Dive Brief:

• Black & Decker CFO Don Allan called tariffs on the foreign-made components it uses to manufacture tools and other products in the U.S. unfair, but said list four may finally level the playing field with the company's competitors.
• "We were in a position for a while until list four came about, that we were competitively disadvantaged. Now with list four, it changes the playing field and ... you could even argue, it's somewhat in our favor now," Allan said on the company's Thursday earnings call. Earlier lists targeted the components that Black and Decker imports to manufacture in the US. while list 4 includes finished goods that competitors manufacture in China, according to Black and Decker.
• The CFO valued the company's overall headwind, including tariffs, currency fluctuations and commodity prices, at $450 million for the whole of 2019.

Dive Insight:

The CFO's comments highlight the new competitive landscape the U.S.-China trade war has created — where the makeup of existing supply chains suddenly offered some firms a competitive advantage beyond the usual bedrocks of quality, speed and price.

Black & Decker's tariff mitigation strategy to date has largely been customer pricing-based with some additional cost control measures thrown in, Allan explained in July. The company has so far mitigated 40% of the tariff costs in 2019, which represents roughly 90% of the company's tariff burden, according to Jeff Ansell, the executive vice president of global tools and storage.

"We continue to swiftly respond to the volatile external environment with price recovery, supply chain adjustments and acceleration of our margin resiliency initiative," Ansell said. At least in the third quarter, the company was able to hold operating margins steady.

But next year, the manufacturer intends to be more aggressive with its approach to tariffs, attempting to cover 100%, using existing mitigation tactics along with significant cost cuts. Should all existing and planned tariffs hold through the new year at their current rates, the firm's tariff burden for 2020 would be roughly $125 million, Ansell said.

Black & Decker is embarking on a $200 million cost reduction program, centering around staff and real estate cuts, in order to deliver on a promised 2021 margin expansion initiative.

"What we're really trying to do with margin resiliency plus also covering 100% of the tariff exposure with cost actions is to make sure that we have a very significant cushion in the event that the economy takes a turn for the worse," Ansell said, adding that this action does not mean the company is predicting such a downturn.