Power Tool Industry February 2020
Stanley Black & Decker
Q4 sales rose 2% to $3.71 billion and full year sales rose 3.3% to $14.44 billion. Profits rebounded, with SB&D posting $199.1 million in profits compared to a $106 million loss in Q4 2018. Organic growth was 2% despite $445 million in pressure from external headwinds. For the full year they delivered 3% total revenue growth and 3% organic growth.
Q4 Conference Call with Analysts:
Tools & Storage delivered 1% total revenue growth, with 2% organic growth and a 1% headwind from currency. Price was modestly positive for the fourth quarter, but slightly below their expectations. North America was up 3% organically. US retail continued to see strong momentum with mid single-digit growth for the quarter.
North America’s growth continued to be fueled by brand rollouts, including Craftsman and new product innovations, such as the DeWalt FlexVolt, Atomic and Xtreme. Sell through was robust, with the fourth quarter delivering double-digit POS for Retail.
Hand Tools, Accessories and Storage declined 3% due to customer inventory corrections and the shift to more promotional items such as power tools. In addition, the Craftsman comps are getting more difficult, which will temporarily pressure organic growth.
Total tariff and currency headwinds for the fourth quarter were $85 million, with 95% impacting Tools & Storage. The unfavorable product mix was caused by reduced levels of hand tools, accessories and storage revenue versus the prior year combined with increased promotional activities in the power tools SBU. Holiday promotions were very intense in power tools, which resulted in a higher promotional level than anticipated.
They began to normalize inventory levels within the quarter following the completion of the Craftsman rollout and other various brand transitions. That resulted in very strong cash flow, but lower production volumes created a non-recurring P&L headwind they couldn't overcome.
For 2020 they expect approximately 3% organic growth. Their tariff assumptions are based on the recently announced deal, with list 4A at 7.5% beginning in mid-February and lists one, two and three remaining at 25%.
They expect Craftsman to deliver about 2 points of growth within Tools & Storage, but the first quarter is a very tough comparison, due to the load-in that began in Q1 2019. Organic growth for Tools & Storage is expected to be in the mid-single-digits in 2020.
Jaime Ramirez will become EVP and president of the Tools & Storage business July 1. Current president Jeffrey Ansell will assume responsibilities for a strategic initiative to revitalize the Black & Decker brand. Ansell joined SB&D in 1999; Ramirez has been with the company since 1991.
During Ansell’s tenure with the company the tools business unit grew from a $600 million hand tool business to a $10.1 billion industry leader. According to CEO Jim Loree, Jeff wanted to step back from his executive responsibilities and take on a less intensive role with the organization. Loree said that despite Ansell being an extremely valuable and integral part of the team, they were supportive of his desire to spend more time with his family and on personal endeavors. He will assume responsibility for revitalizing the Black & Decker brand through 2021 then stay on as a strategic advisor to the company through the end of 2023.
Ramirez was described as a champion of innovation, technology and digital transformation with a socially responsible approach. Loree says they are confident he will bring his transformative focus and his passion for the business and take Tools & Storage into the future.
Revitalizing the Black & Decker brand has been on the list for a long time. They feel that it is a remarkable and iconic brand and presents and opportunity to unlock some great value. They believe Jeff Ansell is the right person to make that happen, but are not ready yet to share much of their plans.
The Black & Decker brand has not grown as much as other brands. They had growth of 70% in the Stanley brand, 9% with Lenox and 10% with Irwin since they acquired them, and more than 250% in DeWalt and 500% in Craftsman. Black & Decker is also at its largest size in history, but it’s only grown about 3% in that same time frame. So they believe there is a real opportunity to grow that brand.
Their China supply chain mitigation strategies include moving production to other countries as well as building their own Craftsman plant in Fort Worth, Texas.
SB&D acquired Boeing supplier CAM for a reported $1.5 billion. Consolidated Aerospace Manufacturing makes fasteners and other components for the industry. SB&D outbid private equity firms in an auction. About $200 million of the purchase price is contingent on the 737 MAX being authorized to return to service and Boeing achieving certain production levels, according to SB&D. When adjusted for about $185 million of expected cash tax benefits, the net transaction value is between $1.1 and $1.3 billion. The deal would help SB&D boost their engineered fastening and infrastructure business and diversify their industrial business. CAM was described as a high-growth, high-margin business.
SB&D closed on their acquisition of IES Attachments, a leading provider of off-highway specialized attachments for prime moving equipment, doing business under the Paladin and Pengo brand names. The transaction almost triples the size of their infrastructure business unit and diversifies them in the industrial markets.
The coronavirus outbreak in Wuhan, China is expected to have minimal impact on TTI, according to a note Citi Research sent to investors. TTI has one factory in Dongguan, which is far away from Wuhan. TTI expects that their new factory in Vietnam will account for about 20% of total output by the end of the year, which will further insulate them from the effects of the virus as well as minimize the impact of trade tensions between the US and China.
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