Stanley Black & Decker, Inc. Q2 FY2025 earnings call

• Don Allan mentioned it's his last earnings call as CEO before Chris Nelson takes over on October 1, thanked stakeholders and discussed the company's 3-year transformation including stabilizing and simplifying the organization, divesting $2.6 billion of revenue, improving the cost structure, and streamlining the supply chain. • Chris Nelson reviewed Tools & Outdoor performance with revenue decline, product line and regional details, and Engineered Fastening performance with various business segments' organic growth and decline. • Discussed the ongoing supply chain transformation, including a $500 million cost savings target for 2025, and the tariff mitigation strategy with 4 key principles: serving customers, accelerating supply chain adjustments, judicious price actions, and engaging with the U.S. administration. • Highlighted Pro-focused innovation with DEWALT's MSUITE cloud-based management software for construction teams.

Tools & Outdoor: Second quarter revenue was approximately $3.5 billion, down 2% versus the prior year and 3% organically. Adjusted segment margin was 8%, a 240 basis point decline from the second quarter of last year. Power Tools organic revenue grew 1% driven by price, resilient Pro demand, and strong performance in key investment markets. Hand Tools organic revenue declined 5% primarily due to tariff-related shipment disruptions in North America. Outdoor organic revenue declined 7% related to a slow buying season. Regions: North America organic revenue declined 4%, Europe organic revenue declined 1%, Rest of World delivered 1% organic growth. Engineered Fastening: On a reported basis, second quarter revenue was down 2% versus prior year and 1% on an organic basis. 1% of price realization and 2% of currency favorability was more than offset by 2% of volume declines and a 3% impact related to the product line transfer to the Tools & Outdoor segment. The automotive business experienced a mid-single-digit organic decline, general industrial fasteners organic revenue declined high single digits, while the aerospace business had over 20% organic growth. The Engineered Fastening adjusted segment margin rate was 10.8% for the quarter, a decline from the previous year due to softness in higher-margin automotive fasteners.

• 2025 total company sales are expected to retract slightly compared to 2024. Year-over-year organic revenue is expected to be in line with the total company, with back half organic revenue relatively flat. • The supply chain transformation initiative maintains a 2025 cost savings target of $500 million. • Back half adjusted gross margin is assumed to deliver year-over-year expansion in both quarters, with the fourth quarter showing slightly stronger performance due to transformation and tariff mitigation actions. • GAAP earnings per share is expected to be $3.45 ±$0.10, and adjusted earnings per share is approximately $4.65.

• Tariff policy changes may significantly impact gross margin. • Uncertainty in government trade policies can lead to volume declines and operational disruptions. • Volume declines due to tariff-related shipment disruptions in various segments.

Q: About the gross margin outlook.

A: Pat said third and fourth quarter gross margin is expected to expand year-over-year, with the fourth quarter of 2025 likely in the 33%-34% range. The company aims for a 35-plus percent adjusted gross margin, and the back half of 2026 is expected to be in the mid-30s approaching the 35% range.

Q: On the 2Q upside and 2026 headwind.

A: The 2Q upside was ~$0.15 operational, mainly due to tax timing and tariff expense timing. The $0.65 headwind in 2026 is mostly from tariff expenditure and mitigation, and the company expects to largely offset it through mitigation and pricing actions.

Q: On pricing.

A: The price increase went in on schedule and in line with expectations, with a one-for-one price-volume offset. The second round of price increase will be implemented early in the fourth quarter, which is more modest.

Q: On customer buying patterns.

A: Inventory levels are in line with historical levels. The Q2-Q3 temporary disruption was due to promotional plan changes by customers and the company to adjust to trade policy changes.

Q: On outdoor.

A: There was a later start to the outdoor buying season due to wet weather, but recent POS activity has picked up, and there's no broad spillover to other tool categories.

Q: On CRAFTSMAN.

A: CRAFTSMAN is performing roughly at market level. The focus is on expanding the product assortment, especially in the power tools space, and the company expects to make significant progress in the next 12-24 months.