Shares in toolmaker and industrial products company Stanley Black & Decker(NYSE: SWK) surged by 32.2% in July, according to data provided by S&P Global Market Intelligence. The move comes as the company reported well-received second-quarter earnings that helped support the bullish case for the stock and scatter the bears shorting it.
Stanley Black & Decker builds a recovery
It's no secret that consumer discretionary stocks are under pressure in 2024. That's even more true for a company like Stanley Black & Decker, which is also facing a natural correction in demand resulting from the boom years of the lockdowns and surging spending on DIY activity.
With interest rates staying relatively high for longer than most expected in 2024, the housing market continues to be under pressure, and that's not good news for the DIY market, not least for a company that needs to reduce its inventory to historical levels.
That said, the toolmaker's second-quarter earnings were relatively good. Here are some highlights:
- Organic year-over-year revenue growth of 1% in the second quarter.
- Non-GAAP (adjusted) gross margin expanded to 29.2% from 23.6% in the same period of 2023 and 29% in the first quarter of 2024.
- After a $145 million reduction in run-rate costs in the first quarter, the company cut another $150 million in the second quarter and is on track to achieve $2 billion in run-rate cost predictions from 2022 to 2025.
- Management raised full-year adjusted earnings-per-share (EPS) guidance from $3.50-$4.50 to a new range of $3.70-$4.50 and free-cash-flow guidance from $600 million-$800 million to $650 million-$850 million.
- The second-half focus will be on margin expansion and cost management.
Image source: Getty Images.
What's next for Stanley Black & Decker?
The results were as good as can be expected under the circumstances. Management can't do much about the end-market environment. Still, it can continue to implement the kind of facility consolidation, supply chain sourcing adjustments, lean manufacturing initiatives, and product range reductions that contribute to structural cost reductions.
Management expects the cost-cutting will help it achieve a 35% gross profit margin over time, but it's unlikely to be a linear process. The company must navigate the uncertain waters of the interest rate cycle and its impact on DIY spending.
That said, the second quarter was much better than many had feared, and that's why the stock appreciated in July.
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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.
