Stanley Black & Decker, Inc.

Welcome to the fourth quarter and full year 2023 Stanley Black & Decker Earnings Conference call. My name is Shannon, and I'll 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 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 2023 Fourth Quarter and Full Year Webcast. Here today, in addition to myself, is Don Allen, President and CEO, Chris Nelson, CEO, EVP, and President of Tools and Outdoor, and Pat Hallinan, EVP and CFO. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to, are available on the IR section of our website. A replay of this morning's webcast will also be available beginning at 11 a.m. today. This morning, Don, Chris, and Pat will review our 2023 fourth quarter and full year results and various other matters followed by a Q&A session. Consistent with prior webcasts, we are 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 President and CEO, Don Allen.

Thank you, Dennis, and good morning, everyone. Stanley Black & Decker's performance in 2023 reflects our relentless focus on the execution of our strategic business transformation, which resulted in us building a strong foundation for improved profitability in 2024. Stanley Black & Decker today is a more streamlined business built on the strength of our people and culture with an intensified focus on our core market leadership positions in tools and outdoor and industrial. Despite a challenging market backdrop that pressured volumes during the year, adjusted gross margin improved in each quarter and we generated over $850 million of free cash flow. These results demonstrate significant progress against two of our most important areas of focus during 2023. Here are just a few additional examples of our accomplishments from the past year. We improved the health of our cost structure as a result of the momentum from our supply chain transformation. We achieved our 2023 target and delivered over $1 billion of savings program to date. We remain on track for the expected $2 billion of savings targeted by the end of 2025. Our fourth quarter adjusted gross margin approached 30%. This result outperformed the plan as our teams accelerated efforts to deliver profit and cash in response to the soft volume environment. Our strong free cash flow generation was primarily the result of $1.1 billion of inventory reduction as we successfully executed our supply chain initiatives. We continue to actively manage our portfolio of businesses. In December, we announced the agreement to sell our infrastructure business and currently expect that transaction to close at the end of the first quarter. This aligns with our simplification efforts and focus on shareholder value creation while advancing our capital allocation priorities. We strengthened our leadership team with the addition of three new highly capable, seasoned, and respected leaders in Chris Nelson, Pat Hallinan, and John Lucas, each of whom brings a fresh and exciting set of perspectives. Stepping back over the past year and a half, we have transformed Stanley Black & Decker into a different company, refocused and reenergized. Together, our talented and motivated leadership team, along with our diverse and high-performing associates across the globe, are executing our transformation strategy with urgency and diligence to ensure we continue to achieve our goals. Our performance to date is encouraging and reinforces our confidence in making investments to pursue the compelling long-term growth opportunities in the markets that we serve. Shifting now to our fourth quarter performance. Revenue was $3.7 billion, which was down mid-single digits versus the prior year, primarily due to lower outdoor and DIY volume, as well as infrastructure customer destocking. Our profitability exceeded our plan as we recorded adjusted gross margin of 29.8% in the quarter. Adjusted gross margin was up over 10 points versus the prior year and improved 220 basis points versus the third quarter. As a result of our focused efforts, this is the fourth consecutive quarter that we delivered sequential adjusted gross margin improvement. We also reduced inventory by $240 million this quarter, which brings our total inventory reduction to $1.9 billion since mid-2022, when we began this journey. 2024 will be the next chapter of transformation. an opportunity to demonstrate our ability to further improve profitability and cash flow as we plant the seeds for future growth and success for Stanley Black & Decker. While it will be a transitional year, we are continuing to strengthen our foundation to create greater future earnings power. We will remain focused on delivering differentiated product innovation through our portfolio of world-class brands, implementing cost-efficiency measures within our control, and driving share gain in our core markets. all aim to improve margin, earnings, and cash flow. Turning to the markets we serve, our view is that these markets will remain dynamic in 2024. Overall, we expect relative strength in demand from professional tools and portions of our industrial markets. However, we believe the consumer and outdoor demand trends will continue to be weak. Together, this results in a modestly negative outlook in aggregate for all of our markets. Our global trade-weighted GDP estimates are slightly positive, with U.S. real GDP growth projected to slow but remain positive in 2024. Global commercial construction is expected to moderate, and industrial tool markets are expected to remain supportive. The global industrial fastener-end categories will be led by aerospace, while automotive and industrial production markets will be relatively flat. There are a few key macroeconomic indicators that more directly impact our larger markets in North America, which are somewhat mixed. Examples of this mixed North American tools and outdoor market are as follows. New residential builds are forecasted to improve from current levels, yet remain modestly negative year over year. Residential repair and remodel is currently expected to retract. And the outdoor power equipment industry continues to show signs of customer destocking, and we don't expect a pivot to growth during 2024. In summary, we're focused on the pro-user and the healthiest market segments to generate share gains. We are prepared for weak consumer and outdoor demand trends to persist. The midpoint of our 2024 plan represents a continuation of the current demand environment, which in aggregate is slightly negative for all markets. We will remain agile and ready to serve incremental demand if it accelerates in the second half. We believe that with our powerful brands and strong innovation machines, we have the opportunity to capture new wins with our customers and outperform the market. Our plan for the year is underpinned by the continued supply chain cost improvements that are broadly in our control. We expect to deliver gross margin accretion, earnings growth, and strong free cash flow. Pat will discuss this in more detail in just a few moments. 2024 will be a year of focus, excitement, and purpose, and it is fitting that we are celebrating the 100-year anniversary of DeWalt. a noteworthy milestone and a reminder that we have been revolutionizing job sites for a century. We will always relentlessly innovate for our pros and all our end users, allowing them to achieve better, safer, and faster results. I want to thank our 50,000-plus employees around the world for their persistence and commitment to our mission in 2023. They each have contributed to the progress we've made on our transformation journey. Now stepping into the business segment results. I will discuss our industrial business performance and then pass it to Chris Nelson to review the tools and outdoor results. Fourth quarter industrial revenue declined 4% versus last year. Price realization was more than offset by lower volume, which was driven by the continuation of customer destocking and infrastructure. Within the segment, engineered fastening fourth quarter organic revenues were up 7%. This includes aerospace growth of 27% and auto growth of 10% as we benefit from recoveries in those markets. This growth was partially muted by market softness and general industrial fastening. The fourth quarter industrial adjusted segment margin was 11.1%, down 40 basis points versus prior year, as lower volume more than offset price realization and cost control. For the year, we are very pleased with the performance of our industrial segment. While organic revenue growth was flat, engineered fastening, which is our focus moving forward within this segment, was up 6% organically. behind the strength in automotive and aerospace. The team delivered full-year adjusted segment margin of 11.8 percent, up 210 basis points versus 2022. This expansion was driven by price realization and cost action taken to improve productivity throughout the year. I want to thank the industrial business team for their strong execution in 2023. And I'd like to especially thank the infrastructure team for their valuable contribution to Stanley Black & Decker. I am confident that the business is positioned for a future of innovation and growth with Epiroc. I will now turn the call over to Chris to review our tools and outdoor performance.