Second Quarter 2020 Overview
July 30, 2020
Participants
Jim Loree
President & CEO
Don Allan | Executive VP & CFO |
Dennis Lange
VP, Investor Relations
2Q'20 OVERVIEW | 2 |
Cautionary Statements
Certain Statements Contained In This Presentation Are Forward Looking. These Are Based On
Assumptions Of Future Events Which May Not Prove To Be Accurate. They Involve Risk And
Uncertainty. Actual Results May Differ Materially From Those Expected Or Implied. We Direct You To The Cautionary Statements Detailed In The Corresponding Press Release And Form 8-K And Our Recent '34 Act SEC Filings.
2Q'20 OVERVIEW | 3 |
Navigating The COVID-19 Pandemic
Aligning The Organization Around Key Priorities…
#1 | #2 | #3 | #4 |
ENSURE THE HEALTH | MAINTAIN BUSINESS | SERVING OUR | DOING OUR PART TO |
AND SAFETY OF OUR | CONTINUITY AND | CUSTOMERS AS THEY | HELP MITIGATE THE |
EMPLOYEES & | FINANCIAL STRENGTH | PROVIDE ESSENTIAL | IMPACT OF THE VIRUS |
SUPPLY CHAIN | AND STABILITY | PRODUCTS AND | ACROSS THE GLOBE |
PARTNERS | SERVICES TO THE | ||
WORLD |
…Taking Actions To Protect Our Employees & The Business While Positioning The Company To Thrive
2Q'20 OVERVIEW | 5 |
2Q'20 Segment Overview
Tools & Storage
Industrial |
Security
$2,626 | |
$2,197 | |
(16%) | |
2Q '19 | 2Q '20 |
Revenue |
$448 | |
$373 | |
(17%) | |
17.0% | 17.0% |
2Q '19 | 2Q '20 |
Profit*
$650 | $106 | |||||||
$518 | ||||||||
(57%) | $46 | |||||||
(20%) | ||||||||
16.4% | 8.8% | |||||||
2Q '19 2Q '20 | 2Q' 19 | 2Q '20 | ||||||
Revenue | Profit* |
$485 | $433 |
(11%) | |
2Q '19 | 2Q '20 |
Revenue |
$54 | $42 |
(23%) | |
11.2% | 9.6% |
2Q '19 | 2Q '20 |
Profit*
- (15%) Organic Growth
- (10%) NA, (21%) Europe, (29%) EM
- (9%) PTE, (23%) HTAS
- All Regions Were Impacted By Reduced Business Activity Related To COVID-19
- N.A.: Inventory Reductions & Reduced Construction Activity | Strong DIY Demand In E- Commerce & US Retail | Record Retail POS & Historically Low Inventory Levels Exiting The Qtr
- Europe & E.M.: Rolling Geographic Lockdowns, Customer Closures | Improved Demand In Europe | EM Remains Choppy
OM Rate* Flat | Benefits From Productivity, Swift & Effective Cost Control & Price Offset The Impacts From Lower Volume, Tariffs & Currency
- (29%) Organic Growth
- (35%) Engineered Fastening
- (19%) Infrastructure
- The Trough Of Organic Volume Decline Occurred In April With Modest Sequential Improvement Each Month
- Engineered Fastening: Lower Global Automotive Light Vehicle & General Industrial Production
- Infrastructure: Lower Volumes In Attachment Tools And Oil & Gas
OM Rate* (760 Bps) | Significant Impact From Volume Declines Was Partially Mitigated By Cost Actions
- (8%) Organic Growth
- (7%) NA
- (10%) Europe
- All Businesses Were Impacted By Customer Restrictions Which Were Most Pronounced Early In The Qtr
- Electronic Security Backlog Remains In A Healthy Position Up 16% Supporting An Anticipated Improvement In Installation Revenues In The Second Half
