Stanley Black & Decker, Inc. Q3 FY2025 earnings call

• Chris Nelson discussed the company's strategic imperatives: activating brands with purpose (pivoting to brand-led approach, focusing on core brands like DEWALT, STANLEY, CRAFTSMAN), driving operational excellence (lean-based operating system, distribution network improvements), and accelerating innovation (centralizing engineering, using product platforming method for faster development). • Patrick Hallinan talked about gross margin performance, cost reduction transformation program progress, tariff mitigation efforts (shifting cordless production from China to Mexico, increasing USMCA-compliant production in Mexico), and 2025 planning assumptions including adjusted earnings per share, revenue outlook, and segment performance expectations.

Tools & Outdoor: Third quarter revenue was approximately $3.3 billion, flat year-over-year. Organic revenue declined by 2% with a 5% benefit from targeted pricing actions offset by a 7% decrease in volume. Currency tailwinds and a small product line transfer from Engineered Fastening each contributed a 1% benefit. DEWALT maintained strong momentum with revenue expansion across all product lines and regions. Tools & Outdoor adjusted segment margin was 12%, up 90 basis points year-over-year. Power tools organic revenue declined 2%, hand tools organic revenue was flat, outdoor organic revenue decreased 3%. Engineered Fastening: Third quarter revenue grew 3% on a reported basis and 5% organically. Revenue growth was comprised of a 4% volume increase, a 1% price benefit and a 1% contribution from currency, partially offset by a 3% headwind from a product line transfer. Aerospace business had over 25% organic growth, automotive business had low single-digit organic growth, general industrial fasteners organic revenue declined by mid-single digits. Adjusted segment margin was 12.8%, up 200 basis points sequentially.

• On track to deliver $2 billion cost reduction by year-end 2025. Next priority is achieving 35% adjusted gross margin and strengthening balance sheet. • 2025 adjusted earnings per share expected to be approximately $4.55, a reduction of $0.10 from last quarter due to higher production costs. GAAP earnings per share range $2.55 to $2.70. • Total company sales flat to down 1% for full year 2025, organic revenue projected to decline similarly, currency expected to contribute 1 percentage point. Adjusted gross margins expected to approach 31% for full year 2025, fourth quarter adjusted gross margin expected to be around 33% plus or minus 50 basis points. • Tools & Outdoor full year organic revenue outlook projected to decline approximately 1 percentage point. Engineered Fastening segment expected to achieve low single-digit organic revenue growth led by aerospace. • Full year 2025 free cash flow objective $600 million, unchanged. Capital expenditure outlook for 2025 approximately $300 million.

Q: On the volumes, how those performed relative to expectations and breakdown of volume between tariffs and elasticity, and expectations for price and volume trade-off in next few quarters?

A: Chris Nelson said volumes were relatively in line with expectations, started strong then tapered due to nonstandard promotional window, expect environment similar into Q4 and will monitor and adjust.

Q: On profit levers in detail, fourth quarter operating profit assumptions, and main gross margin drivers for 2026?

A: Patrick Hallinan said fourth quarter operating profit expansion from gross margin and SG&A reduction, main gross margin drivers for 2026 include strategic sourcing, in-plant continuous improvement, platforming, and facility decisions.

Q: On volumes, price mark-to-market, and 2-year stack for Tools & Outdoor?

A: Patrick Hallinan said pricing is in high single-digit range, enterprise-wide net sales organic flat to down 1%, Tools & Outdoor full year organic revenue outlook projected to decline approx 1 percentage point.

Q: On housing policy and potential beneficiary status?

A: Chris Nelson said no near-term catalyst but well positioned to benefit from housing market unlocking.

Q: On USMCA compliance and 4Q pricing flow through?

A: Chris Nelson said making significant progress on USMCA, Patrick Hallinan said fourth quarter pricing actions starting to go underway, balance to be completed early November.

Q: On inventory levels?

A: Patrick Hallinan said expecting over $500 million working capital reduction in fourth quarter, targeting at least $200 million inventory reduction in 2026