Stanley Black&Decker Inc.

The stable outlook on Stanley reflects our view that better earnings in 2019 from cost reductions and the company's moderate use of debt will return adjusted debt to EBITDA below 2x in 2019, which we believe should enable the company to preserve its balance of strategic acquisitions or shareholder returns. We could lower the rating if either sharply weaker earnings or higher debt levels keep adjusted debt to EBITDA above 2x with poor prospects for deleveraging. This could occur following a large debt-funded transaction, coinciding with acquisition-related disruptions, more trade friction, or unexpected competition that lowers operating margins. An upgrade is unlikely, given that Stanley is targeting adjusted leverage of 1.5x-2.0x in the next 24 months, temporarily pausing acquisitions in

...Adjusted debt leverage ended 2018 above 2x for the first time in five years due to growth investments and tighter margins. Elevated debt levels and fairly small cash balances at year end pushed adjusted debt to EBITDA above our key 2x downgrade threshold at Dec. 31, 2018. Nevertheless, we expect the company will use free cash flow to reduce debt and return adjusted leverage to below 2x in 2019. We believe the recent drag on cash flow, as well as higher leverage, will be temporary as price increases and lower commodity input costs in 2019 even out some of the effects from last year's tariffs. Most of the $800 million increase in debt year over year can be attributed to attractive growth initiatives like the Craftsman acquisition in 2017 and associated working capital investments in 2018. Stanley Black & Decker is slowing acquisitions to improve core profitability. The company made more than $3 billion of acquisitions in 2017 and 2018 that contributed to margin pressure, lower working capital...

Full Report