Stanley Black & Decker at Raymond James Conference: Strategic Focus on Core Business

On Tuesday, 04 March 2025, Stanley Black & Decker (NYSE: SWK) presented at the Raymond James 46th Annual Institutional Investors Conference, highlighting a strategic transformation aimed at streamlining operations and focusing on core businesses. While the company has divested non-core segments, it faces challenges such as tariffs and market uncertainties. Despite a slow start to the year, Stanley Black & Decker remains optimistic about its long-term growth prospects.

Key Takeaways

• Stanley Black & Decker has streamlined its operations to focus on Tools and Outdoor and Engineered Fastening.
• The company aims for organic revenue growth of two to three times the market rate.
• Tariffs pose potential risks, but the company is actively mitigating these through various strategies.
• A revitalized leadership team with 50% of top leaders in new roles supports the transformation.
• The company expects $500 million in supply chain savings by 2025.

Financial Results

• Tools and Outdoor segment generated $13.3 billion in revenue.
• Gross margins are targeted to reach nearly 35% by the end of 2025 or early 2026.
• Investment plans include $250 million through 2024, with an additional $100 million planned for 2025.
• Debt to EBITDA ratio was reduced to below 4 by the end of 2024.
• Long-term financial targets aim for a net debt to adjusted EBITDA ratio of 2x to 2.5x and free cash flow conversion greater than 100%.

Operational Updates

• The company has reduced complexity in its supply chain and standardized platforms.
• A shift to a brand-centric organization is underway, with DeWalt, Stanley, and Craftsman as focal points.
• DeWalt has shown positive growth, with a 5% increase in a flat market.
• Latin America shows mid to high single-digit organic growth, while Europe and Asia demonstrate improving trends.

Future Outlook

• The market is expected to be relatively flat to modestly down in 2025.
• Stanley Black & Decker aims for a gross margin of 35% by 2025 or early 2026, absent tariffs.
• The company is focused on innovation and electrification to drive organic growth.
• Strategic investments in digital marketing and field activation are prioritized.

Q&A Highlights

• Tariffs remain a concern, but the company is reducing reliance on Chinese manufacturing for U.S. sales.
• January and February performance was in line with expectations, despite slower demand.
• Key performance indicators for investors include market share gains, gross margin progression, and free cash flow conversion.

In conclusion, Stanley Black & Decker’s strategic focus on core businesses and operational improvements positions it for future growth. Readers can refer to the full transcript for detailed insights.

Full transcript - Raymond James 46th Annual Institutional Investors Conference:

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: So I

Sam Darcach, Raymond James: think we’ll begin. Good morning. I’m Sam Darcach on behalf of Raymond James. We’d like to welcome you to the Stanley Black and Decker presentation for today. With us today from Stanley is Don Allen, president and chief executive officer, also Dennis Lang, vice president investor relations, and Christina Francis, director of investor relations.

Don, I think you mentioned that your presentation’s, I don’t know, twenty, twenty five minutes or so, which should give us a a couple minutes for for q and a, but the the majority of the detailed q and a will be done at the breakout session and then immediately following, this presentation. And with that, Don, welcome back.

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Thank you, Sam. Morning, everyone. As Sam said, I’m gonna walk through a few pages of our presentation around Stanley Black and Decker, and then we’ll we’ll open up for a few questions at the end. And so for those of you who followed our story over the last, close to three years, we’ve been on a bit of a transformation journey to become a much more focused company. And it was really looking at a variety of different areas, looking at the portfolio of the company, looking at the complexity of the company in many areas such as functions, businesses, etcetera.

And then also looking at our supply chain in a very different way with achieving certain outcomes and objectives that would allow us to interact more effectively with our suppliers and our channel customers. And so when we sit here today, you know, we have definitely become a more focused company. And so you see the profile of us financially around revenue, market cap, and dividend yield very attractive. And we’re really left with two two businesses, Tools and Outdoor, which is the worldwide leader in the tools and outdoor space at $13,300,000,000 of revenue. And you see a breakout of the different parts and components of that with amazing brands, with the three really power brands in there of DeWalt, Craftsman, and Stanley.

