Stanley Black & Decker, Inc.

Welcome to the fourth quarter of our full year of 2025 Assembly 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 listening mode. Later, we will conduct a discussion. Please listen to this conference as it is recorded. I will now turn the call over to Vice President of Intelligence, Michael Worley. Mr. Worley, you may begin.

Thank you, Shannon. Good morning, everyone, and thanks for joining us for our fourth quarter and full year earnings call. With us today are Chris Nelson, President and CEO, and Pat Hallinan, Executive Vice President, CFO, and Chief Administrative Officer. 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 today's webcast will also be available beginning around 11 a.m. Eastern Time. This morning, Chris and Pat will review our fourth quarter and full year results, along with our outlook for 2026, followed by a Q&A session. During today's call, we will be making some forward-looking statements based on 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 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 will be 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 the corresponding press release, which are available on our website. I will now turn the call over to our President and CEO, Chris Nelson.

Thank you, Michael, and good morning, everyone. I am proud of the results our team delivered in 2025, a testament to our resilience, innovation, and relentless pursuit of excellence. DeWalt and aerospace fasteners were areas of notable revenue growth this year, up low single digits and 25% respectively, which contributed to full-year revenues of $15.1 billion. Total revenues were down about one point organically in 2025. Stanley Black & Decker has remained steadfast in our commitment to disciplined execution. This is especially important considering the constantly shifting macroeconomic and operating environment. We continue to proactively execute targeted growth investments and to pursue aggressive tariff mitigation actions. Part of our tariff mitigation strategy has been pricing actions. and we are closely monitoring the market response to ensure a balanced approach to top-line growth and margin expansion. We are confident that over the long term, these thoughtful actions will continue to drive strong performance and deliver meaningful value for our end users, channel partners, and our shareholders. Our tariff mitigation actions, along with supply chain transformation efficiencies, led to our adjusted gross margin expanding 70 basis points to 30.7% for full year 2025. We also marked the completion of our global cost reduction program, successfully capturing $2.1 billion of run rate pre-tax cost savings since the program's inception in mid-2022. As we have stated before, we will continue to tenaciously pursue annual productivity savings, in the neighborhood of 3% net spend on an ongoing basis. The global cost reduction program helped to set a foundation from which we are institutionalizing the achievement of annual productivity savings to drive sustainable growth and support our adjusted gross margin expansion goals. Full-year adjusted EBITDA grew by 5% as the adjusted gross margin improvement drove a 70 basis point improvement in adjusted EBITDA margin. We rigorously controlled costs throughout the organization while prioritizing targeted strategic growth investments to support our brand activation and innovation agendas. Adjusted earnings per share grew 7% in 2025 to $4.67. We view this as a solid outcome considering the dynamic operating and macroeconomic environment this year, including the substantial tariff headwinds incurred by our industry. Earnings growth and working capital efficiencies each contributed to strong free cash flow of almost $700 million in 2025. These funds not only supported our dividend and continued debt reduction, but they also provided capital for impactful initiatives that amplify the power of our brands and accelerate innovation. Additionally, on December 22nd, we announced the definitive agreement to sell our aerospace fasteners business This portfolio change is consistent with our dedication to focusing on growing our biggest brands and businesses and enhancing shareholder value. We expect to use the net proceeds of over $1.5 billion to significantly reduce our debt, affording us flexibility to pursue a much more dynamic capital allocation strategy. Now, shifting to performance in the fourth quarter, we delivered strong results across many of our key metrics in the period. With continued gross margin expansion, robust free cash flow, and a strengthened balance sheet, revenue was down 1% overall and 3% organically, which was below our expectations. We posted a 4% price increase and benefited from a 2% currency tailwind, which were offset by the 7% volume decline. We will unpack these drivers shortly. The adjusted gross margin rate of 33.3% was strong and towards the high end of our planning range as we continue to deliver supply chain cost reductions, implement tailored pricing plans, and execute tariff mitigation actions. Adjusted EBITDA margin of 13.5% was up by a robust 330 basis points year over year. Adjusted earnings per share were $1.41. Fourth quarter free cash flow was over $880 million, a very strong result as we effectively manage working capital while continuing to optimize our operations and supply chain. Turning to our fourth quarter operating performance by segment, I'll start with tools and outdoor. Fourth quarter revenue was approximately $3.2 billion, down 2% year over year. Organic revenue was down 4%, as a 5% benefit from targeted pricing actions was more than offset by 9% of volume pressure. Currency contributed a 2% benefit in the corner. We successfully