Stanley Black & Decker (SWK) Tops Q2 EPS by 37c

Stanley Black & Decker (NYSE: SWK) reported Q2 EPS of $1.60, $0.37 better than the analyst estimate of $1.23. Revenue for the quarter came in at $3.1 billion versus the consensus estimate of $3.11 billion.

2020 financial results.

• 2Q'20 Revenues Totaled $3.1 Billion, Down 16% Versus Prior Year Related To Market-Driven Declines Resulting From COVID-19
• Operating Margin Rate Was 8.9%; Excluding Charges, Operating Margin Rate Was 12.8% Down 200 Basis Points Versus Prior Year; Margin Performance Was Aided By Strong Cost Control And Price Realization
• 2Q'20 Diluted GAAP EPS Was $1.52; Excluding Charges, 2Q'20 Diluted EPS Was $1.60
• Quarterly Common Stock Dividend Increased To $0.70 Per Share As Recently Announced
• Guidance Continues To Be Suspended; Company's Scenario Planning Framework Provided In April For Full Year 2020 Will Be Updated On Today's Earnings Call

2Q'20 Key Points:

• Net sales for the quarter were $3.1 billion, down 16% versus prior year, as acquisitions (+2%) and price (+1%) were more than offset by volume (-17%) and currency (-2%).
• Gross margin rate for the quarter was 32.2%. Excluding charges, the rate was 33.5%, down 130 basis points versus prior year as the impacts from lower volume as well as currency and carryover tariff headwinds were partially offset by price, productivity and strong cost management.
• SG&A expenses were 23.3% of sales. Excluding charges, SG&A expenses were 20.7% of sales compared to 20.1% in 2Q'19, reflecting previously announced cost controls partially offsetting the impact from lower volume.
• The tax rate was (105.6%) which included a $119 million one-time benefit associated with a supply chain reorganization. Excluding charges and one-time benefit, the tax rate was 15.0% versus 11.6% in 2Q'19.
• Working capital turns for the quarter were 5.6, down 1.1 turns from prior year due to maintaining relatively consistent inventory levels to serve a potential second half demand improvement on a lower revenue base.

Stanley Black & Decker's President and CEO, James M. Loree, commented, "We effectively managed through a multitude of challenges during the second quarter to finish with a strong outcome given the environment. Our team demonstrated agility in the face of changing demand, swiftly implementing appropriate cost reduction actions while also responding to serve a rapidly improving demand picture in Tools & Storage and Security.

"As we turn to the second half, we remain focused on four key priorities: (1) ensuring the health and safety of our employees and supply chain partners; (2) maintaining business continuity and financial strength and stability; (3) serving our customers as they provide essential products and services to the world; and (4) doing our part to mitigate the impact of the virus across the globe. We are making critical decisions around these priorities every day to safely operate our business and successfully navigate the global pandemic. I am pleased with how our employees have responded and confident in our ability to successfully position the business to capitalize on improving market conditions and growth opportunities ahead."

2020 Outlook

The Company withdrew its full year guidance in April as a result of the uncertain macro environment and will continue to refrain from providing such guidance at this time. Information about the Company's second half 2020 scenario planning will be provided on today's earnings call.

The Company is proceeding with the $1 billion cost reduction program, announced on April 2, which we continue to expect will deliver $500 million in cost savings in 2020. During the second quarter $175 million of savings were realized, representing a strong start to the program. Given the risks and uncertainties regarding the global economic outlook, management has taken steps to make some of the furloughs and reduced work weeks permanent while the remaining others will be returned to full time status as of early September. This will ensure more sustainability of the cost reduction program while providing more employment stability for our remaining associates.

Donald Allan Jr., Executive Vice President and CFO, commented, "We are managing through this crisis in a manner to preserve operational flexibility while acting decisively to prepare for and navigate a range of potential demand scenarios. The team's performance in the second quarter clearly demonstrated our ability to quickly shift to changing demand scenarios while maintaining our focus on our $1 billion cost reduction program. In this uncertain environment, we will maintain this flexible posture as we move forward, keeping our cost reduction and capital deployment plans in place, but preparing to ramp back up to more normalized demand levels. Also, new growth opportunities have emerged during this crisis in our Tools & Storage and Security businesses and we will pursue them with targeted investments in the second half of 2020. We remain focused on maintaining a strong operational foundation and balance sheet and we are confident that we will be in a position to benefit from a recovery."

For earnings history and earnings-related data on Stanley Black & Decker (SWK) click here.

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