Stanley Black & Decker, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Welcome to the First Quarter 2024 Stanley Black & Decker Earnings Conference Call. My name is Shannon, and I will be your operator for today's call.
Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's 2024 First Quarter Webcast. Here today, in addition to myself is Don Allan, President and CEO; and Chris Nelson, COO, EVP and President of Tools & Outdoor; and Pat Hallinan, EVP and CFO.
Thank you, Dennis, and good morning, everyone. Our first quarter performance was the result of consistent, solid execution, and we are making progress against key operational objectives. We continue to see significant value creation opportunities tied to our strategic business transformation and the entire company is focused on the disciplined execution of this strategy.
Thank you, Don, and good morning, everyone. Beginning with Tools & Outdoor, First quarter revenue was approximately $3.3 billion, down 1% organically versus prior year, as growth in DEWALT was more than offset by muted consumer and DIY demand, which pressured volume.
Thanks, Chris, and good morning. Turning to the next slide. I would like to highlight the progress we've made along our transformation journey in the first quarter. We achieved approximately $145 million pretax run rate cost savings in the period, bringing our aggregate savings to approximately $1.2 billion since program inception.
Thank you, Pat. As we report another quarter of progress, our consistent execution against our plan is building momentum and energizing our team. As our profitability continues to improve, we are focusing organic growth investments behind our most powerful brands. particularly DEWALT, CRAFTSMAN and Stanley. We believe these investments can enable organic growth to outpace the market by 2 to 3x. Stanley Black & Decker continues to become a more streamlined business built on the strength of our people and culture with an intensified emphasis on our core market leadership positions in Tools & Outdoor and Engineered Fastening.
Great. Thanks, Don. Shannon, we can now start the Q&A, please. Thank you.
[Operator Instructions]
Maybe just my question would be around the second quarter, just honing in on that a little bit. I guess, just to make sure, based on the seasonality comment and I think the low 30s tax rate, are we sort of thinking it's flattish sequential revenue in Q2 and then a kind of 9% operating margin?
Yes. Julian, I'll try to unpack all of those, see if I can remember them. I think you starting with sales. I think sales will be flat to slightly down fractionally down. I don't think there'll be -- the first quarter was down about one point, it probably won't be that steep.
Our next question comes from the line of Tim Wojs with Baird.
I was just hoping maybe you could expand a little bit on the DEWALT growth. Just maybe some color on the underlying drivers of growth there, just whether it's kind of organic user kind of growth and expansion or just inventory availability or Outdoor, just some color there and maybe the sustainability of the growth trajectory. And then maybe just as you think about SG&A reinvestment this year, just how much are you specifically looking at kind of reinvesting that into DEWALT specifically versus some of the other brands?
Well, thanks a lot, Tim. This is Chris. So first of all, I'd say that we're we are encouraged by what we're seeing from DEWALT on the growth side. And it was something that has been a continued bright spot in the portfolio, and we expect it to continue to gather momentum.
Yes. I mean I think in terms of SG&A for the year, Tim, I think it's 21% in kind of the middle fractions, 21.5-ish plus or minus 20 basis points is kind of where SG&A is for the year. And as our opening comments mentioned, that's about $100 million of incremental investment. I'd say $60 million to $70 million of that in the Tools & Outdoor business. And as Chris mentioned, A lot of that is on innovation. And therefore, a healthy portion of that goes to DEWALT. And a lot of it is on field activation and so again, because DEWALT is the biggest brand out in the field, a lot of that ends up going to DEWALT.
Our next question comes from the line of Jeffrey Sprague with Vertical Research Partners.
Big picture question for Don and then maybe just some loose ends for Pat. But first, just -- sorry if I missed it at the beginning, but the after-tax proceeds on infrastructure, and then Pat also, can you just address what that other was in cash outflow of $250 million-ish in the quarter.
Sure, Jeff. Pat, maybe you take those questions and I'll answer Jeff's second question.
Jeff, the after-tax proceeds on the infrastructure deal, I'd say the pretax are in the our 730-ish range. 730, 729 a fraction. And the tax impact to that will be de minimis, probably in the 10% or less range when is all said and done. And that all went down to pay the commercial paper balance down. And that all happened in the front of the second quarter.
Thanks, Pat. And so on the portfolio question, as we all know, we've done a fair amount of work of pruning the portfolio of businesses here at Stanley Black & Decker, in particular, the Security segment, which had 2 businesses. And then in Industrial, we've done some things related to not only infrastructure, but oil and gas a little while back as well.
Our next question comes from the line of Michael Rehaut with JPMorgan.
I wanted to just kind of dial in a little bit more on how you're thinking about the demand trends playing out for the rest of the year in Tools & Storage. You have 1Q organic revenue growth down 1%. You're talking about the full year flat to maybe down a little bit as the most likely scenario. So are we to assume kind of the current trend more or less persisting through 2Q and the back half? And I'm also curious about how in the first quarter, you had the 7% drop in hand tools and storage, if there was any inventory destocking or anything going on that drove that adjustment?
