SWK Q2 Deep Dive: Tariffs and Supply Chain Actions Dominate as Leadership Transition Looms

Manufacturing company Stanley Black & Decker (NYSE:SWK) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 2% year on year to $3.95 billion. Its non-GAAP profit of $1.08 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Stanley Black & Decker’s second quarter results were met with a significant negative market reaction, reflecting disappointment around revenue performance and ongoing margin pressures. Management cited a slow outdoor buying season and disruptions tied to customer responses to new tariffs as key contributors to the sales decline. CEO Don Allan, in his final call before transitioning to Executive Chair, acknowledged the “dynamic operating environment” and emphasized the company’s continued focus on supply chain transformation and cost structure improvements. Notably, while DEWALT brand sales remained resilient, overall margins were pressured by tariff costs and lower volumes.

Looking ahead, Stanley Black & Decker’s updated guidance is shaped by expectations for stable professional demand, further tariff mitigation efforts, and ongoing cost-reduction initiatives. The company plans to leverage targeted pricing actions, supply chain shifts, and continued investment in high-return growth opportunities to support margin recovery. CFO Pat Hallinan noted, “We currently estimate the net P&L impact for 2025 to be approximately $0.65, reflecting the timing and costs required to implement mitigation strategies.” Management also remains focused on achieving its long-term adjusted gross margin goal of 35% or higher, despite ongoing trade and rare earth material challenges.

Key Insights from Management’s Remarks

Management attributed quarterly revenue softness primarily to a slow start in outdoor products and shipment volatility driven by customer reactions to new tariff regimes. Margin headwinds were largely offset by ongoing supply chain transformation benefits and initial price increases.

• Outdoor and DIY weakness: The Tools & Outdoor segment faced a slow buying season, particularly in outdoor categories, while the consumer-focused CRAFTSMAN brand continued to see demand affected by higher interest rates and a subdued DIY market.
• Tariff-driven shipment disruption: Customers adjusted buying patterns and promotional plans in response to evolving U.S. tariff policies, resulting in temporary shipment timing disruptions and inventory volatility during the quarter.
• Professional demand stability: Despite broader market softness, DEWALT brand performance remained strong, with professional user demand holding steady across product lines and regions, supported by ongoing marketing and innovation investments.
• Supply chain transformation progress: Management highlighted $150 million in new quarterly run rate cost savings from its multiyear supply chain transformation, bringing the total to $1.8 billion to date, with a continued push toward $2 billion in annualized savings.
• Leadership transition: CEO Don Allan will move to Executive Chairman, with Chris Nelson (current COO) taking the CEO role in October, reflecting continuity and a focus on executing the final phase of the company’s transformation strategy.

Drivers of Future Performance

Stanley Black & Decker expects tariff mitigation, price realization, and cost savings to be the main drivers of margin recovery, even as volume headwinds persist.

• Tariff mitigation and pricing: The company is executing a multi-pronged strategy to offset tariff costs, including further supply chain localization, new pricing rounds, and collaboration with customers to optimize product assortments. Management projects an $800 million annualized gross tariff cost, with targeted mitigation actions expected to largely offset this impact by late 2025.
• Supply chain and operational efficiency: Completion of the supply chain transformation and incremental $500 million in 2025 cost savings are central to margin expansion plans. Management expects back-half adjusted gross margins to improve year-over-year, aiming for mid-30% levels, although some volatility is anticipated as new tariff policies and rare earth material supply constraints are absorbed.
• Segment-specific trends: Professional demand, especially for DEWALT and aerospace fasteners, is expected to remain more resilient than consumer DIY and outdoor categories. Management is cautious on DIY recovery, noting that volume growth will likely remain challenged unless broader macroeconomic factors improve.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the effectiveness of additional supply chain localization and tariff mitigation actions, (2) the pace and magnitude of margin recovery as new pricing and cost savings take hold, and (3) stabilization or improvement in DIY and outdoor demand trends. Execution on leadership transition and innovation rollouts, especially within the DEWALT and CRAFTSMAN brands, will also be critical markers of progress.

Stanley Black & Decker currently trades at $71.28, down from $73.93 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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