Stanley Black&Decker Inc.

The stable outlook incorporates our expectation that adjusted debt to EBITDA will remain below 2x in 2021 and 2022, even if the company acquires the remaining stake of MTD Products Inc. later this year. That said, adjusted debt to EBITDA would be close to that key leverage threshold for the 'A' rating, making capital-structure discipline important to sustaining ratios in case demand weakens or persistently high costs weigh on earnings in late 2021 or 2022. We could lower the rating if either weaker earnings or higher debt levels kept 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, higher costs, or unexpected competition that lowers operating

...Lower net debt and an earnings bounce should improve adjusted leverage in 2021. Stanley Black & Decker Inc.'s debt levels have dropped by more than $1 billion year-over-year to March 31, 2021, peaking at almost $6 billion after the $1.3 billion acquisition of Consolidated Aerospace Manufacturing LLC, a supplier to the stressed aerospace industry and the Boeing 737 MAX in particular. We expect Stanley's adjusted debt balance to hold at about $5 billion in 2021 and 2022 as it uses excess cash for potential acquisitions, with higher earnings possibly driving slight deleveraging. Demand in the tools segment, which accounts for two-thirds of revenue, surged with a boost in building activity related to COVID-19 stay-at-home orders in 2020, with good follow-through amid rebounding economic conditions in early 2021. In addition, the company began a cost-rationalization program before the pandemic, which alleviated profit pressure in the first quarters of the pandemic and now is powering an efficient...

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