Stanley Black & Decker (SWK 0.99%) stock rose by 12.8% in the week to Friday morning. The move comes as a thawing in the U.S./China trading relationship encouraged investors to price in a better outcome for the toolmaker's earnings in 2025 and beyond.
Stanley Black & Decker's exposure to China
The U.S. and China said they would suspend the incremental tariffs imposed on each other's goods, which were announced in early April for an initial period of 90 days. In addition, the parties will "establish a mechanism to continue discussions about economic and trade relations."
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Due to its exposure to China-sourced products, the company is a bellwether for U.S./China trading relations. Its total adjusted cost of sales for the U.S. by country of origin is about $6.8 billion, with $0.9 billion to $1 billion directly from China, $1.5 billion to $1.6 billion from the rest of the world (also impacted by tariffs), and $1.2 billion to $1.3 billion from Mexico, two-thirds of which is non-USMCA compliant.
The cost exposure is sufficient for management to lower its full-year planning assumptions after the announcement of incremental tariffs (now paused for the U.S./China) in April:
- The post-April guidance calls for base case adjusted full-year earnings per share (EPS) of $3.30 compared to the previous guidance of $4.05.
- The post-April guidance calls for base case full-year free cash flow (FCF) of $500 million compared to the previous guidance of $750 million.
Given the pause in incremental tariffs and the possibility of a further de-escalation in the conflict, investors are now pencilling in figures for full-year EPS and FCF somewhere between the initial and post-April tariff guidance outlined above. That's why the stock rose this week.
