Stanley Black & Decker, Inc.

Welcome to the Stanley Black & Decker second quarter earnings call. My name is Shannon, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Following the company's prepared remarks, we will conduct a Q&A session. To ask a question of the management team, please press star 11 on your telephone at any time. You will hear an automated message advising you are in the queue. To withdraw yourself from the queue, please press star 11 again. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Michael Worley. Mr. Worley, you may begin.

Good morning, everyone, and thanks for joining us for our second quarter earnings call. With us today are Chris Nelson, President and CEO, and Patrick 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 second quarter results along with our updated outlook for 2026, followed by a Q&A session. During today's call, we will be making some forward-looking statements 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 actual results may differ materially 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 filings. Additionally, we will also discuss non-GAAP financial measures during the call. For applicable reconciliations to the related GAAP financial measures and additional information, please refer to the appendices in today's earnings release and supplemental presentation. I'll now turn the call over to our president and CEO, Chris Nelson.

Thank you, Michael, and thank you all for joining us today. Stanley Black & Decker delivered a solid second quarter. Through disciplined execution of our strategy, we are delivering profitable organic growth and remain on track to achieve full-year sales and margin targets. We are confident in our strategy and in the team's ability to continue to execute and deliver results. Total revenue for the second quarter was in line with prior year and up 3% organically. This was slightly ahead of our expectations, driven primarily by volume strength in the U.S. across both retail and the commercial and industrial channels within tools and outdoor. Our adjusted gross margin rate of 33.7% was up 620 basis points year over year, largely supported by gross productivity and product mix. We also received tariff refunds during the second quarter, which contributed to adjusted gross margins. We will use tariff refunds to accelerate growth investments, and we have incorporated the net impact within the revised EPS and cash flow guidance that we will outline today. Second quarter adjusted gross margins included a benefit of approximately 250 basis points from these net tariff refunds. Adjusted EBITDA margin of 11.3% was up 320 basis points year over year, slightly ahead of our planning assumptions for the period. Adjusted earnings per share were $1.57, 37 cents above the midpoint of our guidance range. Below the line items contributed about 20 cents, and net tariff refunds contributed about 17 cents. Pat will discuss this in more detail, as well as our underlying guidance assumptions for the balance of the year. Following the sale of our aerospace fasteners business early in the quarter, we were able to deploy those proceeds plus additional operating cash flows to pay down debt by $1.7 billion and buy back 3.2 million SWK shares for $250 million. We are continuing to advance our strategy with a focused portfolio, balance sheet strength, and a thoughtful approach to capital allocation. Our priorities remain to invest in growth, support the dividend, repurchase shares, and pursue M&A if and when appropriate. Turning to second quarter operating performance by segment, I'll start with tools and outdoor. Second quarter revenue was approximately $3.6 billion, up 3% year-over-year. Organic revenue was also up 3%, comprised of 3% volume growth from strong demand generation and flat pricing versus the prior year. Currency was a 1% benefit in the quarter, which was offset by the impact of the previously announced strategic transition to a licensing model for the gas walk-behind outdoor products. We were encouraged by the organic growth we saw across our three global priority brands, DeWalt, Stanley, and Craftsman in the quarter. Supported by well-executed demand generation, Tools and Outdoors' second quarter adjusted segment margin was 11.8%, which was up 380 basis points year over year. This was predominantly due to net productivity gains and favorable product mix.