Mike, this is Pat. I'll take your kind of balance of the year revenue flows and SG&A, and then I'll let Chris expand on a few things. I think as you think of year-over-year revenue for the balance of the year, I think any given quarter is going to be in that down 50 to down 200 basis points across the quarter, probably averaging down 1-ish for the year, if I had to kind of point you in a direction for the balance of the year.
Yes. So if I take a step back and talk a little bit about where we see the markets from a macro perspective for the year. I think that what we're talking about is within it's a very tight range, up a point, down a point, and we're kind of thinking that we're trending towards.
Our next question comes from the line of Nigel Coe with Wolfe Research.
So I just want to come back to the Jeff's question on the portfolio. I don't think that perhaps the industrial businesses -- with the remaining Industrial businesses, the fastening businesses were trending as more noncore. It doesn't sound like that's necessarily the case. So that's my primary question.
Nigel, this is Pat. I'll take the infrastructure and then pass it back to Don on portfolio.
Yes. And the question on the portfolio, Nigel, and specifically around industrial. So what we're left with after the sale of Infrastructure is the Engineered Fastening business that we acquired with Black & Decker a few other fastening businesses we acquired since then. And then, of course, CAM, the Aerospace Fastener business is in there as well.
Our next question comes from the line of Adam Baumgarten with Zelman & Associates.
Just a question on POS, what you saw throughout the quarter and into April at this point.
So POS was, I'd say, in Q1, it was negative, but in line with our plan or largely in line with our plan. And we remain fairly confident in supporting the outlook that we have for the balance of the year.
Our next question comes from the line of Joe O'Dea with Wells Fargo.
Just wanted to ask on Outdoor and as you see a more traditional start to the season, just any context on how you're thinking about 2024 demand in outdoor relative to 2019, trying to understand whether this is a return to a more normal demand environment?
Yes. So there's a lot of good questions in there related to the Outdoor business. And as a commentary on the margin, the -- I would say that in my presentation, we talked about 80% of the company being above kind of line average right now, at or above. And the other 20%, which is really made up of Outdoor and CAM or Aerospace Fasteners.
Yes. I'd say on the volume, this year is certainly still going to be down substantially versus 2019 even if the shape of the trend line starts and starts to look more like a normal trend line. The absolute volume in dollars will be down substantially from 2019. And I would still say that most likely next year would be below 2019 as well, but starting to recover.
Our next question comes from the line of Nicole DeBlase with Deutsche Bank.
Maybe just focusing on pricing a little bit. I think the original expectation was for a price to be kind of slightly negative in Tools & Outdoor in the first half, and it looks like maybe it came in a bit better than that in the quarter.
Yes. This is Chris. So Nicole, I'd say overall, what we're looking at for the year is price/cost neutral. And if we look at all the -- we try to sum up all the basket of goods and input costs we have, I'd say that we're -- we're looking at what would be a mildly inflationary environment, but we're going to be price/cost neutral in that environment.
Our next question comes from the line of Rob Wertheimer with Melius Research.
I have another question on the Outdoor side. I think you made positive comment on market share for DEWALT, I suppose more on the tool side.
So I think that we feel well positioned with our outdoor portfolio. And I think, as I've stated previously is what we're really wanting to do is make sure that we're driving the prioritization of our innovation dollars into the categories that we think that we have the biggest opportunity for share gain as well as that are margin accretive.
Our next question comes from the line of David MacGregor with Longbow Research.
I guess I just wanted to ask a question relating to progress on supply chain transformation and specifically tariffs. And can you just talk about what's changed in your sourcing and procurement operations since the -- around on tariffs?
Sure. So I'll probably have a little PTSD thinking about tariffs back in 2016. But if we go -- maybe do a little bit of history here. So we experienced about $300 million of tariffs back in that time frame and made substantial production moves in response to that, which mitigated it down probably to about $100 million, maybe a little less than $100 million. And that $100 million or so was offset by price increases in the marketplace.
Our next question comes from the line of Eric Bosshard with Cleveland Research.
A follow-up, if I could. Hand Tools down 7%. I'm just curious, a little bit more color there. And then also as you think about where retail inventories are now and the path forward, what retailer's mindset is about inventories and what they're ordering relative to what they're selling.
So I'll start with the second question, first. As far as our inventories in the retail channel, we're at -- essentially at historical levels, if not in some areas, a little bit below. So we're seeing a pretty good direct read on the correlation between what we see in POS and what we see going in from sales. And I think that's a good position to be in. And we're like we said, we're on relatively on plan for what we're seeing from POS.
Thank you. I would now like to hand the conference back over to Dennis Lange for closing remarks.
Thanks, Shannon. We'd like to thank everyone again for their time and participation on the call. Obviously, just please contact me if you have any further questions. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.