Stanley Black & Decker, Inc.

Welcome to the second 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 listen-only 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 second 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'll 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 second quarter results and various other matters followed by a Q&A session. Consistent with prior calls, we're going to be sticking with just one question per caller, and as we normally do, we will 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, they 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. This morning, we announced a record second quarter, which capped off a historic performance over the last 12 months. Over this period, we have delivered $3.1 billion revenue growth, now at a $17 billion LTM run rate, Adjusted operating margins reached new heights, approaching 17 percent. Tools operating margins are in excess of 20 percent, and we added $2.9 billion of sales growth in tools, including outdoor, over the last four quarters. My team and I are proud of the collective effort of our 56,000 Stanley Black & Decker colleagues. We thank them for their resilience and dedication, their agility to cut through the many challenges associated with executing on this massive growth trajectory. during the global pandemic. The way they have stepped up is impressive, taking care of customers, our people, our communities. It's a great story. Turning to the second quarter, revenues were up 37% versus prior year to $4.3 billion. We achieved an all-time organic growth record of 33% and marked the first time all three segments, as currently organized, achieved double-digit organic growth in the same quarter. The extraordinary organic growth of 41% in tools demonstrated the power of the world's leading tool company with the best brands and innovation in the industry. All regions delivered robust double-digit growth, and our strong commercial and supply chain execution enabled us to capitalize on the positive secular trends and strong markets. Industrial accelerated to 14% organic growth behind the second straight quarter of double-digit growth and share gains in our automotive, general industrial, and attachment tool businesses. As recoveries in these end markets are continuing, the growth would have been even more robust if not for auto OEM production delays related to electronic component shortages and by a few continued cyclically depressed markets such as aerospace. Security had its strongest quarter in the last 10 years, delivering 14% organic growth. The security business's transformation to a data-enabled technology provider is accelerating, and the team successfully converted a strong backlog into revenue. Order rates were red hot in the quarter, up 36%, and the ending executable backlog was at record levels. We're excited about the full potential of these opportunities to support elevated revenue growth in the back half and beyond. Our overall company adjusted operating margin rate remains strong at 15.5%, up 270 basis points from the prior year, with volume leverage, price, mixed benefits from innovation, and margin resiliency more than overcoming the cost of growth investments, commodity inflation, and higher expedited transportation costs required to serve the strong demand and tools. Adjusted EPS for the quarter, was a second quarter record at $3.08, up 93% over prior year, and free cash flow for the quarter was $339 million, up 28% versus prior year, and over $300 million better on a year-to-date basis than our record-setting 2020, a year in which free cash flow was $1.5 billion. On the heels of this great performance, we enter the second half with positive momentum and a portfolio that is well positioned to capitalize on the key trends that are driving growth, the consumer reconnection with home and garden, e-commerce, electrification, and health and safety. We are investing across our businesses to capture these opportunities and enable sustained above-market growth with margin expansion. And to that end, we are raising our 2021 full-year adjusted EPS guidance range to $11.35 to $11.65 per share. a 27% increase versus prior year at the midpoint. Finally, I'd also like to highlight that last week we increased our dividend for the 54th consecutive year. The quarterly payout now stands at 79 cents a share, which represents a 13% increase. This is a reflection of the continued confidence we have in the cash-generating power of the company. A strong, growing dividend is a key element of our shareholder value proposition and is consistent with our capital deployment strategy to return approximately half of our excess capital to shareholders over the long term. Of course, repurchases are the other major vehicle we could employ to do that, and notably, our Board increased our repurchase authorization last quarter to 20 million shares, giving us the flexibility to do some of that as well. During our May Growth Summit broadcast, we showcase several significant catalysts that represent opportunities for a long and rewarding growth runway for Stanley Black & Decker. These catalysts capitalize on key 2020s trends, many of which are expected to continue into the foreseeable future. We are expecting that the key market drivers across our global tools markets will continue to be strong demand drivers and support tools growth for some time, including the secular surge in consumers' reconnection with the home and garden, as well as the cyclical expansion in North America home improvement, driven by new and existing home sales associated with household formation and the urban exodus. We are investing more than $200 million in innovation, e-commerce, sales and marketing, and others, and we've never been better positioned to capitalize on market trends. Across the board, we have strategic differentiators that make us the world's leading tool company. Our iconic brands, DeWalt, Craftsman, Stanley, Stanley Fatmax, and Black & Decker, our category depth, channel development, and operations excellence, and a track record and commitment to market-leading innovation, our pipeline has never been stronger. We are expanding our cordless product offerings up and down the power spectrum to new users and product categories. With our FlexVolt, FlexVolt Advantage, and DeWalt PowerDetect platforms, We are the industry leader in maximizing power output, with plans to nearly double the number of products on these platforms over the next three years. Our atomic and extreme platforms leverage the smallest, most power-dense, brushless motor technology in the industry to deliver the highest power-to-weight ratio available in compact 20-volt and 12-volt platforms, and we'll expand the product offering across these platforms roughly four times over the coming years. These breakthrough products have already delivered significant share gains, and they're just getting started. The massive acceleration and the shift of demand to e-commerce was amplified during the pandemic, which was an enormous positive for us. We have approximately three times the share in e-commerce as our next closest competitor, and we grew our global e-commerce business from 13% of tool sales to 18% in a matter of 12 months, now about a $2 billion channel. This shift to e-commerce is going to continue, and we are doubling down our investments in talent, digital capabilities, and our brands, including the revitalization of Black & Decker, which is an iconic brand that has a license to play in the largest breadth of categories within our portfolio. We see a significant opportunity over the coming years as the team reimagines Black & Decker to drive it towards more youthful buyers as an e-commerce lifestyle brand. The increased focus on ESG and climate And what that means for electrification presents a very compelling multi-year opportunity for us as well. Our existing cordless outdoor power equipment business has grown over 70% in the first half of the year. And in engineered fastening, the move from internal combustion engines to hybrid and EV platforms ultimately results in a 3x increase in content per vehicle. And lastly, the transformation of our security business to become a technology-driven data solutions provider is gaining significant momentum, and the timing is excellent. The team has done a great job creating various solutions and products that are focused on health and safety, which has never been more relevant as the world continues to battle the pandemic. In addition to these growth opportunities, we are gaining momentum with our margin resiliency program. we continue to find new applications and use cases to apply our technology-enabled approach that will deliver a runway for sustainable margin expansion in the coming years. And now, a brief update on MTD. As many of you know, our option to acquire the remaining 80% of MTD opened up at the beginning of this month. This opportunity is exciting as we bring leading brands and capabilities in the electric outdoor category as well as the ability to deploy the SBD operating model and apply our global scale. MTD brings superb product engineering and manufacturing expertise in outdoor power equipment, capabilities in robotics technology, as well as access to the independent dealer channel in outdoor. We were just at MTD's facilities in Valley City, Ohio last week and came away even more energized by the Pipeline for Innovation and the runway for growth in 2022 and beyond. The strategic fit is hand in glove, and the revenue and cost synergy opportunities are compelling. We are currently in negotiations with MTD on the option execution, and should they come to a successful conclusion and subject to all regulatory approvals, we will begin work on tackling this multi-year opportunity for growth and margin expansion upon closing. And now, I'll hand it over to Don Allen to cover a few financial details on MTD, a more detailed discussion on second quarter results, and offer up some 2021 guidance. Don?