Yahoo Finance’s Brian Sozzi and Julie Hyman speak with Stanley Black & Decker CEO Jim Loree about the company's latest earnings report, outlook, supply chain, raising prices, and much more.
JULIE HYMAN: Stanley Black & Decker, the toolmaker, among the companies reporting earnings this morning. And if you look at the third quarter, the numbers were strong. They beat analysts' estimates. However, Stanley Black & Decker cut the full-year earnings forecasts, now estimating as much as $11.10 a share in profit below its prior forecast, below what analysts had been looking for.
Jim Loree is with us now. He's Stanley Black & Decker's CEO. Thank you so much for being here, Jim, because I think it's important to walk folks through what is going on right now and the pressures that are affecting so many companies.
You talk in the statement about raising prices, right? Is it just that you waited too long to raise them and it's not making up for those cost pressures that you're seeing? What's going on here?
JIM LOREE: It's really just about timing. You know, the inflationary wave that came in as well as the excess transportation costs based on the supply-chain snags that are kind of between Asia and the US caused us to incur-- expect to incur in the fourth quarter as well-- $230 million of additional costs in this half.
So we took our guidance down by $0.50 at the midpoint, and we implemented price increases faster than we ever have before. We recovered more price than we ever had before as a percentage of the inflation. In the end, you know, we're going to deal with-- we are dealing with about a billion-- $1.3 billion of inflation this year, and we will recover all of that with price and some mix.
But it's not about waiting too long. It's just about, you know, the reality of if you incur inflation and you raise your prices, there's a lag before the prices take effect. So what will happen next year is that there will be a positive arbitrage between price and cost and that, you know, margins will be restored very quickly in 2022.
JULIE HYMAN: Got you. So I would ask as well as you're looking at these increased costs, one of the other issues that we know so many companies have been having is not only are they paying more to get things where they need to be, in some cases, they're not even getting there, right? They're either not able to make things because you can't get the components you need, and then transportation has become a big issue. How are you guys faring on those fronts?
JIM LOREE: Well, we're doing great on the strategic components side. You know, for instance, the battery cells, we've made some strategic investments in capacity in partnership with some Korean companies. So we have plenty of batteries, plenty of growth for next year. Semiconductors, we right now have secured at least 15% growth in our semiconductor supply for next year. We're shooting for 25% so that we have plenty of strategic capacity in those two major components.
We have, you know, some various shortages here and there of other parts but nothing that is disrupting our production, and we don't expect to have that. But things are taking longer to get to the United States, and I was actually very pleased that we were able to deliver our revenue forecast for the third quarter, which was 10%, albeit at, you know, higher cost, and hence the need to raise prices.
And I think these supply-chain issues are going to be with us for a while, and the price will cover it. And we have $800 million of in-process inventory coming, mostly in ships coming across the Pacific Ocean. And we have good-- we have decent inventory levels at retail. So I think with the additional product that's finally going to hit the shores here, we're going to have plenty of goods in stock for the holiday season.
BRIAN SOZZI: Jim, I know you as a deal maker for as long as you've been there, Stanley Black & Decker. And as you think about positioning your business for postpandemic life, would you entertain an offer for your security business?
JIM LOREE: We have considered all strategic options relative to the security business and continue to do so. And right now it's in the middle of a transformation. It's transforming from a traditional electronic security business to a tech, installation, monitoring, and delivery business. And we're about, you know, 3/4 of the way through that transformation. It's been a multiyear-- it's been a multiyear process.
And right now it's a much different business, worth a lot more than just a traditional security business. And someday, you know, if the moon and the stars line up and, you know, we decide to monetize that, we have that option. But right now, that's not the current plan.
BRIAN SOZZI: Got you. And then recently you came out with a plan-- and really hat tip to you and your team-- five-year plan to invest $25 million to help reskill workers. I mean, talk to us about that plan, and why did you launch it?
JIM LOREE: Yeah, you know, we're a purpose-driven company, and our purpose is for those who make the world. And, you know, that means the makers who are the skilled folks who keep the world going every day.
And so we know there's a skill shortage. We know as we invest in advanced manufacturing that the skill levels of the workforce need to be brought up, and we need to have more skilled workers just in general, you know, more people in the workforce.
And so when we thought about empowering our makers, you know, we decided a couple years ago that we were going to try to figure out how to empower 10 million makers, and we really came across this idea of a challenge, you know, which is we set aside $25 million to allocate to nonprofit companies who are local and are actually upgrading skills all around the world. And we're excited about it because it is-- early signs are it's going to be incredibly high leverage and very effective.
JULIE HYMAN: Jim, thank you so much for being here. Jim Loree, Stanley Black & Decker CEO, really appreciate your time this morning.