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Stanley Black & Decker Some analysts are questioning SB&D’s decision to protect their margins by cutting another $1 billion in costs to mitigate the impact of CV19. Bank of America downgraded SB&D stock to Neutral and cut their price target, saying that all the focus on margin resilience could come at the expense of innovation and long-term competitive position and distract from the need to onshore more of their supply chain. Analysts pointed out that competitor TTI has grown R&D and headcount far more aggressively than SB&D over the past five years. Goldman Sachs Industrials & Materials Conference: Their margin resiliency program built up $100 million to $150 million for this year, but of course the pandemic headwinds have been much more significant. However, the program helped them create a roadmap for responding to new headwinds. They are now looking for an additional $850 to $900 million in costs reductions on an annualized basis. They are planning for a variety of recovery scenarios so they will be able to quickly pivot and execute based on actual developments. Some of the reductions come from productivity pricing and Industry 4.0 changes that will be sustainable, permanent changes. Some things like commodity deflation will be temporary. They are cutting between 10% to 30% of spending on professional services and marketing; some of that is temporary and some of it will be sustainable. Some of the costs will creep back, including some of the temporary changes they’ve made in benefits. They have very good insights from their major customers regarding what is happening with inventory and POS. Lowe’s is going to reduce their inventory a bit in this quarter after ramping up for the Craftsman rollout, but SB&D believes that as they move through the quarter, they will begin to see replenishments develop. They believe they are definitely gaining share in US retail. Ecommerce continues to be strong, and they are fortunate in that many of their products are viewed as essential. CFO Don Allan stated that they believe the remodeling and residential markets will emerge from the pandemic in good shape. People want to continue to do remodeling and project work and the fact that more people are working out of their homes is actually creating more projects. They also believe there may be a gravitation away from densely populated cities to the suburbs and the countryside. Commercial construction may be sluggish for the next two or three years as workplaces shift and more people work remotely. Many companies are now recognizing that their real estate footprint does not need to be as big. Construction in the US has varied greatly by state; Florida has continued much of their construction activity, whereas in the Northeast activity has almost ground to a halt. That will come back as states begin to reopen. The tariffs caused them to accelerate their plans to move more manufacturing closer to customers rather than have so much product shipping out from China and overseas into US markets. They’ve made a lot of progress, but their employees are not traveling now, so now work is being done. They will resume work when they begin traveling again. They are trying to drastically reduce their Chinese footprint. JP Morgan Homebuilding Conference: Stanley Black & Decker updated their guidance during a presentation May 19 at a JPMorgan homebuilder conference. SB&D says its revised plan currently assumes a Q2 organic revenue decline of 20% to 30% vs. a prior planning assumption of a 35% to 45% organic revenue decline. North American retail continues to be very strong and the security business is performing well. SB&D noted that the improved range primarily comes from better visibility of stronger performance in the U.S. retail channel for Tools & Storage and Global Security, although the environment remains dynamic. They are seeing Tools & Storage coming back, with replenishment orders from major US retail customers, and are seeing more positives than negatives. They believe they are gaining share despite the negative environment. They have been working with their retailers on Father’s Day promotions, which they described as normal promotions, not at a higher than normal level. Retailers have not really scaled back those plans. Black & Decker brand products and DeWalt products have similar margins, but the absolute dollars spent on each brand are significantly different. The first time they can exercise their option for the remainder of MTD is next July, so since the company is still 80% privately held, they did not want to provide too many details. However, they said 80% to 90% of MTD business funnels through US retail and POS is strong, not only in tools but also in outdoors. Wolfe Research Global Transportation Conference: POS has really begun to accelerate on a weekly basis and is at levels that they haven’t seen in 20 years. Much of it is being driven by the US Tools business. Their ecommerce business is up substantially from the $1.3 billion in volume in ecommerce tool industry sales they did last year. The Pro has not been as important a factor in home center sales as usual, and DIY has really strengthened, with people focusing on their homes. They have four to six growth opportunities that they are very excited about, including MTD and ecommerce. FlexVolt will have some innovations in the ‘21 to ‘22 time frame. TTI/Techtronic Industries Techtronic’s cost-cutting programs and new product launches could help the company widen profit margins and raise earnings per share (EPS) through 2022, according to Citibank analysts. Citi noted that TTI has a proven record of grabbing market share by introducing new products. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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