Down 60% in This Bear Market, Can Stanley Black & Decker Recover in 2023?


What happened to Stanley Black & Decker in 2022

Shares in toolmaker, outdoor products, and industrial products company Stanley Black & Decker (SWK 3.09%) declined nearly 60% since the start of the bear market in early January of last year. 

The decline comes in a period where just about everything that could have gone wrong did for the company. Management started the year expecting margins to improve as supply chain challenges eased, while hoping that pandemic-inspired DIY tool sales would remain strong. In addition, the integration of outdoor products company MTD promised to strengthen the company’s position in a complementary category — DIY tools and lawn and garden products are often sold in the same hardware stores.

It didn’t happen. The raw material and supply chain cost issues persisted and were much more significant than initially estimated. Meanwhile, interest rate increases pressured consumers, particularly in housing-related industries, and Stanley is now struggling to reduce its inventory of products. To cap it all off, poor weather hit outdoor product sales. 

Management’s response

In response to the disappointments of 2022, management is undertaking long-overdue cost-cutting actions on its supply chain, actions that were delayed in part by the pandemic-related boom in DIY sales. In addition, Stanley sold its security, healthcare, and access technologies businesses in 2022, giving management scope to cut head office and organizational costs. Ultimately, management plans to cut costs by a whopping $2 billion in three years. 

Putting that figure into perspective, Wall Street analysts estimate the company’s sales will be $16.1 billion in 2023. 

Is Stanley Black & Decker a buy for 2023?

As previously discussed, Stanley’s biggest issue right now is avoiding yet another drop in profit margin as it tries to reduce its inventory in the face of slumping sales. That’s easier said than done, so investors should brace themselves for some potential near-term bad news. Moreover, Stanley CEO Don Allan, appointed in July, was formerly the CFO when management’s outlook on 2022 proved overly optimistic.

The cost-cutting measures are substantive, and the DIY tools market won’t remain in freefall forever. If Allan can implement the cost-cutting plans in line with projections and margins stabilize, then the stock looks like an excellent value for risk-tolerant investors. However, you’ll need to be patient, because the turnaround, particularly with regard to margin, will take time. 

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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