Stanley Black & Decker, Inc.

Welcome to the third quarter 2024 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'll conduct a question and answer session. Please note that this conference is being recorded. I'll 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 2024 Third Quarter Webcast. Here today, in addition to myself, is Don Allen, President and CEO, Chris Nelson, COO, EVP, and President, 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 2024 third quarter 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'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, 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. Additionally, we may also reference non-GAAP financial measures during the call. For applicable reconciliations to the related GAAP financial measure and additional information, please refer to the appendix of the supplemental presentation and corresponding press release, which are available on our website under the IR section. I'll now turn the call over to our President and CEO, Don Allen.

Thank you, Dennis, and good morning, everyone. This quarter, our team again delivered gross margin improvements as well as robust cash generation. all as a result of continued solid execution against our operational priorities and framework we created over two years ago. As you saw in this morning's release, we remain focused on executing against key areas within our control, our supply chain transformation and initiatives to accelerate share gain. By executing our strategy, we continue to reshape our cost structure to capture efficiencies across our value chain and fund new growth investments in a slow, choppy market to gain share. We expect these actions together will further strengthen our powerful brands, accelerate innovation, and enhance our in-market activation to position us as a supplier of choice and capture the compelling long-term opportunities in our industries we serve. Our priorities remain consistent as we work toward completing our strategic transformation. On today's call, you will hear about progress in each of our key areas of focus. gross margin expansion, strong free cash flow generation, and prioritize investments to stimulate sustainable growth and share gain. First, gross margin. We continue to drive profitability through the significant transformation of our supply chain to achieve our target of 35 plus percent gross margin. Our global cost reduction program remains on track for expected run rate savings of $1.5 billion by the end of 2024, and $2 billion by the end of 2025. Next, we experienced strong free cash flow generation behind profitability improvements supporting further balance sheet strength. The progress in reducing our leverage has been significant in 2024. And finally, we have deployed new investments to stimulate sustainable growth with the primary goal of reinvigorating share gain to achieve organic growth at two to three times the market over the long term. Through our transformation, we have stabilized the company and are setting a solid foundation for future growth and significant EBITDA expansion. We're also strengthening our organizational culture to be centered around organic growth with an operational excellence mindset, which we expect to carry forward into the future for the next decade. The entire Stanley Black & Decker team has persevered through challenges and with hard-earned, self-generated momentum behind us. We have convictions that there are solid value creation opportunities in the short, medium, and the long term. As we look at our markets in aggregate today, they remain relatively stable on the surface. That said, some continue to be pressured by the continuation of mixed consumer trends, especially related to housing, as well as weak automotive production backdrop. These factors are informing our current focus to refine and improve agility within our current cost structure. At the same time, we are funding new growth investments in the relatively healthy pockets of our business, such as DeWalt Professional Tools, which gained share for the sixth consecutive quarter. We are optimistic that the markets will turn in our favor in the future, as interest rate cuts in many geographies likely will prove to be an initial catalyst. There will be a lag between lower rates and the flow through to demand, for our categories, and we expect choppy markets will extend into the front half of next year until interest rate reductions have a greater effect and the U.S. election result is known and settled. As a short cycle business, we will plan our production and inventory thoughtfully to ensure we are ready for stronger demand in the future, which could be as early as the second half of 2025. Before I get into the third quarter results, I'd like to mention our upcoming Capital Markets Day on November 20th at the New York Stock Exchange, which will also be available via live webcast. The leadership team and I are looking forward to hosting this event. We will use it as a forum for key leaders, many new to the company with fresh perspectives. To share more about how the operational changes implemented over the last two years set us up for future success. We will discuss what is next. as we continue to position the company to deliver higher levels of organic revenue growth, profitability, and cash flow over the long term, which will drive strong long-term shareholder returns via significant EBITDA expansion. If you are interested in attending, reach out to Dennis and the IR team for more information. Now shifting to the third quarter results. We delivered $3.8 billion of revenue, down 5% versus the prior year, with organic revenue down 2 points. Volume was down three points on a weak consumer backdrop and mixed end market demand, which was partially offset by a point of price. We capitalized on pockets of relatively healthy market demand and delivered our sixth consecutive quarter of DeWalt growth as well as higher sales in aerospace fasteners. The infrastructure divestiture, which closed early in the second quarter, was a two-point drag. Currency had a negative one-point impact to revenues. Adjusted gross margin was 30.5%, up 290 basis points versus the third quarter of last year, a step up primarily attributed to the supply chain transformation. Adjusted EBITDA margin was 10.8%, which is up 140 basis points versus prior year. This was driven by our gross margin expansion, partially offset by prioritized investments designed to deliver future market share gains. Adjusted diluting earnings per share was $1.22 for the quarter. Free cash flow was approximately $200 million in the third quarter, which provided capacity to reduce debt by $100 million. Strong cash generation continues to support our ongoing capital allocation priorities, namely shareholder dividends, balance sheet strength, and organic investment. Finally, we are narrowing our 2024 full-year adjusted diluted EPS guidance range to $3.90 up to $4.30. and reiterating our free cash flow guidance of $650 to $850 million. Pat will provide more color on this later in our presentation. I want to thank our team members for their persistence in staying focused and forging ahead, despite a choppy macro environment. We continue to make substantial progress on our transformation plan and achieve the financial milestones we established over two years ago. We will remain committed to our investments for share gain and the margin expansion journey that is generally within our control. I will now pass it to Chris Nelson to review the business segment performance.