Power Tool Industry May 2020
Bosch announced they will be capable of producing half a million facemasks each day after converting their special purpose machinery unit to build a production line for facemasks.
Stanley Black & Decker
Q1 sales fell 6% to $3.1 billion and organic sales fell 7%, all primarily due to impacts from CV19. Acquisitions (+2%) and price (+1%) were more than offset by declines in volume (-8%) and currency (-1%).
Margin resiliency and other cost controls SB&D enacted in late March were more than offset by lower volumes and higher manufacturing costs related to the virus as well as currency and tariff headwinds. Higher manufacturing costs resulted from significant increases in PPE and freight costs.
Tools & Storage net sales declined 10% versus Q1 last year from the impacts of lower volume (-9%) and currency (-2%) partially offset by price (+1%). Revenue across all regions declined due to the impact from the global pandemic with North America (-8%), Europe (-7%) and emerging markets (-13%.) all down considerably. However, Canada was relatively flat. The North America organic decline was driven by the expected difficult comparison to the prior year's Craftsman rollout along with unexpected pandemic-related impacts.
Power tools and equipment declined 3% and the less cyclical hand tools, accessories and storage SBU declined 14%, primarily because this SBU had a larger benefit in 2019 from the Craftsman rollout.
Their recently announced cost reduction program is expected to deliver $500 million in annualized savings in 2020 and $1 billion overall.
They have the financial flexibility to weather the current crisis, with more than $3 billion in cash and more than $3 billion in revolving credit.
They declined to give guidance for the full year, but expect significant declines in Q2, which they expect to be the trough.
Conference Call with Analysts:
CEO James Loree and CFO Don Allen were thanked repeatedly by analysts for providing a tremendous amount of detail during their first quarter conference call.
Allen termed the years ahead as the “New World Disorder of the 2020s.” He said it would be an exciting world full of disruptive risks and opportunities, with the accelerating pace of technological change pushing the limits.
They took extreme measures to protect their 8,000 workers in their 10 plants in China, and to date have had only one worker contract the virus, and she has recovered.
They applied the early learnings from China to all their global operations, and among 25,000 manufacturing and distribution workers globally they had fewer than 50 test positive to date. And for the total company, with more than 58,000 associates, they’ve had fewer than 100 test positive. They did have to shut down one plant due to an outbreak.
Overall demand in January and February was consistent with their previously provided guidance. As the shutdowns rolled out, sell-in fell into deeply negative territory, even more severe than in the 2008/2009 Great Recession.
North American retail was a bright spot as homebound DIYers flocked to home centers and shopped online to stock up on tools and other project supplies, driving positive POS, with ecommerce sales up in double digits.
However, most retailers trimmed inventories, which created a large gap between sell-out and sell-in that continued into April. That’s why they withdrew their guidance for the year and now expect a 34% to 45% decline in organic revenue for the second quarter and a 15% to 30% organic revenue decline for the full year, with the extent of the decline depending on the shape of the recovery. They are currently planning on a U-shaped recovery, but can adjust to either a more extended L-shaped recovery or a faster V-shaped one.
Approximately 85% of tools are construction oriented, with the remaining 15% serving industrial customers and the automotive aftermarket. The impact on North American independent construction channels and industrial customers, as well as geographies outside North America, has been very significant.
They believe there is a significant opportunity to capture incremental raw material deflation across their roughly $6 billion of annual spend in finished goods, components, commodities and transportation. That will help offset some of the remaining tariff and currency pressure.
They have adjusted their manufacturing and supply chain to align with the current demand environment, but are protecting inventory of their highest volume SKUs until they get a sense of demand progression across the coming months.
They cautioned it is easy to lose sight of all the opportunities that arise in moments like this and they will continue to execute a number of outstanding growth catalysts. Craftsman continues to have strong response and growth and they are well on their path toward their goal of $1 billion in incremental sales.
Their recent DeWalt breakthroughs, including FlexVolt, Atomic and Xtreme, have been well received and now account for more than $0.5 billion of revenue, with a healthy pre-CV19 growth rate.
They are the tools industry leader in ecommerce with 2019 online revenues of $1.3 billion, and believe this channel has tremendous growth potential.
About 98% of their salaried employees are working out of their homes, which makes many projects very challenging to execute. In addition, there is a travel ban in place, so there will be delays in actually implementing some programs.
The tools side is complex, especially in North America, because they have several major retail customers that are continuing to perform. Therefore, they did not reduce production to match their projected second quarter decline in revenue. They will therefore probably carry a little higher level of inventory. They have a very keen grasp of the opportunity cost of not being prepared for demand from home centers.
They suspect that the Pro business is down considerably, as job sites have been closed down in several states. That is causing them to believe that the DIY phenomenon is actually bigger than they think, because they would estimate that Pro business is down in the low to mid-single digits.
In the current environment promotional activity does not make sense.
CEO James Loree said they will be reducing indirect spending and non-essential staffing and plan to capture the raw material deflation opportunity that has emerged. CFO Don Allen noted that they will be able to maintain a strong foundation and balance sheet and will be in a position to capitalize on the recovery.
SB&D announced a $10+ million comprehensive CV19 philanthropic outreach program to help communities and employees around the world combat the effects of the pandemic. Approximately $4 million will go to CV19-focused nonprofits, $5 million to an employee emergency relief fund that is administered by an independent organization. They also enhanced the company’s matching program for charitable organizations and donated 3 million face masks and large quantities of other personal protective equipment (PPE). The global, companywide CV19 Community Response Task Force is under the leadership of Mark Maybury, the company’s chief technology officer.
SB&D will supply battery systems to Ford and 3M for the Powered Air-Purifying Respirators they are producing, which will be used to help protect healthcare professionals on the front lines.
Graham Robinson is the new president of Industrial, which currently includes Stanley Engineered Fastening, Infrastructure and Oil & Gas. Previous president John Wyatt will take responsibility for creating a strategic roadmap for SB&D’s outdoor power equipment business.
SB&D’s annual meeting April 17 was a virtual meeting only, with no shareholders attending in person.
TTI provided an update on performance the end of April. They noted that after “minimal disruption” their supply chain is functioning superbly and their product development system is now fully operational again.
Demand has resurged for DIY tools, outdoor products and floor care. In addition, the Milwaukee Pro business is gaining traction worldwide.
Their global ecommerce business is growing rapidly, and they have worked closely with their ecommerce customers to capitalize on the boom in online and curbside pickup sales.
New product launches are proceeding on schedule, including the Milwaukee MX FUEL Cordless Equipment System.
Makita Factory Service Centers are offering free labor and free round trip shipping for tool repairs through May 31, 2020 in order to help users get their tools repaired without having to go to a service center. Makita will email users pre-paid COVID-19 shipping labels; tools can be dropped off at a FedEx shipping location. When repairs are complete, Makita will mail tools back to customers. The option is available for any tool weighing less than 70 pounds.
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