Stanley Black & Decker
Q2 revenue fell 16% to $3.1 billion. Tools and Storage revenue fell 16%. Organic revenue across all regions globally was impacted by reduced business activity in North America due to CV19.
Q2 Conference Call with Analysts:
CEO Jim Loree classified the quarter as one of the most successful he has experienced in his 21 years as a C-suite executive at SB&D. He said it was a successful quarter based on the challenges they faced and overcame and the fact that they operated effectively, stayed strong and positioned the company for better margin performance and growth going forward.
It was the most volatile quarter they’ve ever experienced, with revenues down 40% in April followed by an explosive May and June in North American retail that saw POS rise to “stratospheric levels.”
Tools & Storage revenue fell 16%, with volume down 16% and currency accounting for an additional 1% decline; positive price impact added 1%. Revenue in North America was down 10%. US retail was flat organically as inventory reductions early in the quarter were offset by strong demand that emerged in mid-April.
Demand was driven by the DIY phenomena that emerged shortly after lockdowns and stay home orders were instituted in much of the country. The refocus on home as haven drove up all their categories and they experienced multiple weeks where POS grew between 30% and more than 50%. They noted that strong POS continued during the first four weeks of July, which was the beginning of Q3.
Retail store inventories are at historically low levels and they are well past Q2 inventory corrections with North American retailers and are now experiencing shipment growth in line with POS demand.
The US commercial and industrial tool channels were down 44% and 25%, respectively, due to the impacts of the shutdowns and reduced construction activity. They did see some positive indications in June but expect a slower recovery in these channels.
By SBU, Power Tools and Equipment declined 9% and Hand Tools, Accessories and Storage declined 23%, due to steep declines in industrial tool channels and international markets.
Both SBUs benefited from positive global trends in ecommerce and DIY. Ecommerce represented nearly 15% of global Q2 Tools & Storage revenue. Ecommerce accounted for $1.3 billion in revenue in 2019. They see several opportunities to expand ecommerce initiatives and have a Black & Decker initiative underway in North America.
They are keeping their planned 2020 capital expenditure reductions in place and plan to continue suspending M&A activities and share repurchase.
For the second half, their assumptions for Tools & Storage range from –3.0% to +4%. A key factor in where they fall in this range will be the sustainability of the very strong growth they’ve seen in US retail channels.
They are watching US consumer trends closely, as well as the potential for another stimulus package and the potential for Pros to ramp up activities.
The company organic revenue trend over the past eight weeks is modestly positive, so they feel the high end of their range is possible, however not highly probable.
They see their cost reduction program as a $1 billion savings opportunity over the next 12 months, with $500 million this year. About 60% of that is from indirect spend and deflation; the balance is from staff and benefit reductions. As far as indirect spend goes, they have identified about half the saving as sustainable, and are working to push that to 75%.
They realized $175 million of the $1 billion in annual cost reductions they announced during the quarter, and now plan to turn some of the savings originally positioned as temporary into permanent. In early October they will eliminate their temporary salaried actions that include modified work weeks and furloughs and return 9,300 employees to a full work schedule and permanently lay off about 1,000 employees.
The Craftsman brand remains a key element of their growth strategy, with strong customer response. They remain well along their path towards $1 billion in incremental revenue. The brand’s heritage and value proposition put it in a good position to benefit from all the positive trends in North American DIY.
Society’s new obsession with health, safety and security has been a boon to their security business, which now has many new opportunities for growth.
They built a substantial amount of inventory early in the quarter when customers were in the process of inventory corrections, and thus were able to produce sufficient inventory to keep up with demand when it accelerated.
While he believes the DIY trend will eventually cool down some, CEO Jim Loree sees the renewed interest in home and garden as something that will be around for at least the next couple of years. In addition, there are other consumer trends that could help sustain business, including investing in home renovations, adding home offices and relocating from cities to suburbs and rural areas. The Pro market has been very quiet, so when work picks up that could account for considerable volume. And the current obsession with health and safety may lead to another round of home improvements and renovations for both homes and businesses.
They identified a series of supercharged growth initiatives that have become even more attractive as a result of trends catalyzed by CV19. The initiatives are currently being funded; they expect them to contribute $3 billion to $4 billion of incremental annual revenue beginning in 2022. One initiative is acquiring the remaining 80% of MTD in early 2022.
They continue to focus on their CV19 priorities, ensuring the health and safety of employees and supply chain partners, maintaining a strong business, serving their customers and doing their part to help mitigate the impact of the virus across the globe.
They established a mandatory mask policy for all location in April, along with temperature checks and health questionnaires and continue to enforce social distancing and modify facilities and production lines where needed.
They implemented extensive standardization protocols in all operations and formed a corporate safety committee of senior execs and specialists and hired a Chief Medical Officer specializing in infectious disease control.
They are doing their own contact tracing. Today they have about 300 confirmed CV19 cases, about 0.5% of their workforce. They are also doing a massive educational campaign directed at associates to reinforce how employees can stay safe at work and in the community. They noted they believe It is important to combat all the misinformation that it is out there.
CEO Jim Loree commented on George Floyd’s death and the Black Lives Matter movement, saying there was no place in society for this type of racism and brutality. They are committed to doing their part to level the playing field. Since early June Loree and senior executives as well as Board members have had extensive dialogues with black associates to better understand their experiences with racism and bias and identify concrete actions they can take. They commissioned a task force which recently made substantive recommendations which they plan to move forward with in the second half of the year.
SB&D is partnering with DeepHow to use their AI platform called Stephanie in what was described as up-skilling programs. Stephanie will improve knowledge capture, increase training efficiency and help grow the culture of safety at SB&D. SB&D will also bring the AI platform to customers, focusing on manufacturers, contractors, trade schools and unions. SB&D said DeepHow is the only AI knowledge transfer system for the skilled trades. DeepHow captures workflow via a mobile app and then turns complex workflows into step-by-step how-to videos that are much less labor and time intensive to produce than traditional video training.
SB&D is reportedly recruiting tradespeople to feature in new commercials for Craftsman Tools by monitoring posts on SB&Ds social media accounts. The commercials can be viewed on You Tube; the latest one features Justin Travis of Coastal Cottage Renovations in Lewes, Delaware and is posted on the company’s website at coastalcottagerenos.com.
SB&D was named to Forbes’ annual list of America’s Best Employers for Women 2020, ranking #1 in their category. CEO Jim Loree said that in addition to simply being the right thing to do, research shows that companies with diverse and inclusive cultures perform better. More than 75,000 US employees, 45,000 of which were women, participated in the survey.
TTI recently partnered with Saigon High-Tech Park (SHTP) in Ho Chi Minh City to co-organize their first Vietnam Supplier Workshop. According to VENEWS, Vietnam is very important to TTI’s global manufacturing expansion strategy because manufacturing in the country will provide strategic geographic diversification and strengthen the TTI supply chain. TTI confirmed that SHTP will be the location of their new plant in Vietnam. Construction of the SHTP factory will begin during the fourth quarter and is expected to be completed by the end of 2021. Once the factory is completed and fully operational it will employ about 7,000 people, including 500 dedicated to research and development. The plant will reportedly cost $650 million and will produce cordless appliances.
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