Stanley Black & Decker, Inc.

Welcome to the first quarter 2021 Stanley Black & Decker earnings conference call. My name is Shannon, and I will be your operator for today's call. At this time, all participants are in a listening mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Dennis Lang. Mr. Lang, you may begin.

Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker's 2021 first quarter conference call. On the call, in addition to myself, is Jim Lurie, CEO, Don Allen, President and CFO, and Lee McChesney, Vice President of Corporate Finance and CFO of Tools and Storage. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to during the call, are available on the IR section of our website. A replay of this morning's call will also be available beginning at 11 a.m. today. The replay number and the access code are in our press release. This morning, Jim, Don, and Lee will review our 2021 first quarter results and various other matters, followed by a Q&A session. Consistent with other calls, we are going to be sticking with just one question per caller, and as we normally do, we'll be making some forward-looking statements during the call based on our current views. Such statements are based on assumptions of future events that may not prove to be accurate and, as such, involve risk and uncertainty. It's therefore possible that the actual results may materially differ from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8K that we filed with our press release and in our most recent 34 Act filing. I'll now turn the call over to our CEO, Jim Lurie.

Thanks, Dennis, and good morning, everyone. I have to say it's an exciting day for us here at Stanley Black & Decker. Today we have the opportunity to report an outstanding start to 2021, highlighted by record revenue in EPS and many other accomplishments. These powerful results were backed by strong markets and excellent operational execution, which supports our improved outlook for the year. And thank you to our 53,000 employees around the globe who delivered these results by maintaining focus on our pandemic-era priorities. The priorities of employee health and safety, serving our customers with continuous operations, and doing our part to help our communities mitigate the impact of the virus have served us extraordinarily well this past year. First quarter revenues were up 34% to $4.2 billion versus prior year. Each of our segments and regions contributed to deliver an all-time record 31% organic growth. Our tools and storage business continued on its extraordinary growth trajectory with 45% organic growth. Yes, 45% growth in the quarter. All regions and business units contributed to the performance with blazing hot markets across the globe led by a confluence of positive factors. Vibrant markets and secular trends, including the consumer's reconnection with a home and garden, e-commerce, and outdoor electrification, in concert with our ubiquitous channel strategy and an intense focus on supply chain execution, enable the strong business growth. Our portfolio of iconic brands such as DeWalt, Craftsman, and Stanley, in combination with industry-leading innovation, has proven to consistently deliver ongoing gains in market share at the POS level and now at the sell-in level as well. The tool's first quarter performance is an outstanding example of what this powerful combination can deliver. Industrial organic growth was 6%, as we've seen a strong double-digit recovery in automotive, general industrial, and attachment tool and markets, along with share gains. This was partially muted by continued market declines in aerospace and oil and gas. And for security, 1% organic growth was in line with our expectations given the many restrictions placed on our installation and service techs. We've made continual progress with our digital health and safety product offerings, and the security business transformation to a data-enabled technology provider is accelerating. We are excited about the full potential of these opportunities to support revenue growth throughout the year. And there was great news regarding our operating margin rate as well. The rate for the quarter was 17.6%, up 760 basis points from the prior year, with volume leverage, productivity, cost control, price, and margin resiliency all contributing. Adjusted EPS for the quarter was another all-time record, at $3.13, up 161% over prior year. And both our operating cash flow and free cash flow were each about $240 million higher than in the same period in 2020, a year in which the company generated a record $1.7 billion in free cash flow, all in an impressive first quarter and a strong start to 2021. This great performance in the sustained market recovery through April has given us more visibility into the second quarter and, to some extent, the back half as well. As a result, our point of view for 2021 and momentum going into 2022 has significantly improved since I outlined our initial observations during our January earnings call. First, as you can see, tools remains on a roll. In addition to all the positives already mentioned, the pro is back in full force, and the commercial and industrial markets are hot as well. Europe is far stronger than previously imaginable, given many countries are still bogged down in lockdowns, and the emerging markets are blazing. We are clearly benefiting from secular trends that have been amplified and accelerated by the pandemic. We're also benefiting from the extraordinary efforts of our people to manage the supply chain effectively amidst numerous challenges, including parts availability, among others. With that said, many of our retail partners would like to replenish their inventories as our current production levels are basically serving their point of sale growth. In this regard, we recently have begun production in two new factories in Mexico. and an additional one in Fort Worth, Texas, will be up and running in a matter of weeks. Our current view is that this will enable the approximate four-week channel inventory rebuild to occur in the back half of this year. The secular surge in global DIY, driven by the consumer's reconnection with the home and garden, continues to be a key demand driver across our global markets. The massive shift to e-commerce continues, and we achieved nearly 100% growth in this growing channel during the quarter. The electrification of the outdoor product market is accelerating, just as we have launched a significant number of new products and increased listings. We now expect this business to reach $900 million in 2021, up approximately $250 million versus last year. We are already benefiting from our multi-year relationship with MTD and our option to acquire the remaining 80% at a very attractive 7 to 8 times EBITDA multiple with a window that opens in July of this year. Our success comes from building a position as the world's leading tool company that can attract diverse world-class talent an array of iconic brands, market-leading innovation, immense category breadth and depth, and a passion to serve our customers, shareholders, and other stakeholders. In this regard, I would like to underscore a key point. We are gaining share and making bold investments to widen our lead in the future. And as it relates to profitability, we once again delivered significant gross margin and operating margin expansion in and are continuing to perform at historically strong levels. At this point, all temporary cost actions have been restored, and we are making significant investments, as I said. We have incorporated increased inflation into our outlook, and we are taking aggressive actions to protect our margins in 2021 and 2022, and Lee will review those in a few moments. Additionally, our tech-enabled margin resiliency program will support our margin rates. And finally, the market rebounds across automotive, general industrial, and attachment end markets and security continued. We remain optimistic that this will continue and the potential for increased global infrastructure spend could enable further gains across the portfolio. So in summary, we have high conviction in our prospects for growth, supported by our catalyst, the positive trends I outlined, benefiting our markets and cyclical recoveries across the businesses. As a result, we are raising our adjusted EPS guidance to a range of $10.70 to $11 per share. This represents a significant update from our previous guidance. The revised midpoint of $10.85 now reflects a 20% increase versus prior year, with a total company organic growth at 11% to 13% for the year. And as you can see, there's a lot to be excited about in what lies ahead of us in terms of significant opportunities for value creation. And now I'll turn it over to Don Allen to cover the first quarter and our updated 2021 guidance.