STANLEY BLACK & DECKER, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Gross Margin Expansion: Continues to drive profitability through supply chain transformation, targeting a 35+% gross margin by the end of 2025 with a $2 billion run rate of savings expected by then.
• Free Cash Flow: Generated approximately $200 million in free cash flow in the third quarter. Full-year free cash flow guidance remains $650 million to $850 million.
• Investments for Share Gain: Prioritizes investments in Tools & Outdoor, including $30 million by 2027 for tradespeople initiatives. Also focuses on innovation in DEWALT products.
• Supply Chain Transformation: Has achieved approximately $1.4 billion of pretax run rate cost savings to date, tracking to $1.5 billion by the end of 2024 and $2 billion by the end of 2025. Focuses on strategic sourcing, operations excellence, footprint actions, and complexity reduction.

Segment Performance

• Tools & Outdoor: Third quarter revenue was approximately $3.3 billion, down 2% organically year-over-year. DEWALT achieved its sixth consecutive quarter of organic growth. The adjusted segment margin rate was 11.1%, up 180 basis points.
• Industrial: Third quarter revenue declined 80% on a reported basis compared to the prior year, primarily due to the infrastructure business divestiture. Organic revenue was down 1%. The aerospace business grew 22% organically. The Industrial adjusted segment margin rate was 13.9%, an improvement of 170 basis points versus the prior year.

Guidance

• Revenue: Third quarter revenue was $3.8 billion, down 5% year-over-year. Full-year adjusted diluted EPS guidance is narrowed to $3.90 to $4.30. Free cash flow guidance remains $650 million to $850 million.
• 2025 Outlook: Expects the front half of 2025 to be choppy with soft demand. Confident in achieving a 35+% gross margin by the end of 2025 and a $2 billion+ EBITDA by 2026, timing dependent on headwinds and accelerated activities.

Risks

• Macro Environment: Mixed consumer trends, weak automotive production, and the impact of interest rate cuts and the U.S. election result pose uncertainties.
• Tariffs: Potential impact of new tariff regimes if Trump wins the election, with plans to mitigate through supply chain adjustments such as moving production to other regions.

Question and Answer

Q: Flesh out 2025 outlook and margin targets A: Pat Hallinan mentioned the front half of 2025 is likely to have flat to down sales, but the company is confident in achieving a 35+% gross margin by the end of 2025, with timing dependent on headwinds and accelerated activities.

Q: Accelerated cost activities and culture change A: Chris Nelson discussed a brand-centric culture, purpose-driven innovation, speed to market, and front-end investment to drive share gain within Tools & Outdoor.

Q: Cost side impact on gross margins A: Donald Allan noted ground freight was higher than expected, offsetting some material tailwinds, and expects neutral price cost in the next year