Stanley Black & Decker (SWK) has said the coronavirus in China is impacting its supply chain, and may delay the roll out of new products this spring. The company’s China production operations account for around 40% of their overall production, with the company spending around $2.5 billion on sourcing there.
Stanley CFO, Donald Allan, told an analyst conference that coronavirus had impacted its facilities in China to the point that it could very well cause a reduction in revenue over the next few months. Allan said, “This will cause some pressure for us in March and April from a revenue perspective.”
The company has attempted to shift some of the Chinese shortfall to Mexico production facilities. But, the combination of a short runway and limited capacity in Mexico to make up for the Chinese losses will prevent the company from fully replacing spring product.
SWK has 10 production facilities in China, and as of the most recent report, they were all operating at between 50% and 60% of normal capacity. Allan’s hope was that this would return to 100% in the next few weeks. But, he said if the coronavirus situation becomes worse in China then the return to full capacity could be delayed.
Generally the company ramps up production in February in anticipation of the spring selling season in the U.S. Allan called the February ramp up this year “very slow” which has led to a delay in getting new products to U.S. markets. But, he did say he thought the inventory issues were not “massive” and, he thought it was “something that’s manageable.”
On top of supply chain issues, the company now faces the possibility that a wider outbreak in the U.S. will dampen sales of products that do make it to market this spring. Allan said there had been a severe fall off in Chinese revenue, where the virus is much more prevalent, and that he saw that continuing through the first quarter.
While a large part of its supply chain, China makes up only a small percentage of Stanley Black & Decker global revenue, coming in most recently at $250 million annually. This is tiny compared to the company’s recent revenue of over $14 billion.
Allan noted that on top of coronavirus, the company is also managing a rising dollar, which impacts global sales, and the continuing impact of Chinese tariffs.
Steve Adams’s personal position in Stanley Black & Decker: none.
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