Shares in toolmaker and engineered fastener company Stanley Black & Decker (SWK 4.20%) slumped by 21.9% in April, according to data from S&P Global Market Intelligence. There’s no debating the reason. The Liberation Day tariffs President Trump announced at the start of the month are significantly affecting its business, and management promptly lowered its full-year guidance on its first-quarter earnings presentation at the end of the month. Here’s the why and how.
Stanley Black & Decker’s tariff impact
Management estimates the tariffs imposed in April, which came on top of previously announced tariffs, will result in a negative $0.75 impact on earnings per share (EPS) in 2025, reducing its full-year guidance accordingly.
The midpoint of its full-year adjusted EPS guidance is now $4.50, compared with prior guidance of $5.25. Similarly, management lowered its 2025 free cash flow forecast to $500 million from $750 million.
For reference, these estimates would put the stock at 13.6 times earnings in 2025 and 19 times FCF. These are attractive multiples, presuming 2025 proves a trough and management’s plan to mitigate the impact of tariffs takes hold. In addition, with all parties attesting to the desire to lower tariffs, and with China and the U.S. both walking back the scope of the tariffs, some deal looks likely.
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Risk is rising
That said, even Stanley Black & Decker’s amended guidance carries some risk. The tariffs will increase costs, and the company will also need to reshape its supply chain, which will take time and effort. The company has about $6.8 billion in U.S. adjusted cost of sales, of which $0.9 billion to $1 billion comes from China, and $1.2 billon to $1.3 billion from Mexico, only a third of which is exempt from tariffs under the USMCA rules, along with $1.5 billion to $1.6 billion from the rest of the world — mainly Taiwan, Vietnam, Malaysia, and Thailand.
It’s not just China; substantive tariffs are also imposed on its other Asian suppliers. It will take time to shift sourcing away from those countries and increase USMCA-compliant imports from Mexico.
Moreover, the price increases that the company has already implemented may negatively affect its sales. At the same time, the possibility of higher general inflation from the tariffs could lead to higher interest rates and slow demand for DIY and professional tools and fasteners for the auto market.
Is Stanley Black & Decker a good stock to buy?
Unfortunately, the sell-off is justified, but the stock looks like a decent value if you think the company can adjust and meet its full-year guidance.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.