What California's Gas-Powered Mower Ban Means For Toro, Stanley Black & Decker

Stanley Black & Decker, Inc. SWK and Toro Co TTC face a potential risk in the medium term due to a legislative development in California, an analyst at BofA Securities said.

The New Legislation: The legislation reportedly signed by California Gov. Gavin Newsom over the weekend mandates that all newly sold small-motor equipment, primarily used for landscaping, to be zero-emission by 2024 or as soon as the California Air Resources Board determined is feasible, analyst Ross Gilardi said.

The mower ban, the analyst said, faces significant lobbying pushback from professional landscapers and gardeners who would be forced to upgrade and convert their fleets. About $30 million has been set aside to help these groups make the transition, he noted.

There could perhaps be a pre-buy of gas-powered equipment into the deadline that incentives California retailers to continue carrying gas-powered equipment, the analyst said. Some of the retailers, however, could de-emphasize gas equipment at an accelerating pace to highlight their environmental consciousness, he added.

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How Stanley Black & Decker And Toro Would Respond: Stanley Black & Decker, through its pending MTD acquisition, and Toro, which primarily has primarily gas-powered outdoor line-ups in its residential business, are exposed to the risk of the phasing out of gas-powered equipment, Gilardi said.

Stanley would point to its strong battery technology in its legacy outdoor business and its intention to electrify the MTD lineup over the next few years, the analyst said.

The California ban, according to the analyst, will put pressure on MTD to accelerate its electrification effort at a time of enormous supply chain challenges that are making battery cells harder to come by. The crunch is also weighing on the legacy gas engine market which is experiencing acute shortages, the analyst added.

Toro, although having taken some strides in electrifying its residential product line, is still primarily a gas-powered player, Gilardi said. Toro has said the shortages in the gas engine markets as temporary, the analyst noted.

If California is about to ban the product in the next few years, it is less likely that capacity is added in this market to alleviate the situation, the analyst said.

At last check Tuesday, Stanley Black & Decker shares were edging up 0.14% to $175.03, while Toro was slipping 1.35% to $94.38.

Related Link: Toro Stock Gains On Q3 Beat, Raised FY21 Outlook

Photo by Rémi Müller on Unsplash