Stanley Black & Decker: It Will Get Worse Before It Gets Better
Stanley Black & Decker's (NYSE: SWK) stock reacted positively to the recent fourth-quarter earnings report. Still, it was more of a relief that they weren't as bad as the market might have expected rather than an affirmation that they demonstrated progress. The stock is attractive for long-term investors, but you must be patient and tolerant of the potential for some near-term bad news if you buy in. Here's why.
The company's earnings collapsed in 2022 and came in significantly lower than management expected at the start of the year. For example, management started the year forecasting adjusted earnings per share of $12 to $12.50 for 2022, only to end up with just $4.62.
The company's problems lie in a combination of stronger-than-expected raw material costs, supply cost inflation, and a rising-rate environment putting severe pressure on housing-related discretionary spending for items such as DIY tools. As such, Stanley finds itself in a position where it has to dramatically reduce inventory in a weak sales environment. You can see the extent of its problems in its operating profit margin -- down from 16.9% in 2021 to 8.4% in 2022 and down from 11.4% in the fourth quarter of 2021 to a meager 1% in the same quarter of 2022.
Source Fool.com
