Power Tool Demand Booms During Pandemic

Stanley Black and deck Or. The stock has hit an all time high and the company has boosted it's uh two thousand twenty one Tools and Storage organic growth view. I am Jim. You're probably your target retail customer looking for an angle grinder right now. There's nothing I love, well, there's very There are very few things I love more than power tools. Ride motorcycles a lot, but mainly so that I can work on them. Um. I guess it's

probably home improvement though. That's been driving your business this year, Is that right? Well, that's certainly a big part of it. But you know, we we do, uh, we do have some drivers and all around the globe, and it's home improvement, it's repurposing homes. It's home starts, housing starts, and uh economic activity in general, you know, all drive the business, alright, So Jim, give us a sense of how your business

kind of was impacted during the pandemic. Take us to kind of just as you know, that quarter or two pre pandemic, and then what it's been like since the pandemic. How's your business changed. Yeah, we had a very interesting pre pandemic situation where it was just kind of normal, and then one day we woke up and UH sales plummeted by We're down for four continuous weeks in US retail, which is a big part of our business. So it was a little bit scary at that point in time,

but we uh we kept producing. We remained continuously open, and in May, what happened was the point of sale, the cash register receipts, if you will, at the retailers started going positive and then it went to stratospheric levels in the middle of last year that we've really never seen before, you know, like up e commerce was up.

It was just crazy numbers and so fortunately we had made some that says we saw this these cash registered receipts going up for tools, and we bought six hundred million dollars worth of inventory and manufactured six hundred million dollars worth the extra inventory to serve that demand, and that that demand has just continued, you know, at different varying rates. But let me give you a little insight into the first quarter. Uh, you know, the total sales

and the tools business, we're up forty organically. North America was up for US, retail was up and get this, Europe was up, and the UK and even the emerging market, who you wouldn't think would be doing so well, they were up seventy in Latin America seventy seven percent. So it's it's really really broad based market strength. And when we cut fining you across the products. You know, power tools were up fifty percent, hand tools up and outdoor

outdoor was up a hundred and twenty. So the headge trimmers, the shears, the electric shears and those types of things just bonanza really across the board. Well, your long term growth has been strong as well, And I wonder if I look at your next day three to five years, do you expected to pick up from the last three

to five years. Absolutely, you know, I've been at sea level exacting this company for twenty one years, and when I joined, we were two billion in revenue, and we'll finish this year, you know, somewhere in the fifteen sixteen billion dollar range. Our market cap was two billion, and it's over thirty now. So it's been a long term growth story as long as I've been here, and even dating back you know, before that, since our founding in

eighteen forty three. But in any event, we're excited about the post pandemic economy, and we're excited about our portfolio because not only do we have I would say, the construction market coming back, we see very positive outlook for

the US economy and beyond that global growth. And then specifically to Stanley Black and Ducker, we are going to uh execute an option that we have to buy eight of a company called mt D, which is one of the largest gasolene powered outdoor power equipment makers of one mowers and riding mowers and most types of things. And we're going to that's about a three billion dollar business, and we're going to convert that business using our technology and our know how in battery power, We're going to

convert that and electrify that. So we're gonna add billions of dollars of revenue, and we're gonna do great things for the environment. A just recal Okay, thirty seconds, Jim, I'm looking at, uh the supply chain function on the Bloomberg Terminal SPLC. I see you've got about more than eighty suppliers out there. Talk to us about the supply chain. Are you getting the stuff you need? We've done really really well in that regard. However, it's not It has

not been without its challenges. You can imagine, you know, officially Asian and Mexican supply chain during a pandemic. It does have challenges. And we you know, the three things that are uh mostly most scarce, I would say would be batteries, semiconductors, and UH in some cases resins. And we're in good shape to continue this kind of growth, UH and this kind of run rate sales UH with

batteries and also semi conductors. UH. And then the next next year, in the year beyond, we're gonna have to We're gonna have to get some more access to semiconductors. Resins were into shape, Jim, thanks so much for joining us. Any guys reported really strong numbers last week's stock at an all time high. Good time to be in the tool business. Jim Laury, chief executive officer for Stanley, Black

