What happened to Stanley Black & Decker in 2022
A stake in a company that manufactures tools, outdoor products and industrial products Stanley Black & Decker (SVK 3.09%) it has fallen nearly 60% since the beginning of the bear market in early January last year.
The decline comes at a time when almost everything could go wrong for the company. Management began the year expecting margins to improve as supply chain challenges eased, while it hoped pandemic-inspired DIY tool sales would remain strong. In addition, the integration of MTD’s outdoor products promised to strengthen the company’s position in a complementary category – DIY tools and lawn and garden products are often sold in the same hardware stores.
It didn’t happen. Raw material and supply chain cost issues persisted and were much more significant than originally estimated. Meanwhile, the interest rate is increasing the pressure on consumers, especially in the housing-related industries, and Stanley is now struggling to reduce product inventories. To top it all off, bad weather has hit outdoor sales.
In response to the 2022 disappointments, management is taking long-overdue cost-cutting actions in its supply chain, actions that have been delayed in part by the pandemic-related boom in DIY sales. In addition, Stanley sold its security, healthcare and access technology businesses in 2022, giving management the ability to reduce central office and organizational costs. Ultimately, management plans to cut costs by a whopping $2 billion over three years.
To put that figure into perspective, Wall Street analysts estimate that the company’s sales will reach $16.1 billion in 2023.
Is Stanley Black & Decker a buy for 2023?
As discussed earlier, Stanley’s biggest problem right now is avoiding another drop in profit margins as it tries to reduce its inventory in the face of declining sales. That’s easier said than done, so investors should brace themselves for some potential short-term bad news. Moreover, Stanley CEO Don Allan, appointed in July, previously served as CFO when management’s 2022 outlook proved overly optimistic.
Cost-cutting measures are significant, and the DIY tool market won’t remain in freefall forever. If Allan can execute cost-cutting plans in line with projections and margins stabilize, then the stock looks like an excellent value for risk-tolerant investors. However, you will need to be patient as the turnaround, especially in terms of margin, will take time.
Li Samaha has no position in any of the mentioned stocks. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.