And then we have other brands that serve certain niche purposes such as Cub Cadet, Black and Decker, Lenox, Erwin, and few others. Amazing brands and amazing innovation machine. You’re really surrounded by great people. The Stanley engineer fastening business is a business that came together when Stanley and Black and Decker merged about thirteen years ago. It was with the Black and Decker, company at the time, and it serves really three industries, the automotive manufacturing industry, aerospace manufacturing, and then certain select general industrial manufacturing categories.

And you see some of the brands that go along with that that are very well known in this particular industry. We think we’ve created a company that has two businesses that can differentiate themselves to our end users and channel customers in ways that are centered around innovation, centered around making folks more productive and efficient in whatever jobs they’re doing, whether that job is a construction worker building a commercial building or a residential building, or whether it’s someone in a manufacturing setting for engineer fastening business that’s building a plane or a car. And we’ve also been transforming ourselves to really begin to accelerate the organic growth profile of, of these two businesses. And so when we embarked on this journey about two and a half years ago, we really wanted to dramatically reduce the complexity of our supply chain. Our corporate structure become too complex and focused on too many different things.

And so we wanted to streamline that. And we really wanted to look at our operating model as to how we served our customers and end users in a more effective way. And I’ll talk about that a little bit later as to some of the organization’s structural changes that we’ve made. At the same time, as we ticked all these different costs out, we need to really take a significant portion of it and reinvest it in certain areas to drive core organic growth. Obviously, continue to invest in innovation is incredibly important and making sure that we find the right core activities and product categories that we’re increasing our investment in r and d.

One of those things will be electrification. Electrification continues to become a dominant market shift in many of our businesses or product families. And so although a lot of the power tools and handheld outdoor products have been electrified through battery technology, there’s still many many categories that are either done through electricity through a cord or through gas or other types of technologies to drive power. And so there’s more white space opportunity to drive across those product families. We’ve been a market leader.

We want to continue to demonstrate market leadership by gaining market share with these investments that we’re putting in place, which is really investing in field activation activities, digital marketing activities, etcetera, that interact with the end user. Because our model needs to start with our end user and our TNO business and understand what makes them more product productive, what makes them more efficient, provides them the highest quality tools, etcetera. Those are the things they’re looking for from us. But to do all those things, we need a more responsive supply chain that meets the channel customers’ expectations around service. And so we had to dramatically streamline and make investments in there as well.

It wasn’t just about taking out costs. Ultimately, we believe this is how we enhance shareholder value. As you see, our objective is to get organic revenue going two to three times the market. We’re starting to see green shoots, especially in the DeWalt family of that starting to occur in 2024. And as we hopefully enter 2025, we’ll see a similar type of performance.

Get our gross margins above 35%. You know, we exited the year in the low thirties in 2024, and we’re hoping absent tariffs, we’re hoping to be close to 35% by the end of this year, or it slips a little bit into the first half of twenty six. Continuing to build upon our strong free cash flow track record of the last two or three years and making sure that we convert at a % or better. Obviously, powerful innovation is key. And then meeting our customer fill rate expectations and driving improvement there.

Being a simpler focused purpose driven company allows us to achieve these outcomes. And you can see the execution that we’ve achieved, since 2022 through the end of twenty twenty four. To do all this, we need to revitalize our leadership team. And so of the top 70 leaders, we have about 50% of those folks are in new roles. Doesn’t necessarily mean they were all folks hired from the outside.

