SWK Q1 Earnings Call: Pricing and Supply Chain Mitigation Address Tariff Headwinds

Manufacturing company Stanley Black & Decker (NYSE:SWK) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 3.2% year on year to $3.74 billion. Its non-GAAP profit of $0.75 per share was 14.5% above analysts’ consensus estimates.

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StockStory’s Take

Stanley Black & Decker’s first quarter results reflected ongoing transformation efforts and operational adjustments in response to tariff impacts. Management pointed to organic revenue growth in key segments, gross margin expansion, and disciplined execution as the main factors behind quarterly performance. CEO Don Allan highlighted the company’s focus on supply chain flexibility and the ability to adapt quickly to shifting trade policies, stating, “We have the most flexible supply chain footprint in the industry, as we now have significant hubs in the U.S., Mexico, and Southeast Asia.”

Looking ahead, management’s guidance is shaped by ongoing tariff uncertainties and the pace at which pricing actions and supply chain moves can offset input cost inflation. Allan noted that price increases are necessary to protect margins and cash flow, while cost savings from ongoing transformation initiatives remain a priority. The company is preparing for multiple demand scenarios, emphasizing agility and further investments in innovation to maintain competitiveness amid evolving trade dynamics.

Key Insights from Management’s Remarks

Stanley Black & Decker’s leadership discussed how tariff pressures, supply chain repositioning, and disciplined pricing actions influenced Q1 performance and strategy for the remainder of the year.

• Tariff Mitigation Strategy: Management is prioritizing supply chain shifts out of China and into North America and Southeast Asia to minimize exposure to U.S. tariffs. This process is expected to take 12 to 24 months, with an aim to reduce the share of China-sourced goods for the U.S. market from 15% to near zero.
• Pricing Actions: The company implemented high single-digit price increases in April across U.S. retail partners to counteract tariff-driven cost increases. Further price hikes are likely if tariffs remain elevated, with ongoing discussions taking place with channel partners.
• Innovation and Product Launches: Stanley Black & Decker highlighted new launches such as the DEWALT Construction Jack and TOUGHSYSTEM 2.0 DXL Modular Workstation System, as well as the DEWALT TOUGHWIRE cable hanger system, designed to address specific professional end-user needs.
• Cost Savings and Efficiency: The company is on track to deliver $2 billion in cumulative cost savings by the end of 2025, with $1.7 billion already achieved. These savings are primarily driven by supply chain efficiencies and SG&A (selling, general & administrative) discipline.
• Segment and Regional Trends: The Tools & Outdoor segment saw organic growth led by outdoor and professional products, while the Engineered Fastening segment faced headwinds from automotive market softness offset by aerospace growth. North American demand remained stable, with improved performance in March and April.

Drivers of Future Performance

Management’s outlook for the rest of the year is shaped by tariff-related cost pressures, the effectiveness of price increases, and the pace of supply chain transformation.

• Tariff and Pricing Dynamics: Future performance hinges on the company’s ability to implement additional price increases and complete supply chain shifts away from China, which management expects will take up to two years.
• Demand and Consumer Behavior: The company anticipates continued softness in DIY (do-it-yourself) demand, while professional and outdoor categories remain more resilient. Management is monitoring how higher prices may affect volume, particularly in the U.S.
• Cost Discipline and Investment: Ongoing cost savings from transformation initiatives, combined with selective investments in innovation and customer service, are expected to help offset near-term margin pressures and support long-term growth.

Top Analyst Questions

• Jeffrey Sprague (Vertical Research Partners): Asked for details on USMCA compliance and the pace of shifting supply out of China. Management explained plans to operationalize higher compliance and described current tariff rates for key regions.
• Timothy Wojs (Baird): Questioned how much of the tariff headwind would be offset by price versus cost reductions. Executives clarified that price is the primary tool in the near term, with supply chain actions reducing exposure longer term.
• Julian Mitchell (Barclays): Sought explanation of the timing and impact of tariff-related charges and LIFO accounting on earnings and cash flow. Management described heavier second quarter impacts due to accounting timing, with a stronger second half expected.
• Joseph Ritchie (Goldman Sachs): Asked about the size and effectiveness of price increases and the process for further hikes. Management stated that initial price increases are already live and future increases are under discussion with retailers.
• Nicole DeBlase (Deutsche Bank): Inquired about the cadence of SG&A savings and additional cost levers in a weaker demand environment. Management indicated savings will be spread across the year and noted further levers are available if demand softens further.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will monitor (1) the effectiveness and market acceptance of additional price increases to offset tariffs, (2) progress toward reducing China-sourced supply and increasing USMCA compliance, and (3) signals of demand resilience or weakness, particularly in the DIY and professional segments. The pace at which supply chain mitigation actions translate into cost savings and margin stability will also be a key marker of execution.

Stanley Black & Decker currently trades at a forward P/E ratio of 13.6×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our free research report.

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