What happened
Shares of tools and industrial products company Stanley Black & Decker (SWK 0.99%) rose by 25% in June, according to data provided by S&P Global Market Intelligence. The move came after a series of well-received presentations by the company's Executive Vice President and Chief Financial Officer, Pat Hallinan, at three industrial investors conferences earlier in the month.
In a nutshell, Hallinan told investors what they wanted to hear regarding the two most important near and medium-term considerations on the stock. Its inventory reduction plans are on track for 2023, and its plan to generate run-rate savings of $2 billion by 2025 is on track.
So what
Management's plan to reduce inventory by $750 million to $1 billion in 2023 is vital to its turnaround strategy. As you can see below, the number of days it holds inventory before selling it has soared recently. A combination of a natural sales correction following the DIY boom during the lockdowns and the impact of rising interest rates on housing and DIY activity led to soaring inventory. As such, it's good to see management's inventory plans are on track.
Data by YCharts.
Hallinan addressed this specific issue on June 13 and told investors that its inventory days outstanding would improve in 2023 and that "we'll make modest progress for a couple of years."
As for the plan to generate run-rate savings of $2 billion by 2025, with $1.5 billion coming from reducing the cost of goods sold (COGS), and $0.5 billion from reducing selling, general, and administrative (SG&A) costs, Hallinan said, "we're already at the run-rate savings for the SG&A by this point this year."
Based on management's previous comments, the COGS savings are expected to be $0.5 billion annually over 2023 through 2025. Discussing this year, Hallinan told investors, "We'll have about $500 million in COGS savings this year, disproportionately strategic sourcing and continuous improvement inside of our plants, lean and otherwise," and confirmed the plan for 2025 was on track.
Now what
The company still faces an uncertain near-term trading environment; who can accurately predict where interest rates and the U.S. housing market are heading?
That said, the biggest driver of the company's stock price over the medium term will likely be the successful execution of its restructuring plans. To put the $2 billion-by-2025 into context, consider that Stanley's gross profit in 2022 was only $4.3 billion.
As such, if the company's cost-cutting and restructuring plans work, the company's earnings and cash flow will likely be significantly higher in a few years.