There’s a mix of folks hired from the outside, but also reapplying people with the right expertise into the right roles. Big change, but without that, it’s hard to really get the outcome that you see on the remainder of the page. We’ve increased the profitability in that time horizon. You as I mentioned, the 30% in 2024 with a goal of getting to 35% and beyond in the next few years. Stabilized our service levels to the point now where we’re getting close to the mid 90 percentile around service levels with the goal of getting up to 98 plus percent over the next few years, simplified the portfolio, sold our security business, infrastructure business, and oil and gas business, and focused on the two remaining businesses that I mentioned in earlier in the presentation.

And I talked about the prioritizing investments, about $250,000,000 through the end of twenty four and another $100,000,000 on top of that in 2025. And along the way, we were able to improve our balance sheet to the point where we’ve significantly reduced our debt, and, we’re able to get our debt to EBITDA ratio down to below four at the end of twenty twenty four. So strong performance so far, but we’re not done. We have one more year of transformation of the supply chain. About $500,000,000 of savings are expected in 2025 as we drive more material productivity, more operational excellence across our entire plant system and distribution network, continue to reduce complexity.

That can be a combination of SKUs, number of suppliers that we’re working with, etcetera. It’s also, what we refer to as platforming, which is basically looking at different product families and saying, okay, there’s gonna be standardization of certain parts across those families, and then there’s gonna be a component that’s unique to the brand, such as a DEWALT brand will have a higher functionality and a higher level of performance versus a Stanley or Craftsman branded power tool. And then footprint rationalization will continue, and we’ll complete the vast majority of that into ’25, or over ’25 into early twenty six. At the same time, we need to continue to accelerate organic growth. And even though the market is relatively flat to modestly down the last, you know, year or so, or longer and likely will continue to be the case here in ’25, we need to be gaining market share.

And we think these investments we’re making and the simplification of our company and portfolio allows us to do that, to be more focused on the pro and the market activation at the end user level, innovating to deliver the end user solutions and make them more productive, efficient at the highest level of quality, and then focused on electrification, as I mentioned earlier, and ensuring that we build the right organization structure that allows us to grow. An example of that would be our DeWalt our business in Tools and Outdoor used to be based on product categories organizationally. We’re now based on brands. So we have a DeWalt general manager, a Stanley general manager, and a Craftsman general manager. And the organizational structure of product managers, engineering, marketing is all underneath those individual leaders.

And so they can focus on what their end user needs and how they meet those needs and also meet the needs of our channel customers along the way. So we’ve had to reorganize engineering and manufacturing and product, managers as well around that. It’s been a significant change, but we’ve already started to see the effect of it in DeWalt, where last year, DeWalt grew 5% in a market that was relatively flat or modestly positive. And so we are seeing market share gains. And so this model and these investments is really getting the outcome we want, and we’re gonna continue to focus on that because we do believe that ultimately is what drives shareholder value.

Now over the long term, we think we’re building a foundation, as I said, that allows us to gain share on a consistent sustainable basis. But the thing that gets us really excited is that we are tied to industries that have long term growth prospects. You know, when you think about tools and outdoor being primarily heavily weighted to the construction industry, both in The US and internationally, and you think about engineer fastening being tied to automotive, aerospace, and other general manufacturing verticals, these are all industries that expect to see growth over the next decade or two, potentially even longer. And you need to make sure you have a model like ours, which has a heavy focus on innovation, a heavy focus on the strength of your brands, and then surround it with the right organizational structure to achieve the level of effectiveness and outcomes you want. These are very attractive markets, where brands matter.

And you are you are able to differentiate through innovation and delivering productivity to your end users and customers. And of course, you have the ability to achieve scale with these businesses as you grow over time, which is what really makes us excited even though we’re in a period of time where there’s a lot of uncertainty in The US markets in particular. But even globally, there’s some uncertainty that we’re all navigating through. But over the midterm and long term, these are the things that get us jazzed up and excited about the strategy that we’re we’re driving towards and allows us to achieve these types of long term financial targets and goals. We laid out a vision financially back at our Capital Markets Day in November.

