STANLEY BLACK & DECKER, INC. Q1 FY2025 earnings call

• Transformation is working, with focus on execution. Strong supply chain capabilities built over 3 years. Investing in end users and channel customers. Prepared for U.S. trade policy changes with supply chain mitigation, price increases, and engaging with admin.
• Tools & Outdoor: DEWALT's 8th consecutive quarter of revenue growth, strong outdoor product shipments. Adjusted segment margin improvement due to supply chain efficiencies and innovation, offset by freight inflation and tariff impacts.
• Engineered Fastening: Name change to reflect focused portfolio. Revenue decline due to divestiture and other factors. Aerospace growth, automotive softness. Cost savings initiatives ongoing, aiming for $2B pre-tax run rate savings by 2025.
• Trade policy mitigation: Plan for tariffs with supply chain adjustments, price increases, and engaging with admin. Reduced China manufacturing footprint serving U.S. market.

Tools & Outdoor: Revenue was approximately $3.3 billion, flat vs Q1 2024. Organic revenue grew 1% driven by volume. DEWALT had mid-single-digit revenue growth (eighth consecutive quarter of growth). Adjusted segment margin was 9.6%, up 110 basis points. Power Tools had 2% organic revenue decline, Hand Tools 1% growth, Outdoor 6% growth. North America had 2% organic revenue increase, Europe flat, Rest of World down 3%. Engineered Fastening: Reported revenue down 21% vs prior year. 16 points from lapping infrastructure divestiture. Organic revenue down 1%. Automotive had high single-digit organic decline, Aerospace mid-teens organic growth, General industrial fasteners low single-digit growth. Adjusted segment margin 10.1%, decline due to soft high margin automotive products.

• 2025 Outlook: GAAP EPS planning scenario $3.30 ± $0.15 (adjusted EPS ~$4.50). Total company sales forecasted low single-digit increase. Organic revenue growth low to mid-single digits. Global Tools & Outdoor organic revenue expansion low to mid-single-digits driven by price. Engineered Fastening low single-digit organic growth. Adjusted EPS lower by $0.75 due to tariffs. Free cash flow expected to meet or exceed $500M.
• Tariff Impact: 2025 net earnings per share headwind from tariffs ~$0.75. U.S. Tools & Outdoor has greater price and volume tariff impacts in second half.

• Trade policy uncertainty: Magnitude and frequency of trade policy changes exceeded expectations, impacting business.
• Demand volatility: Cautious consumer and soft DIY market could affect demand.
• LIFO accounting impact: LIFO can cause disproportionate tariff expense in certain quarters.
• USMCA compliance challenges: Low current USMCA compliance for Mexico sourcing, need to increase it which may be complex.

Q: Why is Mexico only one third USMCA compliant and how to rectify?

A: Nuances in qualification at time of USMCA transition made cost-benefit trade-off not worth it. Prudent to operationalize plans to increase USMCA qualified imports, fairly straightforward.

Q: How to offset volume decline and bucket tariff impacts?

A: Near term mitigation dominated by price, ~$140M delta. SG&A expense management to offset volume hit, ~$125M incremental. Supply chain moves to reduce China COGS for U.S. within 2 years.

Q: Phasing of tariff headwind and free cash flow phasing?

A: Second quarter likely has heavy tariff expense burden due to LIFO, but back half of year, especially Q4, expected to be strongest EPS quarter. Cash flow heavily weighted to latter third of year.

Q: Pricing increases and confidence in additional pricing?

A: First price increase was high single-digit, second expected to be higher. Working with customers to ensure optimal selection, confident in ability to mitigate and maintain end-user focus.

Q: LIFO charge in Q2 and USMCA pivot away from China for power tools?

A: LIFO causes disproportionate tariff expense in Q2. For USMCA, working on options to ensure USMCA compliance for battery and power tool components while maintaining technology advantage.

Q: SG&A savings cadence and cost flexibility in recession?

A: SG&A savings roughly flat across quarters, with focus on preserving growth investments. More cost levers available, but balancing growth and efficiency.