $3.4 billion due to lower demand for consumer DIY products. The Tools segment as a whole had positive results; Outdoor fell 23%. Power Tools declined 2% organically, pressured by Consumer Tools. Pro-driven momentum coupled with positive impacts from a healthier supply chain is supporting enhanced service levels and promotional opportunities. Price was down 2 points as they resumed promotional activity for cordless tools. North America was down mid-single digits organically. North America Tools organic growth was positive, while Outdoor declined. US retail point-of-sale (POS) for the quarter remained above pre-pandemic 2019 levels due to strength in professional demand and price. Third quarter POS for DeWalt was positive versus last year, supported by promotions, pro-inspired new product offerings and sustained professional demand. They opened the 2023 DEWALT Grow the Trades Grant and Trades Scholarship program in Q3 in order to provide non-profits with the necessary resources to train, reskill and prepare tomorrow’s trades people by directly supporting end-user trade education. This is part of their overall commitment to invest $30 million to grow trade skills by 2027. Their cost reduction program delivered approximately $215 million of pretax cost savings in the quarter, bringing their aggregate savings to approximately $875 million since the cost savings program began. They will slightly exceed their $1 billion savings target this year and are on-track to deliver $2 billion in cost savings by 2025. They reduced inventory by approximately $300 million bringing their year-to-date progress to approximately $880 million. The third quarter inventory reduction supported the generation of approximately $360 million of free cash flow in the period, resulting in one of the strongest third quarter cash generations in the company’s history. They have reduced inventory by $1.7 billion since the middle of 2022 by improving supply chain conditions, strategic inventory management and the planned production curtailments initiated during the back half of 2022. They expect production to continue to normalize in the fourth quarter. They will remain disciplined and flexible in their approach to drive organic growth and share gains. They see a disciplined marketplace with no deep discounting, and they are going to continue their traditional promotional mix. They will also be driving growth organically by leaning into the opportunities they see with the Pro. They are now confident in their margin and cash generation projections and will start investing for growth in the fourth quarter. They expect a similarly stable macro environment next year with some dynamic elements. Volume next year will depend on whether or not consumer spending stabilizes or continues to shift away from goods to services. DeWalt, Craftsman and Stanley brands will be focal points going forward. The next tier of brands, like Irwin or LENOX or Troy-Bilt, will be utilized in a more simplified way. They have pockets of strength and weakness. Their Pro tool business is strong; their Outdoor and consumer business is weaker. They are watching the Fed to see what it does related to interest rates. If interest rates level out, they think they can manage growth. They have a long history of gaining market share. They went through a period of time in late 2021 and 2022 where they think the impact of the shortage of semiconductors caused them to lose some market share. Their focus right now is on reenergizing their engineering in innovation engine and concentrating marketing investments around innovation. That will probably account for 80% to 90% of their investment per spend and will hopefully get the growth of their biggest brands back to above market growth. They have the opportunity to get inventory much leaner by approximately $1 billion to $1.5 billion over the next two to three years at a pace of $400 million to $500 million a year. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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