implemented our second price increase of the year in our U.S. tools business, a low single-digit increase this time, with full implementation in the back half of Q4. The volume decrease was largely due to power tool demand dynamics in retail channels in North America and a soft market backdrop in North America and other developed markets. Much of the U.S. tool's retail volume headwind was experienced with opening price point products and in select promotional areas, as consumers have gravitated towards promotions during these uncertain economic times. As we've mentioned previously, we have expected consumer, competitor, and channel response to the meaningful tariff pricing would take a while to shake out, and that our top line could be volatile during this period. We see the fourth quarter result as an indication of this. We expect top line volatility through at least the first quarter as competitors continue to take price and as we tune our approach to promotions. Tools and outdoor fourth quarter adjusted segment margin was 13.6%, up 340 basis points year over year. Margin expansion was primarily driven by higher pricing, tariff mitigation, and supply chain cost reductions. Now for additional context on the top line performance by product line in 4Q. Power tools organic revenue declined 8%, largely resulting from factors consistent with my previous comments. and partially offset by professional strength in the commercial and industrial channel. Hand tools, accessories, and storage organic revenue was flat, as strong professional-grade power tool accessory performance was offset by hand tools due to conditions observed across the broader segment. Outdoor revenue increased 2% organically, driven by strong pre-season ordering for 2026. The independent retail channel also exited the year with normalized inventory levels. These factors are both indications of a solid setup for growth in 2026. Now, tools and outdoor performance by region. In North America, organic revenue declined 5%, reflecting trends consistent with the overall segment performance. In Europe, organic revenue declined 3%, growth in key investment markets, including Central Europe and Iberia, was offset by softer market conditions in other parts of the region. The rest of world organic revenue declined 4%, primarily due to market softness in Asia and South America. On a full year basis, tools and outdoor organic revenue declined 2% due to the aforementioned factors impacting the fourth quarter, combined with the mid-year tariff-related promotional reductions. Full-year POS demand was in the same zone as the organic change. DeWalt successfully overcame broader headwinds and posted low single-digit organic growth for the full year, including organic growth across all product lines and regions. Our success was underpinned by prioritized marketing activation and accelerated innovation initiatives, both of which I've highlighted as strategic imperatives at Stanley Black & Decker. A prime example of these imperatives in action is the launch of our Atomic 20V Max Cordless Grinder Suite. Designed for high performance and mobility in tight spaces, this new product lineup allows users executing demanding applications to transition from pneumatic to cordless. The fabrication trades, particularly fitters and welders, perform some of the most demanding applications in the field. Our dedicated team of trade specialists are actively in the market now, offering hands-on experiences to end users to convert this high-power sector of tools to enjoy the benefits of a cordless, compact tool without sacrificing performance. There are also several differentiating features, such as the DeWalt Perform and Protect anti-rotation to maximize user control, and the option to pair with Tool Connect for job site asset management, to name a few. Our platforming method enabled a swift launch of these tailored solutions, adding to our more than 300 product 20-volt max system for the toughest job sites. We intend to continue setting the industry benchmark and redefining the threshold of productivity for our end users. Turning now to engineered fastening, fourth quarter revenue grew 6% on a reported basis and 8% organically. Revenue growth was comprised of 7% volume increase, 1% higher pricing, and a 1% currency tailwind. This was partially offset by a 3% headwind from a previously disclosed product line transfer to the tools and outdoors segment. This is the final quarter where this impact will be a factor. The aerospace business continued its strong trajectory, achieving 35% organic growth in the quarter. The automotive business delivered mid-single-digit organic growth, reflecting strong sales of our systems for auto OEMs. General industrial fasteners' organic revenue declined low single digits. Adjusted segment margin for engineered fastening was 12.1% in the quarter. Year-over-year expansion was primarily driven by higher volumes, modest price increases, and strong cost controls. On a full-year basis, the engineered fastening segment delivered 3% organic revenue growth, This included high single-digit organic revenue growth in the second half, which more than offset the end market pressure experienced during the first half of the year. Overall, both the tools and outdoor and engineered fastening segments delivered margin rates in line or better than expectations this quarter through disciplined execution, targeted pricing strategies, and continuous improvements across our operations. I would like to thank our team for their resilience and commitment to serving our customers and achieving these results. I will now pass the call to Pat to discuss progress we achieved on key performance metrics and to outline our 2026 planning assumptions.