and Decker. We appreciate him taking some time there again benefiting from the at home consumer doing some work around the house. I guess now I want to bring in Phil Orlando is the chief equity market strategist and head of client portfolio management that Federated Hermes. They've got about eighty billion dollars in equities under management firm wide, about six billion dollars in assets under management as of a

kind of the end of last year. Phil um. You know, lots changed since the end of last year, so I'm expecting that number is probably a lot higher now. But how much higher can it get? I mean, have we reached a point when you know, uh, the market expectations are um are now high enough for or the valuations are high enough to meet market expectations. Well, the market is going to reflect corporate earnings and you know the S and P five from the bottom of the market

March a year ago to where we are now. You know, we hit a record high within the last couple of days, and there have been a lot of folks that have been scratching their heads saying, how can the market be doing this? Well, um, we had, you know, the deepest recession in history, and the reason is that the equity market is a forward looking discount mechanism which attempts to price in what they think is going to happen six or nine months later. So here we are now in

the first quarter earning season. We're about two thirds of the way through. Earnings were expected to be up about year on year according to facts set, They're up. Yeah, well, I mean tail this is the interesting thing. I mean, I have never seen companies knocked the cover um so far off the ball as they had this earning season. In fact, um, the last looked SMP companies are beating expectations by nine percent. You know, almost all of the

companies out are beating the street's estimates. And yet, um, we haven't seen stocks move a lot in the past few days. Analysts are saying, thank you very much. We are our investors are saying, thank you very much. We expected that. You know, what what can you do for me? Now? Well that that's exactly the point. There's maybe one percent. Rally has priced in some of this gain. The second quarter. The quarter that just started that we're going to report

in July. We think the earnings are going to be up another sixty Now that could represent the peak of the cycle in terms of rate of growth. So we may continue to grind earnings up second half of this year all of next year, but the corner on quarter year on year pace of that increase may start to decline. UM. So so that's the the interesting inflection point that we're

gonna be watching right now. We still think the market's going to forty five hundred, but we may get to by August as opposed to December, based upon the strength of the earnings recovery that corporate America right now is enjoying. Phil give us a sense of your concern about inflation, because we certainly are seeing inflation, uh coming into this market, whether you look at the soft commodities, hard commodities, oil, you know rallying here um the Fed and Chairman Pal saying, hey,

it's just transitory, don't worry about it. But I think there's a growing chatter about the concerns for inflation. What that night mean for the FED going forward? What are your thoughts we think the Fed is being there whistling past the graveyard here. On inflation. We just saw the core PC on Friday go from one point four year on year core in February one eight percent in March. That number is going to keep going up based upon

this procedural base effect. As we drop off the low inflation readings from a year ago, that number is going to be somewhere between let's call it two and a half and three over the next couple of months. Now, the FED at that point is saying, don't worry about it,

it'll plateau, it will roll over. Given the spike in commodity prices and the significant increase in labor costs that the companies are gonna have to pay in order to get workers off the sidelines to take their jobs back, and then the price increases, they're going to pass those labor costs on us in the form of higher consumer praises. All of that, in our view, is going to start

to filter into core inflation. So so and and the FED is locked in that they're not going to make a policy change until you know, the end of calendar twenty three at the earliest. So I think we're at

an inflection point on the FED here as well. At what point does the Fed blink and recognize that maybe inflation is a little bit of a problem here, and that they're gonna have to change policy, either tapering or moving interest rates higher earlier than the beginning of into Phil, what asset class do you like if inflation is not transitory? Where do you put your money? Heard a fixed income strategies morning? Tell me junk bonds. But that's a little too risky for my blood. Well, and I'm not the

bond guy. I'm the equity guy. And and and basically what you want or companies that have pricing power that are leveraged to this improvement of the economy. So we think that the value stocks, which we've been playing since last August, financials, energy industrials, UH, consumer discretionary, UH materials, that these are the companies that are that are producing the outsize games because the economy is growing so strongly and the valuation gap between growth and value is still