OM Rate* (160 Bps) | Price & Cost Control Were
More Than Offset By Lower Volume
*Excludes M&A Related & Other Charges | 2Q'20 OVERVIEW | 6 |
Free Cash Flow & Liquidity
2020 YTD Free Cash Flow | Liquidity Key Points |
YTD | |||||||||
2Q'19 | 2Q'20 | V$ | |||||||
Net Income | $ | 528 | $ | 372 | $ (156) | ||||
Deprec / Amort | 280 | 286 | 6 | ||||||
Working Capital | (581) | (719) | (138) | ||||||
Pre-tax Gain On Sale | |||||||||
Of Business | (17) | - | 17 | ||||||
Other | (140) | (16) | 124 | ||||||
Operating CF | 70 | (77) | (147) | ||||||
CapEx | (187) | (147) | 40 | ||||||
Free Cash Flow | $ | (117) | $ | (224) | (107) | ||||
- Free Cash Flow: Lower Earnings & Working Capital Investment Partially Offset By Lower Capital Spending
- Inventory Levels To Support Potential 2H Demand Improvement & Strong NA Tools Retail Trends
- Maintain Strong, Investment Grade Credit Ratings
- $3B Revolving Credit Facilities Backed By A Well Capitalized, Diversified Bank Group
- No Term Debt Maturities Until 4Q 2021 | Next Maturity 4Q 2022
- Capital Deployment Priority Is Debt Repayment | Initiated Capital Conservation Actions
- Capital Expenditure Reduction
- Temporarily Suspend M&A And Share Repurchase
- Priority To Achieve Leverage Targets
Liquidity Sources As Of 6/27/20
Cash On Hand | $0.9B |
Addl. Commercial Paper Capacity ($3B Max) | $2.3B |
Total Additional Liquidity | $3.2B |
Significant Financial Flexibility To Navigate This Environment
2Q'20 OVERVIEW | 7 |
2H Scenario Planning
2H Planning Assumption Range For Organic Growth
Organic Growth | Organic Growth Trend | ||||||
2H'20 Range | June + July MTD1 VPY | ||||||
Tools & | -3% To +4% | +8% | NA: | EU: | |||
Storage | LA: | Asia: | |||||
Industrial | -25% To -15% | -23% | EF: | CAM*: | |||
Attach: | O&G: | ||||||
Security | -8% To Flat | -4% | NA: | EU: | |||
Below Segment | Flat To Segment | Above Segment | |||||
Recent Key Trends
- U.S. T&S Retail → POS Growth Currently At ~35% Versus Prior Year For Last 4 Weeks
- European T&S → Organic Growth ↑ High- Single Digits For Past 8 Weeks
- SEF → Light Vehicle Production Down ~17% For Past 8 Weeks
- Security → Organic Growth ↓ Mid-Single Digits For Past 8 Weeks
Total Company Organic 2H Growth -Scenarios
Choppy Case | Base Case | Improved Case |
-7.5% | -3.75% | Flat |
Supply Chain Ready If Recent Trends Continue, But Preparing Cost Structure For A Variety Of Outcomes
1 Through First 4 Weeks | 2Q'20 OVERVIEW | 8 |
*Pro Forma Organic Growth
Cost Reduction Program
Cost Actions
~$1B Total Savings | ~$500M 2020
2Q Update
Cost Action Sustainability
Indirect Cost
Prof Services, MRO, IT, Marketing, T&E, Etc.
Deflation
Fin. Goods, Components, Commodities & Transport
- Organization Working To Improve The Sustainability Of Cost Program Heading Into 2021
- Converting A Majority Of Temporary Compensation Savings To Permanent
- Goal For Indirect Spend: 50% - 75% Permanent
- Positive 2021 Carryover Currently ~$150M
Compensation
Furloughs, Reductions In
Force & Salary Red.
