Stanley Black & Decker, Inc. — Form 10-Q Summary
Period clarification: The filing covers the three months ended April 2, 2022, compared with the three months ended April 3, 2021. This differs from the request metadata, which labels the period “2021 Q1.” Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise. Results are unaudited.
Business context and reporting period
Stanley Black & Decker sells tools, outdoor power equipment, engineered fastening products, and infrastructure-related products and services. Continuing operations are reported in Tools & Outdoor and Industrial. The Security businesses being divested—Convergent Security Solutions and Mechanical Access Solutions—are presented as discontinued operations.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales, continuing operations | $4,448.0 | $3,720.8 |
| Gross profit / margin | $1,305.4 / 29.3% | $1,387.8 / 37.3% |
| Operating profit | $345.1 | $668.7 |
| Continuing-operations earnings attributable to common shareowners, diluted | $155.8 | $451.0 |
| Diluted EPS, continuing operations | $0.94 | $2.74 |
| Total diluted EPS, including discontinued operations | $1.06 | $2.91 |
| Cash used in operating activities | $1,241.1 | $157.8 |
| Free cash flow | $(1,380.9) | $(246.1) |
Revenue rose 20%, primarily reflecting a 23% contribution from strategic outdoor acquisitions and 5% price realization, partly offset by 6% lower volume and 2% unfavorable currency. Continuing-operations pretax earnings were $178.5 million versus $573.3 million. Reported Q1 restructuring charges were $52.7 million; acquisition-related and other charges also weighed on results. Excluding those charges, diluted continuing-operations EPS was $2.10 versus $2.85.
Segments: Tools & Outdoor sales rose 24% to $3,801.2 million, but segment profit fell to $378.5 million (10.0% of sales) from $644.7 million (21.0%). Industrial sales declined 2% to $646.6 million; segment profit fell to $41.3 million (6.4% of sales) from $99.8 million (15.2%).
Liquidity and debt: At April 2, 2022, cash and cash equivalents were $165.8 million. Short-term borrowings were $5,086.4 million and long-term debt was $5,355.5 million, for approximately $10.4 billion of these borrowings and debt combined; at January 1, 2022, the comparable total was approximately $6.6 billion. The company had $2.8 billion of commercial paper outstanding and $2.3 billion drawn on a $2.5 billion 364-day facility. It reported no drawings on its other committed credit facilities. Q1 financing cash flow was a $1,425.4 million inflow, including $2,844.8 million of net short-term borrowings and $994.8 million of net debt issuance proceeds, partly offset by $2,313.0 million of share repurchases.
Material changes and management commentary
- Profitability and cash generation weakened materially year over year. Management attributed margin pressure to commodity inflation, higher supply-chain costs, growth investment and lower volume; it cited elevated inventory investment and longer lead times as drivers of operating cash outflow.
- Management said electronic-component constraints were improving. Outdoor acquisition sales were affected by a later start to the season from colder weather, with recovery expected in Q2 and Q3.
- The company initiated approximately $2.3 billion of its planned $4 billion share repurchase program in Q1. It said the total program was expected to be completed in 2023.
- In February, the company issued $1.0 billion of senior notes: $500 million due 2025 at 2.3% and $500 million due 2032 at 3.0%. The proceeds were for general corporate purposes, including repayment of commercial paper borrowings.
Outlook, risks and unusual items
2022 outlook was reduced: management projected mid-twenties total revenue growth and revised diluted GAAP EPS guidance to $7.20–$8.30 from $10.10–$10.70, and adjusted diluted EPS guidance to $9.50–$10.50 from $12.00–$12.50. Free cash flow was projected at approximately $1.0–$1.5 billion. Revised assumptions included $600 million of additional commodity and transit inflation, estimated to reduce EPS by about $3.50, partly offset by incremental pricing, Q1 outperformance and other factors estimated to add about $1.70 per diluted share. MAS divestiture and Russia business closure were estimated to reduce EPS by about $0.30 and $0.15, respectively. Forecast acquisition-related and other charges were $2.20–$2.30 per diluted share.
The company agreed to sell CSS to Securitas for approximately $3.2 billion cash and MAS to Allegion for $900 million cash; both transactions were subject to approvals and customary closing conditions, with closing expected mid-year. Management expected proceeds to support debt reduction and the share repurchase program. The Russia business closure, COVID-19 effects, inflation, supply constraints, foreign exchange, acquisition integration, divestiture completion, and capital-market access were identified among relevant risks.
Environmental remediation reserves were $156.6 million; the reasonably possible cost range was $92.6–$226.0 million. The company also disclosed an ongoing SEC investigation concerning previously undisclosed executive perquisites, principally corporate-aircraft use. It said it could not estimate any potential loss or range, though it did not expect a material financial impact. Management reported that the previously identified material weakness in internal control had been remediated during Q1 and that disclosure controls were effective as of April 2, 2022.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for Q1 2022, not Q1 2021.
- Track whether pricing and cost actions offset inflation, supply-chain expense and volume weakness, and whether management delivers its reduced EPS and free-cash-flow outlook.
- Monitor inventory levels, operating cash flow, short-term borrowings and repayment of the drawn 364-day facility.
- Verify closing timing and final proceeds from the CSS and MAS sales, and how proceeds are allocated between debt reduction and repurchases.
- Assess the outcome and potential costs of the SEC perquisite investigation and environmental matters, including the Lower Passaic River proceedings.