Stanley Black & Decker, Inc. (SWK) Earnings

Management highlights

### Overall Q2 Financial Performance - Total company revenue was flat year-over-year and up 3% organically, slightly ahead of management expectations driven by U.S. volume strength across retail and commercial/industrial channels for tools and outdoor. - Adjusted gross margin was 33.7%, up 620 basis points year-over-year, with 250 basis points of benefit from net tariff refunds. Adjusted EBITDA margin was 11.3%, up 320 basis points year-over-year, and adjusted EPS was $1.57, 37 cents above the midpoint of prior guidance. - After completing the sale of the aerospace fasteners business early in Q2, the company deployed proceeds plus operating cash flow to pay down $1.7 billion in debt and repurchase 3.2 million shares for $250 million. Capital allocation priorities remain: invest in growth, support the dividend, repurchase shares, and pursue appropriate M&A. ### Strategic Brand & Go-To-Market Progress - DeWalt remains the company's core pro-focused growth engine, with targeted investments to expand penetration in the high-growth U.S. commercial and industrial (C&I) channel, which is expected to approach 10% of total Tools and Outdoor annual sales in 2026 following double-digit organic growth this year. Mega commercial construction projects (data centers, power generation, prefabrication) represent trillions in committed capital spending over the next five years. - DeWalt has built a full ecosystem for large project support: dedicated on-site project solution managers, integrated safety/productivity hardware and software solutions, on-site product availability via local distributors, tailored on-site and on-demand training, hundreds of field-based trade specialists, and a ramped up global

Guidance

- Adjusted EPS guidance for full-year 2026 is raised and tightened to a range of $5.20 to $5.80, 20 cents higher at the midpoint than prior guidance, representing 18% year-over-year growth at the midpoint. Approximately 15 cents of the midpoint increase comes from lower-than-expected interest expense and reduced share count from buybacks, with 5 cents from net tariff refund benefits. - Total company full-year 2026 revenue guidance is maintained: revenue is expected to be flat year-over-year, with low single-digit organic growth split evenly between volume and price. - Full-year adjusted gross margin is expected to expand 150 basis points year-over-year excluding net tariff refunds, with an incremental 60 to 70 basis points added from net tariff refunds. The 34% to 35% adjusted gross margin target for the second half of 2026 is maintained (excluding net tariff benefits, which largely landed in Q2, with related investments booked to SG&A in H2). The long-term target of 35% to 37% adjusted gross margin by end of 2028 remains unchanged. - SG&A as a percentage of sales is expected to be ~23% in 2026, including 60 basis points of incremental costs for growth investments and compensation accruals tied to tariff refunds. This incremental investment is in addition to the previously planned $75 to $100 million in 2026 growth investments. - Full-year 2026 free cash flow guidance is raised to $600 to $800 million including projected taxes and fees from the aerospace divestiture; excluding those payments, free cash flow is expected to be $800 million to $1 billion. The full-year target of $200 million in working capital reduction is maintained, with inventory on track to reach pre-pandemic norms by year-end. - Both segments are expected to deliver organic revenue growth and margin expansion in 2026: Tools and Outdoor will deliver low single-digit organic growth, and Engineered Fastening will deliver low to mid single-digit organic growth, with both outperforming their overall end markets. - Q3 2026 guidance calls for ~$3.7 billion in net sales (flat year-over-year due to portfolio actions), 3% to 4% organic sales growth for the total company and Tools and Outdoor, and adjusted EPS of $1.50 to $1.60. - Management assumes new Section 301 tariffs will be introduced at the same level as prior IEPA tariffs, so run-rate tariff costs will return to prior levels within a few months. Current temporary lower tariff tailwinds are expected to offset persistent inflationary pressures from battery metals, tungsten, and oil products for full-year 2026, but a price increase by 2027 appears likely. No potential second half 2026 tariff refunds are included in guidance due to uncertain timing and amounts.

Segment performance

1. Tools and Outdoor: Second quarter revenue was $3.6 billion, up 3% year-over-year, representing approximately 74% of total company revenue. Organic revenue also grew 3%, with 3% volume growth and flat pricing year-over-year. Adjusted segment margin came in at 11.8%, up 380 basis points year-over-year, with 150 basis points of that expansion from net tariff refunds. By product line: power tools organic revenue rose 8%, hand tools/accessories/storage organic revenue rose 2%, and outdoor organic revenue fell 7% due to weather-related demand softness. By region: North America organic revenue grew 4%, Europe organic revenue fell 2%, and Rest of World organic revenue grew 3% led by double-digit growth in Latin America. 2. Engineered Fastening: Second quarter total revenue was down 18% year-over-year, as the completed aerospace fasteners divestiture reduced revenue by 21%. On an organic basis, the segment grew 3% year-over-year, with 2% volume growth and 1% pricing growth, and currency impact was flat. This segment represents approximately 26% of total company revenue after the divestiture. Organic growth was driven by low single-digit growth in automotive systems/fasteners and high single-digit growth in global industrial markets. Adjusted segment margin was 13% in the quarter, up 220 basis points year-over-year, with 50 basis points of expansion from net tariff refunds.

Risks & headwinds

- Uncertain timing and magnitude of future additional tariff refunds, which cannot be included in current guidance. - Geopolitical uncertainty and ongoing market disruption in regions including the Middle East. - Persistent inflationary pressures from key raw materials including battery metals, tungsten, and oil products that may require a price increase by 2027. - Potential ebbs and flows in working capital from ongoing production footprint transition and USMCA compliance initiatives. - Uncertainty around finalization of new trade policy and tariff rates, which may require updates to underlying assumptions.

Analyst Q&A

• Q: What drove the sharp 8% organic growth in power tools this quarter, and how sustainable is this strength?

  A: Management states the growth comes from multi-year investments in product development, channel partnerships, and go-to-market capabilities that are now coming to fruition. Increased product placement with key channel partners across DeWalt, Stanley, and Craftsman has supported the momentum, which aligns with the company's long-term pivot to growth.

• Q: What is the magnitude of raw material inflation headwinds, and how is the company planning to offset them?

  A: Management notes that temporary lower tariff tailwinds and raw material inflation headwinds are each roughly $100 million on an annualized basis in 2026, offsetting each other. Most of the net tariff refund benefit is being invested in growth initiatives in the second half of 2026, and the company will address 2027 inflation as needed to protect margins while continuing to drive growth.

• Q: How is the company deploying incremental tariff refund investment dollars, and would it accelerate further investment if more refunds are received later this year?

  A: Investments are being pulled forward from existing multi-year growth plans, focused on on-the-ground go-to-market activation and social media brand activation in areas that have already demonstrated success. Management confirms there is no shortage of high-return investment opportunities, and future refunds would continue to be deployed to these pre-planned priority areas; no future refunds are included in current guidance due to uncertainty.

• Q: What end markets are driving strength in the Engineered Fastening industrial segment?

  A: The segment has pivoted over the past 24 months to target high-growth, high-margin verticals where the company has differentiated advantage. Key areas of current strength include solar and data center end markets, which align with growth in large commercial construction that is also driving demand for the company's tools business. The segment is still in early innings of this targeted growth push.