Stanley Black & Decker CFO Explores Battery, Chip Maker Partnerships To Ease Post Pandemic Supply Chain Pressure: WSJ

Power tool company Stanley Black & Decker Inc SWK CFO Donald Allan Jr is seeking partnerships with battery and chip manufacturers to ease the pressure on the tool maker’s supply chain, the Wall Street Journal reports.

What Happened: The company is seeking electric battery and computer chip makers for component supply in return for an investment.

Stanley Black & Decker has a tentative partnership with a South Korean battery maker for a production line that will start manufacturing batteries in Malaysia in 2022. It is also in talks with other Asian and U.S. businesses about potential partnerships.

Stanley Black & Decker estimated $500 million in 2021 capital expenditures. It plans to incur about 10% - 15% of that to supply-chain partnerships and other related initiatives. Supply chain partnerships accounted for less than 5% of the CAPEX before the pandemic.

Stanley Black & Decker already has small-scale partnerships with companies that build specific tooling and production lines.

The company needs batteries for its cordless power tools and uses computer chips across its portfolio. It manufactures a significant portion of its products in the U.S. and Europe. It prefers to set up new production lines in those regions to beat Asia’s long wait times.

Why It Matters: SWK remains bullish on demand for its components like batteries and chips.

Competitors like Japan’s Makita Corp MKTAY and Hong Kong’s Techtronic Industries Co Ltd TTNDY manufacture a more significant chunk of their products in Asia, potentially providing them with easier access to batteries and chips.

Stanley Black & Decker identified around critical 30 suppliers and extended and prolonged contracts with many of them for up to five years.

Any price hike for batteries and chips can have a sizable impact on its finances as the components account for the most significant proportion of goods sold.

The company raised the cost guidance from $160 million to $235 million for 2021 due to inflation. It aims to pass two-thirds of the increase on to customers and offset the rest by increasing efficiency and cost savings.

Stanley Black & Decker began raising prices for some of its products this quarter and has more hikes due.

The company expects to free up between $100 million and $150 million a year by increasing efficiency and cost savings.

Stanley Black & Decker’s Q1 operating margin expanded 810 basis points to 16.9%.

The company will need more batteries as it seeks to acquire the remaining 80% of MTD Products Inc. MTD produces mowers and other outdoor equipment and expects to move toward using more electric motors in the coming years.

Price action: SWK shares closed lower by 0.25% at $194.92 on Friday.