significant enough. But I think that the value trade ought to continue to work. Love it, Phil, great to get your input. Really appreciate you stopping by for a bit. Phil Orlando. There is that chief equity market strategist also head of Client port folio Management over Federated Hermes and Paul as you were you were telling me this morning. Phil has been bullish and he's been right. He has been and uh, you know it's interesting. He's got that that rotation trade very much uh in play here, and

he's gonna ride that out. So it's been a good trade. Um, And I think a lot of investors are feeling, you know, this has got some more room to run here. As long as the Fed stays on the sidelines and this economy continues to reopen, we can see more legs there. Time for Bloomberg Opinion today, we're joined by Tara la Chapelle.

She covers entertainment, telecommunications and deals for Bloomberg Opinion. And I'll tell you, if you have an interest in media like I do, in the convergence of media and technology and cord cutting and streaming and all that cool stuff, Terra's work is an absolute must read. And she's out with another fantastic column today talking about Netflix and Terry, you're suggesting that Netflix, you know, they haven't really bought anything.

They've just kind of built their company up from scratch, investing in their in their business, investing in their programming, but you're suggesting maybe they should take a look at buying an existing media company, which one and whine right, So I think that they should look at Discovery and not just Netflix the other streaming giants you know, Apple, Um, maybe not so much. Disney doesn't really fit their family friendly programming, but you know, Amazon Prime, any of them.

Because I think what's missing now from the streaming universe is reality TV programming, which you know, maybe Discoveries content on you know, TLC, things like that are considered kind of like the lowest rung of television art, but at the same time, a lot of people enjoy it. And I think it also is that type of content that you can just turn on the TV and it's background noise while you're maybe scrolling your phone or making dinner. And I think that's really missing from streaming, and there's

value and being able to provide that. So I think if Netflix is smart and if the other companies are smart, they start to see that there's a hole there and it would make an awful lot of sense to fill because this kind of programming is not expensive to me and it really you know, pays dividends. Yeah, I mean if if Tiger King isn't the lowest rung of creating art, I feel like they've already gone there. Um, and that

program was extraordinarily successful. Right. Meanwhile, Discovery has for me, at least, they've got the top Gear America, which is reality programming that I absolutely love. What else is Discovery got on offer they have? They have really a wide um offering of of programming. Top Gear comes from Motor Trend, but Discovery owns that. Yeah, they have a ton um

you know. Aside from Motor Trend. There's TLC with Nintie Day Fiance is their big show right now, and David Zaslav, the CEO of Discovery, is kind of mused before that it's like their Sunday Night Football. It airs on Sunday nights and it just gets tons of viewers. And I think what's interesting about Nintie Day Fiance and some of their other programs. They have Chopped on the Food Network, there's Naked and Afraid on the Discovery Channel. Obviously HDTV

has a ton of hit programming. Um. I think what's different about them is that these are franchises. Do you look at something like Tiger King and some of the other uh paise Netflix has made into reality shows. None of them have been franchises, and Discovery just kind of keeps building on these brands. And it's funny because they

don't really have stars behind them. They're just mostly regular people that they're filming in these cases and you know, ninety Day Fiance, they're just following around Americans who are trying to bring over their fiance's from abroad on K one visas. And you know, it's it's really like, you know, low budget programming, but it's wildly entertaining to a lot of people, and it appears to spin offs and extras and reunion shows basically gifts that keep on giving for Discovery.

