Stanley Black & Decker, Inc. — Q1 2021 Form 10-Q
Period discrepancy: The request metadata says 2020 Q1, but the filing is for the three months ended April 3, 2021, with comparison to the three months ended March 28, 2020. Amounts below are in millions of dollars except per-share data.
Business context and results
The company operates Tools & Storage, Industrial, and Security businesses. Results reflected strong demand, particularly in Tools & Storage, alongside cost savings and operating leverage. Management cautioned that interim results are not necessarily indicative of full-year performance.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $4,197.1 | $3,129.4 |
| Gross profit / margin | $1,564; 37.3% | $1,023; 32.7% |
| Segment profit | $787.1 | $323.5 |
| Earnings before taxes and equity interest | $604.5 | $146.2 |
| Net earnings attributable to common shareowners | $478.0 | $133.2 |
| Diluted EPS | $2.98 | $0.88 |
| Dividends per common share | $0.70 | $0.69 |
Changes versus prior year
- Sales increased 34%; organic growth was 31%, driven primarily by 29% higher volume and 2% higher price, with a further 3% favorable currency impact.
- Tools & Storage sales rose 48% and segment margin increased to 21.3% from 11.3%. Industrial sales grew 11% and margin rose to 15.4% from 11.5%. Security sales increased 2% and margin improved to 7.3% from 4.5%.
- Gross margin expanded to 37.3% from 32.7%. Management attributed improvement to volume, price, mix, innovation, productivity, and cost management, partly offset by higher costs to meet strong demand.
- Reported diluted EPS rose to $2.98 from $0.88. Q1 2021 included about $0.15 per diluted share of acquisition-related and other charges, versus about $0.32 in Q1 2020.
- Net interest expense decreased to $44.6 from $49.6, mainly reflecting lower U.S. interest rates and lower average commercial-paper balances.
Cash flow, debt, and liquidity
- Operating cash outflow was $157.8, improving from $405.2 outflow a year earlier; higher earnings were partly offset by working-capital needs, including inventory purchases.
- Free cash flow, as defined by the company (operating cash flow less capital and software expenditures), was an outflow of $246.1, compared with an outflow of $488.1. The company said the outflow reflected normal seasonality.
- Cash and cash equivalents were $949.2 at April 3, down from $1,381.0 at January 2, 2021. Long-term debt was $4,245.7; short-term borrowings were $0.8. No commercial paper or committed credit-facility borrowings were outstanding.
- Available committed facilities included a $2.0 billion five-year facility and a $1.0 billion 364-day facility, both undrawn. The company reported investment-grade credit ratings; Fitch revised its outlook to stable from negative in April 2021.
Outlook, commentary, and notable items
- Management raised 2021 diluted EPS guidance to $10.15–$10.55, from $9.15–$9.85; adjusted EPS guidance rose to $10.70–$11.00, from $9.70–$10.30. It reiterated that free cash flow would approximate net income.
- Management cited stronger organic growth, incremental pricing, and margin-resilience actions as drivers of the outlook increase, partly offset by higher commodity inflation. Expected acquisition-related and other charges account for $0.45–$0.55 per diluted share.
- The COVID-19 cost program delivered approximately $500 million of savings in 2020; management expected approximately $125 million of net savings in 2021, primarily in Q1.
- On April 28, 2021, after quarter-end, the company announced it would redeem all Series C preferred shares on June 3, 2021 for $1,002.50 per share in cash, including accumulated dividends. It also approved a new repurchase authorization of up to 20 million common shares and terminated the prior program.
- Environmental remediation reserves were $165.6, including $69.6 for the Centredale site. The company could not reasonably estimate its liability for certain Lower Passaic River remediation and litigation matters; the ultimate costs and allocation among responsible parties remain uncertain.
- Management said it did not expect existing legal matters to have a material adverse effect on consolidated financial position, results, or liquidity. It identified risks including COVID-19 recovery, inflation and raw-material costs, supply-chain disruption, demand changes, customer concentration, integration of acquisitions, currency and market conditions, and litigation and environmental liabilities.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q1 2021, not Q1 2020.
- Track whether elevated Tools & Storage demand, pricing, and margin performance persist, and whether commodity inflation or supply constraints erode margins.
- Assess conversion of earnings into cash, especially working-capital and inventory requirements, against management’s full-year free-cash-flow outlook.
- Review the terms, funding, and share-count effects of the Series C redemption and the new share-repurchase authorization.
- Monitor environmental contingencies, particularly Lower Passaic River allocation and remediation costs, which were not fully estimable at filing.