Stanley Black & Decker
Q1 revenues rose 19.5% to $4.45 billion. Gains from a 5% boost from price and a recent acquisition were offset by a 6% decline in sales volume and a 1% decline in organic revenue amid supply-chain crunches and higher costs due to inflation.
Q1 Conference Call:
End-user demand remained stable in Tools & Outdoor, led by Pro construction. Absolute dollar sell-through at retail remains high, particularly when measured sequentially or compared to a 2019 baseline.
Tools & Outdoor revenue grew 24%, with acquisitions contributing 27% and price driving 5%, offset by a 6% decline in volume and 2% from currency. Volume was impacted by the availability of electronic components. Volume in North America was down 3%. Price realization was more than offset by inflation, higher transportation costs and lower volume. They believe volume will decline in the mid-to low single-digits in Q2 and grow 1% to 2% in the back half.
Power Tools was down 1% organically for the quarter. They expect their recent introduction of DeWalt PowerStack to contribute several hundred million dollars to growth this year. Hand tools, accessories and storage declined 1% against tough comps.
Tools & Outdoor organic growth is expected to be in the mid-to high single digits but margins are expected to be down year over year. They adjusted their expectations for volume growth by about 3% because they have a 5.5% price increase in the first quarter and will have 7.5% to 8% in the second quarter and close to 10% in Q3 and Q4. That is a lot of price over a very short timeframe.
Russia’s invasion of Ukraine drove a new wave of inflation and they now expect $1.4 billion in commodity inflation compared to the $800 million they forecast in January. The key drivers reflect significant increase in battery inputs such as lithium, nickel and cobalt, up 90%, 50% and 7%, respectively, oil-related inputs such as transport and resins, up 15%, and continued price increases in other base metals and steel.
They remain focused on pricing actions to offset the cumulative impact of inflation over the past ten months and expect margins to begin to expand late this year.
They are looking at accelerating their manufacturing 4.0 automation and digitization efforts across the supply chain and have some additional expansion opportunities in the US and Mexico.
Their 2021 point-of-sale growth was above category line average for their top two home center customers.
Despite increasing interest rates, they expect repair-remodel activity to grow in mid-to high single-digit rates over the next two years, due to aging housing stock, record levels of home equity and strong price appreciation that drives big ticket remodeling. In addition, the tight supply of existing homes is leading many consumers to invest in their home rather than try to buy a new one.
Years of undersupply of new homes after the 2008 economic crisis has created a significant housing stock supply issue and millennials are entering their peak home buying years.
Commercial construction is still in the early stages of post-pandemic recovery.
Since the start of the pandemic, they’ve added more than 1,500 people to R&D, commercial and ecommerce functions in Tools & Outdoors outside the impact of any acquisitions.
Over the long term they plan to invest 50% of their excess capital into strategic mergers and acquisitions.
They addressed reports that their investment in the Outdoor business was an investment in archaic, gas-driven technology, and stated that they will bring an outstanding and differentiated line of DeWalt brand electric products to the professional landscaping channel. The acquisition brought them a network of 2,500 unique outlets skewing toward the Pro market and representing about half of the $25 billion addressable market.
They explained why one competitor grew market share, stating it was because the competitor bought substantial quantities of batteries and semiconductors before the pandemic and built up several billion dollars’ worth of inventory. The competitor’s business is done FOB Asia, so they don’t report revenue the same way. And because SB&D had to deal with supply constraints this competitor has been able to grow their market share faster. SB&D believes they will turn that around in the next couple of years moving forward.
They believe Outdoor will deliver an additional $4+ billion in revenue and grow 10% to 15% organically for many years to come. Regulatory actions in several states, led by California, will create pressure to convert from gasoline to electric.
They also added eight manufacturing locations through their outdoor acquisitions which will position them as the outdoor power equipment leader.
They are continuing to monitor their supply chain as it relates to China and have experienced some minor CV19-driven disruptions. Their Tier One contract manufacturers received more semiconductors in the first quarter so they will be able to increase production and delivery of Pro power tools in Q2. They expect electric component supplies to increase 20% in Q2 and further improve in Q3, which will improve fill rates and customer inventory positions.
SB&D is providing the tools that will be used to teach construction skills to Girl Scouts of the Green and White Mountains in New Hampshire. The scouts will be building a new cabin at summer camp. The tools are part of a package of $25 million in grant funding that SB&D is awarding through their “Empower Makers” Global Impact Challenge. The girls will work with a master carpenter to frame and raise the walls, attach siding, frame windows and doors and shingle the roof with a female volunteer roofer.
SB&D released the results of their inaugural Makers Index, an in-depth research study looking at sentiment about skilled trade careers in the US, specifically among young people and their parents. The study surveyed high schoolers aged 14-19, parents of high schoolers and skilled trade workers. While 85% of young people and 94% of parents thought that skilled trade work is a good quality career option, just 49% of young people have ever considered a skilled trade career and just 16% are very likely to do so. The study concluded that much more needs to be done to make trade careers appeal to young people.
SB&D is selling its historic automatic door unit, which debuted in the Great Depression as the “Stanley Magic Door.” The division, now known as Access Technologies, generated $340 million in sales last year. The all-cash $900 million sale to Ireland-based Allegion means that Stanley will now be out of the security business entirely. SB&D recently sold the Stanley Security segment to Securitas for $3.2 billion. SB&D intends to focus on their tool business.
TTI/Techtronic Industries stock price has fallen about 40% from its peak last August and fallen 27% year to date. Analyst firm USB attributes the decline to several factors, including supply chain disruption amid China's lockdown and pressure in the US created by falling home improvement demand as the US reopened and pandemic restrictions eased. In addition, interest rate hikes in the US put stress on the housing market and equity valuation. Higher commodities prices and geopolitical uncertainty also contributed to the slide. However, USB also issued an analysts’ report stating that they believed the sharp decline in stock prices was greater than warranted and maintained a BUY rating on TTI stock.
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