Benefits
Temporary Reductions
Implemented
Decremental Margins
• | Targeting 2020 Decremental Margins, Net Of Cost |
Savings, Mid-To-High Teens Dependent On Volume | |
• | Stronger Peak-To-Trough Decrementals Possible |
~$175M Benefit Achieved In 2Q Expecting ~$325M 2H Benefit
Through The Downturn |
• '01 & '08/'09 Recessions - Peak-To-Trough |
Decrementals Averaged Mid-To-High Teens |
Maintaining Strong Operational Foundation With Flexible Approach To Cost Actions
2Q'20 OVERVIEW | 9 |
Summary - FY 2020 Financials
• Revenues: Given The Uncertainties In The Global Economic Outlook, Multiple Scenarios Contemplated
Organic Growth Planning Range: 2H (-7.5% To Flat) | FY (-10% To -5%)
• Cost Structure Considerations: $180M In Cost Savings (Announced Oct'19) & $500M (Announced Apr'20). Tariff & FX Headwinds Currently $180M, With $115M Realized In 1H'20
P&L | • Decremental Margins: Targeting FY Mid-To-High Teens Net Of Cost Reduction |
• Other Items: Other, Net: ~$240M | Interest ~$210M | Tax 17% - 18% | Shares 155.5M | M&A And | |
Other Pretax Charges $345M - $370M | |
• Priority: Achieving Leverage Targets | |
• CapEx: Planning Significant Reduction Versus Plan | |
FCF | • Working Capital: Supply Chain Prepared For Recent Trends | Flexible Based On Recovery Trajectory |
• Share Repurchase & M&A: Remain Temporarily Suspended | |
2Q'20 OVERVIEW 10 | |
Summary - Strong 2Q Performance
New Market Trends Are Emerging…
eCommerce | Reconnecting With | Health & Safety |
The Home & Garden | ||
Security
Re-Imagined
Global
eCommerce
Core & Breakthrough
Innovation
…Positioned To Benefit From Improved Demand & Capitalize On Growth Opportunities
2Q'20 OVERVIEW | 11 |
Q&A
THANK YOU
APPENDIX
Global Presence
Canada | 2Q'20 | YTD | ||||||||||
Organic | (13%) | (5%) | ||||||||||
% SWK | 4% | 5% | ||||||||||
Europe | 2Q'20 | YTD | ||||||||||
Organic | (23%) | (15%) | ||||||||||
Japan | 2Q'20 | YTD | ||||||||||
US | 2Q'20 | YTD | % SWK | 18% | 20% | Organic | (14%) | (11%) | ||||
Organic | (12%) | (10%) | % SWK | 3% | 3% | |||||||
% SWK | 64% | 61% | ||||||||||
Emg Mkt | 2Q'20 | YTD | ||||
Australia | 2Q'20 | YTD | ||||
Organic | (27%) | (21%) | ||||
Organic | (11%) | (7%) | ||||
% SWK | 10% | 10% | ||||
% SWK | 1% | 1% | ||||
2Q'20 OVERVIEW | 14 |
2Q 2020 Regional Revenue Breakout
Tools & StorageIndustrialSecurity
$2,197M | $518M | $433M | |
Other | Emerging | Emerging | |
Markets | |||
Emerging 4% | Europe 15% | Other | Markets |
Markets | 15% | 8% | 2% |
10% | |||
Europe | N.America | ||
15% | Europe | ||
71% | N.America | 39% | |
62% |
N.America
59%
2Q'20 OVERVIEW | 15 |
Organic sales growth is defined as total sales growth less the sales of companies acquired and divested in the past twelve months and any foreign currency impacts. Operating margin is defined as sales less cost of sales and selling, general and administrative expenses. Management uses operating margin and its percentage of net sales as key measures to assess the performance of the Company as a whole, as well as the related measures at the segment level. Free cash flow is defined as cash flow from operations less capital and software expenditures. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and to provide a return to the shareowners. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company's common and preferred stock and business acquisitions, among other items. Free cash flow conversion is defined as free cash flow divided by net income. The normalized statement of operations and business segment information, as reconciled to GAAP on pages 12 through 15 of the press release, is considered relevant to aid analysis of the Company's margin and earnings results aside from the material impact of the M&A related and other charges.
2Q'20 OVERVIEW | 16 |
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Stanley Black & Decker Inc. published this content on 30 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 July 2020 11:40:17 UTC