Stanley Black & Decker Inc.’s
finance chief is spending more time and money trying to strike partnerships with battery and chip manufacturers to help ease the pressure on the tool maker’s supply chain.
The company, which is best known for its power tools, is seeking electric battery and computer chip makers that would agree to supply components in return for an investment. Stanley Black & Decker has a tentative partnership with a South Korean battery maker for a production line that would start manufacturing batteries in Malaysia next year, Chief Financial Officer
Donald Allan Jr.
said. The company is also talking to other businesses in Asia and the U.S. about potential partnerships.
Negotiating with suppliers has become “a more important part of my job” since the coronavirus pandemic disrupted international supply chains, Mr. Allan said. He has served as CFO of Stanley Black & Decker since 2008 and was given the additional role of president earlier this year.
New Britain, Conn.-based Stanley Black & Decker, which has budgeted for roughly $500 million in capital expenditures this year, plans to dedicate about 10% to 15% of that to supply-chain partnerships and other related initiatives. Before the pandemic, such spending would have made up less than 5% of the budget for capital expenditures, Mr. Allan said.
“We will co-invest,” Mr. Allan said. “If it costs $100 million to set up a line, we will put in $50 million.”
Stanley Black & Decker already has small-scale partnerships with companies that build specific tooling and production lines for the company.
Stanley Black & Decker, which needs batteries for its cordless power tools and uses computer chips across its portfolio, manufactures a significant portion of its products in the U.S. and Europe. The company’s preference would be to set up new production lines in those regions, Mr. Allan said, pointing to the challenges associated with sourcing from Asia, which results in longer wait times until components arrive at the factory. The company expects its demand for components such as batteries and chips will remain elevated for years to come.
Many of Stanley Black & Decker’s competitors, such as Japan’s
and Hong Kong-based
Techtronic Industries Co.
, manufacture a larger chunk of their products in Asia, potentially providing them with easier access to batteries and chips, said Nigel Coe, a managing director at research company Wolfe Research LLC. Stanley Black & Decker has a longer and more complex supply chain than some of its rivals, Mr. Coe said.
The company, which sources from over 10,000 suppliers globally but spends 80% of its budget on fewer than 1,000 of them, has sought to deepen its relationship with core manufacturers since the spring of 2020, Mr. Allan said. Stanley Black & Decker identified around 30 suppliers it considers critical and extended and prolonged contracts with many of them. It is now looking for contract lengths of about five years, up from one or two years prior to last year, he said.
Before the pandemic, many U.S. companies, including his, would have put in a bid and “chosen the lowest price,” whereas now, there has to be a broader relationship [with suppliers],” Mr. Allan said.
Components make up the largest proportion of goods sold at Stanley Black & Decker, which is why any increase in prices for batteries and chips can have a sizable impact on its finances, said Timothy Wojs, a senior research analyst at investment bank Robert W. Baird & Co. Higher costs for raw materials such as steel and resin, which is used to make plastic, also add to the bill, he said.
The company in late April said it expects cost increases of about $235 million this year due to inflation, up $160 million from its forecast at the beginning of the year, according to an earnings transcript. Stanley Black & Decker aims to pass two-thirds of the increase on to customers and offset the rest by increasing efficiency and cost savings—what it calls its margin resiliency program—Mr. Allan said.
Stanley Black & Decker began raising prices for some of its products this quarter and has more increases coming. It aims to execute “hundreds of millions of dollars of price increases this year,” according to Mr. Allan.
The company expects to free up between $100 million and $150 million a year with its margin resiliency program, said Justin Bergner, a senior research analyst at G.research LLC, a research and brokerage firm.
Stanley Black & Decker reported operating profit of $711.4 million, or 16.9% of net sales for the first quarter, up from 8.8% in the prior year period.
The company over time will likely need more batteries, as it looks to acquire the remaining 80% of MTD Products Inc. that it doesn’t own yet. MTD, which is based in Valley City, Ohio, makes mowers and other outdoor equipment and expects to move toward using more electric motors in the coming years. “We see this as a big opportunity,” Mr. Allan said about the planned acquisition.
Write to Nina Trentmann at [email protected]
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8