The operator welcomes participants to the First Quarter 2024 Stanley Black & Decker Earnings Conference Call. The Vice President of Investor Relations, Dennis Lange, introduces the President and CEO, Don Allan, and other executives. They review the company's first quarter results and make forward-looking statements. The call will include a Q&A session, with one question per caller. Don Allan emphasizes the company's consistent execution and progress towards operational objectives.

The company is focused on executing their strategic business transformation, with an emphasis on free cash flow generation and gross margin expansion. Their global cost reduction program is on track to reach $1.5 billion in savings by the end of 2024 and $2 billion by the end of 2025. They have already captured $1.2 billion in run rate savings and are confident in achieving 30% gross margins in 2024. 80% of their revenue is expected to have adjusted gross margins above 30% in 2024, with potential for improvement in the next 18-24 months. The remaining 20% of their portfolio, mainly consisting of their outdoor and aerospace fastener businesses, is being actively managed to improve profitability and take advantage of market demand and recovery in widebody plane production.

The company's long-term success will be driven by improved profitability and consistent market share gains. The company's point-of-sale data in tools performed better than the category average and they have earned recognition from retailers. The company's transformation efforts are taking root and they are confident in their strategy to deliver strong organic revenue growth, profitability, and cash flow. In the first quarter, organic revenues were down 1%, but excluding the divested infrastructure business, they were flat. Adjusted gross margin, adjusted diluted earnings per share, and adjusted gross margin expansion all showed improvement due to lower inventory destocking costs, supply chain transformation benefits, and reduced shipping costs. The company is reiterating their full year adjusted diluted EPS guidance and expected free cash flow for 2024.

In the first quarter, the company completed the sale of STANLEY Infrastructure and used the proceeds to reduce short-term debt. They expect mixed demand trends to continue in the future and are working on cost improvements and investments for long-term growth. The Tools & Outdoor segment saw a 1% decline in revenue due to lower consumer and DIY demand, but achieved a 550 basis point improvement in adjusted segment margin through cost savings and investments. Power tools saw a 1 point increase in organic growth, while hand tools declined 7% due to lower DIY demand.

The outdoor product line saw a 2% increase in organic revenue due to strong demand for handheld cordless equipment and increased retail listings. The company expects demand to improve and is monitoring POS trends in the independent dealer channel. The overall outdoor market remains soft compared to 2019 levels, but the company is working to improve profitability and capture targeted share gains in profitable segments. In North America, organic revenue was down 2%, while in Europe it was down 3%, with targeted investments being made to expand professional product offerings. Other regions saw a 7% increase in organic revenue, driven by strong growth in Latin America. The company is focused on winning with customers and the professional market while improving profitability.

The company is facing mixed market conditions and is focusing on investing in its brands, market activation, and innovation to capture growth and improve margins. In the Industrial segment, revenue declined 5% but adjusted segment margin improved by 110 basis points thanks to price realization and cost actions. The company's recent DEWALT product introductions, such as the 20-volt MAX XR cordless framing nailer, are a result of its investments in innovation and are designed to enhance productivity and outperform traditional tools.

DEWALT is introducing new innovative products, such as a cordless plunge router and a portable storage solution, to help professionals be more productive on the job site. These innovations, along with investments in brand and market activation, are expected to lead to share gains. In addition, the company has made progress in its transformation journey, achieving cost savings and actively identifying opportunities for further optimization. Despite the current macro environment, the company remains confident in its ability to execute plans for targeted savings.

The company is targeting $1.5 billion of pre-tax savings by the end of 2024 and $2 billion by the end of 2025 through strategic sourcing, operations excellence, and product platforming. They are focusing on optimizing their distribution and manufacturing network, as well as exiting or transforming certain facilities. They have already closed some manufacturing sites and are working on standardizing parts and components to reduce complexity and improve procurement scale.

The company's supply chain transformation initiatives are expected to generate significant savings and improve margins, allowing for investments in growth. They are also focused on generating free cash flow and expanding gross margin. In the first quarter, there was a typical seasonal increase in accounts receivable, but inventory control was improved. The company plans to reduce inventory and maintain a strong focus on working capital efficiency. Capital expenditures are expected to support the transformation initiatives, and the company's full year free cash flow guidance remains unchanged.

The company's priorities for capital deployment include investing in organic growth, returning value to shareholders, and strengthening their balance sheet. In the first quarter, adjusted gross margin improved significantly due to various factors, and the company expects it to continue increasing throughout the year. They reiterate their 2024 guidance for GAAP and adjusted earnings per share and maintain their expectations for organic revenue to be flat to down 1%. The company remains focused on gaining market share and managing costs, while also investing in long-term growth. The Tools & Outdoor segment is expected to have similar organic revenue to the total company, while the Industrial segment is expected to be relatively flat to slightly positive.

In the first quarter, the decline in the Infrastructure segment will affect overall organic growth for the year. The company plans to invest an additional $100 million in 2024 to support their brands and drive innovation. They expect a 10% adjusted EBITDA margin for the full year, with Tools & Outdoor and Industrial segments both showing improvement. The adjusted EPS range remains at $1, with market demand being the biggest factor. GAAP earnings will include non-GAAP adjustments related to the supply chain transformation program. The adjusted tax rate for the year is expected to be 10%, with potential reductions in the fourth quarter due to discrete tax planning items.

The paragraph discusses Stanley Black & Decker's progress and plans for the future, including their focus on gross margin expansion, cash generation, balance sheet strength, and share gains. They also mention their investments in their most powerful brands, their streamlined business, and their emphasis on core market leadership positions. The company is focused on consistent execution and delivering sustainable growth, profitability, and cash flow for long-term shareholder returns. The call is now open for Q&A.

