Stanley Black & Decker reported its 2020 first quarter financial results on Thursday and further detailed a $1 billion, 12-month cost-savings program that the company outlined at the start of April aimed to better position the company for recovery amid impacts from the COVID-19 pandemic.
The New Britain, CT-based maker of tools, tool storage and security products posted total Q1 sales of $3.1 billion, down 6 percent year-over-year (YoY), with organic sales down 7 percent primarily related to COVID-19 impacts. Total Q1 profit was $133 million, compared to $170 million a year earlier.
By business segment in Q1:
- Tools & Storage sales of $2.07 billion fell 10 percent YoY, with sales across all regions down due to effects from COVID-19. Regionally, North America sales were down 8 percent; Europe was down 7 percent; and emerging markets fell 13 percent. Profit rate was 11.3 percent.
- Industrial sales of $591 million increased 6 percent YoY. By vertical, Engineered Fastening organic sales declined 9 percent as share gains were more than offset by lower global automotive light vehicle and general industrial production, while Infrastructure organic sales fell 6 percent amid modest growth in Oil & Gas that as more than offset by lower North American Attachment Tools volumes. Profit rate was 13.2 percent.
- Security sales of $468 million were down 4 percent YoY, with North American organic growth up 2 percent and Europe down 1 percent. Profit rate was 7.4 percent.
Stanley B&D CEO James Loree said that in North America, retail was a bright spot as home-bound do-it-yourself consumers frequented home improvement stores and e-commerce to stock up on tools and project supplies, driving positive point-of-sale. However, he added that retailers took that opportunity to trim inventories between sell-out and sell-in, creating a gap that has lasted into April.
Cost Savings Program
Stanley Black & Decker's $1 billion cost reduction program is expected to deliver $500 million in 2020 savings, with $375 million of that in the second half of the year. The company said 40 percent of the cost savings will come from actions in employee compensation & benefits, with those actions including the following:
- Salary reductions for senior leaders - all of SBD's most senior executives, as well as all board members, have elected to forego 20 percent of their ongoing compensation at least for the remainder of 2020
- Temporary pause in benefits that include SBD's 401(k) matching in the US
- A voluntary retirement program
- Modified work weeks
- Some reductions in workforce
In the company's earnings conference call with analysts, Black & Decker CFO Don Allan said that about 70 percent of those compensation & benefits actions are temporary, specifically furloughs, pauses in benefits and salary reductions.
SBD said it also plans to reduce capital expenditures and temporarily suspend acquisition-related activity and share repurchases until the demand outlook is clearer.
The cost reduction program focuses on spending reductions in areas that include professional services, MRO, IT, marketing and travel-related expenses.
"We're taking a clean-sheet, bottoms-up approach to assessing these spend categories and establish indirect spend control towers, with cost category owners who will be focused on reviewing all proposed spend," Alan said Thursday. "The mindset in this environment is to only approve expenditures that are essential to running our business.”
"After 12 months, by design, there will be a snapback in some of these costs if we are in a better demand environment," Alan continued. "In fact, if we find out we are in a V-shaped recovery in the coming quarters, we may choose to put some of this spending back in place. However, if we find we are in a L-shaped recovery, where volume stays depressed for a longer period of time, we will make these actions permanent."
Less Than 100 COVID-19 Cases
Loree said that with the pandemic now subsided in China, only one known SBD employee in China had a positive test for COVID-19 among its 10 manufacturing plants there, and has since recovered.
"That early learning in China proved critically useful to managing safety in our global operations as it enabled us to establish a standardized safety protocol based on applying our China practices as the virus worked its way around the world," Loree said.
He added that among the company's 25,000 manufacturing and distribution employees around the world, SBD has had fewer than 50 of them test positive for COVID-19 to date. The company has had "only a few locations" out of its 100+ factories and distribution centers with any notable virus spread, though Loree noted there has been one where nine cases were detected within a 12-day period. The company immediately and voluntarily shut down that facility for sanitation and sent most employees home for a mandatory 14-day quarantine.
To date, SBD said it's had less than 100 employees test positive for COVID-19 out of its headcount of about 58,000.