And, you can see a lot of the detail here. We talk about 35 plus percent. But, you know, our view is 35% is just another goal along a journey that we should be able to get to 36, 30 seven percent and maybe beyond over the long term and get back to the right level of operating leverage as we grow mid single digits and probably a relatively low single digit market growth. And if that market growth is stronger because interest rates are lower and other things play out, then we believe we can perform even at a higher level of revenue performance. You see the EBITDA objectives in SIFROI and then, of course, free cash flow conversion with ultimately getting ourselves back to a leverage ratio of somewhere between two to two and a half times when you look at net debt to adjusted EBITDA.

And the assumptions are over to the right associated with that. But the foundational things that I described about the company that we have create recreated over the last two and a half years will allow us to achieve these outcomes as the market gets stronger at some point, maybe in ’25 or in ’27 and beyond. And so as I said, the journey is not over. We’ve made significant progress in the last two plus years to stabilize the company and build this foundation for future growth. Because we are a more focused company and we’ve been delivering against the commitments that we’ve made over the last few years and wanna continue to do that going forward for the subsequent, several years.

We’re building a growth culture. We’ve had a growth culture in this company for a long time, but it was a mix of inorganic and organic. We are really looking to build a strong, sustainable organic growth culture that whether we do acquisitions in the future or not, which we will probably someday do small acquisitions again, that strong DNA will stay and be sustainable in our company. And ultimately, that allows us to create a compelling shareholder value creation opportunity for this company as you think about the next three to five years. So those are my prepared comments, and I will flip it over to you, Sam.

Sam Darcach, Raymond James: Terrific. Questions for Don and Dennis? There there’s an obvious one, which would be the tariffs. So you’ve got a, I don’t know, billion dollars of cost of sales exposure to China, maybe a billion 2, billion 3 with Mexico. Talk about mitigation options, what you’re doing currently, what the potential effects might be from a P and L standpoint this year or next?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yeah. So, we have been talking about tariffs internally since probably about a year ago. And so we we were looking at a potential scenario of President Trump winning the election and what that might mean if certain tariffs were put in place. And so we’ve been kind of building a roadmap for this over the last twelve months. We’ve been talking about it externally probably since, September, October of last year in a variety of different settings.

And in our earnings call about a month ago, we provided additional insights as to really the sourcing activities of where product comes from into The U. S. Market. And so when you look at that pie chart that’s out there, it gives you the numbers that Sam mentioned around China and Mexico. And then there’s a large percentage, about 40% or so, that is actually made in The U.

S. That serves The U. S. And then there’s another billion or so that comes from a variety of other countries around the world. And so as President Trump begins to propose these different tariffs, you know, we’ve been very focused on mitigation activities at a variety of different levels.

One, you know, we have been working through our government government relations and lobbyist organizations, my own personal interactions with a lot of different individuals in D. C. To educate them on our industry and our situation and the impact of tariffs within our industry. Also to make sure they understand that we are a significant U. S.

Manufacturer and have been for a long time and will continue to be the case going forward. And so when China tariffs came public about a month ago, the first ten percent and then another 10% happened today or yesterday, we have basically been in discussions since December with our customers about the possibility of tariffs and talking about we would probably be likely taking some level of price action. And therefore, we’ve continued that. We’re in a execution phase with our customers now around China tariffs for a level of price. And we’re working through all those details with them and hope to have the vast majority of that completed in the coming months.

And as usual, they have a very robust process that we need to follow and go through. And we’re very familiar and seasoned with how it works. And we’re really trying to partner with them to ensure that collectively altogether that we do the right things for our company to ensure success. At the same time, we’ve been mitigating our supply chain from China in the sense of how much comes from China into The U. S.

Market. So for a little bit of data, we back about six, seven years ago in President Trump’s first term when tariffs began to emerge, then for China, Forty Percent of what we sold in The U. S. Market came from China. That number was about 20%, twenty five % about a year ago and now it’s 15%.

