Stanley Black & Decker, Inc.

Welcome to the first quarter 2025 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 on a listen-only mode. Later, we will come to the 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 2025 First Quarter Webcast. Here today, in addition to myself, is Don Allen, President and CEO, Chris Nelson, COO, EVP, and President, Tools & 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 websites. 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 2025 first 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 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 today 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 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 measures and additional information, please refer to the appendix of the supplemental presentation and the 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. I'd like to start by recognizing that our transformation is working, and we are focused on seeing it through to completion to drive sustainable market share gains. With operations excellence at our core, we believe the actions we are taking improve our ability to seize the long-term opportunities within the attractive markets that we serve. As I've said many times, Stanley Black & Decker has incredibly talented people, powerful brands, and an amazing innovation machine. These foundational traits have made us an industry leader for many years. Over the past three years, we have built strong capabilities in our supply chain. which we intend to draw upon as we continue to navigate this moment. We also have been investing significantly in our end users and channel customers to provide the best innovation, service, and experience. We intend to continue investing in growth and innovation, even in this dynamic period. We've been planning for some time for the possibility that U.S. trade policy would change significantly, and outlined a three-pronged execution plan of supply chain mitigation, price increases, and partnering with the U.S. administration. While the magnitude and frequency of these changes has exceeded our expectations, we have been and remain prepared to address this dynamic trade environment, and we are responding. As you will hear from the team today, we have a plan for tariffs and have been executing on key elements that will help us mitigate the impact on our business. Over the past several years, we have substantially reduced our China manufacturing footprint, which serves the U.S. market. We believe we have the most flexible supply chain footprint in the industry as we now have significant hubs in the U.S., Mexico, and Southeast Asia that serve the U.S. market. As we navigate these shifts in trade policy, we are starting from a strong position due to these existing hubs. We intend to build upon them to minimize the impact of higher input costs from tariffs over the next 12 to 24 months. Price increases will be necessary in the U.S. market due to the current tariffs, and we have implemented a substantial increase in April. We have and plan to continue to invest time with the U.S. administration as they work to achieve the President's trade goals. Now I want to focus on our performance this quarter. I'm pleased to report that the company's first quarter represented another step forward against our transformation. We delivered a solid start to the year with organic revenue growth and year-over-year gross margin expansion, both key measures of continued progress towards our strategic objectives. Organic growth was up 1%, led by solid outdoor performance. Our powerhouse and professionally focused DeWalt brand extended its streak of year-over-year revenue growth, with power tools, hand tools, accessories and storage, and outdoor all contributing. These organic growth drivers were more than offset by two points of pressure from the final quarter of lapping the infrastructure business divestiture and two points of currency pressure. Taken together, this resulted in total revenue of $3.7 billion, consistent with our plan. North American end market demand, as measured by our retail POS, in the first quarter was generally consistent with the stable trends we observed exiting 2024. The year started slow, but March improved, and April looked solid as well. Adjusted gross margin continued to improve on a year-over-year basis. The first quarter adjusted rate of 30.4% was up 140 basis points versus last year. Supply chain efficiencies and positive mixed benefits from new innovation launches were partially offset by freight inflation and the initial impact from China and Mexico tariffs initiated in February. We are firmly executing against our strategic objectives and are on track with our transformation plan. We intend to successfully complete our transformation in 2025 and meet our $2 billion savings target. The organic growth we delivered in the first quarter along with the year-over-year gross margin expansion translated into solid adjusted EBITDA performance. Net of growth investments, adjusted EBITDA margin approached 10%, an increase of approximately 80 basis points versus the prior year. Adjusted earnings per share was 75 cents, up 34% versus last year. First quarter free cash outflow was $485 million, relatively consistent with both the prior year and typical historical seasonality. An impressive result considering we pursued targeted inventory investments to navigate the current trade situation. Overall, a solid quarter as we continue to make meaningful progress on what is within our control. I want to thank the organization for staying focused on execution and making forward progress once again. We clearly are entering a dynamic period with reduced visibility, albeit with relatively stable demand, based on what we're seeing in the market and across the business. While we don't know the full picture of how tariffs will impact the US economy or demand in our categories, we are preparing ourselves for multiple demand scenarios this year. And even though it's too early to predict all the different direct and indirect impacts, as I mentioned earlier, we do believe the current trade policies will prompt significant price increases for companies in our industry and many others. We will continue to monitor these evolving policies as well as project the potential effects on the operating and demand environments to remain agile and responsive to evolving market conditions. Over the past few years, we have strengthened our execution capability and have consistently delivered results in an overall weak market backdrop. Our strategic decisions are aimed at navigating the immediate challenges while positioning the company for sustained long-term success. Our top priorities remain clear and intact. We are accelerating our growth culture and placing a priority on serving our end users and customers. We expect to control costs while prioritizing growth investments as we continue our journey to sustainable share gain. We also expect commercial opportunities to emerge for our businesses, particularly as we further leverage our North American footprint to serve local markets. We remain focused on generating cash and strengthening our balance sheet. Long-term, we intend to mitigate the cost burden of tariffs through supply chain adjustments and other cost controls, some of which are already in flight, while some will take time to fully implement. As such, pricing is a necessary initial response to protect our cash flow so that we have time for the full effect of our supply chain strategies to hit our P&L and we can continue to fuel innovation. In this context, as I mentioned earlier, We implemented an initial U.S. tools and outdoor price increase in April and notified our customers that further price action is likely required if existing tariffs stay at current levels. To summarize, even in the current circumstances, we believe we are decisively advancing towards the successful completion of our strategic transformation, building a sustainable productivity engine to fund growth investments and support our long-term margin journey. The capabilities we've built during this process will aid in accelerating adjustments to adapt to the new economic backdrop. Chris will share more about the near-term opportunities that we are pursuing in just a moment. Pat then will share more detail on financial planning. Given the fluid environment, today we are providing our latest thoughts on 2025 with sensitivities to help model different scenarios. We have our sights set on share gain and long-term value creation and are committed to making the necessary decisions along the way to achieve our long-term financial objectives. I will now pass it to Chris Nelson, who will review the business segment performance and provide more context on how we successfully execute our strategy in a volatile trade environment.