SWK Stock Price Reacts to Report Showing Earnings Down, and a Cautious Outlook

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Stanley Black & Decker (SWK) has reported lower earnings the company says are the result of the COVID-19 impact this quarter. 

SWK saw revenue decrease 16% year-over-year to $3.1 billion in the second quarter. The company was able to maintain operating margins, which, excluding charges, were 12.8%, basically flat from last year.

Earnings per share came in at $1.52, excluding charges. But, SWK believed its balance sheet was in sound enough financial shape to raise its dividend to $0.70.

Commenting on the challenging quarter, SWK’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.”

The company saw extreme weakness in emerging markets, where its Tools & Storage business saw a 29% decline. Weakness, attributed to COVID-19, was less pronounced in North America, with sales dropping only 10% in the quarter.

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Industrial sales declined 20% overall. But, Stanley Black & Decker reported the trough occurred in April, and sales have seen “modest sequential improvement” in the months since.

Loree said the company was pleased with their “ability to deliver against the weak but rapidly improving demand picture while maintaining their $1 billion cost reduction program,” and that being able to maintain “operating margin rates in Tools & Storage during a quarter currently believed to be a trough, was very encouraging.”

The company said that $175 million in savings were realized in the quarter, putting them on track to deliver $500 million in cost savings in 2020. Stanley Black & Decker did decide to make some furloughs and reduced work weeks permanent for now, though, as of now, the plan is to bring some workers back in September of this year.

Donald Allan Jr., EVP and CFO, said Stanley Black & Decker had identified new opportunities brought to the fore by the impact of COVID-19, and that the company would “pursue them with targeted investments in the second half of 2020.”

Allan said Stanley Black & Decker is maintaining a cautious footing financially, and that they would “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.”

SWK stock was little changed on the earnings report. The stock, now trading in the low $150s, has recovered the majority of losses it experienced in the March market selloff when the price briefly touched $70.

Steven Adams’s personal position in SWK: none.

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