Shares of industrial equipment maker Stanley Black & Decker (NYSE:SWK) dropped 11.5% out of the gate on April 30. And while it made some of that loss back, by 2:30 p.m. EDT, it was still limping along with a high single-digit decline. The broader market was down more than 1%, so some of the loss was related to overall negative sentiment. But the big driver here was really a lackluster earnings report.
Stanley Black & Decker's adjusted first-quarter earnings came in at $1.20 per share, $0.07 above analyst estimates. However, that figure was down from $1.42 per share in the previous year. The biggest issue for the company was a sales decline related to the worldwide effort to slow the spread of COVID-19, which effectively closed down vast swaths of the global economy. The top line declined 6%, with an 8% volume drop more than offsetting the 2% gain from acquisitions in the quarter.
In addition, management made sure to note that it had pulled its full-year guidance earlier in the quarter and outlined some details of its planned $1 billion cost-reduction effort. Although the cost savings will help it deal with the current market headwinds it faces, the company expects to take a $160 million charge in 2020 because of the plan. Notably, most of that financial hit will occur in the second quarter. Second-quarter sales, meanwhile, are expected to be even weaker than the first, with early period top-line results continuing the declines that started in the back half of the first quarter. In other words, investors sold the stock off because they weren't pleased with the idea that Stanley Black & Decker's results will get worse before they start to get better again.
Stanley Black & Decker is a large and financially strong company, with management confident that it has the liquidity to get through the upheaval caused by the coronavirus. That's highly likely to be true. And yet, with management already telegraphing another hard quarter ahead, most investors should probably keep this one on the watch list for now.