And in the coming years, it’s going to be almost zero as we continue to move manufacturing out of China that serves The U. S. Market. We’ll still have a Chinese operation, but it will serve other parts of the world. That’s the kind of second level of mitigation that we are focused on.

So I feel like China, we have a strategy. We just need to look at and say, okay, we’re going to be dealing with some price increases for a period of time. Then we’ll do mitigation efforts around manufacturing and assembly. And ultimately, we’ll get to a place that I think is a reasonable outcome that protects our margins and allows us to offset the impact of these tariffs over the mid term and the long term. Mexico is a different situation.

Mexico is something that’s a little bit of a wait and see. We need to kind of see how this is going to play out. We do have a fairly substantial Mexican footprint primarily for our DEWALT Power Tool business that serves The U. S. Market.

And so we’ll see how the negotiations happen between the two countries and where this lands. We have provided information to our customers as to what it could mean for a price increase. And if these tariffs stick, that’s something we’ll have to continue to have that conversation going forward with them. But we wanna do a little bit of a wait and see and see how this plays out at this point.

Sam Darcach, Raymond James: I think we saw some competitive price announcements. I think I saw one from Milwaukee A Week Or Two ago. What have you announced to the trade in terms of a quantification of what type of pricing is expected?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yeah. We haven’t announced anything yet at this point in time. We’ve shown estimates to our customers. It’s the level of price that we’re having a conversation with them. The communication will probably happen in the coming weeks.

And so at this point, we really haven’t disclosed that yet, Sam. But the objective is really to be able to offset the impact and protect our margins.

Dennis Lang, Vice President, Investor Relations, Stanley Black and Decker: And if you remember back to the earnings call, Sam, one of the things we did communicate is that we knew this was going to be a dynamic situation. We wanted to let some time pass before officially putting things in place, and we’re kinda getting to that point now.

Sam Darcach, Raymond James: And and your your footprint, be it Chinese or Mexican, talk about it relative to your primary competitors?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Well, I mean, obviously, there’s four big players in the industry, and all of us have substantial footprints in China. Ours is probably the least substantial because of our heavy shifting to Mexico. One of them has a decent sized footprint in Vietnam. So they have a combination of Vietnam and China. And so versus our China kind of Mexico footprint.

And then the other two are definitely heavily weighted to China. And so, you know, we’ll see how the competitive playing field shifts and changes over time and what which countries have tariffs as president Trump figures out how to renegotiate all these different trade deals. So it’s it’s a bit of a kind of wait and see and navigate.

Sam Darcach, Raymond James: Questions from the room. Talk about tone of business. We’ve seen, January and February commentary from the home centers. Also give us what what are you seeing and specifically to put, put the within your particular product categories?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yes. I would say, Sam, that we expected the year to be kind of slow to start. And so versus our expectations, the first two months are pretty much in line with those expectations. However, when you kind of look at the underlying demand and point of sale information, it’s definitely been a slow start to the year. And so some people are flagging weather as a possible driver of that, which I do think it is a driver to some extent.

But all of us are watching consumer confidence and ultimately are we seeing potential for slower levels of demand because of concerns around the economy and maybe some concerns associated with the impact of tariffs? I’d say there’s some yellow flags out there that we’re all watching and trying to determine what it means, but it’s it’s far from a strong start to the year. It’s definitely been a slow start to the year.

Sam Darcach, Raymond James: Any early indication of, preseason sell in for outdoor since it’s we’re right about that time of year?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yeah. I mean, the outdoor, preseason sell in has been pretty much in line with what we expected. And so there hasn’t been any really big shifts there. And that will likely continue through the remainder of March and then the season begins to kick in at the March and early April. And then we’ll see what kind of replenishment happens after that.

But we went into the year with an expectation based on our conversations with our major customers and outdoor, and they pretty much hit that expectation and in some cases been a little bit better.

Dennis Lang, Vice President, Investor Relations, Stanley Black and Decker: One thing we were able to do last year, in particular around the independent retailer network, is get the channel inventories in line with where they’ve historically been. And so our expectation coming into this year is that demand and our shipments are more in line versus the prior years where we are taking some inventory down in our customers.

