It has been a challenging few years for tools maker and industrial products company Stanley Black Decker (SWK 2.22%). Those issues are reflected in the stock price decline of 18.6% in the first half of 2024 -- figures according to data provided by S&P Global Market Intelligence. Here's a look at what happened and how the stock might come back from here.
Stanley Black & Decker's challenging few years
Having seen sales surge during the lockdown periods due to the DIY boom, the tool maker walked into a highly challenging period as the lockdowns ended. Not only were its sales comparisons tough due to the previous boom, but the company faced elevated costs due to the supply chain crisis that followed the reopening of the economy.
In addition, the previous period of strong sales may have discouraged the company from making the kind of long-overdue structural changes necessary to cut costs and compete in its end markets.
The result was collapsing profit margins as sales growth stalled and turned negative.
SWK Revenue (TTM) data by YCharts
Now, the good news
Faced with declining sales, the company took action in 2022 and launched a comprehensive restructuring plan involving consolidating facilities, cutting management layers, reducing suppliers, and improving its supply chain. The aim was to cut run rate costs by $2 billion between 2022 and 2025. The good news is that the plan is on track, with CEO Don Allan telling investors in May, "Our global cost reduction program remains on track for expected run rate savings of $1.5 billion by the end of 2024 and $2 billion by the end of 2025."
The bad and the ugly
Unfortunately, despite significant reductions in inventory (which built up as sales started to slow), the company's inventory-to-sales ratio remains historically high and needs to come down.
Fundamental Chart data by YCharts
It's not easy to do so in a weak sales environment, and the decline in the stock price this year acknowledges this. In addition, management is candid that it needs to invest to win back market share, which might not be easy to achieve in the current climate.
Image source: Getty Images.
There is a case for buying Stanley Black & Decker stock, as management is cutting costs, and a lower interest rate environment will help its sales grow. However, there's also potential for some near-term bad news as long as its inventory remains relatively high.