All right, So Tara, I, you know, I know Discovery Communications very well. And one of the key things about that company is that it's control shareholder is John Malone. What do we know about Dr Malone's feelings about Discovery and perhaps selling this company should should have bona Flied

offer come along. You know, it's funny. I think John Malone and David Zaslov are the two executives that are always willing to kind of pitch their own companies for sale anytime they go out to the media or their conferences. They seem to always be like open to that idea, and they're almost kind of asking for offers, and I wouldn't I think that if they got one, they definitely

would consider it. I think that, you know, John Malone is a dealmaker at heart, and I think that he's you know, always been kind of open to selling at the right price, and especially now given his age and trying to kind of tidy up his portfolio, I imagine that they would be willing sellers. Um. I think it's just a matter of when these other media companies feel ready to make a big bet like this and see the value in it. And I think more and more

discoveries proving its value. In the case of Netflix, it really wasn't financially in the position to do major acquisitions, and it's just starting to get to the point where they're saying they're going to be cash flow positive starting next year. So maybe they now have the wherewithal to be able to think about making acquisitions, especially as they see their own subscriber growth really start to slow. When I was a kid, we used to call John Malone

the Darth Vader of cable. I can't remember why. But as you point out Tara's he's getting older and maybe looking to wrap up his legacy. Here, what if Netflix doesn't take Discovery, is there another buyer out there who would want them? I think it would make sense for any of the streaming companies that are really lacking in the kind of content that we did enjoy about cable.

So I think of Apple TV plus, it's very focused around you know, specific shows and movies with big actors in it, and it's kind of you know, you watch it and then that's that you forget about it. I think they need something that keeps people coming back these kinds of programs do that. Amazon Prime doesn't really have a whole lot there. Um. But also, you know a company that always comes up when you talk about Discovery

is Viacom CBS. UM. I don't see the logic as much there, but I think it's it's a case where because they're kind of the also ransom this industry, people see them, you know, they should get together and they'll be stronger together. So there's there's that argument. Um. But I think you know, Netflix, if they want to stay on top, this is something that's really missing and it fits really well because Discovery is also a very international

company and that's something that's important to Netflix. So I think it probably makes the most sense for them. But any of these companies should be looking at them. UM. You know, so much of the takeover speculation and the industry is focused on Hollywood movie houses. I think, you know, that doesn't really help them that much. I think something like this would would pay off a little bit better

in the long run. Have you heard anything from Repastings, the CEO of Netflix, about their willingness or appetite for any type of acquisitions. Not a whole lot on that front. And again I think maybe that has to do with them just trying to get to the point where they could prove to investors and the naysayers that they are a financially viable company and now they've gotten there. Um. But also, you know, they get asked a lot about

whether they would expand into other things like gaming. UM. I've brought up the idea of them getting into consumer products, licensing, UM. But they haven't really been specific about what's next, which kind of makes you wonder what they could be thinking about. But UM, acquisitions come up whenever a company's growth is starting to slow and Netflix is now kind of a mature company in that sense, and so you could imagine that they're starting to have those conversations that companies like

Disney have had, you know, for years. Tara your article and Matt, this is funny. When I first read TERA's article this morning, said, oh, investment bankers are hitting the phones today because I think Terri's kind of raises a lot of questions here. Yeah. Interesting, uh interesting. Al Bloomberg opinion columns can sometimes spark deals, but I mean her her logic isn't flawed and it's probably something, hopefully something

that investment bankers thought of as well. Otherwise, I think Tara could be in for a pretty big pay day if she were to switch over to the dark side. Tara la Chappelle there from Bloomberg Opinion. Check out her work by typing O, P I N go on the Bloomberg or look at Bloomberg dot com slash opinion. This is Bloomberg. We're about halfway through this earning season. Another big week. Uh. This week and another are just coming in very strong, and that's what this market needed. Let's

see how some strategists are thinking about that. Scott Wren. He's a senior global market strategist for Wells Fargo Investment Institute. Scott, thanks so much for joining us here. You know, there was a strong argument to be made that this first quarter earning earning season really have to come in strong to justify the valuation in this marketplace. Do you think

corporate Americas has come through so far? Well, I really do, Paul, But I tell you I think really the way I look at most earning season and even this one is, you know, this is more of a confirmation process. I mean, it's the last thing that happens in the entire earnings processes. It's it's reported to the streets. So the street expected good earning strowth. We've certainly had that. We know we're going to get some really good UH economic growth here.