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: I think one of the things about the current dynamic in the markets and the tariffs, they’re all things that we have to navigate and work through. But the comments in my presentation around the foundation we’re building for growth and the investments we’re making to strengthen the innovation machine to improve the cycle time around innovation, more field activation activities, ensure we’re meeting the needs of the end user, achieving higher levels of service with our channel customers are all things that will position us to gain market share no matter what the market is. And so we as a team never want to lose sight of the fact that those are the things that make this operating model strong and allow us to achieve an outcome that’s better than market. And nobody likes to have difficult markets. It’s always something that you prefer to be in a stronger market.

But I actually feel really good about that foundation we built that will allow us to achieve that type of outcome no matter what the market is in the short term.

Sam Darcach, Raymond James: So the primary KPI that investors should be focused on this year, Would it be market share gains? Would it be gross margins? We’re we’re probably past the point where it’s something like, free cash flow generation or working capital drawdown or what have you. Which of those KPIs or are there others that that you would really focus investors’ attention?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yeah. I think market share gain is certainly one that we want to we’ve demonstrated some significant improvement with DEWALT. We want to continue that, sustain that, make it stronger. We also want to do the same thing with Stanley and Craftsman and some of our other brands. The second thing is we want to continue our progression around gross margin rate.

And whether tariffs slow that a little bit here and there, we’ll see because of the timing of price versus the implementation timing of tariffs. But that’s an important metric as well, an outcome that we’re looking for. And then the free cash flow is important. I think the conversion is important because we want to hit our leveraging outcome by the end of the year or at some point in 2026. We have said that we’ll probably have to do a modest inorganic divestiture to get to two to 2.5 times net debt to EBITDA.

So those are all things that we’re kind of having the forefront of our mind that all of you should probably be looking at to ensure that we’re achieving the outcomes we want to achieve.

Sam Darcach, Raymond James: What are you seeing around the world, whether Latin or Asia Pacific, what have you or Europe?

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Latin America has continued to demonstrate strength, kind of ranging anywhere from mid to high single digit organic growth. Europe had a period of kind of sluggishness, some inventory channel adjustments, but we have seen some improving trends in the fourth quarter there that we think will continue in 2025 because we have been making investments in the European market to stimulate growth. And then Asia, it’s kind of been a mid single digit to high single digit performance, on a relatively small base that I think will continue. And The U. S.

Market has been relatively flat to modestly down depending on what category you look at.

Sam Darcach, Raymond James: Yes, question here.

Don Allen, President and Chief Executive Officer, Stanley Black and Decker: Yes. So the question is like how are we achieving market share gains? Is it something to do with innovation, electrification and field resources? Actually, it’s all those things because we’ve made investments in innovation in certain categories of R and D. We’ve looked at the different categories and said there’s opportunity in white space around things like power shift, which we did, which relate to tools around concrete applications, and applying and pouring and applying concrete to large building construction.

There’s other categories like that around innovation that we’re driving. There’s field activation individuals that are out there on the job site interacting with end users around the wall products and why they perform better than certain competitive products or all competitive products depending on what the product is, educating them on them, making sure they understand what the new innovations are, making sure we understand what makes them productive, efficient and what they think about the quality of all the different products that we have and our competitors have. These are all investments that we’re making that allowed us to achieve that outcome with DEWALT. And I think the organizational changes we’ve made have facilitated our ability to be successful with that because we have an organization now focused just on DEWALT, an organization just focused on Stanley, Craftsman and then another organization that’s focused on the other brands. And that has allowed us to ensure the right level of focus and less of a peanut butter spread.

And as we accelerate these different things across all those different categories, those are the things that I think will facilitate market share gains against a variety of different competitors in this industry.

Sam Darcach, Raymond James: With that, we’re gonna conclude and we’re gonna

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