Power tool heads also hate weeping leaf blowers. “It always seems like when I take my week or two off to go to my condo in Florida, and I get there on the deck chair at 10 am, suddenly the landscapers arrive with their motorized gas equipment,” he says
Stanley Black & Decker
CEO Jim Loree. “And it’s like I’m supposed to be up there.”
Battery-powered tools are less noisy and harmful than gasoline-powered tools, and the move to them is well underway. Loree says that more than half of the hand tools sold today are electric, along with a quarter of lawn mowers. He has his eye on lawn mowers and robotics, and is working on technology that comes from both the automotive world and outdoor tools. “More to come,” he says.
Electrification is good for business, at least for Stanley (ticker: SWK) and
or TTI Group (669.Hong Kong), traded in Hong Kong. They may be turning the battery tool market into a two-horse race after five years of gains in market share. Stanley has its namesake brands, in addition to DeWalt, Craftsman, Porter Cable, Bostitch and more. TTI has Ryobi and Milwaukee. Stanley also has a 20% stake in lawn mower specialist MTD Products, with the option to buy the rest at a reasonable price. MTD’s brands include Cub Cadet, Troy-Bilt and Robomow, which make standalone cutters smaller than handbags.
Lawn power tools can bring their manufacturers something even more reliable than brand affinity: replaceable batteries, which give the buyer of a weed mower, say, a reason to buy the same type of blower too. Rob Wertheimer, who covers Stanley for Melius Research, estimates that electrifying lawn and garden tools will add one to three percentage points to his annual sales growth this decade.
Based on Stanley’s recent financial results, this may look like peanuts. Sales jumped 31% during the March quarter compared to the previous year. Loree attributes this to a “generation change in end-user behavior”, with the pandemic spurring the purchase of do-it-yourself houses and projects. He expects demand to stabilize at this higher level, with growth slowing to 4% to 6% a year, and with Stanley outperforming the market by one or two points. Even with the slowdown in growth, the tailwind of electrification will remain.
Some other Loree nuggets: At the moment, Stanley can only keep up with the store’s shopping rate, not reloading inventory, which is smaller than retailers would like. When the pandemic hit, the company was in the process of transferring some plants from China to North America, so it will have three new plants going into operation soon, two in Mexico and one in Texas.
Stanley has three times the e-commerce business of his next biggest competitor, estimates Loree. In markets where it is underrepresented, such as China, India, Japan and Germany, it is in the process of selling directly to customers. In North America, the company is happy with its retail relationships, including online. “I know a lot of people who say that
doing business is difficult, ”says Loree. “We didn’t have that experience.”
Inflation seems to be here to stay. “At first, I thought it should be just a transient phenomenon, related to the supply chain,” says Loree. “But based on what we are seeing … labor rates are going to have to increase. And once you get labor inflation, it is difficult to contain prices in the end markets. ”
Historically, Stanley has passed on 30% to 50% of inflation to customers through price increases.
Loree expects the company to have a lot of pricing power, because customers have become accustomed to the skyrocketing prices of construction products like sawn timber, and Stanley has so far maintained the line with huge increases.
Stanley’s sales and earnings are expected to surpass not only pandemic levels this year, but pre-pandemics as well. The shares are just under 20 times this year’s earnings forecast. Wertheimer of Melius Research predicts that Stanley will soon receive a boost similar to that of a powerful player’s Tesla. “We would be very surprised if regulations were not putting too much pressure on the electric lawn and garden equipment by the middle of the decade,” he wrote in a recent note to investors.
Already, more than a quarter of Californians live in municipalities with restrictions on leaf blowers, mainly due to noise levels and times of the day, but a handful with direct bans on gas blowers. Local legislation could help keep Loree busy producing battery tools for years to come, and perhaps cut some decibels from her Florida vacation.
You already know that New Zealand economist Bill Phillips theorized that unemployment and inflation are inversely related. In recent years, there has been talk over and over about the Phillips Curve, and whether it is dead, because there have been periods of low unemployment combined with low inflation, which should not happen. Perhaps globalization has made the US unemployment rate a less significant indicator.
Less well known is that shortly after World War II, Phillips built a transparent hydraulic computer to analyze monetary policy, using, among other things, parts taken from a Lancaster bomber. Before turning to the economy, he worked seasons harvesting bananas, hunting crocodiles and running a cinema. As a Japanese prisoner during World War II, he used the lighting system to build a secret kettle for his fellow prisoners. The curve may not be among the 10 most notable things about man.
The computer’s name was Moniac, probably a joke with Eniac, the first programmable digital computer, built four years earlier. Moniac used tanks, pipes, pumps, floats, counterweights and fluids to simulate the flow of funds through the British economy and to measure the effects of taxes, interest rates, trade and more. The popularity of the machine helped Phillips, then a student at the London School of Economics, a teaching post there, where he later published an article about his curve. And whether the curve is dead or not, Moniac lives: Leeds University has the prototype, and there are about a dozen models maintained by schools and central banks.