Stanley Black & Decker, Inc. (NYSE:SWK) Q2 2020 Earnings Conference Call - Final Transcript

Jul 30, 2020 • 08:00 am ET

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Stanley Black & Decker, Inc. (NYSE:SWK) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] Our first question comes from Nigel Coe with Wolfe Research. Your line is open.

Analyst
Nigel Coe

Good morning, Jim and good morning, Don.

Executive
James M. Loree

Hi Nigel. Good morning.

Analyst
Nigel Coe

HI. So I want to start off with the first of all, thanks for details. These are fantastic on the second half of the year. On decremental margins, I just want to confirm the FY 2020 mid- to high-teens commitment implies second half closer to low to mid-teens, I think, if we've taken the 24% decremental in the first half of the year. Is that correct? Number one. And number two, assuming that Industrial is going to be a bit fresh in the back half of the year, it seems to imply that Tools margin's potentially up in the back half of the year. I just want to make sure that we think about this correctly.

Executive
Donald Allan, Jr.

Yes. So on your first question, that's an accurate kind of view of the decrementals in the back half. Yes. I think the margins for Industrial will be very pressured, especially in the third quarter but get better in the fourth quarter, but they still won't be improving year-over-year. But at this stage, we do think tool margins will be improving in the back half year-over-year. But probably will be more improvement in Q3 than Q4 right now due to various comp and other matters. But also our insight for Q3 is very clear versus the insight for Q4 is still a little unclear. So that's probably another factor in that analysis as well.

Operator
Operator

Thank you. Our next question comes from Tim Wojs with Baird. Your line is open.

Analyst
Tim Wojs

Hey, everybody. Good morning. Nice job on the second quarter.

Executive
James M. Loree

Hi, Tim. Thanks.

Executive
Donald Allan, Jr.

Thanks, Tim.

Analyst
Tim Wojs

Just my question is on inventory, really within the tools business. Just wondering if you could provide just color on where you think channel inventory is relative to normal. And as you're talking to your customers, just how long do you think it takes back to get to whatever, I guess, is normal? Just it seems like it could be a multi-quarter tailwind if you're only shipping the POS now. So just some color there on what you think inventory levels are relative to normal and how long it could take to get back.

Executive
James M. Loree

Yes. I mean, inventory levels are exceedingly low, and pretty much as low as I've seen in my time here. And I think the customers would probably prefer to have higher inventories, if they could. But as you pointed out, we're simply keeping up with POS right now. We were fortunate that we built a pretty substantial amount of inventory early in the quarter when we started to see the POS dramatically outperform the shipments, and the customers in the beginning of the quarter were still in the process of an inventory correction themselves. And then it took them a while to realize that the POS needed to be replenished like ASAP in the middle of the quarter.