So this is more of a of a confirmation step in my mind. But certainly this has been a really good earning season. I always look at this from two different angles. On the one hand, it Scott, you know, companies are doing great, they're bouncing back from to be fair, you know, pretty low base effects. On the other hand, analysts got it wrong. Um they undervalued or underbid these companies earnings reports, Nearly ninety percent of SMP firms beat estimates.

What are the analysts doing something wrong? Are they not updating their expectations? Are they, you know, working from home? What's the story? Well, I'll tell you, Matt, this is my bias I think is a strategist is a lot of times individual company analysts, you know there they are really glued to company guidance. And if you think back what's happened over the last year, uh and and really in a lot of earning seasons, you know, these these companies are are very cautious. They don't want to give

a very aggressive outlook. You know, that's why six in any earning season season beat. But that that's the situation that guidance is very conservative. We know from economists and certainly our economists that we that we talked to with our group um are expecting big things. But these companies aren't going to go out on a limb too far. And then the analysts become really glued to that guidance and therefore you know, their way under what the actual

results would be too. So it's kind of an odd sort of a circle, but it happens with such regularity that when you have something like this pandemic, it gets even worse. All right, Scott, So we've seen, um, you know, the rotation trade into cyclical stocks, even into smaller cap stocks as well, really perform well amost almost for a year. Now, what's your take on that allocation or or that move in that side of the market versus maybe the more

traditional growth areas. Where are you kind of focused right now? Well, I will say that in this particular cycle, our viue is that growth is going to not fade relative to value as as much as maybe a normal cycle. Now saying that, you know, we're in a cycle, we're in a new cycle that at least we believe we are where the stock markets likely to see some some some

multi year gains here. Um, you know, small caps as people are more willing to take on risk, you know, they're going to buy value, they're going to buy small caps. That's certainly what's happened. So we're you know, we're leaning into small caps. We we like you know, industrials, materials, um, financials,

those kinds of things. So so while all these cycles are different, and this one you know is odd, as was the last one, you know, some of these recurring themes that you see value does well, small caps do well, things like that, cyclicals do well as the economy comes out of the whole. You know, these things hold true even in this cycle. So we're leaning towards we want our clients to be assertive. We want them to be leaning towards a continuation of this recovery, not just here

but also abroad. We think EUROP catch up after they get their act together with this vaccine, and you know, we like those areas. And I think at least, um, you know, for the intermediate term, it's going to remain like that. I got my appointment by the way you do big announcement because I'll tell you why. Because Germany counts I live in Berlin, because Germany counts journalists among um,

the third group that it gets priorities prioritized. Um, we're now kicking off so I can go to press conference. Thank thank you, Matt. You are you are essential man that thank thank thank you. So yeah, I think I I feel pretty essential in any case. UM. I was just thinking, you know, Scott, you've been saying this for a while, that the U. S economy is going to bounce back strong everyone knows it's red hot, as Warren Buffett said, but you don't. You don't know if we're

gonna get a strong bounce back necessarily in Europe. Um, is it is it a good time to go bargain hunting, to go look for um, you know, the bounce back that is going to come. Well. I think as far as the globe goes well, you know, we were also overweight favorable on emerging markets. You know, China, China, Taiwan, South Korea, they've done well. Um. I think you know, they appear to have you know, their vaccine act together,

so to speak. Certainly, global trades pretty good, but we have not been favorable on a developed international, which would include include you know, obviously the Eurozone, the EU, Japan, those types of countries. So we don't think it's time yet, but um, but certainly it's something that we talked about every week in the Investment Strategy Committee. But as far as international goes right now, we want to lean more towards UH towards emerging markets. Scott, thanks so much for

joining US. Senior global market strategists are in the fourth group, by the way, so you'll be able to get your vaccine if you come here. Scott in in June, Scott ran there from Wells Fargo, Wells Fargo Investment Institute talking to us about how they want to play this market, and soon, Paul just going to be consensus that um, the strength in the US economic bounce back is not to be denied. This is Bloomberg. Thanks for listening to

the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Yet on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio