![]() Operational Excellence ($400m saving potential) - Optimize production and inventory management.Īll of these tasks must have been visible to management beforehand.Facility Consolidation ($300m saving potential) - Reduce its 120 facilities by 30%.Strategic Sourcing ($500m saving potential) - Consolidate and localize the supply chain.Product Platforming ($300m saving potential) - Reduce SKUs by 40% to eliminate competing products and bad-selling SKUs.The supply chain transformation plan has four different tasks: It makes management look like they do not have a good focus on one goal. These cost-cutting initiatives are great and I applaud management for announcing them, but I'm asking myself why just now? Did they somehow just now realize that there are massive inefficiencies in the business? This could have been a continuous learning and optimization process for the firm. SWK Portfolio Transformation (SWK Investor Day) and China rising, for example, seen by the recent restrictions on semiconductor exports from U.S. Outsourcing to China is becoming more of a liability in recent years, with tensions between the U.S. These acquisitions led to a bloated corporate structure and an unoptimized supply chain with lots of outsourced manufacturing in China. In the last 17 years, SWK spent over $10 billion to acquire new segments and divested businesses for a total of $6.225 billion. I see both of these areas of fat to trim as a result of an M&A strategy and continuous portfolio transformation without proper integration. $0.5 billion are expected to come out of SG&A and $1.5 billion out of the supply chain. SWK inventory management (Koyfin) Cost cuttingĪs a result of the extreme increase situation, SWK announced an aggressive plan to reduce cumulative costs of $2 billion within the next three years ( Slide 7). Free cash flows also declined from $2 billion to Free cash outflows of $2 billion! As a result of that Inventory turnover, the number of times the company can sell its inventory within a year declined from its median of 3.9x to just 2.0x. Throughout this article, I'll primarily refer to Stanley Black & Decker as its ticker, SWK.Ĭhina container shipment delays (Statista)Īs a result of this over-ordering of inventory, SWK saw an extreme jump from $6.64 billion, over three times above its 10-year median and over twice as much as its 3-year median ($2.8b). Because of the uncertainty of when the product will arrive, they ordered as much as possible, assuming the consumer would stay strong. SWK manufactures most of its products in China and imports them back into the U.S. Like many other companies, SWK's supply chain was disrupted by the significant delays in the Chinese ocean freight. Since the initial gap down, the stock has fallen another 22% for a total of 60% since its ATH in January. ( NYSE: SWK) plunged 16% after reporting disastrous Q2 earnings, missing revenue estimates by 8%, and seeing its profits plunge 80%. Last quarter, Stanley Black & Decker, Inc. Joe Raedle Can Disastrous Q2 create an Opportunity?
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