In response to a question about the second quarter, Pat Hallinan from the company stated that they expect sales to be flat to slightly down, with an operating margin of around 9%. Cash flow is also expected to be flat to slightly up, with a focus on margin expansion rather than inventory reduction. The quarterly revenue and margin expansion will determine the flow of operating profits.

The speaker discusses the strong organic cash flow in the first quarter and mentions that there was less inventory reduction than expected. They also note that the outdoor season has started off well, which is a welcome change after two tough seasons. They believe that if this trend continues, it will put the Outdoor segment on a growth trajectory. The speaker then answers a question about the growth of DEWALT, stating that they are seeing positive growth driven by various factors such as organic user growth, inventory availability, and outdoor sales. They are encouraged by this growth and expect it to continue. When asked about SG&A reinvestment, the speaker mentions that they will be reinvesting in DEWALT and other brands to continue their growth momentum.

The sources of growth for the company are primarily coming from the progress made in supply chain transformation and investments in the pro-driven end user market. A significant portion of investments are going towards product development and activation, with a focus on the DEWALT brand. SG&A for the year is around 21%, with 60-70 million going towards investments in the Tools and Outdoor business.

Chris mentions that a lot of the company's focus is on innovation and field activation, which benefits DEWALT as it is the biggest brand in the field. The after-tax proceeds from the infrastructure deal were around $730 million and were used to pay off commercial paper. The other cash outflow of $250 million was mainly due to normal annual compensation payments. Don is asked to comment on the company's portfolio now that the infrastructure deal is complete, and he states that they are now focused on operational elements for margin improvement, but there may be other changes in the future.

In 2022, the payout for the year was very low due to traditional standards being low. However, in the first quarter of 2023, the payout was back to normal standards. Cash taxes and portfolio pruning were the main drivers of outflow in the "other" bucket. Stanley Black & Decker has pruned its portfolio and will continue to evaluate opportunities for pruning in the future. The company has high-quality assets and will focus on its three big brands in Tools and Outdoor. Pruning the portfolio is important for creating value for shareholders.

The speaker discusses the demand trends for Tools and Storage for the rest of the year, mentioning a 1% decrease in organic revenue in the first quarter and a projected flat to slightly down revenue for the full year. They also mention a 7% drop in hand Tools and Storage in the first quarter and address the possibility of inventory destocking. The speaker then mentions a projected SG&A rate of around 21.5% for the year and states that this could be sustainable in the long term.

The company may consider increasing their market share percentage to 22% or above in the future as they invest for growth. However, for this year and the long term, they expect to stay within the 21% range. The outdoor market and DIY and general construction are still challenging, but there are opportunities in professional markets. The company remains optimistic about driving share and investments in these areas. They do not anticipate significant acceleration in the second half of the year and will stick to their discussed outlook.

The company's businesses are sensitive to interest rates and they anticipate a flat revenue environment. The Industrial businesses are not considered noncore and the sale of the Infrastructure business in April was already factored into the first quarter results. The company has planned for the fixed costs previously supporting the Industrial business to be accounted for in their cost structure this year.

The Industrial team has been successful in gaining share in the auto and aero businesses and managing costs to maintain flat margins. The remaining businesses after the sale of Infrastructure include Engineered Fastening, acquired from Black & Decker, and CAM, an aerospace fastener business. The company may consider pruning some portions of the business in the next 18-24 months, but the overall Engineered Fastening platform is still a significant contributor to the company's EBITDA and cash flow. As the Tools & Outdoor portion of the business improves, there may be more flexibility in the future to decide what to do with the entire Engineered Fastening business. In the next 18-24 months, there may be opportunities for pruning in the industrial sector, and beyond that, there may be potential for more significant capital allocation decisions.

In the paragraph, Chris Nelson discusses the performance of POS in Q1 and how it is in line with their projections. He also mentions that they have seen some progress and an earlier start to the season in the outdoor segment, which has led to an increase in POS. They are encouraged by this progress and are monitoring how it will continue to ramp up as the season progresses. In response to a question about the outdoor segment, Don Allan mentions that the outdoor business is currently below line average in terms of margins, but there is potential for improvement with a return to a more normal demand environment.

The company is adjusting its cost base for the new demand environment and will focus on improving the profitability of its outdoor business. The volume is expected to be down substantially from 2019, but may start to recover next year. The company is taking actions to drive profit improvement in this business. In Tools & Outdoor, pricing was slightly negative in the first half, but may have performed better in the quarter. The company will continue to monitor pricing and competition for the rest of the year.

The speaker discusses the overall pricing and cost environment for the company, stating that they expect to be price cost neutral for the year. They also mention the unique circumstances of 2022 where input costs were high and volume was peaking, and how they have only recouped 85% of the costs absorbed during that time. The speaker also talks about the importance of driving innovation and promoting cordless DEWALT products in a stable competitive environment. The next question is about market share for DEWALT in the outdoor tool sector.

The speaker discusses the company's positioning in the outdoor market and their focus on driving innovation in certain categories. They also mention a cautious optimism for the season and a potential impact of budget sensitivity on bigger ticket items. The next question asks about progress on supply chain transformation and the impact of tariffs.

The speaker discusses the changes in their sourcing and procurement operations since the last time tariffs were imposed. They mention the $300 million in tariffs they experienced in 2016 and how they mitigated it to around $100 million through production moves and price increases. They also mention that the tariffs are still in place and have not changed under the new administration. However, they state that their reliance on China for production has decreased, and they have built centers of excellence in other parts of the world to mitigate potential future tariff changes.

The company is planning for potential price actions and supply chain transformations in 2025. Retail inventories are at historical levels and the Hand Tools division is down 7%, but overall the company feels good about their performance.

The speaker thanks everyone for participating in the call and invites them to contact them with any additional questions. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.